Under the income tax law in India, there are certain incomes that are exempted from tax, and taxpayers are also eligible for various deductions to reduce their taxable income. Here’s an overview of income exemptions and deductions under the Income Tax Act, 1961:
Income Exempted from Tax
- Agricultural Income: Income generated from agricultural activities is generally exempt from income tax.
- Dividends: Dividends received from domestic companies are tax-exempt in the hands of the taxpayer. However, certain conditions and thresholds may apply.
- Long-term Capital Gains on Listed Securities: Long-term capital gains arising from the sale of listed equity shares or units of equity-oriented mutual funds are exempt from tax, provided Securities Transaction Tax (STT) has been paid on their acquisition and transfer.
- Interest on Certain Investments: Interest earned on tax-saving fixed deposits, public provident fund (PPF), certain specified bonds, etc., may be exempt from tax up to specified limits.
- Scholarships: Scholarships granted to students for education are generally exempt from tax.
- Leave Travel Allowance (LTA): LTA received by an employee for travel within India as part of their salary package may be exempt, subject to specific conditions and limits.
- House Rent Allowance (HRA): HRA received by an employee to meet rental expenses may be partially exempt from tax, subject to certain conditions and limits.
Deductions from Taxable Income:
- Section 80C: This section allows deductions for specified investments and expenses such as contributions to Provident Fund (PF), Public Provident Fund (PPF), National Savings Certificates (NSC), payment of life insurance premiums, tuition fees, etc., up to a specified limit.
- Section 80D: Deductions are available for premiums paid towards health insurance policies for self, family, and parents, subject to certain limits.
- Section 80G: Donations made to specified funds, charitable institutions, or government schemes are eligible for deductions, subject to specific conditions and limits.
- Section 80E: Interest paid on education loans taken for higher education is eligible for deductions.
- Section 24(b): Deductions are available on the interest paid on a home loan for self-occupied or let-out property, subject to specified conditions and limits.
- Section 10(14): Certain allowances and perquisites received by employees, such as house rent allowance, conveyance allowance, medical allowance, etc., are eligible for deductions, subject to specified limits.
- Section 80TTA/80TTB: Interest earned on savings accounts (80TTA) or deposits with banks/post offices by senior citizens (80TTB) is eligible for deductions, subject to specified limits.
