In a country of taxes, we always feel that whatever we do, it is taxed. Taxes are important for building the nation. But paying out of our hard-earned money to government as taxes is always painful. Most of us try to hide the income earned by us to avoid taxes.
So let’s see some Tax Free Incomes.
1. Agricultural Income: -
As per section 10(1) of the Income Tax Act, 1961 agricultural income earned by an assessee is fully exempt from taxability. Agricultural income includes rent received from land used for agricultural purposes, revenue received on agricultural produce etc. The land must be situated in India. Any income derived from growing of saplings in a nursery is also covered under agricultural income.
For individual & HUF’s, if agricultural income exceeds Rs. 5000, then the agricultural income is included in calculating tax on total income and then reduced so as to ensure that other than agricultural income is taxed at higher rate.
2. Income received by HUF member from HUF: -
Any income received from income of family HUF by the member of HUF is exempt from tax.
In case of impartible estate, any income received from family estate by the member of family is exempt from tax.
3. Share of profit from partnership firm: -
As per section 10(2A) of the Income Tax Act, 1961 any share of profit received by a partner from the partnership firm or LLP is exempt from tax. This exemption is permitted only to the share in profits. This doesn’t include interest on capital or any interest on loan or any remuneration received.
This is because the profit of the firm is taxed in the hands of the firm and that already tax paid profit is distributed to partners. If it is taxed again in the hands of partners it results in double taxation.
4. Allowances or perquisites received by government employees outside India: -
Many Indian government employees work outside India, like in embassies etc. Normally all the allowances and perquisites received are taxable under salary. But section 10(7) exempts allowances & perquisites received by govt. employees outside India from taxability.
5. Gratuity income: -
As per section 10(10)(ii); any gratuity amount received by government employees is not taxable.
6. Receipt of VRS compensation: -
According to section 10(10C) of Income Tax Act, 1961; any amount received by employee as compensation at the time of voluntary retirement is exempt from income tax.
VRS received from any undertaking is not exempt. Only VRS received from specified undertakings is exempt from tax. CG has notified specified undertakings.
Maximum amount of exemption is Rs.5,00,000. VRS exemption can be claimed only once in a life time.
7. Gifts received: -
Any amount of gift received from relatives is exempt from tax. In case of gifts received from non-relatives, gift amount upto 50,000 is exempt from tax.
However, the above limit is not applicable in case gifts received on certain occasions like marriage. Gifts received on such occasions from anyone is exempt from tax without limitation.
The limit Rs.50000 is considered for all transactions in aggregate in a year in case of movable gifts and monetary gifts.
In case of gifts in immovable property, each transaction has to be taken separately for considering 50,000 limit.
8. Income of New Pension System Trust: -
Under section 10(44); any income received by any person from NPST is exempt from tax. Also, no TDS needs to be deducted while effecting such payments by NPST.
9. Scholarship income: -
Under section 10(16), any scholarship granted to meet the cost of education is exempted. It is to be noted that any scholarship granted to children of employees is also covered under this.
10. Awards & rewards: -
As per section 10(17A); any award or reward received from the central government or state government or any other body approved by central government or state government instituted in the public interest is exempt from tax.
In addition to above income there are many other incomes which are exempt from tax like income of electoral trust, income of dividends from Indian companies, income of ESI etc.