Section 10 of the Income Tax Act lists incomes that are fully or partially exempt from tax — meaning they don't get added to your total income at all. From HRA and LTA to gratuity, leave encashment and agricultural income, this section covers some of the most commonly claimed exemptions by salaried employees and others. Here's the full list with limits and conditions for FY 2025-26.
What Is a Section 10 Exemption?
An exemption under Section 10 means the income is excluded from your Gross Total Income altogether — unlike a deduction (under Chapter VI-A like Section 80C), which is subtracted after the income is included. Exempt income doesn't appear in your taxable income computation, though some exemptions still need to be reported in your ITR for disclosure.
Many Section 10 exemptions are only available under the old tax regime — the new regime (Section 115BAC) withdraws most of them, with a few exceptions noted below.
Key Section 10 Exemptions for Salaried Employees
| Section | Exemption | Limit / Condition | New Regime? |
|---|
| 10(13A) | House Rent Allowance (HRA) | Least of: actual HRA, rent paid – 10% salary, 50%/40% of salary | Not available |
| 10(5) | Leave Travel Allowance (LTA) | Economy/AC fare for travel within India, twice in a block of 4 years | Not available |
| 10(10) | Gratuity | Up to ₹20 lakh (govt employees: fully exempt) | Available |
| 10(10AA) | Leave encashment on retirement | Up to ₹25 lakh (non-govt employees) | Available |
| 10(10C) | Voluntary Retirement Scheme (VRS) | Up to ₹5 lakh, one-time | Available |
| 10(10D) | Life insurance maturity proceeds | Exempt if premium ≤ 10% of sum assured (conditions for ULIPs apply) | Available |
| 10(11)/(12) | PF and PPF interest/withdrawal | Exempt subject to specified conditions on contribution thresholds | Available |
Other Important Section 10 Exemptions
- Section 10(1): Agricultural income is fully exempt from income tax (though it may affect the tax rate on non-agricultural income via partial integration)
- Section 10(2): Share of income received from an HUF by a member is exempt (since the HUF itself pays tax on it)
- Section 10(16): Scholarships granted to meet the cost of education are fully exempt
- Section 10(34A)/(38): Certain dividend and buyback income exemptions (subject to amendments — verify current applicability each year)
- Section 10(15): Interest on specified bonds (e.g., notified tax-free bonds) is exempt
Example: HRA Exemption CalculationPriya earns a basic salary of ₹50,000/month, gets HRA of ₹25,000/month, and pays rent of ₹22,000/month in Mumbai (a metro). HRA exemption = least of: (a) actual HRA ₹25,000, (b) rent – 10% salary = ₹22,000 – ₹5,000 = ₹17,000, (c) 50% of salary = ₹25,000. The lowest is ₹17,000/month, so ₹17,000 is exempt and ₹8,000 is taxable HRA each month.
Old Regime vs New Regime: What Survives
If you opt for the new tax regime, most Section 10 exemptions tied to salary structure (HRA, LTA) are not available. However, retirement-related exemptions — gratuity, leave encashment, VRS, and PF/PPF — remain available under both regimes, since these are treated as one-time/terminal benefits rather than regular salary perks.
⚠ Disclosure still required: Even though exempt income doesn't add to your taxable income, several exempt incomes (like agricultural income above ₹5,000 and exempt allowances) must still be reported in the "Exempt Income" schedule of your ITR. Not reporting them can trigger mismatches with AIS data.
Common Mistakes With Section 10 Exemptions
- Claiming HRA exemption without actual rent payment proof (rent receipts, landlord PAN above ₹1 lakh/year)
- Claiming LTA without actual travel — only travel cost is exempt, not hotel/food
- Not checking the ₹20 lakh gratuity ceiling when an employee has worked at multiple employers in the same year
- Forgetting that exempt allowances under the old regime are simply added back as taxable salary under the new regime
Frequently Asked Questions
Can I claim Section 10 exemptions under the new tax regime? ▼
Most salary-structure exemptions like HRA (Section 10(13A)) and LTA (Section 10(5)) are NOT available under the new tax regime (Section 115BAC). However, terminal benefits like gratuity (10(10)), leave encashment (10(10AA)), VRS compensation (10(10C)), and PF/PPF-related exemptions (10(11), 10(12)) remain available under both the old and new regimes, since they are not considered part of the regular salary structure that the new regime simplifies away.
Is agricultural income completely tax-free in India? ▼
Yes, agricultural income is exempt from income tax under Section 10(1) of the Income Tax Act, as agriculture falls under the State List in the Constitution and only state governments can tax it. However, if you have both agricultural and non-agricultural income and your agricultural income exceeds ₹5,000 in a year, the agricultural income is used to compute a notional tax rate that is then applied to your non-agricultural income — a process called 'partial integration.' This can increase the effective tax rate on your non-agricultural income, even though the agricultural income itself remains untaxed.
Do I need to report exempt income in my ITR even though it's not taxed? ▼
Yes. Most ITR forms have a dedicated 'Schedule EI' (Exempt Income) where you must report exempt incomes like agricultural income above ₹5,000, exempt allowances (HRA, LTA portions), exempt dividend income, and interest on tax-free bonds. While these amounts don't add to your taxable income, failing to report them can create mismatches with the Annual Information Statement (AIS), which now captures most of these transactions, and can trigger a notice for clarification even if no tax is actually due.