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Exempt Income Under Section 10
Not every amount you receive becomes taxable income. Section 10 of the Income Tax Act contains several exemptions that can keep eligible income outside your taxable total, subject to the conditions prescribed for each exemption.
Certain receipts may be fully or partly excluded from taxable income when the relevant Section 10 conditions are satisfied.
Allowances and employment-related receipts covered by specific provisions.
Gratuity, pension-related receipts and other qualifying retirement payments.
Agricultural income, scholarships and other eligible receipts subject to applicable rules.
Some Income Never Enters Your Tax Calculation
Your house rent allowance. Your gratuity at retirement. The income from your farm. Many taxpayers may end up paying more tax than necessary simply because they do not identify income that qualifies for an exemption.
Section 10 of the Income Tax Act contains provisions for incomes that can remain fully or partly outside your taxable income when the relevant conditions are satisfied.
If you're a salaried employee, a retiree, an HUF member, or a farmer, you may have income that qualifies for an exemption. The important question is whether you're identifying and reporting it correctly.
From Understanding Exempt Income to Reporting It in Your ITR
What exempt income means
Which incomes qualify under Section 10
How exemptions differ from deductions
Documents you should keep
How to report exempt income in your ITR
How to reduce reporting errors and mismatches
Reviewed by a qualified Chartered Accountant. Always verify figures against the latest Union Budget and applicable Income Tax Act provisions before filing.
Key Facts About Exempt Income Under Section 10
Before looking at each exemption individually, these are the core rules worth understanding.
Exempt income is not included in your taxable income to the extent the applicable exemption conditions are satisfied. It is kept outside the tax calculation from the relevant stage itself.
Section 10 of the Income Tax Act contains provisions under which specified incomes may be fully or partly exempt, subject to the conditions attached to each clause.
Common examples can include HRA, LTA, agricultural income, gratuity, eligible provident fund withdrawals, qualifying life insurance proceeds, Sukanya Samriddhi receipts, scholarships and other specified incomes.
An exemption removes eligible income from taxation under the relevant provision. A deduction generally reduces income after the applicable income has been computed.
Several salary-related exemptions, including common benefits such as HRA and LTA, are generally not available under the new tax regime. However, not every Section 10 exemption disappears simply because you choose the new regime.
Tax-free does not always mean “leave it out of the return.” Where the applicable ITR form asks for exempt income, report it in the relevant exempt-income field or schedule so your return remains consistent with available tax records.
Exemption limits, eligibility conditions and reporting requirements may change through amendments, Finance Acts and other tax notifications. Always check the rules applicable to the relevant financial or tax year before filing.
Exemption vs Deduction
Example: qualifying HRA exemption or exempt gratuity under the applicable provision.
The deduction is applied according to the relevant provisions after computing the applicable income.
Do not assume that every Section 10 exemption follows the same regime rule. Some salary-related exemptions may be unavailable under the new regime, while other exempt receipts can continue to receive their applicable tax treatment.
What Is Exempt Income?
Exempt income is income that is kept outside your taxable income to the extent the relevant exemption conditions are satisfied. That exempt portion does not form part of the income on which tax is calculated.
Think of it this way. Your taxable income is the amount used to calculate your income-tax liability. Exempt income sits outside that taxable amount under the applicable provision.
Eligible HRA can be exempt subject to the applicable tax regime, limits and conditions.
Qualifying agricultural income can be exempt from income tax, subject to the relevant rules.
A qualifying provident-fund withdrawal may receive exempt treatment when the prescribed conditions are satisfied.
Exempt Does Not Always Mean Unreported
Even when income is not taxable, it may still need to be disclosed in the relevant exempt-income field or schedule of your ITR.
Omitting income that appears in your employer records, AIS, bank information or other tax data can create a mismatch and may lead to a clarification request or notice.
Simple rule: first determine whether the income qualifies for exemption, then report it in the correct place in your ITR wherever disclosure is required.
From 1 April 2026, the Income-tax Act, 2025 is in force. For Tax Year 2026–27 onward, exempt-income provisions are reorganised under the new Act, including Section 11 read with Schedule II and other applicable provisions. The legacy Section 10 references below remain useful for understanding earlier-year rules and commonly used tax terminology.
What Is Section 10 of the Income Tax Act?
Under the Income-tax Act, 1961, Section 10 formed part of Chapter III — “Incomes Which Do Not Form Part of Total Income.” It contained many of the major provisions under which specified income could be kept fully or partly outside total income.
Each exemption had its own conditions. Some depended on the nature of the income, some on the taxpayer category, and others on monetary limits, service conditions, investment conditions or prescribed documentation.
Agricultural income is a familiar example, subject to its statutory definition and applicable tax rules. If you also have other sources of income, understanding how to report agricultural income in your ITR can help you disclose it correctly.
HRA, gratuity and several retirement-related receipts can be exempt only to the extent permitted by their respective provisions and conditions.
First step: identify the exact category of income before deciding whether the whole amount or only a portion qualifies for exemption.
Exempt Income vs. Deductions: What Is the Difference?
Both exemptions and deductions can reduce the amount of income on which you ultimately pay tax, but they operate differently.
An exemption keeps an eligible income or part of that income outside total income under the relevant provision. A deduction generally reduces income after the applicable income has been computed.
Under the Income-tax Act, 1961, many exemptions were associated with Section 10, while popular deductions such as Sections 80C, 80D and 80G appeared under Chapter VI-A.
| Point of Difference | Exempt Income | Deductions |
|---|---|---|
| What it does | Eligible income or a qualifying portion is excluded from total income. | An allowed amount is deducted while computing taxable income. |
| Legacy law location | Many major exemptions appeared under Section 10, Chapter III of the 1961 Act. | Chapter VI-A, including Sections 80C, 80D and other specified provisions. |
| Usually based on | Nature, source or statutory category of income. | Eligible investments, payments, contributions or specified expenses. |
| Effect | The eligible amount does not form part of taxable total income. | Reduces income according to the applicable deduction provision. |
| Example | Agricultural income or eligible HRA exemption. | Eligible 80C investment or health-insurance deduction under Section 80D. |
Who Can Claim Exemptions Under Section 10?
Different taxpayers can qualify for different exemptions. Eligibility depends on the nature of the income and whether the conditions attached to the relevant provision are met.
HRA, eligible travel allowance, gratuity, retirement receipts and specified allowances.
Exemptions can apply where the nature of a particular receipt independently qualifies under the law.
Certain sums received by an individual as a member of an HUF can qualify under the applicable provision.
Gratuity, eligible commuted pension, leave encashment and other qualifying retirement benefits can receive different tax treatment. For a practical filing overview, see our tax rules for pensioners.
Specified interest and other eligible receipts may qualify subject to residential-status and account conditions.
Scholarships granted to meet the cost of education can qualify for exempt treatment.
A partner's qualifying share in the assessed firm's profit receives separate tax treatment from salary, interest or remuneration received from the firm.
Certain funds, trusts, educational institutions and medical institutions may qualify subject to their specific statutory category, receipt thresholds, financing status, approval and other conditions.
Key Types of Exempt Income Under Legacy Section 10
The table below summarises commonly encountered exemptions under the Income-tax Act, 1961. It is a practical reference, not an exhaustive list of every clause or condition.
| Income Type | Legacy Provision | General Treatment |
|---|---|---|
| Agricultural income | 10(1) | Exempt, subject to the statutory meaning of agricultural income and applicable rate rules. |
| HUF member's share of family income | 10(2) | Exempt subject to the provision's conditions. |
| Partner's share of firm's profit | 10(2A) | Exempt share of profit where the statutory conditions are satisfied. |
| Leave Travel Allowance | 10(5) | Partly exempt subject to travel, regime and prescribed conditions. |
| Gratuity | 10(10) | Fully or partly exempt depending on employee category and applicable calculation rules. |
| Commuted pension | 10(10A) | Fully or partly exempt depending on the recipient and pension category. |
| Leave encashment | 10(10AA) | Fully or partly exempt subject to employee type, limits and conditions. |
| VRS compensation | 10(10C) | Exemption available up to the prescribed limit and subject to qualifying conditions. |
| Life insurance proceeds | 10(10D) | Exempt only when the applicable policy, premium and other statutory conditions are met. |
| Disaster compensation | 10(10BC) | Exempt subject to the scope and conditions of the provision. |
| Statutory provident fund payments | 10(11) | Exempt subject to contribution, interest and other applicable conditions. |
| Sukanya Samriddhi payments | 10(11A) | Exempt subject to the applicable scheme rules. |
| Recognised PF accumulated balance | 10(12) | Exempt when prescribed conditions are satisfied. |
| NPS withdrawals | 10(12A), 10(12B) and related provisions | Exemption depends on the nature and amount of the NPS withdrawal. |
| House Rent Allowance (HRA) | 10(13A) | Partly exempt subject to calculation, eligibility and tax-regime conditions. |
| Special salary allowances | 10(14) | Exempt only to the extent and under the conditions prescribed for the allowance. |
| Interest on specified securities or deposits | 10(15) | Treatment varies according to the specified security, account or notification. |
| Scholarships | 10(16) | Scholarship granted to meet the cost of education can qualify for exemption. |
| Gallantry award pensions | 10(18) | Exempt for qualifying recipients and awards. |
| Specified armed-forces family pension | 10(19) | Exempt subject to the provision's specified circumstances. |
| Eligible educational / medical institution income | 10(23C) | Exemption depends on the institution category, financing, receipts, approvals and other statutory conditions. |
| Scheduled Tribe income in notified areas | 10(26) | Exempt only where the statutory identity, source and notified-area conditions are met. |
| Specified Sikkimese individual income | 10(26AAA) | Exempt subject to the detailed conditions of the provision. |
| Share buyback income | 10(34A) | Historical exemption only. Section 10(34A) does not apply to company buybacks taking place on or after 1 October 2024. |
| Specified compulsory-acquisition capital gains | 10(37) | Exempt only when the prescribed land, assessee and acquisition conditions are met. |
| SEZ unit export profits | Section 10AA | Separate provision from Section 10, providing eligible deduction / tax benefit subject to its statutory period and conditions. |
Current-year reminder: because the Income-tax Act, 2025 applies from 1 April 2026, use the current Act and relevant schedules when filing for Tax Year 2026–27 onward. Legacy Section 10 references are especially useful when reviewing earlier financial years, employer records and older tax guidance.
Section-by-Section Exemptions Explained
Here is a closer look at some of the most commonly used exemptions, their basic conditions and how they work in practice.
Agricultural Income — Section 10(1)
Agricultural income earned from land in India is fully exempt. That covers rent from farmland, income from growing and selling crops, and earnings from basic operations like tilling, sowing, and harvesting.
One important point: agricultural income is exempt from direct tax, but it can still affect your tax rate through partial integration.
Say you earn ₹3 lakh from salary and ₹4 lakh from your farm. The tax department adds both to calculate your applicable tax slab. It then calculates tax on that combined figure, and separately calculates tax on your agricultural income alone.
The difference is your actual tax on the non-agricultural income. So your salary may be pushed into a higher bracket — even though your farm income itself isn't taxed.
HUF Income and Partner's Profit Share — Sections 10(2) and 10(2A)
If you're a member of a Hindu Undivided Family (HUF), your share of the family income is exempt under Section 10(2), as long as the payment comes from the HUF's own income or from an impartible estate.
A partner's share of profit from a firm or LLP is exempt. However, salary or interest on capital drawn from the firm remains taxable in the partner's hands.
House Rent Allowance (HRA) — Section 10(13A)
HRA is one of the most commonly claimed exemptions by salaried employees.
Actual HRA paid by your employer.
Rent paid minus 10% of your basic salary.
50% for Mumbai, Delhi, Kolkata or Chennai; 40% elsewhere.
An employee in Delhi earns a basic salary of ₹50,000 per month, receives HRA of ₹20,000, and pays rent of ₹18,000.
| Calculation | Amount |
|---|---|
| Actual HRA received | ₹2,40,000/year |
| Rent paid − 10% of basic salary | ₹18,000 × 12 − ₹60,000 = ₹1,56,000 |
| 50% of basic salary (metro) | ₹3,00,000/year |
| Exempt amount (lowest) | ₹1,56,000 |
The remaining ₹84,000 of HRA received is added to taxable income.
To claim HRA, keep rent receipts, your signed rental agreement, and the landlord's PAN if annual rent exceeds ₹1 lakh.
Leave Travel Allowance (LTA) — Section 10(5)
LTA is exempt on actual domestic travel costs — air, rail, or road fare — for journeys within India taken during leave.
- Available for two journeys in a block of four years
- Covers travel fare only — hotels, food, and local transport are not exempt
- Family members can travel with you, subject to conditions
Your employer provides ₹30,000 as LTA. You spend ₹22,000 on train fare for a trip within India. The exempt amount is ₹22,000 — what you actually spent. The remaining ₹8,000 is taxable.
Special Allowances — Section 10(14)
Section 10(14) covers work-related allowances your employer pays you to meet specific job-related costs.
For maintaining dress required for your job.
For expenses during official travel.
For commuting for official work.
Up to ₹100 per month per child, for up to two children.
Up to ₹300 per month per child, for up to two children.
These are exempt only to the extent you actually spend them on the stated purpose.
Gratuity — Section 10(10)
Gratuity is what your employer pays you in recognition of long service — typically at retirement, resignation, or death.
Fully exempt, with no upper cap.
For employees covered under the Payment of Gratuity Act, exemption is limited to the least of actual gratuity, formula amount, or the notified ceiling.
A private-sector employee with 20 years of service and a last drawn monthly salary of ₹40,000 receives ₹6 lakh in gratuity.
The excess ₹1,38,462 is taxable. Always verify the current notified ceiling before filing.
Leave Encashment, Commuted Pension & VRS Compensation
Government employees: Fully exempt on retirement.
Non-government employees: Exempt up to a notified ceiling; amounts above that are taxable.
Confirm the current notified ceiling before filing.Government employees: Fully exempt.
Non-government employees: One-third of commuted value is exempt if gratuity is also received; half is exempt if gratuity is not received.
Compensation on voluntary retirement is exempt up to ₹5 lakh, subject to Rule 2BA conditions.
The exemption can only be claimed once across all assessment years.Life Insurance Proceeds — Section 10(10D)
Maturity payouts and bonuses from life insurance policies are generally exempt. Death benefits are exempt in almost all cases.
- The policy is a Keyman Insurance Policy
- The annual premium exceeds the prescribed percentage of the sum assured
The source content notes 10% for most policies issued after April 2012 and 15% for policies covering individuals with disability or specified illness.
Provident Fund Withdrawals — Sections 10(11) and 10(12)
Withdrawals from statutory and recognised provident funds are exempt, subject to conditions — including a minimum period of continuous service. Withdrawals before the qualifying period may be taxed.
From April 2021, interest on PF contributions above ₹2.5 lakh per year is taxable. Where the employer makes no contribution, the threshold is ₹5 lakh.
Sukanya Samriddhi Account & NPS Withdrawals
Both the interest credited to the account and the amount withdrawn are fully exempt.
On account closure or opting out, up to 60% of the total payable amount is exempt.
Partial withdrawal during the scheme is exempt up to 25% of your own contributions, subject to PFRDA conditions.
Capital Gains Exemptions — Sections 10(37) and 10(34A)
Capital gains are exempt where the government compulsorily acquires urban agricultural land, provided it was used for agriculture by you or your parents for at least two years before the transfer.
Income received by shareholders from a company's buy-back of shares is described in the source content as exempt where the company has paid additional income tax under Section 115QA.
The old Section 10(38) exemption on long-term capital gains from listed equity no longer applies. Such gains are now dealt with under Section 112A. Check the current rate and threshold before assuming LTCG is exempt.
Other Notable Section 10 Exemptions
Any amount received to meet the cost of education is fully exempt where the payment is genuinely a scholarship for education.
Pensions received by recipients of specified gallantry awards are exempt. Qualifying family pensions received by dependants can also be exempt.
Family pension received in qualifying cases where a member of the armed or paramilitary forces dies in operational duty is exempt.
Compensation from the Central or State government on account of a disaster is exempt, subject to the conditions of the provision.
Interest on certain notified securities, bonds, savings certificates and specified deposits can be exempt where the relevant conditions are met.
For a regular bank fixed deposit, you can calculate your FD interest to estimate the interest earned and maturity value before reviewing the applicable tax treatment.
Income of qualifying universities, educational institutions, hospitals and similar bodies can be exempt subject to the relevant statutory conditions.
Specified income of qualifying Scheduled Tribe members in notified areas can be exempt subject to the conditions of the provision.
Specified income of qualifying Sikkimese individuals can be exempt under the conditions set out in the law.
Units in Special Economic Zones receive a tax benefit on qualifying export profits for the specified period, subject to statutory conditions.
Frequently Asked Questions About Exempt Income Under Section 10
Clear answers to common questions about exempt income, HRA, agricultural income, gratuity, NPS, insurance proceeds, NRIs and ITR reporting.
01 What is Section 10 of the Income Tax Act?
Under the Income-tax Act, 1961, Section 10 contains provisions for specified incomes that do not form part of total income. Depending on the clause, an income may be fully or partly exempt and may be subject to specific eligibility conditions or limits.
02 Is agricultural income fully exempt under Section 10?
Qualifying agricultural income from land situated in India is exempt under Section 10(1). However, in certain cases it can still be considered for partial integration when determining the tax rate applicable to your non-agricultural income.
03 What is the difference between exempt income and a deduction?
Exempt income or the eligible exempt portion is kept outside total income under the relevant exemption provision. A deduction generally reduces income during the computation of taxable income.
Under the Income-tax Act, 1961, many familiar exemptions appeared under Section 10, while deductions such as Sections 80C and 80D were covered under Chapter VI-A.
04 Is HRA exempt under the new tax regime?
Generally, no. The normal HRA exemption available under Section 10(13A) is not available when salary income is taxed under the new tax regime. Employees relying on HRA should therefore compare the applicable regime rules before choosing how to be taxed.
05 Do I need to report exempt income in my ITR?
Where your applicable ITR form asks for exempt income, report it in the relevant exempt-income field or schedule even though no tax is payable on the eligible exempt amount.
Proper disclosure also helps reconcile your return with information appearing in AIS, Form 26AS, employer records and other available tax data.
06 Is the LIC maturity amount tax-free?
A life-insurance maturity amount can qualify for exemption under Section 10(10D), but the result depends on factors such as the type and issue date of the policy, premium limits, sum assured and other statutory conditions.
Death benefits generally receive more favourable treatment, while Keyman Insurance Policies and certain high-premium policies can fall outside the normal exemption.
07 Is gratuity fully exempt from tax?
Qualifying gratuity received by eligible government employees may be fully exempt. For non-government employees, the exempt amount depends on the applicable gratuity provision, calculation formula and statutory ceiling.
Any amount that does not qualify for exemption is generally taxable as salary income.
08 Is leave encashment taxable?
Leave encashment received at retirement can receive favourable tax treatment. Qualifying government employees may receive full exemption, while non-government employees are subject to the applicable Section 10(10AA) calculation, conditions and notified ceiling.
Any balance above the eligible exemption becomes taxable.
09 Is a partner's share of firm profit exempt?
Under the Income-tax Act, 1961 framework, a qualifying partner's share of profit from a firm or LLP is exempt under Section 10(2A).
Salary, remuneration, bonus, commission or interest received separately from the firm does not automatically receive the same exempt treatment.
10 Are NPS withdrawals tax-free?
Eligible NPS withdrawals can receive exemption subject to the applicable statutory and PFRDA conditions. Under the legacy provisions, qualifying lump-sum withdrawal on closure or opting out can receive exemption up to the prescribed portion of the amount payable.
Eligible partial withdrawals can also receive separate exempt treatment subject to the prescribed limit and conditions.
11 Can NRIs claim Section 10 exemptions?
Yes, where a particular exemption is available to the NRI and all relevant conditions are satisfied.
Examples can include qualifying interest from NRE accounts and other specified receipts. The exact treatment depends on residential status, the source of income and the provision being claimed.
12 Does exempt income appear in my AIS or Form 26AS?
It can. Depending on the transaction and reporting source, items such as PF withdrawals, insurance proceeds, interest receipts and other amounts may appear in AIS or related tax information even where you believe the income is exempt.
Review those entries and report or reconcile them appropriately instead of ignoring them simply because the underlying income may qualify for exemption.
Exemption provisions, limits and section numbering can change. Confirm the law applicable to the relevant tax year before using an older Section 10 reference in your return.
File Accurately. Claim What You're Entitled To.
Exempt income is real money — but only if you claim it correctly, under the right regime, with the right documents in hand.
One missing receipt, one incorrect regime choice, or one unchecked exemption limit can cost you a refund or create unnecessary questions during tax processing.
Verify the Rules for the Relevant Tax Year
Exemption limits, eligibility conditions and reporting requirements can change through Finance Acts, notifications and amendments.
What applied in an earlier year may not apply in exactly the same way now. Always verify your figures against the current provisions before filing.
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CA Sagar Batra
ICAI Registered Chartered Accountant · 10+ Years of Professional Experience · 12,000+ Tax Filings
Chartered Accountant with experience in taxation, compliance and business advisory. His work covers Income Tax, GST, TDS, tax notices, business compliance and financial documentation for individuals and businesses across India.