16 incomes that are not taxed in India

Although the taxman 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 incomes you don't have to treat it as income or pay tax on it!

Now, let us take a look at the different incomes that are not taxable incomes. . .

1. 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.

2. Income for being 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.

3. Travel concession/assistance: Any monies 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 two times in a bucket of 4 years.

Family includes wife and children and also parents, brothers or sisters if they are dependent on you. The only check being that you have to maintain original bills to prove travel if the income tax department asks for it.

4. Rs 5,000: An amount of up to Rs 5,000 which you receive for any reason -- other than as prize money and 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 and a lower slab.
5. 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 ten-month average. For example, if the average salary for the previous ten months prior to receiving gratuity is 10,000 and years in service is 15, then 15x5,000=75,000 will be not included in total income.

6. 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 ten 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.

7. 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 favourable than what was previously applicable.

8. Voluntary retirement: Any amount up to a maximum of Rs 500,000 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.

9. Life insurance policy: Any amount received as benefit from a life insurance policy, including bonus payment, is not included in total income. The only exception is the amounts paid as part of keyman policies.

10. 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.

11. 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.

12. 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.

13. 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 have come to you by virtue of being a nominee or survivor of the Non-Resident, or if the bonds have been gifted to you by an NRI -- who purchased the instrument in foreign exchange and if 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.

14. Scholarships for education are not included in total income.

15. Awards and rewards: All payments receive in cash or kind as an award given by the central or state governments or by a body recognised by the central government to give such awards, will not be included in the total income.

16. Relief funds: Any amounts which are 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 taxman 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.

The above learnings can be applied to our personal lives in two ways:

Try to increase the income, if any, coming under any of the above heads; and
Invest in any of the tax-free avenues given above so that we may get the benefit of the investment as well as tax free income when it comes to our hands later on.

10 ways to reduce your family's taxes

Typically, taxpayers tend to focus on ways of reducing only their own tax burden. This is a normal thing to do, but far greater tax savings are possible when the family as a whole is considered as a tax paying unit.
By combining the leeway offered by non-taxpaying members of a family, and judiciously sharing the family income and wealth among all its members, you will find additional ways of reducing your family's tax burden. Here is how:
You may like to explore the following possibilities of sharing of income and wealth within the members of your family in order to lower the overall tax liability.
1)Create an HUF (Hindu Undivided Family) so that the family property and family income is assessed separately from that of the individual members of the family. Tax practitioners can help you in creating an HUF in a perfectly legal manner.
2)Open as many assessment files as possible for the members of your family, including minor children.
3)Keep separate accounts for all the gifts received on birthdays and social functions so that they can form the sources of future income through suitable investments.
4)To avoid problems of the clubbing provisions, you may consider making a gift to your would-be spouse or your son's would-be-spouse. Such pre-marital gifts do not attract the clubbing provisions.
5)If you are the karta of your HUF, you may make gifts within reasonable limits to the members of your family out of the HUF properties and build their separate assets.
6)Since the income-clubbing provisions apply only so long as your children are minors, you may gift them some assets where the income will be received by them only after they attain 'major' status, e.g. 10-year cash certificates, zero-coupon bonds, etc.
7)Some smart assessees do not gift anything to their spouses. Instead, they organise exchange of assets to avoid clubbing provisions, e.g. a husband exchanges his 1,000 Colgate equity shares with the jewellery owned by his wife (since Stridhan is the absolute property of the lady).
8)Since the accretions to income arising on the transfer of asset does not attract the clubbing provisions you can gift any amount which can be invested by your wife or daughter-in-law in 9 per cent fixed deposit, etc. It is only the interest on such amount gifted that is included in the income of the individual. The interest on interest does not attract the clubbing provision.
9)Since a genuine loan of any amount to your spouse or children does not attract the clubbing provisions, loan any amount (create evidence to avoid hassles in future) to children and spouse, which they may invest in income earning assets.
10)You can use the Public Provident Fund scheme for building up capital of your minor children. If you have two children you can open two PPF accounts and deposit Rs 15,000 in each account every year. You will get tax deduction under 80C. Moreover, interest on PPF is totally exempt from income tax. Thus, when children become majors, you would have created capital for them while enjoying the tax benefits in the interim.
An example of family-wide tax planning. Read on