Income Tax

Incomes That Don’t Form a Part of Total Income

The IT Act 1961 provides 5 heads of income but there are various incomes that don’t form a part of total income and the same are enumerated in section 10 of the Act 1961. The present article shall discuss the same in order to provide clarity on this concept.

Agricultural Income

India can still be considered a country that mostly depends upon agriculture and income generated from the activities of agriculture. Agriculture income shall be excluded from the assessee’s total income. However, it shall be considered while calculating the rate to tax non-agriculture income.

Profit Share from a Firm

The profit share of a partner in a firm’s total income is exempted as the firm is assessed separately. But in the event of payment (payable or paid) of salary interest commission to the partner, which was supposed to be deducted from the firm’s total income shall be included in the income of partner’s total income as his business.

Leave Travel Concession:

In the event of an employee travelling with his family for which he has taken a leave, and the travelling cost is reimbursed by the employer, then such reimbursement shall be fully exempted and won’t form a part of the total income. But some provisions for the same are provided below.

• The journey might have taken place during service or after retirement.
• It must be a present or a former employer.
• The place of the journey must be within India.
• In case the journey has taken place to various places together, then the exemption is limited to the extent of the cost of the journey from the place of origin to the farthest point reached by the shortest route.
• The employee might or might not be a citizen of India.
• The stay cost is not exempt.

Remuneration to a Person not being an Indian Citizen in Certain Cases [Sec. 10(6)]

The following remuneration to an individual not having Indian citizenship shall not.

• Remuneration received by the individual as an official high commission, legation, consulate of an embassy, commission, or the trade representative of a foreign state or as a staff of any of such officials if the corresponding Indian officials in that foreign country enjoy similar exemptions in their country.

• Remuneration received as being an employee of a foreign enterprise for rendering services during his stay in India provided –
• The foreign enterprise isn’t involved in any business or profession in India;
• The time period of the stay is not < 90 days.
• Such remuneration isn’t liable for deduction from the income of the employer under this Act.

• Remuneration for rendering services in respect of his employment on a foreign ship only if his total stay < 90 days in the PY.
• Remuneration received as an employee of the Govt. of a foreign State while his stay in India for his training in any undertaking owned by the Govt, Govt company, corporation established by any Central, State or Provincial Act subsidiary of a Government company.
•  and any society wholly financed by the Central or State Government.

Tax Paid By Govt on Royalty or Fees for Technical Service

According to Section 10 (6A) of the IT Act, taxes that are paid by any Indian concern or government (central/state) for a foreign company That generates income through royalty or fees for technical services provided as per an agreement made post-March 31, 1976 but prior to June 1, 2002, shall be exempted from the taxable income of the foreign company if such agreement is in accordance with the Central government’s industrial policy or it is sanctioned by the Indian Government.

Tax Paid By Govt on Income of a Non–Resident or a Foreign Company 

Section 10 (6B) of the Act provides that taxes paid by any Indian concern or government (central/state) for a foreign company or NRI for any income not being salary, royalty or fees for technical services provided shall be exempted from the taxable income of that foreign company or non-resident individual if the receipt of such income is made as per an agreement entered into before 01.06.2022, by the central govt with the govt of a foreign sovereign State or international organisation or any other related agreement which is duly sanctioned by the central government.

Tax Paid On Income from Leasing Of an Aircraft  

If any Indian company pays tax on income arising from the leasing of aircraft, etc., to the Government of a foreign state or enterprise under an approved agreement entered into with such Indian company involved in the business of operation of aircraft, provided such agreement made into between 1st April 1997 and 31st march 1999 or after 31-3-2007.

Fees for Technical Services in Projects Connected With Indian Security 

Any income arising to the notified foreign company through royalty or fees for technical services received in accordance with an agreement entered into with Central Government for rendering services in or outside India in projects connected with Indian security.

Income from Service Provided To NTRO 

Any income arising to a non-resident or to a foreign company, through royalty from, or fees for technical services provided in or outside India to, the NTRO^[1].

Allowance or Perquisite Paid Outside India  

Any perquisite or allowance paid outside India by the Govt to a citizen of India for Rendering Services outside India.

Remuneration Received For Co-Operative Technical Assistance Programmes

If an individual receives any remuneration, either directly or indirectly, from the foreign government regarding a cooperative technical assistance programme and projects pursuant to any agreement entered into by the central government and such sovereign foreign government, it is exempt from income tax.

Remuneration Received By Non-Resident Employee Consultants or Their Family Members

Section 10(8A) of the Act states that when a non-resident consultant receives remuneration or fees for technical assistance by an international organisation under any agreement between the international organisation and the government of a foreign sovereign State, secondly, when any other income of such non-resident consultant obtained outside India and that isn’t considered to be accrued or arisen in India, regarding which he is required to pay income tax or social security tax to the foreign govt of the country of his origin or residence, enjoys exemption of such income from income tax.

Section 10(8B) provides for similar exemptions to employees of consultants enjoying exemptions under clause (8A) of Section 10 provided they fulfil the below-mentioned conditions.

• The individual employee should be working as an employee of the consultant as per clause (8A) as mentioned above.
• The service contract of the employee has the approval from the Additional Secretary, Department of Economic Affairs in the Ministry of Finance, GOI, in concurrence with members CBDT. 
• The remuneration is received for the technical assistance programme as per Section 10 8A.
• Any other income which he receives outside India is subjected to any income tax or social security tax in other countries.

Death-Cum-Retirement-Gratuity

Sec. 10(10) of the Act deals with the exemptions from gratuity income, which is granted to the salaried assessee. Gratuity received by an assessee other than an employee won’t be eligible for exemption u/s 10(10).

Compensation for Any Disaster

Any amount which an individual or his legal heir compensation on account of any disaster from the Central or State Government or local authority except the amount received or receivable to the extent such individual or his legal heir is permitted a deduction under this Act on account of any loss or damage caused by such disaster.

Sum Received Under a Life Insurance Policy

Any sum received for a life insurance policy, including a bonus on such policy, is wont to be a part of the total income. However, the exemption is not available on the receipt of any sum u/s 80DD(3) or u/s 80DDA(3); or a Keyman insurance policy or an insurance policy issued on or after 1-4-20121 regarding which the premium payable for any of the yrs during the term of the policy exceeds 10% of the actual assured capital sum. 

Payment from National Pension Trust

Any payment from such trust to an assessee upon his account being closed or on his opting out of the scheme referred to in sec. 80CCD, to the extent it doesn’t exceed 60% of the total amount payable so payable at the time of such closure or his opting out of the scheme.

Any payment from such Trust to an employee under the pension scheme provided in sec. 80CCD, on partial withdrawal made out of his account as per the terms and conditions specified under the PFRDA 2013, to the extent it doesn’t exceed 25% of the amount of contributions made by him [Sec. 10(12B)].

Payment from Approved Superannuation Fund

Any payment from an approved superannuation fund made as per the prescribed circumstances shall not be a part of the assessee’s total income of the assessee.

Income from Leasing Of Aircraft

Any payment made, by an Indian company having the business of operation of aircraft, for acquiring an aircraft or its engine (other than a payment for providing spares, facilities or services with respect to the operation of leased aircraft) on lease from the foreign Government or a foreign enterprise under an approved agreement. The agreement must not be entered into- between 1-4-1997 to 31-3-1999; and on or after 1-4-2007.

Daily Allowance, Etc. To MP and MLA

Any income by way of – a. Reciept of any Daily allowance by any person due to having membership of Parliament or of any State Legislature or of any Committee thereof;

b. Receipt of any allowance by any person by reason of his membership of Parliament; 

c. Constituency Allowance received by any person by reason of his membership in the State legislature.

Income of Professional Institutions

Any income (other than income under the head “Income from house property” or any other income received for providing any specific services or income through interest or dividends derived from its investments) of the professional association won’t be a part of the total income if it comes under the criteria provided under the section.

Income of Mutual Fund

Any income of a Mutual Fund registered under the SEBI Act 1992 or regulation made thereunder or set up by a public sector bank or a public financial institution or having authorization from the RBI and subject to certain notified conditions.

Income of Business Trust 

Any income of business trust through  

a) Interest received or receivable from a special purpose vehicle; or 

b) Dividend as per sec. 115-O(7) 

Income Of Specified Boards- Any income accrued or arisen to The Coffee Board; The Rubber Board; The Tea Board; The Tobacco Board; The Marine Products Export Development Authority; The Coir Board; The APEDA, and The Spices Board.

Subsidy Received From Tea Board

The receipt of any subsidiary from or through the Tea Board as per any scheme for the replacement or replantation of tea bushes or for consolidation and rejuvenation of areas used for the cultivation of tea, as the Central Govt may specify, is exempt.

Awards & Rewards

Any payment made, either in cash or in kind, for any award or reward instituted in 

by the govt for the interest of the general public by the Central Govt or any State Govt or by any other approved body; for approved shall not for a part of the total income of the assessee

Income of Scientific Research Association

Any income of a scientific research association which is approved for Sec. 35(1)(ii)] or a research association which has its object undertaking research in the social science or statistical research shall be exempted if such association— 

a. applies the income or accumulates it for application, wholly and exclusively to the objects it has been established; and

 b. invests or deposits its funds in specified investments.

Expenditure Related To Exempted Income

At the time of computing the total income, deduction won’t be allowed for expenditure incurred by the assessee in on income, not forming a part of total income under this Act. If the AO is unsatisfied with the correctness of the claim of such expenditure by the assessee, he can determine the disallowable expenditure as per the method prescribed by the CBDT.

Conclusion

Every assessee needs to be aware of the incomes that don’t form a part of the total income to ensure the correct calculation of the same and avoid confusion regarding the exempted income, thereby facilitating the timely filing of the income tax return.

Read Our Article: Residential Status and Scope of Total Income