Comprehensive Guide to Incomes Not Included in Total Income Under Section 10 of the Income Tax Act
The Indian Income Tax Act contains several provisions that provide tax exemptions to specific types of income. Section 10 of the Act details the incomes that are not included in the total income of an assessee. This blog will delve into some critical sub-sections of Section 10, highlighting the conditions and criteria under which these exemptions apply.
Section 10(23): Exemption for Sports Associations
Overview
Section 10(23) previously provided tax exemptions for any income of associations or institutions established in India that were engaged in the control, supervision, regulation, or encouragement of sports such as cricket, hockey, football, and tennis. Although this provision was omitted by the Finance Act, 2002, effective from April 1, 2003, it’s crucial to understand its historical context.
Key Provisions
Application for Exemption:
Associations needed to apply in the prescribed form and manner to obtain exemption status.
Verification by Central Government:
The government could request documents and conduct inquiries to ensure the genuineness of the association’s activities.
Income Utilization:
Income had to be exclusively applied or accumulated for the association’s objectives.
Investment Restrictions:
Funds were to be invested in specific assets, avoiding non-specified investments.
Non-distribution of Income:
No part of the income could be distributed to members except as grants to affiliated associations.
Use of Donations:
Donations had to be used for developing sports infrastructure or sponsoring sports in India.
Section 10(23A): Exemption for Professional Associations
Overview
Section 10(23A) exempts income (excluding income from house property, specific services, interest, or dividends) of professional associations established for the control, supervision, regulation, or encouragement of professions such as law, medicine, accountancy, engineering, and architecture.
Key Provisions
Exclusive Application of Income:
The association must apply or accumulate its income solely for its established objectives.
Approval by Central Government:
The association must be approved by the Central Government.
Compliance and Withdrawal:
The government may withdraw approval if the association fails to comply with the provisions.
Section 10(23AA): Exemption for Regimental Funds
Overview
Section 10(23AA) provides an exemption for income received by any person on behalf of any Regimental Fund or Non-Public Fund established by the armed forces of the Union for the welfare of past and present members of such forces or their dependants.
Key Provisions
Welfare of Armed Forces:
The income should be used for the welfare of past and present armed forces members and their dependants.
Section 10(23AAA): Exemption for Employee Welfare Funds
Overview
Section 10(23AAA) exempts income received by any person on behalf of a fund established for the welfare of employees or their dependants, provided it meets specific conditions.
Key Provisions
Exclusive Application of Income:
The fund must apply its income exclusively to its established objecti
Specified Investments:
Contributions and other sums must be invested in the forms or modes specified in sub-section (5) of section 11.
Approval:
The fund must be approved by the Principal Commissioner or Commissioner of Income Tax.
Section 10(23AAB): Exemption for Pension Funds
Overview
Section 10(23AAB) exempts income of a fund set up by the Life Insurance Corporation of India or any other insurer under a pension scheme.
Key Provisions
Contributions for Pension:
Contributions are made by any person for the purpose of receiving a pension from such a fund.
Approval by Regulatory Authority:
The fund must be approved by the Insurance Regulatory and Development Authority (IRDA).
FAQs
What types of income are exempt under Section 10 of the Income Tax Act?
Section 10 exempts various types of income, including those of sports associations, professional associations, regimental funds, employee welfare funds, and pension funds, provided they meet specific conditions and obtain necessary approvals.
Is the exemption for sports associations under Section 10(23) still applicable?
No, the exemption for sports associations under Section 10(23) was omitted by the Finance Act, 2002, effective from April 1, 2003.
What conditions must a professional association meet to qualify for exemption under Section 10(23A)?
A professional association must apply or accumulate its income solely for its established objectives and must be approved by the Central Government. The government can withdraw this approval if the association fails to comply with the provisions.
Are there any specific investment requirements for funds exempt under Section 10(23AAA)?
Yes, funds must invest their contributions and other sums in the forms or modes specified in sub-section (5) of section 11 and must be approved by the Principal Commissioner or Commissioner of Income Tax.
How can an employee welfare fund qualify for exemption under Section 10(23AAA)?
An employee welfare fund can qualify for exemption if it applies its income exclusively to its established objectives, invests its funds as specified, and receives approval from the Principal Commissioner or Commissioner of Income Tax.
Conclusion
Understanding the specific exemptions under Section 10 of the Income Tax Act can significantly benefit individuals and institutions alike by ensuring compliance and optimizing tax benefits. Whether you are part of a sports association, professional body, or employee welfare fund, knowing the provisions and conditions of these exemptions can help in strategic financial planning.
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