It’s time to pay taxes. Right, Yes, we live in India and as per the constitutional law, we are liable to pay tax on our Income. I thought to write this small list of the tax free income source in India to help minimize your tax burden.
The March month is always a special month of the year because all the companies and individuals who fall under tax slabs should have to file tax based on their income?
Everyone has to pay income tax, even though most of the people do not like to pay taxes. They find some other possible ways to hide their income to minimize their tax.
People need money for their living and to earn money, people should go for a work (or) do any online jobs from the comfort of their home. And once the income crosses the tax limit, you have to no choice unless pay tax.
The government collects tax from every individual based on their earnings because tax helps to build the nation.
On the other hand, some people hesitate to pay Income tax on their hard earned money. This created a curiosity in me to write this article to share some of the tax free income sources to save money.
If you earn money from these sources, then you are not liable to pay taxes to the government. This article is for informational purpose only and you should know the income tax rules clearly.
Pay tax to contribute your growth to our country.
It is a kind of a compulsory contribution to the (central or state) government by the citizen, levied by the government on the income from the salary (or) a business profit (or) a commission on a sale (or) from the lotteries, games etc.
There is a law to regulate the collection of taxes under the various schemes and are controlled and monitored by a board called as Income Tax Department of India.
Every individual whether male (or) female, whose gross total income in a financial year exceeds Rs. 2,50,000 INR are liable to pay tax.
This limit is Rs. 3,00,000 for senior citizens who are older than 60Yrs.
Every individual is working to earn money and similarly, governing bodies need finances to run the government.
The sole purpose of the tax is to fund all the government expenditures and to provide various public services such as transportation, basic amenities including roads, street lights, street cleaning etc.
The funds collected from the tax will also be used to increase arms and develop defense security of the country and other welfare work.
One financial year is accounted from 1st April of the previous year to the 31st March of the concurrent year.
A salaried person should pay his/her tax before June of the previous year and the companies should pay every month because after the implementation of GST.
We are not going into deeper as our main focus on this article was to discuss about various free non-taxable free income sources.
Although tax payment is good for the development of a country but as an individual when it comes to paying tax we usually hesitate. But there are some ways to increase your income which are non-taxable.
Thinking… Yes, that is true! The Government of India have declared tax exemption to a certain class of income and we are further going to read these sources in this article.
Under Income Tax Act 80TTA, an individual can claim tax benefit up to Rs. 10,000 in the financial year for the savings account interest. Let’s say you earned a saving bank interest of Rs. 14,000 in a fiscal year.
When accounting this income, it is enough to pay tax only for Rs. 4,000 from which Rs. 10,000 is exempted for all age group of people. This is a great saving and a source of tax free income for all tax-payers.
Most of the people usually have more than one savings in a different branch of the same bank (or) entirely different bank, and you can sum up all interest together before assessing for tax liability.
Like bank savings account in India, the interest from NRE deposits is also not liable to tax and you can claim 100% of the interest.
Both fixed deposit and savings bank interest are eligible to claim no-tax on every fiscal year. Many NRI’s were taking the loan from the country where they are working and investing the money in NRE deposits.
This is a common practice because the interests of foreign banks are 2 – 3% whereas in India, it is 7 – 8%. As an NRI, you enjoy huge tax savings using this idea.
Any scholarships, awards are exempted from tax as long as the institution where you receive such compliments is legally registered and a recognized body.
Educational scholarships, fellowship awards, and grants are also treated as the tax free income source.
This criterion applies to the awards and rewards offered by the government (or) any other body approved by central or state government.
When A and B are joined together and running a business firm and if the company earns a pure profit in a fiscal year, instead of retaining it, if it is paid to both the partners as the share of profits, then it is considered as a free taxable income.
Because the company had paid the necessary taxes already to the government and hence it is not necessary again to pay one more time.
The money you receive from the life insurance companies on maturity, claims are considered as 100% free non-taxable income sources.
This is eligible for the senior citizens over 60years of age, who suffer from monthly cash flow requirements.
They can opt for the reverse mortgage of their residing home for a handsome payment.
The money they receive from mortgaging will be treated as tax-free and only residential properties can be reverse mortgaged.
Under no circumstances, all the income that is earned from agricultural land in India is completely exempted from tax.
Either they earned by crop cultivation (or) in the form of rent (or) in the form of a lease (or) any revenue gained by selling their agricultural land are all non-taxable.
Even if you generate income through a small farmhouse like maintaining a nursery (selling seeds and saplings) are also considered as agricultural income and exempted from tax.
The gross salary of every employer consists of various components where they can use to claim tax exemption. In them, LTA allowance was the one which is not liable to tax every fiscal year.
This allowance is provided by the employer to the employee every year and while accounting for tax, if you provide the proof of travel, you can save up to Rs. 20,000 in a year.
So every time, when you sign your salary slip, take a look at the LTA component of your slip else to ask your employer to restructure your salary.
If your yearly take-home salary is Rs. 5,00,000 per year and your LTA was Rs. 20,000 assigned by your employer, then you need to pay income tax only for the remaining Rs. 4,80,000.
Travel allowance is a source of tax free income for every employer and the maximum limit in a fiscal year is Rs. 20,000.
If an employee voluntarily retires from his/her service, and the settlement after his/her VRS was considered as tax free up to the limit of Rs. 5 Lacs.
The employees who work for a public sector company (or) an authorized established under the control of central or state government is eligible for this income.
Provident funds are compulsory for every employee working for a company. It is an indirect saving for them while working.
As your age grows, your savings will also grow proportionately with time. After your retirement, you can earn this PF money as one single big settlement which is exempted from tax.
Else if you changing your company after a period of 5Yrs, and you want to close your PF, then the money provided is tax-free (only after the 5Yrs lock-in period).
All the income from the government authorized provident funds, recognized fund departments are considered as free tax income.
But do not withdraw before 5Yrs as it becomes ineligible to claim no-tax on this income.
A mutual fund is a kind of an investment scheme, usually run by some asset management company where a group of people invested their money in stocks, bonds, and other securities.
The investment is for a fixed period of time starting from one month to many years. There are two types of income you can generate from mutual funds: One long-term capital gain (LTCG) and the other one was generating dividend income among shareholders.
It works very simply, you have to find SEBI registered traders in your locality and invest some capital with them.
They, in turn, use your investment to invest in various sources and bring you back the returns. Many people often don’t know that returns from mutual investments are tax free income.
Both the income (long-term capital gain) and the dividend shares are also free from tax.
Caution: The provision is exempted to only SEBI registered affiliates and some financial institutions set by public (or) private sector banks authorized by RBI.
Any money you get as a gift on your marriage (or) any other occasion from your friends, relatives or any third person will be treated as a non-taxable income source for you.
Even expensive gifts such as Gold are also considered as a non-taxable asset. You should provide the proof for the asset if received on the date of your marriage.
Gifts you received from your friends (or) distant relatives has a monetary value of Rs. 50,000 exceeding the value is taxable. But there is no limit for gifts from close relatives.
Close relatives are your father, mother, own sister, own brother, spouse, any lineal ascendant (or) descendant etc.
Think if your father wants to buy you a brand new car, ask him to hold for a while and gift it to you on your marriage occasion will save you a lot of taxes.
The money spends to purchase the car, (say Rs. 10 lacs) is completely tax free income for you.
If your ancestors have written a WILL putting your name as their nominee after their life, then the property (or) asset will be yours and completely non-taxable.
Now, when you invest that money (or) use the property to generate, only the interest part will be taxed.
Any income earned as an interest received from securities, bonds, annuity certificates, savings certificates are also treated as tax free income.
Any dividend income you receive on your stocks is tax-free in your hands. There is a limit on the net value of dividends in a financial year not exceeding Rs. 10 lakh in a year.
The dividend that you receive should be from a registered Indian Company. However, the company pays the dividend distribution tax to the government before giving to its shareholders.
Any amount received from the government by an individual as a relief fund (or) student’s fund (or) from the foundation is considered as not liable to tax.
The money received as compensation to the employee in case of company closure is considered as tax-free.
If you are a member of HUF and assuming you receive any sum of income, such amount will not liable to tax in your hands. You will get 100% tax exemption on the amount you gain as HUF income.
It’s a dream of every people to live a debt free life. To achieve this dream, they go for a job (or) do some kind of business to earn money.
In India, all component of income is taxable and as a good citizen, you should do your duty to the country by paying tax on your income.
As the monthly wages are not enough to manage expenses, the income tax eats a considerable portion of your income which many people hesitate to pay.
This article was written with a view to creating a small awareness to the people who don’t know these kinds of income opportunities which are tax-free.
I have covered a few portions of tax free income sources researched based on my knowledge to enhance our community growth.
Pay Tax and Save Tax, Support India.
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