diff --git a/src/controllers/user-settings/edit-exclude-categories.ts b/src/controllers/user-settings/edit-exclude-categories.ts
new file mode 100644
index 0000000..1d350a4
--- /dev/null
+++ b/src/controllers/user-settings/edit-exclude-categories.ts
@@ -0,0 +1,36 @@
+import { API_RESPONSE_STATUS } from 'shared-types';
+import { z } from 'zod';
+import { recordId } from '@common/lib/zod/custom-types';
+import { editExcludedCategories } from '@services/user-settings/edit-excluded-categories';
+import { errorHandler } from '@controllers/helpers';
+import { CustomResponse } from '@common/types';
+
+export const editExcludedCategoriesHandler = async (
+  req,
+  res: CustomResponse
+) => {
+  try {
+    const { addIds, removeIds } = req.validated.body;
+    const { user } = req;
+
+    const updatedCategories = await editExcludedCategories({
+      userId: user.id,
+      addIds,
+      removeIds,
+    });
+    
+    res.status(200).json({
+      status: API_RESPONSE_STATUS.success,
+      response: updatedCategories,
+    });
+  } catch (error) {
+    errorHandler(res, error);
+  }
+};
+
+export const editExcludedCategoriesSchema = z.object({
+  body: z.object({
+    addIds: z.array(recordId()).optional().default([]),
+    removeIds: z.array(recordId()).optional().default([]),
+  }),
+});
\ No newline at end of file
diff --git a/src/models/UserSettings.model.ts b/src/models/UserSettings.model.ts
index a322dc2..4b54752 100644
--- a/src/models/UserSettings.model.ts
+++ b/src/models/UserSettings.model.ts
@@ -10,6 +10,14 @@ export const ZodSettingsSchema = z.object({
   }),
 });
 
+export const DEFAULT_SETTINGS: SettingsSchema = {
+  stats: {
+    expenses: {
+      excludedCategories: [],
+    },
+  },
+};
+
 // Infer the TypeScript type from the Zod schema
 export type SettingsSchema = z.infer<typeof ZodSettingsSchema>;
 
diff --git a/src/routes/user.route.ts b/src/routes/user.route.ts
index 1a41f97..1daa8ca 100644
--- a/src/routes/user.route.ts
+++ b/src/routes/user.route.ts
@@ -20,6 +20,7 @@ import {
 import { addUserCurrencies, addUserCurrenciesSchema } from '@controllers/currencies/add-user-currencies';
 import { authenticateJwt } from '@middlewares/passport';
 import { validateEndpoint } from '@middlewares/validations';
+import { editExcludedCategoriesHandler, editExcludedCategoriesSchema } from '@controllers/user-settings/edit-exclude-categories';
 
 const router = Router({});
 
@@ -47,5 +48,6 @@ router.delete('/currency/rates', authenticateJwt, removeUserCurrencyExchangeRate
 
 router.get('/settings', authenticateJwt, getUserSettings);
 router.put('/settings', authenticateJwt, validateEndpoint(updateUserSettingsSchema), updateUserSettings);
+router.put('/settings/edit-excluded-categories', authenticateJwt, validateEndpoint(editExcludedCategoriesSchema), editExcludedCategoriesHandler);
 
 export default router;
diff --git a/src/services/user-settings/edit-excluded-categories.e2e.ts b/src/services/user-settings/edit-excluded-categories.e2e.ts
new file mode 100644
index 0000000..7bc2100
--- /dev/null
+++ b/src/services/user-settings/edit-excluded-categories.e2e.ts
@@ -0,0 +1,126 @@
+import * as helpers from '@tests/helpers';
+import { CategoryModel } from '../../../shared-types/models';
+
+describe('editExcludedCategories', () => {
+  let rootCategory: CategoryModel;
+  let subCategory1: CategoryModel;
+  let subCategory2: CategoryModel;
+
+  beforeEach(async () => {
+    rootCategory = await helpers.addCustomCategory({
+      name: 'Root Category1',
+      color: '#FF0000',
+      raw: true,
+    });
+    subCategory1 = await helpers.addCustomCategory({
+      name: 'Sub Category11',
+      parentId: rootCategory.id,
+      raw: true,
+    });
+    subCategory2 = await helpers.addCustomCategory({
+      name: 'Sub Category22',
+      parentId: rootCategory.id,
+      raw: true,
+    });
+  });
+
+  it('should add new categories to excluded list', async () => {
+    const result = await helpers.editExcludedCategories({
+      addIds: [subCategory1.id, subCategory2.id],
+      removeIds: [],
+      raw: true,
+    });
+
+    expect(result).toBeDefined();
+    expect(result).toContain(subCategory1.id);
+    expect(result).toContain(subCategory2.id);
+  });
+
+  it('should remove categories from excluded list', async () => {
+    await helpers.editExcludedCategories({
+      addIds: [subCategory1.id, subCategory2.id],
+      removeIds: [],
+      raw: true,
+    });
+
+    const result = await helpers.editExcludedCategories({
+      addIds: [],
+      removeIds: [subCategory1.id],
+      raw: true,
+    });
+
+    expect(result).not.toContain(subCategory1.id);
+    expect(result).toContain(subCategory2.id);
+  });
+
+  it('should handle adding and removing categories simultaneously', async () => {
+    await helpers.editExcludedCategories({
+      addIds: [subCategory1.id],
+      removeIds: [],
+      raw: true,
+    });
+
+    const result = await helpers.editExcludedCategories({
+      addIds: [subCategory2.id],
+      removeIds: [subCategory1.id],
+      raw: true,
+    });
+
+    expect(result).not.toContain(subCategory1.id);
+    expect(result).toContain(subCategory2.id);
+  });
+
+  it('should ignore non-existent categories when adding', async () => {
+    const result = await helpers.editExcludedCategories({
+      addIds: [subCategory1.id, 9999],
+      removeIds: [],
+      raw: true,
+    });
+
+    expect(result).toContain(subCategory1.id);
+    expect(result).not.toContain(9999);
+  });
+
+  it('should ignore non-existent categories when removing', async () => {
+    await helpers.editExcludedCategories({
+      addIds: [subCategory1.id],
+      removeIds: [],
+      raw: true,
+    });
+
+    const result = await helpers.editExcludedCategories({
+      addIds: [],
+      removeIds: [9999],
+      raw: true,
+    });
+
+    expect(result).toContain(subCategory1.id);
+  });
+
+  it('should handle duplicate categories when adding', async () => {
+    const result = await helpers.editExcludedCategories({
+      addIds: [subCategory1.id, subCategory1.id],
+      removeIds: [],
+      raw: true,
+    });
+
+    expect(result).toContain(subCategory1.id);
+    expect(result.length).toBe(1);
+  });
+
+  it('should handle empty addIds and removeIds', async () => {
+    await helpers.editExcludedCategories({
+      addIds: [subCategory1.id],
+      removeIds: [],
+      raw: true,
+    });
+
+    const result = await helpers.editExcludedCategories({
+      addIds: [],
+      removeIds: [],
+      raw: true,
+    });
+
+    expect(result).toContain(subCategory1.id);
+  });
+});
\ No newline at end of file
diff --git a/src/services/user-settings/edit-excluded-categories.ts b/src/services/user-settings/edit-excluded-categories.ts
new file mode 100644
index 0000000..66ff18b
--- /dev/null
+++ b/src/services/user-settings/edit-excluded-categories.ts
@@ -0,0 +1,43 @@
+import UserSettings, { DEFAULT_SETTINGS } from '@models/UserSettings.model';
+import { withTransaction } from '../common';
+import Categories from '@models/Categories.model';
+
+export const editExcludedCategories = withTransaction(
+  async ({
+    userId,
+    addIds,
+    removeIds,
+  }: {
+    userId: number;
+    addIds?: number[];
+    removeIds?: number[];
+  }): Promise<number[]> => {
+    const [existingSettings] = await UserSettings.findOrCreate({
+      where: { userId },
+      defaults: {
+        settings: DEFAULT_SETTINGS,
+      },
+    });
+
+    let currentExcludedCategories =
+      existingSettings.settings.stats.expenses.excludedCategories || [];
+
+    const validAddIds = await Categories.findAll({
+      where: { id: addIds },
+    }).then((categories) => categories.map((category) => category.id));
+
+    currentExcludedCategories = currentExcludedCategories.filter(
+      (id) => !removeIds?.includes(id),
+    );
+
+    currentExcludedCategories = [
+      ...new Set([...currentExcludedCategories, ...validAddIds]),
+    ];
+
+    existingSettings.settings.stats.expenses.excludedCategories = currentExcludedCategories;
+    existingSettings.changed('settings', true);
+    await existingSettings.save();
+
+    return currentExcludedCategories;
+  },
+);
\ No newline at end of file
diff --git a/src/tests/helpers/user-settings.ts b/src/tests/helpers/user-settings.ts
index c74923d..081f88d 100644
--- a/src/tests/helpers/user-settings.ts
+++ b/src/tests/helpers/user-settings.ts
@@ -1,6 +1,7 @@
 import { makeRequest } from './common';
 import { getUserSettings as apiGetUserSettings } from '@root/services/user-settings/get-user-settings';
 import { updateUserSettings as apiUpdateUserSettings } from '@root/services/user-settings/update-settings';
+import { editExcludedCategories as apiEditExcludedCategories } from '@root/services/user-settings/edit-excluded-categories';
 
 export async function getUserSettings<R extends boolean | undefined = undefined>({ raw }: { raw?: R }) {
   return makeRequest<Awaited<ReturnType<typeof apiGetUserSettings>>, R>({
@@ -23,3 +24,18 @@ export async function updateUserSettings<R extends boolean | undefined = undefin
     raw,
   });
 }
+
+export async function editExcludedCategories<R extends boolean | undefined = undefined>({
+  addIds,
+  removeIds,
+  raw,
+}: Omit<Parameters<typeof apiEditExcludedCategories>[0], 'userId'> & {
+  raw?: R;
+}) {
+  return makeRequest<Awaited<ReturnType<typeof apiEditExcludedCategories>>, R>({
+    method: 'put',
+    url: '/user/settings/edit-excluded-categories',
+    payload: { addIds, removeIds },
+    raw,
+  });
+}
\ No newline at end of file