9 Types Of Income Exempted From Tax

It is generally believed that one can’t have the best of both the worlds, especially when it comes to income and taxation. The more one earns, the more would be the tax liability. But, not many people are aware that this is not completely true and there exist certain types of income for which your income tax liability is zero.

* 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

* 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.

* 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.

* 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.