Section 10 Exemptions: Complete Guide for FY 2026-27
Section 10 Exemptions: The Part of Your Salary That Should Never Be Taxed
Most salaried professionals focus on deductions under Section 80C and 80D to reduce their tax. But there is an entire category of income that should not enter your taxable income at all, before any deduction is applied. This is what Section 10 covers.
Section 10 of the Income Tax Act lists specific incomes and allowances that are fully or partially exempt from tax. For a salaried professional, correctly claiming Section 10 exemptions can reduce taxable income by Rs. 1,00,000 to Rs. 3,00,000 or more annually, depending on salary structure and personal circumstances.
With 7 years of experience in finance and income tax, I have consistently found that Section 10 exemptions are the most underclaimed category among salaried professionals. Many people either do not know what qualifies, or assume their employer has handled it correctly without verifying.
This guide covers every major Section 10 exemption relevant to salaried professionals for FY 2026-27, with practical examples, updated limits, and a clear breakdown of what is available under each tax regime.
Critical Update for FY 2026-27: Under the Income Tax Act 2025 (effective April 1, 2026), most Section 10 exemptions are available only under the old tax regime. The new tax regime, which is the default, disallows HRA, LTA, and most salary allowance exemptions. If you are in the new regime, understanding which exemptions still apply is essential. This guide covers both regimes clearly.
What Is Section 10?
Section 10 of the Income Tax Act is a list of incomes that are excluded from total income for tax calculation purposes. Unlike deductions (which reduce taxable income after computation), Section 10 exemptions mean that certain income components are not considered taxable income at all.
The practical difference: a deduction reduces income after it is included in the taxable base. A Section 10 exemption means that income never enters the taxable base in the first place.
For salaried professionals, Section 10 exemptions primarily apply to specific allowances received from employers, retirement benefits, and certain investment-related incomes.
Section 10 Exemptions: Old Regime vs New Regime
This is the most important table in this article. Before claiming any Section 10 exemption, verify whether it is available under your chosen regime.
| Exemption | Old Regime | New Regime |
|---|---|---|
| HRA Exemption Section 10(13A) | Available | Not available |
| LTA Exemption Section 10(5) | Available | Not available |
| Children’s Education Allowance Section 10(14) | Available | Not available |
| Hostel Allowance Section 10(14) | Available | Not available |
| Conveyance Allowance for official duty | Available | Available (official use only) |
| Transport Allowance for differently-abled | Available | Available |
| Daily Allowance for official tours | Available | Available (official use only) |
| Gratuity Section 10(10) | Available | Available |
| Leave Encashment on retirement Section 10(10AA) | Available | Available |
| VRS Payment Section 10(10C) | Available | Available |
| EPF Maturity Section 10(12) | Available | Available |
| NPS Maturity 60% lump sum Section 10(12A) | Available | Available |
| PPF Interest and Maturity | Available | Available |
| Sukanya Samriddhi Yojana proceeds | Available | Available |
| Life Insurance Maturity Section 10(10D) | Available (conditions apply) | Available (conditions apply) |
Section 10 Exemptions for Salaried Professionals: Detailed Guide
1. House Rent Allowance: Section 10(13A)
HRA is the largest Section 10 exemption for most salaried professionals. The exempt amount is the minimum of three conditions:
- Actual HRA received from employer
- Rent paid minus 10% of salary (basic plus DA)
- 50% of salary for metro cities or 40% for non-metro cities
Updated for FY 2026-27: The metro city list has expanded. From April 1, 2026, Bangalore, Hyderabad, Pune, and Ahmedabad now qualify for the 50% HRA exemption alongside Delhi, Mumbai, Kolkata, and Chennai. This significantly increases the potential exemption for professionals in these four cities.
Regime availability: Old regime only. Not available in new regime.
Use our HRA Calculator to find your exact exempt amount. For a complete guide on HRA including all scenarios like rent to parents and HRA with home loan, read the HRA exemption calculation guide.
2. Leave Travel Allowance: Section 10(5)
LTA exemption covers the actual travel cost incurred by an employee and family for domestic travel in India. The exemption is available for two journeys in a block of four calendar years.
What is covered:
- Airfare (economy class), train fare, or bus fare for the shortest route
- Travel for self, spouse, dependent children, and dependent parents
- Domestic travel only
What is not covered:
- Hotel, food, or local transport at the destination
- Travel for non-dependent family members
- International travel
Current block period: 2022 to 2025. New block: 2026 to 2029.
Regime availability: Old regime only. Not available in new regime.
3. Children’s Education Allowance: Section 10(14)
Updated limits from April 2026:
- Education allowance: Rs. 3,000 per month per child (increased from Rs. 100)
- Hostel allowance: Rs. 9,000 per month per child (increased from Rs. 300)
- Maximum for two children: Rs. 72,000 per year education plus Rs. 2,16,000 per year hostel
This is one of the most significant updates in the Income Tax Rules 2026. The old limits of Rs. 100 and Rs. 300 were set decades ago and had not been revised. Verify with your employer that they have updated these limits in your salary structure from April 2026.
Regime availability: Old regime only.
4. Conveyance Allowance: Section 10(14)
Conveyance allowance for official work travel is exempt to the extent actually used for official purposes. Personal commute from home to office does not qualify.
Regime availability: Available in both old and new regime for official use.
5. Daily Allowance for Official Tours: Section 10(14)
Daily allowance for official tours is exempt to the extent of actual expenditure incurred. Any excess is taxable.
Regime availability: Available in both old and new regime for official use.
6. Gift Vouchers from Employer
Updated from April 2026: Tax-free gift vouchers from employers increased to Rs. 15,000 per year (from Rs. 5,000 earlier). Available under both regimes.
7. Medical Loan from Employer
Updated from April 2026: Interest-free or concessional loans from employers for medical treatment are exempt up to Rs. 2,00,000 per year (increased from Rs. 20,000). This is one of the most significant perquisite changes under the new rules.
Retirement and Separation Benefits Under Section 10
These exemptions are available under both old and new tax regimes.
8. Gratuity: Section 10(10)
| Category | Exemption Limit |
|---|---|
| Government employees | Fully exempt, no limit |
| Private sector employees covered under Gratuity Act | Rs. 20,00,000 |
| Private sector employees not covered | Rs. 20,00,000 or actual, whichever is lower |
Use our Gratuity Calculator for accurate calculations.
9. Leave Encashment: Section 10(10AA)
| Category | Exemption |
|---|---|
| Government employees | Fully exempt |
| Private sector employees | Rs. 25,00,000 maximum |
Leave encashment during service (not at retirement) is fully taxable.
10. Voluntary Retirement: Section 10(10C)
VRS amount exempt up to Rs. 5,00,000. Employee must be at least 40 years old or have completed 10 years of service.
11. Commuted Pension: Section 10(10A)
- Government employees: Fully exempt
- Private sector with gratuity: One-third of full pension value exempt
- Private sector without gratuity: Half of full pension value exempt
Investment-Related Exemptions Under Section 10
These apply under both regimes.
12. EPF Maturity: Section 10(12)
Fully tax-free if 5 years of continuous service completed. EPF interest is tax-free on contributions up to Rs. 2,50,000 per year. Interest on contributions above this is taxable from FY 2021-22.
13. PPF Interest and Maturity
Completely tax-free with no limit. EEE instrument: contribution deductible under Section 80C, interest tax-free, maturity tax-free.
14. Sukanya Samriddhi Yojana
Also EEE: contributions deductible, interest tax-free, maturity tax-free. At 8.2% interest fully tax-free, SSY remains one of the best instruments for parents of daughters.
15. NPS Lump Sum at Retirement: Section 10(12A)
60% of NPS corpus withdrawn at retirement is fully tax-free. Remaining 40% used for annuity purchase is taxable as income when annuity is received.
16. Life Insurance Maturity: Section 10(10D)
Maturity proceeds exempt subject to conditions:
- Policies after April 1, 2012: Annual premium must not exceed 10% of sum assured
- Policies after April 1, 2023: Aggregate annual premiums across all policies must not exceed Rs. 5,00,000
Common Mistakes in Claiming Section 10 Exemptions
Mistake 1: Claiming HRA or LTA in the new regime
Not available in new regime. Verify your regime before claiming. Read the old vs new tax regime comparison.
Mistake 2: Not updating children’s education allowance
From April 2026, limit increased from Rs. 100 to Rs. 3,000 per month per child. Ask your employer to update this in your salary structure.
Mistake 3: Assuming all EPF interest is tax-free
Tax-free only on contributions up to Rs. 2,50,000 per year. Interest on excess is taxable.
Mistake 4: Not verifying LIC premium conditions
Not all LIC maturity proceeds are tax-free. Check annual premium does not exceed 10% of sum assured.
Frequently Asked Questions on Section 10 Exemptions
Are Section 10 exemptions available in the new tax regime?
Most salary exemptions including HRA, LTA, and education allowance are not available. Retirement benefits like gratuity, leave encashment, EPF maturity, and investment returns from PPF and SSY remain available under both regimes.
What is the new limit for children’s education allowance from April 2026?
Rs. 3,000 per month per child for education allowance and Rs. 9,000 per month per child for hostel allowance, for up to two children.
Is HRA available under new tax regime?
No. HRA exemption under Section 10(13A) is not available in the new regime. This is a key factor in the old vs new tax regime decision.
What is the gratuity exemption limit?
Rs. 20,00,000 for private sector employees. Government employees receive full exemption. Calculate using our Gratuity Calculator.
Is PPF interest taxable?
No. PPF interest is completely tax-free with no limit. Both interest and maturity proceeds are exempt. Read the Section 80C guide for more on PPF.
Quick Reference Table: Section 10 Exemptions FY 2026-27
| Exemption | Section | Limit | Regime |
|---|---|---|---|
| HRA | 10(13A) | Formula-based | Old only |
| LTA | 10(5) | Actual travel, 2 per 4 years | Old only |
| Education Allowance | 10(14) | Rs. 3,000/month/child | Old only |
| Hostel Allowance | 10(14) | Rs. 9,000/month/child | Old only |
| Official Conveyance | 10(14) | Actual official expenditure | Both |
| Gift Vouchers | Perquisite rules | Rs. 15,000/year | Both |
| Gratuity | 10(10) | Rs. 20,00,000 | Both |
| Leave Encashment | 10(10AA) | Rs. 25,00,000 | Both |
| VRS | 10(10C) | Rs. 5,00,000 | Both |
| EPF Maturity | 10(12) | Full (5 yr service) | Both |
| PPF | 10(15) | No limit | Both |
| SSY | 10(11A) | No limit | Both |
| NPS 60% lump sum | 10(12A) | 60% of corpus | Both |
| LIC Maturity | 10(10D) | Premium conditions apply | Both |
For the complete picture of all tax-saving options including deductions under Section 80C, Section 80D, and Section 80E alongside Section 10 exemptions, read the Complete Income Tax Guide India 2025-26 and 2026-27.
And for a practical guide on how to maximize tax savings for FY 2026-27, read the tax saving tips for salaried employees.
Questions about any specific Section 10 exemption? Drop them in the comments below.
