Six incomes excluded from total income, with examples

Incomes not included in total income

Some incomes are not included in the total income at all, so no tax is paid on them. Under the Income-tax Act, 1961 they were listed in section 10; under the Income-tax Act, 2025 they are listed in Schedules II to VI, which section 11 brings into effect: an income in a Schedule is excluded only if the conditions stated against it are met (section 11(1)-(2)). Six common ones:

1. Agricultural income (Schedule II, Sl. No. 1; formerly section 10(1))

Income from land in India used for agriculture, such as rent from agricultural land or income from growing and selling crops, is not included in total income. Example: a farmer in Punjab sells his wheat crop for ₹6,00,000 net of costs; the income is not taxed. It may, however, be counted for the rate of tax on other income (partial integration), but only where the net agricultural income exceeds ₹5,000 and the total income exceeds the maximum amount not chargeable to tax (for an individual below 60, ₹2,50,000 under the optional regime and ₹4,00,000 under section 202) (Finance Act 2026, s.3(2)(a) and its Table).

2. Sum received by a member from a Hindu undivided family (Schedule III, Sl. No. 1; formerly section 10(2))

Any sum a member receives out of the income of the family (or of the income of an impartible estate belonging to it) is not included in the member's total income, provided the sum is not one covered by section 99(3) and (4) (Schedule III, Sl. No. 1, condition (a)). Those sub-sections cover property an individual converts into property of his family (by impressing it with the family's character, throwing it into the common stock, or transferring it to the family without adequate consideration): the income from it is treated as his own, and after a partition the income from it that his spouse receives is treated as arising to her from assets he transferred indirectly, so it is clubbed with his income (section 99(3)); this does not apply where the conversion was made on or before 31st December 1969 (section 99(4)). The exclusion does not depend on whether the family has paid tax on that income. Example: Rohan receives ₹50,000 from the family's rental income; it is not taxed in his hands.

3. Share of profit from a firm (Schedule III, Sl. No. 2; formerly section 10(2A))

A partner's share in the total income of a firm assessed separately as a firm is not included in the partner's income, provided it is received in the profit-sharing ratio of the partnership deed. Interest and salary from the firm are taxable. Example: a partner's 40% share of the firm's taxed profit, ₹4,00,000, is not taxed again in his hands.

4. Sum received under a life insurance policy (Schedule II, Sl. No. 2; formerly section 10(10D))

A sum received under a life insurance policy, including bonus, is excluded only if the policy meets the condition for the period in which it was issued: premium not more than 20% of the sum assured for policies issued from 1 April 2003 to 31 March 2012; not more than 10% for those issued from 1 April 2012 to 31 March 2013; from 1 April 2013, not more than 15% for a special policy and 10% for any other. In addition, the total premium on all such policies may not go above ₹2,50,000 in any year of their term for unit linked policies issued from 1 February 2021, or ₹5,00,000 for policies other than unit linked ones issued from 1 April 2023. These conditions do not apply to a sum received on the death of a person. The aggregate-premium limits do not apply to a policy issued on or after 1 April 2025 by an International Financial Services Centre Insurance Office, and a sum received under s.127(4) or under a Keyman insurance policy is never excluded (Schedule II, Sl. No. 2, column C, clauses (b) and (c)). Example: the maturity amount of ₹10,00,000 on an endowment policy with an annual premium of ₹50,000 and a sum assured of ₹8,00,000 (6.25%) is not taxed.

5. Scholarships (Schedule II, Sl. No. 9; formerly section 10(16))

A scholarship granted to meet the cost of education is not included in income, however large and whatever part of it is actually spent. Example: a merit scholarship of ₹1,20,000 a year to a B.Com student is not taxed.

6. Leave travel concession (Schedule III, Sl. No. 8; formerly section 10(5))

The value of travel concession or assistance received by, or due to, an employee for himself and his family, from his employer for travel to any place in India on leave, or from his employer or former employer for travel to any place in India after retirement from service or after the termination of his service, is excluded subject to the prescribed conditions, which fix the number of journeys and the amount exempt for each person, set with regard to the concession the Central Government gives its own employees; the amount excluded is never more than what is actually spent on the travel. Example: an employee's rail fare of ₹28,000 for a family trip to Kerala, reimbursed by the employer, is not taxed.

Note: under the default (new) tax regime of section 202, some exclusions are not allowed, such as leave travel concession, house rent allowance and the ₹1,500 exclusion for a minor's income (section 202(2)(a)(i)); the six above, other than leave travel concession, apply under both regimes.