In India, income above a certain threshold is subject to tax. The Income Tax Act of 1961 states that tax rates vary based on income slabs.
However, there are ways to save tax. Some types of income are not taxed, some can be refunded through claims, and some may be eligible for tax exemption.
Many people have multiple sources of income to cope with rising expenses. In addition to their primary job, they save and invest money in various ways.
Understanding tax rules is crucial, as it can prevent overpayment of tax on certain types of income that are not taxable.
Here are a few examples:
Life Insurance Claim or Maturity Amount: If you buy a life insurance policy, the claim or maturity amount is tax-free, provided the policy’s annual premium and sum assured do not exceed 10 percent.
Gifts or inheritance can also be a tax-saving avenue. According to the Income Tax Act, property, jewelry, or money received from relatives is not taxable under Section 56(2).
Property or jewelry inherited from parents is also tax-free. If gifts are received from individuals other than relatives, tax can be reduced up to a maximum of Rs. 50,000.
Agricultural Income: Earning money by cultivating farming land is not taxable, and the purchase or sale of agricultural land is also tax-free.
Gratuity: The gratuity received after a government servant’s retirement or death is not taxable. For private sector employees, gratuity at the end of service is not taxed unless it is less than Rs. 10 lakhs.
Profit from Partnership Firm: If you are a partner in a firm and receive a share of the profit, it is not taxable. However, this exemption applies only to company profits. If you receive a salary from the company, it is taxable.