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Tax Free Income – Meaning & Examples


Tax Free Income – Meaning & Examples

Certain types of incomes earned in India are exempt from the scope of Income Tax as per the Income Tax Act. These incomes are known as tax-free incomes. This article provides a few examples of tax-free incomes in India.

Agricultural Income

Agricultural income earned in India is exempt from tax. Agricultural income is defined as:

  1. Any rent or revenue derived from land which is situated in India and is used for agricultural purposes
  2. Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market
  3. Any income attributable to a farmhouse subject to the satisfaction of certain conditions specified in this regard in section
  4. Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income

Amount Received by a Member of HUF from the income of the HUF

Amount Received by a member of HUF from the income of the HUF, or in case of the impartible estate out of an income of the family estate is exempt from income tax.

Leave Travel Concession

An employee can claim income tax exemption for Leave Travel Concession. Exemption for leave travel concession is available to all employees (i.e. Indian as well as foreign citizens). The exemption is available in respect of the value of any travel concession or assistance received or due to the employee from his employer. For this purpose, a former employer shall also be considered. The benefit of exemption is available for the assessee himself and his family members in connection with his proceeding on leave to any place. However, the place should be located within India.

Share of Profit in Partnership and LLP

Share of profit received by a partner from a partnership firm is exempt from tax in the hands of the partner. Further, the share of profit received by a partner of LLP from the LLP is also exempt from income tax in the hands of the partner. This exemption is limited only to share of profit and does not apply to interest on capital and remuneration received by the partner from the firm/LLP.

NRI Interest Income on Notified Securities

Certain interest to Non-Residents Indians by way of interest on certain notified securities or bonds (including income by way of premium on the redemption of such bonds) is exempt from tax. Further, in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India is exempt from income tax. Also, interest on notified savings certificates issued by the Central Government shall be exempt from tax subject to the satisfaction of the following conditions:

  • The assessee should be an individual who is a citizen of India. If the assessee is not a citizen, then the assessee should be a person of Indian origin.
  • The assessee should be a non-resident.
  • The exempted income should be derived from interest on notified savings certificates.
  • The certificates should have been purchased by using convertible foreign exchange.
  • The purchase of the certificate should have been made prior to 01.06.2002.

Employee Welfare Fund

Any income received by any person on behalf of a fund established for the welfare of employees or their dependents shall be regarded as tax-free income. However, this benefit will be available exclusively if the employees are members of the fund. However, the assessee claiming an exemption should be a member of the fund. Also, the fund should apply or accumulate its income for exclusive application towards its objects. The trust should also invest its funds in the modes specified in section 11(5). Further, the fund should be approved by the Principal Commissioner or Commissioner.

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