20 Tax free Incomes in India

Tax Free

Tax is your single largest expense; Tax collected from an individual is used for building the nation (infrastructure & other development), to increase arms and ammunition for the defense of the country and for other welfare-related work. That’s why it is said that “Taxes are paid nation are made”.

Although tax payment is good for the country but when it comes to paying tax most of us don’t like to pay hard-earned money to the government. Many of us even try to find the way out hide our income. This inspires me to write article on incomes that are tax free in India. This will help you to increase these incomes which are not taxed.

Now, let’s take a look at different incomes that are tax free.

1 Agriculture Income:-

Agriculture income is exempt under the Indian Income Tax Act. This means that income earned from agricultural operations is not taxed.  Agriculture operation includes processing & sale of agricultural crops from agriculture land. Even rent received from agriculture land is not taxable.

2. Dividend Income:-

Any dividend received by investment in stocks or mutual funds is tax free in the hands of investors.

3. Saving Bank Interest income:-

The interest earned on Savings Bank accounts up to a limit of Rs. 10,000/- is exempt from inclusion in Gross Total Income for the purpose of Income Tax.

4. Income for being partner in firm:-

If you received any income for being a partner of the firm which has already been assessed,  than this income share does not require inclusion for calculation of tax. This is called as profit sharing as per partnership deed.

5. Travel Concession or Assistance:-

Money received from the employer as LTA for the purpose of travel to any place in India along with the family for the purpose of the leave is exempted from tax.

The amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel. This claim can be made two times in bunch of 4 years.

6. Money received as Gift:-

If you receive gift amount less than 50,000 Rs/- from anyone it will be considered as tax free amount.

Another good thing is gifts received from specified relatives are exempt from Income Tax, and there is no upper limit also.

7. Rent Received:-

Any allowance received by an employer to an employee to meet expenditure actually incurred on the payment of rent for accommodation is tax free. This is called as HRA this amount is taxable if house is owned by the employee or he has not incurred the rental.

8. Income from Long-term Capital Gain:-

Any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund are tax free in nature. These transactions are subject to securities transaction tax.

9. Income from Life insurance policy:

Maturity amount received as the benefit from a life insurance policy, including bonus payment, is tax free.

10. Income from government securities:-

Any earnings from interest, premium on redemption or other payment on securities, bonds, annuity certificates, savings certificates and other instruments issued by the central government is tax free.

11. Scholarship money:-

Scholarships granted to meet the cost of education is tax free in nature.

12. Awards and Rewards:-

All payments receive in cash or kind as an award given by the central or state governments or by a body recognized by the central government is tax free.

13. Retrenchment: –

In an unfortunate event of company closure compensation received by the workman is considered as tax free.

14. Relief funds:-

Any amounts which are received by an individual as part of the Prime Minister’s National Relief Fund or students fund or foundation for communal harmony will be treated as tax free.

15. Retirement / Gratuity:-

Any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be tax free subject to following limits:-

For every completed year of service or part thereof, gratuity shall be paid at the rate of fifteen days wages based on the rate of wages last drawn by the concerned employee.

The amount of gratuity, as calculated above shall not exceed Rs. 3,50,000/- (w.e.f. 24.9.97).

16. Commutation of Pension:-

In case of employees of Central & State Govt., Local Authority, Defense Services and corporations established under Central or State Acts, the entire commuted value of pension is exempt.

In case of any other employee, if the employee receives gratuity, the commuted value of 1/3 of the pension is exempt, otherwise, the commuted value of ½ of the pension is exempt.

17. Leave Encashment:-

Any cash amount received as compensation for earned leave which is encashsed at the time of retirement is tax free. This is applicable only to employees of central/state government.

In case of other employees, the exemption is to be limited to a maximum of 10 months of leave encashment, based on last 10 months average salary. This is further subject to a limit of Rs. 3,00,000/-.

18. Voluntary Retirement:-

Payment received by an employee at the time of voluntary retirement, or termination of service is exempt from the tax subject to extent of Rs. 5 Lakh.

But, the company paying the VRS should have a framework for VRS as prescribed by the government.

19. Provident Fund:-

Any payment received from a Statutory Provident Fund, (i.e. to which the Provident Fund Act, 1925 applies) is tax-free.

20. Superannuation:-

Payment from an Approved Superannuation Fund will be tax free provided the payment is made at retirement, incapacitation or at death of an employee.

Till the time we are thinking that government imposed 20 Different taxes and that are too much, but the government has also 20 different Incomes which are exempted.

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Article by Shitanshu

Hi, I am Shitanshu. By Profession I am Engineer and working in the IT field. I am crazy about Finance and like to research on financial matters. I have written 80+ article on this blog. If you like my efforts kindly subscribe to this blog and also let your friends know about this website by sharing.

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3 Comments

  1. Arun says:

    Hi,

    during a FY, I received a gift cash worth rupees 7,00,000/- from my relative(mother’s sister) and I deposited same in my bank account. my salary income(for which TDS is deducted) for that year >20 L. Will this gift cash also be counted in my income.

    What proof shall i keep for my records in case IT department later asks for it?

    Thanks,

    • Dear Arun,

      Gift received from a relative is tax-free. All you need to do is document this transaction on a paper which clearly states that who transferred the money and the reason for it, along with the signatures of both parties. In future, if there is any income tax scrutiny, this small piece of proof will be handy and will help you a lot.

  2. Tricha says:

    Thank you for the article….

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