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Tax Free Income in India 2016-17 - Best ways to earn

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, tax department would not be able to take away their customary share from it. Some of incomes that are exempted from tax are listed below.

Tax Free Income

  • 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 Rs. 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 Rs. 50,000, then such gifts are fully exempted. But if the value exceeds Rs. 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 Rs. 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 Rs. 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 Rs. 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 section 10(34), any dividend received from a domestic company is tax free in the hands of the recipient. Starting FY2016-17, the government has however imposed a tax of 10% on dividend income of more than Rs. 10 lakhs in a year. This tax impacts large investors in shares and promoters who receive large dividend income. However, remember that when a company pays dividend to its shareholders, it does so out of post tax profits. So, the tax department has already collected income tax on this amount. Further, the company has to also pay dividend distribution tax of 15% on the amount paid to shareholders as dividends. Also, dividend income exempt under section 10(35) if received from mutual funds. Few Salary Components: Most of the companies provide some benefits to their employees which are over and above their basic pay. Such benefits may include house rent allowance, gratuity and travel allowance etc. Income from such benefits comes under tax exemption up to a certain extent.
  • 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.
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