In India, the Income Tax Act 1961 outlines the rules and regulations that determine tax liability. Within this framework, certain income sources are exempt from tax, offering individuals the benefit of tax-free income. Below, we explore various instances where income is exempt from tax, providing valuable insights for individual taxpayers as they file their income tax returns.
Section 10(1) of the Income Tax Act exempts income derived from agricultural activities. This includes:
Note: If agricultural income exceeds ₹5,000 and the taxpayer’s non-agricultural income surpasses the basic exemption limit, agricultural income becomes taxable.
Gratuity income, covered under Section 10(10), varies based on employment type:
Under Section 56(2)(x), the taxability of gifts is specified. Gifts received from certain sources are fully exempt:
Other gifts are exempt up to ₹50,000 annually. Beyond this limit, the entire amount may be taxable.
Leave encashment is addressed under Section 10(10AA):
Pension received from the United Nations Organization (UNO) or by family members of Indian Armed Forces employees is tax-free. Family pension for other dependents has a deduction under Section 57(iia) at the lower of ₹15,000 or 1/3rd of the amount received.
Under Section 10(2), income received from a Hindu Undivided Family (HUF) is exempt if the HUF has filed its income tax return and paid applicable taxes.
Income shared by partners from an LLP or partnership firm is exempt under Section 10(2), provided the firm has filed its tax return and paid the necessary taxes.
Certain interest incomes are exempt:
Under Section 10(10D), maturity proceeds from a life insurance policy are tax-free if the premium paid does not exceed 10% of the sum assured for policies issued after April 1, 2012, and 20% for policies issued before that.
Under Section 10(16), scholarships granted to meet educational costs are exempt from tax.
Section 10(18) exempts the winners of different gallantry medals, such as “Paramvir Chakra,” “Mahavir Chakra,” “Vir Chakra,” and other notified bravery awards, that are given to those working for the Central or State governments from paying taxes on their pensions.
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