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Exempt Income FAQs

A comprehensive list of frequently asked questions on Exempt Income.

1What is meant by exempt income ?

Exempt income refers to income which though is earned and received during the financial year is not taxable.

It means that at the time of calculating annual income, this type of income will not be added. For claiming any of these exemptions, it is necessary to furnish documents which shows that your income comes under exemption list.

2What are the General exempt incomes ?
SectionNature Of IncomeExemption limit, if any
10(1)Share from income of HUF
10(2A)Share of profit from firm
10(3)Casual and non-recurring receiptsWinnings from races Rs.2500/- other receipts Rs.5000/-
10(10D)Receipts from life Insurance Policy
10(16)Scholarships to meet cost of education
10(17)Allowances of MP and MLA.For MLA not exceeding Rs. 600/- per
10(17A)Awards and rewards (i) from awards by Central/State Government(ii) from approved awards by others (iii) Approved rewards from Central & State Governments
10(26)Income of Members of scheduled tribes residing in certain areas in North Eastern States or in the Ladakh region.Only on income arising in those areas or interest on securities or dividends
10(26A)Income of resident of Ladakh
10(30)(i) Subsidy from Tea Board under approved scheme of replantation
10(31)(ii) Subsidy from concerned Board under approved Scheme of replantation
10(32)Minor's income clubbed with individualUpto Rs. 1,500/-
10(33)Dividend from Indian Companies, Income from units of Unit Trust of India and Mutual Funds, and income from Venture Capital Company/fund.
10(A)Profit of newly established undertaking in free trade zones electronic hardware technology park on software technology park for 10 years (net beyond 10 year from 2000-01)
10(B)Profit of 100% export oriented undertakings manufacturing articles or things or computer software for 10 years (not beyond 10 years from 2000-01)
10(C)Profit of newly established undertaking in I.I.D.C or I.G.C. in North-Eastern Region for 10 years
3What are the exempt income from interest ?
SectionNature Of IncomeExemption limit, if any
10(15)(i)(iib)(iic)Interest, premium on? redemption or other payments from notified securities, bonds, Capital investment bonds, Relief bonds etc.To the extent mentioned in notification
10(15)(iv)(h)Income from interest payable by a Public Sector Company on notified bonds or debentures
10(15)(iv)(i)Interest payable by Government on deposits made by employees of Central or State Government or Public Sector Company of money due on retirement under a notified scheme
10(15)(vi)Interest on notified Gold Deposit bonds
10(15)(vii)Interest on notified bonds of local authorities
4What is the exempt income from Salary ?
  1. By investing in capital gain bonds

  2. By reinvesting in residential properties.

5What are the transfer related expenditures which can be minimized from the sale value of an asset for the calculation of capital gain ?
SectionNature Of IncomeExemption limit, if any
10(5)Leave Travel assistance/ concessionNot to exceed the amount payable by Central Government to its employees
10(5B)Remuneration of technicians having specialised knowledge and experience in specified fields (not resident in any of the four preceding financial years) whose services commence after 31.3.93 and tax on whose remuneration is paid by the employerExemption in respect of income in the form of tax paid by employer for a period up to 48 months
10(7)Allowances and perquisites by the government to citizens of India for services abroadWinnings from races Rs.2500/- other receipts Rs.5000/-
10(8)Remuneration from foreign governments for duties in India under Cooperative technical assistance programmes. Exemption is provided also in respect of any other income arising outside India provided tax on such income is payable to that Government.
10(10)Death-cum-retirement Gratuity-
(i) from Government
(ii) Under payment of Gratuity Act 1972Amount as per Sub-sections (2), (3) and (4) of the Act.
(iii) Any otherup to one-half months’ salary for each year of completed service.
10(10A)Commutation of Pension-
(i) from government, statutory Corporation etc.
(ii) from other employersWhere gratuity is payable - value of 1/3 pension. Where gratuity is not payable - value of 1/2 pension
(iii) from fund set up by LIC u/s 10(23AAB)up to one-half months’ salary for each year of completed service.
10(10A)Encashment of unutilised earned leave
(i) from Central or State government
(ii) from other employersUpto an amount equal to 10 months’ salary or Rs. 1,35,360/- whichever is less
10(10B)Retrenchment compensationOnly on income arising in those areas or interest on securities or dividends
10(10C)Amount received on voluntary retirement or termination of service or voluntary separation under the schemes prepared as per Rule 2BA from public sector companies, statutory authorities, local authorities, Indian Institute of Technology, specified institutes of management or under any scheme of a company or Co-operative SocietyAmount u/s. 25F(b) of Industrial Dispute Act 1947 or the amount notified by the government, whichever is less.
10(11)Payment under Provident Fund Act 1925 or other notified funds of Central Government
10(12)Payment under recognised provident fundsTo the extent provided in rule 8 of Part A of Fourth Schedule
10(13)Minor's income clubbed with individualUpto Rs. 1,500/-
10(13A)
House rent allowanceleast of
(i) actual allowance
(ii) actual rent in excess of 10% of salary
(iii) 50% of salary in Mumbai, Chennai, Delhi and Calcutta and 40% in other places
10(14)Prescribed [See Rule 2BB (1)] special allowances or benefits specifically granted to meet expenses wholly necessarily and exclusively incurred in the performance of dutiesTo the extent such expenses are actually incurred.
10(18)Pension including family pension of recipients of notified gallantry awards
6What does the term Agricultural Income mean ?
  1. Any rent received from land which is used for agricultural purpose.

  2. 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.

  3. Income attributable to a farm house subject to the condition that building is situated on or in the immediate vicinity of the land and is used as a dwelling house, store house etc.

Now income earned from carrying nursery operations is also considered as agricultural income and hence exempt from income tax.

In order to consider an income as agricultural income certain points have to be kept in mind:

  1. There must me a land.

  2. The land is being used for agricultural operations.

  3. Agricultural operation means that efforts have been induced for the crop to sprout out of the land.

  4. If any rent is being received from the land then in order to assess that rental income as agricultural income there must be agricultural activities on the land.

  5. In order to assess income of farm house as agricultural income the farm house building must be situated on the land itself only and is used as a store house/dwelling house.

7What are the incomes that are treated as Agriculture Income ?
  1. Income from sale of replanted trees.

  2. Rent received for agricultural land.

  3. Income from growing flowers and creepers.

  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.