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9 incomes that you need NOT pay tax on!

Tax Free

Just like everyone wants to go to heaven but no one wants to actually die, all of us would want to get our incomes increased and want to stay away from tax. However, it is good news for at least for that there are certain incomes for which you need not pay tax!

The Indian income tax law as per the Indian Income tax Act of 1961 has a provision to exempt certain incomes for the ambit of income tax. Such exempted incomes are not to be added to the total income of the assessee for the particular assessment year. Even if money received through such exempted incomes is received during the financial year, they are not liable for any tax as they are not considered as part of the total annual income of the individual. Section 10 of the Indian income tax act caters exclusively to such exempted incomes that do not come under the jurisdiction of income tax. Let us take a look at some of the most well known sources of income that are out of taxman’s sword.

Incomes Completely Exempt From Income Tax: Some of the common sources of income that are completely exempted from income tax under Section 10(1) of the Income Tax Act include:

Agricultural Income: Any agricultural income is exempted from income tax under Section 10 (1) of the income tax act. Hindu undivided families (HUFs) or an individual in case the income from agriculture exceeds a maximum limit of RS. 5000 is aggregated with the total income while computing tax. The tax is computed in such a way that there is no income tax on the agricultural income but an extra or increased tax is levied on the other income. For example let us consider a male tax payer with the total income of Rs. 2, 02,000 for the assessment year 2013-14. Let us also consider that the individual earns Rs. 50,000 as income from agriculture. The computation of income tax would thereby include

Receipts from Hindu Undivided Family: Any sum or income received by any individual tax payer as member of a Hindu Undivided Family where the sum has been paid out of the income of the family or income of the impartibly state qualifies for tax exemption under Section 10(2) of the income tax act.

Shares from a Partnership Firm: In case an individual tax payer is a partner of a firm which gets assessed for income tax separately, his share of the total income of the firm gets exempted from income tax under section 10(2) of the income tax act.

Allowance for Foreign Service: Any allowance paid outside the country by the government to an Indian citizen who is rendering any kind of service outside the country is completely exempted from income tax under section 10(7) of the income tax act. This provision of tax exemption is useful for government servants allowing them to accumulate perquisites and allowances without any income tax obligation.

Gratuities: Gratuity benefits released n the death or retirement gratuity of any government servant is completely exempted from income tax. As per Section 10(10) if the income tax act the retirement or death gratuity of a private sector employee is subject to income tax is the amount exceeds the minimum exemption limit of Rs. 3.50,000.

Amount Received under Voluntary Retirement: Any amount received by an employee of a public sector company, local authority including any statutory authority, co operative housing society, and any university, IIT or IIM due to voluntary retirement as per VR rule 1BA is completely exempted from income tax obligation. The maximum amount exempted under VR or separation payment exempted form income tax is Rs. 5, 00,000.

Scholarship and Awards: Any kind of scholarship or award granted to any deserving income tax assessee in order to meet the cost of higher education or as a reward is exempt from tax under Section 10(16) of the income tax act of 1961.

Dividend Income: All dividend income and income of units of mutual funds received by the assessee completely exempt from income tax with effect from Assessment Year 2004-05 under the Indian income tax act.

Long term Capital Gains:   Any income arising to a taxpayer on account of sale of long-term capital asset is exempt from income tax obligation. For example in case the shares of any company listed on a stock exchange is sold after holding them for a minimum period of one year, there is no liability for payment of any capital gains.

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