The Income Tax Act not only levies taxes on our income but it also has certain provisions that offer a number of tax exemptions. Many of such tax rebates and exemptions come under Section 10 of the Income Tax Act.
Section 10
Most salaried employees receive a specific amount of salary that includes certain allowances too. Section 10 of the Income Tax Act, 1961, offers a long list of tax exemptions that are made especially for salaried people. These allowances are greatly beneficial in taking some load off the shoulders of the breadwinner. In this article, we will confer about the special allowances under Section 10. For that let us first understand the meaning of Section 10.
Special Allowances under Section 10 for Salaried Employees
The tax rebate that is given to salaried people falls under this section of the Income Tax Act, 1961. Here is a list of the exemptions:
Special Individuals Receiving Allowances Exempt
Section 10 (14) also grants a special allowance exemption that is considered as a special allowance given to specific individuals, these are:
- The allowances that are granted to the Judges of High Court.
- The allowances that are given to the employees of UNO
- The Sumptuary allowances that are received by the High Court and Supreme Court Judges
- The allowances that are granted to the government employees who are citizens of India but are working abroad.
Section 10 (14) (i)
Under Section 10 (14) (i), an allowance received by the employee that is given to meet expenses totally and necessary for the performance of official duties (generally called ‘per diems’), for the expenses that he has already/has to incur, are exempted from taxes. In simple words, the exclusion is granted on the basis of:
- Amount of allowance
- The amount that is actually used for the purpose
Section 10
The other important tax exemptions under Section 10 are as follows:
Section 10(10D) - Life Insurance
Any sum that is received under a life insurance plan, be it Death Benefit, Maturity Benefit or any bonus, is tax-free under Section 10.
Section 10 (10)(i) Exemption under Gratuity
The Gratuity received, whether it is through the state or the Centre, that is received by a government employee are full tax-exempted. The amount must be at least one of the below
- 15 days of salary multiplied by years of service.
- INR 20 lakhs or the minimum amount
- The amount that is actually received
For the salaried people who are not covered under the Gratuity Act, the exemption is to the least of:
- Average of Half Month salary for every year of service.
- INR 10 lakh
- Gratuity that is received
Section 10(13a) HRA
An employee who receives House Rent Allowance can get an exemption to the least of the following:
- HRA that is received
- The rent that is paid minus 10% of his salary
- 50% of salary for the 4 metro cities-Delhi, Kolkata, Chennai and Mumbai
Section 10(14) Daily Allowance (Partially Exempt Income)
When on tour or for the duration of a job transfer, a daily allowance is received by the employee that helps him meet the daily expenses. In simple words, the daily allowance is granted when the individual is not in the regular place of duty.
Section 10 (1) Agricultural Income
If the income that is received from agricultural activities is the only income source for the entire financial year, the individual’s income is completely excluded from tax.
Section 10(10AA) Encashment of Leave
When at the time of retirement a government employee encashes his leave, the amount he receives is tax-free. In the case of non-government employees, the exempt is available for the least of the following:
- Earned leave multiplied by the average salary
- Average Salary multiplied by 10
- INR 3 lakh
- Actual leave encashment that is received
Section 10 (10C) VRS Compensation
Under the voluntary retirement scheme, the compensation that is received at the time of retirement is exempted to a maximum limit of INR 5 lakhs.
Section 10(11) Provident Fund
The payments that are received from an individual’s Provident Fund, are excluded under Section 10. It should be noted here, that if the service has been less than 5 years, then the PF is taxable.
Section 10(5) LTA-Leave Travel Allowance
To a certain limit, LTA for travelling domestically is exempted under Section 10 (5). This exemption, however, depends on the limit of LTA that is specified in the salary of the individual.
Section 10(35) Dividends
Mutual Funds and stocks announce dividends regularly. These dividends, irrespective of the company that is paying taxes, are tax-free in the hands of the individual.
Section 10(13) Superannuation Fund
The regular payment made into a fund by an employee towards his future pension is called the Superannuation fund. This amount is also tax exempted.
Section 10(14) Education Allowance (Partially Exempt Income)
An allowance of up to INR 100 per month, per child, is tax-free under Section 10. Also, there is a hostel allowance for expenses that are made towards a child’s hostel fee, up to INR 300 per month per child. This exemption can be availed for two children only.
Section 10(14) Research or Academic Allowance (Partially Exempt Income)
An allowance that is granted with the aim of encouraging training that is related to academics or research.
Section 10(14) Transport Allowance (Partially Exempt Income)
By transport allowance, it is meant the expense that is incurred due to the travel between the home and the workplace. A transport allowance that is up to INR 800 a month, which makes INR 9,600 annually, is exempted.
Section 10(14) Helper Allowance (Partially Exempt Income)
If the employer authorizes the employee to hire or appoint a helper to perform/help in official duties, the employee will receive a Helper Allowance.
Section 10 (14) (ii)
The other tax exemptions under Section 10 (14) (ii) are as follows:
Compensatory/Climate Allowance
When working in places that have a high altitude, the employees may receive a Climate Allowance, which is
- Hilly areas of HP, J&K and the North East- INR 800.
- Siachen- INR 7,000/ month
Allowance for Border Duty
Under Section 10, rule 2BB, allowances that range from INR 200 to INR 1300 per month are paid to the CRPF, BSF, etc. for working across the border.
Modified Field Area Allowance
There is a compensatory modified field area allowance which amounts to INR 1,000 per month.
Field Area Allowance
When working in J&K, Manipur, AP, Nagaland, UP, Sikkim or Manipur, the individual gets an allowance of INR 2600 per month.
Allowance for Duty in Counter Insurgency
An allowance of INR 3900 is received every month to the personnel who are serving in counter-insurgency areas.
High Altitude Allowance
The High Altitude Allowance is granted to the armed forces personnel who are serving in high altitude areas:
An altitude between 9,000 feet to 15,000 feet-INR 1060 per month
An altitude above 15,000 feet-INR 1600 per month
Island Duty Allowance
An Island Duty Allowance is granted to the armed forces personnel who are serving in Andaman and Nicobar and Lakshadweep Islands, it amounts to INR 3,250 monthly.
