It is generally said that you can’t have your cake and eat it too. But we believe otherwise when it comes to some aspects of tax. You might have recently received your Income Tax statement. Was it mind boggling to scroll through all those numbers? One rule of thumb with taxes that you cannot sidestep is: the more you earn, the higher your tax liability.
Do you wish there was income which was not liable to be taxed? It’s your lucky day! We’re going to tell you all about tax-free income. Read on!
It’s simple. Such income does not factor into your taxable income.
Tax-free income? It’s a joke, isn’t it?
No. It’s not a joke. This is income listed under Section 10 of the Income Tax Act.
There are two options. Bank Fixed Deposits and Debt Mutual Funds. We’ll lay out a short comparison and tell you which one of these investments are a better option for you.
Tell me more
Whoa! All right. Here’s a list:
- Agricultural income
You know those coconut trees you have on your farm? Do you earn an income from selling the coconuts at the market? Hurrah! That’s tax-free income in your pocket.
- Got money and you are a Hindu Undivided Family?
As a member of a Hindu Undivided Family, if you received or inherited money from another member in your HUF, that money is exempted from tax under Section 10(2) of the Income Tax Act.
- Interest from your Savings Account
Any interest that you receive from your Savings Account balance is exempt from tax up to Rs. 10,000 every year.
- Shares from a partnership firm
Are you a partner in any partnership firm? Here’s some news for you. If you have a share in the company’s total income, the income from your share is not eligible to be taxed. If you receive any funds apart from profits of the company, that is taxable.
- Long Term Capital Gains
Have you invested in equities? Any long-term capital gains proceeds that you receive from your Equity Mutual Funds are not taxed. To be able to avail of this tax benefit, you should remain invested in the fund for more than a year. Have Debt Mutual Funds? Sorry, this is not applicable to you.
Additional Reading: Your Income Tax Exemption Guide For The Financial Year 2016-17
- Gratuity income
Gratuity income that is paid by an employer in recognition of an employee’s continuous, commendable service, is also exempt from taxes. However, this is subject to a maximum of Rs. 10 lakh or 15 days salary for each of the years of service that you have completed.
Remember that such income which is not taxed only helps to reduce the imposition of unnecessary taxes on the tax payer.
Additional Reading: Income Tax Revisions To Claim LTA, HRA & Pay TDS on Transfer of Property