Taxes, as defined, are those charges applied on payments, products, services, exchanges and administrations which the government governs. The income derived from these charges, known as taxes, is used for the nation’s overall development and the welfare of the country’s general public.
Ranging from administration to recovery of Income-tax, the statute that is considered of utmost crucial and facilitates obtaining the charges is called the Income Tax Act, 1961 of India.
As per this act, anyone who belongs to India is liable to pay taxes if they earn above a certain amount of income. Hence, Section 10 of the Income Tax Act, 1961 was brought into existence to balance out the idea of saving on taxes and paying the same by the taxpayers.
Section 10 of the Income Tax Act, 1961- The Exemptions
Section 10 of the Income tax Act of 1961 lists different types of categories under which the taxpayers get exempted to pay the taxes are as follows:
- Section 10(1): Self employers of the agricultural field
- Section 10(2): Any amount received by an individual who is a member of the Hindu undivided family.
- Section 10(2A): The income earned by the firm partners shared amongst them.
- Section 10(4) (i) – Section 10(4B): Any interest given to:
- 10(4)(i)- a non-resident Indian
- 10(4)(ii)- the account of a non-resident Indian
- 10(4B)- a non-resident Indian but is of an Indian origin
- Section 10(5): Concession given on travelling to any employee who is an Indian citizen
- Section 10(6): Income earned or amount received by non-resident Indian
- Section 10(6A), (6B), (6BB), (6C): The application of government tax on the income of a firm that is not Indian
- Section 10(7): Allowances given to the employees who are positioned abroad by the government
- Section 10(8A)- Section 10(9): Income earned by:
- 10(8): foreign employees positioned in India under the Cooperative Technical Assistance Program
- 10(8A): a consultant
- 10(8B): a consultant’s team/staff/employees
- 10(9): any family of a foreign employee positioned in India under the Cooperative Technical Assistance Program
- Section 10(10): Gratuity
- Section 10(10A) – Section 10(13): Any amount earned by an individual:
- 10(10A): as the commuted value of the pension
- 10(10B): as workers being the individuals here, the compensation due to relocation
- 10(10BB): as per the Bhopal Gas Leak Disaster Act 1985
- 10(10BC): as compensation due to an event of a disaster
- 10(10C): as a remittance in return for the retirement from a PBC or any other company/organisation
- 10(10CC): as income through taxation based on the prerequisites
- 10(10D): as a life insurance policy
- 10(11): via the Statutory Provident Fund
- 10(12): via a recognised fund
- 10(13): through a Superannuation fund
- Section 13(A): House Rent Allowance
- Section 10(14): The amount given as allowance to fulfil the business expenses
- Section 10(15)- Section 10(23EB): Income received:
- 10(15): as interest
- 10(15A): by an Indian company for the lease of an aircraft from a foreign firm/government
- 10(16): as a scholarship
- 10(17): in the form of allowances to MLCs, MLAs and MPs
- 10(17A): as a government award
- 10(18): as pension to individuals titled as winners of heroism
- 10(19): as pension to family members of armed forces
- 10(19A): from a palace of an ex-ruler
- 10(20): by local authorities
- 10(21): by an association who are engaged in scientific research
- 10(22B): by a broadcasting agency
- 10(23A): by particular professional institutes
- 10(23AA): via the Regimental fund
- 10(23AAA): via an employee welfare trust
- 10(23MB): as insurance pension fund
- 10(23B): by village development institutions
- 10(23BB): by state-level khadi and village industries board
- 10(23BBA): by bodies of institutions that are associated with religion and charity
- 10(23BBB): by the European economic community
- 10(23BBC): via the SAARC supported regional projects
- 10(23BBE): by the IRDA]
- 10(23BBH): via Prasar Bharati
- 10(23C): as specific funds by individuals
- 10(23D): through Mutual funds
- 10(23DA)j: through a securitisation trust
- 10(23EA): via an IPF
- 10(23EB): by the credit guarantee trust for small industries
- Section 10(23EB)- Section 10(23ED): 10(23EB): Income Exempted-IPF
- 10(23ED): Income Exempted- Specified amount received via Capital firms/businesses
- Section 10(24)- Section 10(36): Income earned via:\
- 10(24): authorised trade unions
- 10(25): provident funds
- 10(25A): Employee’s state insurance fund
- 10(26): Schedule tribe members
- 10(26AAN): by a person who belongs to the Sikkimese region
- 10(26B): corporations that work for the backward classes
- 10(26BB): corporations that work for the protection of the minorities
- 10(26BBB): corporations who work for the former servicemen
- 10(27): cooperative societies that work for the protection of scheduled castes
- 10(29A): community boards
- 10(30): subsidies through Tea board
- 10(31): subsides through any concerned board
- 10(33): Unit trust of India
- 10(34): dividends through an Indian firm
- 10(35): sale of Unit trust of India units and other mutual funds
- 10(36): an omitted securitisation trust
- Section 10(37)- Section 10(49): Any income:
- 10(37): gained based on a mandatory acquirement of land that pertains to urban agriculture
- 10(38): acquired through share and security transfers that fall under the ambit of Security Transaction Tax
- 10(39): received from an international function about the field of sports
- 10(40): acquired as a grant from a company that is a subsidiary of the parent company
- 10(41): received based on any asset transfer if a company that deals with power distribution/generation/transmission
- 10(42): earned by an individual of power established in more than one country
- 10(44): generated via NPS trust
- 10(45): granted to the chairman or any member of the UPSC
- 10(46): falls under the ambit of specified income that relates to authoritative bodies
- 10(47): omitted under the infrastructure debt fund category
- 10(49): earned by the National Finance holdings company
Section 10 of the Income Tax Act, 1961- Other Exemptions
Apart from their daily incomes, salaried individuals get bestowed upon several benefits, some of which are considered part of the total income and some exemptions under section 10 of the said act.
As per section 10(14) of the Income Tax Act, 1961, certain allowances fall under the ambit of special exemptions for which no tax gets imposed. The exception is based on the amount utilised for the specific purpose, whichever is less in amount. The grants bestowed upon individuals as per this section is as follows:
- Daily Allowance-
Granted to individuals to cover for their expenses incurred either on an official tour or while shifting to a new place of job.
- Travel Allowance-
Granted to employees to cover for their travel expenditure regarding the official tour, shifting of job or transferring personal belongings etc.
- Helper Allowance-
Granted to individuals, also known as helpers, hired to take care of official duties
- Uniform Allowance-
Granted to officers to purchase and maintain their uniform, if and when required for their duty.
- Conveyance Allowance-
Granted to individuals to cover expenses incurred via official travelling. However, it does not provide reimbursement for travelling from the residence to the office.
- Research/Academic Allowance-
Granted to individuals by the academic institutions to promote research/academic training and education.
Section 10(14ii) of the Income Tax Act
In continuation with the section mentioned above, here are further grants bestowed upon individuals:
- Climate Allowance:
Individuals who work in high altitude areas have this allowance
- Tribal Area Allowance:
Granted to individuals working in areas that are pre-classified as Tribal/Schedule such as Karnataka, Madhya Pradesh, West Bengal etc
- Border Area Allowance:
Allowance granted to army officials who are performing their duties in the border areas, remote locations or any chaotic places
- Compensatory Field Allowance:
It includes allowances granted to any individual who is serving their responsibilities and suspending their duties in areas such as Jammu and Kashmir, Himachal Pradesh, Andhra Pradesh etc
- Children Education Fund:
Allowance granted to a family who has children, extending up to the maximum of 2.
- Counter Insurgency Allowance:
Allowance granted to those armed officials designated in counter-insurgency
- Island Duty Allowance:
Allowance granted to those armed officials employed in islands of India such as Andaman and Nicobar Islands or the groups of islands that fall in Lakshwadeep
Section 10 (14) of the Income Tax Act
Continuing with the above-said section, there are special allowances granted to certain individuals which constitute as exempt, and they are as follows:
- Grant in terms of allowances received by the employees of UNO
- Grant in terms of allowances received by the judges of the High Court
- Grant in terms of sumptuary allowances received by the judges of High Court and Supreme Court
- Grant in terms of allowances received by the government employees who work abroad but are of the Indian origin
Disclosure Of Exempted Income- For Salary Allowances
As per section 10 of the Income Tax Act, several particular allowances are granted to individuals who earn their income in the form of salaries that do not have any added taxes associated with them. When such salaried taxpayers are filing for tax returns under ITR-2, for the grant to get bestowed upon, they need to disclose such type of exempted income under the section: Schedule S- Details of Income from Salary.
The grant can only be allowed if the exemptions fall under the following categories and are disclosed by the salaried individual while filling their income tax returns:
- House rent allowance is also known as HRA
- Leave travel allowance, also known as LTA
- Encashment of Leave
- Pension
- Gratuity
- Voluntary Retirement Scheme
- Perquisites
Disclosure Of Exempted Income -For Non-Salary Allowances
As per section 10 of the Income Tax Act, there are grants given in terms of exempted tax, which is no taxes are added to certain allowances, to individuals who earn their income in a non-salaried form. Non-Salaried taxpayers must disclose this type of income while filing their income tax returns- ITR 1 under Schedule EI- Details of Exempt Income.
The grant for non-salaried individuals is only if their income falls under the following categories of exempt allowances and gets disclosed by the taxpayers in their income tax return forms:
- Dividends
- Agricultural Income
- Interests on funds
- Capital Gains
Consequences Of Not Disclosing Exempted Income
Section 10 of the Income Tax Act also categorically specifies the individuals’ consequences if they fail to disclose the exempted income.
As said above, certain income categories do not have any added taxes associated with them. Because of that, if the individuals fail to disclose this aspect, they will be omitted from receiving the grant and liable for consequences. This liability is because the Income Tax department exists to make sure all the transactions are authentic. When they cannot pinpoint the source of such income that the taxpayers have failed to mention under the exempted allowance category, they will be put under severe scrutiny by the department. Hence, it becomes essential for the individuals, salaried and non-salaried, to disclose their exempted incomes.
Conclusion
From creating a set of guidelines to updating the individuals about the grants and allowances, section 10 of the Income Tax Act acts like a saviour. Be it shining light on all types of exemptions granted to different individuals or briefing detailing that all grants salaried and non-salaried individuals receive under the exempted income section benefit the taxpayers.
The very fact that section 10 of the Income Tax Act put forth the consequences for failing to disclose the exempted incomes shows how supportive it is towards the individuals who pay taxes diligently. One can very easily say, section 10 of the Income Tax Act, in a nutshell, is crafted solely for the advantage of the taxpayers.
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