Section 11 · Incomes not in total income
Section 11 of the Income-tax Act, 2025 — Incomes Not Included in Total Income (Exempt Income)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter III
📜 What the law says — Section 11, Income-tax Act 2025
11. (1) In computing the total income of any person for a tax year under this Act,
any income enumerated in Schedules II, III, IV, V and VI shall not be included,
subject to fulfilment of conditions specified therein.
(2) Wherever the conditions referred to in the Schedules referred in sub-section (1)
are not satisfied in any tax year in respect of any income enumerated in the said
Schedules, such income shall be charged to tax under this Act on the total income
for that tax year.
(3) The persons enumerated in Schedule VII shall, subject to fulfilment of the
conditions specified therein, not be chargeable to tax under this Act on the total
income for a tax year.
(4) Wherever the conditions referred to in Schedule VII are not satisfied in respect
of the persons enumerated in the said Schedule in any tax year, the income of such
person shall be charged to tax under the provisions of this Act for that tax year.
(5) The Central Government may make rules or issue notifications for the purposes
of this section as specified in Schedules II, III, IV, V, VI and VII.
B.—Incomes not to be included in total income
of political parties and electoral trusts
Incomes not included in total income of political parties and electoral trusts.
In plain language
What Section 11 actually says
Section 11 is the master exemption provision of the Income-tax Act, 2025. It states that any income listed in Schedules II, III, IV, V and VI shall not be included in the total income of a person for a tax year, provided the conditions attached to that income in the relevant Schedule are satisfied. It also covers persons (entities) listed in Schedule VII who are not chargeable to tax at all.
Section 11 of the 2025 Act directly replaces the old, sprawling Section 10 of the Income-tax Act, 1961. Section 10 packed 50-plus sub-clauses into one long section; the 2025 Act keeps a short master section and pushes the detailed list of exemptions into clean, readable Schedules. The change is mainly structural, not substantive — the exemptions themselves are largely the same.
Who it applies to
- Every taxpayer — individuals, HUFs, firms, companies, trusts, non-residents. Schedule II items apply to all persons.
- Specific persons — e.g. members of an HUF, minors, pensioners (Schedule III).
- Non-residents and foreign entities — NRE interest, diplomat remuneration (Schedule IV).
- Investment vehicles — REITs, InvITs, specified/AIF funds (Schedule V).
- IFSC (GIFT City) units — eligible income of IFSC persons (Schedule VI).
- Fully exempt bodies — around 49 designated entities such as government-financed universities and statutory funds (Schedule VII).
Key conditions and limits
Exemption is never automatic — most items carry conditions. Some important ones:
- Agricultural income — fully exempt with no monetary cap (but is added for rate purposes when computing tax on non-agricultural income).
- Gratuity — government employees fully exempt; private-sector employees exempt up to ₹20,00,000 (lifetime).
- Leave encashment on retirement — government employees fully exempt; non-government employees exempt up to ₹25,00,000 (least of prescribed limits).
- Provident Fund — exempt, but interest on employee contributions above ₹2.5 lakh a year (₹5 lakh where there is no employer contribution) is taxable.
- Life insurance maturity — exempt only if the annual premium stays within the prescribed percentage of the sum assured (10%/15%/20% depending on issue date); high-premium ULIPs/policies can lose exemption.
- HRA and many salary allowances — available in practice only under the old regime; the new default regime forgoes most of them.
How Section 11 interacts with other provisions
- Runs before "total income" is computed. Exempt income under Section 11 is stripped out first, so it is not affected by your choice of tax regime — unlike Chapter deductions such as Section 80C-type reliefs.
- Salary exemptions — items like HRA and gratuity link to the salary-computation provisions (Section 19 of the 2025 Act, the successor to Section 16/10 salary reliefs).
- Charitable trusts are handled under separate trust sections of the 2025 Act — do not confuse Section 11 of the 2025 Act with the old Section 11 (1961) that dealt with trust income.
Practical implications
- If a condition fails in any year, that specific income is charged to tax for that year — for example, PF interest above the threshold, or an insurance policy breaching the premium ratio.
- You still often need to report exempt income in your return (Schedule EI) even though it is not taxed.
- Always trace the exemption to the correct Schedule and satisfy its conditions before claiming it.
💡 Example
Example 1 — Gratuity on retirement (private sector). Riya retires from a private company after 30 years and receives ₹28,00,000 as gratuity. Under Section 11 read with Schedule II, a private-sector employee's gratuity is exempt only up to ₹20,00,000. So ₹20,00,000 is exempt and the balance ₹8,00,000 is added to her taxable salary income and taxed at her slab rate.
Example 2 — PF interest above the threshold. Arjun's own EPF contribution in a year is ₹4,00,000. Interest on contributions up to ₹2,50,000 stays exempt, but interest attributable to the excess ₹1,50,000 is taxable. If interest is credited at 8%, roughly ₹12,000 of interest (8% of ₹1.5 lakh) is charged to tax that year, while the rest of his PF interest remains exempt under Schedule II.
A short story. Meena, a schoolteacher, panicked when she saw her ₹1,80,000 farm income and a ₹50,000 scholarship her son received. Her CA reassured her: agricultural income and genuine scholarships are both listed in Schedule II under Section 11, so neither is taxed. She only needed to disclose the agricultural income in the exempt-income schedule of her return — and, because it crossed ₹5,000, it was used just to work out the rate on her salary, not to tax the farm income itself.
| Schedule under Section 11 | Who / what it covers | Typical exempt items |
|---|
| Schedule II | All taxpayers | Agricultural income, gratuity (up to ₹20 lakh), leave encashment (up to ₹25 lakh), PF/NPS receipts, LIC maturity, scholarships |
| Schedule III | Specific persons | Share of HUF income, clubbed minor's income (limited), certain pensions |
| Schedule IV | Non-residents / foreign entities | NRE account interest, remuneration of diplomats/foreign officials |
| Schedule V | Investment funds & trusts | Income of REITs, InvITs, specified/AIF funds |
| Schedule VI | IFSC (GIFT City) units | Eligible income of specified IFSC persons |
| Schedule VII | Fully exempt persons (~49 entities) | Government-financed universities, statutory/notified funds, specified bodies |
Related sections
Schedule II — Incomes exempt for all taxpayers Schedule VII — Persons wholly exempt from tax Section 19 — Deductions and exemptions from salary Section 92 — Income of charitable and religious trusts Section 115BAC — New default tax regime Section 2 — Definition of agricultural income
Frequently asked questions
What does Section 11 of the Income-tax Act, 2025 deal with?
It is the exempt-income provision. It says incomes listed in Schedules II to VI, and persons listed in Schedule VII, are not included in total income if the stated conditions are met.
Which old section does Section 11 (2025) replace?
It replaces Section 10 of the Income-tax Act, 1961. The exemptions were moved out of one long section into cleaner Schedules, but the substance is largely unchanged.
Do Section 11 exemptions depend on the old or new tax regime?
No. Section 11 exemptions reduce income before total income is computed, so they apply under both regimes. Regime-specific reliefs like HRA under the old regime are a separate matter.
Is agricultural income fully exempt under Section 11?
Yes, agricultural income is exempt with no monetary cap. However, if it exceeds ₹5,000 it is aggregated to determine the tax rate on your non-agricultural income.
What is the gratuity exemption limit under the 2025 Act?
Government employees get full exemption. Private-sector employees are exempt up to ₹20,00,000 (lifetime); any excess is taxable.
What happens if I do not meet a Schedule condition?
Under Section 11, if the condition for an item is not satisfied in a tax year, that income is charged to tax for that year instead of remaining exempt.
Do I still have to report exempt income in my return?
Yes. Even though it is not taxed, exempt income such as agricultural income, PF, or dividends should be disclosed in the exempt-income schedule of your income-tax return.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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