It is a general belief among people that the government of India takes away a lot from your income in the form of taxes. It is true that paying income tax is mandatory when you are earning above a certain limit. However, there are some types of income which are completely tax free and one does not have any liability to pay taxes on these incomes. Here in this article we will discuss about 10 tax free incomes in India. This will help in determining the incomes on which you do not need to pay any taxes.
10 Tax Free Incomes in India
1) Agricultural Income
India is an agricultural country. As a measure to boost the agriculture economy, the Indian Income Tax Act of 1961 exempts any taxes of income generated through agriculture. However, the income generated through agriculture is included while computation, for the sole purpose of determining the tax rate if agricultural income exceeds applicable basic income exemption of Rs 2,50,000 in a financial year.
Also See : Income Tax Deductions and Exemptions
2) Receipts from Hindu Undivided Family
If one receives or inherits money as a member of a Hindu Undivided Family (HUF), it is exempted from any income taxes. Any amount one inherits out of family income or amount received out of income of family estate or in case of impartible estate or by any member of a HUF is exempted from tax as per the Section 10(2) of the Income Tax Act.
3) Interest Income on Savings Bank
At present, a maximum of Rs 10,000/ year as the interest earned on savings account is allowed as deduction under the Section 80TTA. To make this income exempted, one has to show this amount as ‘income from other sources’ in the ITR and then claim deduction under Section 80TTA . The cap of Rs 10000 is for the interest one receives from all accounts across all banks and not just with one bank.
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4) Shares from a Partnership Firm
Any share a partner of a partnership firm may have in the total income of the firm is exempt from income tax obligation. Any partner or partners are not liable to pay any tax on income which is exempt in the hands of any partnership firm, says the section 10(2). However, any other funds received by the partner of a partnership firm or LLP other than the share of profits, like any remuneration or interests, remain taxable.
5) Long-term Capital Gains
At present, Long-term capital gains (LTCG) from the sale of equity shares and equity oriented mutual funds on which Securities Transaction Tax (STT) has been charged on sell transaction are exempted from tax completely. This means that any gains from sale of equity shares held for more than a year are not subject to any kind of taxes.
6) Allowance for Foreign Services
All Indian citizens residing in India who are rendering service outside the country and receiving any perquisites or allowances outside the country remain tax free. This comes under the Section 10(7) of the Income Tax Act.
7) Income from Gratuity
Gratuity is defined as the money paid by an employer as a gratitude for awarding the employee’s long-standing meritorious association with the employer. The gratuity received by any government employee is completely exempted from income tax. The non-government employees are covered by the payment of Gratuity Act of 1972, which states that the least of the below three is exempted from income tax.
- 15 days salary (based on the last drawn salary for each year of service).
- Rs. 10,00,000
- Total gratuity received.
8) Amount Received under Voluntary Retirement
Any amount received by an individual on terms of voluntary retirement under Rule 2BA of the Income Tax Rules gets a tax exemption of up to Rs 5 lakh from the amount received as voluntary retirement.
9) Scholarships and Awards
Any kind of scholarship awarded to a student for incurring the cost of studies is exempted from any kind of taxes under Section 10(16) of the Income Tax Act of 1961. The good thing is that there is no cap on the amount that is exempted. The entire amount of scholarship is exempted. This is a very good for meritorious student who are not financially strong and require scholarships to continue their studies.
10) Compensation received in case of any disaster [Section 10(10BC)]
An amount received by an individual by the state or central government on account of a disaster is not subject to any kind of taxes. Disaster here means any natural occurring like floods, earthquake or manmade harm like accidents etc which involves loss of property, life or harm to an individual where coping up with the disaster requires financial aid to the individual.
True that paying taxes is our duty. But the Government is considerate enough to allow exemption of any taxes on these 10 tax free incomes in India.