EXEMPTED INCOMES :
Section 10 of the Income Tax Act, 1961 contains the provisions for exemption of various incomes. All such incomes are excluded from the computation of total income of such assessee. However, agricultural income, which is exempted under section 10(1), has to be taken into account for the limited purpose of determining the rate of tax applicable to the assessee. In all other cases the exclusion under section 10 is total and absolute subject to the limits, wherever prescribed. However, as decided by Madras High Court in the case of C.I.T. v. E.K.Sundara Mudaliar & Ors. 18 ITR 259 (Mad). the exemption from tax granted by a statute should be given full scope and amplitude and should not be whittled down by importing limi-tations not inserted by the legislature.
The exemptions granted under section 10 may be classified in the following categories :-
a)
Character of income:-
Certain incomes exempted under section 10 under this category are agricul-tural income, income from charity, scholarship, dividend from Indian Companies, Income from UTI or any Mutual Fund specified under section 10(23D) etc. In such class of incomes the exemption is conferred on a particu-lar kind of income and does not depend upon the character of the recipient as decided by Privy Council in the case of CIT v. Sir Kameshwar Singh 3 ITR 305.
b)
Character of assessee:-
Sec.10 specifies certain incomes which are exempt only in the hands of the specified assessees like indiviual, member of HUF, partner of firm etc. As mentioned above, the incomes enumerated under section 10 are exempt from tax, therefore it is advisable that every assessee should avail of its benefits. However onus to prove that any particu-lar income is fully or partly exempt from tax-levy, lies on the assessee - CIT v. Ramakr-ishna Deo 35 ITR 312 (SC).
Apart from incomes exempted under section 10, certain other incomes are also exempt under section 10A, 10B, 10C, 11 & 13A. (refer Chapters 61, 62, 63 and 41). The various incomes which are entitled to exemption are described hereunder indicating the assessees, who are entitled to claim the same.
IN CASE OF ALL ASSESSEES :
Agricultural Income section 10(1)
Partner's share in the total income of the firm (w.e.f. assessment year 1993-94). section 10(2A).
Receipts of casual and non-recurring nature upto Rs. 5,000 in aggregate [winnings from races including horse races are exempted only upto Rs. 2,500] section 10(3)Payments made under Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 and any scheme framed thereunder (subject to certain conditions). section 10(10BB)
Any sum received under a life insurance policy including bonus on such policy. section 10(10D). However, w.e.f. 1.10.96 any amount received in pursuance of keyman's Insurance Policy is taxable.
Interest, premium on redemption, or other payment on notified securities, bonds, certificates, and deposits, etc. (subject to notified conditions and limits). section 10(15)(i). It may be pointed out that the entire amount of interest from Post Office S. B. Account and Post Office Cumulative Time Deposit Account are exempt as per Notification No. S.O. 607(E) dated 9.6.89.
Interest received from Government or from local authority on moneys lent, etc., from sources outside India. section 10(15)(iv) (a)
Interest at approved rate received from Indian industrial undertaking on moneys lent or debt incurred in a foreign country in respect of purchase outside India of raw materials, components or capital plant and machinery, subject to certain limits. section 10(15)(iv)(c). Hedging charges received on account of currency fluctuation is also treated as interest for this purpose.
Interest received at approved rate from specified financial institutions in India on moneys lent from source outside India. section 10(15)(iv)(d)
Interest received at approved rate from other Indian financial institutions or banks on money lent for specified purpose from sources outside India under approved loan agreement. section 10(15)(iv)(e)
Interest received at approved rate from Indian industrial under-taking on moneys lent in foreign currency from sources outside India under approved loan agreement. section 10(15)(iv)(f)
Interest received at approved rate, from approved Indian public companies formed with main object of providing long term housing finance, on moneys lent in foreign currency from sources outside India under approved loan agreement. section 10(15)(iv)(g)
Interest received from any public sector company in respect of notified bonds or debentures (subject to certain conditions). section 10(15)(iv)(h)
Amount received in pursuance of an award (whether in cash or kind) instituted in public interest by Central/State Government or approved award instituted by other body. section 10(17A)(i)
Reward (whether in cash or kind) received from Central/State Government for approved purposes in public interest. section 10(17A)(ii)
Income of specified news agency on fulfilling prescribed conditions (w.e.f. assessment year 1994-95). section 10(22B) Amount adjusted or paid in respect of tax credit certificates under provisions of Chapter XXIIB and any Scheme made thereunder. section 10(28)-Omitted w.e.f. assessment year 1998-99.
Subsidy received from or through Tea Board under notified scheme for replantation/replacement of tea bushes, etc. (subject to certain conditions). section 10(30)
Subsidy received from or through concerned Board under notified scheme for replantation or replacement of rubber/coffee/cardamom plants etc. (subject to certain specified conditions). section 10(31)
Dividend from Indian Companies as referred in section 115-O w.e.f. Asst. Year 1998-99 and income received from Unit Trust of India or Mutual Fund under section 10(23D) w.e.f. assessment year 2000-2001. section 10(33)
Income of industrial units situated in free trade zones and w.e.f. Asst. Year 1994-95, new industrial units in any electronic hardware technology park or software technology park (subject to certain conditions and clarifications). section 10A
Income from a 100 per cent export-oriented undertaking (subject to certain specified conditions). section 10B
Income from a new industry set up in North Eastern Region (w.e.f. assessment year 1999-2000). section 10C.
Dividend other than dividend referred to in section 115-O, interest or long term capital gains of an infrastructure capital fund or infrastructure capital company from investments made on or after 1.6.98 by way of shares or long term finance in any enterprise wholly engaged in the business of developing, or maintaining and operating or developing, maintaining and operating any infrastructure facility, and which has been approved by the Central Government. section 10(23G)
IN CASE OF INDIVIDUALS :
1.
In case of individuals as member of HUF :
Amount received out of family income, or in case of impartible estate, amount received out of income of family estate. section 10(2). Dividend from an Indian company w.e.f. Asst. Year 1998-99 or income from UTI,or other Mutual Fund specified under section 10(23D) w.e.f. assessment year 2000-01, and income by way of venture capital fund w.e.f. assessment year 2001-02. section 10(33)
2.
In case of salaried employees :
Leave travel concession or assistance (subject to prescribed conditions and limited to actual expenses). section 10(5)
Foreign allowances or perquisites paid or allowed by Government to its employees (Indian citizens) posted abroad. section 10(7)Foreign income and remuneration received from foreign Government for services rendered in connection with any co-operative techni-cal assistance programmes and projects in accordance with agreement entered into by Central Government and foreign Govern-ment (subject to certain conditions). section 10(8)
Death-cum retirement Gratuity received by Government servants. section 10(10)(i)
Gratuity received under the payment of Gratuity Act, 1972. The exemption limit has been increased to Rs.3,50,000 w.e.f. 24.9.97. section 10(10)(ii)
Any other gratuity received by employee/legal heirs on retirement, termination of services, death, etc., limited to half month’s salary for each year of completed service (subject to certain conditions) [maximum limit Rs.2,50,000 as per Notification No. SO 394(E), dated 1.2.1996]. section 10(10)(iii)
Payment in commutation of pension received from Government/Private employer (subject to certain limits). section 10(10A)
Amount received by way of encashment of unutilised earned leave on retirement, limited to 10 months salary (w.e.f. assessment year 1998-99). Earlier it was 8 months (subject to certain conditions) [maximum limit from 1.7.1997 Rs.2,40,000 vide Notification No. 10749 dtd. 27.11.98. section 10(10AA)
Retrenchment compensation [limited to notified amount not being less than Rs. 50,000 or amount payable under Industrial Disputes Act, whichever is less]. section 10(10B)
Payment received (not exceeding Rs.5 lacs) by an employee of a company on voluntary retirement in accordance with scheme framed in accordance with prescribed guidelines (in case of companies other than public sector companies, scheme should be approved by C.C.I.T. or D.G.I.T.). section 10(10C)
Accumulated balance payable to employee participating in recog-nised provident fund (subject to certain conditions). section 10(12)
Payment from approved superannuation fund in specified circum-stances and subject to certain limits. section 10(13)
House rent allowance [subject to limits laid down in rule (2A)]. section 10(13A)
Notified allowances or benefits section10(14)
Interest received from Government on deposits in notified scheme out of moneys due on account of retirement. section 10(15)(iv)(i)
3.
In case of general individuals (other than those covered above) :
Income of any member of family or any individual referred to in section 10(8), 10(8A) or 10(8B) which accrues or arises outside India and is not deemed to accrue or arise in India and which is subject to tax in that foreign country. section 10(9)
Educational Scholarship. section 10(16)
Where the scholarship was paid at the sole discretion of the assessee's employer, not to the assessee but to the assessee's children, for meeting their cost of education, the same would be covered by section 10(16) and exemption under the said clause would be available, if the amounts are taken as having been paid to the assessee they were amounts of scholarship hence exempt under section 10(16). [CIT v. M.N. Nadkarni 161 ITR 544 (Bom.) TC 32R 648].
Daily allowance to member of Parliament/State Legislature or Committee thereof. section 10(17)(i)
Any allowance received by MP under Members of Parliament (Con-stituency Allowance) Rules, 1986. section 10(17)(ii)
All other notified allowances not exceeding Rs.2,000 per month w.e.f. Asst. Year 1998-99 received by MLA/Committee member of Assembly. section 10(17)(iii)Ex-gratia payment to rulers by Central Government on abolition of privy purse. section 10(18A)-Omitted w.e.f. assessment year 1999-2000.
Notional annual value of any one palace occupied by former ruler. section 10(19A)
Specified income of member of specified Schedule Tribes. section 10(26)
Winnings received by a resident of Sikkim from lottery, draw of which is held in pursuance of agreement entered into before 1.3.1989 between Sikkim Government and organising agents of lottery. section 10(26AA)-Omitted w.e.f. assessment year 1998-99Income of minor child upto Rs.1,500 per child in the case of all assessees in whose income, the income of minor child is to be clubbed under section 64(1A). section 10(32)
Pension received by an individual or family pension received by his family members who has been in the service of the Central or State Government and has been awarded Param Vir Chakra, or Mahavir Chakra or Vir Chakra or other notified gallantry awards w.e.f. assessment year 2000-2001. section 10(18).
4.
In case of Individual-NRI/nominee or survivor of NRI/Individual to whom bonds have been gifted by NRI :
Interest on notified bonds purchased in foreign exchange (subject to certain conditions). section 10(15)(iid)
IN CASE OF INDIVIDUAL/HUF :
Payment from public provident fund/statutory provident fund. section 10(11)
Interest on Notified Capital Investment Bonds. section 10(15)(iib)
Interest on Notified Relief Bonds. section 10(15)(iic)
SCIENTIFIC RESEARCH ASSOCIATION :
Income of approved scientific research association subject to certain conditions. section 10(21)
EDUCATIONAL INSTITUTION :
Income of educational Institution existing solely for educational purposes. section 10(22)-upto assessment year 1998-99
An educational trust, society or other similar body running an educational institution solely for educational purposes and not for purpose of profit can be regarded as "other educational institutions" covered under section 10(22)- Aditanar Educational Institution v. CIT [1997] 90 Taxman 528 (SC) In case surplus arises from the running of an educational institution, the same cannot be said to function for purpose of profit if the profit is used for purposes and promotion of objects of the institution unless a person enjoys some portion of the profit- Governing Body of Rangaraya Medical College v. ITO [1979] 117 ITR 284 (AP)
HOSPITAL AND NURSING HOME :
Income of hospitals or medical treatment institutions (existing solely for philanthropic purposes). section 10(22A)-upto A. Y. 1998-99
SPORTS AND GAMES ASSOCIATION / INSTITUTIONS :
Income of notified sports or games associations or institutions (subject to certain conditions). section 10(23)
PROFESSIONAL ASSOCIATION :
Income of approved professional bodies other than income from house property, income received for rendering specific services and income by way of interest or dividends (subject to certain conditions). section 10(23A)
PUBLIC CHARITABLE TRUST/REGISTERED SOCIETY/SPECIFIED FUNDS:
Income of institution existing solely for development of khadi or village industries (subject to certain conditions). section 10(23B) Income received by any person on behalf of specified Prime Minis-ter’s Funds or National Foundation for Communal Harmony. section 10(23C)(i) to (iii)
Income received by any notified charitable fund or institution and notified public religious/charitable trust or institution (subject to certain conditions). section 10(23C)(iv)/(v)
Income of any of the following university or other educational institution existing solely for educational purposes and not for purpose of profit w.e.f. assessment year 1999-2000 :-
i)
it is wholly or substantially financed by the Government, [section 10(23C)(iiiab)], or
ii)
the aggregate annual receipts do not exceed the amount of annual receipts as prescribed, [section 10(23C)(iiiad)]
iii)
in case of any other university or educational institution if it is approved by the prescribed authority. [section 10(23C)(vi)]
W.e.f assessment year 1999-2000 income of any hospital or other institution for the reception and treatment of persons suffering from illness and mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation existing solely for philanthropic purposes and not for purposes of profit in the following cases :-
i)
where it is wholly or substantially financed by the Government, [section 10(23C)(iiiac)]
ii)
the aggregate annual receipts do not exceed the amount of annual receipts as prescribed, [section 10(23C)(iiiae)]
iii)
in case of any other university or educational institution if it is approved by the prescribed authority. [sec. 10(23C)(via)]
Income from property held for charitable or religious purposes (subject to certain conditions).
MUTUAL FUND :
Subject to the provisions of Chapter XII-E of the I. T. Act, income of notified mutual fund set up by public sector bank or public financial institution including mutual funds authorised by SEBI or RBI (subject to notified conditions). section10(23D)
REGISTERED TRADE UNION :
Income of trade union under the heads ‘Income from house property’ and ‘Income from other sources’. section 10(24)
RETIREMENT BENEFIT FUNDS :
Interest on securities and capital gains on sale of securities held by provident fund to which Provident Funds Act, 1925 applies/income received by trustees on behalf of recognised provident fund, approved superannuation fund, approved gratuity fund and deposit-linked insurance fund in certain cases. section 10(25)
CO-OPERATIVE SOCIETIES :
Income of certain co-operative societies formed for promoting the interest of Schedule Castes/Scheduled Tribes members. section 10(27)
REGISTERED POLITICAL PARTIES :
Specified income of political Parties. section 13A
NON-RESIDENT INDIANS, NON-CITIZENS ETC. :
In case of Non-resident - Interest on securities or bonds noti-fied by the Central Government including premium on redemption of such bonds. section 10(4)(i)- Notification No. S.O. 3331 dated 19.10.65In case of person resident outside India (as defined in FERA) and person who has been permitted to maintain said account by RBI - Interest received on Non-resident (External) Account. section 10(4)(ii)
In case of Individual (Indian citizen or person of Indian origin, who is a non-resident) - Interest on notified savings certificates issued by the Central Government and subscribed to in convertible foreign exchange. section 10(4B)
In case of Individual coming to India solely in connection with shooting of film (non-citizen of India and non-resident) - Remuneration received for rendering service in connection with shooting of film. section 10 (5A) and Notification No. S.O. 653(E) dated 8.9.82. Omitted w.e.f. assessment year 1999-2000.
In case of Individual - Salaried employee (non-citizen of India)
-
Passage moneys/value of free or concessional passage received subject to prescribed conditions. section 10(6)(i)
-
Remuneration received as employee of foreign enterprise for services rendered during stay in India (subject to certain conditions). section 10(6)(vi)
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Where services commence before 1st April, 1988, remuneration (Rs.4,000 p.m.) received for 24 months as technician in employment of Government, local authority or statutory corporation or approved scientific research institution or in any business in India (subject to certain conditions) and tax on excess of remuneration, if any, paid by employer to Central Government. section 10(6)(viia)-Omitted w.e.f. assessment year 1999-2000
-
Remuneration received for services rendered in connection with employment on a foreign ship (subject to certain limits) (Non-resident). section 10(6)(viii)
In case of Individual (non-citizen of India)
-
Remuneration received by specified diplomats and their staff. section 10(6)(ii)
-
Remuneration received from approved foreign philanthropic association for rendering approved services in India. section 10(6)(via)-Omitted w.e.f. assessment year 1999-2000
In case of Individual Salaried employee (foreign citizen) -
-
Where services commence after 31.3.1988, but before 1.4.1993, only the tax, if paid by employer on his remuneration as technician chargeable under the head ‘Salaries’ (subject to certain conditions) is exempt for 48 months. section 10(6) (viia)-Omitted w.e.f. assessment year 1999-2000
-
Remuneration received as professor or teacher for 36 months (subject to certain conditions). section 10(6)(ix)-Omitted w.e.f. assessment year 1999-2000
-
Remuneration received as employee of foreign Government in connection with his training in Government offices/statutory under-takings, etc. section 10(6)(xi)In case of Individual (foreign national) - Remuneration received for undertaking research work, in India in connection with approved research scheme from foreign source (subject to certain conditions). section 10(6)(x)-Omitted w.e.f. assessment year 1999-2000
In case of Non-resident (other than company) or foreign company - Tax paid by Government or Indian concern under terms of agreement entered into by Central Government with Government of foreign State or international organisation on income derived from Government or Indian concern, other than income by way of salary, royalty or fees for technical services. section 10(6B)
In case of Non-Indian citizen/Indian citizen who is not ordinarily resident in India/non-resident, engaged by the agency for rendering technical services in India - Foreign income and remuneration received by consultant (agreement relating to his engagement must be approved) out of funds made available to an international organisation (agency) under a technical assistance grant agreement between that agency and the Government of a foreign State. section 10(8A)
In case of Non-Indian citizen/Indian citizen who is not ordinari-ly resident in India and the contract of his service is approved by the prescribed authority before commencement of his service - Foreign income and remuneration received by an employee of the consultant referred to in section 10(8A). section 10(8B)
In case of Non-resident individuals :- Interest from Notified Bonds. section 10(15)(iid)
Notified Bonds are:-
i)
NRI Bonds 1988 - issued by SBI as per Notification No. S.O. 847(E) dated 24.10.1989.
ii)
NRI Bonds (Second Series) issued by SBI as per Notification No. S.O. 551(E) dated 27.7.92
In case of Non-resident or individual/HUF who is not ordinarily resident in India - Interest payable by scheduled bank, on depos-its in foreign currency when acceptance of such deposits by bank is approved by RBI. section 10(15)(iv)(fa)
IN CASE OF FOREIGN COMPANIES :
Tax paid by Government or Indian concern on royalty/fees for technical services from Government or Indian concern under agreement which either relates to a matter included in the industrial policy of the Government and is in accordance with that policy or is approved by Central Government.Income by way of fees for technical services rendered in India or abroad in projects connected with security of India pursuant to agreement with Central Government (Notified). section 10(6c).
IN CASE OF FOREIGN STATE/ENTERPRISE :
Any payment made by an Indian company, engaged in business of operation of aircraft, to acquire an aircraft on lease from the Government of a foreign State or a foreign enterprise (person who is non-resident) under approved agreement. sec. 10(15A)-Omitted w.e.f. assessment year 1998-99
OTHERS :
In case of Public financial institution - Exchange risk premium received from person borrowing foreign currency (subject to certain conditions).section10(14A)
In case of Issue Department of Central Bank of Ceylon - Interest on securities. section 10(15)(iii)
In case of Bank incorporated abroad - Interest on deposits made with scheduled bank with approval of RBI. section 10(15)(iiia) In case of Welfare Commissioner, Bhopal Gas Victims, Bhopal - Interest on securities held by the Welfare Commissioner, Bhopal Gas Victims, Bhopal in Reserve Bank’s SGL A/c No. SL/DH-084 and Gold Deposit Scheme, 1999. section 10(15)(v)
In case of Regimental fund or non-public fund - Incomes received on behalf of regimental fund or non-public fund established by armed forces. section 10(23AA)
In case of Authority established under State or Provincial Act - Income of authority established for development of khadi or village industries. section 10(23BB)
In case of Body/Authority established, constituted or appointed under Central, State or Provincial Act - Income of a body or authority established for administration of public religious or charitable trusts or endowments, etc. section 10(23BBA)
In case of Exchange Risk Administration Fund - Income of notified Exchange Risk Administration Funds set up by public financial institutions (subject to certain conditions). section 10(23E)
In case of Investor Protection Fund - Income of Investor Protection Fund set up by recognised stock exchanges in India either jointly or separately as the Central Government may by notification in the official gazette specify in this behalf. section 10(23EA).
In case of Government corporation/body, institution or association wholly financed by Government - Income of Central/State Corporation or Government financed body, institution or association established for promoting interest of members of Scheduled castes and/or Scheduled tribes. section 10(26B)
In case of Local Authority - Specified incomes of a local authority. section 10(20)
In case of Statutory corporation
-
Income of housing boards, etc. section 10(20A)
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Income of marketing authorities from letting of godowns, etc. section 10(29)
Any income by way of dividends or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking. (w.e.f. assessment year 1996-97) sec. 10(23F) but exemption is not available if investment is made on or after 1.4.99. Any income by way of dividends or long term capital gains of an approved Venture Capital Fund or an approved venture capital company from investment made upto 31.3.2000 by way of equity shares in a venture capital undertaking w.e.f. assessment year 2000-2001. section 10(23FA). In case of venture capital company - Income of a venture capital company or venture capital fund set up to raise funds for investment in a venture capital undertaking w.e.f. assessment year 2001-02.section 10(23FB).
Any income by way of dividends, (other than dividends under section 115-O), interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company from investments made on or after 1.6.98 by way of shares or long-term finance in any enterprise carrying on business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility, [Which has been approved by the Central Government on an application made according to prescribed rules fulfilling prescribed conditions] [w.e.f. assessment year 1999-2000] section 10(23G)
Income accruing or arising under section 10(29A) to any of the following Boards :-
1)
Coffee Board - set up under Coffee Act, 1942 w.e.f. assessment year 1962-63.
2)
Rubber Board - set up under Rubber Board Act, 1947 w.e.f. assessment year 1962-63.
3)
Tea Board - set up under Tea Board Act, 1953 w.e.f. assessment year 1962-63.
4)
Tobacco Board - set up under Tobacco Board Act, 1975 w.e.f. assessment year 1975-76. Refer -Tobacco Board v. CIT 243 ITR 4 (SC).
5)
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