Section 10 Income Tax: Your Guide to Tax-Free Income (2025-26)
When we think about the Income Tax Act, we usually think about how much we have to pay. But Section 10 is the part of the law that tells you what you get to keep. It is the Exempt Income section. Essentially, if your income falls under any part of Section 10, it doesn’t even get added to your total taxable amount. It’s like it doesn’t exist in the eyes of the taxman. However, there’s a catch in 2025-26: many of these exemptions only work if you stay in the Old Tax Regime. If you’ve moved to the New Tax Regime (the default one), most of these gifts are off the table. Let’s look at the big ones that still matter today.
The Big Hits: Common Exemptions for Salaried Folks
If you are an employee, Section 10 is where your tax-saving journey usually begins.
A. House Rent Allowance (HRA) - Section 10(13A)
If you live in a rented house and get HRA from your boss, you can claim an exemption. The math is a bit boring (it’s the lowest of three different calculations), but it can save you thousands.
- Note: This is only for the Old Regime.
B. Leave Travel Concession (LTC) - Section 10(5)
Going on a family vacation within India? The government allows you to claim the travel cost (airfare or train tickets) as tax-free twice in a block of four years.
- Note: Again, this is an Old Regime benefit.
C. Gratuity and Leave Encashment - Section 10(10)
When you retire or leave a job after a long time, the lump sum you get is often exempt up to certain limits (usually up to ₹25 Lakh for leave encashment as per the latest 2025 rules).
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Income That is Always Tax-Free (For Everyone)
Some types of income are so sacred in India that they are exempt regardless of which tax regime you pick.
- Agricultural Income [Section 10(1)]: If you earn money from farming or rent out agricultural land, that money is 100% tax-free. (Though it might be used to calculate your tax bracket if you have other income).
- Receipts from HUF [Section 10(2)]: If you are part of a Hindu Undivided Family (HUF), any money you receive from the family’s income is tax-free for you, because the HUF has already paid tax on it.
- Life Insurance Maturity [Section 10(10D)]: Generally, the money you get when a policy matures is tax-free.
- The 2025 Twist: If you have high-premium policies (where the premium exceeds ₹5 Lakh a year), this might not be fully exempt anymore.
Post-Office and Savings Exemptions
Even small savings have a home in Section 10.
- Public Provident Fund (PPF) [Section 10(11)]: The interest you earn and the final amount you withdraw from PPF is completely tax-free. This is why it remains a favorite for Indian families.
- Sukanya Samriddhi Yojana: Just like PPF, the interest and maturity amount for your daughter's savings are exempt.
Allowances for Special Duties
The law understands that some people have jobs that cost them money to perform.
- Children’s Education Allowance: You get a tiny exemption of ₹100 per month per child (up to two kids). It hasn't been updated in years, but it's still there!
- Daily Allowance: If you are a Member of Parliament (MP) or MLA, your daily allowances are exempt under Section 10(17).
Summary Table: What’s In and What’s Out
Exemption Type
Section
Works in New Regime?
Agricultural Income
10(1)
Yes
HRA (Rent)
10(13A)
No
PPF Interest
10(11)
Yes
LTA (Travel)
10(5)
No
Gratuity
10(10)
Yes
Leave Encashment
10(10AA)
Yes
Conclusion
Section 10 is essentially the government's way of saying, We won't tax you on money that is essential for your survival or your future. However, with the shift toward the New Tax Regime in 2025-26, Section 10 is becoming a choose-your-own-adventure book. If you want the simplicity of the New Regime, you lose the HRA and LTA. If you want those exemptions, you have to deal with the higher rates of the Old Regime. My advice? Sit down with a calculator (or a Motilal Oswal advisor) once a year and see which regime lets you keep more of your hard-earned money.