Month: May 2025

Section 80M: Deduction for Inter-Corporate Dividends, Conditions and Example

Posted on by CA Meet Dhrangadhariya

Last updated: 15 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 80M removes the cascading tax on dividends passed from company to company.
  • A domestic company gets a deduction for dividends it receives, up to the dividend it distributes at least one month before the return due date.
  • Dividends from domestic companies, foreign companies and business trusts all qualify.
  • From Tax Year 2026-27 it is section 148 of the Income-tax Act, 2025, and it stays available to companies taxed at 22% or 15%.

When one company pays dividend to another and the second company then passes it on to its own shareholders, the same profit could be taxed at every step. Section 80M removes that cascading effect. From Tax Year 2026-27 the provision is section 148 of the Income-tax Act, 2025. For FY 2025-26 (assessment year 2026-27) it is still section 80M of the 1961 Act.

Background

Until 31 March 2020 the company declaring a dividend paid dividend distribution tax (DDT) and the dividend was exempt in the shareholder’s hands. DDT was abolished from 1 April 2020, so dividends are now taxed in the hands of the recipient at its normal rates. Section 80M was brought in alongside, so that a company that merely passes dividends through is not taxed on them twice.

What does section 80M allow?

A domestic company whose gross total income includes dividends from any of the following gets a deduction:

  • another domestic company,
  • a foreign company, or
  • a business trust.

The deduction is the amount of that dividend income, limited to the amount of dividend the company itself distributes at least one month before the due date for filing its return of income. In short, it is the lower of the two figures.

Conditions

  • Only a domestic company can claim it.
  • The distribution must be made at least one month before the due date for filing the return (section 139(1) of the 1961 Act, section 263(1) of the 2025 Act).
  • A distribution that has been used to claim the deduction in one year cannot be used again in any other year.

Example

A domestic company receives ₹10,00,000 as dividend from another domestic company and ₹2,00,000 from a foreign company, so ₹12,00,000 in all. In the same year it distributes ₹9,00,000 as dividend to its own shareholders, more than a month before the return due date.

Item Amount in ₹
Dividends received 12,00,000
Dividend distributed in time 9,00,000
Deduction (the lower) 9,00,000
Dividend income left in taxable income 3,00,000

If it had distributed ₹15,00,000, the deduction would be capped at the ₹12,00,000 received.

Concessional tax regimes

A company that has opted for the 22% rate (section 115BAA of the 1961 Act, section 200 of the 2025 Act) or the 15% rate for new manufacturing companies (section 115BAB, now section 201) cannot claim most deductions in Chapter VIII. The 2025 Act expressly keeps two for them: section 146 (additional employee cost) and section 148 (inter-corporate dividends). Under the 1961 Act the same exceptions applied to 80JJAA and 80M.

Dividends from foreign companies

Earlier guidance described a special 15% rate for dividends from foreign companies in which a company held 26% or more. The 2025 Act has no such rate. Dividends from foreign companies are part of total income at normal rates, and section 148 gives relief to the extent they are passed on to shareholders in time.

Frequently asked questions

Who can claim the section 80M deduction?

A domestic company whose gross total income includes dividends from another domestic company, a foreign company or a business trust.

How much is the deduction?

The lower of the dividend received and the dividend the company itself distributes at least one month before the due date for filing its return.

Can the same distribution be used twice?

No. If a distribution has been used to claim the deduction in one year, it cannot be used again in another year.

Is it available if the company pays tax at 22% or 15%?

Yes. The concessional regimes in sections 200 and 201 of the 2025 Act block most Chapter VIII deductions but expressly keep section 148 (and section 146).

What is the section number from Tax Year 2026-27?

Section 148 of the Income-tax Act, 2025.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Section 80QQB: Deduction for Royalty Income of Authors

Posted on by CA Meet Dhrangadhariya

Last updated: 24 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 80QQB gives a resident author a deduction of the lower of the royalty income and ₹3,00,000 on royalty or copyright fees from a literary, artistic or scientific book.
  • Royalty from abroad counts only if it is brought into India in convertible foreign exchange within 6 months of the end of the year.
  • The payer’s certificate (Form 10CCD, now Form 36) must be filed with the return, and the deduction is available only in the old tax regime.
  • From Tax Year 2026-27 it is section 151 of the Income-tax Act, 2025.

An author who earns royalty from books gets a deduction under section 80QQB, up to ₹3,00,000 a year. From Tax Year 2026-27 the provision is section 151 of the Income-tax Act, 2025. For FY 2025-26 (assessment year 2026-27) it is still section 80QQB of the 1961 Act.

What is royalty here?

When an author gives a book to a publisher, the publisher pays a share of sales or profit as royalty. The section covers income derived by an author in the exercise of the profession of writing:

  • a lump sum for assigning or granting any of the author’s interests in the copyright of a book of literary, artistic or scientific nature, and
  • royalty or copyright fees on the book, whether received as a lump sum or otherwise.

A lump sum includes an advance on royalty or copyright fees that is not returnable. A joint author is treated as an author.

Who can claim?

An individual who is an author resident in India. HUFs, companies and non-residents cannot claim it.

How much is the deduction?

The lower of:

  • the royalty income included in gross total income, or
  • ₹3,00,000.

If the income is royalty rather than a lump sum for all rights in the book, then the part of income (before expenses) that exceeds 15% of the value of the books sold in the year is ignored for this deduction.

Which books are excluded?

The word “books” does not include brochures, commentaries, diaries, guides, journals, magazines, newspapers, pamphlets, text-books for schools, tracts and other publications of a similar nature.

Royalty from abroad

Income from a source outside India qualifies only to the extent it is brought into India in convertible foreign exchange within six months from the end of the tax year in which it is earned, or within any further period the Reserve Bank of India or other competent authority allows. The author also has to furnish a certificate from the RBI or other authorised authority with the return.

Certificates and forms

  • Up to FY 2025-26: the payer’s certificate in Form 10CCD, and for foreign income Form 10H.
  • Under the Income-tax Rules, 2026 (from 01/04/2026): the certificate verified by the person who pays the royalty is Form 36 (Rule 70), and the certificate for income from outside India is Form 38 (Rule 72). Both are furnished along with the return of income.

No double deduction

If a deduction has been allowed for a year on this income, the same income cannot be deducted under any other provision of the Act in any year.

Old regime only

The deduction is not allowed in the new tax regime. Section 202 of the 2025 Act (the new regime) disallows Chapter VIII deductions other than sections 124(1), 124(2), 125(2) and 146.

Examples

An author with some business income. Komal is a resident author. She earns ₹5,50,000 in royalty (not a lump sum for all rights, and below 15% of the value of books sold) and has other business profits of ₹2,00,000.

Item Amount in ₹
Royalty income 5,50,000
Other business profit 2,00,000
Gross total income 7,50,000
Deduction under section 80QQB (lower of 5,50,000 and 3,00,000) 3,00,000
Total income 4,50,000

Foreign royalty and the six month rule. Ravi is a resident author. In FY 2024-25 he earns ₹6,00,000 as royalty from a UK publisher and receives it in India in convertible foreign exchange on 31 October 2024. The six months run from the end of the tax year, that is 31 March 2025, so the deadline is 30 September 2025 and he received it in time. The ₹6,00,000 counts, and he can claim ₹3,00,000, provided he files the RBI or authorised authority certificate with the return. If the money had come in after 30 September 2025, with no further extension, none of it would have qualified.

Frequently asked questions

Who can claim section 80QQB?

An individual author resident in India whose income includes lump sum consideration for assigning copyright in a book, or royalty or copyright fees, earned in the exercise of the profession of an author. A joint author can claim.

How much is the deduction?

The lower of the royalty income and ₹3,00,000 in a year.

Which books are excluded?

Brochures, commentaries, diaries, guides, journals, magazines, newspapers, pamphlets, text-books for schools, tracts and similar publications.

What if the royalty comes from abroad?

It counts only to the extent it is brought into India in convertible foreign exchange within 6 months from the end of the year in which it is earned, or a further period allowed by the RBI or competent authority, and a certificate in Form 38 must be filed.

Is it available in the new tax regime?

No. It is available only in the old tax regime.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Perquisites in Income Tax: Types, Valuation and Taxability for Tax Year 2026-27

Posted on by CA Meet Dhrangadhariya

Last updated: 12 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A perquisite is a benefit your employer gives you because of your job, and it is taxed as salary at the value fixed by Rule 15 of the Income-tax Rules, 2026.
  • The 2026 Rules raised several limits: free meals ₹200 per meal, gifts ₹15,000 a year, interest-free loans ₹2,00,000, school fees ₹3,000 per child a month, and the salary test for non-director employees ₹4,00,000.
  • Rent-free accommodation is valued at 10%, 7.5% or 5% of salary by city size, and hotel accommodation at 24% of salary.
  • Employer contributions above ₹7,50,000 a year to PF, NPS and superannuation are also a perquisite.

Salary is more than the money in your bank account. A house, a car, a cheap loan, free meals or shares given by your employer because of your job are perquisites, and they are taxed as part of salary. From Tax Year 2026-27 the definition is in section 17 of the Income-tax Act, 2025 and the valuation is in Rule 15 of the Income-tax Rules, 2026. For FY 2025-26 the 1961 Act and Rule 3 apply, with lower limits.

What counts as a perquisite? (section 17(1))

  • the value of rent-free accommodation, and of accommodation at a concessional rent above the rent you pay,
  • a benefit or amenity given free or at a concessional rate by a company to a director or a person with a substantial interest in it, or by any employer to an employee whose salary income in cash is more than ₹4,00,000 (Rule 17; it was ₹50,000),
  • the value of shares or specified securities, including sweat equity, allotted free or at a concession,
  • any other benefit or amenity prescribed,
  • an obligation of yours that the employer pays, such as your personal bills,
  • life insurance or annuity premium paid by the employer, other than for a recognised provident fund, approved superannuation fund or deposit-linked insurance fund, and
  • the employer’s contribution above ₹7,50,000 in a tax year, taken together for the recognised provident fund, the NPS and an approved superannuation fund, and the yearly accretion on that excess.

What is not a perquisite? (section 17(2))

  • Medical treatment of the employee or family in a hospital maintained by the employer.
  • Medical expenses paid by the employer in Government, local authority or approved hospitals, and for prescribed diseases in hospitals approved by the Chief Commissioner (Rule 18).
  • The employer’s share of health insurance premium under an approved scheme, and the premium you pay that the employer reimburses.
  • The cost of a vehicle used for the journey between home and the office.
  • Medical treatment abroad and travel and stay abroad for the patient and one attendant, to the extent permitted by the RBI (and for travel, only if gross total income is within the prescribed limit).

Rent-free and concessional accommodation (Rule 15(2))

Case Value
Government employee in Government accommodation Licence fee set by the Government, less rent paid
Employer owns it: city with population above 40 lakh (2011 census) 10% of salary for the period occupied, less rent paid
Employer owns it: city between 15 and 40 lakh 7.5% of salary, less rent paid
Employer owns it: other areas 5% of salary, less rent paid
Employer rents or leases it Lower of the rent paid by the employer and 10% of salary, less rent paid by the employee
Hotel accommodation Lower of the hotel charges and 24% of salary, less rent paid. Nil for up to 15 days in all on a transfer

Further points: if the accommodation is furnished, add 10% a year of the cost of the furniture and appliances (or the actual hire charges). If the same accommodation continues for more than one tax year, the value cannot rise above the first year’s value adjusted by the Cost Inflation Index. On a transfer, if you keep the old accommodation, only the lower-valued one counts for up to 90 days. Temporary accommodation at a mining, oil, project, dam or power site (up to 1,000 sq ft, at least eight kilometres from municipal limits, or in a remote area) is excluded.

Motor car

A car provided for personal use has a value for each month in Table II of Rule 15(3): ₹5,000 (plus ₹3,000 for a chauffeur) for a car up to 1.6 litres or an electric vehicle, and ₹7,000 (plus ₹3,000) above 1.6 litres, where the employer meets the running costs; ₹2,000 and ₹3,000 (each plus ₹3,000 for a chauffeur) where you meet the running costs. A car used wholly for official duties has no value if journey records and the employer’s certificate are kept. The full table is in our separate post on cars provided by employers.

Services, utilities and education (Table III)

Benefit Value
Sweeper, gardener, watchman or personal attendant Salary paid for those services, less what you pay
Gas, electricity or water bought from an outside agency The amount the employer pays, less what you pay
Gas, electricity or water from the employer’s own resources Manufacturing cost per unit, less what you pay
Free or concessional education, in general Employer’s expenditure, less what you pay
Education in the employer’s own school, or free education in another institution Cost of similar education nearby, less what you pay, only where the value is more than ₹3,000 per child per month (it was ₹1,000)
Free travel by a transport employer (not an airline or the railways) The value offered to the public, less what you pay

Other benefits (Table IV)

Benefit Value and exemption
Interest-free or concessional loan Interest at the State Bank of India rate on the first day of the year for the same type of loan, on the maximum monthly balance, less interest you pay. No value if the loans total ₹2,00,000 or less (it was ₹20,000), or if they are for medical treatment of the diseases in Rule 18 (to the extent not reimbursed by insurance)
Holiday travel, stay and other expenses paid by the employer The employer’s expense. For an official tour extended into a vacation, only the vacation part. LTA under Rule 277 is outside this
Free food and non-alcoholic drinks The employer’s expense, less what you pay. No value for up to ₹200 per meal (it was ₹50) at the office or through vouchers usable only at eating places, for tea or snacks in working hours, or for free food in a remote area or offshore installation
Gift, voucher or token The amount of the gift. Nil if the total in the tax year is below ₹15,000 (it was ₹5,000)
Credit card expenses, including fees, paid or reimbursed by the employer The amount, less what you pay. No value for expenses wholly for official purposes with records and the employer’s certificate
Club expenses and fees The employer’s expense, less what you pay. Initial fee for corporate membership is excluded. No value if wholly for business and facilities are open to all employees
Use of a movable asset (not a laptop, computer, tablet or mobile phone) 10% a year of its cost, or the rent paid by the employer, less what you pay
Transfer of a movable asset to the employee Cost less wear and tear (50% a year for computers and electronics, 20% for motor cars, 10% for other assets, each on the reducing balance method), less what you pay
Any other benefit Cost to the employer at arm’s length, less what you pay. Telephone and mobile phone expenses are excluded

Shares and stock options

The value of specified securities or sweat equity shares allotted free or at a concession is taxed as a perquisite on the date the option is exercised. For a listed share, the fair market value is the average of the opening and closing price on the exchange with the highest volume on that date, and where there was no trading, the closing price on the nearest earlier date. Unlisted shares are valued under the method in the rule. See our posts on ESOP taxation.

Tax paid by the employer

Where the employer pays the tax on a non-monetary perquisite at its option, that tax is itself not added to your income (Schedule III, Sl. No. 10).

Example

Priya’s salary for the rule is ₹10,00,000. Her employer, in a city with 20 lakh population (2011 census), provides unfurnished accommodation it owns, and she pays no rent. She also gets a ₹4,00,000 interest-free loan that is outstanding for the year and a ₹12,000 gift voucher at Diwali.

Item Taxable value
Accommodation: 7.5% of ₹10,00,000 ₹75,000
Loan: interest at the SBI rate on ₹4,00,000 (the loan is above ₹2,00,000), less nil interest paid Interest at the SBI rate for that type of loan
Gift voucher: ₹12,000 is below ₹15,000 Nil

Keep records

The employer shows perquisites in the salary statement and in the Form 16 of the employee. Employees should check each figure against the valuation rule, because wrong valuation, such as using the old ₹50 per meal limit, over-states income.

Frequently asked questions

What is a perquisite?

A benefit or amenity given by the employer because of the employment, for example rent-free housing, a car for personal use, a loan at a low rate, or shares. It is taxed as part of salary.

How is rent-free accommodation valued?

If the employer owns it: 10% of salary in cities with population above 40 lakh (2011 census), 7.5% in cities between 15 and 40 lakh, and 5% elsewhere, less rent paid. If the employer rents it: the lower of the rent paid and 10% of salary, less rent paid by you.

When is an employer loan taxable?

When the interest-free or low-interest loans total more than ₹2,00,000. The value is interest at the State Bank of India rate on the maximum monthly balance, less interest you pay. Loans for specified diseases are not taxed.

Are free meals taxable?

Not if the value is within ₹200 per meal at the office or through vouchers usable only at eating places, or if it is tea or snacks in working hours.

Are gifts from the employer taxable?

Gifts, vouchers or tokens are taxable only if their total in the tax year is ₹15,000 or more. Cash gifts are always salary.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Section 10AA: Deduction for Units in Special Economic Zones (Status for Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 13 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 10AA gave SEZ units 100% of export profits for 5 years, 50% for the next 5 years, and 50% of ploughed back profit for a further 5 years.
  • It applies only to units that began manufacture or services on or after 01/04/2006 and before 01/04/2021, so no new unit can qualify.
  • Existing units continue to claim under section 144 of the Income-tax Act, 2025, calculated as under section 10AA and only for the years it would have allowed.
  • It is not available in the new tax regime or at the 22% and 15% company rates.

Section 10AA of the 1961 Act gave tax holidays to units set up in Special Economic Zones (SEZs) under the Special Economic Zones Act, 2005. The start date is long past, so it now matters only for units that began earlier and are still inside their 15 year window. From Tax Year 2026-27 the saving provision is section 144 of the Income-tax Act, 2025. For FY 2025-26 (assessment year 2026-27) the claim is still under section 10AA.

Who qualified?

An entrepreneur (as defined in section 2(j) of the SEZ Act, 2005) running a Unit in an SEZ that:

  • began to manufacture or produce articles or things, or to provide services, on or after 1 April 2006 and before 1 April 2021,
  • was not formed by splitting up or reconstructing a business already in existence, and
  • was not formed by transferring to the new business machinery or plant previously used for any purpose. Used machinery up to 20% of the total value of machinery in the business is ignored, and imported machinery never used in India and never depreciated also counts as new.

A unit that had already enjoyed the section 10A deduction for ten years before the SEZ Act cannot claim section 10AA.

The 5, 5 and 5 year deduction

Years Deduction
First 5 consecutive years from the year the unit begins 100% of profits from export of articles, things or services
Next 5 years 50% of those export profits
Next 5 years Up to 50% of the profit that is debited to the profit and loss account and credited to the “Special Economic Zone Re-investment Reserve Account”

Because the latest start year is FY 2020-21 (assessment year 2021-22), the last year anyone can claim is FY 2034-35.

Export profit formula

Profit from export = profit of the unit’s business x export turnover of the unit / total turnover of the business carried on by the unit.

Export turnover is the consideration for export of articles, things or services received in, or brought into, India. It does not include freight, telecommunication charges or insurance attributable to delivery outside India, or expenses incurred in foreign exchange in rendering services outside India. On-site development of software outside India counts as export of software.

Re-investment reserve conditions

For the third block of five years, the deduction is allowed only if the amount credited to the reserve is:

  • used to acquire machinery or plant that is first put to use within three years after the year in which the reserve is created, and
  • until then, used for the purposes of the business, and not for dividends or profits, remittance outside India as profits, or creating an asset outside India.

An amount not used for these purposes, or not used within three years, is treated as profit and taxed, in the year of misuse or the year after the three years.

Other points

  • The deduction is worked out on the total income before giving effect to section 10AA, and cannot exceed that total income.
  • Brought forward losses of the unit can be carried forward and set off.
  • If the unit is transferred in an amalgamation or demerger, the amalgamating or demerged unit gets no deduction for that year, and the section applies to the successor as if it had not happened.
  • A deduction under section 10AA bars a deduction for the same specified business under section 35AD.
  • Section 10AA(8) applies sub-sections (5) and (6) of section 10A. Sub-section (5) requires the report of an accountant, in the prescribed form, certifying that the deduction has been correctly claimed, to be furnished with the return of income. Sub-section (6) works the depreciation and similar allowances of the deduction years as if they had been given full effect in those years, so they are not carried into later years. A unit should confirm the current form for the report under the Income-tax Rules, 2026.

Which tax regime?

Section 144 of the 2025 Act sits in Chapter VIII. The new regime for individuals, HUFs and similar persons (section 202) and the 22% and 15% regimes for companies (sections 200 and 201) bar Chapter VIII deductions other than the few they list, and section 144 is not among them. A unit has to be taxed under the normal provisions to claim it. The Finance Act, 2026 also removed the separate reference to section 144 from section 202, which was a duplicate of the Chapter VIII bar.

Frequently asked questions

Can a new SEZ unit claim section 10AA?

No. The unit must have begun to manufacture, produce or provide services on or after 01/04/2006 and before 01/04/2021.

How long is the benefit?

Up to 15 years: 100% of export profits for the first 5 years, 50% for the next 5 years, and for the next 5 years up to 50% of profit transferred to the SEZ Re-investment Reserve Account.

How are export profits worked out?

Profit of the unit multiplied by export turnover divided by total turnover of the business carried on by the unit.

What happens from Tax Year 2026-27?

Section 144 of the Income-tax Act, 2025 allows the deduction for units still within their period, calculated as under section 10AA.

Is it available in the new tax regime?

No. The new regime and the 22% and 15% company regimes bar Chapter VIII deductions other than sections 146 and 148 (and a few others for individuals).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Tax-Free Income in India: Complete List for Tax Year 2026-27

Posted on by CA Meet Dhrangadhariya

Last updated: 15 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • The Income-tax Act, 2025 lists tax-free income in Schedule II (for everyone) and Schedule III (for eligible persons), with salary items in section 19 and gifts in section 92.
  • Agricultural income, Sukanya Samriddhi payouts, PPF and EPF within the interest limits, most life insurance maturity, gratuity and VRS compensation within limits are tax-free.
  • Several Schedule III items, such as LTA and special allowances, are lost in the new tax regime.
  • Tax-free income must still be reported in the return.

Some income does not form part of your total income at all. It is not taxed and no deduction has to be claimed for it. In the Income-tax Act, 2025, which applies from 1 April 2026, this list sits mainly in Schedule II (income not to be included in total income) and Schedule III (income of eligible persons), with salary related receipts in section 19 and gifts in section 92. For FY 2025-26 the corresponding list is in section 10 of the 1961 Act.

Exemption and deduction are different

An exemption keeps the income out of total income, so you only report it. A deduction is taken from income that has been included, and is allowed only up to its limit. Standard deduction, section 80C and similar items are deductions, not exemptions.

Schedule II: tax-free for everyone

Income Conditions and limits
Agricultural income No condition. It is still counted to fix the tax rate on other income if it exceeds ₹5,000
Life insurance maturity or other payout, including bonus Policy issued 01/04/2003 to 31/03/2012: premium up to 20% of sum assured. 01/04/2012 to 31/03/2013: up to 10%. 01/04/2013 to 31/01/2021: up to 15% for a special policy and 10% for others. From 01/04/2023: below 15% (special policy) or 10% (others), and for ULIPs total yearly premium below ₹2,50,000, for other policies below ₹5,00,000 across all policies. Keyman policies and the sum under section 127(4) are not exempt. A death claim is exempt
Payment from a statutory provident fund or notified fund Interest on contributions made on or after 01/04/2021 is taxable if the yearly contribution is above ₹5,00,000 (no employer contribution) or ₹2,50,000 (other cases)
Accumulated balance of a recognised provident fund (EPF) To the extent provided in the Act; the same ₹2,50,000 and ₹5,00,000 interest limits apply
Sukanya Samriddhi Account payouts No limit
National Pension System payout On closure or opting out, up to 60% of the amount payable.
Agniveer Corpus Fund payout Whole amount
Approved superannuation fund payments On death, retirement or incapacity, and certain refunds
Scholarships Granted to meet the cost of education
Awards and rewards Instituted in the public interest by the Government or approved by it
Interest on notified Central Government securities, bonds, savings certificates and deposits As notified
Gold Deposit Bond and Gold Monetisation Scheme interest Whole amount
Interest on local authority and State pooled finance entity bonds As notified
Transfer of units of the Unit Scheme, 1964 On or after 01/04/2002
Unified Pension Scheme payouts Up to 60% of the individual corpus on retirement, and the notified lump sum

Schedule III: tax-free for eligible persons

Income Who and conditions
Sums received by a member from a Hindu undivided family Paid out of family income, and not covered by section 99(3) and (4)
Partner’s share of profit Firm separately assessed, in the profit sharing ratio. Salary and interest from the firm are taxable
Compensation for a disaster from the Government or local authority Where no deduction was earlier allowed for the loss
NPS partial withdrawal Up to 25% of the contributions made by the subscriber
Daily allowance and constituency allowance of MPs and members of State Legislatures Whole amount
Leave travel concession (LTA) Up to the prescribed journeys and amount actually spent. Not available in the new regime
Allowances and perquisites paid by the Government outside India Citizen of India serving outside India
Tax paid by the employer on a non-monetary perquisite At the employer’s option
Special allowance for actual expenditure (serial 11), and the prescribed allowances in serial numbers 12 and 13 (Rule 280) Within the limits of the Income-tax Rules, 2026. Mostly not available in the new regime
Income of Scheduled Tribe members in notified areas, and of Sikkimese See the separate post on section 10(26)

Salary related receipts (section 19)

Receipt Tax-free limit
Death-cum-retirement gratuity of government employees Entire amount
Gratuity under the Payment of Gratuity Act, 1972 As calculated under section 4(2) and (3) of that Act, up to ₹20,00,000
Other gratuity Least of the actual amount, the notified limit, and half a month’s average salary of the last ten months for each completed year of service
Commutation of pension Government employees: entire amount. Others: one-third of the pension where gratuity is received, or one-half where it is not
Retrenchment compensation to a workman Least of the compensation, the amount under section 25F(b) of the Industrial Disputes Act, 1947, and the notified amount (not less than ₹50,000)
Voluntary retirement compensation Up to ₹5,00,000
Leave encashment on retirement Government employees: entire amount. Others: least of the cash equivalent of leave (up to 30 days a year of service), ten months’ average salary, the notified limit and the amount received

“Salary” for gratuity and leave encashment means basic pay plus dearness allowance if the terms of employment provide for it, and no other allowance or perquisite. The ceilings are fixed by Central Government notification: ₹20,00,000 for gratuity (notifications of 29 March 2018 and 8 March 2019) and ₹25,00,000 for leave encashment on retirement of a non-government employee (Notification 31/2023, from 1 April 2023). Check that no later notification has changed them. Employees who change jobs should also note that the gratuity limit is a lifetime figure reduced by gratuity already exempted in earlier years.

Gifts (section 92)

Money or property received without consideration is taxable if it totals more than ₹50,000 in a year (for property bought for less than its value, if the shortfall exceeds ₹50,000). It is not taxable at all when it comes from a relative, on the occasion of the individual’s marriage, under a will or by inheritance, in contemplation of death, from a local authority, from a registered non-profit organisation (with exceptions), through certain transactions not treated as transfers, or from an individual to a trust created solely for the benefit of a relative.

New tax regime

Section 202 of the 2025 Act removes some of these when the new regime applies: the Schedule III items at serial numbers 5, 6, 7, 8, 11 and 17, and the prescribed allowances at serial numbers 12 and 13, along with professional tax and a few other deductions. Schedule II items, section 19 receipts, and gifts are not touched. The family pension deduction is ₹25,000 in the new regime and ₹15,000 otherwise, each limited to one-third of the pension.

Tax-free income is not the same as the basic exemption limit

Income up to the basic exemption limit is simply not taxed at the slab rates. The limit is ₹4,00,000 under section 202 (new regime), and in the old regime ₹2,50,000 below age 60, ₹3,00,000 for resident seniors and ₹5,00,000 for resident super seniors. On top of that, a resident individual gets a rebate: ₹60,000 where total income does not exceed ₹12,00,000 (new regime, section 156), and ₹12,500 where it does not exceed ₹5,00,000 (old regime).

Report exempt income

Show exempt income in the exempt income schedule of the return. The department matches it with Form 26AS, AIS and the Taxpayer Information Summary, and an unreported receipt causes mismatches.

Frequently asked questions

Where does the Income-tax Act 2025 list tax-free income?

In Schedule II (income not included in total income of anyone), Schedule III (for eligible persons), section 19 (salary related receipts such as gratuity and leave encashment) and section 92(3) (gifts that are not taxed).

Is life insurance maturity tax-free?

Mostly. A policy issued on or after 01/04/2023 qualifies if the premium is below 10% of the sum assured (15% for special policies) and, for non-ULIP policies, the aggregate annual premium is below ₹5,00,000. A death claim is tax-free.

Is PPF interest tax-free?

Yes, with a limit. Interest on contributions above ₹2,50,000 a year (₹5,00,000 where the employer makes no contribution) made on or after 01/04/2021 is taxable.

Are gifts taxable?

Money or property received without consideration above ₹50,000 in a year is taxable, unless it is from a relative, on marriage, by will or inheritance, in contemplation of death, or from certain institutions.

Do tax-free incomes go in the return?

Yes. Exempt income is reported in the exempt income schedule, even though it is not taxed.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.