We all know that in India there is progressive taxation system, which means earn more and pay more. But only a few of us are aware that there are some incomes, which do not attract any tax. These are termed as tax-free income under Section 10 of the Income Tax Act, 1961.For example, interest earned on PPF/GPF/EPF doest not attract tax. Besides, under provisions of sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund or PPF is also exempt from income tax.
One can open PPF or (public provident fund) account with a bank or post office. PPF is a 15-year scheme with section 80C benefit at the time of investment. Employee provident fund (EPF) is account op-ened by empl oyer for his employee and the contribution is deducted from salary. One can increase his/her contribution and get the assured tax-free return on the contribution amount. Such a scheme is known as voluntary provident fund. Income from GOI/other approved tax-free bonds; income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the central government is another example. The central government may by notification in the official gazette specify in this behalf, subject to such conditions and limits A few other example include interest on bonds of local authorities and certain new tax-free bonds and tax-free infrastructure bonds notified from time to time. From 2012-13 onwards, saving bank account interest of up to Rs. 10,000 is exempted under Section 80 TTA.
n Dividends on shares and on mutual funds: As per the Finance Act, 2003, from 2004-05 assessment year, dividend income and income of units of mutual funds would be completely exempt from income tax under section 10(34) & (35). Dividend income from companies /equity-oriented mutual funds is completely exempt at the hands of investors. Dividend is also tax-free at the hands of investors in case of debt-oriented MF schemes.
Any sum received under a life insurance policy (including the sum allocated by way of bonus on such policy) either on death of the insured or on maturity of plan will not attract tax. However, in case of life insurance policies issued after March 31, 2004, exemption on maturity payment under 10(10D) is available only if the premium paid in any year does not exceed 20 per cent of the sum assured.
This provision has been further amended from current financial year and now maturity proceeds from life insurance plan will be exempt from income tax only when the annual premium paid is not higher than 10 per cent of sum assured.
n Long-term capital gains on sale of shares and equity mutual funds: With effect from 2004-05, income on account of sale of long-term capital asset is completely outside the purview of tax liability, especially when the transaction has been subjected to securities transaction tax. Thus, if the shares of any company listed in a stock exchange are sold after holding it for a minimum period of one year, there will be no liability to payment of capital gains. This provision would even apply for old shares, which are held by an assesse and are sold after the Finance (No.2) Act, 2004, came into force.
n Gift tax: Gift tax was abolished with effect from October 1, 1998. However, with effect from September 1, 2004, any gift received by an individual or HUF will be included in taxable income, provided the amount of gift exceeds Rs 50,000. It may be noted that gift from relatives, as specified in the section, can be received without any upper limit. Besides, income from gratuity paid by employer, agricultural income, receipts from HUF, leave salary, scholarship & awards, commutation of pension, voluntary retirement or separation payment, share from a partnership firm, gallantry awards. is also tax-free with or without upper limit.
