The following incomes are completely exempted from income tax without any upper limit.
- Interest on PPF/GPF/EPF
- Interest on GOI tax free bonds
- Dividends on Shares and on Mutual Funds
- Any capital receipt from life insurance policies i.e., sums received either on death of the insured or on maturity of life insurance plans. However, in case of life insurance policies issued after March 31, 2004, exemption on maturity payment u/s 10(10D) is available only if the premium paid in any year does not exceed 20% of the sum assured
- Interest on savings bank account in a post office
- Long term capital gain on sale of shares and equity mutual funds if the security transaction tax is paid/imposed on such transactions
Dividend Income:
Dividend income from companies /equity-oriented Mutual Funds is completely exempt in the hands of investors. Dividend is also tax-free in the hands of investors in case of debt-oriented Mutual Fund schemes.
Gift Tax:
Gift tax was abolished with effect from October 1, 1998. The gifts are no longer taxable in the hands of donor or done. However, with effect from September 1, 2004, any gift received by an individual or HUF will be included in taxable income, provided the amount of gift exceeds Rs 50,000.
However, gifts received from any of the following will continue to remain tax free:
- Spouse
- Brother or sister
- Brother or sister of the spouse
- Brother or sister of either of the parents of the individual
- Any lineal ascendant or descendant of the individual
- Any lineal ascendant or descendant of the spouse of the individual
- Spouse of the person referred to in (2) or (6)
- Also, gifts received on the occasion of marriage or under a will by way of inheritance are also tax free
Banking Cash Transaction Tax was abolished with effect from March 31, 2009
Computation of Gross Taxable Income:
As per Income Tax, Income of a Person is computed under the following 5 Heads:
- Income from Salaries
- Income from House Properties
- Profit & Gains of Business & Profession
- Capital Gains
- Income from Other Sources
Now we will discuss in detail about the taxability of these sources of income
1. Salary or Pension Income
Salaried employees are issued a certificate of tax deducted at source from salary income by their employers in Form No. 16. It also gives the Net Taxable Salary figure.
2. Income from House Property
If the property is self occupied then the Income from House Property is treated as NIL. If any loan is taken for the purchase of the property then the amount paid towards interest up to a maximum of Rs.1, 50,000/- is deducted from taxable income.
In case property is given on rent, then we have to find out the
a. Annual Rental Income
b. From this deduct Property Tax paid if any
c. From balance amount – deduct 30% towards repairs & maintenance
d. From the residual figure – deduct the amount of interest paid on loan taken for the
Purchase of property
e. The resultant figure is the Income from House Property
3. Profit from Business / Profession
Income as arrived on the basis of Profit & Loss A/c
4. Income from Interest
Interest Income from the following sources is also required to be included in the Gross
Taxable Income:
- Interest on company deposits.
- Interest on debentures/bonds.
- Interest on savings bank account/ fixed deposits with banks.
- Interest on post office savings schemes like MIS, NSC, KVP etc.
- Interest on private loans given to relatives, friends or any other entity.
- Interest on government securities.
Note: Deduction u/s 80 L has been omitted now and accordingly, interest income from the above sources is fully taxable now.
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