Section 10 of Income Tax Act for AY 2023-24: List of 50 Tax Free Income or Exempted Income

Incomes not included in total taxable income as per provisions of Section 10 of Income Tax Act 1961 as amended by Finance Act 2022 for AY 2023-24.

Amended and updated notes on section 10 of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to incomes not included in total income.

Chapter III (Sections 10 to 13B) of the Income Tax Act 1961 deals with the provisions related to incomes which do not form part of total income. Section 10 of IT Act 1961-2022 provides for incomes not included in total income.

Recently, we have discussed in detail section 9A (Certain activities not to constitute business connection in India) of IT Act 1961. Today, we learn the provisions of section 10 of Income-tax Act 1961.

The amended provision of section 10 is effective for financial year or Previous Year i.e. PY 2022-23 relevant to the Assessment Year i.e. AY 2023-24.

In this article, you will learn detail of the provisions of section 10 of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962 as provided by Ministry of Law and Justice, Government of India.

Table of Contents

Section-10: Incomes not included in total income

Section 10 of Income tax Act has listed the incomes which are not included in total income. That means these incomes are not taxable and you are not required to pay any tax on such incomes. Exemptions under section 10 shall be claimed for incomes earned during financial year.

Know detail about all incomes which are not included in your taxable income. Provisions of section 10 specified the list of incomes which are fully exempted from income tax.

In computing the total income of a previous year (2021-2022) of any person, any income falling within any of the following clauses shall not be included—

Section 10 (1):

Exemption on Agricultural Income: Agricultural incomes are excluded from taxable income of assessee. However, agricultural incomes are considered for the purposes of computing advance tax for specified class of assessees.

Section 10 (2):

Exemption on income received by a Coparcener from HUF: If you have received your share of incomes as a member of a Hindu Undivided Family (HUF) then, such income shall not be part of your total income. Further, any sum paid out of the income of the estate belonging to the family is also not included in the total income of members of HUF.

However, if you have transferred your property to HUF otherwise than for adequate consideration then the income derived from the converted property or any part thereof shall be deemed to arise to you and not to the family i.e. HUF. You may refer the provisions of section 64(2) of the Income-tax Act.

Section 10 (2A):

Exemption on profit received by a partner from a Firm: The share of profits received by partners from partnership firm or LLP (Limited Liability Partnership) shall be exempted from tax. Note that if you receive any remuneration or interest on capital then such amount shall be taxable.

Section 10 (4):

Exemption on interest received by non-resident on Securities: In the case of a non-resident, any income by way of interest on specified securities or bonds including income by way of premium on the redemption of such bonds are exempted from tax.

Further, the interest income shall be exempted if it has been received from Non-Resident External Account (NRE Account) in any bank in India in accordance with FEMA 1999. Note that this exemption is allowed to individual who is a person:

  • Resident outside India as defined in clause (w) of section 2; or
  • Permitted by RBI to maintain NRE Account.

Section 10 (4B):

Exemption on interest received by non-resident on Savings Certificate: Your interest income shall be exempted if you are non-resident and citizen of India or a person of Indian origin. Such interest income must be derived from CG specified savings certificates issued before the 1st day of June, 2002.

A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grandparents, was born in undivided India

Section 10 (4C):

Exemption on interest received by non-resident on Rupee Denominated Bond: Any income by way of interest payable to a non-resident by any Indian company or business trust in respect of monies borrowed from a source outside India by way of issue of rupee denominated bond.

Note that such rupee denominated bond must be issued during 17.09.2018 to 31.03.2019 as referred to in clause (ia) of sub-section (2) of section 194LC.

Section 10 (4D):

Exemption on income received by non-resident on transfer of Capital Asset: Any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in clause (viiab) of section 47, on a recognised stock exchange located in any International Financial Services Centre (IFSC) and where the consideration for such transaction is paid or payable in convertible foreign exchange or as a result of transfer of securities (other than shares in a company resident in India) or any income from securities issued by a non-resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India or any income from a securitisation trust which is chargeable under the head “Profits and gains of business or profession”, to the extent such income accrued or arisen to, or is received, is attributable to units held by non-resident (not being the permanent establishment of a non-resident in India) or is attributable to the investment division of offshore banking unit, as the case may be, computed in the prescribed manner.

[Clause (4D) of section 10 has been amended (inserted) w.e.f. 1st April, 2022 by the Finance Act 2021]

Explanation: For the purposes of this clause, the expression—

(a) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the rules made thereunder;

(aa) “investment division of offshore banking unit” means an investment division of a banking unit of a non-resident located in an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA and which has commenced its operations on or before the 31st day of March, 2024.

[Clause (aa) of Explanation of clause (4D) of section 10 has been inserted w.e.f. 1st April, 2022 by the Finance Act 2021]

(b) “manager” shall have the meaning assigned to it in clause (q) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(ba) “permanent establishment” shall have the meaning assigned to it in clause (iiia) of section 92F;

(bb) “securities” shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)3a and shall also include such other securities or instruments as may be notified by the Central Government in the Official Gazette in this behalf;

(bc) “securitisation trust” shall have the meaning assigned to it in clause (d) of the Explanation to section 115TCA;

(c) “specified fund” means,

(i) a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate,––

  • (I) which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992;
  • (II) which is located in any International Financial Services Centre; and
  • (III) of which all the units other than unit held by a sponsor or manager are held by non-residents:
    Provided that the condition specified in this item shall not apply where any unit holder or holders, being non-resident during the previous year when such unit or units were issused, becomes resident under clause (1) or clause (1A) of section 6 in any previous year subsequent to that year, if the aggregate value and number of the units held by such resident unit holder or holders do not exceed five per cent. of the total units issued and fulfil such other conditions as may be prescribed; or

[Item (III) in sub-clause (i) in clause (c) in the Explanation of clause (4D) was substituted w.e.f. 1st April, 2023 by the Finance Act, 2022]

(ii) investment division of an offshore banking unit, which has been––

  • (I) granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 or which has commenced its operations on or before the 31st day of March, 2024; and
  • (II) fulfils such conditions including maintenance of separate accounts for its investment division, as may be prescribed;

[Clause (c) of Explanation of clause (4D) of section 10 has been substituted w.e.f. 1st April, 2022 by the Finance Act 2021]

(d) “sponsor” shall have the meaning assigned to it in clause (w) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(e) “trust” means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law for the time being in force;

(f) “unit” means beneficial interest of an investor in the fund and shall include shares or partnership interests;

Section 10 (4E):

Any income accrued or arisen to, or received by a non-resident as a result of transfer of non-deliverable forward contracts or offshore derivative instruments or over-the-counter derivatives, entered into with an offshore banking unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, which fulfils such conditions as may be prescribed;

[Clause (4E) of section 10 has been inserted w.e.f. 1st April, 2022 by the Finance Act 2021 and amended (inserted) w.e.f. 1-April-2023 by the Finance Act 2022]

Rule 21AK of the Income-tax Rules, 1962: Conditions for the purpose of clause (4E) of section 10-:

Rule 21AK(1): The income accrued or arisen to, or received by, a non-resident as a result of transfer of non-deliverable forward contracts under clause (4E) of section 10 of the Act, shall be exempted subject to fulfillment of the following conditions, namely:─

  • (i) the non-deliverable forward contract is entered into by the non-resident with an offshore banking unit of an International Financial Services Centre which holds a valid certificate of registration granted under International Financial Services Centres Authority (Banking) Regulations, 2020 by the International Financial Services Centres Authority; and
  • (ii) such contract is not entered into by the non-resident through or on behalf of its permanent establishment in India.

Rule 21AK(2): The offshore banking unit shall ensure that the condition provided in clause (ii) of sub-rule (1) is complied with.

Explanation: For the purpose of this rule, the expression,-

  • (i) “permanent establishment” shall have the meaning assigned to it in clause (iiia) of section 92F;
  • (ii) “a non-deliverable forward contract” shall mean a contract for the difference between an exchange rate agreed before and the actual spot rate at maturity, with the spot rate being taken as the domestic rate or a market determined rate and such contract being settled with a single payment in a foreign currency; and
  • (iii) “offshore banking unit” means a banking branch Unit located in an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA of the Act.

[New Rule 21AK has been inserted w.e.f. 10.12.2021 vide Notification No. 136/2021, G.S.R. 851(E) dated 10th December, 2021.]

Section 10 (4F):

any income of a non-resident by way of royalty or interest, on account of lease of an aircraft or a ship in a previous year, paid by a unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, if the unit has commenced its operations on or before the 31st day of March, 2024.

Explanation: For the purposes of this clause,—

(i) “aircraft” means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;
(ii) “ship” means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof;

[Clause (4F) of section 10 has been inserted w.e.f. 1st April, 2022 by the Finance Act 2021 and amended (inserted and substituted) w.e.f. 1st April, 2023 by the Finance Act 2022 ]

Section 10 (4G):

Any income received by a non-resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit in any International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.

Explanation: For the purposes of this clause, “portfolio manager” shall have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation (2) of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021, made under the International Financial Services Centres Authority Act, 2019;

[Clause (4G) of Section 10 has been inserted w.e.f. 1st April, 2023 by the Finance Act, 2022]

Section 10 (5):

in the case of an individual, the value of any travel concession or assistance received by, or due to, him,—

(a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India ;

(b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service,

  • Air economy fare of the national carrier (Indian Airlines or Air India) by the shortest route to the place of destination.
  • Air-conditioned first class rail fare by the shortest route to the place of destination.
    • (i) Where a recognised public transport system exists, the first class or deluxe class fare on such transport by the shortest route to the place of destination.
    • (ii) Where no recognised public transport system exists, the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey has been performed by rail.

subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government

Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.

Provided further that for the assessment year beginning on the 1st day of April, 2021, the value in lieu of any travel concession or assistance received by, or due to, such individual shall also be exempt under this clause subject to the fulfillment of such conditions (including the condition of incurring such amount of such expenditure within such period), as may be prescribed.

[Second proviso of clause (5) of section 10 has been inserted w.e.f. 1st April, 2021 by the Finance Act 2021]

Explanation-1: For the purposes of this clause, “family”, in relation to an individual, means—

  • (i) the spouse and children of the individual; and
  • (ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual;

Explanation-2: For the removal of doubts, it is hereby clarified that where an individual claims exemption and the exemption is allowed under the second proviso in connection with the prescribed expenditure, no exemption shall be allowed under this clause in respect of such prescribed expenditure to any other individual.

[Explanation-2 of clause (5) of section 10 has been inserted w.e.f. 1st April, 2021 by the Finance Act 2021]

Section 10 (6):

Exemption to individual who is not a citizen of India: As per Section 10(6)(ii), the exemption shall be granted for the remuneration received by as an official of:

  • An embassy,
  • High commission,
  • Legation,
  • Commission,
  • Consulate, or
  • Trade representation of a foreign State, or
  • Member of the staff of any of these officials.

The remuneration received as a trade commissioner or other official representative in India of the Government of a foreign State (not holding office as such in an honorary capacity), or as a member of the staff of any of those officials, shall be exempt only if the remuneration of the corresponding officials or, as the case may be, members of the staff, if any, of the Government resident for similar purposes in the country concerned enjoys a similar exemption in that country :

Such members of the staff are subjects of the country represented and are not engaged in any business or profession or employment in India otherwise than as members of such staff;

In accordance with Section 10(6)(vi), the remuneration received as an employee of a foreign enterprise for services rendered during his stay in India, provided the following conditions are fulfilled—

  • Foreign enterprise is not engaged in any trade or business in India;
  • His stay in India does not exceed 90 days in previous year; and
  • Such remuneration is not liable to be deducted from the income of the employer chargeable under this Act;

Section 10(6)(viii), any salary income received by non-resident as remuneration for services rendered in connection with employment on a foreign ship where his total stay in India does not exceed 90 days in the previous year.

Section 10(6)(xi), the remuneration received by employee of the Government of a foreign State during stay in India in connection with training in any establishment or office of, or in any undertaking owned by,—

  • (i) Government; or
  • (ii) Company in which the entire paid-up share capital is held by CG or SG or partly by CG and partly by one or more State Governments; or
  • (iii) Subsidiary of a company referred to in item (ii); or
  • (iv) Corporation established by or under a Central, State or Provincial Act; or
  • (v) Society registered under the Societies Registration Act, 1860 and wholly financed by CG/SG or partly by CG and partly by one or more State Governments;

Section 10 (6A):

Exemption for Royalties received by Foreign Company: Royalty income of a foreign company shall be exempted from income tax in accordance with the agreement made between 31.03.1976 to 01.06.2002. The following conditions are also to be satisfied:

  • Royalty or fees for technical services received from Govt. or Indian concern in pursuance of such agreement;
  • Such agreement is in accordance with Industrial Policy (If it relates to);
  • The agreement is approved by the Central Government.

Fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9.

Foreign company shall have the same meaning as in section 80B.

Royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9.

Section 10 (6B):

Exemption from tax paid on income of non-resident or foreign company deriving from Government or an Indian concern in pursuance of an agreement entered into before 01.06.2002 by CG with the Government of a foreign State or an international organisation.

Note that such income does not include salary, royalty or fees for technical services.

Section 10 (6BB):

Exemption from tax paid on income of the Government of a foreign State or a non-resident person deriving from an Indian company engaged in the business of operation of aircraft, as a consideration of acquiring an aircraft or an aircraft engine (other than payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease under an agreement entered between 31.03.1997 to 01.04.1999, or entered into after 31.03.2007 and approved by the Central Government in this behalf.

Section 10 (6C):

Any income arising to notified foreign company by way of royalty or fees for technical services received in pursuance of an agreement entered into with CG for providing services in or outside India in projects connected with security of India;

Section 10 (6D):

Any income arising to a non-resident, not being a company, or a foreign company, by way of royalty from, or fees for technical services rendered in or outside India to, the National Technical Research Organisation (NTRO);

Section 10 (7):

Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India;

Section 10 (8):

In the case of an individual who is assigned to duties in India in connection with any co-operative technical assistance programmes and projects in accordance with an agreement entered into by the Central Government and the Government of a foreign State (the terms whereof provide for the exemption given by this clause)—

  • (a) the remuneration received by him directly or indirectly from the Government of that foreign State for such duties, and
  • (b) any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the Government of that foreign State;

Provided that nothing contained in this clause shall apply to such remuneration and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;

[Proviso in Clause (8) of Section 10 inserted w.e.f. 1st April, 2023 by the Finance Act 2022.]

Section 10 (8A):

In the case of a consultant—

(a) any remuneration or fee received by him or it, directly or indirectly, out of the funds made available to an international organisation [hereafter referred to in this clause and clause (8B) as the agency] under a technical assistance grant agreement between the agency and the Government of a foreign State; and

(b) any other income which accrues or arises to him or it outside India, and is not deemed to accrue or arise in India, in respect of which such consultant is required to pay any income or social security tax to the Government of the country of his or its origin.

Provided that nothing contained in this clause shall apply to such remuneration, fee and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023.

[Proviso in Clause (8A) of Section 10 inserted w.e.f. 1st April, 2023 by the Finance Act 2022.]

Explanation: In this clause, “consultant” means—

  • (i) any individual, who is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India; or
  • (ii) any other person, being a non-resident,

engaged by the agency for rendering technical services in India in connection with any technical assistance programme or project, provided the following conditions are fulfilled, namely :—

  • (1) the technical assistance is in accordance with an agreement entered into by the Central Government and the agency; and
  • (2) the agreement relating to the engagement of the consultant is approved by the prescribed authority for the purposes of this clause;

Section 10 (8B):

in the case of an individual who is assigned to duties in India in connection with any technical assistance programme and project in accordance with an agreement entered into by the Central Government and the agency—

(a) the remuneration received by him, directly or indirectly, for such duties from any consultant referred to in clause (8A); and

(b) any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the country of his origin, provided the following conditions are fulfilled, namely :—

  • (i) the individual is an employee of the consultant referred to in clause (8A) and is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India; and
  • (ii) the contract of service of such individual is approved by the prescribed authority before the commencement of his service;

Provided that nothing contained in this clause shall apply to such remuneration and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;

[Proviso in Clause (8B) of Section 10 inserted w.e.f. 1st April, 2023 by the Finance Act 2022.]

Section 10 (9):

The income of any member of the family of any such individual as is referred to in clause (8) or clause (8A) or, as the case may be, clause (8B) accompanying him to India, which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such member is required to pay any income or social security tax to the Government of that foreign State or, as the case may be, country of origin of such member;

Provided that nothing contained in this clause shall apply to such income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;

[Proviso in Clause (9) of Section 10 inserted w.e.f. 1st April, 2023 by the Finance Act 2022.]

Section 10 (10):

(i) any death-cum-retirement gratuity received under the revised Pension Rules of CG or the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services;

(ii) any gratuity received under the Payment of Gratuity Act, 1972 to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of that Act;

(iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, to the extent it does not, in either case, exceed one-half month’s salary for each year of completed service, calculated on the basis of the average salary for 10 months immediately preceding the month in which any such event occurs, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government :

Where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this clause shall not exceed the limit so specified:

Where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this clause shall not exceed the limit so specified as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years.

Salary includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

Section 10 (10A):

(i) any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or a corporation established by a Central, State or Provincial Act;

(ii) any payment in commutation of pension received under any scheme of any other employer, to the extent it does not exceed:

  • (a) in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive, and
  • (b) in any other case, the commuted value of one-half of such pension,

such commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality;

(iii) any payment in commutation of pension received from a fund under clause (23AAB) ;

Section 10 (10AA):

(i) any payment received by Government employee as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise;

(ii) any payment received by Non Government employee as the cash equivalent of the leave salary in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed 10 months, calculated on the basis of the average salary drawn by the employee during the period of 10 months immediately preceding his retirement whether on superannuation or otherwise subject to notified limit having regard to the limit applicable in this behalf to the employees.

Provided that where any such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this sub-clause shall not exceed the limit so specified :

Provided further that where any such payment or payments was or were received in any one or more earlier previous years also and the whole or any part of the amount of such payment or payments was or were not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this sub-clause shall not exceed the limit so specified, as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years.

Explanation: For the purposes of sub-clause (ii),—

the entitlement to earned leave of an employee shall not exceed thirty days for every year of actual service rendered by him as an employee of the employer from whose service he has retired ;

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