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

Tax Free Incomes The Essential List Part-I

Updated on: 20 May, 2024 06:46 PM

Income and Tax almost go hand in hand. We know that Income earned over and above the basic exemption limit (Rs 2,50,000) 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.

In this first blog of 2-part series, we'll tell you about some tax free income that you might not be aware of. This list is just for quick reference, for detailed knowledge on individual topics, please visit our Knowledge Center (blog.tax2win.in)

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 Claims
10(1) Agricultural Income Wholly exempt. [but included for tax calculation]
10(2) Receipts from Hindu Undivided Family (HUF) if you are a member of such HUF Any income received out of family income or income of family estate is wholly exempt.
10(7) Allowances and perquisites paid to you in case you are a Government employee rendering services outside India on behalf of Indian Government All allowances and perquisites are exempt.
10(10)(i) Gratuity received by a Government employee Wholly exempt.
10(10)(ii) Gratuity received by a non-Government employee covered by Payment of Gratuity Act, 1972 Lower of the following: (a) 15 days salary x years of service completed. (b) Maximum amount specified, i.e., Rs. 10,00,000/- (c) Gratuity actually received.
10(10)(iii) Gratuity received by a non-Government employee not covered by Payment of Gratuity Act, 1972 Lower of the following: (a) Half month's salary for each completed year of service, i.e., [Average monthly salary] Completed years of service. (b) Rs. 10,00,000/- (c) Gratuity actually received.
10(10A) Income from Pension in case you are a Govt. employee Accumulated pension in lieu of monthly pension received is fully exempt from tax.
10(10A) Income from Pension in case you are a Non-Govt. employee (a) If the employee receives gratuity 1/3rd of full value of commuted pension. (b) If the employee does not receive gratuity 1/2 of full value of commuted pension.
10(10AA) Leave encashment by a Government employee at the time of retirement Wholly exempt.
10(10AA) Leave encashment in the hands of a non-Government employee Least of the following: (a) Period of earned leave standing to the credit in the employee's account at the time of retirement (*) Average monthly salary ($). (b) Average monthly salary ($) 10 (i.e., 10 months average salary). (c) Maximum amount as specified by the Government, i.e., Rs. 3,00,000/- (d) Leave encashment actually received at the time of retirement.
10(10C) Any compensation received at the time of voluntary retirement or termination of service in case you are employee of a company/ public sector company/ authority established under a Central, State or Provincial Act/ local authority/ co-operative society/ Indian Institute of Technology/ State Government/ Central Government/ Notified institutes or universities. Exempt from tax up to a limit of Rs. 5,00,000/-.
10(10D) Any amount received under a life insurance policy, including bonus. This exemption is unconditionally available in respect of sum received for a policy which is issued on or before 31.03.2003. However, in respect of policies issued on or after that, the exemption is available only if the amount of premium paid on such policy in any FY does not exceed 20% (10% in respect of policy taken on or after 1st April, 2012) of the actual capital sum assured.
10(13A) House rent allowance Lower of the following: (a) 50% of salary, when residential house is situated at Mumbai, Kolkata, Delhi or Chennai and 40% of salary where residential house is situated at any other place. (b) HRA actually received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year. (c) Rent paid in excess of 10% of salary. (Salary here means sum of basic salary+ D.A.+ commission)
10(32) If your income includes any income of your minor child, then you can claim exemption in respect of each minor child. Lower of following amount: (a) Rs. 1,500 per minor child; or (b) Amount of income of each minor child (which is clubbed).
10(37) Capital gains in case of compulsory acquisition of urban agricultural land Exempt if the compensation is received on or after 01.04.2004 and the land was used by you or your family for agricultural purpose for a period of 2 years immediately preceding the date of its transfer.

For any doubts or query, feel free to contact us at [email protected] or +91-9116684439! Hope to see you in the second and final part of this blog series.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.