The Income Tax Department is the biggest revenue mobilizer for the Government. Direct Tax Collection for 2017 in India stood at 17.10 Lakh Crore Rupees. Direct taxes are made up of income tax paid by individuals, wealth tax and corporation tax paid by companies.
Union Budget 2018-19 has disappointed salaried class people in India, which constitutes the base of the pyramid of Indian Tax Payers.
India wants relief from Income tax burden. Here are 10 Tax Free Income Categories one must explore to exploit fully to his/her advantage.
- Agriculture Income
India is primarily an agrarian economy. To boost the agricultural sector as a whole, the Indian Income Tax Act of 1961 exempts any income one generates through agriculture from tax liability. However, agriculture income is included while computation, for the limited purpose of determining the tax rate, in computing the income tax liability if the net agricultural income exceeds Rs 5,000.
- Dividend Interst Income
Dividend income, from equity shares of an Indian company, is exempt from tax in India. However, interest on debentures will be taxable in India.There will be tax implications on sale of equity shares and debentures also, depending on the period of the holding of the same.
- Saving Bank Interest income
Currently, the interest earned on savings account up to a maximum of Rs 10,000 in a year is allowed as deduction under Section 80TTA. This, however, does not make it an exempted income. One has to show this amount as one’s ‘income from other sources’ in the ITR and then claim deduction under Section 80TTA which was introduced for the first time in 2013-14.
- Income for being partner in firm – If you receiving income for being a partner of a company which is had been assessed, then this income share does not require inclusion for calculation of tax. This is called as profit sharing.
- Travel Concession or Assistance (LTA)
Employees who are eligible for Leave Travel Allowance (LTA), as part of their Cost-to-Company (CTC), can claim reimbursement of expenses incurred on travel. This reimbursement is not included in taxable income subject to certain limits and conditions. LTA tax break can be claimed for travel of self and family members for journeys undertaken only within India.
- Money received as Gift (up to 50000)
As per the Income Tax Act, 1961 if the value of gifts received is more than Rs. 50,000 a year, then such amount is taxed as income in the hands of the receiver. These gifts may be in any form – cash, jewellery, movable and immovable property, shares etc. However, this rule is not applicable if your relatives present the gifts.
- Income from Long-term Capital Gain (Retirement / Gratuity )
Currently, Long-term capital gains (LTCG) from the sale of equity shares and equity oriented mutual funds on which Securities Transaction Tax (STT) has been charged on sell transaction are completely exempted from tax, which means that any gains from sale of equity shares held for more than a year are not subject to any kind of tax whatsoever.
- Income from Life insurance policy
Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren’t includable in gross income and you don’t have to report them. However, any interest you receive is taxable and you should report it as interest received.
- Income from government securities
A government security is a bond issued by a government authority with a promise of repayment upon maturity. Government securities such as savings bonds, treasury bills and notes also promise periodic coupon or interest payments. These securities are considered low-risk, since they are backed by the taxing power of the government.
- Retirement / Gratuity
Gratuity may be one of the components of your CTC (cost to company). It is taxed under the head Income from Salaries. Some portion of gratuity received is exempt from tax as per Section 10(10) of the Income Tax Act and we will see how exemption is calculated. Rules relating to Gratuity which are applicable to an Employer are set out in Payment of Gratuity Act 1972.
Let’s consider carefully our choice of investments to be made so that we get the maximum tax exemption advantage as devised legally by the Indian Government.