While filing Income Tax Return (ITR), people often focus only on getting tax exemptions and rebates. But do you know that under the Income Tax Act, there are some types of income on which the government does not levy any tax? This is called ‘exempt income’ or tax-free income. According to tax experts, it has become necessary to report tax-free income for the assessment year 2026-27. For this, special columns have now been added to the ITR filing utility. Not being aware of these rules could mean you miss out on big tax planning opportunities or make mistakes in your ITR. Let’s take a look at the top 10 sources of income that are tax-free:
1. Income from farming
In India, if you own agricultural land and earn income from it, that income is completely tax-free under Section 10(1) of the Income Tax Act. This includes profit from farming, income from selling crops and rent or income from agricultural land.
2. Money received from Hindu Undivided Family (HUF)
If you are a member of a Hindu Undivided Family (HUF) and receive any share or payment from the family income, it is not taxable under Section 10(2). This is because HUF, as a separate tax entity, already pays tax on its income.
3. Share of profits from partnership firm or LLP
If you are a partner in a partnership firm or Limited Liability Partnership (LLP), your share in the business profits is exempt from tax under Section 10(2A). However, keep in mind that this exemption does not apply to salary received from the firm or interest on capital contribution.
4. Gifts and inheritance from relatives
Gifts from relatives: Gifts from close relatives – such as parents, spouses or siblings – are not taxable, regardless of the amount. Wedding gifts: Gifts received from friends or non-relatives on the occasion of marriage are completely tax-free. Non-relatives: Generally, gifts worth more than ₹50,000 in a year from a non-relative are fully taxable.
Inherited property: No tax is payable on what legal heirs receive from a will or ancestral property after a person’s death.
5. Scholarship for studies
Any scholarship received by students to meet the expenses of education is completely tax-free. The government does this so that there is no hindrance in studies due to taxes.
6. Gratuity
Government employees: The entire gratuity amount received on retirement is tax-free.
Private Sector Employees: There is a fixed limit of tax exemption for private sector employees. Under the Gratuity Payment Act, currently there is no tax on gratuity amount up to a maximum of ₹20 lakh.
7. Leave encashment (money in lieu of leave)
The money received in lieu of leave accrued at the time of retirement is exempt under Section 10(10AA).
Government employees: The entire amount is tax-free.
Private sector employees: A lifetime limit of ₹ 25 lakh has been fixed for them. However, if you take money in lieu of leave while you are still employed, the entire amount is taxable.
8. Interest on Government Schemes (Tax-Free Interest)
The interest and maturity amount received from some long-term government savings schemes are completely tax-free. These include:
Public Provident Fund (PPF)
Sukanya Samriddhi Yojana (SSY)
Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) (subject to rules)
It is important to note that premature withdrawal from these schemes may not provide tax-free benefits.
9. Withdrawal of Provident Fund (PF)
If you withdraw money from a recognized PF account (like EPF) after completing five continuous years of service, the entire amount – including your contribution, employer’s contribution and accrued interest – is tax-free. Apart from this, tax exemption is also available if the employment ends before the five-year period due to reasons such as closure of the company or ill health. 10. Maturity of life insurance policy (Section 10(10D))
Maturity proceeds and bonuses received from a life insurance policy are tax-free under Section 10(10D), but there are certain conditions:
The annual premium of the policy should not exceed 10% (or 15% in case of disabled persons) of the sum assured.
If the annual premium of a ULIP exceeds ₹2.5 lakh, or the total annual premium of a traditional insurance policy exceeds ₹5 lakh, the maturity amount will be taxable. However, the death benefit received on the death of the policyholder always remains completely tax-free.
Things to keep in mind while filing ITR
Although these 10 sources of income are completely tax-free, certain rules, limitations and documentation requirements apply to most of them. To avoid receiving notices from the Income Tax Department in future, tax experts recommend that you mention these details in the correct columns while filing ITR.
While filing Income Tax Return (ITR), people often focus only on getting tax exemptions and rebates. But do you know that under the Income Tax Act, there are some types of income on which the government does not levy any tax? This is called ‘exempt income’ or tax-free income. According to tax experts, it has become necessary to report tax-free income for the assessment year 2026-27. For this, special columns have now been added to the ITR filing utility. Not being aware of these rules could mean you miss out on big tax planning opportunities or make mistakes in your ITR. Let’s take a look at the top 10 sources of income that are tax-free:
1. Income from farming
In India, if you own agricultural land and earn income from it, that income is completely tax-free under Section 10(1) of the Income Tax Act. This includes profit from farming, income from selling crops and rent or income from agricultural land.
2. Money received from Hindu Undivided Family (HUF)
If you are a member of a Hindu Undivided Family (HUF) and receive any share or payment from the family income, it is not taxable under Section 10(2). This is because HUF, as a separate tax entity, already pays tax on its income.
3. Share of profits from partnership firm or LLP
If you are a partner in a partnership firm or Limited Liability Partnership (LLP), your share in the business profits is exempt from tax under Section 10(2A). However, keep in mind that this exemption does not apply to salary received from the firm or interest on capital contribution.
4. Gifts and inheritance from relatives
Gifts from relatives: Gifts from close relatives – such as parents, spouses or siblings – are not taxable, regardless of the amount. Wedding gifts: Gifts received from friends or non-relatives on the occasion of marriage are completely tax-free. Non-relatives: Generally, gifts worth more than ₹50,000 in a year from a non-relative are fully taxable.
Inherited property: No tax is payable on what legal heirs receive from a will or ancestral property after a person’s death.
5. Scholarship for studies
Any scholarship received by students to meet the expenses of education is completely tax-free. The government does this so that there is no hindrance in studies due to taxes.
6. Gratuity
Government employees: The entire gratuity amount received on retirement is tax-free.
Private Sector Employees: There is a fixed limit of tax exemption for private sector employees. Under the Gratuity Payment Act, currently there is no tax on gratuity amount up to a maximum of ₹20 lakh.
7. Leave encashment (money in lieu of leave)
The money received in lieu of leave accrued at the time of retirement is exempt under Section 10(10AA).
Government employees: The entire amount is tax-free.
Private sector employees: A lifetime limit of ₹ 25 lakh has been fixed for them. However, if you take money in lieu of leave while you are still employed, the entire amount is taxable.
8. Interest on Government Schemes (Tax-Free Interest)
The interest and maturity amount received from some long-term government savings schemes are completely tax-free. These include:
Public Provident Fund (PPF)
Sukanya Samriddhi Yojana (SSY)
Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) (subject to rules)
It is important to note that premature withdrawal from these schemes may not provide tax-free benefits.
9. Withdrawal of Provident Fund (PF)
If you withdraw money from a recognized PF account (like EPF) after completing five continuous years of service, the entire amount – including your contribution, employer’s contribution and accrued interest – is tax-free. Apart from this, tax exemption is also available if the employment ends before the five-year period due to reasons such as closure of the company or ill health. 10. Maturity of life insurance policy (Section 10(10D))
Maturity proceeds and bonuses received from a life insurance policy are tax-free under Section 10(10D), but there are certain conditions:
The annual premium of the policy should not exceed 10% (or 15% in case of disabled persons) of the sum assured.
If the annual premium of a ULIP exceeds ₹2.5 lakh, or the total annual premium of a traditional insurance policy exceeds ₹5 lakh, the maturity amount will be taxable. However, the death benefit received on the death of the policyholder always remains completely tax-free.
Things to keep in mind while filing ITR
Although these 10 sources of income are completely tax-free, certain rules, limitations and documentation requirements apply to most of them. To avoid receiving notices from the Income Tax Department in future, tax experts recommend that you mention these details in the correct columns while filing ITR.
