Here's a list of tax-free income sources in India

Income Tax ITR Filing
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Whether you’re a working professional or doing some business, almost everything you earn is subject to taxes. However, there are some income sources that are exempted from taxes as per the Income Tax Act.

Being aware about these tax-free income sources is important so that you don’t end up paying excess taxes this filing season.

  1. Agricultural income: Any income earned from agricultural activities is exempted from taxes. This would include your income from the sale of agricultural produce and even cattle rearing & poultry.
    Now, such income is completely exempt if this is your only source of income or the agricultural income is less than ₹5,000. However, if you have other sources of income, the tax liability is calculated a little differently.

    Let’s take an example. Say you have agricultural income of ₹3L and income from other sources of ₹6L. In this case,

    • Firstly the tax liability will be calculated on the total income according to the applicable slab rate. In our case, the total income is ₹9L and hence the tax liability as per the old regime would be ₹92,500.
    • Then, you need to calculate tax liability on net agricultural income + basic exemption limit. This means we will have to calculate tax on ₹5.50L (₹3L + ₹2.50L) which comes to ₹22,500. This entire amount will be allowed as tax relief.
    • Hence, your net tax liability is the difference between these two, which will be ₹70,000.

  2. Profit from a partnership firm: A partnership firm or LLP (limited liability partnership) is treated as a separate entity. They have to file their ITR and pay taxes on the profits they generate. Now, because the firm had already paid the taxes on their profits, the income is exempted from taxes when the members decide to distribute these profits among themselves.

  3. Specified interest incomes: There are certain interest incomes that are exempted from taxes either completely or up to some extent. Some of them are listed below:

    • Interest on savings deposits and FDs is exempt up to ₹10,000. This limit is ₹50,000 in the case of senior citizens.
    • Interest earned on government schemes like PPF (Public Provident Fund) and SSY (Sukanya Samriddhi Yojana) is completely exempt on maturity.
    • If you have completed 5 years of service, interest on your EPF (Employee Provident Fund) is tax-free. However, this is subject to the condition that your yearly contribution to the scheme does not exceed ₹2.50L.
    • Interest from tax-free bonds (generally issued by the GOI).
    • Interest earned from NRE (Non-Resident External) accounts.

  4. Capital gains from certain assets: If you participate in a shares buyback, the profits that you earn are exempted from taxes. Moreover, the capital gains from SGBs (Sovereign Gold Bonds) are also entirely tax-free if redeemed after maturity.

  5. Leave encashment: The amount received for leave encashment is exempted when you receive it on resignation or retirement. For government employees, the leave encashment amount is fully exempted, but for private employees, the exemption limit is capped at ₹25L.

  6. Gifts from relatives: Gifts of any amount received from relatives are exempted from taxes. In the case of non-relatives, gifts of monetary value of up to ₹50,000 are exempted from taxes.

  7. Allowances from employer: Your salary is inclusive of various components and a few of them are either partially or completely exempted from taxes. Some of these allowances include HRA, LTA, conveyance allowance, food coupons etc.

  8. Gratuity: This is a retirement benefit offered to employees by their employer. If you are a government employee, gratuity received on retirement is fully exempted from taxes. For private sector employees, the least of the following will be exempted on retirement:

    1. ₹20 lakhs
    2. Actual gratuity amount received
    3. Last salary (basic + DA) * number of years of employment * 15/26

  9. Life insurance policies: The amount received from life insurance policies on maturity or in case of death of the insured is entirely tax-free for the receiver.

Remember, even if these incomes are exempted from taxes, you will have to report these under the relevant income heads while filing your ITR.

1 Like
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Hello Quicko,

I have received gift greater than Rs.50000 from my NRI son from his NRO account. I assume it’s not taxable, but how do I declare this amount in Quicko?

Thanks

3

Hi @Meena_Porwal

Gifts received from relatives which are exempt are not required to be disclosed in ITR.

Thanks

1 Like
4

Hi @Meena_Porwal,

You can disclose it under other incomes > exempt incomes.

1 Like
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A partnership firm or LLP (limited liability partnership) is treated as a separate entity.