The document summarizes various exemptions under the Income Tax Act of 1961 in India. It discusses exemptions for agricultural income, income received from Hindu Undivided Families and partnership firms, allowances for government employees, death-cum-retirement gratuity, provident funds, house rent allowance, educational scholarships, allowances for Members of Parliament and State Legislatures, awards and rewards, and pensions for gallantry award winners and their families. The document provides details on the sections under which these exemptions are provided and conditions for availing exemptions.

1. DISCOVER . LEARN . EMPOWER
UNIVERSITY INSTITUTE OF LEGAL STUDIES
SUBJECT : Principles of Taxation Laws
Topic: Exemptions under
the Income Tax Act, 1961

2. 2
COURSE OUTCOME
Co
Number
Title Level
Co 1 The students will be able to exhibit sophisticated
knowledge related to tax accounting rules and
regulations
Understanding
Co 2 The students will be able analyze and resolve tax
problems
Analyzing
Co 3 The students will be able to identify and define with the
rules of tax, penalty and prosecution in case of default
Understanding
Co 4 The students will be able to understand the concept of
direct and indirect taxes, agricultural income and
incomes exempted from taxes
Understanding

3. INTRODUCTION
• Any Income which does not form part of total income is exempted
income.
• It is stated under Section-10-13B of the Income Tax Act, 1961.
• Either income is wholly exempted or exempted upto a certain limit.
• Such incomes are not included in the Total Income of an assessee
while computing his total income.
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4. SECTION-10(1),(2),(2A),(7)
• Section-10(1)-Agricultural Income
Agricultural Income received by assessee during previous year is exempted.
• Section-10(2)- Income received by a member from HUF
Any sum received by an individual as a member of HUF either out of HUF’s income
or income of HUF’s estate is exempted from tax.
Main objective is to avoid double taxation as HUF is a taxable entity and its income
is taxable in it’s hands.
• Section-10(2A)- Share of profit received by a partner from a partnership firm
Share of profit received by a partner from a partnership firm is exempted from tax.
Main objective is to avoid double taxation as the firm is a taxable entity and it’s
income is taxable in its hands.
• Section-10(7)-Any allowances or perquisites paid or allowed outside India
Any allowances or perquisites paid or allowed outside India by the Government to a
citizen of India for rendering service outside India is exempted
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5. Death-cum-Retirement Gratuity
SECTION-10(10)
• The exemptions are granted in the following cases:
a) Received by the Government Employee
b) Received under the Payment of Gratuity Act,1972 to the extent
provided under the provisions of that Act
c) Received by any other employee on his retirement or on his
becoming incapacitated prior to such retirement or on termination of
his employment or any gratuity received by his widow, children or
dependants on his death, is exempted to the extent it does not exceed
one-half month’s salary for each year of completed service
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6. TAX TREATMENT OF PROVIDENT
FUND
SPF/GPF Recognized
Provident Fund
Unrecognized
Provident Fund
Public Provident
Fund
Employer’s Annual
Contribution
Fully Exempted Exempted upto 12
% of the Employee’s
Salary
Neither Taxable nor
exempted
N.A
Employee’s Annual
Contribution
Deducted Under
Sec.80C
(Upto Rs. 1.5 Lacs)
Deducted Under
Sec.80C
(Upto Rs. 1.5 Lacs)
Not Deducted Under
Sec.80C
Deducted Under
Sec.80C
(Upto Rs. 1.5 Lacs)
Interest Amount Fully Exempted Exempted upto
9.5%
Neither Taxable nor
exempted
Fully Exempted
Lump sum amount
received at the time
of retirement or
maturity
Fully exempted
under Section-
10(11)
Fully Exempted
under Section-
10(12) provided the
conditions are
fulfilled.
Taxable Fully Exempted
under Sec-10(11)
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7. HOUSE RENT ALLOWANCE
(Section-10(13A))
• It is a special allowance granted by an employer to an employee to meet
expenditure incurred on payment of rent of residential accommodation
occupied by the employee(assessee).
• The HRA received by the employee is exempted.
• The amount of exemption is least of the following:
a) HRA actually received or
b) Rent paid in excess of 1/10 of salary or
c) ½(50%) of salary where the rented residential accommodation is situated
in a metropolitan cities(Delhi, Mumbai, Kolkata and Chennai) or
2/5(40%) of salary where the rented residential accommodation is situated
at any other place
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8. • The HRA Exemption depends on the following factors:
a) HRA actually received;
b) Rent paid;
c) Salary;
d) Place of Residence
Therefore, if there is no change in any of these factors in any relevant
previous year, then HRA will be calculated annually otherwise on monthly
basis.
• No exemption is allowed in the following cases:
a. Where assessee lives in the residential accommodation which is owned by
him; or
b. Where assessee does not pay rent; or
c. Where rent paid is not in excess of 1/10 of salary.
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9. Educational Scholarships
(Section-10(16))
• Scholarships received by an assessee to meet the cost of education is
exempted from tax.
• Scholarships may be granted by any person.
• Terms of Scholarships are not guiding factor for claiming exemption.
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10. ALLOWANCE TO MPs/MLAs
(Section-10(17))
• The Following allowances are exempted:
a) Daily allowance received by MP or MLA or any committee thereof;
b) Any allowance received by a MP under the Members of Parliament
(Constituency Allowance) Rules, 1986;
c) Any constituency allowance received by a MLA under any Act or
Rules made by the State Legislature
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11. Award or Reward
(Section-10(17A))
• Any payment made, whether in cash or in kind shall be exempted from
tax, provided it is made:
a) In pursuance of any award instituted in the public interest by the
Central Government or any State Government or any other person
and approved by the Central Government in this behalf; or
b) As a reward by the Central Government or any State Government
for such purposes as may be approved by the Central Government in
this behalf in the public interest.
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12. Pension received by Gallantry Award Winner
or Family Pension by Family Member
(Section-10(18))
• The following pension is exempted:
a) Pension received by an individual who was employee of the Central
or State Government and has been awarded “Param Vir Chakra” or
“Maha Vir Chakra” or “Vir Chakra” or such other gallantary award
as notified by the Central Govt. in this behalf
b) Family Pension received by any member of the family of such
individual.
• Family means: Spouse and children of that individual; Parents and
Siblings wholly and mainly dependent on that individual
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