What​‍​‌‍​‍‌​‍​‌‍​‍‌ Is Section 10 Exemption?

When we talk about income tax, knowing the exemptions you can avail of can majorly lessen your tax burden. One of the most significant features for salaried people and taxpayers in India is the Section 10 exemption under the Income Tax Act, 1961. So, what exactly is this exemption, in what way does it function, and how can one get it? We dissect it to simple terms here.

What Is Section 10 Exemption?

Section 10 of the Income Tax Act is a list of various types of earnings that get tax relief either fully or partly. In other words, the earnings mentioned in Section 10 are not combined with your total taxable income, thus lessening your total tax liability.

Even if it is the allowance given to you by your employer, some kinds of investment income, or benefits after retirement, Section 10 is a legal tax-relief program that incorporates a broad gamut of tax-saving measures.

Key Exemptions Under Section 10

Some of the biggest and most frequently used exemptions under Section 10 are:

House Rent Allowance (HRA) [Section 10(13A)]: In case you reside in a rented house and your employer pays you HRA, part of this allowance can be exempted. The exempted portion is the smallest one from the following:

HRA actually obtained

50% of basic salary (metro cities)/40% (non-metro)

oRent paid less 10% of salary

For instance, if your basic salary per month is Rs. 40,000 and HRA is Rs. 20,000, with the rent being Rs. 15,000, the exemption computation will recognize these factors to calculate the exempt portion.

Leave Travel Allowance (LTA) [Section 10(5)]: Subsidy to the traveling within the country that covers the cost of the air, rail, or bus tickets. However, lodging, sightseeing, and meal costs are not part of the deal.

Agricultural Income [Section 10(1)]: The income generated by means of agriculture is completely freed from tax.

Interest on Provident Fund [Section 10(11)]: The interest made on a provident fund is free of charge if contributions are not more than Rs. 2.5 lakhs per year (after FY 2021-22, the interest on the excess amount will be taxable).

Gratuity, Pension, and Leave Encashment [Sections 10(10), 10(10AA), 10(10A)]: The so-called "retirement benefits" like gratuity and commuted pension do not attract the tax subject to certain limits and conditions. The leave encashment exemption depends on whether the employee is a government or non-government employee, with the government employees being fully exempted.

Special Allowances [Section 10(14)]: It consists of food allowance (maximum Rs. 26,400 per year), internet allowance, conveyance, and research if the expenditure was made for official purposes.

Dividend Income [Section 10(34)]: The exemption on dividends from Indian companies is up to Rs. 10,000 (valid till FY 2019-20).

Others: Exemptions for Scheduled Tribes members in certain states, income from educational or medical institutions under Rs. 5 crore turnover, income from shares bought back before October 2024, and the list goes on.

Important Points to Remember

The Section 10 exemptions can mostly be used together with the old tax regime. The new tax regime normally does not permit the use of these exemptions.

In order to be entitled to exemptions you need to have correct and proper documentation such as rent receipts, Form 16, salary slips, and declarations from your employer.

A well-done Income Tax Return with the exact disclosure of the exempt income is the way to be in line with the law and to dodge any investigation.

How to Claim Section 10 Exemptions?

Claiming these exemptions requires you to:

1.Have all the documents that prove your exempt income ready and organized.

2.Provide detailed information about exemptions in your Income Tax Return form.

3>If asked, submit these papers for the verification process.

4.Before filing your return, decide on your tax regime: If you want to benefit from the exemptions, you should be under the old regime.

Conclusion

With Section 10 exemptions, certain incomes are removed from the tax net, hence providing great tax relief to the people on salaries and to the taxpayers in general. Recognizing these deductions, tracking changing regulations, and making the right claims can free you a lot of money every financial ​‍​‌‍​‍‌​‍​‌‍​‍‌year.