There are two categories of taxes in India: direct tax and indirect tax. In India, the Central and State governments levy taxes based on the authority granted to them by the Indian Constitution. However, are you aware that not all income is subject to taxes? Let's take a closer look at a few principles to have a better understanding of such wages that are tax-free.
What Does Tax-Free Income Mean?
Income that is not liable to income tax is known as tax-free income. They are free from taxes. Any property or services you get in addition to cash might also be considered income. The tax-free nature of these investments, income, and commodities may encourage people to spend more money and make more investments. In India, everyone who has taxable income hopes to save money on taxes. The list of earnings that are exempt from taxes in India is as follows.
Cash Accrued from Insurance
In India, no taxes are applied to any payout that an insurance firm makes to a policyholder or nominee. Bonus money is also included in this sum. This is applicable to certain insurance and the clauses that are specified in Section 10(10D). Nevertheless, the exemption would not be available if the premium paid for any year during the policy's term exceeded 15% of the "actual capital sum assured," or the "minimum capital sum assured," as defined by the policy in the event that the insured event occurred at any point during the policy's term. A premium paid up to 15% of the "actual capital sum assured" is tax-free under section 80C. This relates to policies that were released on or after April 1, 2013.
Agriculture Earnings
Section 10(1) of the Income Tax Act provides total exemption from income tax on income from agriculture. The term "agriculture income" describes:
the cultivation, packing, and marketing of agricultural goods such as grains, pulses, fruits, vegetables, spices, and wheat.
rent from agriculturally oriented properties.
The money received from the purchase or selling of agricultural land
Parts of the compensation that the employer has given you
One of the main things that drives each employee is their salary. It's the payment an employee gets for the labor they do. When they begin working for the firm, employees assume that the employer would pay the sum that was mutually agreed upon. The following salary components are completely non-taxable or tax-exempt:
Premium for Health Insurance
In the eyes of the employee, medical insurance premiums paid for by the employer for themselves or their family members are viewed as tax-free benefits.
Bills for phones and the internet
Tax exemption applies to the reimbursement of phone and internet costs. However, the cap is arbitrary and determined by the business. For employees to claim the tax advantage, bills must be shown.
Coupons for meals
In Indian Payroll Processing, meal vouchers such as Sodexo are a common tax-saving benefit provided by the majority of businesses. These are free from taxes, up to a cap of Rs. 50 per meal. Given a workweek of 22 days and two lunches per day during working hours, the employee's monthly salary of Rs. 2200 is tax-free.
Books, Magazines, Newspapers, and Diaries
Books, journals, and periodicals that workers use to further their education may also be provided by the employer as a tax-free benefit. However, the bills themselves need to be sent in. The cap is likewise determined at the employer's discretion in this case.
Devices such as PCs, laptops, and tablets that the business provides are regarded as tax-free benefits.
Facilities for Recreation and Health
The business is exempt from taxes if it offers medical services like physicals. Similarly, complete exemption from income tax applies to memberships in sports or health clubs, as well as amenities supplied by the employer.
Presents in Kind
Presents in kind are not taxed in the eyes of the employee up to a limit of Rs 5,000 annually.
Accounts Payable to the Hindu Unified Family
Members of Hindu Undivided Families are exempt from paying income tax on whatever receipts they get. On the other hand, the HUF is assessed and paid for income taxes separately.
A portion from an LLP or partnership firm
Under section 10(2), income is excluded from income tax if a person is a partner in a business and holds profit shares in the business as a whole. Interest and other forms of compensation that the partner, LLP, or partnership firm gets are taxed.
Addendum
An employee's gratuity is a perk that their employer provides. The upper limit of the gratuity was recently raised by the central government. Under Section 10(10) of the Income Tax Act, it is now tax-exempt up to Rs 20 lakhs, as opposed to the prior cap of Rs 10 lakhs. Employees who retire, pass away, quit, or become disabled on or after March 29, 2018, are eligible for an exemption of up to Rs 20 lakh.
Retirement gratuities obtained in accordance with the Pension Code or Regulations that apply to Defense Service personnel are completely free from taxes for Central Government, Civil Service, and Local Authority employees: According to section 10(10), any death-cum retirement gratuity is completely free from taxes (i).
Additional workers:
Protected by the 1972 Payment of Gratuity Act
Any gratuity for death or retirement is tax-free up to the least amount of what follows:
20,00,000 Gratuity was really paid 15 days' compensation based on the most recent wage for every year of service completed, or any portion of it, that was longer than six months.
For the purposes of this note, salary refers to both dearness allowance and base pay. For this reason, the number of days in a month is 26.
Not included in the 1972 Payment of Gratuity Act
Any death-cum-retirement gratuity that an employee receives upon retiring, becoming incompetent before retiring, being terminated, or receiving a gratuity from his widow, children, or dependents upon his death is free from taxes to the extent that it is less than the following:
For every year of service that was completed, the 20,000, 000 Gratuity was actually paid out as half a month's wage (based on the average income for the previous ten months, just before the month of retirement or death).
Public Provident Fund earnings
As one of the EEE Category's investment alternatives, PPF offers tax-free investment, interest, and maturity amounts. Your PPF interest income is free from income tax under Section 10 of the Income Tax Act. If you make payments for five years in a row, whatever money you get from the PPF's maturity is also tax-free.
presents from family and friends
There is no tax due on gifts of real estate, cars, and jewelry. However, the exemption limit is Rs 50,000 if you get these presents from someone other than a family. This law does not apply to gifts received for marriage from friends or relatives; instead, they are completely tax-free.
Revenue from Scholarships or Awards
According to Section 10(17A), you are exempt from paying taxes on monetary rewards you receive from the federal, state, or local governments. This covers both monetary awards and governmental recognition such as the Bharat Ratna. A scholarship received for study from the government, or even non-governmental organizations, is not subject to taxes.
returns from mutual funds or shares
If you have invested in equities mutual funds or shares, you will get a tax-free return of Rs 1 lakh upon selling them. This return is computed under the Long Term Capital Gains (LTCG) scheme. Returns beyond this threshold, however, are subject to LTCG tax.
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