Income Tax Rules - Dont need to pay taxes for Nontaxable Income

A resident individual comes under the purview of income tax once their total income crosses the basic exemption limit. Under the new tax regime — which is now the default — that limit is Rs 3 lakh for FY 2023-24 (AY 2024-25) and rises to Rs 4 lakh from FY 2025-26 (AY 2026-27). The Rs 2.5 lakh limit now applies only if you specifically opt for the old regime. In addition, the rebate under Section 87A makes income up to Rs 7 lakh (FY 2023-24) and up to Rs 12 lakh (FY 2025-26) effectively tax-free under the new regime. Beyond these slab limits, there are also specific sources of income that are not taxed at all, subject to certain conditions. Today we will tell you about these tax-free incomes.

Gifts

The gifts you receive can be taxable. Gifts received by the taxpayer are taxable under section 56(2)(x) of the Income Tax Act, 1961. However, two important exemptions apply:

• Gifts received on the occasion of marriage are fully exempt. Under the proviso to section 56(2)(x), any gift (whether money, movable property or immovable property) received by an individual on the occasion of his or her own marriage is exempt with no monetary ceiling — there is no Rs 50,000 cap on marriage gifts.
• The Rs 50,000 threshold applies only to other gifts from non-relatives. If, during a financial year, the aggregate value of gifts received from persons who are not relatives (and not on the occasion of your marriage) exceeds Rs 50,000, the whole amount becomes taxable. If it stays at or below Rs 50,000, none of it is taxed.

According to the Income Tax Act, gifts received from certain relatives are not taxable, even if they are more than Rs 50,000. Know who those special people are.

• gift from husband or wife

• gift from brother or sister

• Gift received from brother or sister of husband or wife

• Gift received from parents’ brother or sister

• gift or property received by inheritance or bequest

• Gift received from any immediate ancestor or descendant of the spouse

• Gift received from any member in case of Hindu Undivided Family (HUF)

• Gift received from local authority like Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board

• Gift from any fund/foundation/university or other educational institution, hospital or other medical institution, trust or institution referred to in section 10(23C)

• Gift received from a charitable or religious trust registered under section 12A or 12AA

Gratuity amount

• If an employee leaves the job after working for 5 consecutive years in an organization, then he gets gratuity.
• Gratuity comes under the purview of tax exemption.
• Gratuity received by a government employee is fully exempt from tax.
• In the case of a private-sector employee, gratuity is tax free up to Rs 20 lakh. This ceiling was raised from Rs 10 lakh to Rs 20 lakh by the Payment of Gratuity (Amendment) Act, 2018 and the corresponding CBDT notification, with effect from 29 March 2018.

​EPF

• If an employee withdraws the accumulated balance of his Employee Provident Fund (EPF) after rendering at least 5 continuous years of service, the withdrawal is exempt from tax.
• Withdrawal before completing 5 years of continuous service is taxable, except in certain situations such as termination due to ill health, discontinuance of the employer’s business, or other causes beyond the employee’s control.
• Since FY 2021-22, the interest earned on an employee’s own EPF contributions exceeding Rs 2.5 lakh in a financial year is taxable (the threshold is Rs 5 lakh where the employer does not contribute to the fund).

VRS

• The amount received on taking Voluntary Retirement (VRS) is tax free up to Rs 5 lakh under Section 10(10C) of the Income Tax Act. This exemption is not limited to government employees — it also covers employees of public sector companies, other companies, statutory authorities, co-operative societies, universities, IITs and notified institutes of management, provided the scheme meets the prescribed guidelines.

PPF

• The money invested in Public Provident Fund (PPF), the interest earned and the amount received on completion of the maturity period are all tax free.

Interest on NRE Savings/FD Account

• The interest earned by NRI on NRE (Non-Resident External) account is tax free in India. This includes interest earned on both NRE savings account and NRE FD accounts.​

HUF

• Income received by way of inheritance or income from Hindu Undivided Family (HUF) is also exempt from tax under section 10(2) of the Income Tax Act.

Educational Scholarship

• Scholarship received from government or private organization for study or research is tax free.
• All types of educational scholarships (from school to college level and received while studying abroad) are outside the purview of tax.
• Property, jewelery or cash inherited from parents or family is exempt from tax.
• Property or cash received through a will is also not taxed.
• Keep in mind that the Income Tax Department can question the taxpayer regarding this transaction.
• If this happens, then the taxpayer will have to prove that the amount or property has been received by him by parents, will or family inheritance.
• If the taxpayer earns by investing the amount received or receives income or interest from the property, then he will have to pay tax on the income from these.