Section 10 lists incomes that are completely excluded from the computation of total income (exempt from income tax).
1. Agricultural Income Exemption (Section 10(1))
Under Section 10(1), agricultural income is completely exempt from central income tax, owing to the federal distribution of tax powers (List II Entry 46 gives states exclusive rights to tax agricultural income).
- Definition (Section 2(1A)): Agricultural income includes:
- Any rent or revenue derived from land situated in India and used for agricultural purposes.
- Any income derived from such land by agricultural operations, including processing of produce to make it fit for market.
- Income from a farm building/house immediately adjacent to agricultural land.
- Integration Method (Indirect Taxing): While agricultural income is exempt, it is integrated with non-agricultural income to determine the tax rate applicable to non-agricultural income (for individuals whose non-agricultural income exceeds the basic exemption limit).
2. Other Key Exempted Incomes (Section 10)
- Share of profit of a partner from a firm (Section 10(2A)).
- Educational scholarships (Section 10(16)).
- Daily allowance received by Members of Parliament (MPs) and MLAs (Section 10(17)).