Section 10 Of Income Tax Act: Exemptions, Allowances & How To Claim It?

The Government of India provides some exemptions in order to reduce your income tax burdens. Section 10 of the Income-tax Act, 1961 talks about those exemption provisions and the terms and conditions on which one can avail a tax exemption. Here’s more on this matter. 

What is Section 10 of Income Tax Act?

While calculating the tax liability of an individual, there are certain income sources that do not form a part of the total income. Section 10 of the Income-tax Act,1961 includes all those exemptions that a taxpayer can get while paying income tax. 

What are Exemptions Under Section 10?

Here is a list of exempted income under Section 10:

Section 10(13A) of the Income Tax Act

Section 10(13A) of the Income Tax Act covers House Rent Allowance (HRA). The part of your salary you receive to cover house rent and accommodation expenses is exempted from taxation.

However, a few exceptions are included in Section 10(13A) Rule 2A. The exemption is allowed for the least of the following amounts:

• Actual HRA received
• 50% of [basic salary + DA] for those living in Delhi, Mumbai, Chennai, Kolkata or 
  40% of [basic salary + DA] for those living in other cities
• Actual rent paid (-) 10% of [basic salary + DA]

Under Section 10(13A) of the Income Tax Act, the following types of expenses are covered under House Rent Allowance (HRA) for exemption from income tax:

1. Rent paid: The actual rent paid by the taxpayer for the residential accommodation they occupy.
2. Brokerage or commission: Any brokerage or commission paid to a real estate agent or broker for securing the rented accommodation.
3. Maintenance charges: Expenses incurred towards maintenance charges for the rented accommodation, such as society maintenance fees or charges for common fad
4. Lease agreement costs: Costs associated with preparing and registering the lease agreement, if applicable.

It is important to note that only expenses directly related to the rental accommodation occupied by the taxpayer are eligible for exemption under Section 10(13A) of the Act.

Let’s take a look at the below example.

An employee living in Mumbai with a basic salary of Rs. 40,000 per month, receiving an HRA of Rs. 20,000 per month, and paying rent of Rs. 15,000 per month.

Condition 1: Actual HRA received - Rs. 2,40,000 (Rs.20,000 per month)

Condition 2: Metro city 50% of [basic salary + DA] - Rs. 2,40,000 (50% of Rs.4,80,000) 

Condition 3: Actual rent paid (-) 10% of (basic salary + DA) - Rs.1,32,000 (Rs.1,80,000 – Rs.48,000)

Least of the above is the amount of Exempted HRA - Rs. 1,32,000, HRA chargeable to tax - Rs. 1,08,000 (Rs. 2,40,000 - Rs.1,32,000).

Section 10(5) of the Income Tax Act

Section 10(5), or leave travel allowance exemption, is applicable for individual taxpayers. The LTA exemption applies only to the domestic travel expenses, such as airfare, train or bus fare, incurred by the employee. Other expenses, such as transportation within the destination, sightseeing, hotels, and food, are not covered. Additionally, the exemption is limited to LTA provided in your CTC by the employer.
For example, if an employee is given LTA of Rs 30,000 and incurs travel expenses of Rs 20,000, only the amount actually spent on travel would be exempt from taxes and the remaining Rs 10,000 would be included as taxable income.

Section 10(26) of the Income Tax Act

If you are a member of a Scheduled Tribe in Tripura, Nagaland, Mizoram, Manipur, and Arunachal Pradesh, you are eligible for tax exemptions against income earning either from any source in the states mentioned above or earning through dividends or interest on securities under Section 10(26) Of the Income Tax Act.

Section 10(14)(i) of the Income Tax Act

This section provides exemptions for expenses incurred due to your employer’s business. It includes traveling, conveyance, research allowance and more, provided such expenses are actually spent for the given purposes.

Section 10(11) of the Income Tax Act

Under this section, you receive exemptions for interest from a provident fund upon resignation or retirement. 

Note:  From 1st April 2021 onwards, the exemption under section 10(11) will not apply to interest income accrued during the previous year on contributions exceeding Rs. 2,50,000 made by the person/employee to that fund in any previous year.

Section 10(34) of the Income Tax Act

This section includes exemptions from the dividends that you receive from investing in an Indian company. However, this exception is only limited to an amount of Rs.10,000, exceeding which you have to pay tax. 

Note: This is applicable only for the dividends received till 31^st March 2020. 

Section 10(26AAA) of the Income Tax Act

If you are a Sikkimese individual earning either from any source in Sikkim or earning through dividends or interest on securities, this part of your income comes under tax exemption under Section 10(26AAA). 

Section 10(38) of the Income Tax Act

When you get long-term capital gains by selling equity shares of an equity-oriented mutual fund, it is exempted from Income Tax calculation. However, the Securities Transaction Tax must be paid. 

Note: This is applicable only for the long term capital gain earned till 31^st March 2018.

Section 10(23C) of the Income Tax Act

Educational or medical institutions whose aggregate annual receipts do not exceed Rs.5 crore are eligible for exemption under this section. 

Section 10(37) of the Income Tax Act

This section provides exemptions for capital gains due to the compulsory acquisition of urban agricultural land, provided the below conditions are fulfilled:

• land should be used for agricultural purposes for 2 years before its sale date
• compulsory acquisition scheme should be approved by central government or RBI

Section 10(10A) of the Income Tax Act

If you are a Government employee, under this section, you receive tax exemption on the money you get from accumulated pensions. 

Section 10(10D) of the Income Tax Act

Under this section, you get an exemption for the income you receive from a life insurance policy or bonus. However, the below insurance policies shall not be eligible:

• Life insurance policy has taken on a specially-abled dependent family member
• Key man insurance policy
• Insurance policies where the premium amount is more than 10% of the sum assured.

Section 10(35) of the Income Tax Act

Any income that you gain from the sale of specified mutual fund units.

Note: This is applicable only for the income earned till 31^st March 2020.  

Section 10(10) of the Income Tax Act

Any income by way of gratuity received by the government, but in the case of employees working in the private sector, depends on whether they are covered under the Payment of Gratuity Act or not. Click here to know more

Internet allowance exemption under Section 10

Under Section 10(14), the Internet allowance provided by your employer is exempted from taxation.  

Food allowance exemption under Section 10

Section 10(14) also includes a tax exemption of Rs.26,400 in a year for food allowance provided by your employer assuming two meals a day and 22 working days in a month.

How Do I Claim Section 10 Exemptions On My Taxes?

If you are wondering how to claim an exemption under Section 10, you can do it by filing an income tax return. As the exemptions are income based, you must disclose the income earned and the corresponding exemption applicable. 

Is Leave Encashment Exempted From Income Tax?

Leave encashment received at the time of their employment is fully taxable and forms part of ‘Income from Salary'. 

However, if you are a government employee (State or Central), your income from leave encashment will not be taxable at the time of resignation or retirement.

Alternatively, if you are a private sector employee, the government will consider your income from leave encashment after resignation or retirement as ‘Income From Salary' and, thus, will be taxable. But, there will be exemptions under Section 10(10AA) of the Income Tax Act. There will be a tax on the amount remaining after exemptions according to your income tax slab.  

Now that you are aware of Section 10 benefits, you can make use of them in order to get tax relief. However, consult a tax professional before filing a claim under this section.