income tax exemption
Income totally exempt from Tax
India follows progressive system of taxation- More earning results in more tax liability. Income and Income Tax are normally coined together. However, there are certain incomes which are outside the net of Income Tax. These are referred to as Exempt or Tax Free income. Some of the important items of income which are fully exempt from income tax & can be used by taxpayer for tax planning are as under
- Agricultural Income:
All agricultural income received by the taxpayer is exempt from Tax u/s 10(1) of the Income Tax Act.
For Income Tax Act, “Agricultural income” includes
(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes;
(b) Income from saplings and seedlings in a nursery. Taxpayer should note that any income derived from saplings and seedlings grown in a nursery would be agricultural income and will be fully exempt from tax.
Though, agricultural income is exempt from tax but there is a provision for aggregating the income for calculating tax if agricultural income for Individual/HUF exceeds Rs. 5,000/-. By virtue of this provision, agricultural income is required to be aggregated with the other income of the taxpayer for computing tax on the total income. As a result, tax liability increases slightly but the tax on agricultural income remains Nil.
- Income from Sale or compulsory acquisition of Agricultural Land:
Any income arising on sale of rural agricultural land is not liable for any income tax. Further, capital gains receive on transfer of urban agricultural land by way of compulsory acquisition would be fully exempt from tax if such land was use in the past 2 years for agricultural purposes
- Interest on NRI on Non Resident (External) Account:
Interest on moneys standing to the credit of person’s resident outside India in respect of a Non-Resident (External) Account in a bank is exempt under Section 10(4).
- Amount received from Life Insurance Policies:
U/s 10(10D), any sum received under a Life Insurance Policy (LIP), including the sum allocated by way of bonus on such policy [other than u/s 8ODDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2012 in respect of which the premium payable for any of the years during the term of the policy exceeds 10% (5% from 1.4.03 to 31.3.12) of the actual capital sum assured) is fully exempt from tax. Entire amount received on death of the insured are fully exempt from tax In general, all moneys received from LIC or ther private insurance company are exempt from income tax.
- Payment received from Provident Funds:
Any payment from a Government or recognized provident fund (PF or approved superannuation fund, or PPF is exempt from income tax u/s 10(11), (12) and (13) of the Income Tax Act-1961.
- Interest Income:
(a) There are certain types of interest payments which are fully exempt from income tax u/s 10(15). It includes Interest on NRI bonds, Interest on Gold Deposit Bonds (not Gold Sovereign Bond), Interest on bonds of local authorities as notified, certain new Tax Free Bonds, Tax Free Infrastructure Bonds to be notified from time to time.
(b) Interest on Saving Bank Account, Post Office A/c is eligible for tax benefit up to Rs. 10,000/- p.a. There are certain banks which offer saving bank interest almost at par with FD Interest. Taxpayer may explore such option for saving tax. For senior citizen, Union Budget-2018 has proposed to raise the limit of Rs. 10,000/- to Rs. 50,000/- and also widened to include the FDR interest also.
(c) Interest from Sukanya Samriddhi Yojna is exempt from tax u/s 10(11A).
- Scholarship, Awards etc:
Any kind of scholarship granted to meet the cost of education is exempt from tax under Section 10(16). Similarly, certain awards and rewards, etc. are completely exempt from tax under Section 10(17A). For example, Lakhotia Puraskar of Rs. 1 Lakh awarded to the best Rajasthani author every year under Notification No. 199/28/95-IT (A-I) dated 22-4-1996.
- Dividend & LTCG on shares:
Dividend received from domestic companies is exempt from tax up to Rs. 10 Lakh p.a. u/s 10(34) read with section 115BBDA. Long Term Capital Gain arising transfer of listed shares & Equity oriented Mutual Fund which is subject to Securities Transactions Tax (STT) is exempt from Income Tax u/s 10(38). Exemption is proposed to be withdrawn from FY 2018-19. However, it is propose that Rs. 1 Lakh p.a. would still continue to be exempt for Individual & HUF.
- Allowances / Benefit for salaried Assessee:
Subject to stipulated terms & conditions, there are various allowances like LTC, gratuity, Allowance for foreign Service, numerous retirement benefit, Leave salary etc which are exempt from tax in the hands of the Salaried taxpayers.
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