In India, various tax exemption categories depend on your income bracket. Some sources of income like pension, agricultural income, several allowances and more may be exempt from taxes and allow you to claim tax exemption. In addition, the TDS or Tax Deduction at Source can also be availed for income tax exemption in India.
What are Tax Exemptions?
Tax exemption in India is a statutory exclusion from taxable income or the absence of taxation in special circumstances. You may get partial or total tax relief, reduced tax rates or partial tax levied on a portion of the tax liability.
Tax Exemption 2021 India
The Union Budget for FY 2021 has provided tax exemption in India, eligible extension for startups in the claiming of tax exemptions or tax holiday from capital gains. Mrs Nirmala Sitharaman, the Finance Minister, aided in investments to startups which extended the eligibility conditions to taxpayers claiming a tax holiday and capital gains exemption for such investments till March 2022. Also, companies or LLPs incorporated before or on the 31st of March 2022 and eligible businesses can now claim a rebate on tax up to 100% of their profits. The extension applies to HUFs and individuals investing in these eligible startups.
Income Tax Exemptions India
Here’s a list of the various tax exemption sections available in India.
|
Relevant Section |
Nature of source of income |
|
10-(1) |
Revenue generated from agriculture. |
|
10-(2) |
Income share from HUF income. |
|
10-(2A) |
The profit share of a firm’s profit whose tax returns are separately filed. |
|
10-(3) |
Received income from a horse race not more than Rs 2500/- or a casual gift not more than Rs 5000/- pm. |
|
10-(10D) |
LIC policy receipts. |
|
10-(16) |
Educational costs scholarship. |
|
10-(17) |
MLA/MP Allowances not more than Rs 600 pm. |
|
10-(17A) |
Approved rewards or awards from the State/Central government and others. |
|
10-(26) |
Income of scheduled tribe members of Ladakh and the NE-States where the income is generated in those regions. |
|
10-(26A) |
A Ladakh resident’s income generated outside India or in the Ladakh area. |
|
10-(30) |
Approved scheme subsidy from the Tea Board. |
|
10-(31) |
The replantation subsidy under approved schemes from a concerned board. |
|
10-(32) |
Rs 1,500 per minor child or amount of income clubbed in the income of the parent is the minimum amount available for tax exemption. |
|
10-(33) |
Indian Companies dividend earned, Mutual funds, UTI and venture capital incomes. |
|
10-(A) |
Profits obtained from software/hardware tech park or free trade zone up to a period of 10 years. |
|
10-(B) |
Computer software, article-manufacturing or completely export-oriented undertakings profits earned. |
|
10-(C) |
IGC, IIDC new undertakings in the NE region profits for a period of 10 years. |
|
10-(15)(i)(iib) and (iic) |
Premiums, interest, payments received from notified bonds, securities and capital investment or relief bonds up to the limit specified. |
|
10-(15)(iv)(h) |
Interest paid by a company in the public sector on its debentures and bonds. |
|
10-(15)(iv)(i) |
Deposit interest of public sector or Central/State government employees for their retirement under the government scheme where the government pays interest. |
|
10-(15)(vi) |
Interest on specified gold deposit bonds. |
|
10-(15)(vii) |
Bond’s interest from local authorities. |
|
10-(5) |
Leave Travel Allowance (LTA) received should not be more than the amount payable by the central government to its employees. |
|
10-(5B) |
Technician’s remuneration for specific specialised skills in certain fields where their services started after 31st March 1993 with their income tax being paid by the employer for up to 48 months. |
|
10(7) |
Serving-abroad allowances provided to Indian citizens. |
|
10-(8) |
Foreign governments give remuneration for Indian duties under the cooperative technical assistance programs. Income tax exemption for foreign country income where the government pays the income tax also applies. |
|
10-(10) |
Gratuity Act, 1972 death and retirement gratuity U/S (2) to (4) from the government not greater than 15 days salary per service year completed. |
|
10-(10A) |
Pension funds commutation set by the government, LIC U/S 10(23AAB)/Statutory corporation, pension commutation from employers paying gratuity, 1/3rd value of the pension not having gratuity payments or half of the pension. |
|
10-(10AA) |
Earned leave encashment of State/ Central governments that remains unutilised and the lesser of Rs 1,35,360 or 10 months’ salary in the case of other employers. |
|
10-(10B) |
The lesser of the retrenchment compensation or the government amount notified U/S 25 F(b) of the 1947 ID Act. |
|
10-(10C) |
Termination or voluntary retirement amounts received up to a limit of Rs 5 lakh. |
|
10-(11) |
Other notified government bonds or payments under the 1925 Provident Fund Act. |
|
10-(12) |
Recognised provident funds payments up to the specified limits of the 4th Schedule Part-A Rule-8. |
|
10-(13) |
Approved fund payments from superannuation. |
|
10-(13A) |
HRA of the lesser of the actual rent above 10% of the basic pay, the actual HRA or 50% of basic pay in Chennai, Mumbai, Calcutta and Delhi (40% basic pay in other cities). |
|
10-(14) |
Specified benefits/ special allowances to meet expenses in the line of duties and equal to expenses spent. |
|
10-(18) |
Family pension or pension of gallantry-award recipients. |
There are also a host of exemptions specifically for fund institutions, NRIs, non-resident citizens, resident Indians not residing in India, etc.
TDS Exemption List
TDS or Taxes Deducted at the Source is an Indian tax exemption deducted by your employer at the time of paying your salary. Note that if the recipient is not a HUF/individual, TDS is applied at 2%. The limits, TDS rates and particulars are tabulated below.
|
Particulars |
Max. Limit (Rs.) |
% Rate of TDS |
|
Debentures interest |
5,000 |
10 |
|
Interest from housing finance companies, bank FDs in Banks and 8% taxable bonds |
10,000 |
10 |
|
Interest earned excluding interest from securities |
5,000 |
10 |
|
Agent’s insurance commission |
20,000 |
10 |
|
Domestic company agents’ insurance commission |
5,000 |
20 |
|
Winnings from game shows, crosswords or lotteries |
10,000 |
30 |
|
Sale of lottery tickets commission |
1,000 |
10 |
|
Horse race winners |
5,000 |
30 |
|
Advertising agency payments |
20,000 |
1* |
|
Contractual payments to contractors |
30,000 |
1* |
|
Subcontractor payments |
30,000 |
1* |
|
Brokerage and commission that are unrelated to securities and shares |
5,000 |
10 |
|
Professional technical services payments |
30,000 |
10 |
|
Rental payments |
1,80,000 |
10 |
|
Equipment and machinery payments |
80,000 |
2 |
|
Property sale |
50,00,000 |
1 |
|
Life insurance policies survival benefits earnings |
1,00,000 |
2 |
*If the recipient is other than an Individual or HUF, the TDS rate is 2%.
HRA Exemption
HRA is another one among the tax exemptions in India which is given to employees to meet costs involving a rented house. The IT Act U/S 10(13A) Rule 2A provides for the HRA exemption. The entire amount is NOT tax-free and does not apply to the own house accommodations of employees. The exemption amount should meet either of the three criteria below:
- The HRA paid.
- Rent less than 10% of your basic pay.
- In metro cities, 50% of the basic or else 40% of your basic pay for other cities.
Service Tax Exemption
Service Tax exemption is an exemptions tax for services and service transactions where the clients bear the tax. The tax applies to the value of services in an FY is greater than Rs 10 lakh and levied at 14%. There are 39 services that are tax-exempt along with the ones on the negative list, covering income tax exemption for artists in India.
Education Loan Tax Exemption
This is covered u/s 80E and provides for tax-free loan interest. The conditions attached are
- You are an individual and deduction is only on the loan interest paid.
- The loan is taken from a bank/institution/specified charitable institution and an educational loan for the taxpayer, spouse, children or a minor’s guardian.
- The loan interest is paid from your taxable income.
- There is no limit on it and deduction can be claimed till the earlier date of 8 years of the loan being paid.
- The educational loan can be for studying abroad or in India.
Car Loan Exemption on Tax
This is available on the amount of car loan interest for professionals and the self-employed individuals. They should provide assurance of profits or capital gains for purchasing the car under loan for purposes of developing their business. Salaried persons are not allowed to claim this exemption. Depreciation exemption can also be availed.
Other Tax Exemptions
Individuals can claim certain tax exempted criteria U/S 80C, 80D to 80U under the following aspects:
- National savings certificate
- Public provident fund
- 5-year FDs
- Equity-linked savings scheme
- LIC policies
- Pension plans
- Health insurance
- Employee provident fund
- Education loan
- Donations to R&D programmes or political parties.
LTA Exemption
Leave Travel Allowance or LTA is tax-exempt U/S 10(5) of the Income Tax Act, 1961. It can be claimed when
- LTA is given by the employer to an employee on leave holiday at any Indian destination and covers only the actual travel costs.
- Travels abroad are not permitted.
- Food, stay and other incidental expenses are not included.
- The employee may travel with/without the children, spouse, siblings or parents.
LTA is provided for 2 trips in a block period of 4 years. You can also carry over the unutilised LTA to the following FY to get twice the allowance and can be claimed only once every assessment year. The exemption is as below:
- Air travel by economy class taken by the shortest path.
- 1st class AC Rail travel by the shortest path.
- Rail travel connected/unconnected, but the journey is made by other transport modes by the shortest route.
- Multiple stops are accommodated by the shortest route between origin to farthest destination and back by the shortest route.
Tax Exemption on Capital Gains
Taxes for capital gains are applicable under the following sections.
Section 54: An individual or HUF can claim an exemption under the Capital gain deposit account scheme on capital gains when selling a 3 year old residential-house property. You can claim it if you buy a new asset within 2 years from the date of sale, from a sale occurring a year back or construct a house within 3 years from the sale. The lesser of the capital gains or the amount on the new asset investment is tax-exempt.
Section 54B: An individual or HUF can claim an exemption under the Capital gain deposit account scheme on capital gains when selling agricultural land held by the taxpayer for 2 years and used for agricultural purposes. You can claim it if you buy new agricultural land within 2 years from the date of sale. The lesser of the capital gains or the amount on the latest agricultural land investment is tax-exempt.
Section 54EC: Any taxpayer can claim this exemption when selling long-term capital assets held for at least 3 years. You can acquire a REC or NHAI Bond to get 6 months duration to acquire a new asset. The exemption limit is Rs 50 lakhs and is the lesser capital gains or the new asset investment. The Capital Gain Accounts Scheme does not apply in this context.
Section 54F: An individual or HUF can claim an exemption under the Capital gain deposit account scheme on capital gains when selling long-term non-residential capital assets, provided they don’t own more than one property on the transfer date. You can acquire a new asset before a year from the date of sale or two years after the sale, or after 3 years if it is being constructed. The exemption amount is calculated as the new asset investment divided by considering the net sale and multiplied by the capital gain.
Also Read: Special Allowances in India- Taxation and Calculation
Income Tax Exemption India Limits
The India income tax exemptions limits for individuals not over 60 years is Rs 2.50 lakh. The senior citizens (60 to 80 years) exemption limit is Rs 3 lakh and the very senior citizens above the age of 80 years have an income tax exemption limit of Rs 3.50 lakh. Do note that those having annual income up to Rs 5 lakh also get a tax rebate of Rs 2,000. When the income is above 1 Crore, a surcharge is charged at 12%.
Conclusion
We hope that in this article we have conveyed the concept of tax exemption in India along with the different income tax exemptions in India. Abiding by these rules and regulations will allow you to follow appropriate measures so that you can be tax exempted.
The Income Tax Act of 1961 allows you to avail certain deductions and exemptions, including the important ones discussed above. Happy ITR filing!