Tax Free Incomes in India

While submitting your Income Tax returns you need not include the following incomes since they are are tax free in India.

1 Agriculture Income

Agriculture income is exempt under the Indian Income Tax Act. This means that income earned from agricultural operations is not taxed. Agriculture operation includes processing & sale of agricultural crops from agriculture land. Even rent received from agriculture land is not taxable.

2. Dividend Income

Any dividend received by investment in stocks or mutual funds is tax free in the hands of investors.

3. Saving Bank Interest incomeThe interest earned on Savings Bank accounts up to a limit of Rs. 10,000/- is exempt from inclusion in Gross Total Income for the purpose of Income Tax.

4. Income for being partner in firm

If you received any income for being partner of firm which has already been assessed, than this income share does not required inclusion for calculation of tax. This is called as profit sharing as per partnership deed.

5. Travel Concession or Assistance

Money received from employer as LTA for the purpose of travel to any place in India along with family for the purpose of leave is exempted from tax.
The amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel. This claim can be made two times in bunch of 4 years.

6. Money received as Gift

If you receive gift amount less than 50,000 Rs/- from anyone it will be considered as tax free amount.
Another good thing is gifts received from specified relatives are exempt from Income Tax, and there is no upper limit also.

7. Rent Received

Any allowance received by employer to an employee to meet expenditure actually incurred on the payment of rent for accommodation is tax free. This is called as HRA this amount is taxable if house is owned by the employee or he has not incurred the rental.

8. Income from Long term Capital Gain

Any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund are tax free in nature. These transactions are subject to securities transaction tax.

9. Income from Life insurance policyMaturity amount received as benefit from a life insurance policy, including bonus payment, is tax free.

10. 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 is tax free.

11. Scholarship money

Scholarships granted to meet the cost of education is tax free in nature.

12. Awards and RewardsAll payments receive in cash or kind as an award given by the central or state governments or by a body recognized by the central government is tax free.

13. Retrenchment


In unfortunate event of company closure compensation received by workman is considered as tax free.

14. Relief funds

Any amounts which are received by an individual as part of the Prime Minister’s National Relief Fund or students fund or foundation for communal harmony will be treated as tax free.

15. Retirement / Gratuity

Any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be tax free subject to following limits


For every completed year of service or part thereof, gratuity shall be paid at the rate of fifteen days wages based on the rate of wages last drawn by the concerned employee.



16. Commutation of Pension

In case of employees of Central & State Govt., Local Authority, Defense Services and corporations established under Central or State Acts, the entire commuted value of pension is exempt.

In case of any other employee, if the employee receives gratuity, the commuted value of 1/3 of the pension is exempt, otherwise, the commuted value of ½ of the pension is exempt.

17. Leave Encashment

Any cash amount received as compensation for earned leave which is enchased at the time of retirement is tax free. This is applicable only to employees of central/state government.


In case of other employees, the exemption is to be limited to a maximum of 10 months of leave encashment, based on last 10 months average salary. This is further subject to a limit of Rs. 3,00,000/-.

18. Voluntary Retirement

Payment received by an employee at the time of voluntary retirement, or termination of service is exempt from the tax subject to extent of Rs. 5 Lakh.

But, the company paying the VRS should have a framework for VRS as prescribed by the government.

19. Provident Fund

Any payment received from a Statutory Provident Fund, (i.e. to which the Provident Fund Act, 1925 applies) is tax free.

20. Superannuation

Payment from an Approved Superannuation Fund will be tax free provided the payment is made at retirement, incapacitation or at death of employee.

(Source: http://www.staffcorner.com/view.html?id=195001 )

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Eight Countries with Zero Income Tax

Paying taxes from your hard earned income is like a burden for you. The word 'tax' also scares you even in your dreams. What will you feel if one day the government announces that from now on you shall not be required to pay income tax? It may sound very unreal but for some countries it is true.

There are eight countries in the world where the citizens pay zero income taxes, as reported by CNBC based on KPMG's 2011 survey of 96 countries.

1.United Arab Emirates

The United Arab Emirates is a country with the world's highest per-capita incomes i.e $48,000 but it does not charge personal income taxes to its citizen. It is the third highest exporter of crude oil so it largely depends on the taxes paid by the oil companies which amount to 55 percent in corporate tax.

As a citizen you will be asked to contribute 5 percent of your total earning for social security and your employer shall pay 12.5 percent of your base salary for your pensions and social security.

2.Qatar

Qatar, the gas rich nation is the richest country in the world with the highest Gross Domestic Product (GDP) above $ 88,000, according to Forbes. It primarily relies on its third largest gas reserves in the world to earn revenue. The country levies no taxes on personal incomes, capital gains, property dividends, royalties and profits.

As a Qatar citizen, you will have to pay 5 percent of your total income and your employer will contribute 10 percent for your security benefits.

3.Oman

Oman earns majority of revenue from crude oil. The crude oil revenue increased by 35 percent in April 2011 to $8.49 billion against the statistics of 2010. Being a resident of this nation you must pay 6.5 percent of your monthly salary for social security benefits.

You will also be charged with 3 percent of stamp duty for owning a property in the nation. You will also witness several protests by the countrymen, demanding jobs and employment benefits.

4.Kuwait

Kuwait, world's sixths largest oil exporter, achieves 95 percent of its total revenue from the sale of oil. Out of the entire population only 7 percent of Kuwaitis work in the public sector and each contribute 7.5 percent of their salary as tax and 11 percent is paid by their employer for social security. Being a Kuwaiti you shall be no stranger to the political chaos and corruption scandals. Taking into consideration Kuwaitis political and economic conditions International Monetary Fund's dignitaries have recommended Kuwait to introduce the value-added tax and comprehensive income tax system.

5.Cayman Islands

An off shore financial center, the Cayman Islands is a place for big pocketed people who are ready to pay $ 550,000 for an apartment and $ 736,000 for a house, according to government figures in April 2011. You can still relax over social security contributions, personal income taxes and capital gains taxes as these are not compulsory to be paid.

As an employer you are required to pay pension plan for all your worker, including the expatriates (refugees), if they have worked for more than nine months.

6.Bahrain

Abu Safa oilfield generates 70 percent of Bahrain budget revenue inspite of the fact that this oilfield is shared with Saudi Arabia. Being an employer you will make a contribution of 12 percent of your employee salary and they shall put in 7 percent for their social insurance. A stamp duty of 3 percent of the property value is paid registering property in your name. If you are an Expatriate and you rent a house in the Persian Gulf state then you would be required to pay 10 percent municipal tax.

7.Bermuda

Bermuda is a nation where you will have to spend more money as the cost of living index is quite high. Custom duty charged on the imported goods turns up to be a bigger source for the government. The total population of Bermuda includes 20 percent of foreign born. For relocating you will be charged with 25 percent for the goods you take along and a 10 year work permit in this nation will cost around $20.000.

8.The Bahamas

The Bahamas is one among the wealthiest Caribbean countries and it depends highly on tourism and off shore banking for its economy. Duties on imported goods fetch 70 percent of the government revenue.

As a self employed individual you shall have to contribute 8.8 percent of your income earned for social security called National Insurance.

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