Tax-Free Incomes in India

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Tax-Free Incomes in India 

Certain sorts of incomes earned in India are exempt from the extent of Income Tax according to the Income Tax Act. These incomes are known as tax-free incomes. This article gives a rundown of tax-free incomes in India.

Agricultural Income 

Under Section 10(1) of the Income Tax Act, agricultural income is completely exempt from income tax i.e., it is totally tax-free. In any case, for people and HUFs, an agricultural income of more than Rs.5000 is added to the complete income. The expansion is made exclusively to figure the slab rate that will be applicable for the taxpayer on other income. In this context, other income implies income earned from sources other than horticulture. Henceforth, there is no tax on agricultural income, yet declaring agricultural income expands the general income tax rate. 

Receipts from Hindu Undivided Family Tax-Free Incomes in India

Receipts received by a person as an individual from a HUF are tax-free under the system of taxation in India. Nonetheless, the HUF ought to have been independently assessed to and covered Income Tax. 

Offer from a Partnership Firm or LLP 

On the off chance that an income tax assessee is an accomplice of a partnership firm or LLP, which has been independently assessed for income tax, the portion of the assessee in the complete income of the partnership firm will be exempt from income tax. 

NRI Tax-Free Incomes 

Certain sorts of incomes or receipts earned by NRIs are exempt from income tax. Income earned via premium on the bonds notified by the Central Government is exempt from income tax. Additionally, any superior which is applicable to the redemption of the predetermined bonds is exempt from tax. 

Income Earned by Foreigners 

Certain kinds of incomes and receipts of foreigners are exempt from income tax. Remuneration received by an outsider who is an authority of an embassy is exempt from income tax. Likewise, any cash received by an outsider from his manager for himself, his companion, or youngsters, regarding his procedure on home leave out of India or after retirement or end of the administration, is completely exempt from income tax. Additionally, allowances and perquisites paid by the Government of India to a resident of India, while delivering administrations outside of India, are exempt from the extent of Income Tax. 


Any measure of gratuity received by an administration worker because of death or retirement is exempt from income tax. The gratuity received by private-area workers on retirement or on getting crippled or on end is exempt dependent upon a most extreme roof breaking point of ten lakh rupees. The exemption is liable as far as possible which are determined by the Income Tax Act. As far as possible are a large portion of a month’s salary for every time of finished help, determined based on the normal salary for the ten months immediately preceding the year in which the gratuity is paid, or genuine gratuity paid. 

Commutation of Pension 

The sum received in commutation of the annuity by a Government worker or any instalment in commutation of benefits from LIC or some other back up plan from their benefits reserves is exempt from income tax. For private area worker, just the accompanying measure of drove benefits is exempt: 

  • Where the worker has received any gratuity, the drove estimation of 33% of the benefits which he is regularly entitled to get 
  • In some other case, the drove estimation of half of the measure of the annuity. 

The month to month benefits receivable by a beneficiary is responsible for income tax like some other thing of salary or income, and no standard derivation is accessible in regard to annuity received by a taxpayer. 

Leave Salary 

the most extreme sum receivable by a representative of the Central Government as a money equivalent, as long as ten months of leave at the hour of their retirement, regardless of whether on superannuation or something else, is exempt from income tax. 

For private-area workers, the exempt sum would be least of: 

  • Ten months normal salary determined based on the salary during ten months preceding the workers’ retirement on superannuation or deliberate retirement 
  • Earned leave remaining to the credit of the worker restricted to 30 days for each time of genuine assistance delivered for the business from whose help he has resigned 
  • The measure of leave encashment really received 
  • A standard measure of three lakh rupees 
  • Deliberate Retirement or Separation Payment 

Any sum received by a representative of a public area organization, of a nearby position, of a statutory power, of a cooperative society or college at the hour of deliberate retirement or willful division is totally exempt from tax. The greatest measure of exemption accessible for the income received at the willful retirement has been capped at five lakh rupees. 

Cash Received from Insurance 

Any sum received under a Life Insurance Policy (LIP) or under a Keyman Insurance Policy (KIP) or under an insurance strategy for which the superior payable for any of the years during the term of the arrangement surpasses 10% of the genuine capital whole guaranteed, is completely exempt from tax. Likewise, all returns received on the passing of a safeguarded individual is completely exempt from income tax. Subsequently, cash received from disaster protection strategies, regardless of whether from the LIC or some other private insurance organization is tax-free as per the income tax act. 

Cash Received from Provident Fund 

Any sum received from an administration perceived fortunate asset (PF), affirmed superannuation asset or public provident fund(PPF) is completely exempt from income tax. 

Special Allowances and Benefits 

Any special recompense or advantages received by a representative which isn’t in the idea of a prerequisite isn’t covered inside the extent of income tax. Be that as it may, the recompense ought to have been specifically allowed to meet the costs incurred in the presentation of obligations associated with businesses.

Grants and Awards 

Grant conceded to meet the expense of instruction and certain honours is exempt from income tax. Likewise, the sum gave as benefits and a family annuity of Gallantry Award Winners like Paramvir Chakra, Mahavir Chakra, and Vir Chakra and furthermore other Gallantry Award victors notified by the Central Government are exempt. 

Profits on Shares and Mutual Funds 

Profit income and income of units of Mutual Funds are totally exempt from income tax. 

Capital Gains from Transfer of Agricultural Land 

The capital gains tax is exempt from the income received from the transfer of agricultural land. In any case, the land ought to have been utilized in the previous two years for agricultural purposes. Likewise, the returns ought to be reinvested in agricultural land once more. 

Capital Gains on Transfer of Securities 

Income emerging to a taxpayer because of the offer of a drawn-out capital resource that falls under the class of securities is totally outside the domain of tax risk. In any case, the exchange ought to have been exposed to a Securities Transaction Tax (STT). Along these lines, if the portions of any organization recorded in the stock trade are sold subsequent to holding it for a base time of one year, at that point there will be no risk to the instalment of capital increases. Be that as it may, the exemption advantage will be accessible just until 31.03.2018. 

Gifts Received 

Gifts received from a family member and gifts received during the assessee’s wedding are completely exempt from income tax with no breaking point. Blessing received from some other individual is taxable dependent upon an exemption for up to the furthest reaches of 50,000 rupees. 

Turn around Mortgage Scheme 

Transfer of a capital resource in an exchange of graduated home buyback for senior residents would not attract capital increases tax. Further, the advance sum is additionally exempt from tax.

Tax-Free Income in India

Some of the best ways to earn a tax-free income for 2021 are :

Agricultural Income Income from land is tax-free under section 10(1)
Scholarship Income earned on scholarship is tax-free under sec 56(ii)
Interest on PPF and EPF Interest on EPF and PPF payment is tax-free
Salary Components A certain portion of HRA, LTA and leave encashment is tax exempted
Tax-Free Bonds & Certificates Interest earned on specific investment category is tax-free under sec 10(15)(iv)(h)
Interest on Savings Interest amount upto ₹ 10,000 is tax-free under section 80TTA


✅ Which incomes are exempt from tax?

Disclosure of Exempt Income for Salary and Non-Salary Allowances

  • House Rent Allowance.
  • Leave Travel Allowance.
  • Leave Encashment Amount.
  • Pension Amount.
  • Gratuity Amount.
  • Any form of perquisites received.
  • Amount received from a Voluntary Retirement Scheme.

✅ How is tax calculated?

Income tax is calculated on the basis of tax slab. Your taxable income is worked out after making relevant deductions, other taxes that you may have already paid (Advance Tax) and tax deducted at source (TDS), the resultant taxable income will be taxed at the slab rate that is applicable. Nil. Rs

✅ Which is the tax-free country?

  • Monaco.

Monaco is a popular tax haven due to its personal and business laws related to taxes. Its residents don’t pay taxes on personal incomes. A person residing in Monaco for 6 months or more becomes a resident, and is thereafter, exempted from paying income tax.