Tax Free Income 2019-2020

As you prepare to file your income tax return for the year, check out if any of your income falls in the lists of income tax exemption. In case it does, the tax department would not be able to take away their customary share from it. Some of the incomes that are exempted from tax are listed below.

• Agricultural Income

  Income from farming and agriculture is tax free. Agriculture income is exempted under section 10(1) of Income Tax Act. Even income from activities such as poultry and cattle rearing is considered as agricultural income. However, regular return of income tax needs to be filed and the agriculture income needs to be declared in the same.

• Gift Tax Exemption

  Income tax on gift received by an individual or HUF is governed under the provisions of section 56(ii) of Income Tax Act. Income tax is exempted on gifts received under following circumstances:

  Gifts received from relatives: Gifts received by relatives are fully exempted from income tax. The list of relatives is given by income tax department which includes spouse, brother or sister, ascendant of an individual. There is no limit on the value of gifts received under this category. All gifts received will be exempted.
  Aggregate value of the gifts received is less than ₹ 50,000 in case of gifts received from person other than the relatives: If the aggregate value of the gifts received (cash or kind) by an individual from a person or persons (other than relatives) is less than ₹ 50,000, then such gifts are fully exempted. But if the value exceeds ₹ 50,000 then the gift or gifts will be taxable under head "Income from other sources".
  Gifts received on occasion of marriage: Gifts received by an individual on occasion of his own marriage then the gifts are exempted from tax. It should be notified that the gifts that are exempted from tax should be received by an individual on his own marriage not from marriage of his daughter, son, brother or sister.
  Tax on property received as a gift: There are two cases under this category:

  • In case the property received by a person as a gift without any consideration being paid, the stamp duty will be taxable based on market value if the value exceeds ₹ 50,000.
  • In case a part consideration is paid by a person receiving gift, then the difference between part payment made and stamp duty based on market value will be taxable if that exceeds ₹ 50,000.

• LTA Exemption

  Any money received from employer as LTA for purpose of travelling with family is tax exempted. The exemption can be claimed for 2 journeys (within India) in a block of 4 years. Such tax exemption is also known as Leave Travel concession.

• Saving Bank Interest Exemption

  A deduction of ₹ 10,000 is allowed on interest earned on saving bank account under section 80TTA. This was introduced in year 2012 by then finance minister. Note that income from interest on fixed deposit does not enjoy any such benefit.

• Interest on PPF and PF

  Interest on payments received from employees provident fund and public provident fund is entirely exempted from tax. The maiden move by the government in 2016 to bring part of PF earnings under tax met with strong protests and had to be withdrawn.

• Tax on Dividend Income

  As per the Budget 2020, dividend income like dividend earned on shares or mutual funds, will now be taxable in the hands of the investors. DDT on dividends paid by the corporates is waived off and the tax burden is now completely onto the hands of the investors. Earlier, taxpayers were required to pay tax on dividend at 10% only if the dividend received is more than ₹ 10 Lakh and no tax was payable in case of dividends earned from mutual funds. However, Budget 2020 announced that the recipient of the dividend would be liable to pay tax according to his income slab rates.
Tax on Dividend Income

• Academic Scholarships

  Any amount that is received as a scholarship to meet the cost of education is also tax free in the hands of person who receives the same under section 10(16). Also, in order to avail this exemption, it is not important that government should finance such scholarship.

• Tax Free Bonds & Certificates

  The interest earned under a few specific category of investments like tax free certificates/capital investment bonds/ gold bonds etc are exempted from tax under section 10(15)(iv)(h).

• Leave Encashment on Retirement

  While serving a company, employees are privileged to take various types of leaves including medical leaves, casual leaves and more. Few companies have a policy to allow encashment of leaves which aren`t taken by the employee. Income earned by central and state government employees from encashment of these accumulated leaves on retirement is tax exempted. However, any amount paid towards leave encashment while in employment or to private and corporate sector employees is fully taxable.

✅What type of income is not taxable?

Some of the incomes not taxable are as follow:

• Income defined as per Section 10, Section 54 of the Income Tax Act, 1961.
• Leave and Travel Allowance
• House Rent Allowance.
• Allowance on transportation, childrens education, subsidy on hostel fee.
• Exemption on Housing Loan.

✅How can I get tax free income?

You can get tax free income by availing pension, gratuity, voluntary retirement scheme, perquisites, HRA, LTA and leave encashment.

✅What is the amount of tax-free income?

According to new and old tax regimes, an individuals income below ₹ 2.50 Lakh is exempted from tax. However, you can claim tax rebate on income upto ₹ 5 Lakh and make it tax free. To claim tax rebate, ITR filing is mandatory for individuals with less than 60 years if the income limit exceeds the basic exemption limit of ₹ 2.50 Lakh.

✅What is the lowest tax threshold?

The lowest tax threshold according to both the new and existing tax regime is for above ₹ 2.50 Lakh to ₹ 5 Lakh which attracts a tax rate of 5%.