10 Types of Income that are Fully Exempt From Income Tax

Income Tax has become a nightmare for the middle class in India. The middle class is always thinking of various ways to save taxes. Some sections in the Income Tax Act provide tax exemptions for some types of income. Today, we will have a look at those types of income that can help you save taxes.

Some key exemptions include agricultural income, money received by a “coparcener” from a Hindu Undivided Family (HUF), and a partner’s share of profit from a firm. Many benefits are also available to non-residents, such as exemption on interest from certain securities, NRE accounts, and income from specific portfolio-managed assets.

10 main types of exempt income are:

1. Agricultural Income – Section 10(1): Income from agricultural land—such as rent from the land or from related buildings used as a residence, storehouse, or other structures—is fully exempt from tax.

2. Income Received by a Coparcener from an HUF – Section 10(2): Any amount a member (coparcener) receives from a Hindu Undivided Family, including income from impartible estates, is exempt. A coparcener is a person who has an equal legal right to share in an undivided family property.

3. Leave Travel Concession (LTC) – Section 10(5): Employees can claim exemption for the LTC they receive for travel within India for themselves and their family, as per the rules.

4. Gratuity – Section 10(10): Gratuity received at the time of retirement is exempt up to the limit set under the Payment of Gratuity Act.

5. Provident Fund Payments – Sections 10(11) & 10(12): Amounts received from Public Provident Fund (PPF), Statutory Provident Fund, Recognised PF or, in some cases, Unrecognised PF are exempt, based on conditions.

6. House Rent Allowance (HRA) – Section 10(13A): Salaried employees can claim exemption for the HRA they receive, depending on the rent they pay and other rules.

7. Life Insurance Payouts – Section 10(10D): Any money received from a life insurance policy, including bonuses, is exempt from tax if certain conditions are met.

8. Partner’s Share of Profit – Section 10(2A): The share of profit received by a partner from a partnership firm is tax-free in the hands of the partner.

9. Interest Income of NRIs – Section 10(4): Interest earned by Non-Resident Indians on specific notified securities, bonds, NRE account balances, and notified savings certificates is exempt. Capital gains from GDRs, rupee bonds, derivatives, and certain Category-III AIF investments for eligible non-residents are also exempt. Other income earned by non-residents from portfolios managed by authorised portfolio managers is likewise exempt.

10. Remuneration to Specified Diplomats – Section 10(6)(ii): Income received by foreign diplomats or consular staff is exempt if Indian diplomats get similar benefits in that country.