Section 10 Exemptions

What is Section 10 Exemptions?

Section 10 has dozens of clauses. The ones that matter most in payroll: 10(13A): House Rent Allowance exemption, equal to the least of actual HRA, rent paid minus 10% of basic, or 50% of basic in metro (40% in non-metro). 10(5): Leave Travel Allowance for two journeys in a block of four years, covering travel costs for self and family within India. 10(10): Gratuity exemption up to ₹20 lakh under the Payment of Gratuity Act, or 15 days' salary per year of service, whichever is lower. 10(10AA): Leave encashment on retirement, exempt up to ₹25 lakh (revised 2023) for non-government employees. 10(14): Special allowances like uniform, conveyance for disabled employees, daily allowance during transfer. Most Section 10 exemptions are removed under the new tax regime. Gratuity and leave encashment exemptions survive in both regimes.

Example

Anita earns basic ₹40,000/month, HRA ₹16,000/month, lives in Mumbai, pays ₹15,000 rent. HRA exemption (monthly): least of ₹16,000 (actual), ₹15,000 - ₹4,000 = ₹11,000 (rent minus 10% basic), or ₹20,000 (50% basic). Exempt: ₹11,000. Taxable HRA: ₹5,000.

How Section 10 Exemptions is used

Payroll software collects rent receipts, travel proofs, and gratuity calculations to auto-apply Section 10 exemptions every month. They appear on payslips and Form 16 Part B with separate line items.

Section 10 Exemptions FAQs

Is HRA exempt under the new tax regime?

No. Section 10(13A) HRA exemption is not allowed under the new regime. It works only in the old regime.

Is gratuity tax-free?

Gratuity up to ₹20 lakh (under the Payment of Gratuity Act, 1972) is exempt under Section 10(10) for non-government employees. Government gratuity is fully exempt.

How many LTA claims can I make?

Two journeys in a block of four calendar years. The current block is 2022-2025. Carry-forward is allowed if you don't use both in the block.