Income exempted under section 10 of Income tax Act 1961 for assessment year 2017-18

10-07-2017 sanjaydessai@gmail.com 1
Income exempt from Tax under section 10
(Selected items)
For Assessment Year 2017-18

EXEMPTIONS & EXCLUSIONS U/S. 10:
1. Agricultural Income u/s. 10(1)
2. Receipts by a member, from a HUF u/s. 10(2)
3. Share of Profit from partnership firm u./s.
10(2A)
4. Leave Travel Concession in India u/s. 10(5)
5. Gratuity u/s. 10(10)

EXEMPTIONS & EXCLUSIONS U/S. 10
6. Compensation received at the time of
Voluntary Retirement u/s. 10(10C)
7. Amount received under Life Insurance Policy
u/s 10(10D)
8. Payment received from Provident Fund u/s.
10 (11), (12)
9. Payment received from an Approved
Superannuation Fund u/s. 10(13)
10.House Rent Allowance u/s. 10 (13A).

EXEMPTIONS & EXCLUSIONS U/S. 10
11.Special Allowance u/s. 10 (14): Transport
Allowance, Conveyance Allowance, Daily
Allowance, Uniform Allowance, Helper
Allowance, Research Allowance, Children
Education Allowance, Children’s Hostel
Expenditure Allowance.
12.Interest on Securities u/s. 10(15)
13.Educational Scholarships u/s. 10(16)
14.Income of a minor child u/s 10 (32) [including
basic provisions of sec 64(1A)]
15.Dividends and Interest on Units u/s. 10(34) (35).

Income not included in total income
(U/s 10)
• The income tax Act 1961 enumerates in
section 10, the items of income which are
exempt from tax .
• While computing the total income of a
previous year of any person, any income
which falls within any of the following clause
shall not be included in the total income.

Agricultural Income u/s. 10(1)
Agriculture income is exempted from tax if it
comes from within the definition of
“agricultural income”
Why
Constitution gives exclusive power to make laws
with respect to taxes on agricultural income
to the State Legislature.

What is agriculture income
• Any rent received from land which is used for
agricultural purpose
• Any income derived from such land by
agricultural operations including processing of
agricultural produce, raised or received as rent
in kind so as to render it fit for the market, or
sale of such produce
• Income attributable to a farm house

Certain income which is treated as
Agriculture Income
1. Income from sale of replanted trees.
2. Rent received for agricultural land.
3. Income from growing flowers.
4. Share of profit of a partner from a firm engaged
in agricultural operations.
5. Interest on capital received by a partner from a
firm engaged in agricultural operations.
6. Income derived from sale of seeds

Certain income which is not treated as
Agricultural Income
1. Income from poultry farming.
2. Income from bee hiving.
3. Income from sale of spontaneously grown trees.
4. Income from dairy farming
5. Purchase of standing crop
6. Dividend paid by a company out of its agriculture income
7. Income of salt produced by flooding the land with sea
water.
8. Royalty income from mines.
9. Income from butter and cheese making
10. Receipts from TV serial shooting in farm house is not
agriculture income.

Receipts by a member, from a HUF
u/s. 10(2)
• Sum received by an individual, as a member of
HUF, either out of the family or out of income
of estate belonging to the family, is exempted
from tax.
• Reason – HUF is taxed separately

Share of Profit from partnership firm
u/s 10(2A)
• Share of profit received by partners from a
firm is not taxable in the hands of partners.
• Reason – partnership firm is taxed separately

Leave Travel Concession in India u/s.
10(5)
• The value of leave travel concession received
or due to an individual is exempted to the
extent it is actually spent.

Gratuity u/s. 10(10)
• Gratuity is paid for long and meritorious
services rendered by an employee.
• With Gratuity Act, 1972, gratuity payment has
become legally compulsory.

Tax treatment of Gratuity
• For Govt. employees – fully exempt from tax
• For Non-Govt. employee covered by payment of
Gratuity Act 1972. –
• Least of the following three is exempt from tax
1. 15 days salary (7days salary in case of seasonal
establishment ) based on salary last drawn for
each year of service
2. Rs. 10,00,000
3. Gratuity actually received

Compensation received at the time of
Voluntary Retirement u/s. 10(10C)
• Compensation on voluntary retirement of an employee
of a public sector company and other entities shall be
exempted from tax to the extent of Rs. 5,00,000.
• Public sector undertaking and other entities include
• Company
• Local authority
• Establishment under central and state govt.
• Cooperative society
• Other state govt. and central govt. Institutions.

Amount received under Life Insurance
Policy u/s 10(10D)
• Any sum received under life insurance policy,
including the sum allocated by way of bonus
on such policy shall be totally exempt from
tax.

Payment received from Provident Fund
u/s. 10 (11), (12)
• Section 10 (11) Any payment from a provident
fund to which the provident fund Act ,1925
applies or from any other provident fund set
up by Central Govt. and notified in the official
gazette is totally exempted from tax.
• Section 10 (12) Accumulated balance due and
become payable to an employee participating
in a recognised provident fund, is exempt from
tax

Payment received from an Approved
Superannuation Fund u/s. 10(13)
• Payment received from an approved
superannuation fund is exempted from tax

House Rent Allowance u/s. 10 (13A).
• Exemption in respect of house rent allowance
is least of the following three
• Amount equal to 50 percent of salary, where
house is situated in metros and 40 percent of
salary where residential house is situated at
any other place.
• Actual house rent allowance received
• Excess of rent paid over 10 percent of salary

salary for calculation purpose
• Basic salary plus dearness allowance and
grade pay
Dearness Allowance to be included if terms of
employment so provides
Commission to be included if commission paid
is based on a fixed percentage of turnover.
• Does not include any allowances and
perquisites

Important points
• When salary, house rent allowance, rent paid
and place of residence are the same
throughout the previous year, the exemption
should be calculated on annual basis .
• However, where there is a change in respect
of any of the aforesaid factors, then the
exemption shall be worked out on monthly
basis

Salary for this purpose mean
• Basic salary
• Dearness Allowance if terms of employment so
provides.
• commission based on a fixed percentage of
turnover.
• all other allowances and perquisites is to be
excluded.
• Salary related to period of rent should only be
considered on due basic .
10-07-2017 22

Important points
• Salary received in period as advance or arrear not
related to calculation period should not be included.
• For calculating 40/50 % of salary, residential
accommodation is important, not where the person is
working
• The calculation should be done on separately(monthly)
if salary or HRA varies during the year.
• No, HRA exemption if House rent paid is less than 10 %
of salary.
• No exemption allowed where an employee lives in his
own house, or in a house for which he has not paid any
rent.

• Mr. Sanjay Dessai, who resides in Goa,
receives Rs. 78,000 as basic pay during
previous year 2015-16. He stays in his fathers
house up to 31st august 2015 for which he did
not pay any rent and thereafter in an
accommodation taken on monthly rent of Rs.
3,000. The employer, however, pays Rs 700
per month as house rent allowance
throughout the previous year.

Calculation of house rent allowance exemption for assessment year 2016-17
RS. Rs.
House Rent Allowance received (700 per
month for 12 months )
8,400
Less – Exempted
40 percent of Salary ( 78000/12 =6500 X
40% =
2,600
HRA received Rs 7,00 per month 700
Excess rent paid over 10 percent of salary (
rent paid 3000 – 10 percent of Salary 650) =
2350
2,350
Amount exempted Rs. 700 X 7 4,900
Taxable 3,500

Special Allowance u/s. 10 (14):
• Conveyance Allowance, Daily Allowance, Uniform
Allowance, Helper Allowance, Research
Allowance
• Allowances are exempt to the extent the amount
is utilised for the specific purpose for which
allowance is received.
• Transport Allowance, Children Education
Allowance, Children’s Hostel Expenditure
Allowance. (fixed amount of exemption per
month)

Transport Allowance
• Transport allowance is granted to meet his
expenditure for the purpose of commuting
between the place of his residence and place
of duty .
• Exemption
• Up to Rupees 1,600 per month
• Rupees 3,200 per month in the case of blind
or orthopedically handicapped employee

Conveyance Allowance
• Conveyance allowance is granted to meet
expenditure on conveyance in performance of
duties of an office.
• Exemption –
1. Amount of the allowance or
2. The amount utilised for the specific purpose
– whichever is lower

Daily Allowance/ Uniform allowance
and Research allowance
• Exemption –
• Amount of the allowance or
• The amount utilised for the specific purpose –
whichever is lower

Uniform Allowance
• Exemption –
whichever is lower

Research Allowance
• Exemption –
whichever is lower

Children Education Allowance
• The allowance is given for children's education
• Rupees 100 per month per child up to a
maximum of 2 children

Helper Allowance
• Exemption –
whichever is lower

Hostel Expenditure Allowance
• The allowance is granted to an employee to
meet the hostel expenditure on his child
• Rupees 300 per month per child up to a
maximum of two children.

• Tiffin allowance – taxable
• Fixed medical allowance – taxable
• Servant allowance – taxable

Interest on Securities u/s. 10(15)
• income by way of interest, premium on
redemption or other payment on such
securities, bonds, annuity certificates, savings
certificates, other certificates issued by the
Central Government and deposits as the
Central Government may, by notification in
the Official Gazette.

Educational Scholarships u/s. 10(16)
• Scholarship granted to meet the cost of
education is totally exempt from tax and will
not be included in the computation of total
income of assessee.

Income of a minor child u/s 10 (32) [including basic provisions
of sec 64(1A)]
• In case the income of an individual includes
the income of his minor child in terms of
section of 64(1A), such individual shall be
entitled to exemption of Rs 1500 in respect of
each minor child.
• Section 64(1A) All income which arises or
accrues to the minor child shall be clubbed in
the income of his parents.

Dividends and Interest on Units u/s.
10(34) (35).
• Income by way of dividends 10(34)
• Income by way of dividend is exempted from
tax in the hands of shareholders.
• Income from mutual fund 10(35)
• Any income received in respect of units of a
Mutual Fund/ specific company is exempted
from tax.

Income exempted under section 10 of Income tax Act 1961 for assessment year 2017-18

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