A Handy List of Tax Free Incomes in India | Incomes Tax Free in India
A handy list of Tax Free Incomes in India
Interest income from Bank's Savings Account: The interest earned on Savings Bank account is tax free up to a limit of Rs. 10,000/- per annum.
Dividend Income: Dividend received by investment in stocks or mutual funds is tax free under section 10(34) of the Income Tax Act. There is no limit on such amount.
Income from Long-term Capital Gain: Income in the form of long-term capital gain from an equity share or an equity oriented mutual fund is tax free under section 10(38) of the Income Tax Act.. In such cases, capital gains are considered as long term if the amount is withdrawn after completion of 1 year from the date of investment.
Amount received through a WILL or Inheritance: Any amount received through a WILL is tax free in India as there is no inheritance tax.
Amount received from Employees Provident Fund (EPF) account after 5 yrs: Any amount received from Provident Fund (EPF) account after 5 yrs under section 10(11) of the Income Tax Act.
Gift: Gifts received from specified relatives are exempt from Income Tax without any limit on amounts of such gifts. If an individual receives gift amount less than Rs 50,000 from anyone other than specified relatives, it will be tax free. Amount received as a gift on marriage is also tax free.
Scholarship: Scholarships granted for education to meet the cost of education is tax free in India under section 10(16) of the Income Tax Act.
Awards and Rewards: All the awards and rewards given by the central or state governments or by a body recognized by the central government is tax free. These awards and rewards may be in cash or kind.
Leave Travel Allowance (LTA): LTA is paid by the company, usually each year, to its employees for travelling purpose. It is not taxable in hands of the employee under Section 10(5) of the Income Tax Act, if he actually travels and also provides the proof of travel to the employer. This claim can usually be made 2 times in bunch of 4 years.
Amount received from a Life Insurance Company: An amount received from a life insurance company on maturity, claim or surrender is tax-free. The point to be noted is that the premium paid should not exceed 20% of the sum assured of such policy.
Amount received from Hindu Undivided Family (HUF): Any amount received from Hindu Undivided Family (HUF) is exempted from any income tax under Section 10(2) of the Income Tax Act.
Gratuity: Gratuity received by an employee is tax free up to a limit of Rs. 10,00,000/- under Section 10(10) of the Income Tax Act.
Commutation of Pension: If the employee is working with Central and State government, Defence Services, Corporations established under Central or State Acts or Local Authority, the entire commuted value of pension is exempt from tax but for any other employee, the commuted value of 1/3 of the pension is exempt (if the employee received gratuity), otherwise, the commuted value of 1/2 of the pension is exempt(if the employee does not receive gratuity). It is tax fee under Section 10(10A) of the Income Tax Act.
Leave Encashment: If the employee is working with Central and State government, any amount received as encashment of earned leave at the time of retirement is tax free. 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 subject to a limit of Rs. 3 Lakh. It is tax free under Section 10(10AA) of the Income Tax Act.
Voluntary Retirement(VRS): Amount received by an employee at the time of voluntary retirement or termination of service is exempt from the tax under section 10(10C) of Income Tax Act subject to a limit of Rs. 5 Lakh provided the company should have a framework for VRS as prescribed by the government.
Superannuation: Amount received as superannuation from an approved superannuation fund is tax free provided the payment is made on retirement or on the death of an employee.
Relief funds: Any money received as a relief fund by a person under the Prime Minister's National Relief Fund, Students Fund or Foundation for communal harmony is exempt from tax.
Shares from a partnership firm : If the profit earned by a partnership firm is distributed among the partners as a share of profits, it is tax free in the hands of the partner under Section 10(2A) of the Income Tax Act as the tax has already been paid by the firm on such profit.
Allowance for foreign service
Any allowance paid outside India by the government to a citizen of India who is a government employee, rendering service outside India, is tax free under Section 10(7) of the Income Tax Act. There is no maximum limit on such allowances.
Agriculture Income : Any income earned from agricultural operations is tax free including the rent received from agriculture land under Section 10(1) of the Income Tax Act.