Exempt income is not subject to tax but must be reported Even if you receive completely tax-free income—like agriculture income, PPF interest, or gifts from relatives—you must report the same while filing ITR. The Total income is monitored by the Income Tax Department, and it cross-verifies the same with bank and investment accounts. Failure to report exempt income may result in scrutiny or mismatch notices even if the income does not have tax liability.
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Utilize the 'Exempt Income' schedule in the ITR In ITR-1 and ITR-2, there is a separate part called 'Schedule EI' (Exempt Income). There, you have to detail the nature and amount of income exempt from tax. Common inputs are PPF interest, LIC maturity amount, income from agriculture, long-term capital gains under section 10(38) of earlier years, and gifts received from specified relatives. File it under the correct category so that your software shows your exemption in the correct manner.
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Agricultural income deserves special consideration Income from farming is exempted under section 10(1), but if it is over ₹5,000, you need to file ITR-2 or ITR-3. If your total income after deducting the agricultural income is over the basic exemption limit, then the agricultural income is used for charging the rate. Provide details such as the location of land, area, and income earned to prevent any ambiguity. Income from allied farming activities such as dairy or poultry must be reported separately.
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Declare maturity proceeds from life insurance and PF Maturity proceeds from life insurance policies (especially ULIPs or policies having a premium over ₹5 lakh per year) can be taxed under new regulations since 2023. Clearly report any such proceeds—mention whether it is under section 10(10D). Add EPF withdrawals in 'Exempt Income' if they are eligible on terms—such as five years of consecutive service. Reporting this avoids confusion with high-value bank credits.
Gifts from relatives are exempt but must be declared If you’ve received money from parents, siblings, or during marriage, you’re exempt from tax under section 56(2)(x). But high-value gifts should still be declared under ‘Any other exempt income’. The same goes for money received via inheritance or will. If you’ve gifted money to your spouse or children, note that clubbing provisions may apply on any income generated from those assets.
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Add supportive details as required You are not required to upload documents, but it's useful in case of future scrutiny. In case your exempt income is substantial—a ₹20 lakh gift from the old man—it is best to retain a gift deed or bank evidence. Filing correct information leads to easy processing of your return and refund. As per recent statistics, a number of ITR mismatch notices in 2024–25 were due to non-declaration of exempt income.
