Section 10 of Income Tax Act
Section 10 of Income Tax Act: Key Exemptions and How to Claim Them
In this post, we will discuss Section 10 of the Income Tax Act, which provides various exemptions to reduce taxable income. We’ll cover common exemptions, the process to claim them, and how different allowances like HRA and leave encashment are treated under this section.
Let’s look at each section:
What is Section 10 of the Income Tax Act?
While calculating an individual’s tax liability, some income sources are excluded from the total income. Section 10 of the Income-tax Act, 1961 lists all the exemptions a taxpayer can claim when paying income tax.
Features of Section 10 of the IT Act
- Total Income Calculation: The total income is calculated based on a salaried professional’s tax liability.
- Benefits For: Salaried professionals can claim tax deductions under Section 10(10D) of the Income Tax Act.
- Permitted Tax Exemptions: Section 10 aims to reduce tax burdens by providing exemptions for rent, children’s tuition fees, travel allowance, and gratuity.
Common Exemptions Under Section 10 of Income Tax Act
1.Section 10(13A) - House Rent Allowance (HRA):
HRA is exempt from tax under certain limits. The least of the following is exempt:
- Actual HRA received
- 50% of salary (for metros) or 40% (for other cities)
- Rent paid minus 10% of salary
2.Section 10(5) - Leave Travel Allowance (LTA):
LTA exemption applies to domestic travel expenses like airfare or train fare but does not cover sightseeing, hotel, or food.
3.Section 10(26) - Scheduled Tribe Members:
Income from sources in specific states (Tripura, Nagaland, Mizoram, etc.) or dividends and interest on securities is exempt for Scheduled Tribe members.
4.Section 10(14)(i) - Business Expenses:
Exempts travel, research, and conveyance expenses related to your employer’s business.
5.Section 10(11) - Provident Fund Interest:
Interest from a provident fund is exempt upon retirement or resignation, except for contributions exceeding Rs. 2.5 lakh post-2021.
6.Section 10(34) - Dividend Income:
Dividends from Indian companies are exempt up to Rs. 10,000 for dividends earned till March 2020.
7.Section 10(26AAA) - Sikkimese Individuals:
Income from sources in Sikkim or dividends and interest on securities is exempt for Sikkimese residents.
8.Section 10(38) - Long-term Capital Gains:
Capital gains from selling equity shares or mutual funds are exempt until March 2018.
9.Section 10(23C) - Educational and Medical Institutions:
Institutions with annual receipts under Rs. 5 crore are exempt.
10.Section 10(37) - Agricultural Land:
Capital gains from the compulsory acquisition of urban agricultural land are exempt if used for farming for two years.
11.Section 10(10A) - Government Pensions:
Accumulated pensions for government employees are tax-exempt.
12.Section 10(10D) - Life Insurance Policies:
Income from life insurance policies is exempt, except for high-premium policies or policies for specially-abled dependents.
13.Section 10(35) - Mutual Fund Units:
Income from mutual fund sales is exempt until March 2020.
14.Section 10(10) - Gratuity:
Gratuity income is exempt for government employees, with certain limits for private employees.
15.Internet Allowance:
Internet allowances provided by employers are exempt under Section 10(14).>
16.Food Allowance:
A food allowance of Rs. 26,400 annually is exempt under Section 10(14).
How to Claim Exemptions under Section 10?
Documents Required:
To claim exemptions under Section 10, you will need the following:
- Salary Slips: These should show the allowances received.
- Proof of Expenses: Bills or receipts for expenses claimed under special allowances (e.g., travel tickets, education fees).
- Form 16: Provided by your employer after the year ends, detailing salary and TDS.
- Supporting Documents: Any other documents your employer or the Income Tax Department requires to verify claims.
Step-by-Step Guide to Claim Exemptions under Section 10:
- Understand your Allowances: Review your salary to identify allowances exempt under Section 10.
- Gather Proof of Expenses: Collect bills or receipts for your claim expenses.
- Submit Proof to Employer: Provide these to your employer at year-end before the TDS deduction.
- Review Form 16: Ensure that your Form 16 reflects all eligible exemptions.
- File Your Income Tax Return: Choose the correct ITR form based on your income and enter exempt allowances in the relevant sections.
- Keep Necessary Documents Handy: You don’t need to attach them when filing online, but keep them ready in case of an audit.
Forms and Declarations Needed:
- Form 12BB: Submit to your employer to claim exemptions for HRA, LTA, etc.
- Form 16: Ensure it reflects all exemptions.
- ITR Forms: Use the correct ITR form (ITR1, ITR2, etc.) and include details of exempt income.
Is Leave Encashment Exempted From Income Tax?
Leave encashment received during employment is fully taxable and is counted as part of ‘Income from Salary.’ However, leave encashment at the time of resignation or retirement is not taxable for government employees (state or central).
For private sector employees, leave encashment at resignation or retirement is considered ‘Income from Salary’ and is taxable. However, exemptions are available under Section 10(10AA) of the Income Tax Act, and tax is applied only to the amount remaining after exemptions, based on your income tax slab.
We have reached the end of this post. Please share your queries with us in the comment section below.
FAQs
1. Is the Section 10 exemption available under the new tax regime?
Ans: Under Section 10, income tax exemption applies to maturity benefits of insurance policies up to Rs.1.5 lakh and total premiums paid up to Rs.5 lakh (excluding ULIPs).
2. What are the eligibility criteria for Section 10(10D)?
Ans: To be qualified for the exemptions under section 10(10D), you must be an EPF member aged 58 or 50 for a reduced pension.
3. What are the tax benefits of Section 10 (10D)?
Ans: Section 10 (10D) allows an individual to receive tax benefits upon the maturity of a life insurance policy.
4. Can my special allowance be more than my base pay?
Ans: Yes, but only in exceptional situations. The general rule is that basic salary is more than special allowances.
