Income Tax Exemptions: Discover 7 ways to earn tax-free income

New Delhi: Some people are worried that a part of the returns on investments are considered taxable. Scores of people search for various ways to reduce their taxable income. But there are some sources of income in which the depositor does not have to pay income tax on the income. Understanding tax-free income can improve your planning and keep more of the earnings with you. From agricultural income to some government savings schemes, India's tax laws provide many exemptions, which benefit different sections of society. Here are 7 main sources of income completely tax-free in India.

Income from farming on agricultural land in India is completely tax-free under Section 10 (1). This includes rent from agricultural land, income from the sale of crops like vegetables, fruits, grains and spices, and profits from selling rural agricultural land. But agricultural income from foreign land is fully taxable in India.

When you receive your share of profits from a partnership firm or a Limited Liability Partnership (LLP), it is completely tax-free under Section 10 (2A) because the firm has already paid tax on its total income. This saves double tax. However, this only applies to profit sharing. The salary, interest or remuneration paid to the partners remains taxable.

Public Provident Fund scheme is completely tax-free with Exempt-Exempt-Exempt (EEE) status. In the old tax regime, under Section 80C, tax deduction is available on contributions of up to Rs 1.5 lakh per annum. The interest earned from the annual contribution is tax-free and the mature amount after 15 years is also exempt from tax.

This government scheme is meant for daughters, which pays 8.2% per annum interest and is completely tax-free under the EEE category. Parents can invest from Rs 250 to Rs 1.5 lakh annually and claim tax deduction under Section 80C. The interest earned is completely tax-free. The amount received on maturity after 21 years is also tax-free. You can open this account till the daughter is 10 years old.

Scholarships for education are completely tax-free under Section 10 (16) and there is no limit. This applies to scholarships from government institutions, private organizations, educational institutes or international sources. Foreign scholarships are also tax-free in India. Awards and prizes received from some government authorities under Section 10 (17A) are also tax-free.

The maturity amount for life insurance is tax-free under Section 10 (10D) with certain conditions.The annual premium should not exceed Rs 5 lakh for non-ULIP policies issued after 1 April 2023. ULIPs issued after 1 February 2021 remain tax-free if the total annual premium is Rs 2.5 lakh or less.

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Gratuity, which is a lump sum amount received on retirement or quitting a job, is tax-free under Section 10 (10). Gratuity of up to Rs 20 lakh is completely tax-free for private sector employees. Government employees get full exemption on their entire gratuity without any upper limit. One has to complete continuous service for at least 5 years to be eligible.