The document summarizes various types of income that are exempt from tax under Section 10 of the Indian Income Tax Act. Key exemptions include: 1. Agricultural income derived from land used for agricultural purposes in India. Commercial activities like dairy farming and poultry farming do not qualify. 2. Any sum received by an individual as a member of a Hindu Undivided Family (HUF) from the HUF's income/estate, as the HUF is already taxed on this. 3. Partner's share of profits from a firm that is separately assessed for tax purposes, to avoid double taxation. 4. Certain payments received from provident funds, life insurance policies, gratuity,

1. Income Exempt from Tax (Sec 10)
The income on which tax is not levied is generally known as income exempt from tax. This is
also known as “Tax Free” Income.
Agriculture Income Sec 10 (1)
Agriculture income is exempt from tax by virtue of sec 10(1). By virtue of sec 2(1A) the
expression Agriculture Income means any income derived from land which is used for
agriculture purpose and which is assessed to land Revenue in India. Any income derived
from such land by agricultural operations including processing of the agriculture produce,
raised or received as rent-in- kind so as to render it fit for the market or sale of such
produce.
The Conditions for income to be satisfied as an agricultural income is as follows
· Rent or revenue should be derived from land (may be in cash or kind).
· The land should be in India
· The land should be for agriculture purpose.
If the above conditions are satisfied then, income from a farm building is exempt from tax.
e.g. Income from letting out of agricultural land, rent of building which is in the immediate
vicinity of agricultural land which is used for
1. Dwelling unit for agricultural labourers
2. Out-home for animals
3. Store rooms/go down for agri products.
Commercial activity of dairy farming, poultry farming, horticulture, sericulture is not
agricultural income.
Receipt from HUF ( U/S 10(2) )
Any sum received by an individual as a member of HUF out of the estate of income of the
family is exempt from tax and not included in the total income of the individual.
The logic behind this is that HUF is already taxed on this income and hence no tax should be
levied on distribution of the income of HUF.

2. Partner’s share in the profit of the firm: [U/S 10(2A)]
In case of a person who is a partner of a firm which is separately assessed in that case the
amount of this share in the profits of the firm ascertain as per the partnership deed is
exempted from tax.
The logic behind this is that the partnership firm is already taxed on this income and hence
no tax should be levied on distribution of the distribution of profit to the partners of the
firm.
Interest to non- resident [U/S 10(4)]
Tax exemptions from income tax Income from the following investments made by NRIs/PIO
out of convertible foreign exchange is totally exempt from tax.
(a) Deposits in under mentioned bank accounts:
(i) Non Resident External Rupee Account (NRE)
(ii) Foreign Currency Non-resident Account (FCNR)
(b) Units of Unit Trust of India and specified mutual funds, other specific securities, bonds
and savings certificates (subject to conditions and prescribed limits under the Income-tax
laws and regulations).
(c) Dividend declared by Indian company.
(d) Long term capital gains arising from transfer of equity shares in a company and/or equity
oriented schemes of Mutual Funds, which are subject to securities transaction tax.
Leave Travel Concession [U/S 10(5) ]
As per section 10(5), the amount exempt under section 10(5) is the value of any travel
concession or assistance received or due to the assessee from his employer for himself and
his family in connection with his proceeding on leave to any place in India. The amount
exempt can in no case exceed the expenditure actually incurred for the purposes of such
travel. Only two journeys in a block of four year’s is exempt. Exemption is available in
respect of travel fare only and also with respect to the shortest route.
The exemption is available to any individual in respect of the value of any travel concession
or assistance received by or due to him,

3. From his employer for himself and his family, in connection with his proceeding on leave to
any place in India.
From his employer or former employer for himself and his family, in connection with his
proceeding to any place in India after retirement service or after the termination of service.
Foreign Allowances and perquisites to Government Employees outside
India [U/S 10(7)]
Sub-section (7) of section 10 states that any allowance or perquisites paid or allowed as
such outside India by the Government to a citizen of India for rendering services outside
India will be totally exempted from tax.
GRATUITY (Sec. 10(10)):
(i) Any death cum retirement gratuity received by Central and State Govt. employees,
Defence employees and employees in Local authority shall be exempt.
(ii) Any gratuity received by persons covered under the Payment of Gratuity Act, 1972
shall be exempt subject to following limits:-
(a) For every completed year of service or part thereof, gratuity shall be exempt to the
extent of fifteen days Salary based on the rate of Salary last drawn by the concerned
employee.
(b) The amount of gratuity as calculated above shall not exceed Rs 10 Lakh.
(iii) In case of any other employee, gratuity received shall be exempt subject to the following
limits:-
(a) Exemption shall be limited to half month salary (based on last 10 months average) for
each completed year of service
(b) Rs. 10 Lakhs whichever is less.
Where the gratuity was received in any one or more earlier previous years also and any
exemption was allowed for the same, then the exemption to be allowed during the year
gets reduced to the extent of exemption already allowed, the overall limit being Rs. 10
Lakhs.
As per Board’s letter F.No. 194/6/73-IT(A-1) dated 19.6.73, exemption in respect of gratuity
is permissible even in cases of termination of employment due to resignation. The taxable
portion of gratuity will quality for relief u/s 89(1).

4. Gratuity payment to a widow or other legal heirs of any employee who dies in active service
shall be exempt from income tax(Circular No. 573 dated 2 1.8.90).
COMMUTATION OF PENSION (SECTION 10(10A)):
FULL exemption of commuted value of pension received by person getting commutation of
pension under Civil Pension (Commutation) Rules or similar rule. This is generally applicable
in case of Central Government employee or State Government employee or a local authority
or a corporation established under Cetral or State or Provincial
In case of pension received from any other employer under any other scheme , maximum
exempt is 33% of the if the employee also receives gratuity .
In any other case i.e employee not getting gratuity , 50 % but the commuted value is
determined having regard to age ,health ,rate of interest and officially recognised mortality
rate.
LEAVE ENCASHMENT (Section 10(10AA)):
(i) Leave Encashment during service is fully taxable in all cases, relief u/s 89(1) if applicable
may be claimed for the same.
(ii) Any payment by way of leave encashment received by Central & State Govt.
employees at the time of retirement in respect of the period of earned leave at credit is fully
exempt.
(iii) In case of other employees, the exemption is to be limited to the least of following:
(a) Cash equivalent of unutilized earned leave (earned leave entitlement cannot exceed 30
days for every year of actual service)
(b) 10 months average salary
(c) Leave encashment actually received. This is further subject to a limit of Rs.3,00,000 for
retirements after 02.04.1998.
(iv) Leave salary paid to legal heirs of a deceased employee in respect of privilege leave
standing to the credit of such employee at the time of death is not taxable.
RETRENCHMENT COMPENSATION (Sec. 10(10B)):

5. Retrenchment compensation received by a workman under the Industrial Disputes Act,
1947 or any other Act or Rules is exempt subject to following limits:-
(i) Compensation calculated @ fifteen days average pay for every completed year of
continuous service or part thereof in excess of 6 months.
(ii) The above is further subject to an overall limit of Rs.5,00,000 for retrenchment on or
after 1.1.1997
COMPENSATION ON VOLUNTARY RETIREMENT OR ‘GOLDEN
HANDSHAKE’(Sec. 10(10C)):
(i) Payment received by an employee of the following at the time of voluntary retirement, or
termination of service is exempt to the extent of Rs. 5 Lakh:
(a) Public Sector Company.
(b) Any other company.
(c) Authority established under State, Central or Provincial Act.
(d) Local Authority.
(e) Co-operative Societies, Universities, IITs and Notified Institutes of Management.
(f) Any State Government or the Central Government.
(ii) The voluntary retirement Scheme under which the payment is being made must be
framed in accordance with the guidelines prescribed in Rule 2BA of Income Tax Rules. In
case of a company other than a public sector company and a co-operative society, such
scheme must be approved by the Chief Commissioner/Director General of Income-tax.
However, such approval is not necessary from A.Y. 2001- 2002 onwards.
(iii) Where exemption has been allowed under above section for any assessment year, no
exemption shall be allowed in relation to any other assessment year. Further, where any
relief u/s 89 for any assessment year in respect of any amount received or receivable or
voluntary retirement or termination of service has been allowed, no exemption under this
clause shall be allowed for any assessment year.
Payment Received Under a Life Insurance Policy (Sec 10 {10 D} )

6. Under the provisions of section 10(10D) of the Income-tax Act, 1961, Maturity/Death claims
proceeds of life insurance policy, including the sum allocated by way of bonus on such
policy, is exempted from income- tax.
PAYMENT FROM PROVIDENT FUND (Sec. 10(11), Sec. 10(12)):
Any payment received from a Provident Fund, (i.e. to which the Provident Fund Act, 1925
applies) is exempt. Any payment from any other provident fund notified by the Central
Govt. is also exempt. The Public Provident Fund(PPF) established under the PPF Scheme,
1968 has been notified for this purpose. Besides the above, the accumulated balance due
and becoming payable to an employee participating in a Recognised Provident Fund is also
exempt to the extent provided in Rule 8 of Part A of the Fourth Schedule of the Income Tax
Act.
Statutory Provident Fund (Sec 10 {11})
Statutory provident fund is set up under the provisions of the Provident Funds Act, 1925.
This fund is maintained by Government and Semi-Government organizations, local
authorities, railways, universities and recognized educational institutions. Any payment
received from such provident fund would be exempt from tax without any monetary or
other limits
Recognized Provident Fund (Sec 10 {12})
Recognised Provident fund is one which is recognized by the commissioner of income-tax is
accordance with the rules contained in Part A of the Fourth Schedule to the Income Tax Act.
It includes a provident fund established under a scheme framed under the Employees
Provident Funds Act, 1952. This fund is maintained by private sector organization. Any
payment received from such provident fund would be exempt from tax without any
monetary or other limits
Conditions for amount to be exempted from tax from Recognised Provident Fund is as
follows
Employee has to rendered continuous service for a period of 5 or more years
If not continuous service, the employment of the employee has been terminated on reason
of employees ill health, or by the contraction of discontinuance of employer’s business or
any other cause beyond the control of the employer

7. In case the employee obtains employment with any other employer and the balance
standing in his Recognised Provident Fund is transferred to his account in a recognised
Provident Fund maintained by the new employer.
Payment from an Approved Superannuation Fund (sec 10 {13})
Payment from an Approved Superannuation Fund will be exempt provided the payment is
made in the circumstances specified in the section viz. death, retirement and incapacitation.
Any payment from an approved superannuation fund made
(i) on the death of a beneficiary; or
(ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a
specified age or on his becoming incapacitated prior to such retirement; or
(iii) by way of refund of contributions on the death of a beneficiary; or
(iv) by way of refund of contributions to an employee on his leaving the service in
connection with which the fund is established otherwise than by retirement at or after a
specified age or on his becoming incapacitated prior to such retirement, to the extent to
which such payment does not exceed the contributions made prior to the commencement
of this Act and any interest thereon;"
Some other points are :
Superannuation Fund is a retirement benefit given to employees by the Company.
Normally the Company has a link with agencies like LIC Superannuation Fund, where their
contributions are paid.
The Company pays 15% of basic wages as superannuation contribution. There is no
contribution from the employee.
This contribution is invested by the Fund in various securities as per investment pattern
prescribed.
Interest on contributions is credited to the members account. Normally the rate of interest
is equivalent to the PF interest rate.
On attaining the retirement age, the member is eligible to take 25% of the balance available
in his/her account as a tax free benefit.

8. The balance 75% is put in a annuity fund, and the agency (LIC) will pay the member a
monthly/quarterly/periodic annuity returns depending on the option exercised by the
member. This payment received regularly is taxable.
In the case of resignation of the employee, the employee has the option to transfer his
amount to the new employer. If the new employer does not have a Superannuation
scheme, then the employee can withdraw the amount in the account, subject to deduction
of tax and approval of IT department, or retain the amount in the Fund, till the
superannuation age.
House Rent Allowance (Sec 10{13A})
House rent allowance (HRA) is received by the salaried class. A deduction is permissible
under Section 10(13A) of the Income Tax Act, in accordance with Rule 2A of the Income Tax
Rules. The HRA deduction is based on salary, HRA received, the actual rent paid and place of
residence.
The allowance your employer pays you for house rent does not form part of your taxable
income. Housing Rent Allowance or HRA has income tax exemptions. Section 10(13A) lays
down rules for calculation of HRA exemption.
Eligibility for 10(13A) rebate
Most importantly, HRA exemption is available only if you are staying in a rented
accommodation. You must not be staying in a house owned by you in order to claim HRA
exemption. Rental receipts must be strictly submitted to the HR every financial year for
getting exemption on rent allowance.
The place of residence is important. For Mumbai, Kolkata, Delhi or Chennai, the tax
exemption on HRA is 50 percent of the basic salary, while for other cities it is 40 percent of
the basic salary.
The city of residence is to be considered for calculating HRA deduction.
Owning a house does not make you ineligible to claim HRA exemption. You should not be
living in that house, or simply put you should be actually paying rent for your
accommodation. You could be eligible to claim both HRA tax rebate and home loan tax
benefits as long as you satisfy conditions for both these separately.
Finally, if you do not receive HRA you can still get tax deduction on the rent paid through
provisions in section 80GG.

9. Special Allowance ( sec 10 {14})
Exemption depends upon actual expenditure by the employee: Following allowances are
exempt to the extent the amount is utilised for the specific purpose for which the allowance
is received.
Name of allowance Nature of allowance
Travelling allowance/
transfer allowance
Any allowance granted to meet the cost of
travel on tour or on transfer.
Conveyance allowance Conveyance allowance granted to meet the
expenditure on conveyance in performance
of duties of an office.
Daily allowance Any allowance granted to meet the ordinary
daily charges incurred by the employee.
Helper allowance Any allowance granted to meet the
expenditure on a helper engaged in the
official activities.
Research allowance Any allowance granted for encouraging the
academic research & other professional
pursuits.
Uniform allowance Any allowance granted to meet the
expenditure on the purchase or maintenance
of uniform for wear during the office hours.
Special
Compensatory Allowance
for hilly areas or high
altitude allowance or
climateallowance.
Rs.800 common for various areas of North
East, Hilly areas of UP, HP. & J&K and
Rs. 7000 per month for Siachen area of J&K
and Rs.300 common for all places at a height
of 1000 mts or more other than the above
places.
(ii) Border area
allowance or remote
area allowance or a
difficult area allowance
Various amounts ranging from Rs.200 per
month to Rs.1300 per month are exempt for
various areas specified in Rule 2BB.

10. or disturbed area
allowance.
(iii) Tribal area/Schedule
area/Agency area
allowance available in
MP, Assam, UP.,
Karnataka, West
Bengal, Bihar,
Orissa, Tamilnadu,
Tripura
Rs.200 per month.
(iv) Any allowance
granted to an employee
working in any transport
system to meet his
personal expenditure
during duty performed in
the course of running of
such transport from one
place to another place.
70% of such allowance upto a maximum of
Rs.6000 per month.
Children
education allowance.
Rs.100 per month per child upto a maximum
2 children.
(vi) Allowance granted
to meet hostel
expenditure on
employee’s child.
Rs.300 per month per child upto a maximum
two children.
(vii) Compensatory
field area
allowance available in
various areas of
Arunachal Pradesh,
Manipur Sikkim,
Nagaland, H.P., U.P. &
Rs.2600 per month.

11. J&K.
(viii) Compensatory
modified field area
allowance available in
specified areas
of Punjab, Rajsthan,
Haryana, U.P., J&K, HP.,
West Bengal & North
East.
Rs.1000 per month
Interest From Certain Investments ( Sec 10 { 15} )
The interest earned from following investment is exempted from Tax
Public Provident Fund
Any individual (other than a non-resident) can make an investment of R500 to R1,00,000 in
a financial year in a Public Provident fund (PPF). The rate of interest available is 8.8%. The
entire investment is eligible for deduction under Section 80C of the Income Tax Act, 1961,
subject to a limit of R1,00,000. Interest earned on this deposit is exempt from tax and the
investment is not chargeable to wealth tax.
National Savings Certificates
National savings certificates are more like fixed deposits with the post office wherein you
purchase a certificate that is generally redeemable in a specified time. These certificates
provide a return of 8.6-8.9%. They are in denominations of R100, R500, R1,000, R5,000 and
R10,000. Tax deduction is available up to R1,00,000 under Section 80C of the IT Act. The
interest earned every year on NSC gets reinvested and forms part of the capital and also
entails deduction under Section 80C, except the final year's interest that does not get
reinvested. It is not chargeable to wealth tax.
Post Office Savings Account
Any individual can open a savings account with the post office. It works like a normal savings
account opened in a bank and the cheque facility is also available. The savings bank account
generally earns a return of 4% per annum. Interest upto R3,500 is exempt from tax under
Section 10(15) of the IT Act. Further, a deduction of R10,000 is also available for the interest
under Section 80TTA of the IT Act.

12. Following income the interest earned on the income is taxable but the investment is not
chargeable to wealth tax
Monthly Income Scheme
Under the Monthly Income Scheme, an investor is required to make a one-time deposit. The
amount of deposit can range from R1,500 to R4,50,000 in a single account and R9,00,000 in
a joint account. The rate of interest offered is 8.5% and the scheme yields monthly income
on the deposits made. Interest income is liable to tax, but the investment is not chargeable
to wealth tax.
Recurring Deposits
Any individual (other than an NRI) can open a recurring deposit account. The minimum
investment to be made in such account is R10 with no upper limit. A depositor generally
makes 60 deposits over a term of five years. The rate of interest available is 8.4%. The entire
amount along with interest can be withdrawn after five years. Interest income is liable to
tax, but the investment is not chargeable to wealth tax.
Scholarships (Sec 10 { 16 } )
Under Section 10(16) of the Income-tax Act, any scholarship granted to a person to meet
the cost of education is exempt from tax. The term ‘scholarship’ should be interpreted
liberally and it would also include within its scope and ambit, amounts of fellowships,
stipends, grants for travel and incidental expenses, etc. awarded for acquiring education.
Allowances received by the member of parliament or state legislature ( Sec
10 {17 } )
The following allowances are exempted from tax
10(17)(i) Daily allowance Individual-Member of Parliament/State
Legislature/Committee thereof
10(17)(ii) Any allowance received by MP under
Members of Parliament (Constituency
Allowance) Rules, 1986.
Member of Parliament
10(17)(iii) Constituency Allowance received by
MLAs.
Individual Member of State Legislature

13. Awards/Rewards (Sec 10 { 17A} )
The following awards/ rewards are exempted from tax
10(17A)(i) Amount received in pursuance of
award instituted in public interest by
Central/State Government or
approved award instituted by other
body.
Any Assessee
10(17A)(ii) Reward received from Central/State
Government for approved purposes
in public interest.
Any Assessee
Pension (Sec 10 {18} )
Pension received by an individual who has won specified/notified gallantry awards and
family pension received by any family member of such individual. Pension received by an
individual who has been in service of Central or state Government and has been awarded,
”Parama Vir Chakra)””Maha Vir Chakra” or Vir Chakra. Family pension received by any
member of the family in case of death of the awards is exempted from tax.
Family pension received by the family member of armed forces (Sec 10
{19}]
Family pension of a member of the armed forces/paramilitary forces in case of death in the
course of operational duties subject to conditions. Family pension received by the widow or
children or nominated heirs, of a member of armed forces including parliament forces of the
union , where the said member dies in the course of operation duties shall be exempted
from tax.
Income of Minor Child (Sec 10 {32})
As per section 10(32), in case the income of an individual includes the income of his minor
child in terms of section 64(1A), such individual shall be entitled to exemption of Rs. 1,500 in

14. respect of each minor child if the income of such minor as includible under section 64(1A)
exceeds that amount. Where, however, the income of any minor so includible is less than
Rs. 1,500, the aforesaid exemption shall be restricted to the income so included in the total
income of the individual.
A minor’s income is clubbed with that of the parent with the higher income or if the parents
of the minor child are separated, then the minor child’s income will be included in the
income of the parent who is maintaining the child.
Income from Transfer of units of UTI (Sec 10 {33})
As per section 10(33), any income arising from the transfer of a capital asset being a unit of
US 64 is not chargeable to tax where the transfer of such assets takes place on or after April
1, 2002. This rule is applicable whether the capital asset (US64) is long-term capital asset or
short-term capital asset. If income from a particular source is exempt from tax, loss from
such source cannot be set off against income from another source under the same head of
income.
Consequently, loss arising on transfer of units of US64 cannot be set off against any income
in the same year in which it is incurred and the same cannot be carried forward.
Income by way of Dividend (Sec 10 {34})
As per section 10(34)/ (35), the following income is not chargeable to tax
any income by way of dividend referred to in section 115-O [i.e., dividend, not being
covered by section 2(22) (e), from a domestic company];
In view of this, tax being levied on a company on distributed profits, the dividend income in
the hands of the shareholders will now be exempt from tax u/s 10(34).
Income from Mutual Fund etc. {U/S 10(35)}
Income received in respect of Units of a Mutual Fund specified in section 10(23D) or units
from Administrator of UTI or units from the specified company, excluding capital gains
arising from the transfer of such units. Any income received from mutual fund is entirely
exempted from tax

15. Long Term capital gains or Transfer of Equity Shares in a Company or
Units of an Equity oriented fund {u/S 10(38)}
As per section 10 (38), long term capital gains arising out on transfer of equity shares or
units of equity oriented mutual fund is not chargeable to tax from the assessment year
2005-06 if such transaction is covered under the securities transaction tax ( STT )
The Securities Transaction Tax is applicable if equity shares or units of equity oriented
mutual fund are transferred in recognized stock exchange in India. If the Securities
Transaction Tax (STT) is applicable, long term capital gain is not chargeable to tax, short
term capital gain is 10% (plus service charge & education cess).