India has a complex tax system like most countries around the world. But did you know that there are certain types of income that are totally free from tax in India? Let’s know the sources of tax-free income in India, which means that the taxpayer will not have to pay any tax on the income from these sources.

Agricultural Income

Agricultural income refers to income earned from farming activities such as crop cultivation, horticulture, or animal husbandry. Any income received from agricultural land in India is exempt from tax. This exemption is available to both individual farmers and companies engaged in agricultural activities.

It's important to note that only income derived from agricultural land located in India is exempt from tax. Income from activities such as selling agricultural produce, renting out land, or income from non-agricultural sources is not exempt from tax.

Gift Received

Gifts received on the occasion of marriage or gifts received from relatives are not subject to tax, regardless of their value. This means that any gift received from a relative, whether it is property, money, jewellery, or a vehicle, will be exempt from tax.

On the other hand, gifts received from non-relatives are exempted up to Rs 50,000 only in a financial year, but any gift received above this amount is subject to tax.

Income from Public Provident Fund (PPF)

PPF is a retirement savings scheme by the Indian government that offers tax deductions under Section 80C. Investing in PPF offers a tax-free interest, which means the earnings on your investment are exempt from tax.

Tax-Free Bonds And Certificates

Tax-free bonds, issued by the government for a specific purpose, offer a fixed rate of interest for the long term. The interest generated from these bonds is also exempted from income tax.

Interest on Savings

The interest earned on savings account is exempted from tax for individuals up to Rs 10,000 in a financial year. However, for those above 60 years of age, the exemption limit is Rs 50,000.

Income from Gratuity

Gratuity received due to retirement, termination or incapacitation is tax-exempt up to a limit of Rs 20 lakh in India.

Income from Leave Encashment

leave encashment received by an employee at the time of retirement or termination of employment is exempted from tax up to a certain limit. The maximum limit for tax-free leave encashment is Rs 25 lakh.

Inheritances

In India, inheritances, whether it be property, money, or any other assets, are exempt from taxes. Therefore, if you happen to inherit any of these from a deceased family member, you are not liable to pay any tax on the received income.

Scholarships & Rewards

In addition to other tax-free income sources under the Income Tax Act, scholarships awarded to students by educational institutions and pensions received by Gallantry Award winners such as Mahavir Chakra, Paramvir Chakra, Vir Chakra, and others are also exempted from income tax.

Taxes can be tricky, and understanding the nuances of tax exemptions is no exception. It's easy to assume that tax-exempt income sources can be left off your tax return, but that's not the case. The Indian tax department requires all sources of income to be reported, regardless of whether they are tax-exempt or not.

Don't let tax exemptions lead you astray. Stay informed, stay compliant, and keep your finances in order. By doing so, you can avoid the headache of penalties and legal troubles down the road.