Exempt Income in India: What you need to know for smarter tax planning

Learn about exempt income under Indian tax laws, its categories, and how it impacts your financial strategy
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4 min
25-September-2025

Exempt income refers to earnings that are not taxed under current laws. Individuals or entities receiving such income do not need to pay tax on these amounts. Recognising which categories qualify as exempt helps in smarter tax planning and ensures compliance with Indian tax regulations. With a clear understanding, you can optimise your taxable income and focus on long-term financial growth.

Along with planning for exemptions, consider growing your wealth with Bajaj Finance Fixed Deposits. With attractive returns and flexible tenors, FDs add stability to your portfolio.

Book an FD now and start earning up to 7.30% p.a. returns.

Examples of exempt income

Exempt income in India comes from multiple sources. Here are some common categories:

  • Agricultural income: Earnings from cultivation and farming activities are fully exempt under Indian tax laws.

  • Share of profit from a partnership firm: Partners aren’t taxed individually on their profit share; the firm itself is taxed separately.

  • Income from Hindu Undivided Family (HUF): Members are not taxed on HUF income as the entity is taxed independently.

  • Allowances for government employees: Certain allowances such as housing or travel may qualify for exemption under prescribed conditions.

These exemptions allow taxpayers to calculate taxable income accurately and take advantage of lawful tax reliefs.

While exemptions save you money on taxes, an FD from Bajaj Finance helps you earn more on your idle funds—safely and predictably. Check rates.

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  5. Flexible interest payout options available - Monthly, Quarterly, Half-yearly, Annually or at Maturity

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Exempt foreign income

Foreign income may or may not be taxable in India, depending on an individual’s residency status:

  • Resident individuals: Residents are taxed on global income, though some exemptions apply under Double Taxation Avoidance Agreements (DTAAs).

  • Non-resident individuals (NRIs): NRIs are taxed only on income earned or received in India. Income from abroad is usually exempt in India.

Taxpayers dealing with foreign earnings should check applicable DTAAs or seek professional advice to avoid double taxation and ensure compliance.

NRIs looking for safe investments in India can also grow their money with Bajaj Finance FDs, which offer assured returns and simple management from abroad. Check eligibility.

What types of income are tax exempt

The Indian tax system exempts specific income categories to promote financial inclusion and social welfare. Some examples include:

  • Scholarships and grants: Educational scholarships are exempt if used for study-related purposes.

  • Dividends from domestic companies: Earlier exempt, but since Finance Act 2020, they are now taxable for shareholders.

  • Interest from certain securities: Income from instruments like the Public Provident Fund (PPF) remains tax-free.

  • Life insurance payouts: Maturity amounts and bonuses under eligible life insurance policies are exempt under Section 10(10D).

Staying updated on exemptions ensures better tax planning as rules may change with new legislation.

To complement tax-free instruments like PPF, Bajaj Finance Fixed Deposits provide steady, assured returns without depending on market conditions. Book FD.

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Is unemployment income taxed

Unlike some countries, India does not provide unemployment allowances as a structured benefit. However, any financial support received during unemployment—such as severance pay or compensation from past employers—is usually taxable under ‘Salary’ or ‘Income from Other Sources.’ Consulting a tax expert ensures proper reporting and compliance.

During uncertain times, an FD with Bajaj Finance acts as a financial safety net. Guaranteed returns ensure peace of mind even when income is unstable. You can also choose your payout option as per your needs!

Open an FD now! Choose between monthly, quarterly, half-yearly, yearly or at maturity payout option.

Conclusion

Exempt income plays an important role in tax planning, helping individuals reduce liabilities and manage finances better. From agricultural earnings to life insurance payouts, exemptions ensure that certain income streams remain untaxed. Staying aware of updates in tax rules and consulting professionals ensures compliance and smarter financial decisions.

To balance your savings with certainty, consider investing in Bajaj Finance Fixed Deposits. With high safety ratings, attractive interest rates, and flexible tenors, they’re a reliable way to build wealth steadily while managing your taxable income efficiently. Open FD.

Calculate your expected investment returns with the help of our investment calculators.

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Frequently asked questions

What do you mean by exempt income?
Exempt income refers to earnings that are not subject to taxation under the law. This includes certain agricultural income, allowances, and specific investments. In India, exempt income helps reduce taxable income, allowing individuals to save more. Understanding these exemptions ensures better financial planning and compliance with tax regulations.

How does a Bajaj Finance FD complement exempt income options like PPF?

While PPF offers tax-free income, a Bajaj Finance FD provides predictable returns at higher rates (of up to 7.30% p.a.), making it a smart combination for safe and steady wealth creation. Check latest rates.  

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or referhttps://www.bajajfinserv.in/fixed-deposit-archivesThe company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For theFD calculatorthe actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.

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