Contrary to the popular belief, Indian tax law has always been extremely lenient to the tax payers. And this fact is clearer to all the savvy investors who, every year, manage to save a large part of their income tax by legal means.
Whether you’re an investor or not, belong to the middle-class or wealthy-class, if you’re a tax payer in India, it’s important you know about the ways around to save income tax.
Here are 7 types of income where you get exemption:
1. Savings account interest
Yes, while you were busy complaining about the low interest rate on your savings account, you might have totally forgone the fact that this type of income is totally tax-free. However, only a total of Rs 10,000 interest-income is exempted from the tax slab. So, say if your bank interest is Rs 15,000 in a year, you will be taxed on Rs 5,000.
2. Long-Term Capital Gains
This is something many people don’t know about. Under the current tax rules, your income from equities or equity mutual fund will be exempted if you have held that asset for more than one year. So your long-term capital gain will be tax free. After selling your holding, you will only have to pay taxes on the principal amount and not on the profit.
3. Partner Profit in a Firm
If you’re a stakeholder in a firm that’s bound by the partnership agreement, the profit you (and other partners) will get from here will be exempted from tax. Because the return of the firm is already assessed and taxed!
4. Interest on Government Instruments
One of the reasons why successful investors have government securities in large number in their portfolio is because of the tax benefits they get. From securities and bonds to savings and annuity certificates, the interest and premium on redemption of instruments issued by the government is totally tax-free.
5. Return from Life Insurance Policy
There’s more than one reason to have your life insurance done. The maturity amount that you receive as a benefit from the policy, after the end of the decided span, is exempted from the tax.
6. EPF Account Income
Your Employees’ Provident Fund is more than just a safety net for your bad days. The returns from EPF comes tax-free, provided you fall in the 30 percent tax bracket and that you’re taking out your money after 5 years of service. To be benefitted from this exemption, you’re going to have to stay at your day-job for about 5 years. Bummer.
7. Money as gift
If you’re getting money as gifts, you don’t have to pay tax on that amount. However, there are few limitations here. While if you’re getting the gift from family and relative there is not upper limit on the exemption. But if you’re getting it from someone else (say friends), only Rs 50,000 will be tax-free. The remaining would be taxed according to the slab you fall into.
These are 7 types of income that you don’t have to pay taxes on in India. Of course, there are few more avenues. Unsurprisingly, the government employees enjoy more benefits.
So start planning for the upcoming tax season. Find right ways to save your Income tax legally.