What are the Tax Free Incomes in India? A Complete List

Incomes earned from specific sources in India are exempted from any sort of income tax according to the Income Tax Act. These are known as tax free incomes and in this blog, we will discuss in detail the tax free incomes in India.

Agricultural Income

Agricultural income is exempt from any sort of income tax according to Section 10(1) of the Income Tax Act. But, for individuals and Hindu undivided families, agricultural income which exceeds Rs. 5000 will be added to the total income. This addition is made only to compute the slab rates which will be applicable for the taxpayer. Therefore, there is no tax on agricultural income but once the  agricultural Income has been declared, then the overall tax rate will be increased.

Receipts from HUFs

Any receipts which are received by an individual who is the member of an Hindu undivided family, will be exempt from income tax but the HUF must have been separately assessed to and should have paid the income tax.

Shares from an LLP or a partnership firm

In case the assessee is a partner either in an LLP or a partnership firm, then his share will be totally exempt from income tax provided that the partnership firm or LLP has already been assessed for income tax.

NRI tax free incomes

Specific incomes or steps earned by the analysis are fully text free from the income tax full stop the income the day analyses earned by interstellar bonds as per the central government is free from income tax also any premium which is applicable for a redemption of specified bonds is also free from tax.

Income earned by foreigners

Specific income and receipts earned by foreigners are also exempted from income tax. The remuneration which a foreigner receives as an official of the embassy is free from income tax. Any money which a foreigner receives from his employer for children or for spouse or for himself relating to his proceeding home leave or after his/her retirement or after termination of service will be fully exempt from any sort of income tax.

Gratuities

The gratuity received by a government employee due to his death or his retirement is fully exempt from income tax. The gratuity that a private sector employee receives either on retirement or on being capacitated or on termination is exempt up to a maximum limit of 10 lakh. There are some more limitations to this exemption which are specified by the Income Tax Act.

Commutation of pension

The amount which a government servant receives in communication of pension or any payment received from LIC in commutation of paper pension or any other insurer from their pension funds is fully tax free. The amount of commuted pension which is exempt from income tax for a private sector employee is listed below:

1. At the time of receiving the gratuity,, one third of the pension to be received will be presented as the commuted value.
2. In all other cases, the commuted value will be half of the amount of the pension.

The pension that a pensioner receives on a monthly basis is liable for taxation under income tax act just like any other item of salary and there will be no standard deduction.

Leave salary

The maximum amount receivable as cash by an employee of the central government at the time of retirement, whether on superannuation or in any other case will be fully exempt from income tax.

For private sector employees, the amount that will be exempted would be the least of the following:

1. A standard amount of Rs 3 lakh.
2. The actually received amount of leave encashment.
3. Average salary of 10 months computed on the basis of salary during the preceding 10 months of the retirement on superannuation or voluntary retirement.

Voluntary retirement

Any amount which an employee of a public sector company or of a local authority or of a statutory authority or of a cooperative society or of a university receives at the time of voluntary separation or retirement will be fully exempt from income tax. Maximum exemption is Rs 5 lakh.

Money received from insurance

Any amount which is received by an individual under a life insurance policy or a keyman insurance policy life or an insurance policy, the premium for which for any of the years is more than 10%, will be fully exempt from income tax. Also, all the money received on the death of the person who has been insured will be exempt from income tax.

Money received from PF

Any amount of money received from a PF which is recognised by the government, approved superannuation fund or PPF will be fully exempt from income tax.

Special allowances and benefits

Any sort of special allowances or benefits which an employee receives which are not of prerequisite nature are not covered under income tax.

Interest income

Under section 10(15) of the Income Tax Act, specific types of interest payments are totally tax free. These are listed below:

1. Interest on securities held by the central bank of cyclone's issue department.
2. Interest on gold deposit bonds
3. Interest on deposits for Bhopal gas victims
4. Interest on bonds of local authorities
5. Interest which is payable to any bank outside India which is authorised to perform Central banking functions in the concerned country, with the approval of the Reserve Bank of India.
6. Interest that needs to be paid by the government or a local authority on the money which is borrowed by them.
7. Bonds and Infrastructure bonds which are tax-free
8. Interest from tax free infrastructure bonds
9. Interest which is received by a non-resident or non-ordinary person on the deposits which he makes to the Off-shore banking units.

Scholarships and awards

All the scholarships provided in order to meet the cost of education and specific awards are exempted from income tax. The amount which gallantry award winners like the Mahavir Chakra, the Veer Chakra, the Param Vir Chakra and others, receive as pension or family pension will be exempt from income tax.

Dividends on mutual funds and shares

The income from dividends and income of mutual fund units will be completely free from income tax.

Capital gains from agricultural land transfer

The capital gains which are received on agricultural land transfers are exempt from income tax provided that the land has been used for agricultural purposes for the past 2 years.

Capital gains on security transfers

The income that a taxpayer earns because of the sale of a long term Capital Asset, which can be categorised as a security, is fully exempt from income tax provided that the transaction has been subjected to a Security Transaction Tax.

Gifts received

The gifts that an assessee receives from a relative or during his or her wedding will be fully free from tax without any limit. However, the gift that an individual receives from any other person is liable for taxation and will be subjected to an exemption limit of Rs. 50000.

Conclusion

In this blog, we discussed in detail the tax free incomes in India; these were Agricultural Income, receipts from HUFs, share from LLP or a partnership firm, incomes of NRIs, incomes earned by foreigners, gratuity amounts, commutation of pension, leave salary, voluntary retirement, money received from insurance, money received from PF, special allowances and benefits, interest income, scholarships and awards, dividends on mutual funds and shares, capital gains from transfer of agricultural and transfer of securities and gifts received.