When you have an income from a source, the first thing that may strike your mind is the income tax that you may need to pay on it. You may need to pay this tax at special rates or slab rates. But there are incomes which enjoy a tax-free status or are exempt from income tax. Taxpayers may earn such an income from agriculture, provident fund, commuted pension, gifts, etc. Abhishek Soni, founder and CEO, Tax2Win, explains 8 instances when you don’t need to pay any tax on your income.
1. Income earned from agriculture
Agricultural income earned from agricultural land situated in India is exempt from income tax. This includes income from farming operations, sale of agricultural produce, and certain income from agricultural land. However, if agricultural income exceeds Rs 5,000 and the taxpayer also has taxable non-agricultural income above the basic exemption limit, it may be considered for determining the applicable tax rate on other income under the partial integration provisions.
2. Gifts received
Gifts received from specified relatives, on the occasion of marriage, through inheritance, under a will, or in contemplation of death are fully exempt from tax. However, gifts received from non-relatives may become taxable if their aggregate value exceeds Rs 50,000 in a financial year.
3. Money received from insurance
Amounts received under a life insurance policy are generally exempt from tax under Section 10(10D), subject to prescribed conditions. Over the years, the government has introduced limits for high-premium policies and certain ULIPs. However, any amount received on the death of the insured person continues to remain fully tax-free, irrespective of the premium amount.
4 .Income from provident funds
Withdrawals from recognised provident funds such as EPF are generally tax-free if the specified conditions are met, including the minimum continuous service requirement. Similarly, interest and maturity proceeds from Public Provident Fund (PPF) continue to enjoy tax-free status, making provident funds one of the most tax-efficient savings avenues in India.
5. Income from commuted pension
Not all pension income is tax-free. However, the commuted pension received by government employees is fully exempt from tax.
Non-government employees can also claim exemption on a specified portion of their commuted pension, depending on whether they receive gratuity. A regular monthly pension, on the other hand, is generally taxable in the hands of the recipient.
6. Income from scholarships, rewards, and relief funds
Scholarships granted to meet the cost of education are fully exempt from tax under Section 10(16). In addition, certain government-approved awards, gallantry awards, and payments received from specified relief funds may also qualify for tax exemption. The objective is to ensure that financial assistance provided for education, recognition, or relief is not reduced by tax liability.
7. Money received from gratuity
Gratuity received by government employees is fully exempt from tax. For private-sector employees, exemption is available subject to the conditions prescribed under Section 10(10), with the maximum exemption limit currently being Rs 20 lakh. Any amount received in excess of the eligible exemption may be taxable.
8. Profit share received from a partnership firm or LLP
The share of profit received from a partnership firm or Limited Liability Partnership (LLP) is generally tax-free in your personal hands.
A partner's share of profit from a partnership firm or LLP is exempt from tax in the hands of the partner because the income is already taxed at the firm level. However, any remuneration, salary, commission, bonus, or interest received by the partner from the firm is taxable according to the applicable provisions.
