Capital Gain and Income

Topics: Capital gain, Tax, Pension Pages: 10 (2870 words) Published: March 15, 2009

However, every income is taxable under income tax law, whether it is received in cash or in kind, whether it is capital or revenue income, but still some incomes are given exemption from tax. In this lesson we will study those incomes which are exempt from tax.

Here are some of the important items of income, which are fully exempt from income tax and which can be utilised by a resident individual Indian assessee for the purpose of tax planning.


Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax. However, for individuals or HUFs when agricultural income is in excess of Rs. 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into “no” tax on agricultural income but an increased income tax on the other income. Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income is explained in Illustration.


Any sum received by an individual as a member of a Hindu Undivided Family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).

Illustration 3.1 - X, an individual, has personal income of Rs. 56,000 for the previous year 2005-06. He is also a member of a Hindu undivided family, which has an income of Rs. 1, 08,000 for the previous year 2005-06. Out of income of the family, X gets Rs. 12,000, being his share of income. Rs. 12,000 will be exempt in the hands of X by virtue of section 10(2). The position will remain the same whether (or not) the family is chargeable to tax. X shall pay tax only on his income of Rs. 56,000.


Under the provisions of Section 10(2A), in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm is completely exempt from income tax since AY 1993-94. For this purpose, the share of a partner in the total income of a firm separately assessed as such would be an amount which bears to the total income of the firm the same share as the amount of the share in the profits of the firm in accordance with the partnership deed bears to such profits.


This exemption is not available from the assessment year 2003-04


As per section 10(5), the amount exempt under section 10(5) is the value of any travel concession or assistance received or due to the assessee from his employer for himself and his family in connection with his proceeding on leave to any place in India. The amount exempt can in no case exceed the expenditure actually incurred for the purposes of such travel. Only two journeys in a block of four years is exempt. Exemption is available in respect of travel fare only and also with respect to the shortest route.


Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7). This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.


As per section 10(10CC), the amount of tax actually paid by an employer, at his option, on non-monetary perquisites on behalf of an employee, is not taxable in the hands of the employee. Such tax paid by the employer shall not...
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