Question

Examples of income which are totally exempted from.Income tax

Answer 1

Agricultural income: India is primarily an agrarian economy. To boost the agricultural sector as a whole, the Indian Income Tax Act of 1961 exempts any income one generates through agriculture from tax liability. However, agriculture income is included while computation, for the limited purpose of determining the tax rate, in computing the income tax liability if the net agricultural income exceeds Rs 5,000 for, say, FY15 and total income, excluding net agricultural income, exceeds applicable basic income exemption of Rs 2,50,000. Currently, the basic income exemption for an individual of age between 60 and 80 years is Rs 3 lakh for FY15 and the basic exemption for an individual above 80 years of age is Rs 5 lakh.

Receipts from Hindu Undivided Family: If you receive ortinherit money as a member of a Hindu Undivided Family (HUF), it is exempted from any income tax obligation. This exemption comes under Section 10(2) of the Income Tax Act, ​ which states that amount received out of family income, or in case of impartible estate, amount received out of income of family estate by any member of such HUF is exempt from tax. HUF is a separate assessable entity under the Income Tax Act, 1961.


Interest income on savings bank: Currently, the interest earned on savings account up to a maximum of Rs 10,000 in a year is allowed as deduction under Section 80TTA. This, however, does not make it an exempted income. One has to show this amount as one's 'income from other sources' in the ITR and then claim deduction under Section 80TTA which was introduced for the first time in 2013-14. "The cap of Rs 10000 is for the interest you receive from all your accounts across banks and not with one bank. For example, if you are getting Rs 5,000 as interest from your SB account at bank X and Rs 10000 from bank Y, your taxable income from savings bank interest is Rs 5000," says Shetty.

Shares from a partnership firm: If you are a partner of any partnership firm, any share you may have in the total income of the firm is exempt from income tax obligation. As per section 10(2), any partner or partners are not liable to pay tax on income which is exempt in the hands of any partnership firm. Any other funds received by the partner of a partnership firm or LLP other than the share of profits, such as any remuneration or interests, remain taxable. But the interest on capital or remuneration received by the partner is not exempt.

Long-term capital gains: Currently, 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 completely exempted from tax, which means that any gains from sale of equity shares held for more than a year are not subject to any kind of tax whatsoever. "In other words, any income you may generate on account of sale of these instruments are exempt from income tax obligation as per Section 10(38) of the Income Tax Act. But, for this, the equity instrument should be held for more than a year. This is not applicable to debt mutual funds," informs Shetty.

Allowance for foreign services: Any Indian resident rendering service outside the country and receiving any allowances or perquisites outside the country remain tax free under Section 10(7) of the Income Tax Act. This section makes it possible for government servants to accumulate tax-free perquisites and allowances they might receive when working outside India.

Income from gratuity: Gratuity is paid by the employer as part for gratitude for acknowledging the employee’s long-standing meritorious service. Gratuity received by any government employee is fully exempted from income tax. For non-government employees covered by the payment of Gratuity Act of 1972, the least of the three is exempted from income tax.

· 15 days salary based on the last drawn salary for each year of service.

· Rs. 10,00,000 ( Rs 3,50,000 up to 23rd May,2010)

· Total gratuity received.

The gratuity received by an employee is not taxable if it is received on his retirement, his becoming incapacitated prior to such retirement, termination of employment or if such gratuity is received by his widow, children or dependants on his death.

Amount received under voluntary retirement: Any amount received by an employee of a company or local authority where the scheme of voluntary retirement is framed as per Rule 2BA of the Income Tax Rules gets a tax exemption of up to Rs 5 lakh from the amount received as voluntary retirement.

Scholarships and awards: Any kind of scholarship or award granted to any deserving student to meet the cost of education is exempted from tax under Section 10(16) of the Income Tax Act of 1961. There is no cap on the maximum limit and the entire sum of money received as a scholarship gets the tax exemption treatment .