CA – MAR 16 : PUBLIC INTEREST
Know about tax-free sources of income
Most of us don’t want to part with our hard-earned money and give it to the government by way of tax. One solution is to capitalise on the tax-free income sources given below as per the amended Finance Act, 2015. Make the best use of these perfectly legal ways to reduce your tax liability.
Tax-free bonds: Interest earned is 100% tax exempt. They are a boon for people in the 30% income tax bracket. The bonds come with a lock-in period of 10-20 years but can be traded.
Savings bank accou
nt: The interest you receive from all your savings bank accounts put together is exempt up to Rs. 10,000 a year.
Capital gains: Long-term capital gains received on sale of shares or units of equity mutual funds held for more than a year are exempt from tax. This is not applicable to debt mutual funds.
Dividends: Dividend income received from companies on shares or units of equity mutual funds are also tax exempt as tax is paid by the company.
Share of profits: Income received for being a partner in a firm as a result of profit sharing does not attract tax. The exemption does not apply to interest or remuneration.
Agricultural income: Income derived from land used for agricultural purposes (including rent) or processing of agricultural produce is tax exempt.
LTA and HRA: Leave Travel Allowance (LTA) and House Rent Allowance (HRA) are tax exempt subject to certain rules. For government employees leave encashment at the time of retirement is exempt.
Interest on PPF/PF: Interest or any other payment from the Provident Fund (PF) or Public Provident Fund (PPF) is fully exempt from income tax at maturity. Premature withdrawal will attract tax.
Gifts received: Gifts of less than Rs. 50,000 are exempt. Moreover, gifts received from specified relatives (such as spouse, brother and sister) are exempt without an upper limit. Marriage gifts are also tax free.
Life insurance policy: Maturity amount received as the benefit from a life insurance policy, including bonus payment, is tax free if the sum assured is more than 10 times the annual premium paid.
Gratuity and pension: Gratuity and commuted pension received by any government employee is fully exempt. It should be noted that monthly pension received is treated like salary and income tax has to be paid on it. Money received under VRS scheme is exempt up to Rs. 5 lakh for employees of the government and public sector companies.
NRE account: If you are a Non-Resident Indian (NRI), you can open a Non-Resident External (NRE) account. Interest earned on NRE accounts is tax free in India. This includes savings bank interest as well as interest on fixed deposits. Moreover, both principal and interest can be repatriated.
Source: Income Tax Department, Ministry of Finance, Government of India
