Income Tax Act 2025: Which incomes are exempted from tax under Section 11? Explained

The revamped Income Tax law, now renamed the Income Tax Act, 2025, is set to come into effect from the next fiscal year beginning April 1, 2026.

Among its major changes is a clarified framework under Section 11, which specifies certain incomes that will be excluded from a taxpayer’s total income, provided conditions laid out in the law are met.

In this article, we will explain which types of incomes are exempt from tax under Section 11, who can claim these exemptions, and the conditions that must be met.

What Section 11 means for individual taxpayers

Under the Income Tax Act, 2025, any income listed in Schedules II, III, IV, V, and VI will not be included in the computation of total income, effectively making it exempt from tax, if the conditions in the respective schedules are satisfied.

Schedule II

Incomes from sources other than agriculture that do not contribute to total income are covered

• Agricultural Income: Fully exempt.

• Life Insurance Policy Payouts: Exempt, including bonuses, subject to conditions:

Depends on policy issue date and premium-to-sum-assured ratio.

Specific limits for unit-linked and other policies, including aggregate premium limits (₹2.5 lakh or ₹5 lakh, depending on the policy type and issue date).

Excludes Keyman insurance policies and certain payouts under Section 127(4).

Policies issued by IFSC Insurance Offices after April 1, 2025, have relaxed limits.

• Provident Fund Payments: Exempt, except:

Interest on contributions after April 1, 2021, exceeding ₹5 lakh (no employer contribution) or ₹2.5 lakh (with employer contribution) in a financial year.

• Sukanya Samriddhi Account Payments: Fully exempt.

• National Pension System (NPS) Payments: Exempt if:

Payment occurs on closure or opting out of the scheme.

Does not exceed 60% of the total corpus.

• Agniveer Corpus Fund Payments: Fully exempt for those enrolled under the Agnipath Scheme.

• Approved Superannuation Fund Payments: Exempt in cases such as:

Death of the beneficiary.

Retirement or incapacitation.

Refunds of contributions under specified conditions.

• Interest or Premiums on Government Securities, Bonds, Annuity Certificates, Savings Certificates: Exempt as notified by the Central Government, subject to conditions.

• Gold Deposit Bonds / Gold Monetisation Scheme Certificates: Exempt.

• Other Incomes under specified sections of the old Income Tax Act (1961): Exempt subject to conditions.

Schedule III

Exemptions for specific individuals, such as Hindu Undivided Families (HUFs), business partners, and other designated individuals.

• Sum received from HUF: Individual member; not under Sec 99(3)/(4); paid from family/estate income.

• Partial withdrawal from NPS: Employee/guardian of minor; ≤25% of contributions; as per PFRDA rules.

• Travel concession/assistance: Individual; actual expenses; for self/family; prescribed conditions.

• Allowances/perquisites outside India: Indian citizen; for service rendered outside India.

• Non-monetary perquisites: Employee; tax paid by employer on behalf of employee.

• Special allowance for rent: Assessee; actual rent paid; accommodation not owned.

• Special allowance/benefit for duties: Assessee; expenses wholly, necessarily, exclusively for duties.

• Allowance for personal expenses/cost of living: Assessee, as prescribed, based on place of posting/residence.

• Pension for gallantry awardees: Individual (Central/State Govt); Nil.

• Family pension for awardees: Family members; Nil.

• Family pension for deceased armed forces member: Widow/children/nominated heirs; operational death; prescribed conditions.

• Income under Sec 99(1)(c): Individual; ≤₹1,500 per minor child.

• Capital gains from agricultural land: Individual/HUF; land used for agriculture; transfer under compulsory acquisition or govt/RBI approved; post 1-Apr-2004.

• Contributions from stock exchanges: Investor Protection Fund; notified; shared amount taxable.

• Contributions from commodity exchanges: Investor Protection Fund; notified; shared amount taxable.

• Contributions from depository: Investor Protection Fund; notified; shared amount taxable.

• Provident Fund income (interest/capital gains): Provident Fund under 1925 Act; securities held by Fund.

• Loan under reverse mortgage: Individual; Nil.

• Gratuity on employee death: Widow/children/dependents; Nil.

• Income under Sec 10(15)/(15)/(19A)/(40): Subject to conditions as provided in Act.

Schedule IV

Exemptions for non-residents, foreign enterprises, and qualifying non-resident entities.

• Interest on NRE account: Non-resident individual or RBI-permitted individual; interest on money in NRE account.

• Remuneration to foreign officials: Non-Indian official of embassy/high commission/trade rep; staff not engaged in other business; reciprocal exemption in their country.

• Remuneration for foreign enterprise employee: Non-Indian employee; employer has no business in India; stay ≤90 days; remuneration not deductible for employer in India.

• Salary on foreign ship: Non-resident individual; stay in India ≤90 days.

• Income under Sec 10(6A)/(6B)/(6BB)/(15A)/(15)(iiia–iiic)/(15)(iv)(a–fa): Subject to conditions specified in the Act.

Schedule V

Includes incomes of business trusts, sovereign wealth funds, and designated investment funds, excluded under prescribed conditions.

• Dividend, interest, specified sums, or long-term capital gains from investments in India: Specified person; conditions:

Investment made 1-Apr-2020 to 31-Mar-2030, held ≥3 years, in:

Eligible InvIT,

Eligible infrastructure entity,

Eligible Alternate Investment Fund,

Eligible domestic company, or

Eligible NBFC.

Proportional treatment if investment <100% in eligible entities.

Income becomes taxable if conditions not satisfied later.

Schedule VI

This schedule essentially provides exemptions for income linked to International Financial Services Centres (IFSCs), non-residents, and specified funds, often with conditions on operations, timing, and proportion of ownership.

Schedule VII

Exemptions for individuals, such as various government and public authorities, welfare funds, and charitable and religious organizations. Additional categories include educational and medical institutions.

• Fund for welfare of employees (notified by Board): Income applied for objects, invested as per Sec. 350, approved by Principal Commissioner/Commissioner.

• Pension fund by LIC or other insurer: Contributions for pension, approved by the Controller of Insurance/IRDA.

Sections 11(3) & 11(4) deal with persons listed in Schedule VII, specifying when their income will or will not be chargeable to tax.

Section 11(5) allows the Central Government to issue rules or notifications to operationalize the exemptions outlined in Schedules II to VII.

Implications for taxpayers

Tax authorities and taxpayers may find it easier to determine whether incomes are actually exempt with the schedule-based approach. There are now well-defined exemptions for several groups, like agricultural incomes.

The government intends to streamline the tax system and provide taxpayers with more clarity regarding exemptions and conditions through the Income Tax Act, 2025.