Non-taxable income: 5 different types of non-taxable income that can help you to save income tax
Any income that is exempted from income tax is called non-taxable income. These earnings are completely excluded from calculation of an individual’s total tax liability in a financial year.
The July 31 deadline to submit income tax returns (ITR) is long past and taxpayers are awaiting their refund. Many individuals may not yet be aware of certain incomes that are non-taxable. These sources of income have zero tax liability. Including these incomes in your ITR is a must as it shows the authorities the correct proof of your financial status and helps you to claim deductions.
These incomes can help one make investments in such a manner that they can save more tax, especially in case of investment plans like the Sukanya Samriddhi Scheme. Knowing about which incomes are exempt from taxation can help individuals file their ITR in an error-free manner and reduce their tax burden.
Let's delve deeper into the concept of non-taxable income and its types.
What is Non-Taxable Income?
Any income that is not subject to income tax is called non-taxable income. These earnings are completely excluded from calculation of an individual’s tax liability.
Types of Non-Taxable Income
1. Gifts/Inheritances: If the taxpayer receives an income or earnings through gifts from relatives, it is generally not considered as taxable income. There are exceptions in case the relative is a foreign resident. Gifts received from non-relatives are exempt only if their value is less than Rs 50,000. If the same gift is received on the occasion of the taxpayer’s wedding, it is exempt from taxation.
2. Life Insurance returns: The returns received upon maturity of life insurance policies, including the death benefit, are not taxable. This may vary in the case of the insurance amount.
3. Agricultural income: Under section 10(1) of the Income Tax Act, income from agriculture and farming is non-taxable. The income generated from poultry and cattle rearing are also exempt from tax.
4. Gratuity: An amount that is received by employees for their dedicated and long-standing service to the company is called gratuity. In the case of government employees, the gratuity amount is completely tax-free. For non-government employees who are covered under the Gratuity Act of 1972, tax exemption applies if the amount is less than Rs 10 lakh. An employee, under the Gratuity Act, is eligible for gratuity payment after 5 years of service at one organisation.
5. Interest on specific income: The interest earned on certain schemes like the Sukanya Samriddhi Scheme, gold deposit bonds and tax-free infrastructure bonds is exempt from liabilities.
It is important to distinguish between taxable and non-taxable income to avoid any errors while filing income tax. It can help you avoid any penalties or legal entanglements with respect to non-compliance with the tax laws.
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