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These incomes are not taxed


28 Dec, 2012 11:49p.m.

Although the tax man has been vested with the task of collecting taxes on the incomes of the citizens, he has deemed certain kinds of incomes as “not included in total income”. Thus, if any earning that you receive falls under these categories then you don’t have to treat it as income or pay tax on it. Let’s take a look at the different incomes that are not incomes:

Agricultural Income: Any income which you receive as income from any agricultural activity is deemed as not included in total income. If your father is into agriculture and he gives you a part of the income as a gift, then you don’t need to pay tax on it, provided your father files his tax returns.

Income from being a partner in a firm: If you receive any income for being a partner of a firm which has already been assessed separately then the income need not be included in total income. Thus, any share in the profits that you have in a firm according to the partnership deed is not taxable.

An amount up to Rs. 5,000: An amount of up to Rs. 5,000 that you receive for any reason other than as prize money and which is not a recurring amount can be excluded from your total income. It seems to be a very small amount, but sometimes this could be the difference between being in a higher slab or a lower slab.

Travel concession/assistance: Any money that you receive from your company for the purpose of travel to any place in India along with your family for the purpose of leave. The claim can be made twice in four years. Family includes wife, children and also parents, brothers or sisters if they are dependent on you. The only check is that you have to maintain the original bills to prove travel if the income tax department asks for it.

Retirement/death gratuity: Any payment received under a pension or death-cum-retirement gratuity scheme by an individual or his widow, children or dependents. The gratuity should not be more than the number of years in service multiplied by half-month’s salary based on a 10-month average. For example, if the average salary for the previous 10 months prior to receiving gratuity is Rs. 10,000 and years in service is 15, then 15×5,000=75,000 would be not included in total income.

Leave salary: Any cash amount received as compensation for earned leave which is encashed at the time of retirement. (This applies only to employees of Central/state government). For employees, other than government employees, the leave salary can be encashed up to a limit of 10 months’ worth of earned leave. It also specifies that the entitlement to earned leave should not exceed 30 days for each year of service. For example, if you have 76 days of earned leave and total years of service is two years, then only the cash equivalent of 60 days of earned leave is not added to income.

Retrenchment: Any compensation received by a workman due to the closure of his company or change in the management of the company if new terms are less favorable than what was previously applicable.
Voluntary retirement: Any amount up to a maximum of Rs. 5 lakh paid at the time of voluntary retirement in accordance with and scheme of voluntary retirement of the company. But the company paying the VRS should have a framework for VRS as prescribed by the government.

Life insurance policy: Any amount received as benefit from a life insurance policy including bonus payment is not included in total income.

Provident fund: All payment which is received from a provident fund to which the PF Act applies or any PF fund of the government is not included in total income.

Superannuation: Any payment made from a superannuation fund on the death of the beneficiary or as a refund of contributions or if the employee becomes incapacitated before retirement.

Payment of rent: Any allowance paid by an employer to an employee to meet expenditure actually incurred on the payment of rent for accommodation. But this is not allowed if the house is owned by the employee or he has not incurred the rental.

Income from government securities: Any earnings from interest, premium on redemption or other payment on securities, bonds, annuity certificates, savings certificates and other instruments issued by the Central government and also deposits taken by the Central government.

In case of non-residents if the bond has come to them by virtue of being a nominee or survivor of the non-resident or if they have been gifted to them by a non-resident Indian who has purchased the instrument in foreign exchange and the principal and interest will not be taken out of India by the recipient of the gift, the amounts will not be added to income.

Scholarships for education: Not included in total Income.

Awards and rewards: All payments receive in cash or kind as an award given by the Central or State Government or by a body recognized by the central government to give such awards will not be included in the total income.

Relief funds: Any amount which is received by an individual as part of the Prime Minister’s national relief fund or the promotion of folk art fund or students fund or foundation for communal harmony will be treated as not included in income.

Thus we see that although the tax man is mostly portrayed as a villain, he has been liberal enough to give us the benefit of income tax-free income from so many sources.

Disclaimer: All information in this article has been provided by

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