Section EXM

Under Section 11 of the Income Tax Act 2025, key exempt incomes include (from Schedules II–VI): agricultural income (fully exempt), partner's share of firm profit, HUF member's share, gratuity up to ₹20 lakh, leave encashment up to ₹25 lakh (non-govt), commuted pension, VRS compensation up to ₹5 lakh, PPF/SPF interest and maturity (fully exempt), EPF maturity (5-year service), life insurance proceeds (annual premium ≤ ₹5 lakh), NRE account interest (for NRIs), scholarships, HRA (old regime only), LTA (old regime only), children's allowances (old regime only), armed forces special allowances (both regimes).

Under Schedule V of Section 11 (equivalent to old Section 10(13A)), the HRA exemption is the LOWEST of these three amounts: (1) Actual HRA received from employer; (2) Rent paid minus 10% of salary (basic + DA); (3) 50% of salary if you live in a metro city (Delhi, Mumbai, Kolkata, Chennai) OR 40% of salary for all other cities. Important: HRA is NOT available if you choose the new tax regime (Section 202). You must opt for the old tax regime to claim HRA. Also: you cannot claim HRA exemption if you own the house you live in (in the same city).

Under Schedule II of Section 11 of the Income Tax Act 2025, the leave encashment exemption on retirement for non-government employees has been significantly increased to ₹25,00,000 (₹25 lakh). This is a major enhancement from the ₹3 lakh limit that existed under the old ITA 1961. The ₹25 lakh limit was introduced in Budget 2023 (via notification) and is now permanently embedded in ITA 2025. Government employees continue to receive fully exempt leave encashment with no cap. Note: leave encashment during service (before retirement) is fully taxable for all employees regardless of amount.

Yes — PPF (Public Provident Fund) enjoys triple tax exemption under ITA 2025. (1) Contribution is deductible under Section 123 (old 80C) up to ₹1.5 lakh — available only in old regime; (2) Interest credited annually is EXEMPT under Schedule II of Section 11 — no tax on PPF interest; (3) Maturity amount (principal + accumulated interest) is FULLY EXEMPT — no tax on withdrawal at maturity or partial withdrawals. This EEE (Exempt-Exempt-Exempt) status makes PPF one of the most tax-efficient long-term savings instruments in India.

EPF (Employees' Provident Fund) withdrawal is taxable if withdrawn before completing 5 years of continuous service. For withdrawal after 5 years: fully exempt under Schedule II of Section 11 (same as old Section 10(12)). For withdrawal before 5 years: employer contribution + interest is taxable; employee contribution (which was deducted as Section 80C equivalent/Section 123) is also taxable. TDS is deducted at 10% for premature EPF withdrawal (Form 121 / old Form 15G can be submitted if income is below taxable limit). Withdrawal due to continuous illness or employee's death: always fully exempt.

Life insurance maturity proceeds are exempt under Schedule II of Section 11, subject to conditions based on when the policy was issued. For policies issued after 1 April 2023: exempt only if annual premium does NOT exceed ₹5 lakh (for regular policies) or ₹2.5 lakh (for ULIPs). If premium exceeds these limits, the gains on maturity are taxed as capital gains. For policies issued before 1 April 2023: the old exemption rules apply (higher threshold). Death benefits (sum assured paid to nominee on death) are always fully exempt regardless of premium amount or policy date.

No — LTA (Leave Travel Allowance / Leave Travel Concession) exemption under Schedule V of Section 11 is NOT available if you choose the new tax regime (Section 202). LTA is only available under the old tax regime. Under the old regime, LTA is exempt for 2 journeys within India in a 4-year block (current block: 2022–2025). The exemption covers economy air ticket, AC first-class rail ticket, or deluxe bus fare for the employee and immediate family (spouse, 2 children, dependent parents). Domestic travel only — foreign travel costs are not covered.

Under the new tax regime (Section 202 of ITA 2025), most salary allowance exemptions are blocked. Exemptions that REMAIN available under the new regime include: (1) Agricultural income exemption; (2) Gratuity exemption (up to ₹20 lakh); (3) Leave encashment exemption (up to ₹25 lakh); (4) PPF, EPF, life insurance maturity proceeds; (5) NRE interest (for NRIs); (6) Scholarships; (7) Armed forces special allowances (Schedule VI); (8) Transport allowance for specially-abled employees (₹3,200/month); (9) Partner's share of firm profits; (10) Capital gains exemptions (reinvestment in property/bonds). Blocked: HRA, LTA, children's education allowance, hostel allowance, special allowances.

Under Schedule II of Section 11 of the Income Tax Act 2025, the gratuity exemption limits are: Government employees (central/state/defence/local authority) — FULLY EXEMPT with no limit; Private sector employees covered under Payment of Gratuity Act — exempt up to ₹20,00,000 (₹20 lakh) as the lifetime aggregate across all employers; Private sector employees NOT covered under Gratuity Act — exempt up to ₹20 lakh or a formula-based amount (half-month salary × years of service), whichever is lower. Death-related gratuity (paid to nominee/family) — ALWAYS fully exempt with no cap.

Agricultural income from land in India is fully exempt from income tax under Schedule II of Section 11 of the Income Tax Act 2025 — regardless of which tax regime is chosen. This exemption applies in both new and old tax regimes. Under the old tax regime, agricultural income is used for 'partial integration' — it's added to non-agricultural income to determine the applicable slab rate, but the agricultural income itself is not actually taxed. Under the new tax regime (Section 202), there is no partial integration mechanism — agricultural income is simply ignored for tax computation.

Key substantive changes in exempt incomes from ITA 1961 to ITA 2025: (1) Leave encashment exemption raised from ₹3 lakh to ₹25 lakh for non-government employees; (2) Life insurance exemption tightened for policies issued after April 2023 — ₹5L premium cap for regular policies, ₹2.5L for ULIPs; (3) NPO/charitable trust provisions unified into Schedule III using single term 'registered NPO'; (4) Anonymous donation exemption RESTORED for religious-cum-charitable trusts; (5) Transport allowance for specially-abled (₹3,200/month) explicitly preserved even under new tax regime; (6) Structurally: entire Section 10 (60+ sub-clauses) moved to 5 Schedules — easier navigation.

Yes — scholarships granted for meeting the cost of education are fully exempt under Schedule II of Section 11 of the Income Tax Act 2025 (equivalent to old Section 10(16)). There is no monetary limit. The exemption covers scholarships from Indian government, state governments, universities, and qualifying foreign institutions. Foreign scholarships received by Indian students studying abroad are also exempt. The key condition is that the scholarship must genuinely be for meeting education costs — not a payment for services rendered (which would be taxable as salary or income from other sources).

No — under Schedule II of Section 11 of the Income Tax Act 2025 (equivalent to old Section 10(2A)), the share of profit of a partner from a partnership firm or LLP is fully exempt from tax in the partner's hands. This is because the firm/LLP pays tax on its profits first, and the partner's profit share would otherwise be double-taxed. However, this exemption applies ONLY to the profit share — other amounts received by partners from the firm are fully taxable: salary paid to working partners (taxable as salary), interest on capital contributed (taxable as business income), commission, and remuneration.

Yes — under Schedule II of Section 11 of the Income Tax Act 2025 (equivalent to old Section 10(10C)), Voluntary Retirement Scheme (VRS) compensation is exempt up to ₹5,00,000. The exemption applies to employees of: public sector undertakings, any company, co-operative societies, universities, IITs, institutes notified under Section 35(1)(ii)/(iii), and State Government/Central Government employees. Conditions: the VRS scheme must be in accordance with guidelines prescribed by the Central Government; the employee must be at least 40 years old or have 10+ years of service; and the exemption is available only ONCE — if the same employee takes VRS from another employer later, no exemption on the second VRS.

Under Schedule III of Section 11 of the Income Tax Act 2025 (replacing old Sections 11–13 of ITA 1961), registered Non-Profit Organisations (NPOs) — including charitable trusts, religious trusts, educational institutions, and hospitals — can claim exemption on their income subject to these conditions: (1) The NPO must be registered with the prescribed authority (Form 10A registration); (2) At least 85% of income must be applied towards the charitable/religious objects; (3) The remaining 15% can be accumulated; (4) Further accumulation beyond 15% is permitted for up to 5 years with CBDT approval; (5) Corpus donations are exempt from the application requirement. The ITA 2025 uses the uniform term 'registered NPO' instead of multiple terms (trust, institution, university, hospital) used in ITA 1961.

NRE account interest is exempt ONLY as long as the account holder is a Non-Resident. Once an NRI returns to India and becomes Resident, the NRE account must be converted to a Resident account (or RFC account — Resident Foreign Currency) within a reasonable time. At that point, interest becomes taxable. However, NRE Fixed Deposits that were opened while the person was an NRI continue to earn exempt interest DURING THE RNOR PERIOD even after return, until those FDs mature. Once the person becomes ROR (fully ordinarily resident), all interest — including on any remaining NRE-converted accounts — becomes taxable.

Yes — special allowances for armed forces personnel listed in Schedule VI of the Income Tax Act 2025 remain FULLY EXEMPT even under the new tax regime (Section 202). This is an explicit carve-out — unlike most other salary allowances (HRA, LTA) which are blocked under the new regime. Armed forces allowances exempt under Schedule VI include: High Altitude Allowance (for deployment above 9,000 feet), Siachen Allowance (₹21,000/month), Counter Insurgency Allowance, High Active Field Area Allowance, Field Area Allowance, Modified Field Area Allowance, and similar allowances notified for personnel deployed in difficult/hostile conditions.