Special Allowances under Section 10 of the IT Act for Salaried Individuals

Given below are the sub-parts of Section 10 and the related details regarding exemptions:

Section 10(13A) – Exemptions on House Rent Allowance (HRA) 

Employees who receive HRA can claim tax exemption in case they reside in rented accommodation. The exemption amount is the least of the following:

Note: HRA exemption is only available under the old tax regime. Under the new tax regime, this exemption is not available.

Section 10(5) – Leave Travel Allowance (LTA)

Employers may offer LTA to cover employees’ travel expenses during vacations. Key points include:

Note: LTA exemption is not available under the new tax regime.

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Section 10(10) – Gratuity

Gratuity received by an employee upon retirement or termination is exempt subject to certain conditions:

– Half month’s salary for each completed year of service

– Rs. 20 lakh

– Actual gratuity received

Note: Any gratuity amount received beyond the exemption limit is taxable as per the applicable slab rates.

Section 10(10AA) – Leave Encashment

Leave encashment refers to the compensation received by employees at the time of resignation or retirement for their unused accumulated leaves. This leave encashment is eligible for tax deduction under section 10(10AA) subject to the following conditions:

– Actual leave encashment received

– Cash equivalent of unutilized earned leave

– Rs. 3 lakh

– Average salary of last 10 months

Note: Leave encashment while you are still in service is fully taxable.

Section 10(10D) – Life Insurance

Any sum that the employee receives under a life insurance plan either as death benefit, maturity benefit or any bonus, is tax-free under Section 10.

Section 10 (1) – Agricultural Income

In case the income that you receive from agricultural activities is your only income source for the entire financial year, then your income would be completely excluded from tax. Here is the list of exemptions on agricultural income under Section 10 (1):

Section 10 (10C) – VRS Compensation

Under the voluntary retirement scheme, the compensation that a person receives at the time of retirement is exempted up to a maximum of Rs. 5 lakh.

Section 10(11) – Exemption on Payment Made to Provident Fund

The payments that an individual receives from his/her Provident Fund, are excluded under Section 10. However, if the service period has been less than 5 years, then the PF is taxable.

Section 10(13) – Superannuation Fund

The regular payment that an employee makes into a fund towards his future pension is called the Superannuation fund. This amount is also tax exempted.