Exempted Income Under Section 10 of the Income Tax Act: How to Claim Them?

Want to reduce your tax burden legally? You are not alone, over 9.19 crore Indians filed tax returns last year, and many used exempted income under Section 10 of the Income-tax Act, 1961 to save big.

From House Rent Allowance (HRA) to agricultural income, these exemptions help lower your taxable income if you know how to claim them.

Read on to explore the key Section 10 exemptions and learn how to make the most of them.

Quick Synopsis

• The list of exempted income under Section 10 includes HRA, income from agriculture and leave travel allowance. 
• Food allowance exemption is a part of Section 10.
• Amount collected as commuted pension by government employees is exempted in this Section.

Major Income Types that Qualify for Exemption Under Section 10

Most sources of earnings that come under Section 10 of the Income Tax Act are deemed to be free from taxation. These exempted income sources are mentioned below:

1. House Rent Allowance

Section 10(13A) of the Income Tax Act of 1961 pertains to House Rent Allowance (HRA). Many salaried individuals receive this component as part of their salary to cover accommodation costs, and it may be exempted from taxable income.

Nonetheless, several exceptions are covered under Section 10(13A) Rule 2A. Individuals can claim tax deductions for the least among the following amounts:

• Actual rent amount (-) 10% of dearness allowance + basic salary
• 50% of (basic salary + dearness allowance) for people staying in Mumbai, Delhi, Kolkata or Chennai, or 40% of (basic salary + DA) for people in other locations.
• Actual HRA provided 

The following categories of expenses u/s 10(13A) of the IT Act are considered under HRA for income tax exemption:

• Rent paid by a taxpayer for their currently occupied property.
• Commission or brokerage paid to an agent to secure rented accommodation.
• Maintenance costs incurred from the rented property or society maintenance expenses.
• Lease agreement registration expenses.

It is essential to note that only direct expenses related to rent are qualified to be exempted income under Section 10 of the IT Act.

2. Income from Acquisition of Land for Agricultural Purposes

Under subsection 10(37), individuals are eligible for income tax exemptions on capital gains arising from the compulsory acquisition of urban agricultural land. However, for this to happen, a couple of criteria need to be met:

• The land must be cultivated or used for agricultural purposes for at least 2 years before selling.
• The Central Government or the RBI must authorise the compulsory acquisition scheme.
• 3. Amount Gained via a Life Insurance Policy

As per Section 10(10D) of the Income Tax Act, you are eligible for a tax exemption on any income or bonus you receive from a life insurance plan. But, one cannot claim a tax deduction for the following insurance policies:

• Life insurance plan bought to cover a specially-abled dependent family member.
• Insurance plans that demand a premium amount exceeding 10% of the assured sum.
• Key man insurance policy

In short, beneficiaries get an entirely tax-free death benefit through Section 10(10D) that offers them financial support completely free from tax commitments. 

4. Food Allowance Exemption 

This category of income tax exemption is considered a business expense and allows an eligible entity to claim up to ₹26,400 rebate in a single year. Those who file this claim u/s 10(14) must receive a food allowance from their employer for up to 22 working days in a month and two meals a day.  

5. Amount Encashed as Pension by Government Employees

If you worked as a government employee, then you can get an income tax exemption on the amount received as a pension under Section 10(10A). 

Besides the above-mentioned exemptions, a few other categories of exempted income under Section 10 are listed as follows:

How to Claim an Exemption Under Section 10?

The steps to claim exemptions under Section 10 of the IT Act have been given below:

Step 1: Understand the Applicable Exemptions

To begin with, you must identify which particular exemptions under Section 10 apply to your income source and personal liabilities. These can cover income tax exemptions for agricultural income, house rent allowance, food allowance or other relevant categories. 

Step 2: Reveal Your Income Sources and List Down the Exemptions

While e-filing timely income tax returns, you must:

• Declare each of the income sources. It has to cover both exempt and taxable income.
• Specify the estimated amount of exempt income. While doing this, you should indicate the income streams that fall under Section 10 for relevant exemption causes.

Step 3: Produce the Necessary Documents

It is essential to keep the required proofs and documents ready to substantiate your income tax relief claims. Depending on the applicant, these documents can be:

• Salary slips
• Investment proofs
• Expense vouchers
• Form 16
• Various certificates issued by employers

Step 4: Determine the Taxable Income

Once you are done subtracting the exempted amount as per Section 10, find out the total taxable income.

Step 5: Select the Correct ITR Form

When choosing the relevant ITR form, you must have a crystal clear idea regarding the exemptions you are about to claim. This way, you can execute accurate filing. After filling out the form, you must upload it within the final date as specified by the Income Tax Department.

Maximum Deduction Limits Under Section 10 

The following are the maximum limits to claim a deduction under Section 10:

• The tax exemption limit for individuals below 60 years is ₹2.5 lakh.
• For senior citizens (60 to 80 years), the exemption limit is ₹3 lakh.
• Super senior citizens (80 years and above) have a tax exemption limit of ₹5 lakh per year.

Pre-requisites to Claim Exemptions Under Section 10

Make sure you have these handy while filing:

• PAN Card
• Bank statement or bank passbook.
• Aadhaar card
• Login credentials for income tax

Final Word

Understanding the exempted income sources under Section 10 can significantly lighten your tax burden. You might be eligible for one or more of these exemptions, so it is crucial to know the claim process and choose the correct Income Tax Return (ITR) form to maximise your benefits.

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