Tax Exemption Under Section 10 of the Income Tax Act

How to Get Tax Exemption Under Section 10 of the Income Tax Act?

Understand Section 10 tax exemptions, eligibility, covered income types, and how they help reduce taxable income legally.

Written by : Knowledge Centre Team

2026-02-10

9195 Views

7 minutes read

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Tax planning is an important part of managing your finances, especially when a portion of your hard-earned income goes towards taxes every year. While paying taxes is unavoidable, the Income Tax Act provides several legal provisions that can help reduce your tax burden. One of the most commonly used provisions is Section 10, which addresses various types of tax-exempt income and allowances.

From salary components such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA) to exemptions on certain retirement benefits and life insurance proceeds, Section 10  of the Income Tax covers a wide range of income sources. However, these exemptions are not automatic; you must meet specific conditions and maintain the required documents to claim them correctly.

In this blog, we will help you understand how to get a tax exemption under Section 10 of the Income Tax Act and how it can support better financial planning.

Key Takeaways

  • Section 10 of the Income Tax Act covers several exemptions on salary allowances, retirement benefits, and specific income types

  • Popular exemptions include HRA, LTA, gratuity, leave encashment, and agricultural income, subject to conditions

  • Life insurance payouts may qualify for exemption under Section 10(10D), depending on the premium and policy conditions

  • Section 10 exemptions are not automatic; proper eligibility and documentation are essential while filing ITR

  • Choosing the right tax regime and understanding exemption rules can help reduce your taxable income legally

Understanding of Section 10 of the Income Tax Act, 1961

The exemption under Section 10 covers Leave Travel Allowance (LTA), life insurance, gratuity, leave encashment, transport allowance (if disabled), agriculture income, etc. Section 10 contains subsections that allow exemptions for different income types. These exemptions can be claimed by an assessee, including an Individual (salaried as well as non-salaried), a Hindu Undivided Family (HUFs), an Association, a Trust, a Company, a Body of Persons, a Foreign Company, etc.

Tax exemption under Section 10(10D) of the Income Tax Act, 1961, can be availed for all life insurance payouts. These payouts comprise either the death benefit, which is payable to the policyholder’s family in the case of sudden demise, or the maturity benefit, which is payable to the policyholder for surviving the policy’s term. The section also exempts any accrued bonuses from taxation. There is also no specified upper limit of exemption under this section.

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Various Exemptions Under Section 10 of the Income Tax Act

To help you understand the most commonly used Section 10 exemptions at a glance, here’s a simplified table of key categories and the corresponding exemption rules.

Section and Sub-sectionCategoryExemption

10(1)

Self-employed agricultural income

No tax

10(2)

Income of a member of a Hindu Undivided Family

No tax

10(10C)

Voluntary retirement compensation

Exempt up to ₹5 lakh

10(10D)

Life insurance benefit, including a bonus

No tax

10(10BC)

Government compensation for damage due to a disaster

No tax

10(11)(12)

Amount withdrawn from the provident fund

No tax

10(13A)

House Rent Allowance (HRA)

The least of the following is exempted:

Actual HRA, 40% of salary or 50%(if living in the metro

cities) 

Rent paid, excluding 10% of salary

10(15)

Earnings of tax-free securities

No tax

Terms and Conditions for Availing Tax Exemption Under Section 10(10D)

You can avail tax deductions under this section only after fulfilling the terms and conditions given below:

  • Payouts Covered Under Section 10(10D: All claims, including death benefit, maturity benefit, and bonuses received, are exempt from taxation. The policy must meet Section 10(10D) conditions, such as premium-to-sum assured limits and other eligibility rules, and is not a Keyman insurance policy.
  • Eligibility Conditions: For life insurance policies purchased between April 1, 2003 and March 31, 2012, the premium paid, for any given financial year during the policy’s term, cannot be more than 20% of the sum assured.

    For life insurance policies, which are purchased after April 1, 2012, the premium payments cannot be more than 10% of the sum assured.
  • Special Condition for Disability or Specified Diseases: In the case of the policyholder being either severely disabled or suffering from a disease as per the relevant provisions of the act, and the policy being purchased after April 1, 2013, the premium payments should not be more than 15% of the sum assured. Section 80U of the act lists the disabilities, like mental retardation, autism, etc., while Section 80DDB specifies the diseases.
  • Keyman Insurance Policy Exclusion: Under a Keyman Insurance Policy, both maturity proceeds and death benefits are not eligible for tax exemption under Section 10(10D) of the Income Tax Act. This type of policy is taken by a company or firm to safeguard itself against potential financial losses arising from the untimely demise of a key employee.

    A “keyman” refers to an employee whose skills, experience, or role is critical to the organisation’s operations and profitability. Subject to applicable rules and conditions, a company may insure one or multiple such key employees under a Keyman Insurance Policy.
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Did You Know?

Life insurance penetration in India fell to 2.8%, even as life insurance density touched an all-time high of $70, alarming about how undercovered we are


Source: Forbes

Cut Tax Stress 46,800

Other Exemptions Under Section 10

Salaried employees are given several benefits by the Government, most of which are considered a part of the person’s total income. Some of these are allowed exemptions under Section 10.

Special Allowance Under Section 10(14):

Section 10(14) offers allowances and benefits to employees for performing employment-related duties by the employer. These allowances are exempt from tax, but it is dependent on the amount authorised for a specific purpose. Some of the most common sub-sections under Section 10(14) of the Income Tax Act include:

  • Daily Allowance: This includes daily compensation for expenses incurred by an employee while on an official tour or those incurred when shifting/transferring to a new job location

  • Travelling Allowance: This is granted to employees for their travel expenses as part of an official tour or during the transfer of a job

  • Conveyance Allowance: This is provided to cover expenses incurred on the conveyance for performing employment-related duties

  • Research or Academic Allowance: This exemption is given to promote research of an academic nature and any other professional pursuits, such as research or academic training, etc

  • Climatic Allowance: This provides compensation for working in high altitude or hilly areas of Himachal Pradesh, Uttar Pradesh, Jammu & Kashmir, the North East, Siachen or other high-altitude places

  • Tribal Area Allowance: This provides compensation for working in pre-classified Tribal, Schedule or Agency areas such as West Bengal, Madhya Pradesh, Orissa, Assam, Karnataka, Tamil Nadu, and Bihar, among others

  • Island Duty Allowance: An exemption for members of the Armed Forces serving in the Andaman and Nicobar Islands or the Lakshadweep Islands

  • Children’s Education Fund: Allows exemption for the education of up to 2 children. A hostel allowance can also be claimed for up to 2 children

  • Border Area Allowance: A grant for Armed Forces personnel serving in the border areas or remote places

  • Counter Insurgency Allowance: This grant is directed to those employed in the Armed Forces for counterinsurgency

Other allowances under sub-section (14)(ii) of section 10 of the Income Tax Act include helper or assistant allowance, uniform allowance, an allowance for underground mine workers, employees in highly active areas, workers in specified modified field areas, and transport allowance to physically disabled employees.

Important Note on Section 10(10D) of the Income Tax Act: 

You must remember that if the maturity benefit is outside the ambit of tax exemption under Section 10(10D), then a Tax Deducted at Source (TDS) rate of 5% is applicable on net income from policy proceeds. In 2019, the government amended Section 194DA of the act to increase the TDS rate from 1% on gross payouts to 5% on net income payouts. You must, however, remember that if a person in aggregate received proceeds from life insurance in a financial year, such as for maturity benefits below ₹1 lakh, no TDS can be levied. In case of non-submission of PAN card, while making claims, a TDS rate of 20% is applicable.

Typically, life insurance policies purchased from insurance companies not registered in India ( i.e., foreign companies) are beyond the ambit of claiming tax exemption under Section 10(10D).

Conclusion:

Section 10 of the Income Tax Act provides several valuable exemptions that can help taxpayers legally reduce their taxable income, whether through salary allowances such as HRA and LTA, retirement-related benefits such as gratuity and leave encashment, or eligible life insurance proceeds. 

To make the most of Section 10 benefits, it is important to understand which exemptions apply to your income profile and ensure that your claims are accurate while filing your income tax return. You can easily claim tax exemption under Section 10(10D) by purchasing a life insurance policy from a trusted insurer. With the right awareness and timely planning, you can optimise your tax outgo while strengthening your long-term financial security

Glossary

  1. Section 10: A section of the Income Tax Act that provides exemptions on specific types of income
  2. Section 10(10D): Exemption on eligible life insurance payouts like maturity/death benefits, subject to conditions
  3. House Rent Allowance (HRA): Salary allowance exempt under Section 10(13A), based on rent paid and salary
  4. Leave Travel Allowance (LTA): Exemption for travel expenses on leave, subject to conditions under the Act
  5. Tax Deducted at Source (TDS): Tax deducted by the payer before payment, and credited to the taxpayer’s PAN
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Uncertain About Insurance

FAQs

Section 10(10D) of the Income Tax Act allows a tax exemption on amounts received from life insurance policies, such as maturity proceeds, death benefits, and bonuses, subject to prescribed conditions. For certain high-premium policies, such as ULIPs issued after February 2021, the exemption on maturity proceeds may be restricted if the annual premium exceeds ₹2.5 lakh, although death benefits generally remain tax-free. The exemption can be claimed by individuals, HUFs, and other eligible entities, with the applicable rules depending on the policy issue date, premium limits, and sum assured conditions.

To claim exemptions under Section 10, you need to follow a few simple steps to ensure your income is reported correctly and supported with the right documents.

  • Choose the Old Tax Regime: Most Section 10 exemptions like HRA and LTA are available only under the Old Regime.

  • Identify the exemptions you are eligible for: Common examples include HRA, LTA, gratuity, and life insurance proceeds under Section 10(10D).

  • Collect the required documents: 
    1. For HRA: Rent receipts, rent agreement (if applicable)
    2. For LTA: Travel tickets/boarding passes
    3. For 10(10D): Policy documents and payout details

    4. Declare exempt income correctly in your ITR: Report the exemption in the relevant fields of your Income Tax Return form.

    5. Ensure conditions are met before claiming: Each exemption has specific rules, limits, and eligibility criteria, so check them carefully before filing

Section 10(10D) provides tax exemption on life insurance payouts, including death benefits, maturity proceeds, and bonuses, subject to conditions.

  • It supports tax-free savings and smooth wealth transfer to nominees/beneficiaries.

  • For maturity benefits, the exemption generally applies only if the premium does not exceed 10% of the sum assured (with specific rules for older policies and ULIPs).

  • Death benefits remain fully tax-free, even if premium limits are not met.

Common exemptions under Section 10 of the Income Tax Act include:

  • House Rent Allowance (HRA)

  • Leave Travel Allowance (LTA)

  • Agricultural Income

  • Interest on Provident Fund (subject to applicable conditions)

  • Retirement benefits such as gratuity, leave encashment, and pension (subject to applicable conditions)

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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