Certain Income that
are exempt from Income Tax
If you get your income from certain sources that
are exempt from income tax your tax liability will be zero.
1) Scholarship or grant received: If
you have received any scholarship or grant as a student to meet your education
cost, it is totally exempted from tax.
2) Dividend from shares and equity mutual
fund: under Section 10 (34) of Income Tax Act any dividend received
from an Indian company is not liable to tax, Similarly, dividend income from an
equity mutual fund is also exempt from tax. However, if you being an Indian
resident have received dividend from a foreign company, it will be taxable. In
case the dividend is taxed both in the foreign country and in India, you can
claim taxation relief either as per the provisions of Double Taxation Avoidance
Agreement (if India has such agreement with that country) or can claim relief
as per Section 91, if no such agreement exists.
3) Proceeds received on maturity of life
insurance policies: Any sum received under a life insurance policy
(including bonus if any) is exempt from tax provided the premium paid to actual
capital sum assured does not exceed the prescribed thresholds provided by
Income Tax Act.
4) Interest received from government
notified bonds: Interest income that you earn from certain bonds
notified by government is exempt from tax. Recently, the government allowed
certain public sector companies to issue such tax-free bonds to raise money for
infrastructure projects. The interest that you will receive on these bonds will
be tax-exempt but if you make any gains by selling these bonds on exchange
before maturity, you will have to pay tax on the capital gains.
5) Agriculture income: As per
Section 10 (1) of Income Tax Act, agriculture income in terms of rent or from
any agriculture produce is exempt from tax. However, the agriculture income
will have to be added to one's total income for the determination of the
income-tax slab of the individual,
6) Share of profit from partnership firm:
If you are a partner in a partnership firm, you will not have to pay any tax on
your share of profits. "The share of profit is exempt for the individual
partner, if received from a partnership firm which has been subjected to tax on
the profits at the partnership firm level,
7)
Interest on Non Resident External (NRE) account: "Any interest
received by an individual is exempt from tax until such time the individual is
a person resident outside India (PROI) as per Foreign Exchange Management Act,
1999 (FEMA)," says (USE Mr or Ms) Parizad of KPMG.
8) Leave Travel concession (LTA):
If you receive LTA as part of your salary is exempted from income tax unlike
house rent allowance (HRA) against which you can claim deduction. You can claim
exemption on the cost of domestic travel incurred under Section 10 (5) of
Income Tax Act provided you give the proofs. You can claim LTA twice in a block
of four years.
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