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We continue our discussion on various exemptions from income tax in this, the third article of the series.
One major exemption which is also recent is that dividends from companies and mutual funds are exempt. This one major exemption changes the way you would look at investments and returns.
Dividends received from Indian companies are exempt of tax. They are not considered taxable income at all.
This exemption applies to both interim and final dividends which are declared on or after June 1, 1997.
Of course, there is a simultaneous amendment to law according to which the companies which declare dividends are also required to deduct tax at the rate of 10%. This dividend tax is in addition to the income tax that companies pay.
To the government it means collection of the same or more tax than what it used to collect earlier from shareholders who receive dividends. This is for various reasons.
To the shareholder it means receipt of totally exempt income. It has made life simpler for all.
Besides dividend from companies, income received in respect of units or Unit Trust of India and of mutual funds are also exempt. This is a more recent amendment and applies from assessment year 2000-2001. That is, it applies to the current year’s income from mutual funds and UTI.
The result is that mutual funds have suddenly become extremely attractive. You should now look at mutual funds far more closely than ever before – and you may be surprised to find them better investments than deposits in banks etc.
Scholarships received to meet the cost of education are exempt of tax. The law requires that the amount ought to have been granted to meet the cost of education. Once this is established, the entire amount is exempt of tax.
There is no condition about where the education should be done, nor what the education should be.
Scholarships need not be received only by school or college going children – they may be received by anyone, including by working people. They will be exempt so long as they are to meet the costs of education.
A professor of mathematics received grants to do advanced research in mathematics. The amount was treated as exempt being a scholarship.
Various scholarships are given by government and semi-government undertakings to pursue education and training. These are all exempt.
Daily allowances received by MPs and MLAs are exempt of tax.
Other allowances upto Rs.600 per month are exempt.
All allowances received by MPs under the Member of Parliament (Constituency Allowance) Rules are exempt.
These are exempt of tax, regardless of whether they are spent or retained by the Honourable members.
Awards instituted in public interest by the government or other body and approved by the Government are exempt. Rewards given by governments in public interest are also exempt.
These include all types of awards for gallantry; literary, scientific and artistic attainments; etc. Various awards have been notified by the government for this.
When minor children’s income is clubbed with that of a parent, an amount of upto Rs.1500 per minor child is exempted.
There are many, many exemptions which employees get, and only employees get.
These I had discussed a long time back when I had dealt with taxation of salaried employees. However, here is a summarised list for ready reference:
- Leave travel concession
- Death-cum-retirement gratuity
- Commuted value of pension
- Leave Salary
- Retrenchment compensation
- Voluntary Retirement Scheme receipts
- Amount paid from provident funds to retiring employees
- Amount from an approved superannuation fund to legal heirs of employees
- House Rent Allowance
- Special Allowances
There are various payments which are paid to or by foreigners which are exempt. A summarised list is here:
- Remuneration received by foreign diplomats of all types
- Salary received by a foreign citizen in India as an employee of a foreign enterprises, subject to conditions
- Interest received by a non-resident from prescribed securities
- Interest received by a non-resident on interest on NRE Account
- Tax paid by employer of non-resident Indian technician
- Remuneration received by a foreign employee deputed in India for training in a government or public sector undertaking
- Foreign allowance given by Government of India to its employees posted abroad
- Remuneration or fees received by non-resident consultants and their foreign employers
Many associations and organisations are created for a public cause. The law has specified several such institutions whose incomes are exempt. This includes local authorities like municipal corporations, educational and medical institutions, sports associations etc. We shall skip listing them since they have limited interest.
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