Exempt Income

What is Exempt Income?

Under the Income Tax Act, exempt income refers to income that is not taxable by the income tax department. It means that the individual or entities who are receiving these types of specific incomes do not have to pay the income tax to the government. The categories and nature of the exempt income can be different based on jurisdictions and specific tax regulations.

It is important to know about the different types of exempt incomes because it helps taxpayers optimize their tax liabilities and make the correct financial decisions. Exempt income in income tax is totally non-taxable, and they are not included in taxable income.

Examples of Exempt Income

There are different types of exempt income, and here are a few of the examples:

1. Agricultural Income: It includes the income that is derived directly from agricultural activities.
2. Interest from PPF: The government has decided to exempt interest income. So, the interest earned on the Public Provident Fund is tax-free.
3. Income from Family Settlement: The money received as a part of the distribution of family income.
4. Gratuity: The lump-sum payments that are received on retirement as per the Gratuity Act limitations.
5. Leave Travel Concession (LTC): It includes the money that you receive as reimbursement for travel leaves as per the company policies.
6. Leave Encashment: It includes the compensation for the unused leaves, which depends on the exemptions based on resignation or retirement.
7. Scholarship Income: It includes the amount that is received for educational purposes. Like, the discount you get on the educational degree or some course.
8. Life Insurance Policy: Under the specific conditions, the claim amounts or maturity you receive from the insurance policies, and more.