Income-Tax Exemptions · AY 2026-27

Exempt Income List —
Section 10, at a Glance

Every major income the Income-tax Act keeps out of your total income under Section 10 — agricultural income, PPF interest, gratuity, HRA, LTA and more — with the limit, the section and which regime each needs.

Updated for FY 2025-26 CA Reviewed Old vs New Regime Flagged

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Sec 10Exempt incomes

Rs 20LGratuity cap

Rs 25LLeave encashment

Old onlyHRA · LTA

Quick Answer

Section 10 of the Income-tax Act lists incomes that do not form part of your total income — so they are never taxed. The big ones: agricultural income (Sec 10(1)), PPF interest and maturity (Sec 10(11)), gratuity up to Rs 20 lakh (Sec 10(10)), leave encashment up to Rs 25 lakh (Sec 10(10AA)) and life-insurance maturity (Sec 10(10D)) when premium limits are met. A few allowances — notably HRA and LTA — are exempt only under the old tax regime.

Agricultural 10(1) Exempt

PPF 10(11) Exempt

Gratuity 10(10) Rs 20L

HRA / LTA Old only

Exemption vs deduction — not the same thing

An exemption (Section 10) keeps income out of your total income before tax is computed. A deduction (like Section 80C) reduces income that is already taxable. Both cut your bill, but exemptions apply first — and several, unlike most 80C-type deductions, survive even in the new regime.

The core list

Major Section 10 Exemptions for Individuals

The most relevant Section 10 exemptions for salaried and individual taxpayers, with the limit and the key condition for each. Statutory caps below are the figures notified for AY 2026-27; verify your own numbers against the income-tax portal.

Section	Income type	Exemption limit	Key condition / regime
10(1)	Agricultural income	Fully exempt	Land in India; partial integration if other income above the basic exemption
10(4)	NRE account interest	Fully exempt	Only for NRIs; must be an NRE account
10(10)	Gratuity on retirement / death	Up to Rs 20 lakh	Private: least of actual, Rs 20L cap, or 15/26 × salary × years; govt fully exempt
10(10AA)	Leave encashment on retirement	Up to Rs 25 lakh	Private sector cap Rs 25 lakh (raised from Rs 3L); govt employees fully exempt
10(10C)	VRS compensation	Up to Rs 5 lakh	Voluntary Retirement Scheme; once in a lifetime
10(10D)	Life-insurance maturity	Conditional	Premium within limit (see next section); death claims always exempt
10(11) / 10(12)	PPF & recognised PF	Fully exempt	PPF interest & maturity exempt; PF exempt on 5 years' continuous service
10(13A)	HRA (House Rent Allowance)	Formula-based	Old regime only; least of actual HRA, rent − 10% salary, 40%/50% salary
10(14)	LTA (Leave Travel Allowance)	Actual travel cost	Old regime only; domestic travel; 2 journeys per 4-year block
10(15)	Post-office savings interest	Rs 3,500 / Rs 7,000	Single / joint account; savings account only, not FDs
10(23C)	Income of charitable / educational trusts	Fully exempt	Registered under Sec 12A/12AB or 10(23C); income applied to objects

Section numbers follow the Income-tax Act 1961; the Income-tax Act 2025 (w.e.f. AY 2026-27) restates these exemptions — the limits and conditions are unchanged. Small figures may be revised by notification.

Agricultural income is exempt — but not ignored

Agricultural income itself is never taxed, but if your non-agricultural income exceeds the basic exemption limit, the agricultural income is added back only to decide the slab rate (partial integration). The result: a higher effective rate on your taxable income, even though the farm income stays untaxed.

Section 10(10D)

Life-Insurance Maturity — When Is It Taxable?

A maturity payout is tax-free under 10(10D) only if the annual premium stays within the limit for your policy's issue date. Cross the limit and the proceeds become taxable. Here is how the rule has evolved.

Policy issued	Premium threshold	Maturity treatment
1 Apr 2003 – 31 Mar 2012	≤ 20% of sum assured	Exempt if within limit; else fully taxable
1 Apr 2012 onwards	≤ 10% of sum assured	Exempt if within limit; else fully taxable
ULIP after 1 Feb 2021	Annual premium ≤ Rs 2.5 lakh	Above Rs 2.5L — taxed as capital gains (LTCG 12.5%)
Non-ULIP after 1 Apr 2023	Aggregate premium ≤ Rs 5 lakh	Above Rs 5L aggregate — maturity taxable (Budget 2023)
Death claim (any policy)	No restriction	Always exempt

Thresholds per Section 10(10D) provisos; confirm your policy's premium-to-sum-assured ratio before assuming exemption.

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The regime catch

Which Exemptions Survive the New Regime?

The new tax regime is the default from FY 2023-24. It withdraws salary allowances such as HRA and LTA, but the substantive Section 10 exemptions — agricultural income, PPF, gratuity, leave encashment, life-insurance maturity — remain exempt in both regimes.

Old

Old regime — allowances exempt

HRA (10(13A)) exempt on rent paid
LTA (10(14)) exempt on travel
Plus 80C, 80D, 24(b) deductions
Standard deduction Rs 50,000 (salaried)
Best when rent & deductions are high

New

New regime (default)

HRA & LTA fully taxable
Agricultural, PPF, gratuity still exempt
Standard deduction Rs 75,000 (salaried)
Rebate u/s 87A up to Rs 12L taxable income
Nil tax to about Rs 12.75L salary

If you pay high rent, compare before switching

A large HRA exemption often makes the old regime cheaper for tenants in metros. But the new regime's Rs 75,000 standard deduction and the 87A rebate up to Rs 12 lakh taxable income can win when you have little rent or few deductions. Run both before you file.

Not sure which regime keeps more of your allowances?

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Don't get caught out

Exemptions That No Longer Apply

Two well-known Section 10 exemptions have been withdrawn. Taxpayers still relying on old advice get these wrong — both incomes are now taxable.

Section 10(34) — dividend exemption: until FY 2019-20 dividends were exempt in investors' hands (companies paid DDT). From 1 April 2020 dividends are fully taxable at slab rates in the recipient's hands.
Section 10(38) — LTCG on listed equity: long-term gains on listed shares / equity funds were exempt until 31 March 2018. Now, LTCG above Rs 1.25 lakh a year is taxed at 12.5% (rate effective 23 July 2024).

Rent receipts & landlord PAN (HRA)
Travel tickets for LTA (2 per 4-year block)
Gratuity / leave-encashment computation
Form 16 showing exempt allowances
Life-insurance premium & sum-assured proof
PPF / PF passbook or statement
Old regime selected if claiming HRA/LTA

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Government sourcesSection 10 exemptions: incometax.gov.in · Income-tax Act 1961 & Income-tax Act 2025 (w.e.f. AY 2026-27) · Leave-encashment cap Rs 25 lakh: CBDT Notification 31/2023 · Life-insurance premium limits: provisos to Section 10(10D)

Exempt Income — Frequently Asked Questions

Basics

What is exempt income under the Income-tax Act?

Exempt income is income that Section 10 of the Income-tax Act keeps out of your total income, so it is never taxed and, in most cases, need not even be added while computing tax. Examples include agricultural income, PPF interest, gratuity within limits, and HRA to the extent exempt. This is different from a deduction (like 80C), which reduces income that is otherwise taxable.

How many types of income are exempt under Section 10?

Section 10 contains dozens of clauses covering different exempt incomes — agricultural income, provident-fund interest, gratuity, leave encashment, life-insurance maturity, HRA, LTA, income of certain trusts and institutions, and several NRI-specific items. For an ordinary individual taxpayer, around a dozen of these are the ones that actually come up in practice, listed in the table above.

Do I have to report exempt income in my ITR?

Yes. Even though exempt income is not taxed, you must disclose it in the "Exempt Income" schedule of your ITR (for example agricultural income, PPF interest or exempt allowances). Non-disclosure can trigger notices because the department sees the underlying transactions in your AIS and Form 26AS. Reporting is required even when the tax effect is nil.

Agriculture & PPF

Is agricultural income taxable in India?

No — agricultural income from land situated in India is fully exempt under Section 10(1), including cultivation income and rent from agricultural land. However, if your non-agricultural income exceeds the basic exemption limit, the agricultural income is added back only to determine the slab rate (partial integration), which can push your effective rate higher even though the farm income itself stays untaxed.

Is PPF interest taxable?

No. Interest on a Public Provident Fund account is fully exempt under Section 10(11), and so is the maturity amount. PPF enjoys EEE (exempt-exempt-exempt) status: contributions qualify for an 80C deduction, the interest is tax-free, and maturity proceeds are exempt. The annual investment ceiling is Rs 1.5 lakh and the lock-in is 15 years.

Is PPF interest still exempt in the new tax regime?

Yes. The exemption on PPF interest and maturity under Section 10(11) applies in both the old and new regimes — it is not a deduction that the new regime withdraws. What the new regime removes is the 80C deduction on the PPF contribution, not the exemption on the interest earned.

Retirement

What is the gratuity exemption limit?

For government employees, gratuity on retirement or death is fully exempt with no upper limit. For private-sector employees covered by the Payment of Gratuity Act, the exemption under Section 10(10) is the least of: actual gratuity received, Rs 20 lakh (the statutory cap), or 15/26 of last-drawn salary times completed years of service. The Rs 20 lakh limit applies across all employers in a lifetime.

What is the leave-encashment exemption limit?

Leave encashment received on retirement is fully exempt for government employees. For private-sector employees, Section 10(10AA) exempts the least of: actual amount received, Rs 25 lakh (raised from Rs 3 lakh by CBDT notification in 2023), the cash equivalent of unavailed leave, or 10 months average salary. Leave encashment while still in service is taxable.

Is VRS compensation exempt from tax?

Compensation received under an approved Voluntary Retirement Scheme is exempt under Section 10(10C) up to Rs 5 lakh, once in a lifetime, provided the scheme meets the prescribed guidelines. Any amount above Rs 5 lakh is taxable as salary. You cannot claim both the 10(10C) exemption and Section 89 relief on the same VRS amount.

Salary allowances

Is HRA exemption available in the new tax regime?

No. HRA exemption under Section 10(13A) is available only under the old tax regime. If you opt for the new regime, the HRA you receive is fully taxable as salary. Under the old regime the exemption is the least of: actual HRA received, rent paid minus 10% of salary, or 50% of salary (metro) / 40% (non-metro). High rent plus a large HRA is a common reason to prefer the old regime.

How does the LTA exemption work?

Leave Travel Allowance is exempt under Section 10(14) for the actual cost of domestic travel for yourself and family — restricted to economy air fare or AC first-class rail fare — for two journeys in a block of four calendar years. It covers travel fare only, not food, stay or local transport, and, like HRA, it is available only under the old tax regime.

Which exemptions do I lose under the new regime?

The new regime withdraws salary allowances such as HRA (10(13A)) and LTA (10(14)), along with most Chapter VI-A deductions like 80C and 80D. However, the core Section 10 exemptions — agricultural income, PPF and PF interest, gratuity, leave encashment and life-insurance maturity — continue to apply in both regimes. Salaried taxpayers also get a higher Rs 75,000 standard deduction under the new regime.

Insurance & investments

Is a life-insurance maturity amount taxable?

Maturity proceeds are exempt under Section 10(10D) if the annual premium does not exceed 10% of the sum assured (for policies issued from 1 April 2012). If the premium exceeds that, the maturity amount is taxable. For ULIPs issued after 1 February 2021 with annual premium above Rs 2.5 lakh, and non-ULIP policies after 1 April 2023 with aggregate premium above Rs 5 lakh, maturity is taxable. Death claims are always exempt.

Is NRE account interest exempt from tax?

Yes. Interest on a Non-Resident External (NRE) account is fully exempt under Section 10(4) for as long as you qualify as a non-resident (or resident but not ordinarily resident). Interest on FCNR deposits is similarly exempt for NRIs. Once you become a resident, the interest generally becomes taxable, so timing the conversion of accounts on return matters.

Withdrawn

Are dividends still exempt under Section 10(34)?

No. The dividend exemption under Section 10(34) was withdrawn from 1 April 2020. Dividends are now fully taxable at your slab rates in the year you receive them, and TDS applies where dividends from a company exceed the prescribed threshold. Companies no longer pay Dividend Distribution Tax; the tax has shifted to the investor.

Is long-term capital gain on shares still exempt?

No. The Section 10(38) exemption on long-term capital gains from listed shares and equity mutual funds ended on 31 March 2018. Such gains above Rs 1.25 lakh a year are now taxable at 12.5% (the rate and threshold applying from 23 July 2024). Short-term gains on listed equity are taxed at 20%.

Done-for-you

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