10 Tax free Income- You should know

| 5 years ago

If you earn the following incomes, then you don’t have to pay taxes on these incomes at all.

1. Interest on saving bank account up to Rs.10,000/- 

Under section 80TTA, the interest on your saving bank account, post office or Banking co-operative society of individual or HUF up to Rs.10,000/- is not taxable. Let’s take an instant that your interest on saving bank account is Rs.30,000/- throughout the year, then out of that only Rs.10,000/- is exempted and remaining Rs.20,000/- shall be added to your taxable income. Interest on fixed deposit is fully taxable.


2. Interest earned in NRE account

Any NRI can open NRE bank account in any schedule banks and earn decent interest without paying taxes on those earning. NRE account is fully repatriable i.e. you can take back money in NRE account outside India without any restriction.


3. Share of profits paid to partners in firm

If a partnership firm earns some profit and instead of retaining it within the partnership firm, its paid to the partners as a share of profits, then its tax free in the hands of the partner, because the tax is already paid by the firm on it. If A  and B are partners in a firm, and they get 5 lakh each in a year as the share in the profits earned by the firm, then it will be tax-free in their hands. Note that if they are receiving any salary from the firm, then it is taxed in their hands only.


4. Maturity or Claim amount received by Life Insurance Company

The money you get from life insurance companies on maturity, claim or surrender is 100% tax-free provided, the premium paid did not exceed the limit prescribed under-

Particulars Policy on the life of a person with disability or severe disability or on the life of a person suffering from disease or ailment as given in section 80DDB Policy on the life of any other person
If policy is issued before April 1, 2012 20% of sum assured 20% of sum assured
If policy is issued during 2012-13 10% of sum assured 10% of sum assured
If policy is issued on or after April 1,2013 15% of sum assured 10% of sum assured



 5. Leave travel allowance (LTA) received from Employer

Most of the companies pay LTA each year to their employees, which can be utilized for traveling purpose. This LTA is not taxable in hands of the investor provided they provide the proof of travel. So if your company is not paying you any LTA, ask them to restructure your salary and label some part as LTA, because almost everyone spends a minimum amount traveling in a year. For example, if you are getting a salary of Rs.5 lakh and there is no LTA in your salary component, you can ask your employer to label 20k as LTA and rest 4.8 lakh as other components, this way you will be able to save tax on that 20k part at least.


6. Money received under VRS (Voluntary retirement scheme) up to Rs.5 lakhs

If a person takes VRS (Voluntary retirement scheme) than any amount received up to Rs.5 lakh is income tax-free. However, not everyone is eligible for it. Only employees of Public sector companies or an authority established under a Central or State govt is eligible for this.


7. Money received from your EPF account after 5 yrs

The money one gets from their EPF account is also tax-free, provided the money is taken out after 5 yrs of service. A lot of times investors change their jobs in 3-4 yrs and withdraw their EPF money only to realise that they could have timed their withdraw in better manner and save taxes on their EPF money which went into income tax.


8. Profits from shares or equity mutual funds after a year

When you earn any profits from your shares or equity mutual funds after holding it for minimum 1 yrs, its called Long term Capital gains, and its 100% tax exempt as per current tax rules. For example, if you invest Rs 1 lac in shares and after 2 yrs its worth is now Rs 2 lacs. In this case when you sell your shares, you will not be paying any income tax on this Rs 1 lac profit because of long term capital gains rules.

However, it’s important to know that exemption is allowed only when Security Transaction Tax (STT) has been paid (which is paid by you when you buy on recognised stock exchange such as BSE or NSE). But if you do a out of exchange sales, then STT might not get paid and hence in future when you sell shares, you will have to pay tax on profits.


9. Dividend received

You receive dividends from your stocks or equity mutual funds (dividend option). That dividend money you get is also tax-free in your hand. However, the bad side of the story is that company anyways pays the dividend distribution tax to govt before giving the dividends to its shareholders. Hence, anyways we are getting slightly less share of profits in our hand anyways.


10. Amount received by way of gift on marriage

Any amount you get as gift on your marriage is tax free. So your friends, relatives or any random person can gift you any amount or something valuable as a gift on your marriage, and it will be non-taxable for you. Just make sure that the timing is matched with your marriage and the gift date. It should not happen that you get some gift after 2 yrs of marriage and you try to justify that it was a gift for your marriage.





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