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A lot of
such exemptions fall under Section 10 of the Act. Following are the tax exemptions
provided under Section 10:
Leave travel allowance (LTA)
LTA is exempt to a certain extent for domestic travel under section 10(5) of income
tax. The exemption is subject to the LTA limit specified in the individual's salary.
Agricultural income
Income received from agriculture is totally exempt from tax if it is the only source of
income in the financial year. However, if it is accompanied by income from other
sources, it is taxable.
Life insurance
The payment proceeds of a life insurance policy are exempt under section 10(10D).
This includes maturity amount as well as death claims.
Gratuity
Gratuity amount received by a government employee is totally exempt from tax. For
others covered under payment of gratuity act, it is exempt to the least of the
following:
1) 15 days salary based on last drawn salary for each year of service.
2) Rs. 10,00,000
3) Gratuity received
For those not covered under gratuity act, it is exempt to the least of:
Leave encashment
For a government employee, leave encashment upon retirement or leaving the job is
tax free under Section 10. For a non-government employee, it is exempt up to least
of the following:
Commuted pension
Provident fund
Payments received from Provident Fund (PF) are exempt as part of section 10.
However, PF withdrawal is taxable for less than 5 years of service. Also, EPF
(Employees' Provident Fund) balance can be withdrawn only subject to few
conditions.
HRA
House Rent Allowance (HRA) for an employee is exempt to the least of the following:
1) HRA received
2) Rent paid - 10% of salary
3) 50% of salary for Delhi, Mumbai, Kolkata and Chennai and 40% elsewhere.
Dividends received
Dividends announced by any company in case of mutual funds or stocks are exempt
from tax in the hands of an individual, irrespective of the company paying tax on it.
Any equity instrument, share or mutual fund held for more than 1 year is free from
tax at the time of sale. This is also known as long term capital gains.
Superannuation fund
Any amount received from an approved superannuation fund is exempt from tax in
the hands of an individual.
Transport allowance
Transport allowance is exempt up to Rs. 800 per month i.e. Rs. 9,600 per annum.
Transport allowance here means expenditure incurred for travel between place of
residence and place of work.
Education allowance is exempt up to Rs. 100 per month per child for a maximum of
2 children. Hostel allowance is exempt for hostel expenditure up to Rs. 300 per
month per child for a maximum of 2 children.
Interest on securities
Income from securities in the form of interest, premium, etc from certificates, bonds
and deposits is exempt from tax.