Six incomes excluded from total income, with examples

Where the exemptions are now

Section 10 of the Income-tax Act, 1961 listed the incomes that are not part of total income. In the Income-tax Act, 2025 the same exclusions are in section 11, which points to tables in Schedules II to VII: Schedule II for any person, Schedule III for eligible persons, and Schedules IV to VII for non-residents, funds, IFSC units and exempt bodies. An excluded income is not taxed and is not added to total income, though some (agricultural income) still affect the rate of tax. Six common exclusions follow, each with its old clause of section 10.

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

Rent or revenue from agricultural land in India, income from agricultural operations on it (growing and selling the crop), and income from a farm house used in those operations are excluded. Example: a farmer in Punjab sells wheat grown on his own land for ₹3,00,000; the income is not taxed. Under partial integration it is added to other income only to fix the rate, where it exceeds ₹5,000 and the other income exceeds the basic exemption limit.

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

Any sum an individual receives as a member of a Hindu undivided family is excluded on the two conditions in column D of the Schedule: (a) the sum is not covered by section 99(3) and (4) (sums clubbed with the member's income are not excluded); and (b) it is paid out of the family's income, or, for an impartible estate, out of the income of the estate belonging to the family. The Schedule sets no other condition; it does not require the family to have actually paid tax on that income. Example: the karta pays ₹80,000 out of the family's rental income to a member for his studies; the member pays no tax on it.

3. Partner's share of profit (Schedule III, Sl. No. 2; formerly section 10(2A))

A partner's share of the total income of a firm assessed as such is excluded, in the profit-sharing ratio of the deed, because the firm pays tax on that income. Example: a firm's taxed profit is ₹10,00,000 and A's share is 40%; A pays no tax on the ₹4,00,000. Interest and salary paid to the partner by the firm are not covered: they are his business income.

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 where the premium (the highest yearly premium as a percentage of the actual capital sum assured) stays within the ceiling for the policy's date of issue:

• issued from 1 April 2003 to 31 March 2012: not more than 20%;
• issued from 1 April 2012 to 31 March 2013: not more than 10%;
• issued from 1 April 2013: not more than 15% for a special policy and 10% for any other policy.

On top of that ceiling, the total premium on all such policies in any tax year of their term must not exceed ₹2,50,000 for unit linked policies issued from 1 February 2021, and ₹5,00,000 for policies that are not unit linked issued from 1 April 2023. These premium 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: Mr. Rao receives ₹6,00,000 with bonus on maturity of a policy issued in 2015 (not unit linked) whose yearly premium of ₹40,000 was 8% of the sum assured of ₹5,00,000, within the 10% limit for its period; the aggregate-premium limit applies only to policies issued from 1 April 2023, so the receipt is not taxed.

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

A scholarship granted to meet the cost of education is excluded, whatever the amount and whoever pays it. Example: a B.Com student receives a merit scholarship of ₹50,000 a year from a trust for her fees and books; it is not her income.

6. Payments from a Sukanya Samriddhi Account (Schedule II, Sl. No. 5; formerly section 10(11A))

Any payment from an account under the Sukanya Samriddhi Account Scheme, 2019, including the interest and the maturity amount, is excluded. Example: after his daughter turns 18, a father withdraws ₹3,00,000 from her account to pay for her higher education; the withdrawal is not taxed.

Conclusion

These exclusions keep out of the tax net income that belongs to another person (a family, a firm) and income the State wants to encourage (farming, education, savings for a girl child, life insurance). The 2025 Act keeps them, but in Schedules under section 11 rather than in one long section.