Top 10 Income Tax Free Income in India

By | July 24, 2016

 Income Tax Free Income in India

The relation between income and taxation is directly proportional, the more you earn, the greater will be your income tax liability. However, this statement is not entirely true as there are certain incomes for which your tax liability is nil. These earnings are not included in your assessable income for that financial year and thus, stay tax-free. Wondering which of your incomes make the cut? For the benefit of tax planning, below are Top 10 Tax free incomes in India that every Indian should know: 

  1. Proceeds from Hindu Undivided Family (HUF)

As a member of a HUF (Hindu Undivided Family), any money you inherit or receive is exempted from income tax liability under the Section 10(2) of the Income Tax Act. Since inheritance tax is not practiced in India, any income you receive through Will is not taxable. Instead, the income is considered as your property and only the interest earned on that property will come under tax obligation.

  1. Agricultural income

To enhance growth of the agricultural sector in the country, provisions under Section 10(1) of the Indian Income Tax Act (1961) fully exempt any revenue one makes through agriculture from income tax burden.

For HUFs or individuals, (in case they have both agriculture and non agriculture income ) and if the agricultural income exceeds Rs 5,000, it is combined with the total earnings for the purpose of calculating tax on the overall income. In this manner, the agricultural income is exempted but income tax on the additional income increases.

  1. Voluntary retirement

According to the provisions under Section 10(10C), any sum collected by a worker of a public sector company or of any authority founded under the Central or the State Government under voluntary retirement scheme (VRS) is entirely exempt from tax as per Rule 2BA. The highest amount exempted from tax received at VRS is Rs. 500,000.

  1. Interest on savings bank account

An annual interest of up to Rs 10,000 on all your savings accounts across banks is exempt from tax. Thus, if your annual interest on savings bank account is Rs 30,000, then Rs 10,000 is exempted and the remaining Rs. 20,000 will be included in your taxable income.

  1. Partnership Share from a firm

According to the provisions under Section 10(2A), in case a person is a partner in a company which is as such independently evaluated, the share of that person in the overall income of the company is entirely exempt from tax since the assessment year 1993-94.

  1. Foreign Service allowance

Any allowance paid or sanctioned by the Government to an Indian citizen rendering service out of India is exempt from income tax under Section 10(7). This condition benefits government employees as they can collect tax-free allowances received out of India.

  1. Leave Travel Allowance received from the company

Almost every company pays Leave Travel Allowance to their employees each year. Provided they furnish travel proof, LTA does not come under tax liability of the employees. In case a company does not grant LTA, the employees can ask the company to assign some amount as LTA component in the package so that the LTA component becomes non-taxable.

  1. Amount received as gift/Scholarship/awards: 

As per the Section 10(39) in the Finance (No. 2) Act, 2004, any gift received by a person or HUF individual in cash or as credit, on the occasion of marriage from friends or relatives will be excused from the purview of tax. It should be noted that there is no upper limit to the gift accepted as mentioned under this Section. Similarly, any scholarship or reward endowed to deserving students is let off from tax under the Income Tax Act (1961), Section 10(16). There is no upper limit to the amount received as the entire amount of scholarship/reward money gets tax exemption.

  1. Gratuity Income:

Gratuity is rewarded by the company as gratitude for recognizing the employee’s long-term commendable service. Under the provisions of Section 10(10) of the IT Act, any retirement-cum-death gratuity received by a government employee is totally excused from income tax. For private sector employees, gratuity given on retirement/becoming debilitated/ termination or gratuity given to his widow, dependants or children on his demise is excused depending on some conditions.

  1. Long-term capital gains

It comes as a respite for equity investors that any long-standing capital gains accepted on equity mutual funds and stocks are excused from tax. According to the Section 10(36) of the Income Tax Act, provided the equity instrument is held for over a year, the income generated as a result of selling of these mutual funds and stocks are exempt from tax obligation.

Every abiding citizen of India is morally and legally bound to pay income tax. The taxation method is intended to avoid taxes that may turn into an economic burden for the tax payer. The above mentioned income categories allow Indian citizens to save their money in a perfectly legal and organized way.

source http://www. financ. in/

Tax-Free Incomes & Investments (English)(Paperback)

Tax Free Income and Investments


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