What Is Section 10 of the Income Tax Act, 1961?

Section 10 of the Income Tax Act, 1961 is one of the most comprehensive sections that lists various types of income that are fully or partially exempt from taxation in India. Understanding Section 10 exemptions is crucial for every taxpayer — whether salaried, self-employed, businessman, or an HUF — because it directly reduces your gross total income before arriving at the taxable income figure.

As per the Finance Act 2025 and the Union Budget 2026, several exemption limits under Section 10 have been revised upwards to provide greater relief to the middle class, salaried professionals, and rural communities. This blog provides a comprehensive, updated, and detailed breakdown of all sub-sections under Section 10 of the Income Tax Act as applicable for Assessment Year (AY) 2026-27 (Financial Year 2025-26).

Important: Section 10 exemptions apply to both the old tax regime and the new tax regime (with certain exceptions). Always consult a Chartered Accountant or tax advisor before making decisions based on exemption claims.

Section 10(1) – Agricultural Income

One of the oldest and most fundamental exemptions, Section 10(1) provides that any income derived from agricultural land situated in India is fully exempt from income tax. This exemption is available to individuals, HUFs, firms, and companies that derive income from agricultural activities.

What Qualifies as Agricultural Income?

• Rent or revenue derived from land used for agricultural purposes
• Income derived from such land by agriculture itself
• Income from farm buildings used for agricultural operations
• Income from nurseries, seed farms, and plantation crops

For the FY 2025-26, the agricultural income limit for partial integration (applicable in states where agricultural income is above ₹5,000) remains unchanged. However, many state governments have introduced additional state-level agricultural rebates. It is noteworthy that while agricultural income itself is exempt, it is still considered for rate purposes (partial integration) when the taxpayer’s non-agricultural income exceeds the basic exemption limit.

Example: A farmer earning ₹8 lakh annually from paddy cultivation pays zero income tax on this income under Section 10(1).

Section 10(2) – Share from HUF

Any sum received by an individual as a member of a Hindu Undivided Family (HUF), from the income of the HUF, is fully exempt under Section 10(2). This prevents double taxation since the HUF itself is taxed as a separate entity.

Key Points for AY 2026-27

• The exemption applies only to amounts received from HUF income, not gifts or loans.
• This applies to coparceners and other members of the HUF.
• Amounts received on partition of HUF are also covered under related provisions.

Section 10(2A) – Share of Profit from Partnership Firm

A partner’s share of profit from a partnership firm that has been assessed as a firm (taxed at firm level) is exempt from tax in the hands of the partner under Section 10(2A). This provision avoids double taxation on the same income.

Conditions

• The firm must be assessed as a ‘firm’ under the Income Tax Act.
• Only the profit share is exempt — interest on capital and remuneration paid to partners are NOT exempt and are taxable.

For FY 2025-26, there have been no changes to this sub-section. Partners receiving ₹12 lakh annually as profit share from a registered firm pay zero tax on this income.

Section 10(6) – Remuneration of Foreign Nationals

Section 10(6) provides exemptions for remuneration received by foreign diplomats, ambassadors, high commissioners, and certain foreign nationals serving in India under specific bilateral agreements.

Who is Covered?

• Ambassador, High Commissioner, Envoy, or Minister of a foreign state
• Trade Commissioner or diplomatic agent of a foreign country
• Employees of foreign governments serving in India under notified agreements
• Members of foreign legislative bodies visiting India on official capacity

This is specifically applicable to non-resident foreign nationals and is not available to Indian residents holding these positions.

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

Leave Travel Allowance (LTA) is one of the most popular salary-based exemptions for salaried employees in India. Under Section 10(5), the amount received from an employer towards travel expenses incurred during leave is exempt from tax, subject to certain conditions.

Revised Conditions for AY 2026-27

• Exemption is available only for travel within India.
• Travel by Air: Economy class fare of the national carrier (Air India) by the shortest route.
• Travel by Rail: AC First Class fare by the shortest route.
• Other modes: First-class deluxe bus fare or actual fare, whichever is lower.
• Only 2 journeys in a block of 4 calendar years are exempt.
• The current block period is 2022–2025; the next block is 2026–2029.

Under the new LTA cash voucher scheme applicable from FY 2025-26, employees who spend at least 3 times the LTA amount on eligible goods and services (GST-compliant purchases) can claim LTA exemption even without actual travel. This scheme was extended in Budget 2026 for another 2 years.

Tip: Carry original travel tickets, boarding passes, hotel bills, and all receipts. LTA cannot be claimed under the new tax regime without opting into the old regime.

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

House Rent Allowance (HRA) exemption under Section 10(13A) read with Rule 2A is available to salaried employees who receive HRA from their employer and pay rent for residential accommodation. This is among the largest exemptions available to salaried taxpayers.

HRA Exemption Calculation – Least of the Following Three

• Actual HRA received from employer
• 50% of (Basic Salary + DA) for metro cities (Delhi, Mumbai, Kolkata, Chennai) OR 40% for non-metro cities
• Actual rent paid minus 10% of Basic Salary

Important Points for FY 2025-26

• If annual rent exceeds ₹1,00,000, the landlord’s PAN is mandatory.
• From FY 2025-26, the Income Tax Department has made it mandatory to submit Form 10BA for HRA claims above ₹3 lakh annually (new circular).
• HRA exemption is NOT available under the new tax regime.
• Employees paying rent to parents must provide a valid rent agreement.

Example: Ravi earns a Basic Salary of ₹60,000/month in Mumbai. He receives HRA of ₹25,000/month and pays rent of ₹22,000/month. His monthly HRA exemption = Least of ₹25,000, ₹30,000 (50% of Basic), ₹16,000 (₹22,000 – 10% of ₹60,000) = ₹16,000/month. Annual exemption = ₹1,92,000.

Section 10(14) – Special Allowances

Section 10(14) covers a wide range of special allowances paid by the employer to the employee for specific purposes. These are divided into two categories:

Category A – Fully Exempt (Subject to Actual Expenditure)

• Travelling Allowance – For travel on official duty
• Daily Allowance – For ordinary expenses during travel
• Helper Allowance – For official duties requiring a helper
• Research Allowance – For academic research purposes
• Uniform Allowance – For purchase/maintenance of official uniform

Category B – Exempt up to Specified Limits

• Children Education Allowance – ₹200/month per child (max 2 children) = ₹4,800/year
• Children Hostel Allowance – ₹300/month per child (max 2 children) = ₹7,200/year
• Transport Allowance for Handicapped – ₹3,200/month = ₹38,400/year
• Underground Mine/High Altitude Allowance – ₹800 to ₹7,000/month depending on altitude
• Border/Remote Area Allowance – ₹200 to ₹1,300/month
• Tribal Area Allowance – ₹200/month in specified tribal areas

Note: Transport Allowance for regular employees was discontinued from FY 2018-19 and subsumed into the Standard Deduction. However, for physically handicapped employees, it still remains at ₹3,200/month.

Section 10(10) – Gratuity Exemption

Gratuity received by an employee on retirement, death, or termination is exempt from income tax under Section 10(10), subject to the following limits for FY 2025-26:

For Employees Covered Under the Payment of Gratuity Act, 1972

• Exemption: Least of actual gratuity received, 15 days’ salary for each year of service, OR ₹20,00,000 (₹20 lakh).
• The ₹20 lakh limit has been in effect since March 2018.

Union Budget 2026 proposals had discussed raising this limit to ₹25 lakh, but as of the enactment of Finance Act 2026, the limit remains ₹20 lakh. Any revision will be notified separately.

For Government Employees

• The entire gratuity received by a Central or State Government employee is fully exempt from tax under Section 10(10)(i).

For Other Employees (Not covered under Gratuity Act)

• Exempt amount = Least of: Half month’s average salary × years of service, OR actual gratuity, OR ₹20 lakh.

Key Update 2026: The CBDT has clarified that gratuity received during employment (not on exit) for completing specific milestones is also covered under Section 10(10) if the employer’s scheme is registered.

Section 10(10AA) – Leave Encashment Exemption

Leave encashment received at the time of superannuation or retirement is exempt from tax. Updated limits for AY 2026-27:

For Government Employees

• Fully exempt – entire leave encashment is tax-free.

For Non-Government Employees

• Exemption limit raised from ₹3 lakh to ₹25 lakh effective FY 2023-24 (notification issued in May 2023) – remains in effect for FY 2025-26.
• Least of: Actual leave encashment received, 10 months’ average salary, Cash equivalent of earned leave (not exceeding 30 days per year of service), OR ₹25 lakh.

This massive increase in the leave encashment exemption limit from ₹3 lakh to ₹25 lakh benefited millions of private sector employees retiring after April 2023.

Section 10(10B) & 10(10C) – Retrenchment Compensation & VRS

Section 10(10B) – Retrenchment Compensation

• Retrenchment compensation under the Industrial Disputes Act is exempt up to ₹5,00,000 or actual amount (whichever is lower), plus 15 days’ average salary for each year of service.

Section 10(10C) – Voluntary Retirement Scheme (VRS)

• Compensation received under VRS (Golden Handshake) is exempt up to ₹5,00,000.
• Available for employees of Central/State Government, PSUs, authorities established under Central/State/Provincial Act, notified companies.
• Exemption can be availed only ONCE in a lifetime.
• The VRS scheme must be as per CBDT Rule 2BA guidelines.

Section 10(10A) – Commuted Pension

Section 10(10A) provides exemption on commuted value of pension (lump sum received in lieu of regular pension):

For Government Employees

• Any amount received as commuted pension is FULLY EXEMPT.

For Non-Government Employees

• If gratuity is also received: 1/3rd of the commuted value of full pension is exempt.
• If no gratuity is received: 1/2 of the commuted value of full pension is exempt.

Uncommuted pension (regular monthly pension) is fully taxable for both government and non-government employees.

Section 10(11) & 10(12) – Provident Fund Exemptions

Section 10(11) – Statutory Provident Fund (SPF)

• Any amount received from a Statutory Provident Fund (covered under the Provident Funds Act, 1925) is fully exempt.
• Applicable to government employees.

Section 10(12) – Recognised Provident Fund (RPF)

• The accumulated balance payable to an employee from RPF is exempt if the employee has been in continuous service for 5 or more years.
• Effective from FY 2021-22 onwards, interest accrued on employee contributions exceeding ₹2.5 lakh per annum in EPF is taxable.
• For government employees contributing to General Provident Fund (GPF), the taxable interest threshold is ₹5 lakh per annum.

Budget 2026 Update: The CBDT has issued new guidance clarifying that interest earned on EPF contributions above ₹2.5 lakh per annum will be tracked under a separate taxable account maintained by EPFO and reported in Form 26AS and AIS.

Section 10(11A) – Public Provident Fund (PPF)

The maturity amount of a Public Provident Fund (PPF) account, including the interest earned, is completely exempt from income tax. This makes PPF one of the most tax-efficient long-term saving instruments in India.

Key Features for 2025-26

• Annual PPF contribution limit: ₹1,50,000
• Current PPF interest rate: 7.1% per annum (compounded annually) – unchanged since Q1 2020
• Lock-in period: 15 years (extendable in blocks of 5 years)
• Partial withdrawal allowed after 7th year
• Exempt-Exempt-Exempt (EEE) status: Investment, growth, and maturity all tax-free

Section 10(11A) – Sukanya Samriddhi Yojana (SSY)

Returns from the Sukanya Samriddhi Yojana are fully exempt under Section 10(11A). SSY is a government-backed savings scheme for the girl child.

SSY Details for FY 2025-26

• Current interest rate: 8.2% per annum (compounded annually) – highest among small savings schemes
• Annual contribution: Minimum ₹250, Maximum ₹1,50,000
• Maturity: 21 years from account opening
• Partial withdrawal (50%) allowed after girl turns 18 for higher education
• EEE (Exempt-Exempt-Exempt) status confirmed under Section 10(11A)

Section 10(12A) & 10(12B) – National Pension System (NPS)

Section 10(12A) – On Closure / Opting Out

• 60% of the NPS corpus withdrawn at the time of closure or opting out is exempt from tax.
• The remaining 40% must be compulsorily used to purchase annuity.

Section 10(12B) – Partial Withdrawal

• Partial withdrawal from NPS (up to 25% of own contribution) is fully exempt.
• Available after 3 years of NPS membership for specific purposes like higher education, marriage, medical treatment, housing.

For FY 2025-26: Employer contributions to NPS up to 14% of salary are deductible under Section 80CCD(2) for government employees, and 10% for private sector employees. This deduction is available even under the new tax regime.

Section 10(13) – Superannuation Fund

Payment from an Approved Superannuation Fund is exempt under Section 10(13) in the following cases:

• Death or disablement of the employee
• On retirement at or after reaching specified age
• On leaving service after at least 3 years of contributory membership
• Payment to dependents on death of the employee

Commutation of pension from a superannuation fund is also exempt, following the same rules as for commuted pension under Section 10(10A).

Section 10(10D) – Life Insurance Policy Proceeds

Section 10(10D) is one of the most widely used exemptions. Any sum received under a life insurance policy — including bonuses — is exempt from income tax. However, Finance Act 2023 introduced significant restrictions:

Revised Rules Applicable from FY 2023-24 Onwards (in effect for FY 2025-26)

• Policies issued on or after 1st April 2023 with annual premium exceeding ₹5,00,000 are no longer fully exempt.
• ULIP (Unit Linked Insurance Plans): If annual premium exceeds ₹2.5 lakh (for policies issued on/after 1 Feb 2021), maturity proceeds are taxable as capital gains.
• Death claims: ALWAYS fully exempt regardless of premium amount.
• Keyman insurance: NOT exempt under Section 10(10D).

Old Policies (Pre-April 2023)

• Fully exempt if annual premium was within 10% of Sum Assured (for policies issued on/after 1 April 2012).
• Fully exempt if annual premium was within 20% of Sum Assured (for policies issued before 1 April 2012).

Important 2026 Update: CBDT Circular No. 15/2025 clarified that group life insurance policies with aggregate premium exceeding ₹5 lakh per member per year will be tracked through the insurance repositories and reported in Form 26AS.

Section 10(23C) – Educational Institutions & Hospitals

Income of certain educational institutions and hospitals is exempt from tax under Section 10(23C):

Sub-Categories and Limits

• Section 10(23C)(iiiad): Annual receipts up to ₹5 crore – schools/educational institutions solely for education
• Section 10(23C)(iiiae): Annual receipts up to ₹5 crore – hospitals/medical institutions
• Section 10(23C)(vi) & (via): Institutions with receipts above ₹5 crore – require approval from prescribed authority

From FY 2022-23 onwards, educational institutions and hospitals must apply for approval under the new provisions online through the Income Tax portal within specified time limits, else exemptions lapse.

Section 10(16) – Scholarships

Any scholarship granted to meet the cost of education is fully exempt from income tax under Section 10(16). This applies to:

• Government scholarships (PM Scholarship, National Scholarship, State scholarships)
• Scholarships from recognized universities, educational boards
• Scholarships from foreign governments or international bodies for Indian students
• Corporate scholarships for employee-children under notified schemes

There is no upper limit on the scholarship amount for this exemption. For FY 2025-26, all PM YASASVI, PM VIDYALAXMI, NSP, and state merit scholarships qualify for full exemption.

Section 10(17A) – Awards & Rewards

Any payment made — whether in cash or kind — in pursuance of any award instituted in the public interest by the Central or State Government, or by any other body approved by the Central Government, is exempt from income tax.

• Bharat Ratna, Padma Vibhushan, Padma Bhushan, Padma Shri
• National Awards in Sports (Arjuna, Dronacharya, Khel Ratna)
• Literary and scientific awards approved by the government
• State government awards for public service

Section 10(18) & 10(19) – Pension for Gallantry Awardees & Armed Forces

Section 10(18) – Gallantry Award Pension

• Pension received by a recipient of notified gallantry award (Param Vir Chakra, Maha Vir Chakra, Vir Chakra, etc.) is FULLY EXEMPT.
• Applies to the recipient themselves.

Section 10(19) – Family Pension – Armed Forces

• Family pension received by the family members of an armed forces personnel who died in action/operational service is FULLY EXEMPT.
• This exemption was extended to Central Armed Police Forces (CAPF) from FY 2019-20 and continues for FY 2025-26.

Section 10(17) – Income of MLAs, MLCs, MPs

Daily allowance and any other allowance received by a Member of Parliament (MP), Member of State Legislature (MLA), Member of State Legislative Council (MLC) are fully exempt from income tax.

• Daily allowance received for attending Parliament/Assembly sessions
• Constituency allowance received by MPs under the Salary, Allowances and Pension of Members of Parliament Act, 1954
• Similar allowances for MLAs/MLCs under respective State Acts

Salary component of MP/MLA income remains taxable; only specified allowances are exempt.

Section 10(34) & 10(35) – Dividend Income [Amended]

Section 10(34) earlier provided full exemption on dividend received from domestic companies. However, this exemption was abolished from FY 2020-21 onwards. From AY 2021-22 onwards:

• Dividend income is fully taxable in the hands of the recipient.
• TDS is deducted at source on dividends under Section 194/194K at 10% if dividend exceeds ₹5,000.
• Mutual fund distributions (Section 10(35)) are also taxable in the recipient’s hands.

Note: Section 10(34) and 10(35) are no longer operative as exemptions. They are listed here for historical reference as many taxpayers still search for these provisions.

Section 10(38) – LTCG on Equity Shares [Abolished]

Section 10(38) exempted Long-Term Capital Gains (LTCG) on sale of listed equity shares and equity-oriented mutual funds where STT was paid. This exemption was withdrawn effective FY 2018-19 (AY 2019-20). As of FY 2025-26:

• LTCG on equity shares/equity mutual funds (held > 12 months) taxed at 12.5% flat (revised upward from 10% in Budget 2024).
• Basic exemption of ₹1,25,000 per year still available (raised from ₹1 lakh in Budget 2024).
• Section 10(38) remains in the Act but is inoperative.

Section 10(39) to 10(50) – Other Notable Exemptions

Section 10(45) – Allowances of the President

• Any allowance or perquisite paid to the President of India is fully exempt from tax.

Section 10(46) – Statutory Bodies

• Income of bodies/authorities constituted under Central or State Acts may be notified as exempt under Section 10(46). Several regulatory authorities, sports bodies, and development boards are notified each year.

Section 10(47) – Infrastructure Debt Funds

• Income of notified Infrastructure Debt Funds is exempt from tax.

Section 10(48) – Income of Foreign Companies from Oil Storage

• Income from storage of crude oil in India by a foreign company under a government agreement is exempt.

Section 10(49) – National Industrial Development Corporation

• Income of the National Industrial Development Corporation from its activities is exempt.

Section 10(50) – Income from Specified Online Games [Inserted]

• Section 10(50) was inserted to ensure certain income from online games notified for skill competitions are treated appropriately — however, winnings from online games are taxable at 30% flat under Section 115BBJ from FY 2023-24 onwards.

Quick Reference Table – Section 10 Exemptions 2026

Section 10 Exemptions – Old Tax Regime vs New Tax Regime 2026

One of the most critical points taxpayers must understand in FY 2025-26 is which Section 10 exemptions are available under each tax regime:

Available Under BOTH Regimes

• Section 10(1) – Agricultural Income
• Section 10(10) – Gratuity
• Section 10(10A) – Commuted Pension
• Section 10(10AA) – Leave Encashment on Retirement
• Section 10(10D) – LIC Maturity
• Section 10(11), 10(11A), 10(12), 10(12A), 10(12B) – Provident Fund, PPF, NPS
• Section 10(16) – Scholarships
• Section 10(17), 10(17A), 10(18), 10(19) – Awards and pensions

NOT Available Under New Tax Regime

• Section 10(5) – LTA
• Section 10(13A) – HRA
• Section 10(14) – Special Allowances (except a few notified ones)
• Most employer-provided perquisite exemptions