List of 11 Tax-Free Income Sources in India (2023)
There are many sources through which a person can earn his/her income. It can be income from salary, business, gift, award, or other. While some incomes are taxable under Income Tax Act 1961, others are non-taxable in nature.
You must be aware of the incomes that fall under income tax exemptions. The IT Department won’t be able to deduct any tax on those incomes that come under such exemptions. So, people can find a way to save on their taxes by availing of these exemptions while filing their ITRs. To learn about 11 tax-free income sources in India, keep reading the article till the end!
What Are the Sources of Tax-Free Income in India?
While filing your income tax return, make sure you are mindful of the following sources. These incomes mentioned below come under tax-free sources of income in India and hence are tax exempted.
1. Agricultural income
Section 10(1) of the Income Tax Act mentions that income from agriculture and farming is free from any tax. Not only this, but the income generated from activities like cattle rearing and poultry is also tax-free. However, all must disclose their agricultural income while tax filing.
2. Gift received
Gifts received are also tax-free income from other sources as per Section 56(ii) of the Income Tax Act. Gifts including property, money, jewellery, vehicle, etc gifted by a relative will be exempted of tax. However, if someone other than your relative gifts it, it is exempted up to Rs. 50,000 only.
But if a person receives this gift on the occasion of marriage, it is entirely tax-free whether received from a relative or not.
3. Gratuity
- For government employees: Gratuity amount received on death or retirement comes under full exemption.
- For private-sector employees: Gratuity amount received on retirement or termination or incapacitation carries exemption only up to Rs. 10 lakhs.
As per the Income Tax Act, there may be other limits on which exemption may depend. The specified limit would be half of a month’s salary for every year of service that one completes. The calculation of this limit would be on the basis of average salary for ten months that will precede the year of gratuity payment.
4. Scholarships & rewards
This is another income source under the Income tax Act that is tax-free. It includes the scholarship given by institutes to students for completion of their education. Also, winners of Gallantry Awards such as Mahavir Chakra, Paramvir Chakra, Vir Chakra and others receiving a pension need not pay tax on the pension they receive.
5. Receipt from HUFs
An individual receiving a receipt as a HUF member is an exempted source of income tax. However, the concerned HUF must have been assessed separately under the IT Act.
6. Leave salary
The amount that an employee of Central Government receives by encashing his/her leaves of a maximum of 10 months period during the time of retirement will be tax-free.
For employees of the private sector, the calculation is slightly different. For example, they can get a maximum exemption of Rs. 3 lakh.
Suppose a taxpayer is a partner of an LLP or a partnership firm which has assessed for income tax separately. In such a case, the taxpayer’s share of the total income of the LLP will be made tax-free.
8. Tax-free pension
One of the tax-free income examples is income in the form of a pension from an organization like UNO. However, a family pension that dependents of an employee receive is only partially free. Either one-third of the pension would be tax-free or Rs. 15,000 whichever would be lower.
Also Read: What Are The Best Tax-Saving Instruments In India?
There is no income tax applicable on dividend income received on shares and unit income of mutual funds.
10. Income from provident funds
Amount from a provident fund, a superannuation fund or even PPF will be treated as tax-free.
11. Interest income
As per Income Tax Act Section 10(15), few interest incomes come under the full exemption category. You can find it in the points below. However, they may be subject to some changes:
- Bank interest received under Sukanya Samriddhi Scheme
- Interest income gained on gold deposit bonds
- Interest in local authorities’ bonds
- Bhopal Gas Victims deposit interest
- Interest income received through tax-free infrastructure bonds
- Interest that the government or local authority pays on borrowed money (including currency fluctuation and hedging charges), etc.
Also Read: Tax-Free Bonds: Meaning, Features & Other Details
Final Word
Many more incomes fall under tax-free income sources in India apart from those mentioned above. However, the ones here are the most common sources and can serve as a great way to save taxes. So, if you find you are earning any of these incomes, make sure to add them to your tax return and claim exemption against it.
FAQs
Ans: One must follow the below process to declare tax exemption in their ITR appropriately:
> Tap on Employee Tax Exemption Declaration and then click on New.
> Choose the Exemption Category and Exemption Sub-category.’
> Feed in your maximum exemption amount & amount you want to declare.
> Save and then submit.
Ans: A taxpayer must file their ITR before the due date of March 31 for the assessment year 2021-2022. You can do this by visiting the official website of the Income Tax Department and logging into the account.
Ans: A taxpayer must compulsorily declare all information relating to one’s exempted income under ‘Schedule S – Details of income from salary during their ITR filing. You need to disclose the following allowances of your salary: HRA, LTA, pension, etc.
Ans: Yes, deduction and exemption under Income Tax mean different. Income tax deduction is subtraction of a particular amount from the total sum of incomes under various sources of income. In contrast, exemptions mean that the entire income is tax-free.
Ans: The following are the five taxable sources of income:
> Income from salary
> Income from house property
> Income from capital gains
> Income from business/profession
> Income from other sources
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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