It
is believed that death and taxes can't be avoided in life. There is also a
common perception that only income falling under the basic exemption limit (ie,
Rs 2,50,000 for individuals of less than 60 years) is tax free. However, very
few people know that apart from this basic exemption limit, taxpayers also get
tax benefits on certain incomes. Yes, you heard it right! The incomes which are
tax free are governed by Section 10 of the Income Tax Act -- some of which are
wholly exempt, while some are partly exempt.
Take
a look at 10 incomes which are tax free, wholly or partly:
1.
Income from Gratuity:
As
per section 10(10) of the Income Tax Act, if an employee of the Central
Government, State Government or local authority, on death or retirement,
receives gratuity, then it is fully exempt from tax. However, in case of a
private sector employee, gratuity received from one's employer is exempt from
tax up to a maximum of Rs 10 lakh, subject to conditions specified under the
Income Tax Act. Good news is that the government is going to enhance the
ceiling of tax-free gratuity to Rs 20 lakh from Rs 10 lakh soon, and Lok Sabha
has already passed the related bill.
2. Amount
received under Voluntary Retirement:
As
per Section 10(10C) of the Income Tax Act, if a person receives any
compensation at the time of voluntary retirement or termination of his service,
then such amount shall be exempt from tax, but subject to the limit of Rs
5,00,000. The compensation amount, which is received under this scheme, is determined
in accordance with guidelines prescribed under Rule 2BA of Income-Tax Rules,
1962.
Unlike
gratuity, which is exempt for government employees without any limit,
the voluntary retirement scheme is taxable for the government
employees over and above Rs 5,00,000. One thing to be kept in mind is that
this exemption can be availed only once in a lifetime i.e. once allowed for any
assessment year, then no exemption shall be allowed for any other assessment
year.
Further,
where any relief u/s 89 has been availed of in respect of the amount received
under the voluntary retirement scheme, no exemption under Section 10(10C) shall
be allowed in that relation. In other words, an individual can claim either
exemption under Section 10(10C) or relief u/s 89, but not both together.
3. Allowance
for foreign services:
As
per Section 10(7) of the Income Tax Act, if an Indian resident renders services
outside the country and receives any perquisites outside the country, then it
is tax free. This section specifically exempts the allowances for government
servants which they might receive when working outside India.
4. Dividend
income from shares & equity-oriented mutual funds:
As
per section 10 (34) of the Income Tax Act, any dividend received from investing
in the shares of an Indian company is not liable to tax up to Rs 10 lakh. The
reason for the same is that the I-T department has already received tax from
the company on that income. Likewise, dividend income from an equity-oriented
mutual fund is also exempt from tax.
5.
Agricultural Income:
India
is primarily an agrarian economy. So, as per Section 10 (1) of Income Tax Act,
agriculture income in terms of rent or from any agriculture produce is exempt
from tax. The objective of this move is to encourage the agricultural sector.
However, "agricultural income exceeding Rs 5,000 will have to be added to
one's total income for the determination of the income-tax slab of the
individual. Further, any capital gain on the sale of an agricultural land in a
rural area is not chargeable to tax as per section 2(14) of the Income Tax Act.
Additionally, as per section 10(37) of the Act, compulsory acquisition of
agricultural land is exempt from tax.
6. Pension
received by certain awardee:
As
per section 10(18) of the I-T Act, income received by an individual or any
member of his family by the way of pension or family pension is exempt from tax
if such individual has been in service of the Central/state government and has
been awarded Param Vir Chakra or Maha Vir Chakra or Vir Chakra or any such
other gallantry award.
7. Share from
a partnership firm:
As
per Section 10(2A), for a partner in a partnership firm the share of his income
from the total income of the firm is completely exempt from income tax. In
simple words, you will not have to pay any tax on your share of profits from a
partnership firm.
For
this purpose, the partner and the firm are separately assessed and tax is
levied on the income of the firm as a whole keeping the partner out of the
purview of tax in respect of his share only. However, interest income,
remuneration etc are taxable for partners as per the provisions of the Income
Tax Law.
8. Receipts
from Hindu Undivided Family:
As
per Section 10(2) of the Income Tax Act, if you are a member of a Hindu
Undivided Family (HUF) and receive or inherit any money then it is exempted
from income tax. The provisions state that if any amount is received out of
family income or out of impartible estate by the member of such HUF, then it is
exempt from tax.
The
government issues some specified bonds to raise money for infrastructure
projects. As per section 10(15) of the Income Tax Act, the income that you earn
from such bonds is exempt from tax. Further, unlike interest that you will
receive on these bonds, the gains made by selling these bonds before maturity
is taxable as capital gains.
10. Life
insurance receipts on maturity:
If
you receive any amount under a life insurance policy specified under section
10(10D) of the Act, then it is exempt from tax. However, the premium paid
should not exceed the prescribed limits in respect of actual capital sum
assured. The limit is as under:
For
policies issued until March 2012, the premium can't exceed 20 per cent of the
actual sum assured and for policies issued on or after April 1, 2012, the
premium can't exceed 10 per cent of the actual sum assured. If the amount
received during the financial year is more than Rs 1 lakh and the premium
exceeds the above limits, then tax deducted at source (TDS) at the rate of 1
per cent will also be applicable.
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