Section 11 with Schedules Explained
Income Tax Act 2025
List of Exempt Income in India in Income Tax Act 2025
Agricultural Income
Agriculture income is exempt from Income Tax in India. The following are detailed type of Agriculture income which are exempt-
Agriculture Production
- Rent or Revenue: Any money earned as rent or revenue from land situated in India and used for agriculture.
- Example: Mr. Sharma owns 5 acres of agricultural land in a village. He leases it to a local farmer for ₹1,00,000 per year. This rental income of ₹1,00,000 is exempt from tax.
- Agricultural Processes: Income from any process typically performed by a Farmer or receiver of rent-in-kind to make agricultural produce fit for the market.
- Example: A farmer grows wheat and performs basic cleaning and sun-drying to make it saleable in the local market. The income generated from this process is agricultural income.
- Sale of Produce: Income from the sale of such produce by the cultivator or receiver of rent-in-kind.
- Example: Ms. Devi grows and harvests tomatoes on her farm and sells the raw tomatoes for ₹50,000. This entire amount is exempt agricultural income.
- Nursery Income: Any income derived from saplings or seedlings grown in a nursery is specifically considered agricultural income.
- Example: A business that cultivates and sells marigold saplings earns ₹2,00,000. This income is treated as exempt agricultural income.
Agricultural Buildings
Income received from buildings (like dwelling houses, storehouses, or out-buildings) connected with agricultural land is also exempt if:
- The building is owned and occupied by the receiver of rent/revenue or occupied by the farmer used for storing agricultural goods.
- The building is on or in the immediate vicinity of the agricultural land.
- Example: A farmer owns a farmhouse on his agricultural land, which he uses to live in and to store seeds and equipment. Any rental income related to this building is exempt from tax.
Key Exclusions
What is NOT Agricultural Income
The following types of income are not considered agricultural and are therefore taxable:
- Non-Agricultural Use: Income from buildings or land used for any purpose other than agriculture even though they are in rural and connected to agriculture land (e.g., letting for residential purposes or business/profession).
- Example: If the farmer in the previous example rents out his farmhouse for a movie shoot, the rental income received would be taxable and not considered agricultural income.
- Urban Land Transfers: Any income arising from the transfer of land located in specific urban areas or within certain aerial distances of municipalities/cantonment boards based on population limits (e.g., within 2km of a municipality with a population over 10,000)(even though they are connected to agriculture land).
- Example: Selling a piece of agricultural land located just 1 km outside a city with a population of 50,000 will result in taxable capital gains, as it falls within the specified urban limits.
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Insurance Bonus & Maturity Receipts Exemption in Income Tax Act 2025
Policy Type | Annual Premium Limit | Amount Receipt on Maturity & Bonus |
Life Insurance (LIP) | Up to ₹5,00,000 | Fully Exempt |
Life Insurance (LIP) | Above ₹5,00,000 | Taxable (Income from Other Sources) |
ULIP | Up to ₹2,50,000 | Fully Exempt |
ULIP | Above ₹2,50,000 | Taxable as Capital Gains |
Death Benefit | No Limit | Always Exempt |
Regular Policy- Life Insurance
The life insurance policies issued on or after 1st April, 2023 exemption is restricted to cases where the aggregate premium for all such policies (excluding ULIPs) does not exceed ₹5,00,000 in any year during the term.
- Example: Priya pays an annual premium of ₹1,00,000 for Policy A and ₹3,00,000 for Policy B, both taken after April 1, 2023. Her total annual premium is ₹4,00,000. Since this is below the ₹5,00,000 limit, the maturity proceeds from both policies will be tax-exempt.
In case premium exceeds Rs.5,00,000/- the whole maturity amount will be added in income of tax payer.
- Example: Rohan pays ₹6,00,000 as an annual premium for a single life insurance policy. At maturity, he receives ₹80,00,000. Since the premium exceeded the ₹5,00,000 limit, the maturity proceeds will be taxable.
Key Exceptions (Taxable Payouts)
The following payouts are not eligible for the tax exemption under Schedule II and are generally taxable:
- Death Benefit: Sums received on the death of the insured person remain fully exempt, regardless of the premium amounts or ratios mentioned above.
- Example: Even if Rohan (from the example above) was paying a ₹6,00,000 premium, if he passes away, the entire sum assured paid to his nominee will be fully exempt from tax.
- Keyman Insurance Policy: Sums received under a Keyman insurance policy (a policy taken by a business on the life of a key employee) are taxable.
- Example: A tech company receives a payout of ₹1 crore from a policy on its CEO’s life. This amount is taxable as business income for the company.
- Specified Medical Payouts: Any sum received under section 127(4) (related to maintenance of a dependent with a disability) is not excluded from total income under this schedule.
Unit Linked Insurance Policies (ULIPs)
The policies issued on or after 1st April, 2023 exemption is restricted to cases where the aggregate premium for all such policies does not exceed ₹2,50,000 in any year during the term.
- Example: Amit pays an annual premium of ₹2,00,000 for a ULIP purchased in 2024. The maturity amount will be tax-free because the premium is below the ₹2,50,000 threshold. If he had paid ₹3,00,000 annually, the gains would become taxable.
How the Tax is Calculated on Insurance fund Receipts
When a payout is not exempt because the premium exceeded these limits, the taxable amount is generally calculated as follows:
- Taxable Amount: The sum received (including bonus) minus the total premiums paid over the policy term (provided those premiums were not already claimed as a tax deduction).
- Income Head: This income is typically taxed under the head “Income from Other Sources.
- Example: An individual paid a total premium of ₹60 lakhs over 10 years for a policy (₹6 lakh/year). At maturity, they receive ₹95 lakhs. The taxable income will be ₹35 lakhs (₹95 lakhs – ₹60 lakhs), taxed under “Income from Other Sources.”
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Provident Fund (PF) Exemption & Deduction in Income Tax Act 2025
The amount withdrawn from the Provident fund is exempt.
Key exceptions
- With Employer & Employee Contribution: The interest earned on employee contributions exceeding ₹2.5 lakh per year is Taxable.
- Example: An employee contributes ₹3,00,000 to their PF account in a year. The interest earned on the extra ₹50,000 (i.e., ₹3,00,000 – ₹2,50,000) will be taxable.
- No Employer Contribution ( Self contribution): The interest earned on self-contributions exceeding ₹5 lakh per year is Taxable.
- Example: A government employee contributing to the General Provident Fund (GPF) deposits ₹6,00,000 in a year. The interest credited on the excess contribution of ₹1,00,000 will be taxed.
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Sukanya Samriddhi Exemption & deduction in Income Tax Act 2025
Fund Received
The fund withdrawal from Sukanya Samriddhi Account Scheme is not included in the total taxable income of the individual.
- Example: A parent opened an SSY account for their daughter. Upon maturity, the accumulated amount of ₹25 lakhs is withdrawn. This entire amount is tax-free.
Deduction on Contributions
Deposits made into a Sukanya Samriddhi Account (in the name of a self or their girl child) qualify for a deduction under Section 123, within the overall limit of ₹1,50,000.
- Example: If a parent deposits ₹1,50,000 into their daughter’s SSY account, they can claim a deduction for the full ₹1,50,000 from their taxable income.
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NPS Exemption and deduction in Income Tax Act 2025
The NPS has detailed rules regarding deductions for contributions and the taxability of withdrawals:
Contribution Type | Section | Old Tax Regime | New Tax Regime |
Employer Contribution | 14% of Salary (Govt. Central & State both)
10% of Salary (Private) | 14% of Salary (All Employees) | |
Additional Self-Contribution | Up to ₹50,000
(Over & above ₹1.5 Lakh limit) | Up to ₹50,000 |
A. Deductions for Contributions
- Employer Contribution: If an employer contributes to an employee’s NPS account, the employee can claim a deduction of the whole amount, up to 14% of their salary (if the employer is the Central or State Government) or 10% of their salary (for other employers).
- Example: A private sector employee has a basic salary of ₹10,00,000. Their employer contributes ₹1,00,000 (10%) to their NPS account. The employee can claim a deduction for this entire ₹1,00,000.
- Note: If the employee is under a New Tax regime , the limit for non-government employers also increases to 14%.
- Individual Contribution (Self Contribution): An individual can claim an additional deduction of up to ₹50,000 for their own contributions to the NPS, over and above the general ₹1.5 lakh limit.
- Example: An individual has already exhausted their ₹1.5 lakh deduction limit. They contribute an additional ₹50,000 to their NPS account. They can claim a further deduction for this ₹50,000.
B. Taxability of Withdrawals of NPS
Particulars | Tax Treatment |
Exempt Portion | Any payment received from the National Pension System Trust that does not exceed 60% of the total amount payable at the time of closure or opting out is fully exempt from tax. |
Taxable Portion | Any amount received that exceeds the 60% exempt limit is treated as taxable income in the year of receipt. |
Annuity Purchase | No income is deemed to be received if the withdrawal amount is used again for purchasing an annuity plan in the same tax year. |
Pension from Annuity | Periodic pension payments received from a fund (purchased using NPS funds) are taxable as income. |
Death Benefits | Sums received by a nominee upon the death of the individual (subscriber) are fully exempt and not treated as income for the nominee. |
- General Exemption: Withdrawals from the NPS Trust are exempt from tax if they are received on the closure of the account or when the person opts out of the scheme, provided the payment does not exceed 60% of the total amount payable at that time.
- Example: Upon retirement, a person’s NPS corpus is ₹50 lakhs. They can withdraw up to 60% of this, i.e., ₹30 lakhs, completely tax-free. The remaining ₹20 lakhs must be used to purchase an annuity.
- Taxable Portion: Any amount received on closure or opting out that exceeds the 60% exempt limit is treated as taxable income in the year it is received.
Pension received from an annuity plan purchased after closure or opting out is also taxable as income.
- Example: From the annuity purchased with ₹20 lakhs, the person receives a monthly pension of ₹15,000. This pension is taxable as income in their hands.
- Unified Pension Scheme (UPS): Similar rules apply to subscribers of the Unified Pension Scheme, where payments at retirement or superannuation are exempt up to 60% of the individual corpus.
- Death Benefits: If the account is closed due to the death of the individual, the amount received by the nominee is not taxable. Similarly, if a minor’s account is closed due to the minor’s death, the amount received by the parent/guardian is not taxable.
- Example: If an NPS subscriber passes away before retirement, and their nominee receives the entire corpus of ₹40 lakhs, this amount is fully tax-exempt for the nominee.
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Agniveer Fund Receipt Exemption & deduction in Income Tax Act 2025
Receipt from Agniveer Fund Exemption
- The full amount receipt from this fund is exempted in hand of the receiver or nominee. There is no lower and higher limit of amount.
- The fund received from agniveer fund will be shown in Exempt Income in Income Tax Return.
- Example: An Agniveer completes their service term and receives a ‘Seva Nidhi’ package of ₹11.71 lakhs. This entire amount is exempt from income tax.
Deduction on Agniveer Payment
- The amount is allowed a deduction for the whole of the amount paid or deposited into their account in the Fund during the tax year. There is no max limit of upper or lower deduction amount because the actual amount is paid by the Central government not by individuals.
- The deduction for contributions to the Agnipath Scheme is allowed under Section 125.
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Schedule III
The list of exemptions mentioned in Schedule III
Income from HUF
Any sum received by a member from a Hindu Undivided Family is exempt, provided it is paid out of the family’s income.
- Example: A HUF earns rental income of ₹5,00,000, which is taxed at the HUF level. If a member of the HUF receives ₹1,00,000 from this income, that sum is tax-free in the member’s hands.
House Rent Allowance (HRA) Exemption in Income Tax Act 2025
The HRA is exempt to minimum of following-
- Rent less 10% of Salary
- Actual HRA
- 40/50% of Adjusted Salary
- Example: An employee in Delhi receives HRA of ₹20,000/month, their basic salary is ₹50,000/month, and they pay rent of ₹22,000/month. The exempt HRA would be the minimum of the three calculations, which helps reduce their taxable salary income.
Leave Travel Concession (LTC)
Reimbursement for travel expenses for self and family is exempt within prescribed limits.
- Example: An employee receives ₹30,000 from their employer as reimbursement for flight tickets for a family vacation within India. This amount is exempt from tax, subject to specified conditions.
Special Allowances
Allowances granted to meet duties of an office or to compensate for the cost of living in specific locations remain exempt.
- Example: A marketing employee receives a daily travel allowance to meet clients. The amount spent on official travel is exempt from tax.
Gallantry Awards
Pensions for winners of gallantry awards (and family pensions for their heirs) are completely tax-free.
- Example: A recipient of the Param Vir Chakra receives a monthly pension. This entire pension amount is exempt from income tax.
Capital Gains on Agricultural Land
Gains from the transfer of rural agricultural land are exempt if the land was used for farming and the transfer is due to compulsory acquisition.
- Example: The government acquires a farmer’s rural agricultural land for a highway project. The compensation received by the farmer is not subject to capital gains tax.
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Schedule IV: Non-Residents & Foreign Entities
This schedule lists the exemption of Non-resident earning from some particular sources in India-
NRE Account Interest
Interest earned on Non-Resident External (NRE) accounts by individuals permitted by the RBI is tax-free.
- Example: An NRI living in the USA earns ₹50,000 as interest on their NRE fixed deposit in an Indian bank. This interest income is not taxable in India.
Foreign Officials
Remuneration received by officials of foreign embassies or trade consulates is exempt, provided their home country offers a reciprocal exemption to Indian officials.
- Example: A diplomat from Germany working at the German embassy in New Delhi receives a salary. This salary is exempt from Indian income tax.
Foreign Enterprise Employees
Salaries of employees of foreign enterprises are exempt if their stay in India does not exceed 90 days and their employer is not engaged in business in India.
- Example: A consultant from a UK firm visits India for 80 days for a market survey. Their UK employer pays their salary. This salary is not taxed in India.
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Detailed Explanation of Section 11
Legal Structure of Section 11
Section 11 is divided into four key sub-sections:
Sub-section (1): Income Exclusions
Incomes listed in Schedules II, III, IV, V, and VI are excluded from total income, provided the conditions specified in these schedules are fulfilled.
Sub-section (2): Non-fulfillment of Conditions
If the conditions specified in the schedules are not met in a tax year, the previously excluded income becomes taxable as part of the total income for that year.
Sub-section (3): Exempt Persons
Persons listed in Schedule VII are exempt from being charged tax on their total income, subject to the fulfillment of conditions specified in the schedule.
Sub-section (4): Non-fulfillment of Conditions for Exempt Persons
If the conditions in Schedule VII are not satisfied, the income of such persons becomes taxable under the Act.
Sub-section (5): Rule-making Authority
The Central Government is empowered to make rules or issue notifications to implement the provisions of Section 11 and the related schedules.
Problems with the Old Law (Section 10 of the 1961 Act)
Under the previous Income-tax Act, 1961, Section 10 provided exemptions for certain incomes. However, it was criticized for:
- Ambiguity in conditions for exemptions.
- Frequent disputes between taxpayers and authorities.
- Lack of clarity on the scope of exemptions.
How Section 11 Solves These Issues
The new Section 11 addresses these challenges by:
- Clearly enumerating exempt incomes and persons in dedicated schedules.
- Defining conditions for exemptions, reducing ambiguity.
- Providing a structured mechanism for taxing incomes if conditions are not met.
- Empowering the government to issue rules and notifications for better implementation.
Benefits for Taxpayers
- Clarity and Predictability: Taxpayers can easily determine whether their income is exempt or taxable.
- Reduced Disputes: Well-defined conditions minimize litigation.
- Simplified Compliance: Clear rules make it easier for taxpayers to comply with the law.
Practical Examples
Here are some illustrative examples to explain the application of Section 11:
- Salary Income:
- Allowances such as house rent allowance (HRA) may be listed in Schedule II. If the conditions (e.g., rent receipts) are met, the allowance is exempt from tax.
- Capital Gains:
- Gains from the sale of government-notified bonds (Schedule III) are exempt if the bonds are held for the specified period.
- HUF Members’ Receipts:
- Income received by members of a Hindu Undivided Family (HUF) from the HUF’s property may be exempt under Schedule IV.
- Interest on Government Bonds:
- Interest on certain government bonds (Schedule V) is exempt if the bonds are notified by the government.
- Scholarships and Compensation:
- Scholarships for education or compensation for natural disasters (Schedule VI) are exempt, provided the conditions are met.
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Schedule-Wise Explanation
Schedule II: Salary and Allowances
Includes exemptions for allowances such as HRA, leave travel allowance, and special allowances for specific duties.
- Example: HRA exemption for rent paid exceeding 10% of salary.
Schedule III: Capital Gains
Lists exempt capital gains, such as those from the sale of government-notified bonds or agricultural land.
- Example: Gains from selling rural agricultural land.
Schedule IV: Income of HUFs
Covers income received by members of an HUF from the family’s property.
- Example: ₹1 lakh received from HUF property is exempt.
Schedule V: Interest and Dividends
Includes exemptions for interest on government bonds and dividends from specified companies.
- Example: Interest on ₹2 lakh government bonds is exempt.
Schedule VI: Miscellaneous Incomes
Covers scholarships, compensation for disasters, and other government-notified incomes.
- Example: A ₹50,000 scholarship is exempt.
Schedule VII: Exempt Persons
Lists persons or entities (e.g., charitable trusts, educational institutions) exempt from tax, subject to conditions.
- Example: Income of a registered charitable trust is exempt.
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