1. Agricultural Income — Section 10(1)

Agricultural income from Indian land — cultivation, rent from agricultural land, farm house income attached to agricultural land, nursery income from soil-grown plants — is fully exempt. No tax, no limit.

However, the partial integration rule means agriculture is not entirely invisible to the tax system:

• If agricultural income exceeds ₹5,000 AND non-agricultural income exceeds the basic exemption — both incomes are added together to determine the applicable tax rate
• The rate is then applied only to the non-agricultural income — not the agricultural income
• Net effect: the agricultural income pushes you into a higher slab, increasing the effective rate on your other income

Documentation required if challenged: 7/12 extract (khasra), cultivator proof, mandi/sale receipts for crops, bank statements showing agricultural income deposits. Department increasingly verifies large agricultural income claims.

2. HRA — House Rent Allowance — Section 10(13A)

The most widely used exemption for salaried taxpayers — and the most miscalculated. The exempt amount is the minimum of three figures:

3. Gratuity — Section 10(10)

Payable on retirement, death, resignation, or termination after minimum 5 years of continuous service. Tax treatment:

The ₹20 lakh lifetime limit applies across all employers — if you received ₹12 lakh exempt gratuity at your previous employer and receive another gratuity payment later, only ₹8 lakh more is exempt in total.

4. Leave Encashment — Section 10(10AA)

Cash received for unused accumulated leave at retirement or resignation.

The ₹25 lakh limit is a lifetime aggregate ceiling across all employers — including previous employment. If you received ₹10 lakh exempt leave encashment from a prior employer, only ₹15 lakh remains available from future employers. Not disclosing prior exempt claims to your new employer is one of the most common errors — your employer computes TDS assuming full ₹25 lakh is available, you end up with a demand at assessment.

5. PPF and GPF — Section 10(11) — The EEE Instrument

Public Provident Fund and Government Provident Fund carry triple tax benefit — the most favourable structure available in Indian personal finance:

• Contribution deductible under Section 80C (up to ₹1.5 lakh annual)
• Interest earned — completely tax-free at 7.1% p.a. (currently)
• Maturity amount — completely tax-free

No limit on the exemption for interest or withdrawal. Annual investment limit is ₹1.5 lakh per person — a spouse can have a separate PPF account with another ₹1.5 lakh annual limit. A 15-year PPF at ₹1.5 lakh per year produces approximately ₹40–42 lakh at maturity — entirely tax-free. The equivalent FD at the same rate (7%), taxed at 30%, produces meaningfully less after-tax.

6. Sukanya Samriddhi Yojana — Section 10(11A)

SSY is a dedicated savings scheme for the girl child — EEE status, same as PPF.

• Current interest rate: 8.2% per annum — the highest EEE rate currently available in India
• Maturity: When the girl turns 21, or on marriage after age 18
• Annual deposit limit: ₹1.5 lakh (combined with PPF for 80C purposes)
• Entire maturity — fully tax-free

For parents of daughters, SSY is simply the most tax-efficient savings instrument available. 8.2% completely tax-free beats a 9% FD at 30% slab (effective 6.3% after tax). Account can be opened for daughters below age 10.

7. EPF Withdrawal — Section 10(12)

Employee Provident Fund withdrawal is exempt if 5 years of continuous service have been completed. The exemption covers: employee’s contributions, employer’s contributions, and the interest on both.

Withdrawing before 5 years: the employer’s contribution and interest on both portions become taxable. TDS applies at 10% if PAN is provided, 30% without PAN.

On changing jobs — always transfer EPF, never withdraw. EPFO’s online transfer process takes 2–3 weeks. Withdrawing resets the 5-year service count for the withdrawn amount and triggers immediate taxation. This single decision — transfer vs withdraw — costs employees lakhs in avoidable tax every year.

8. Life Insurance Maturity — Section 10(10D)

Maturity proceeds and death benefits from life insurance policies are exempt — subject to conditions:

The death benefit exemption is absolute — no limit, no conditions, no regime restriction. A nominee receiving ₹2 crore from a term insurance death claim pays zero tax. This is one of the cleanest tax outcomes in Indian law.

9. NRE and FCNR Account Interest — Section 10(4)

Interest on NRE (Non-Resident External) accounts and FCNR (Foreign Currency Non-Resident) deposits is completely exempt from Indian income tax — but only for the period you maintain NRI status.

10. Sovereign Gold Bond Maturity — Section 10(15)(iv)(h)

SGBs held to maturity (8 years) produce completely tax-free capital gains. The interest of 2.5% per annum is taxable as Other Sources income each year.

If you are investing in gold for a long-term horizon of 8+ years, SGBs are vastly more tax-efficient than physical gold or gold ETFs — both of which generate taxable capital gains at maturity or sale. The government guarantee and 2.5% interest (despite being taxable) further add to the advantage.

11. Scholarship and Research Fellowship — Section 10(16)

Any scholarship or fellowship granted for education or research is fully exempt — no limit, no condition, no regime restriction. This includes government scholarships (PM scholarship, state merit scholarships), university merit awards, foreign scholarships (Fulbright, Rhodes, Commonwealth, DAAD), CSIR/UGC/DBT research fellowships, and corporate education scholarships.

The scholarship must be for genuine educational or research purposes. An employment-related allowance dressed as a scholarship is taxable.

The New Tax Regime offers lower slab rates — but removes several significant exemptions. Before choosing, calculate both regimes with your actual numbers.

Example 1 — Salaried Employee, Using HRA + PPF in Old Regime

At ₹12 lakh, the margin between regimes is small — which is why the actual calculation matters. At ₹8 lakh with significant HRA, Old Regime pulls further ahead. At ₹18 lakh without significant HRA, New Regime typically wins.

Example 2 — Retirement Year — Multiple Exemptions Combined

Mr. Rajan, private sector employee, retires after 30 years. In FY 2025-26:

Over ₹1 crore received — approximately ₹4 lakh taxable. This is the combined power of properly structured retirement planning around exemptions that apply to both tax regimes. The planning did not happen at retirement — it was built over 30 years of PPF contributions, proper EPF management, and the employer’s gratuity and NPS arrangements.

Treating FD interest and PPF interest as the same:
FD interest is taxable — added to income, taxed at slab rate, TDS deducted by bank. PPF interest is completely tax-free — no TDS, no declaration as income, just listed in Schedule EI. Many taxpayers pay tax on FD interest they have correctly noticed in AIS but do not claim PPF interest as exempt — the two are on opposite ends of the tax spectrum.

Withdrawing EPF before 5 years when changing jobs:
This is the single most costly mistake I see in practice among job-changers under 40. An EPF balance of ₹8 lakh withdrawn in year 3 of service — with 30% tax — costs ₹2.4 lakh in tax that could have been entirely avoided by transferring instead of withdrawing. EPFO’s online transfer system takes 2–3 weeks and is entirely free. The tax cost of unnecessary early withdrawal accumulates to significant amounts over a career of multiple job changes.

Not informing the new employer of prior leave encashment or gratuity exempt claims:
The ₹20 lakh gratuity and ₹25 lakh leave encashment limits are lifetime cumulative caps — not per-employer caps. If you claimed ₹8 lakh exempt leave encashment from your previous employer and do not tell your new employer, they will compute TDS as if the full ₹25 lakh is available. You end up with a shortfall in TDS and a demand plus interest when you file your ITR. Disclose all prior exempt claims to every new employer on joining.

Assuming NRE interest stays exempt after returning to India:
NRE interest exemption is tied to NRI status — not to the NRE account itself. The day your residential status changes to Resident Indian, all future NRE interest becomes taxable. Many returning NRIs continue holding NRE FDs for years after returning, assuming the exemption continues. It does not. Close or convert NRE accounts before or promptly after residential status change.
🔗 Complete NRI Tax Guide India 2026

Not declaring exempt income in Schedule EI of the ITR:
Exempt income must still be declared in the ITR — in Schedule EI (Exempt Income). Agricultural income above ₹5,000, PPF withdrawal, NRE interest, insurance maturity — all go in Schedule EI. Omitting them does not cause tax to be paid (correctly) — but if the AIS shows a transaction that is not reflected anywhere in your return, the mismatch creates a notice. Transparency in Schedule EI is the cleanest way to prevent AIS mismatch queries on exempt income.