This Article is From Mar 30, 2014

How to avail tax benefits under Section 10

How to avail tax benefits under Section 10

The Income Tax Act provides multiple tax exemptions to every individual. A lot of such exemptions fall under Section 10 of the Act. Following are the tax exemptions provided under Section 10:

Leave travel allowance (LTA)

LTA is exempt to a certain extent for domestic travel under section 10(5) of income tax. The exemption is subject to the LTA limit specified in the individual's salary.

Agricultural income

Income received from agriculture is totally exempt from tax if it is the only source of income in the financial year. However, if it is accompanied by income from other sources, it is taxable.

Life insurance

The payment proceeds of a life insurance policy are exempt under section 10(10D). This includes maturity amount as well as death claims.

Gratuity

Gratuity amount received by a government employee is totally exempt from tax. For others covered under payment of gratuity act, it is exempt to the least of the following:

1)      15 days salary based on last drawn salary for each year of service.
2)      Rs. 10,00,000
3)      Gratuity received

For those not covered under gratuity act, it is exempt to the least of:

1)      Half month average salary for each year of service completed.
2)      Rs. 10,00,000
3)      Gratuity received

Leave encashment

For a government employee, leave encashment upon retirement or leaving the job is tax free under Section 10. For a non-government employee, it is exempt up to least of the following:

1)      Earned leave (No. of months) multiplied by Average monthly salary
2)      10 multiplied by Average monthly salary
3)      Rs. 3,00,000
4)      Actual leave encashment received

Commuted pension

Commuted pension for government employees is fully exempt. For others, it is exempt to least of the following:

1)      If gratuity is received, up to one-third of the pension received.
2)      If gratuity not received, half of the pension received.

Compensation under VRS

Compensation received under VRS (voluntary retirement scheme) scheme upon voluntary retirement is exempt up to maximum of Rs. 5,00,000.

Provident fund

Payments received from Provident Fund (PF) are exempt as part of section 10. However, PF withdrawal is taxable for less than 5 years of service. Also, EPF (Employees' Provident Fund) balance can be withdrawn only subject to few conditions.

HRA

House Rent Allowance (HRA) for an employee is exempt to the least of the following:

1)      HRA received
2)      Rent paid - 10% of salary
3)      50% of salary for Delhi, Mumbai, Kolkata and Chennai and 40% elsewhere.

Dividends received

Dividends announced by any company in case of mutual funds or stocks are exempt from tax in the hands of an individual, irrespective of the company paying tax on it.

Equities held for more than 1 year

Any equity instrument, share or mutual fund held for more than 1 year is free from tax at the time of sale. This is also known as long term capital gains.

Superannuation fund

Any amount received from an approved superannuation fund is exempt from tax in the hands of an individual.

Transport allowance

Transport allowance is exempt up to Rs. 800 per month i.e. Rs. 9,600 per annum. Transport allowance here means expenditure incurred for travel between place of residence and place of work.

Education and hostel allowances for children

Education allowance is exempt up to Rs. 100 per month per child for a maximum of 2 children. Hostel allowance is exempt for hostel expenditure up to Rs. 300 per month per child for a maximum of 2 children.

Interest on securities

Income from securities in the form of interest, premium, etc from certificates, bonds and deposits is exempt from tax.

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