What makes you Qualify for Income Tax Exemption?

Tax exemption can be called to be a monetary change that will reduce the taxable income to save additionally.  Tax exemption can guarantee relief from taxes within a legible time-frame. Tax exemption can easily provide tax relief, less taxes and a demarcated portion of taxable items. This is basically removal or deduction that is counted as tax exemption.

Are Some People Really Exempt from Paying Taxes? How does it work?

As individuals, we always wish to have more of tax deductions and income. Greater your income, more would be the taxes. However, there is one category of income, which is devoid of taxes.These income categories are not added to the current assessment year and thereby are tax free. Section 10 of the Indian Income Tax Act of 1961 regulates this category of income to exempt it from taxes.

10 Types of Incomes do not attract Income tax:

Agricultural income

India’s economy is majorly dependent on the agricultural business. In general, any act of encouragement towards this sector will be considered beneficial for the overall economy. The Indian Income Tax Act of 1961 exempts all incomes generated from agricultural income. It is important to note that the agricultural income is included during calculations for the limited purpose of determining the tax burden if at all net agricultural income exceeds Rs 5,000.

Funds from Hindu Undivided Family

Under Section 10(2) of the Income Tax Act, ​the amount received from family income, or in case of an estate property, the amount from the HUF member is exempt from tax. HUF is a different entity under Income Tax Act, 1961

Interest received on savings bank

Interest received on savings account is up to a maximum of Rs 10,000 annually and is deducted under Section 80TTA. This, obviously does not make it exempted.

Shares of a partnership firm

If you have a partnership firm, then the total income from this firm will be exempted from tax. Under section 10(2), any partner is not obliged to pay taxes on the income received from a partnership firm. However, anything excepting profits are taxable in the hands of Income Tax.

Read more: Virtues of Tax Saver Investment

Allowance for foreign services

An Indian resident providing service outside the country and receiving any allowances will remain tax free under Section 10(7) of the IT Act. This section allows the government to accumulate tax-free allowances that might come to them working outside India.

Long-term capital gains

At this point in time, long-term capital gains (LTCG) from the sale of equity shares and equity mutual funds with an on an STT is exempt from tax, which means that any earning from sale of equity for about a year will not attract any taxes. The budget says that LTCG will be taxed at 10% for all listed equity stock where STT is paid on purchase and sale. Since, STT is paid/deducted if you are wanting to sell your equity MF again to the MF, then the new LTCG regime will be applicable now. For unlisted STT, the LTCG tax regime will remain the same.

Allowance for foreign services

Any Indian resident rendering service outside the country and receiving any allowances or perquisites outside the country remain tax free under Section 10(7) of the Income Tax Act.

Income from gratuity

Gratuity is essentially a token of an individual’s long term serving period at a place. Any part of this gratuity is not parted with as taxable income.

For non-government employee, the Gratuity Act of 1972 is exempted for the following 3 items:

·         15 days salary based on the last drawn, every year

·         Rs. 10,00,000

·         Total gratuity received

Scholarships and awards

Any scholarship or award provided to cover the education cost will be exempted from tax under Section 10(16) of the IT Act,1961. There is no maximum threshold on the amount to be received as scholarship.

Amount paid under voluntary retirement

Any amount at the time of voluntary retirement under Rule 2BA of the Income Tax Rules gets tax exemption up to Rs 5 lacs.