Section 10 of the Income Tax Act: Exemptions List, Allowances and How to Claim

Section 10 of the Income Tax Act, 1961 lists the incomes that are not taxed, either fully or up to a limit. For a salaried employee that means HRA, LTA, children education allowance and retirement benefits. For everyone else it includes agricultural income and life insurance proceeds.

Most of these exemptions work only in the old tax regime, and the Income-tax Act, 2025 moved them out of Section 10 from 1 April 2026. This guide covers each exemption with its current limit, flags the ones that have ended, and shows how to claim them.

What is Section 10 of the Income Tax Act?

A tax exemption works differently from a deduction. An exempt income never enters your taxable income at all, while a deduction such as Section 80C is subtracted after the income has been counted. Section 10 holds the exemptions, and Chapter VI-A (Sections 80C to 80U) holds the deductions.

From a salaried employee's side, the exemptions fall into two groups. Exempt allowances are paid with your salary: HRA, LTA, children education allowance and the special allowances. Other exempt income arrives as a lump sum: gratuity, leave encashment, commuted pension, retrenchment and voluntary retirement compensation, and maturity proceeds of life insurance.

Section 10 and the Income-tax Act, 2025: What Changed From 1 April 2026

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, and Section 11 of the new Act now carries the exempt-income provisions that Section 10 used to hold. The individual exemptions moved into Schedules II to VII instead of a single long section with more than 50 clauses.

The Central Board of Direct Taxes notified the Income-tax Rules, 2026 on 20 March 2026, and the Income Tax Department confirmed in its 1 April 2026 press release that the new Act is in force. HRA is now worked out under Rule 279 of those rules, and the children education and hostel allowances under Rule 280.

Section 10 Exemptions List: Every Major Exemption and Its Limit

The Section 10 exemptions list below covers every exemption an individual taxpayer is likely to meet, with the sub-section, the current limit and whether it still exists. Use it as the quick reference, then read the sections that apply to you.

Which Section 10 Exemptions Work in the New Tax Regime?

The new tax regime keeps only the exemptions that are not tied to salary structuring, so HRA, LTA, children education allowance and hostel allowance are available in the old regime alone. The new regime is Section 115BAC of the 1961 Act and Section 202 of the 2025 Act, and it is the default unless you opt out.

Whether the old regime is worth it depends on how many of the old-regime-only exemptions and deductions you can actually claim. The old vs new tax regime guide works through the break-even, and the Section 115BAC explainer covers the new regime's slabs. For a quick answer, run your numbers through the Old vs New Tax Regime Calculator.

HRA Exemption Under Section 10(13A): Formula, Metro Cities and Example

HRA exemption is the lowest of three amounts: the HRA actually received, 50% of basic salary plus dearness allowance in a metro city (40% elsewhere), and rent paid minus 10% of basic salary plus dearness allowance. HRA stands for House Rent Allowance, and you can claim it only if you pay rent and have chosen the old tax regime.

Which cities count as metro for HRA?

Eight cities qualify for the 50% rate under the Income-tax Rules, 2026: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. Before the new rules only the first four did, so an employee in Bengaluru or Pune gets a larger exemption than before.

HRA exemption example

Take an employee with basic plus DA of ₹40,000 a month, HRA of ₹20,000 a month and rent of ₹24,000 a month. Annualised, that is ₹4,80,000 of salary, ₹2,40,000 of HRA and ₹2,88,000 of rent.

The same salary and rent leave nothing to tax in Bengaluru and ₹48,000 of taxable HRA in Jaipur. Run your own figures through the HRA Calculator to see the exempt and taxable split.

Conditions to claim HRA

• You must actually pay rent and keep receipts or a rent agreement.
• If annual rent is above ₹1,00,000, you must give the landlord's PAN to your employer.
• Rent paid to parents counts if they own the house and declare it as income, and it should be paid through a bank trail.
• HRA is not available in the new tax regime, so the claim only makes sense if you stay in the old one.
• No HRA in your salary? Section 80GG can allow a rent deduction in the old regime, up to ₹5,000 a month, with Form 10BA.

LTA Exemption Under Section 10(5): Two Journeys in a Four-Year Block

Leave travel allowance is exempt only for the actual domestic fare of two journeys in a block of four calendar years, and only in the old tax regime. The exemption covers airfare, rail fare or bus fare for you and your family, and nothing for hotels, food or local sightseeing.

If your employer gives ₹30,000 of LTA and you spend ₹20,000 on travel, only the ₹20,000 is exempt and the other ₹10,000 is taxable salary. A journey you skip in one block can be carried into the next block, and the LTA allowance has to be part of your pay structure, so ask HR whether it is. The LTA Calculator shows the exempt portion for your claim.

Special Allowances Under Section 10(14): Children Education, Hostel, Food and Travel

Section 10(14) exempts two kinds of allowance: those paid to meet official expenses, up to the amount actually spent under 10(14)(i), and those the government has prescribed with a fixed cap under 10(14)(ii). The 2026 rules raised several of these caps for the first time in decades.

Food allowance and meal vouchers

Employer-provided meals during working hours are tax free up to ₹200 per meal, which at two meals a day and 22 working days comes to ₹8,800 a month or ₹1,05,600 a year. The benefit has to be a meal or a meal voucher, not cash, and the ₹200 figure is a per-meal ceiling, not a guaranteed annual amount.

Conveyance, travel and per diem allowances

A conveyance or travel allowance is exempt only when it reimburses spend on official work, and any unspent part is taxable. A flat monthly allowance for commuting to your own office is taxable salary. A per diem, which is a fixed daily amount for meals and lodging during a work trip, is exempt only up to what you actually spend, which is why employers ask for a declaration or bills.

Dearness allowance meaning

Dearness allowance (DA) is a cost-of-living payment added to basic pay, and unlike the allowances above it is fully taxable. It matters for Section 10 because DA that forms part of retirement benefits is included in the salary used for the HRA, gratuity and leave encashment formulas.

Gratuity, Leave Encashment, Pension and Compensation: The Retirement Exemptions

Retirement and exit payments are largely tax free up to a limit, and the limits are lifetime ceilings across employers, not per job. The table gives the rule for each, and the sections after it walk through the working.

Gratuity exemption under Section 10(10)

Gratuity is fully tax free for government employees. For a private employee covered by the Payment of Gratuity Act, the exempt amount is the lowest of the gratuity received, ₹20 lakh, and 15 days of last drawn basic plus DA for each completed year of service, worked out as monthly salary times 15/26 times years.

For example, an employee with ₹60,000 of monthly basic plus DA and 12 completed years gets 15/26 × 60,000 × 12, which is ₹4,15,385. That is well below ₹20 lakh, so the full amount is exempt. The Gratuity Calculator returns the gratuity and its tax-free portion.

Leave encashment exemption under Section 10(10AA)

Leave encashment is exempt only when you receive it on retirement or resignation, and it is fully taxable if you encash leave during service. A government employee gets the whole amount exempt, while others get the lowest of ₹25 lakh, the amount actually received, 10 months' average salary, and the cash equivalent of unavailed leave. Work out the tax on yours with the Leave Encashment Tax Calculator.

Commuted pension, retrenchment and voluntary retirement

A commuted pension, the lump sum you take instead of part of your monthly pension, is fully exempt for government employees. For others, one-third of the value is exempt if you also receive gratuity and half if you do not. Retrenchment compensation under the Industrial Disputes Act is exempt up to ₹5 lakh or 15 days' average pay per year of service, whichever is lower.

Voluntary retirement compensation is exempt up to ₹5 lakh in a lifetime, provided the scheme follows Rule 2BA. For an employee with a salary of ₹80,000 and 20 completed years, 3 months' salary per year of service would be ₹48 lakh, so the ₹5 lakh ceiling is what actually applies.

Life Insurance Proceeds Under Section 10(10D): When the Exemption Is Lost

Section 10(10D) exempts the sum received on maturity or death under a life insurance policy, but the exemption is lost if the premium crosses certain thresholds. The rules depend on when the policy was issued and whether it is a ULIP.

Keyman insurance proceeds are not covered by 10(10D), and a policy taken for a person with disability or a specified disease has a higher 15% premium cap. If you are choosing a policy, test the premium against these limits before you buy, and use the Section 80C Calculator to see how the premium fits your deductions.

Provident Fund, Sukanya Samriddhi, NPS and Savings Interest

Payments from a statutory provident fund and PPF are exempt under Section 10(11), and payments from a Sukanya Samriddhi Account are exempt under Section 10(11A). Interest on your own contribution to a provident fund is tax free only up to ₹2.5 lakh of contribution a year, or ₹5 lakh if there is no employer contribution.

• Provident fund: interest on contributions above the ₹2.5 lakh limit is taxable. Check your balance and rate on the EPFO portal or in the PF balance guide, and project it with the EPF Calculator.
• Sukanya Samriddhi: deposits, interest and maturity are all exempt, which makes the scheme EEE. See the SSY 2026 guide and the SSY Calculator.
• NPS: up to 60% of the corpus withdrawn at retirement is tax free, and the remaining 40% buys an annuity whose income is taxable.
• Post office savings: interest is exempt up to ₹3,500 for an individual and ₹7,000 for a joint account under Section 10(15).

Agricultural Income Under Section 10(1)

Agricultural income from land in India is fully exempt under Section 10(1), with no upper limit. It covers the sale of produce, rent or revenue from agricultural land, income from farm buildings used for farming, and income from operations such as sowing, tilling and pruning.

One catch applies. If your net agricultural income is above ₹5,000 and your other income is above the basic exemption limit, the agricultural income is added back to decide the rate on your non-agricultural income. This partial integration does not tax the farm income, but it can move your other income into a higher slab. Report agricultural income above ₹5,000 in Schedule EI of the return.

Section 10 Exemptions That Have Ended

Several exemptions you will still see quoted online no longer apply to current income. The main ones are the dividend exemption, the buy-back exemption, the mutual fund income exemption and the equity capital gains exemption.

Capital gains exemptions that people often file under Section 10, such as the 54F exemption and the 54EC exemption, sit in Chapter IV and not in Section 10. If you have a gain to plan around, the Capital Gains Calculator shows the tax before and after reinvestment.

How to Claim Section 10 Exemptions

You claim a Section 10 exemption by declaring it to your employer for TDS and then reporting it in your income tax return. The steps differ slightly for salary allowances and for other exempt income.

1. Pick the regime: compare both before the financial year starts, because HRA, LTA and the education allowances work only in the old regime.
2. Declare to your employer: submit Form 12BB with rent receipts, the landlord's PAN for rent above ₹1,00,000, and LTA travel proof so that TDS is cut on the lower figure.
3. Check Form 16: Part B should list each allowance exempt under Section 10. If an exemption is missing, you can still claim it in the return.
4. Report in the ITR: enter exempt allowances in the salary schedule and other exempt income, such as agricultural income above ₹5,000, in Schedule EI.
5. File and e-verify: choose the right ITR form for your income sources, file on the Income Tax e-Filing portal before the due date and e-verify the return.

Keep rent receipts, tickets, policy documents and bank statements for several years, because exemptions are the first thing a notice asks you to substantiate.

How Section 10 Exemptions Affect a Salaried Taxpayer

Section 10 exemptions lower your taxable salary and raise your take-home pay, and their value is largest when you also pay rent in a metro city and have a high HRA component. The same exemptions are worth nothing in the new regime, so the choice of regime is really a choice about how many of them you can use.

Take the HRA example above. If that employee is in the 30% slab, the ₹2,40,000 of exempt HRA saves about ₹72,000 of tax before cess. The new regime has a standard deduction of ₹75,000 and a Section 87A rebate that makes income up to ₹12 lakh tax free, so a lower-income employee often does better there, as the Section 87A rebate guide explains. Use the In-Hand Salary Calculator to see the effect on monthly pay, and check the income tax slabs for the rates.

Common Mistakes When Claiming Section 10 Exemptions

The most common mistake is claiming an old-regime exemption after opting for the new regime, which a mismatch between Form 16 and the return will flag. Four other errors cause most notices.

• Claiming HRA without paying rent: receipts and a bank trail are what an assessing officer checks first, and paying rent to a relative who does not declare it creates a second problem.
• Treating an unspent allowance as exempt: duty-linked allowances are exempt only up to what you spent, and the rest is taxable.
• Using the old limits: children education allowance was ₹100 and meals ₹50 until the 2026 rules, so older articles and payroll templates may show stale figures.
• Forgetting lifetime ceilings: the ₹20 lakh gratuity, ₹25 lakh leave encashment and ₹5 lakh VRS limits are cumulative across employers.
• Missing the 10(10D) thresholds: a high-premium policy can lose its tax-free maturity, so test the premium against the sum assured before you buy.

The official rules sit with the Income Tax Department, and the Income-tax Act, 2025 is available on India Code.

Frequently Asked Questions on Section 10 and Tax Exemptions