As the deadline to file income tax approaches on July 31, tax payers must be aware that there are some categories of incomes that are totally exempt from tax. These include provident fund pay outs, gratuity receipts, gifts amounting to less than ₹50,000, scholarship amount, reverse mortgage among others.
Let us find more on each of these items:
Provident fund: PF is considered one of the most important social security for the employed people. After retirement, when the main source of income i.e., salary discontinues, provident fund comes handy. Consequently, it is kept free from tax.
However, there are some conditions attached to it as well. If your PF has been deducted for more than five years, then it becomes tax free. If you withdraw PF before five years, you have to pay TDS at the rate of 10 percent.
Gratuity receipts: Gratuity received by government employees is completely tax free. Even if an employee dies or withdraws gratuity after retirement, the sum stays tax free.
Although the tax exemption is extended to private sector employees as well, but carries certain conditions. Private sector employees are entitled to receive income tax exemption but only on gratuity of up to ₹10 lakh.
Gifts: Gifts are taxed but only if they are expensive. After the amendment in the income tax provisions related to gifts in 2017, it has been decided that expensive gifts will be taxable.
Whether you have received gift in cash or kind, you are supposed to show the same in ITR as income from other sources.
However, if the gift’s value is up to ₹50,000, then it will be exempt from tax. Apart from these, all gifts received on occasions such as marriage or anniversary are tax free. Besides, gifts received from family members also do not come under tax bracket. But it is vital to mention that when you sell these gifts you are liable to pay long-term capital gains tax.
Scholarship: Although scholarship money is also considered as income but it is tax-free. This is given exemption from tax under section 10 (16) of the Income Tax Act.
Reverse mortgage: Any sum received as a loan either in instalment or lump sum is reverse mortgage and is exempt from tax.