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Exemptions from Income Tax
What is the maximum amount not chargeable to tax for leave salary received at the time of retirement?

The maximum amount not chargeable to tax for leave salary at retirement is Rs. 2,40,000, as specified by the Government.


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Is the amount paid on LIC policies exempt from income-tax?

Yes. Any sum received under a life insurance policy (except for Keyman insurance policy), including the accumulated bonus is exempt from income-tax.


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Are any awards received liable to income-tax?

As per the Income-Tax laws, the following awards, whether paid in cash or in kind, are exempt from income-tax:

  1. Any payment made for any award instituted in the public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government.
  2. Any payment made as reward in the public interest by the Central Government or any State Government.

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How are casual and non-recurring receipts chargeable to income-tax?

All receipts up to Rs.5,000 (Rs. 2,500 in respect of winnings from races including horse races) which are of casual and non-recurring nature are exempt from income-tax. The exemption is available only if the following conditions are met:

  1. the receipt should be of a capital nature;
  2. it should be "non-recurring";
  3. it should not be taxable as capital gains;
  4. it should not arise from business or the exercise of a profession or occupation; and
  5. the receipt is not by way of addition to the remuneration of an employee.

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What is the maximum amount of exemption that can be claimed at the time voluntary retirement?

Maximum amount exempt from tax at the time of receipt of voluntary retirement is Rs. 5,00,000/-.


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What is "gratuity"? At the time of retirement, what is the maximum amount of exemption that can be availed of on receipt of gratuity ?

Gratuity is reward money for continuous service for a specified number of years of service. Gratuity is paid to an employee, in addition to his salary, bonus, commission, etc., when he leaves the service of his employer.


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Will gratuity be taxable if it is received by the employee while he is in service?

Gratuity paid to an employee while he continues to be in service (whether or not after he has put in minimum specified period of service) is not exempt from tax. It will be taxable under the head " Salaries".


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Will income from units of Unit trust of India and mutual funds be liable to tax?

With effect from assessment year 2000-01 income received from units of UTI and from mutual fund specified under Section 10(23D) will be exempt from tax.


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What is the tax treatment on maturity / withdrawal / redemption proceeds of the following: (1) National Saving Certificates VIII issue [NSC] (2) National Saving Schemes [NSS] (3) Public Provident Fund [PPF] (4) Provident Fund [PF] (5) Insurance policies of Life Insurance Corporation [LIC]?

Redemption proceeds of NSC, PPF, & LIC (except proceeds received under the keyman insurance policy) are exempt from income tax. As regards NSS, any amount (i.e. principal or interest) withdrawn will be received after tax is deducted at source @ 20% (plus 2 per cent surcharge for the financial year 1999-2000). However, NSS scheme, 1992 (which is eligible for the benefit under Section 80L and 88) is not subject to deduction of tax at source.

Lump sum payment of Provident Fund received at the time of retirement or termination of service will be exempt from tax subject to the following conditions:

  1. The employee has rendered continuous service with his employer for a period of 5 years or more.
  2. If the employee is not able to fulfil the conditions of such continuous service, it must be by reason of ill health or by reason of the discontinuance of the employer's business or due to some reason beyond the control of the employee.
  3. If, on his retirement, the employee obtains employment with another employer, the accumulated balance due and payable to him is transferred to his individual Provident Fund account maintained by the new employer.
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List of Exempt income under the Income Tax Act


Relevant Section
of the
Income Tax Act		 Categories of Exempt Income
10 (1) Agricultural Income is exempt from Income Tax.
In some cases, agricultural income is considered as part of total income only to determine the tax slab applicable to you.
10 (2) Any receipt from a Hindu Undivided Family which is paid out of the HUF's income or the estate's income if the estate is impartible and belonging to the HUF.
10 (2A) Partner's Share in total income of a partnership firm which assessed separately as a firm.
10 (3)

Receipts being in the nature of casual and non-recurring nature not exceeding Rs. 5,000/- (Rs. 2500/- in the case of winnings from horse races, etc.) subject to certain conditions.

  • the receipt should be casula in nature. If the receipt is in the form of an income, it will be charged to tax.
  • it should be non-recurring.
  • it should not be taxable as capital gains.
  • it should not arise from business or exercise of a profession or occupation and
  • the receipt is not by way of addition to the remuneration of an employee.
10 (4) (i) Interest on securities and bonds including premium on redemption of bonds received by Non Resident as notified by Central Government.
10 (4) (ii) Interests on amounts in Non Resident (External) Account in any bank in India being maintained as per FERA, 1973 and rules thereunder received by an individual.
10 (4B) Interest on specified Central Government's Savings Certificates which were subscribed to in convertible foreign exchange remitted from a country outside India as per FERA and rules thereunder received by an individual citizen or a person of Indian Origin.
10 (5) Value of Leave Travel Concession or Assistance not exceeding the amount actually spent.
10 (5A) Specified remuneration to a foreigner and non-resident individual for shooting of film in India who comes solely for such purpose.
10 (5B) Income Tax paid by the employer carrying on scientific research in respect of the salary income of certain technicians from abroad commencing from 1.4.93 subject to conditions stated therein.
10 (10) (i) Death-cum-retirement gratuity payable to specified members of civil or defence services.
10 (10) (ii) Gratuity not exceeding Rs.3.50 Lakhs payable under the Payment of Gratuity Act, 1972.
10 (10) (iii) Any other gratuity not exceeding Rs. 2.50 Lakhs received by employee on retirement or termination of his services or by legal heirs on death of employee limited to 15 days salary for each completed year of service.
10 (10A) Receipt in respect of commutation of pension as per specified limits.
10 (10AA) Leave encashment not exceeding 8 months salary and subject to specified conditions & limits.
10 (10B) Compensation paid to employees on account of retrenchment under Industrial Disputes Act, 1947; Ascertainment of amount to be either minimum Rs. 50,000/- or as per the said Act whichever is less.
10 (10BB) Payments made under Bhopal Gas Leak Disaster Act, 1985.
10 (10C) Receipt of amount on voluntary retirement upto Rs. 5,00,000/- subject to specified scheme and guidelines and necessary approval.
10 (10D) Payment on a Life Insurance Policy, including bonus thereon but excluding therefrom amounts received u/s 80DDA(3).
10 (11) Receipt of Payment from Public Provident Fund or Statutory Provident Fund.
10 (12) Payment to employee from recognised provident fund in respect of accumulated balance standing to the credit thereof.
10 (13) Receipt of Payment from Super Annuation Fund subject to specified conditions and limits.
10 (13A) Special allowance to employee viz., house rent allowance.
10 (14) Special benefit to employees within meaning of section 17(2) subject to conditions stated therein.
10 (14A) Receipt of premium on account of Exchange risk from borrower of foreign currency.
10 (15) (i) Receipt of interest or premium on redemption etc. on notified securities, bonds etc. such as monthly payment on 15-year Annuity Certificates subject to specified condition and limits.
10 (15) (iib) Interest on the new Capital Investment Bonds.
10 (15) (iic) Interest income from notified Relief Bonds w.e.f., assessment year 1989-90.
10 (15) (iid) Interest on notified bonds owned by a non-resident etc. and bought in foreign exchange subject to certain conditions.
10 (15) (iii) Interest on securities under the Ceylon Monetary Law Act, 1949.
10 (15) (iiia) Interest payable to any bank incorporated outside India and approved by RBI.
10 (15) (iv) (a) Receipt of interest from Govt. etc. on moneys lent to them from sources outside India.
10 (15) (iv) (b) Receipt of interest from industrial undertaking in India being approved foreign financial institutions in respect of moneys lent to it.
10 (15) (iv) (c) Receipt of interest from industrial undertaking in India in respect of moneys lent to it outside India for purchases of raw materials, plant & machinery, etc. from abroad.
10 (15) (iv) (d) Receipt of interest from specified financial institution in India in respect of moneys lent to it from sources outside India.
10 (15) (iv) (e) Receipt of interest from financial institution other than those covered by 15(iv)(d) above in respect of moneys lent to it from sources outside India for the purposes as specified.
10 (15) (iv) (f) Receipt of interest from industrial undertaking in India in respect of moneys lent to it in foreign currency from sources outside India.
10 (15) (iv) (fa) Receipt of interest from scheduled bank in respect of deposits made in foreign currency subject to same being duly approved by the RBI.
10 (15) (iv) (g) Receipt of interest from public company having been formed and registered in India to provide long-term finances for construction/purchase of houses in respect of moneys lent to it in foreign currency from sources outside India.
10 (15) (iv) (h) Receipt of interest from public sector company in respect of bonds and debentures as notified.
10 (15) (iv) (i) Receipt of interest from Government in respect of deposits made in its specified schemes from funds due on retirement.
10 (15) (v) Receipt of interest on securities held by Welfare Commissioner, Bhopal Gas Victims as also on deposits made with RBI or Public Bank from 1-4-1994 for the benefit of such victims.
10 (15A) Receipt of payment from an Indian company carrying on business of operation of aircraft, to acquire an aircraft or aircraft engine excluding spares etc., on lease from foreign Govt. or enterprise under an agreement entered into before 1-4-1997 and being duly approved.
10 (16) Scholarships granted to meet the cost of education.
10 (17) (ii) Daily allowances received by MPs, MLAs and MLCs.
10 (17) (ii) Receipt of allowances by MPs under the Member of Parliament [Constituency Allowance] Rules, 1986.
10 (17) (iii) Receipt of allowances by MLAs under the limit of Rs. 2,000/- per month.
10 (17A) (i) Receipt of any amount in connection with an award, including award in kind, for literary, scientific or artistic work etc. instituted by Government etc.
10 (17A) (ii) Receipt of amount in connection with a reward including award in kind from Government in respect of public interest purposes.
10 (18) Pension and family pension received by gallantry award winners
10(19A) Annual value of any place in the occupation of a former ruler exempt from tax.
10 (32) Income relating to minor child if clubbed u/s 64(1A) in the hands of the assessee, an exemption of upto Rs.1,500/- in respect of each minor child is available.
10 (33) Any income by way of dividends (whether interim or otherwise) declared, distributed or paid by a Domestic Company on or after 1-6-1997 as referred to in section
115-O.
   

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