10 income types fully exempt from tax:From farm proceeds and life insurance payouts to LTA and house rent allowance, these earnings are tax-free

The Income Tax Act offers a wide range of exemptions to reduce the tax burden on individuals, families and non-resident taxpayers. However, proper reporting and documentation are essential to claim them legitimately. According to CA Ashish Niraj, Partner at ASN Company, exempt income refers to earnings on which no tax is levied under provisions of the Act, with most major exemptions listed under Section 10 of the Income Tax Act, 1961, as amended by the Finance Act 2025. Key exemptions include agricultural income, amounts received by a “coparcener” from a Hindu Undivided Family (HUF), and a partner’s share of profit from a firm. Several benefits also apply to non-residents, such as exemption on interest from specified securities, Non-Resident External (NRE) accounts, and income from certain portfolio-managed assets. Niraj emphasises that while these provisions significantly ease tax liability, taxpayers must accurately disclose exempt income in their ITRs and maintain supporting documents to ensure compliance in case of scrutiny by the tax department. According to CA Niraj, the 10 primary types of exempt income are listed below: 1. Agricultural Income – Section 10 (1) Income derived from agricultural land—including rent from such land or related buildings used as a residence, storehouse, or other structures—is fully exempt from tax. 2. Income Received by a Coparcener from an HUF – Section 10 (2) Any amount a member receives from the income of a Hindu Undivided Family, including impartible estates, is exempt. Note: A coparcener is an individual who has an equal legal right to inherit and share ownership in an undivided family estate. 3. Leave Travel Concession (Section 10(5)) Employees can claim exemption for LTC received for travel within India for themselves and their family, subject to prescribed conditions. 4. Gratuity (Section 10(10)) Lump-sum gratuity received on retirement is exempt up to limits specified under the Payment of Gratuity Act. 5. Provident Fund Payments (Section 10(11) 10(12)) Amounts received from Public Provident Fund, Statutory Provident Fund, Recognised PF, or (in certain cases) Unrecognised PF are exempt, subject to conditions. 6. House Rent Allowance (Section 10(13A)) Salaried employees receiving HRA can claim exemption for rent paid, within the rules prescribed. 7. Life Insurance Payouts (Section 10(10D)) Any amount received under a life insurance policy, including bonuses, is exempt, subject to specific conditions. 8. Partner’s Share of Profit from a Firm (Section 10(2A)) The share of profit a partner receives from a partnership firm is tax-exempt in the partner’s hands. 9. Interest Income of NRIs (Section 10(4)) Interest earned by Non-Resident Indians on specified notified securities, bonds, Non-Resident External (NRE) account balances, notified savings certificates, and rupee-denominated bonds is exempt. Capital gains from Global Depository Receipts (GDRs), rupee bonds, and derivatives for certain non-resident investors: e.g., Category-III Alternative Investment Funds (AIFs) are also exempt. Other eligible income earned by non-residents from portfolios managed by authorised portfolio managers is likewise exempt. 10. Remuneration to Specified Diplomats (Section 10(6)(ii)) Income received by foreign diplomats or consular staff is exempt, provided Indian officials receive similar exemption in that diplomat’s home country. Niraj further emphasises that taxpayers must correctly report all exempt income in the relevant sections of their ITR and maintain proper documentation, so they can substantiate the legitimacy of such claims if questioned by the Income Tax Department.