Exempt Income and Income Tax Return

Exempt Income, the income that is not taxable. There is lot of confusion on what is exempt Income, whether the income needs to be reported while filing Income Tax Return. For FY 2012-13(AY 2013-14) one has to be careful as the new rules for tax filing announced this year states that if the total exempt income during the year exceeded Rs 5000, you will have to use ITR 2 and not ITR1. This article explains what is exempt Income, examples of exempt Income, How to show in Income Tax return? What is difference between tax exemption and tax deduction?

What is exempt Income?

The word exempt means free from an obligation from doing something. In the case of income tax, Exempt income refers to income which though is earned and received during the financial year is not taxable. Certain type income can be exempted from tax provided certain conditions are met which are defined in Income Tax Act. Exempt income includes tax-free sources of income, such as the interest on PPF, tax-free bonds and dividends . The long-term capital gains from stocks and equity funds, the agricultural income and gifts from specified relatives.

What is the difference between tax exemption and tax deduction?

In the case of income tax, Exempt income refers to income which though is earned and received during the financial year is not taxable. You get tax exemption on income.

The word deduct means to subtract or take away for the total. In Income Tax the word deduction, means the amount is taken away or reduced from the total taxable income. Usually when the government wants to encourage savings, they offer deductions for investing in certain instruments and hence lower your taxable income,income on which tax is due), by that extent. You get tax deduction on spending the income. For example

  • Investment under Section 80C which includes EPF,PPF,Life insurance policies, Equity linked savings scheme(ELSS) are available for deduction up to Rs 1 lakh  .
  • Health insurance premiums paid for self, spouse or children, also get a tax deduction benefit under Section 80 D.
  • Under Section 80 E you get a deduction on repayment of education loan (only interest)

For example, if your gross income is Rs 7 lakh and you invest Rs 1 lakh in an instrument that offers deduction, your total taxable income reduces to Rs 6 lakh. So for FY 2012-13(AY 2-13-14), your tax liability from 72,100 Rs after accounting for deduction, comes down to 51,500 you will pay Rs 20,600 less in income-tax.

Why you should be more cautious of exempt income in FY 2012-13 or AY 2013-14?

The new rules for tax filing announced this year states that if the total exempt income during the year exceeded Rs 5000, you will have to use ITR 2 to file your return and not ITR1. More clarity is needed on whether  the Rs 5,000 limit for exempt income include HRA, LTA and other allowances that a taxpayer receives from an employer as part of the salary package? Ref: EconomicTimes Five tax filing mistakes to avoid this year

Which Act of Income Tax governs Exempt Income?

Section 10 of the Income Tax Act contains provisions regarding most of the exempt incomes. For details you can check law.incometaxindia.gov.in Section 10 or TaxFaq List of Income that is Exempt from Income Tax

Which incomes come under exempt income?

Some of the income which are exempted from Indian Income Tax and their sections are given below.

  •  Agriculture Income [Sec. 10(1)]
  • Payments received from family income by a member of HUF [Sec. 10(2)]
  • Leave travel concession provided by as employer to his Indian citizen employee [Sec. 10(5)]
  • Any sum received on life insurance policy (including bonus) is not chargeable to tax Any sum (including bonus) on life insurance policy (not being a keyman insurance policy) [Sec. 10(10D)]
  • Any amount from provident fund paid to retiring employee [Sec. 10(11)]
  • Amount from an approved superannuation fund to legal heirs of the employee [Sec. 10(13)]
  • House rent allowance subject to certain limits [Sec. 10(13A)]
  • Interest from certain exempted securities [Sec. 10(15)]
  • Scholarship granted to meet the cost of education [Sec. 10(16)]
  • Family pension received by family members of armed forces [Sec. 10(19)]
  • Income of a minor child up to Rs. 1,500 in respect of each minor child whose income is included under section 64(1A) [Section 10(32)]
  • Dividend on or after April, 2003 from domestic companies [Section 10(34)]
  • Income on units of Mutual Funds on or after April 1, 2003 [Section 10(35)]

Image given below shows some of the income (Ref Economic Times Know the new rules of filing tax returns & how they impact you )

Examples of Exempt Income

Examples of Exempt Income

Do I need to show it in my tax return?

Even though these are tax-free, all exempt incomes must be mentioned in the tax return. Ignore this at your peril.

Exempt Income in ITR1 excel  from Fill Excel ITR1: 80G, Exempt Income,Calculation of Tax

Exempt Income in ITR1

Exempt Income in ITR1

EI section(worksheet) in ITR2 for exempt income is shown in picture below.

Exempt Income in ITR2

Exempt Income in ITR2

How to show exempt income?
  • Interest income : Income from PPF, Income From Tax Free Bonds comes here (Note: Interest from Fixed Deposit, Saving Bank Account are taxable and come under Income from Other Sources). Add all such income and show it here
  • Dividend Income : Any dividend received from Shares/Stocks or Mutual Funds etc needs to be added together and shown here.
  • Long Term capital gains on which Securities Transaction Tax has been paid : Equity mutual funds  where more than 65% of the holding is equity,for example Balanced Fund, don’t have long term cap gains tax currently, and neither does stock held for over a year. You pay Securities Transaction Tax on the sale.
    • For example an investor buys an equity oriented scheme on Dec 1, 2010 of 1,000 units at Rs 12 per unit. If he sells the units on Mar 2, 2012  at Rs 15 per unit (after STT) then there is a gain of Rs 3,000 for investor as long term capital gain. He has to show this gain a sLong Term capital gains on which Securities Transaction Tax has been paid.
  • Agricultural income comes here
  • Others (Including exempt  income from minor child) : If your income does not fall in above mentioned category it comes here.
  • Exempt Income from Minor Child : If investment is done on parents’s income in name of minor child(age less than 18 years) is clubbed with parents income and has to be shown in parent’s Income Tax Return
    • A minor’s income is clubbed with that of the parent with the higher income or if the parents of the minor child are separated, then the minor child’s income will be included in the income of the parent who is maintaining the child
    • A minor’s income is clubbed after an exemption of Rs. 1,500/- per child per annum
    • So if you have say opened a saving bank account in name of your minor child, interest earned on that would be exempted upto Rs 1500 and needs to be shown here.
    • Ex: if you have earned say Rs 465 as interest on saving bank account in name of child. Add Rs 465  to others in Exempt Income.
    • Ex: Ex: if you have earned say Rs 1285 as interest on saving bank account in name of child. Add Rs 1500  to others in Exempt Income here and remaining show it in Schedule SPI: Income of specified persons(spouse, minor child etc) includable in income of the assessee

Related articles :

81 Responses to Exempt Income and Income Tax Return

  1. Ritesh Doshi says:

    Just like interest on PPF needs to be mentioned in exempt income, should interest on PF contribution of employer and employee also needs to be shown in exempt income.

  2. Rakesh says:

    Please let me know if interest on FCNR deposit is required to be shown under EI in ITR2 for NRIs

  3. vekata reddy says:

    Dear sir,

    I am of 62years old, i have fixed deposits of about 35 lakhs (from my children salaries, working in India) in a govt bank. i have no other income. how to file IT returns. to what exent i can get tax exempt. can i claim House rent allowences. through which form i have to file IT returns.

    • bemoneyaware says:

      Interest from FD is taxable as per the income slab as Income from Other sources.
      As you are senior citizen your basic exemption limit is 3 lakh.
      You have to calculate how much interest you have earned last year.
      Whether TDS was deducted. If yes enter details in TDS section of ITR.
      You can file ITR1.
      House sent allowance is for the employee.

    • bemoneyaware says:

      For last year if you have invested in any tax saving instrument like LIC premium, PPF you can claim upto 1.5 lakh.
      Please check your Form 26AS to check how much TDS has been deducted

  4. Lingaraj says:

    Thanks for this wonderful blog. I am basically a PhD research scholar getting Rs 15,000/- per month fellowship from GOI to pursue my higher studies. And I have opened seperate bank account for receiving the fellowship amount. Along with this, even I get 75% of the salary from my employer, who has sponsored me for the studies. The fellowship amount what I receive is non taxable according to IT rule 10(16). However, whether I need to reflect this amount in ITR? If yes, then where exactly? Does the field D19 is meant for this purpose only? Kindly reply at the earliest..

  5. Neelam kumar says:

    My Email : neelam1961@gmail.com
    KINDLY HELP ME: (Male – senior citizen, date of birth is 01-11-1954) RETIRED.

    I need your help in calculating income tax return for FY 2015-16 (i.e. AY2016-17), as there are some new forms provided this year. So I am confused which ITR FORM I should select.
    For this I am giving my income details below:
    1. Will recieve Rs.4098/=only per month as pension(Full year=Rs.49,176/=), in which column it will be shown in ITR FORM.
    2. Will get approx.Rs.3.80 lakhs as FDs interest.(out of this Rs. 38,000/= will deducted as TDS)
    (and Rs. 1.50 lakh deposited in PPF as 80C )
    3. Will get approx.Rs. 1.18 lakhs as perpetual NCD/Bond interest.
    4. Will get approx.Rs.15,000/= as saving account interest.
    5. Trying to make income approx. Rs.2.0 lakh from Short Term Capital Gains by sale of Shares on which STT is paid.
    So, total income comes as blow(provisional):
    Pension : 49,176=00
    FDs interest : 3,80,000=00
    NCD/Bond intt : 1,18,000=00
    Saving a/c intt. : 15,000=00
    STCG(shares) : 2,00,000=00
    Total Income : 7,62,176=00
    Kindly, can you please calculate my Tax liability(after TDS) to be paid for
    AY 2016-17 by me.
    Thanking you for an earlier reply on my Email given.
    Kindly reply on My Email : neelam1961@gmail.com

    My questions are below:
    1. which ITR fom i should fill.
    2. In which columns the above incomes are to be shown(i.e.STCG etc)

    NAME: NEELAM KUMAR, MOB: 9359907984.

  6. Ranjan says:

    LIC Policy Matured this F.Y
    1. Matured Value 84,920.00
    2. TDS under 194DA 2% Rs. 1698.00
    3. Term 20yrs Rs.2064.00
    How should I fill ITR-1?


  7. Ritg says:

    I undertook domestic travel (by air economy fare) in December 2014 and then in February 2015. My company pays a LTA for Rs. 40000/- per year. I have never claimed any LTA exemption ever before.

    However, I missed out on submitting travel proofs to my company for LTA exemption, such that they could give me LTA exemption in tax and reflect the same in my Form16..

    Few questions:

    1. Can I file for LTA tax exemption in my IT return that I am filling for FY 2014_15 now, even though the same has NOT been reflected in my Form-16.

    2. If yes, under which section of ITR-2 and how ( I need to file ITR-2, as I have to declare company granted Stock options), do I need to claim this exemption under? Will the tax sheet automatically deduct this amount from Taxable income?

    3. Can I claim exemption for both the travels – as they are in different calendar years, and I have not exhausted the LTA exemption claim ever before?


  8. Amrita says:

    Amount received on retirement towards superannuation fund TDS on which is done as per Clause 6 of Part B of Sch IV of the Income Tax Actat average rates of past 3 years where to show it in ITR Form ?

  9. Arnab says:

    I have earned salary income from 2 sources- one from a firm and another from a PSU. I filed ITR-1 showing income from PSU as salary income and income from firm as income from other sources as there was no option in ITR-1 for filling details of salary from 2 employers. Have i made a mistake or there is no problem with it?

    • bemoneyaware says:

      There are few categories of Income as per Income tax. If there is an employer-employee relation ship income earned from 1 or multiple employers is still Income from Salary. Unless in Firm you work as consultant and TDS of 10% is only deducted. Do you get two Form 16 or one Form 16 and one Form 16A?

      • Arnab says:

        I received only one form 16. i.e from PSU. In firm i used to work as an assistant. They did’nt deduct any TDS as my salary was below taxable limit.

      • Arnab says:

        In form 26AS only salary income from PSU is reflected and not tax has been deducted.

  10. Mahesh says:


    I have following source of income.

    1) Income from salary
    2) Interest from savings bank account
    3) FD interest
    4) Long term capital gains from ELSS mutual funds(equity) selling which are completely tax free[as they were hold for more than 3 years].

    Could you please let me know whether I need to use

    1) ITR-2A or ITR2?
    2) If it is ITR2, Do i need to enter anything under CG schedule?

    • bemoneyaware says:

      Your income are as follows:
      Income from Salary
      Income from Other Sources : Income from SB account(exempt upto 10000 under section 80TTA), FD Interest
      Exempt Income : Long Term capital Gains on which STT has been paid.(see exempt income image of ITR2)

      So you can actually file ITR1 also
      Else ITR-2A is good enough!

  11. Vas says:

    This FY (2014-15), my income is only from Savings bank interest, shares dividends and my previous company bonus in April 2014. Total income including all the sources is less than 1.6L. For last few years i am filing returns as my income is more than 5L. Does i have to file this year my returns ? If yes, which form i have to use ITR1 or ITR2 or ITR2A?
    Please suggest me.
    Thanks in advance

    • bemoneyaware says:

      As your total income is below exemption limit you can avoid.
      It is recommended that you file your returns if you want loans like home loan etc.
      Income from Saving Bank Interest: Income from Other sources
      Shares and Dividends (for stocks listed on Stock market exchange) Exempt Income
      Regarding Previous Company bonus exempt Income.
      So you can file ITR1

  12. DKS says:

    Could you please let me know –
    1) where to mention interest income from RFC(Resident Foreign Currency) deposits in ITR2. These were converted from FCNR and also transferred from Foreign Account after coming back to india permanently few years back.I usually include it (after converting in indian Rs) in other income and pay the tax accordingly.
    2) I still have foreign account and mentioned in schedule FA. Now this time Interest on that account has to be mentioned. The bank deducts the tax on interest there every year. How to show it ? Also interest is not much (around Rs 1500 only) so can I ignore it to mention there but include in my other income.


  13. jude says:

    I have got hardship compensation from a builder in connection with redevelopment of my building. This is exempt income. Where do I include this?

    • Kirti says:

      The Income Tax Tribunal, Mumbai in its several latest judgements, have declared that this fund also known as “Hardship Compensation” is not taxable as there is no cost of acquisition. Show it in others in Exempt Income

  14. S Mallick says:

    I have transferred about 12 lac to my daughter last year and deposited in her account or used for her college fees. This can be a gift to my daughter.
    Her other income from existing Bank deposits is less than 2.5 lac.
    Now is there a requirement of tax filing by her.
    Kindly comment.

  15. Niraj says:

    I was employed by 2 employers in FY 2014-15. My previous employer did not include HRA exemption in form 16. Apparently, I did not declare it at the start of the year. Can I use ITR 1 for filing returns since my HRA exemption is certainly more than 5000 or do I have to use ITR 2? If I can use ITR 1, can I just remove the HRA exempt amount from Income under head salaries (one that is mentioned in my form 16 without HRA exemption). This would result in mismatch of income figures from ITR 1 and form 16. Would that be ok?

  16. prathmesh says:

    hello, i am nri. i want to file itr2 form.
    1) where i can show “interest in nre account”?
    2) where i can show all fund i remitted to india (nre account)?

    as this both are tax exempted money, can i show it in “EI” column in itr form?

    • bemoneyaware says:

      Some basics of NRI and Income Tax

      An NRI’s income taxes in India will depend upon their residential status for the year.

      If your status is ‘resident’ your global income is taxable in India.
      If your status is ‘NRI’ your income which is earned or accrued in India is taxable in India.

      Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from Fixed Deposits or interest on savings bank account are all examples of income earned or accrued in India.

      These incomes are taxable for an NRI. Income which is earned outside India is not taxable in India.
      Interest earned on a NRE account and FCNR account is tax free.
      Interest on NRO account is taxable for an NRI.

      ncome Tax Return must be filed by an NRI when their total income (before any deductions) is more than Rs 2,50,000 (for AY 2015-16 or FY 2014-15).

      Income Tax Return must be compulsorily filed in the following cases:

      NRI has short term or long term capital gains from any investments or assets (even when gains are less than Rs 2,50,000).
      To get a tax refund
      To carry forward losses so they can be adjusted later
      A return need not be filed if income from short term or long term capital gains is the only income the NRI has and TDS has been deducted on it.

      • prathmesh says:

        thanks for reply.
        i understand that this is tax free income as status is “NRI” and its global income.
        but where i should show it in itr form?
        or this income is not documented anywhere in form?
        i am filling iTR2.

        • bemoneyaware says:

          Main purpose for which NRI opens NRE account is mainly to repatriate money freely to and outside India. As per Income tax, if status f assessee is “resident” of india then only his/her global income is taxable. Since here his/her status is non resident Interest on NRE account is not taxable, and exempt u/s 10(4)(ii), and can repatriate the same with interest without paying any tax.

          so, amount remitted in nre a/c doesn’t require to disclose in nre a/c and interest earned on nre a/c is exempt under 10940(ii).

          • Surendra Gupta says:

            Thank you for above reply as I had similar quires.Could you please advise if we need to disclose our NRE account nos. also in ITR2.

          • bemoneyaware says:

            Yes sir, since NRE and NRO accounts are types of current & savings account, these must be disclosed in the return.

  17. Siddhartha says:

    I’m a salaried person working in a private co. My wife has joint bank accounts and demat accounts with her parents (E&S), and these accounts are existing before our marriage. She does not make any share transaction but her father may or may not. She has a single account and joint accounts with me as well. However, her total annual income from savings bank acc interest, divident payout etc. is well below the minimum income exemption limit and this is even less than 1% of my salary. Now I’m having follwing two doubts:
    1.Whether she should file ITR return (she is having a PAN)?
    2.Should my wife’s income from these accounts can affect my tax liability?

  18. P S Rastogi says:

    1-My wife has been undergoing cancer treatment ,covered under CGHS.
    The reimbursement has been dne with about 14000 deduction ,beside this I have spent additional expenses for tests etc, totalling to about Rs 30000. I have also got certificate in Form 10-I.
    we are sr citizen . Can you advise if I can claim this exemption.
    2- My son is a NRI and he has no other income in India other Then house rent and interest on FD. His total indian income is less then taxable income.Does he have to show his foreign account

  19. Kashyap Joshi says:


    1) A salaried employee who has to fill out ITR-2 receives a deposit of Rs. 15 lakhs in his savings bank account.
    2) This credit entry is due to the sale of listed equities with STT paid which he had bought 4 years ago for Rs. 20 lakhs. Clearly, the 15 lakhs is non taxable due it being Long Term Capital Loss.
    3) An IT auditor, will not know the source of income of Rs. 15 lakhs and will send notice to the person to explain it. How to avoid scenario to receive notice by properly declaring the amount in the ITR-2?
    4) Which amount is to be filled in & where to fill in the amounts in the ITR-2?

    Kindly provide your comments for the above.

    Thanks and Regards,

  20. Muthu says:


    Should exempt income on PPF and EPF interest be declared on accrual basis or only on maturity. The article says we should just declare the interest if it is paid to a retiring employee (Sec. 10(11)) but the image (from ET) says we should declare the PPF interest also. Can you please clarify?


    • bemoneyaware says:

      Very good question and as usual there are two approaches wrt PPF you can show and you can also not show.
      Please note that PPF is beyond the jurisdiction of I.T. Dept as it is an act enacted by Parliament and falls under EEE (exempt exempt exempt) category. I.T. Dept. does not have a legal access to it, even courts to a great extent are not allowed to touch it.

      If you declare PPF interest it should be in Exempt Income
      EPF interest is not shown

  21. Ram Narasinham says:

    I have 2 questions as below
    1. If one has received gifts which are below the taxable limit of 50,000/- OR tax free eligible gifts (like from lineal relations), do we need to include them in the ITR returns?
    2. If I have gifted certains sums of money on certain dates to my brother/mother/father WITHOUT NEFT or cheque etc. but in Cash, and we have recorded the entries in our respective capital account statements, is this ok? Or would those transactions have necessarily been done using Cheque/DD/NEFT/RTGS etc.?

  22. M.A.Parikh says:


    Gift income received from relative. Is it required to show in ITR ? In which column it is to be entered in ITR form ?
    Thanks in advance…

    • bemoneyaware says:

      Gift from set of relatives is tax free.
      Technically its not income and there are divergent views of whether to declare it or not.
      if tax free You can declare it as exempt income

      There are some receipts which are excluded from being included as the income and this will include the amount received as inheritance or the amount received at the time of a wedding or the amount received from relatives.
      In all other cases if the amount received is more than Rs 50,000 in a year then this figure would be included as income. Now the key part if the definition of the relative so that the individual knows the person from whom the receipt is not taxable.
      Brothers, sisters, parents and children The first group of people who would qualify as a relative under the rules would be the brother and sister of the individual. This along with the term all lineal ascendants and descendants ensures that the immediate family members would be considered as a relative. This would mean the father as well as grandfather as well as children and grandchildren. This makes the process of giving easier when so many people would be present to be covered under the term of relative.
      In terms of the further coverage the brothers and sisters of the parents of the individual are also covered so this will bring into the fold all the aunts and uncles that are present in the family. Often a lot of gifts are given from them and hence this is not a concern.
      The spouse of all the categories of people mentioned would also be included as a relative which means that the wife of the uncle or the husband of an aunt or grandmother who could have given a gift would not be covered under the provision of having their contributions considered as taxable.

  23. SeKar says:

    I have two incomes,

    1. Received PF maturity amount above Rs.50000/-
    2. Professional income.

    Which ITR form should i use. ITR1 or ITR4 ?

    • bemoneyaware says:

      For PF maturity amount was TDS deducted. If not then show PF amount as exempt income.
      By Professional income do you mean salary or being a consultant?
      If salary ITR1 is good enough
      If consultant ITR4/ITR4S

  24. Gulab says:

    Please refer my earlier comments.I have exempted income from long term capital gains from sell of Shares which is more than RS 5000.00.As it is mentioned in ITR-1 form that fill ITR=2 when Agriculture income is more than RS 5000.00.Can I fill form ITR-1

  25. Gulab says:

    In ITR! Form of 2015-16.There is column NO:26 For filling Exampted income It says fill form ITR2 if your Agriculture income is more than RS 5000.00Does that mean we can fill ITR-1 form if income form long term capital is more than Rs 5000.00

  26. Kiran Kale says:

    Hello, I am in receipt of salary from foreign company. I have calculated days of presence and I am sure about the fact that I fall in Non Resident Category. However I am confused about where shall I show it in ITR 2. Can such income which is accrued outside India termed as exempt Income as per law?

  27. sankar says:

    I have received an insurance maturity proceeds under a scheme NOT covered under 10(10D) exemption.TDS has been deducted @ 2%.How to compute income from such proceeds and under what head?

  28. Anup walia says:

    I had purchased a second house with joint ownership with wife with I as the first owner. The money was paid from my resources with no contribution from wife as she is nonworking. I understand that I am liable to pay income tax on 100 percent rental income as the house was purchased from my resources.
    However while filing my returns, in ITR 2 schedule HP, when I indicate 50 percent ownership, rental income is getting reduced by 50 percent.
    Wife does not file returns.
    Do I indicate 50 percent rental income in wife name in schedule SPI. If yes, then how do I club it with rental shown in schedule HP, so that total rental income is accounted for.

  29. Shubha says:

    Dear Sir/Madam,
    Pls. inform if all the details of SB accounts including joint account(not first holder) & either or survivor operated SB accounts of individuals needs to be disclosed while filing ITR1 for salaried persons. This is not clear to me.

    Also please inform if the total accumulated amount of interest income for all the SB accounts including joint account(not first holder) & either or survivor operated SB accounts of individuals needs to be put under head “income from other sources” in ITR 1 and claim upto 10,000 in section 80TTA.This needs to be clarified.

    Please clear the above 2 queries asap as need to file ITR1 for current FY.


    • bemoneyaware says:

      It’s not clear about joint account. So our guess is you need to provide details of accounts of which you are first holder.

      Total number of bank accounts both savings account and current account held by you at anytime during 1st April 2014 to 31st March 2015.
      It is not compulsory to provide details of accounts which are dormant. For this purpose any accounts which have been in-operational for the past 3 years are considered as dormant.
      Provide IFSC Code of the Bank – You should be able to find it in the cheque book of the bank where you have an account or online with the bank.
      Name of the Bank – ClearTax automatically populates the name of the bank when you enter its IFSC code.
      Account Number – Your bank account number has to be provided. This must be a 9 or more digits number.
      Mention whether the account is a savings account or a current account
      Select the account where you want to receive refund of tax – You have to select the account where you would like refund to be credited irrespective of whether you have a refund due or not in your income tax return.

  30. arvindtk says:

    Dear sir,
    I have received LIC MATURITY AMOUNT on 1st January 2015 of Rs.150250 and a TDS of 2% deducted by LIC of RS. 3077 u/s 194DA . how to show this amount in ITR so i can get refund from INCOME TAX as I have no taxable income.

    • bemoneyaware says:

      From 1st October 2014, insurer will deduct tax at source of 2 per cent from maturity proceeds of a life insurance policy if the premium paid is more than 10 per cent of the sum assured
      Currently, under section 10(10D) of the Income Tax Act, any sum received from a life insurer is not taxable if the premium payable is upto 10 % of the sum assured. Tax would be payable as per your tax slab if the premium exceeded the 10 per cent amount.
      Note that your tax liability is not over with the 2 per cent TDS. Insurance policy receipts that are not eligible for tax exemption under Section 10 (10D) will be taxed as normal income at the individual’s slab rate.

      How to get back the TDS on LIC amount ?
      While preparing your Income Tax Return, claim the credit of TDS by mentioning the details of Form 16A (issued by LIC) in the relevant column of Income Tax Return.
      You have to include the maturity proceeds in your Income under the head Income From Other Source while calculating your Income Tax if the annual premium for that LIC is more than 10% or 20% of the Sum Assured (As the case may be )

  31. ks says:

    I am a gallantry awardee and my pension is exempted from IT under clause 18 of section 10.Do I have to show my income under colm 5(others) under schedule E1?.
    Does this exempted income get clubbed with other gross income for the purpose of IT slab?

    • bemoneyaware says:

      Congratulations Sir for your gallantry award.
      Yes Sir it is best to show it under column 5 i.e other of schedule E1 as ITR is financial record of your income earned.
      This income is exempted so it would be deducted from the total income for the purpose of IT.

  32. Narsi says:

    Hi I have capital gains (Shares ). Do i need to mention them in Tax retursn sheet. I do not think i nned to pay tax for them as they are long term capital gains. Please confirm.

    • bemoneyaware says:

      Yes Sir. Long Term capital gains on which Securities Transaction Tax has been paid no tax has to be paid but have to be reported in ITR. Shares come under long term capital gain if held for more than an year

  33. Adit says:

    Does 5000 rs limit include HRA and LTA?

  34. mihir says:


    • bemoneyaware says:

      You have to show interest as otherwise there would be mismatch between tax reported and tax deducted.
      You would have filled Form 15G and not 80G to avoid tax.

  35. Rajesh Goyal says:

    In FY 13-14, I retired from MIn of Def. I have not reported My Gratuity, Comuitation, and Leave encashment received at the time of retirement in Exempted Income. I used ITR-1 as I was having no other income. Do I have to file a revised return, or its OK as the amount has been transferred in pension account/salary account through government cheques.

    • Kirti says:

      Is your return cleared by the Income Tax for FY 13-14?
      Were Gratuity,Commutation and Leave Enchantment part mentioned in Form 16? As this is exempt income and you have retired and you don’t owe tax to government, I don’t think Income tax office will come after you.

  36. rajib saha says:

    If dividend income are exempted income then what kind of dividend income is taxable under schedule OS-Income from other sources 1.(a)

  37. rajib saha says:

    if dividend income are exempted income then what kind of dividend income taxable under income from other sources in schedule OS 1(a)Dividends, Gross

    • Kirti says:

      The following incomes are chargeable to tax under Income from Other sources:
      Dividend received from any entity other than domestic company. This is because dividend received from a domestic company has been made exempt in the hands of the receiver. Accordingly dividend received from a cooperative bank or dividend received from a foreign company will be taxable as income from other sources.

  38. mahender says:

    your article clarify my one question that what itr should be used for showing the gift but please clarify following question also:

    my mother got Rs5000monthally from my brother
    can this money can be shown as gift income in my mother’s ITR?{i am asking because somewhere i read that as the money is given regularly so it cannot be shown as gift; is it so?}

    to proof the gift, transaction should be by cheque/dd or deed ;please tell?
    Is my brother also needed to show the gift amount in his ITR as mentioning that he gifted that amount to mother?

    • Kirti says:

      Mahendra, Sorry for delay in replying. I am not sure and has asked my CA.
      After filing of IT returns my CA is on break. Hopefully will get the answer
      today/tomorrow so shall update you!

    • Kirti says:

      Mahendra Exempt income is shown as break up in ITR2.
      Acutally people don’t show the money received as gift from relatives.
      The person who gives the gift doesn’t show as there is no income on it.
      The person who receives the gift can show as exempt income as others if amount is big or need not show it but have a letter from the donor saying given as gift just in case income tax authorities ask.

      In case of your mother if she is not filing the returns she need to do anything.

      • mahender says:

        thanks for reply
        my mother need to file itr because tds is deducted on commission recived from post office and to get refund.
        I want to know as my mother is reciving about Rs5000 per month regularly from my brother ,can we show this income as gift income because somewhere i read that money which recived regularly, we cannot show that money as gift recived ?

  39. Ankit says:

    1) Sold tax-gain mututal funds after 3 years lock in period.As the whole amount is tax-free, where to mention this amount in ITR-2?
    2) Withdrew EPF amount from previous employer after completing 5 years of continuous service. As this amount is also tax-free ,where do we mention this amount in ITR-2?

    • Kirti says:

      I hope Tax filling is not keeping you awake (Question was asked at 2:25 AM)
      Sold tax-gain mutual funds after 3 years lock in period
      I think you are talking about Equity Linked Savings Schemes (ELSS).
      Due to change in NAV of the mutual fund you would have either
      1. got a profit if NAV at selling time is more than at buying time
      2. got a loss if NAV at selling time is less than at buying time
      Check whether you have got a loss or a profit due to investing in ELSS. For example you bought 100 units of ELSS fund at Rs 12 and now after 3 years it is at Rs 14. So your net gain is (Rs 14-12) * 100 = 200
      if there is a long term capital loss that is incurred then the individual will have to discard this from the tax calculation because the loss cannot be set off against any other income.
      If there is a long term gain it will be tax free in the hands of the receiver as there is no tax that is levied on equity oriented funds that have been held for a period of more than one year and securities transaction tax has been paid. STT has to be paid at the time of the sale of the units but the fund will deduct this amount and give the remaining figure to the investor.
      Show this long term capital gain in part 3 of the Exempt Income
      3 Long-term capital gains from transactions on which Securities Transaction Tax is paid
      EPF amount
      Show it in Exempt income in others 5 Others, including exempt income of minor children

  40. Vaibhav says:


    Thanks for this useful info. One small question – while filing ITR2 now, where do I mention my savings bank account interest (Income from other sources or exempt income)?


  41. That there’s helluva difference between exempt and deduction at source is explained nicely. Thanks for sharing.

  42. Sunil says:

    Dear Be Money Aware,

    I am clear on all the things except on House Rent Allowance, as salarieed employees we get HRA included in our payslips and we show the rent receipts and we get exempted from paying tx (Upto some limit) – So my questions is should we show this under exempt income and go for ITR-2 instead of ITR-1.

    Please clarify and thanks for the article.


    • Kirti says:

      HRA is not shown as exempt income in ITR. As shown in ITR2 picture exempt income to be shown is Interest( from PPF etc), Dividends (from stock and Mutual funds) etc.
      This time there is confusion on who can use ITR1 due to the exemption clause. So if your interest income (from PPF) or dividends etc are less than 5000 go for ITR1 else ITR2. This is my suggestion, please get it verified by some CA before you proceed.

      • Mohammed says:

        Interest on the balance gets credited every year in the PPF account. There are few interest incomes that are TAX exempt.

        1. Saving bank interest ( less than 10K)
        2. Interest on TAx saving bonds
        3. Interest on PPF balance for the year
        4. Interest of EPF balance for the year( This info will not be ready as it gets updated very late. What do we do in this case)
        There is no provision to explain this and put in the EI schedule of ITR. Should we club all the above and put in the interest section of EI schedule )

        Second I have a LIC policy that got matured during the FY. Maturity proceeds are TAX EXEMPT.
        Where and how do we put the maturity proceeds in the EI schedule.

        Can you and the group help me with above.

        • Kirti says:

          Saving Bank interest comes under section 80TTA. SHow it in Interest part of income from other sources and claim upto 10,000 in section 80TTA
          Interest on tax saving bonds: taxable as income from other sources in Interest part
          PPF balance, EPF balance : Exempt income,Interest Typically we get this information in Apr-May in a slip.
          LiC policy is exempt from tax Under the provisions of section 10(10D) of the Income-tax Act, 1961, However any sum (not including the premium paid by the assessee) received under an insurance policy issued on or after the 1st day of April, 2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured will no longer be exempted under this section.
          Show it in others of Exempt Income

          • Mohammed says:

            Thanks Kirti,

            1. Should we mention full amount of LIC policy proceeds or Only (Total amount received – the premiums paid)

          • Kirti says:

            One should mention full amount as it may also include bonus. Premium paid would be taken care in earlier years(if claimed under section 80C)
            Maturity proceeds are exempt under section 10(10D) :Payment on a Life Insurance Policy, including bonus thereon but excluding therefrom amounts received u/s 80DDA(3).
            If you can get it verified by another person it would be great!

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