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Exemptions for the Schedule Tribe

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Introduction

People classified as Scheduled Tribe as defined in Clause 25 of Article 366 of the Constitution residing in a Sixth Schedule area are exempted from paying income tax under Section 10(26) of the Income Tax Act of 1961.

Simplifying the above statement, the schedule tribes can avail this tax exemption if they reside from the specific regions to which this exemption has been made available. That basically means 0 tax. Intrigued? Lets dig in and understand the scenarios where the above mentioned people are exempted from paying income tax.

Provisions under Income Tax Act 1961

Section 10(26) of Income Tax Act 1961: In the case of a member of a Scheduled Tribe as defined above or in the  States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura] or in the areas covered by Notification No. TAD R 35 50 109, dated the 23rd February, 1951 , issued by the Governor of Assam under the proviso to sub- paragraph (3) of the said paragraph  as it stood immediately before the commencement of the North- Eastern Areas (Reorganisation) Act, 1971 (18 of 1971 )], any income which accrues or arises to him,-

(a) from any source in the areas 9 or States] aforesaid, or

(b) by way of dividend or interest on securities;

The Explanation

A complex statement always needs an explanation. So here it is:

The above statement means that the exemption is given in relation to income arising from the specified areas to the specific people who satisfy the criteria that are mentioned in the provision can claim this exemption u/s 10(26). We will discuss the criteria in the later stages of this blog.

Also, as per clause (b) mentioned above, a person can receive dividends from companies that are not based from these specific regions. So that would mean that they can not avail this exemption on such income right? Wrong. Dividend and securities though not accrued in the required regions, shall still be available for exemption as per the provisions.

Criteria for claiming Exemption u/s 10(26)

First off, exemption from paying income tax by STs which comes u/s 10(26) of the IT Act 1961 gives three conditions for fulfilment for getting this exemption:

  1. The individual has to belong to a Scheduled tribe
  2. He/she has to be residing in a Sixth Schedule Area
  3. Income should be generated while living in a Sixth Schedule Area

So at the outset it is clear that a majority of the STs living in India (other than locations mentioned above) will not get tax exemption simply because they belong to a scheduled tribe.

Reason for the above is that the primary objective of exemption is to provide protection to the ‘weaker sections’ of society. Members of the Scheduled Tribes who are enterprising and resourceful enough to move out of the seclusion of the tribal areas and successfully compete with their Indian brethren outside those areas and rise to remunerative positions in service or business, cease to be ‘weaker sections’.

How to Avail this Exemption?

The eligible person can claim tax-free income in his ITR, and for non-deduction of TDS, he/she can get a certificate from his Jurisdictional ITO u/s. 197 of IT act.

Conclusion

Recently there have been various attempts by the Income Tax department to spread awareness regarding the specific exemption available to Scheduled Tribe people. Persons fulfilling all the above mentioned criteria can claim the exemption u/s 10(26), however one needs to be careful while claiming the exemption as there have been instances where the exemption is claimed and the same was denied because the criteria weren’t fulfilled satisfactorily. 

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Got Questions? Ask Away!

  1. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

  2. The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).

    Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).

    As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.

  3. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback. :slight_smile:

  4. Hey @shindeonkar95

    In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.

    However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.

    Hope, it helps!

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