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Exempt Income

Reviewed by Komal | Updated on Sep 30, 2020

Catalogue

Introduction

Exempt income refers to certain kinds of income that is non-taxable for the taxpayers. In India, Section 10 of the Income Tax Act governs the provisions related to such exempt income, provided that they fulfil certain guidelines and conditions. Exempt income can be of any form such as interest received from the agricultural land, interest received through PPF, and more.

What is Exempt Income?

Exempt income refers to income that is not taxed at all and it is different from income tax deduction. The word deduct means to subtract from the total. Under income tax provisions, deduction is an amount reduced from the total income of the taxpayer. These deductions are offered to taxpayers when they invest in certain tax-saving instruments. In short, they get a tax deduction on the way they spend their income.

For example, income tax deduction of up to Rs 1.5 lakh can be availed when spent on insurance premium, PPF, ELSS and so on, under Section 80C.

Here is a list of exempt income as specified under Section 10 of the Income Ttax Act: 1. Agricultural income 2. Amount received out of family income 3. Interest paid to a non-resident 4. Leave travel concession 5. Amount received as leave encashment on retirement 6. Gratuity 7. House rent allowance 8. Scholarship income 9. Amount received under a life insurance policy

Who is eligible to pay?

Any person earning income from one of the qualifying exempt income sources can avail this benefit. He has to declare the same while filing the income tax returns. Even though he is not required to pay any tax on the exempt income, it is important to report such income to the income tax department.

A detailed breakdown of the procedure for filling the tax

For salaried individuals, the disclosure of certain exempt income is required under Schedule-S of the income tax return form. The list of such exempt income is as follows:

  1. House Rent Allowance
  2. Leave Travel Allowance
  3. Leave Encashment Amount
  4. Pension Amount
  5. Gratuity Amount
  6. Any form of perquisites received
  7. Amount received from a Voluntary Retirement Scheme

For taxpayers with other sources of income, the exempt income such as dividend income and agricultural income will be disclosed under Schedule EI of the income tax return form.

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