Exempt income under the Income-tax Act, 2025 is governed by section 11 read with Schedules II to VII. Schedule II is the general list, and Schedules III to VII cover eligible persons, non-residents, investment funds, IFSC units and wholly exempt persons.
Exempt income is not in Schedule I. Schedule I deals with business connection conditions under section 9(12). Exempt income is in section 11 read with Schedules II to VII.
How the exemption regime is now organised
Section 10 of the Income-tax Act, 1961 was a single, enormous section that accumulated clauses over six decades. The Income-tax Act, 2025 replaces it with a short gateway — section 11 — and moves the actual lists into six Schedules.
The organising principle has changed. The old section 10 was arranged by what the income was. The new Schedules are arranged by who is claiming. That is why you now identify the claimant category first and the income second.
Schedule II is the general list — income not to be included in the total income of any person. Schedule III covers eligible persons. Schedule IV covers eligible non-residents and foreign companies. Schedule V covers investment funds, business trusts and their unit holders. Schedule VI covers International Financial Services Centre units. And Schedule VII lists persons who are exempt from tax altogether.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026 because of the repeal and savings provision in section 536. The Schedule contents described here are taken from the Act as enacted, incorporating the corrigenda notified in the Gazette on 3 September 2025.
Where each provision actually sits
| Topic | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Exemption gateway | Section 10 | Section 11 |
| General exempt income | Section 10 clauses | Schedule II |
| Exempt income of eligible persons | Section 10 clauses | Schedule III |
| Exempt income of non-residents | Section 10 clauses | Schedule IV |
| Investment funds, business trusts, unit holders | Sections 10(23FB), 10(23FC) | Schedule V |
| IFSC units | Section 10(4D) and related | Schedule VI |
| Wholly exempt persons | Section 10 clauses | Schedule VII |
| Political parties and electoral trusts | Sections 13A and 13B | Section 12 with Schedule VIII |
What each Schedule contains
Schedule II — the general list
Read with section 11. In computing total income, the income in column B is not included, subject to the conditions in column C. Serial 1 is agricultural income, with no conditions. Serial 2 covers sums received under a life insurance policy including bonus, with a detailed sub-table setting conditions by the period in which the policy was issued and an exception for sums received on death.
Schedule III — eligible persons
Structured with an extra column: column C identifies the eligible person. Serial 1 covers any sum received by a member from a Hindu undivided family, where the sum is not covered by section 99(3) and (4) and is paid out of the family's income or the income of an impartible estate. This is the Schedule that carries most of the personal exemptions.
Schedule IV — non-residents and foreign companies
Covers income not included in the total income of eligible non-residents, foreign companies and other such persons. Serial 1 is interest for an individual resident outside India as defined in section 2(w) of FEMA, 1999, or one permitted by the Reserve Bank of India to maintain the account, where the interest is on moneys standing to credit in that account.
Schedules V and VI — funds and IFSC
Schedule V covers investment funds, business trusts and their unit holders — serial 1 exempts any income of an investment fund other than income chargeable under the business head. Schedule VI covers persons in an International Financial Services Centre or having income from one, beginning with income from transfer of a capital asset referred to in section 70(1)(r) on a recognised stock exchange in an IFSC.
Schedule VII — exempt persons
This Schedule works differently. It lists persons in column B who shall not be liable to pay income-tax on total income, subject to conditions in column C. Serial 1 is any regimental fund or non-public fund established by the armed forces for the welfare of past and present members or their dependants.
What is not in these Schedules
Salary-linked exclusions did not move here. Gratuity, commuted pension, leave encashment, retrenchment compensation and voluntary retirement — sections 10(10) to 10(10C) of the old Act — are dealt with in the section 19 deduction table. And the SEZ deduction that was section 10AA is now section 144 in Chapter VIII.
Worked example
Where to look for five common exemptions under the new Act.
| Exemption | Under the 1961 Act | Under the 2025 Act |
|---|---|---|
| Agricultural income | Section 10(1) | Schedule II, serial 1 |
| Life insurance proceeds | Section 10(10D) | Schedule II, serial 2, with conditions by policy issue period |
| Sum received by a member from an HUF | Section 10(2) | Schedule III, serial 1 |
| Gratuity on retirement | Section 10(10) | Section 19 table — not a Schedule |
| SEZ unit deduction | Section 10AA | Section 144, Chapter VIII — a deduction, not an exemption |
The last two rows are where most searches go wrong. Two of the best known section 10 items are not in the exemption Schedules at all — one moved into the salary computation and the other into the deduction chapter.
Compliance checklist
- Identify the claimant category first — that decides which Schedule to open.
- Read the conditions column; almost every entry is conditional.
- Check the Notes below each Table, which carry the defined terms used in the entries.
- For salary retirement benefits, go to the section 19 table, not to a Schedule.
- For the SEZ deduction, go to section 144 in Chapter VIII.
- For political parties and electoral trusts, use section 12 with Schedule VIII.
- Do not look in Schedule I — that is the business connection Schedule under section 9(12).
Common mistakes
- Searching Schedule I for exempt income.
- Assuming every section 10 clause moved into the Schedules; several moved into sections 19 and 144.
- Reading an entry without its conditions column or the Notes below the Table.
- Treating Schedule VII as a list of exempt incomes; it lists exempt persons.
All sixteen Schedules of the Income-tax Act, 2025
Because the numbering is widely misquoted, the full list is reproduced below from the Act as enacted. Note that Schedules II to VII are all exemption lists, split by who is claiming rather than by what the income is.
| Schedule | Read with | Subject as enacted |
|---|---|---|
| I | section 9(12) | Conditions for certain activities not to constitute business connection in India |
| II | section 11 | Income not to be included in total income |
| III | section 11 | Income not to be included in total income of eligible persons |
| IV | section 11 | Income not to be included in total income of eligible non-residents, foreign companies and other such persons |
| V | section 11 | Income not to be included in total income of certain eligible persons including investment funds, business trusts and their unit holders |
| VI | section 11 | Income not to be included in total income of certain eligible persons in an International Financial Services Centre or having income therefrom |
| VII | section 11 | Persons exempt from tax |
| VIII | section 12 | Income not to be included in the total income of political parties and electoral trusts |
| IX | section 48 | Deduction for tea, coffee and rubber development accounts |
| X | section 49 | Deduction for Site Restoration Fund |
| XI | section 2(91) | Recognised provident funds, approved superannuation funds and approved gratuity funds |
| XII | section 51 | Minerals, and groups of associated minerals |
| XIII | section 45(2) | List of articles or things |
| XIV | section 55 | Insurance business |
| XV | section 123 | Deduction for life insurance premia, contribution to provident fund, subscription to certain equity shares, etc. |
| XVI | section 350 | Permitted modes of investment or deposits by a registered non-profit organisation |
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.