Have you ever noticed that while filing your income tax return, there is an option to show exempt income? Many people overlook this, but it is equally important to declare exempt income just like taxable income. If you receive any exempt income and think there’s no need to show it in your ITR because it’s exempt, you may still receive a notice. Therefore, not only is it important to show exempt income in your ITR, but it’s also crucial to understand the types of exempt income.
Here are the list of Tax Free or Exempt income which you must aware:
1. Agricultural Income
Income from agricultural activities, such as farming, is fully exempt from tax under Section 10(1) of the Income Tax Act. This includes income from the sale of produce, agricultural rent, and revenue from agricultural land.
2. Allowances to MPs and MLAs
Members of Parliament (MPs) and Members of Legislative Assembly (MLAs) receive allowances that are exempt from tax under Section 10(17) of the Income Tax Act. This includes daily allowances, constituency allowances, and office allowances.
3. Retirement Benefits
Several retirement benefits are exempt from tax:
- Gratuity: Exempt under Section 10(10) subject to specified limits.
- Leave Encashment: Exempt under Section 10(10AA) within limits.
- Pension: Commuted pension is tax-free under Section 10(10A).
4. Provident Fund
Amounts received from a recognized provident fund, public provident fund (PPF), or an approved superannuation fund are exempt from tax under Section 10(11) and Section 10(12).
5. Capital Gain on Sale of Rural Agricultural Land
Capital gains arising from the sale of rural agricultural land are exempt from tax under Section 10(1). The land must be situated outside the municipal limits as specified.
6. Compulsory Acquisition of Land
Compensation received for the compulsory acquisition of land is tax-free under Section 10(37) provided the land is used for agricultural purposes.
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7. Gifts from Relatives and Non-Relatives
Gifts received from specified relatives are fully exempt from tax under Section 56(2)(x). Gifts from non-relatives are tax-free if the aggregate value does not exceed ₹50,000 in a financial year.
8. Share of Profit from Partnership Firms
The share of profit from a partnership firm is exempt from tax under Section 10(2A). The firm, however, is taxed as a separate entity.
9. Income from Political Parties
Income received by a political party is exempt from tax under Section 13A, provided certain conditions are met, such as maintaining proper records and filing annual returns.
10. Maturity of Life Insurance Policy
Maturity proceeds of a life insurance policy, including bonus, are exempt from tax under Section 10(10D), provided the premium does not exceed 10% of the sum assured.
11. Interest on PPF and Sukanya Samriddhi Yojana
Interest earned on deposits in Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) accounts is exempt from tax under Section 10(11) and Section 10(12).
12. Natural Disaster Compensation
Compensation received from the government for damage to property due to natural disasters is exempt from tax under Section 10(10BC).
13. Scholarships
Scholarships granted to meet the cost of education are fully exempt from tax under Section 10(16).
14. Pension to Armed Forces Personnel
Pensions received by armed forces personnel, such as recipients of gallantry awards like Param Vir Chakra, are exempt from tax under Section 10(18).
15. Defence/Medical Disability Pension
Disability pensions received by armed forces personnel are fully exempt from tax under Section 10(19).
16. Long-Term Capital Gains (LTCG) on Sale of Shares
LTCG on the sale of listed equity shares and equity-oriented mutual funds is exempt up to ₹1 lakh under Section 112A. Gains beyond this threshold are taxed at 10%.
17. Family Transfer of Property (Inheritance Property)
Property transferred through inheritance is exempt from tax under Section 56(2)(x). However, any income derived from such property is taxable.
18. Interest from Savings Bank Account
Interest earned on savings bank accounts is exempt up to ₹10,000 under Section 80TTA for individuals and HUFs. For senior citizens, this limit is enhanced to ₹50,000 under Section 80TTB, including interest from fixed deposits (FDs).
19. Standard Deduction from Salary
A standard deduction of ₹50,000 from salary income is allowed under Section 16(ia), reducing the taxable income.
20. Basic Income Tax Exemption Limits
Individuals are exempt from income tax up to the basic exemption limit:
- For individuals below 60 years: ₹2.5 lakh
- For senior citizens (60-80 years): ₹3 lakh
- For super senior citizens (above 80 years): ₹5 lakh
21. Family Pension to Army Personnel
- Section: 10(19)
- Description: Family pensions received by the family members of deceased armed forces personnel, such as those who have received gallantry awards, are exempt from tax.
22. Income from National Pension Scheme (NPS)
- Section: 10(12A)
- Description: Up to 40% of the total corpus withdrawn at the time of closure or opting out of the National Pension Scheme (NPS) is exempt from tax.
- Partial withdrawal from National Pension System Trust [Sec.10 (12B)]: Any withdrawal by the assessee from National Pension System trust, up to 25% is tax free.
23. Income from Sukanya Samriddhi Yojana (SSY)
- Section: 10(11A)
- Description: Interest earned from the Sukanya Samriddhi Yojana is fully exempt from tax. This scheme is designed to promote savings for the girl child’s education and marriage.
24. Interest on Certain Bonds and Securities
- Section: 10(15)
- Description: Interest on various notified bonds and securities, such as savings bonds and other specified investments, is exempt from tax.
25. Income of a Minor Clubbed with Parent
- Section: 10(32)
- Description: Income of a minor child, clubbed with the income of the parent, is exempt up to ₹1,500 per child per year for a maximum of two children.
26. Income from Agriculture and Horticulture Activities
- Section: 10(1)
- Description: Income from activities related to agriculture and horticulture, such as selling produce and maintaining nurseries, is exempt from tax.
27. Payment from Agniveer Corpus Fund
- Section: 10(12C)
- Description: Payments made from the Agniveer Corpus Fund to individuals enrolled in the scheme and their nominees are exempt from tax.
28. Voluntary Retirement Scheme (VRS) Amounts
- Section: 10(10C)
- Description: Amounts received under the Voluntary Retirement Scheme (VRS) are exempt up to ₹5 lakh.
Additional Tax-Free Incomes
- Hindu Undivided Family (HUF) Income
- Income received by an individual as a member of a HUF is exempt under Section 10(2).
- Income from Co-operative Societies
- Certain incomes received by a co-operative society are exempt under Section 80P.
- Income from Local Authorities
- Income received by local authorities (municipalities, panchayats, etc.) is exempt under Section 10(20).
- Income of Charitable Trusts
- Income derived from property held under a trust wholly for charitable or religious purposes is exempt under Section 11, subject to conditions.
- Income from Specified Infrastructure Bonds
- Interest, premium or bonus income from notified infrastructure bonds is exempt under Section 10(15).
- Like Annuity certificates, National Saving Certificates, Post Office Savings, Bank Account, Interest on relief Bonds, Post office cash certificates etc are fully exempt from tax
- Profit of newly established industrial undertaking in free trade zone [Sec.10AA].
Also Read Exempt Incomes for All persons
Also Read 14 Exempt or Tax free incomes for salaried employees
Conclusion
Understanding the various tax exemptions available can significantly impact your tax planning and overall financial health. By leveraging these exemptions, individuals can reduce their taxable income and increase their savings, ensuring better financial stability. Always consult a tax professional or financial advisor to optimize your tax benefits under the current laws.
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Tell me something about new gratuity tax rules effective 01.01.2014 for persons retired and received gratuity in FY 2023-24.
Exemption must be given, to Senior Citizens, on expenses made on consultancy fees to doctors, on diagnosis charge and on medicines through OPD.
Even Health Insurance Companies do not reimburse these expenses and OPD Treatments are increasing like anything.
I needed to thank you for this wonderful read!! I definitely enjoyed every little bit of it. I have you book marked to look at new things you post 🙂
There should be more amount of exemption under section 80 TTT for senior citizens and it should go from 50000 to100000,. The charges paid to a doctor for consultation fees, and medicines purchased from OPD, as be cuse, the insurance companies don’t pay reimbursement these OPD expenses, and the charges go to increase like anything.