These 7 investment methods are tax-free, ranging from PPF to gratuity

Most people assume that the more they earn, the more income tax they will have to pay. However, the truth is that the Income Tax Act provides certain income and investment methods that are exempt from government tax. With the right information and proper planning, you can retain a significant portion of your hard-earned money.

The Income Tax Act in India considers certain sources of income completely tax-free. This exemption benefits everyone, from farmers to salaried individuals, investors, and parents. Let's explore seven such income and investment sources that are exempt from income tax.

profits from a partnership firm

If you're a partner in a partnership firm or LLP, your share of profits is tax-free as part of your personal income. This is because the firm has already paid taxes on its profits. 

However, it's important to understand a difference here. While your share of profits is tax-free, if the firm pays you a salary, interest, or any other form of remuneration, it will be included in your taxable income.

Maturity amount of life insurance

Life insurance not only provides protection but is also an important part of tax planning. Subject to certain conditions, the maturity proceeds are completely tax-free. 

The key is to carefully consider the premiums and terms when purchasing a policy. With proper planning, the insurance proceeds can remain completely tax-free.

gratuity

Gratuity received upon retirement or leaving a job also provides income tax relief. Private sector employees receive full tax exemption on gratuity up to a certain limit, while government employees are exempt from tax on the entire amount. This amount is a reward for long service, and the government provides significant relief to employees by making it tax-free.

Investment in PPF

Public Provident Fund (PPF) is one of the most trusted investment options among the general public. The investment, the interest earned, and the full maturity amount are all tax-free. 

Under the old tax system, annual investments in PPF are tax-deductible. If you want to grow your money safely over the long term and also want tax relief, PPF is a strong option.

Sukanya Samriddhi Yojana for the future of the daughter

If you have a daughter, the Sukanya Samriddhi Yojana (SSY) is not only a savings scheme but also a great way to earn tax-free returns. Investments under this scheme earn good interest and are completely tax-free. 

There is no income tax on the investment, interest, and the entire amount received. This is why this scheme is so popular among parents for long-term planning.

scholarships for studies

Many students are unaware that scholarships for education are also tax-free. In India, education-related scholarships are considered completely tax-free, whether they are government-funded, privately funded, or from abroad. 

If the scholarship is for educational purposes, income tax is not applicable. The same applies to certain government awards.

Income from farming is tax-free

Agricultural income is completely tax-free in India. Income from the sale of farm-grown crops such as grains, vegetables, fruits, pulses, or spices is exempt from tax. 

Furthermore, rent from agricultural land and profits from the sale of rural agricultural land are also tax-free. 

However, it is important to note that this exemption applies only to agricultural land in India. If the farming is done abroad, the income from that land will be taxable in India.

Avoiding income taxes isn't illegal, but rather a matter of having the right information and making the right choices. Understanding and adopting these tax-free income and investment methods will strengthen your financial planning and help you retain more of your earnings.