What is Tax Exempt Interest Income?
Tax-exempt interest income is money you earn from certain investments, like Roth retirement accounts or municipal bonds, that you don't have to pay taxes on. It is mentioned in the Income Tax Act.
by S Samayanka
Updated Apr 08, 2024
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What is Tax Exempt Interest Income?
Tax-exempt interest income refers to the income that you earn on investments and is not taxable by the government. The income that will be exempted is clearly mentioned in The Income Tax Act provision. Tax-exempt interest is not included in the gross total income for taxation reasons because it is not liable to income tax.
The circumstances in which interest income is earned and not subject to income tax are listed in Section 10 of the Income Tax Act. The most popular source to find tax-exempt interest are income-producing investments held in Roth retirement accounts or municipal bonds.
Who is Eligible for Tax Exempt Interest Income?
- The persons specified in Section 10 of tax exemption on their interest income.
- Interest, premium, or redemption on any securities issued by the government.
- The money is held in government deposits.
- The interest on bonds and securities that the non-resident receives that are notified by the government.
- The interest positioned as a credit in any bank's non-resident account
- The certificate of interest on savings issued before June 1 , 2002.
What is the Income Exempted from Tax as Per Section 10?
Section |
Exemption/Allowance |
Eligibility/Conditions |
|
10(1) |
Agriculture Income |
Rent or revenue from agricultural land Basic operations like cultivation, tilling, sowing, etc. Sale of agricultural produce |
|
10(2) |
Income of a HUF |
Income received by individual from HUF Impartible estate income for HUF members |
|
10(2A) |
Income from Partnership Firm |
Partner's share of profit from LLP or firm Taxed as a partnership firm under Income Tax Act 1961 |
|
10(4) |
NRI Income from India |
Interest on specified government bonds/securities Premium income on bond redemption Interest on the credited amount of the NRE account Interest earned by residents outside India from an NRE account |
|
10(5) |
Leave Travel Concession |
Received from employer for employee/family travel Concession for leave across India |
|
10(6) |
Remuneration to Indian Citizens Working Outside India |
Representing India abroad Limited time in India No deduction for employer remuneration |
|
10(7) |
Government Allowances and Perquisites |
Provided to employees serving outside India by Indian Govt. |
|
10(10CC) |
Tax on Perquisites Paid by Employer |
Tax paid by employer on non-monetary perquisites treated as exemption for employee |
|
10(10D) |
Life Insurance Policy Maturity |
Exempt under specified conditions, including premium limits and disability/disease |
|
10(11) |
Provident Fund and Sukanya Samriddhi Account |
Exemption on amount received from Provident Fund and Sukanya Samriddhi Account |
|
10(10BC) |
Remuneration Received Against a Disaster |
Compensation for natural disasters by Central/State Govt. or local authority |
|
10(13A) |
House Rent Allowance (HRA) |
Exemption on actual HRA received, subject to conditions on salary, rent, and city classification |
|
10(14) |
Special Allowance |
Various allowances for specific purposes, some subject to prescribed limits |
|
10(14)(i) |
Exemption of Allowance under Section 10(14)(i) |
Travel, daily, uniform, academic/research, and helper allowances |
|
10(14)(ii) |
Exemption of Allowance under Section 10(14)(ii) |
Children's Education, Tribal Area, Compensatory Field Area, Border Area, Special Compensatory, Counter Insurgency, High Active Field Area, Island Duty Allowances |
Section 10(15) Income Earned from Interest on Investments:
Section |
Income |
Tax-exempt Citizens |
|
10(15)(i) |
Interest, redemption, or premium on specified investments |
All assesses |
|
10(15)(iib) |
Interest on Capital Investment bonds |
HUF/Individual |
|
10(15)(iic) |
Interest on Relief bonds |
HUF/Individual |
|
10(15)(iid) |
Interest on declared bonds (pre-01/06/2002, bought in forex) |
NRI-Individual, NRI gifting to individuals |
|
10(15)(iii) |
Interest on securities |
Issue department under Central Bank of Ceylon |
|
10(15)(iiia) |
Interest on deposits with RBI-approved scheduled banks |
Bank incorporation |
|
10(15)(iiib) |
Interest to Nordic Investment Bank |
Nordic Investment Bank |
|
10(15)(iiic) |
Interest to European Investment Bank |
European Investment Bank |
|
10(15)(iv)(a) |
Interest from local authority or govt. on pre-01/06/2001 loans |
All assets committed to lending outside India |
|
10(15)(iv)(b) |
Interest from Indian industrial undertaking (pre-01/06/2001) |
Approved foreign financial institutions |
|
10(15)(iv)(c) |
Interest from Indian industrial undertaking on foreign loans |
All assessees are committed to lending cash |
|
10(15)(iv)(d) |
Interest from approved financial institutions in India (pre-01/06/2001) |
All assessees are committed to lending money |
|
10(15)(iv)(e) |
Interest from Indian financial institutions on foreign loans (pre-01/06/2001) |
All assessees are committed to lending money |
|
10(15)(iv)(h) |
Interest from any company on approved debentures or bonds |
All assesses |
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What is Tax Exempt Interest Income? - FAQs
1. What is tax-exempt interest income?
It is money you earn from certain investments that you don't have to pay taxes on.
2. Is all interest income tax-exempt?
No, only the interest specified in the Income Tax Act's Section 10 is exempted.
3. Who qualifies for tax-exempt interest income?
People mentioned in Section 10 of the Income Tax Act.
4. What are some examples of tax-exempt interest income?
Interest on government securities, bonds, and certain bank deposits.
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