Non taxable income: No tax is levied on these 5 types of income, know the tax rules
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Tax-free income: Income tax rules in India are designed to ensure that individuals and entities pay tax on their earnings, but certain types of earnings are not taxed. let’s go. Understanding these sources of tax-free income can help individuals and businesses make informed financial decisions.
agricultural income
The most famous category of tax-free income is income from agriculture. Income earned from agricultural activities is exempt from income tax under Section 10(1) of the Income Tax Act, 1961. The rationale behind this relaxation is to support and promote the agriculture sector, which plays a vital role in the country’s economy. Tax-free farm income encourages farmers to invest in their farms and improve farming practices.
gifts and heirlooms
Gifts received by individuals in India are generally tax-free, provided they satisfy certain conditions laid down in section 56(2) of the Income Tax Act. Similarly, inherited property is not subject to income tax. This exemption is granted because taxing gifts and inheritances would not increase family financial support and would hinder the transfer of wealth between generations.
Interest in PPF and EPF
Interest earned on investments in Public Provident Fund (PPF) and Employees Provident Fund (EPF) is tax-free. These investments are encouraged because they promote long-term savings and financial security for individuals. The government encourages citizens to contribute to these schemes by providing tax exemption on the interest earned.
Long term investment returns
Long term capital gains (LTCG) arising from the sale of certain assets like equity shares and mutual funds are tax-free if they meet certain criteria. The government aims to encourage long-term investment in the capital market by providing this exemption. However, tax has to be paid on short-term capital gains.
HRA (House Rent Allowance)
House rent allowance (HRA) is a component of salary that can be tax-free. If the taxpayer fulfills certain conditions given in section 10(13A). The objective behind this exemption is to reduce the financial burden on people living in rented houses.
It is noteworthy that it is important for taxpayers to understand the categories of tax-free income to optimize their financial planning. These rebates are designed to support specific sectors, encourage long-term savings and provide relief in certain circumstances.
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