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  7. Tax Free Incomes – The Essential List Part-I

Tax Free Incomes in India

Updated on: 05 Feb, 2025 11:47 AM

Income and Tax almost go hand in hand. We know that Income earned over and above the basic exemption limit (Rs 2,50,000 under old tax regime and Rs. 3,00,000 under new tax regime) is liable for income tax but are there any kind of incomes that are tax free? After all who doesn't like earning some extra tax free money.

So, without further ado, here is the list of some of the tax free incomes u/s 10 of the Income Tax Act, 1961 that you should look out for if you are an individual / employee / salaried person and want to save tax easily:

Section No. Nature of Income Received by You Amount of Exemption You Can Claim
10(1) Agricultural Income Fully exempt, subject to tax calculation if net agricultural income exceeds ₹5,000 and non-agricultural income is above the basic exemption limit
56 Gifts Exempt if received from relatives, on marriage, will, inheritance, or certain institutions. For non-relatives, exemption up to ₹50,000 per financial year
10(16) Scholarships & Rewards Fully exempt if received for education purposes or as awards from government bodies
10(17A) Gallantry Awards Fully exempt for recipients of Param Vir Chakra, Mahavir Chakra, Vir Chakra, etc.
10(10) Gratuity Fully exempt for government employees. For private employees, exemption up to ₹20 Lakhs (if covered under Gratuity Act) or ₹10 Lakhs (if not covered)
10(10AA) Leave Encashment Fully exempt for government employees. For private sector employees, exemption up to ₹25 Lakhs upon retirement or resignation
- Receipt from HUFs Fully exempt if the HUF is separately assessed for income tax
10(2A) Share from LLP or Partnership Firm Fully exempt if the LLP or firm is separately assessed for income tax (salary and interest are taxable)
10(10A) Commuted Pension Fully exempt for government employees. For others, ⅓ of commuted pension if gratuity is received, ½ if gratuity is not received
- Pension from UNO or Indian Armed Forces Fully exempt
10(15) Interest Income Fully exempt for: Sukanya Samriddhi Scheme, Gold Deposit Bonds, Local Authority Bonds, Bhopal Gas Victims Deposits, Tax-Free Infra Bonds, NRE Accounts, PPF & EPF (for contributions up to ₹2.5 Lakhs/year)
10(11) & 10(12) Provident Fund Income Fully exempt for government employees. For private employees, exempt if service period is 5+ years in a Recognized Provident Fund (RPF). PPF withdrawals, including interest, are tax-free

Frequently Asked Questions

Q- What is tax-free income?

Tax-free income refers to earnings that are not subject to income tax under the Income Tax Act, 1961. These incomes are either fully or partially exempt based on specific conditions.

Q- What types of incomes are tax-free in India?

Some common tax-free incomes in India include:

  • Agricultural income
  • Gifts from relatives (within limits)
  • Scholarships and rewards
  • Gratuity received upon retirement
  • Leave encashment for government employees
  • Income received from HUFs
  • Profit share from LLPs or partnership firms
  • Certain pension payments
  • Specific interest incomes (PPF, Sukanya Samriddhi, etc.)
  • Provident fund withdrawals (under certain conditions)

Q- Is agricultural income completely tax-free?

Yes, agricultural income is fully exempt under Section 10(1). However, if net agricultural income exceeds ₹5,000 and non-agricultural income is above the basic exemption limit, it is considered for tax calculation purposes.

Q- Are all gifts tax-free?

No, gifts are tax-free only if received from relatives, on the occasion of marriage, as an inheritance, or from certain institutions. Gifts from non-relatives exceeding ₹50,000 in a financial year are taxable.

Q- Do I need to report tax-free income while filing my ITR?

Yes, even though these incomes are tax-exempt, they must be reported in the Income Tax Return (ITR) under the exempt income section.

Q- Is pension income taxable?

  • Commuted pension (lump sum) is fully tax-free for government employees.
  • For others, 1/3rd is exempt if gratuity is received; 1/2 is exempt if gratuity is not received.
  • Pension from UNO and Indian Armed Forces is fully exempt.
  • Family pension is partially exempt (lower of ₹15,000 or 33% of the amount).

Q- Is leave encashment taxable?

  • For government employees: Fully exempt.
  • For private employees: Exempt up to ₹25 Lakhs upon retirement or resignation.

Q- How can I ensure my tax-free income remains exempt?

To maintain exemption:

  • Ensure compliance with conditions under the Income Tax Act.
  • Keep records and proof of income sources.
  • File ITR correctly, mentioning exempt income.

Did you know that certain incomes are completely tax-free in India? From agricultural income to PPF interest, gratuity, and even gifts from relatives, you can maximize your savings legally! Why Pay More When You Can Save? Let Tax2win help you identify tax-free incomes and ensure 100% compliant filing—so you never overpay on taxes!

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CA Abhishek Soni

CA Abhishek Soni
Founder & CEO at Tax2win

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Abhishek Soni is a Chartered Accountant by profession and an entrepreneur by passion. He has wide industry experience in telecom, retail, manufacturing, and entertainment and has handled various national and international assignments. He is the co-founder and CEO of Tax2win.in. Tax2win, an online tax filing platform, provides the easiest way to e-file your Income Tax Return in India. Through Tax2win.in, Abhishek endeavors to revolutionize how individuals file their income tax returns, offering a seamless and user-friendly experience.