- India’s Income-tax Act, 2025 applies from tax year 2026-27, and taxpayers must recheck familiar exemptions under the new framework.
- Sovereign Gold Bond redemption is exempt only for original subscribers holding to maturity under the 2026 rules.
- House Rent Allowance, LTA, PPF, EPF, and gratuity all depend on specific statutory conditions and regime choice.
India’s tax law excludes or exempts several receipts in 2026, but taxpayers cannot treat every one as automatically tax-free. The Income-tax Act, 2025 applies from tax year 2026-27, and familiar exemptions now need to be checked against the new framework.
The 15 commonly discussed categories include gifts, inheritances, scholarships, investment proceeds, retirement benefits and selected salary payments. Some are fully exempt when conditions are met. Others have monetary ceilings, holding requirements or rules that tax income generated later.
The old and new tax regimes can also produce different results. A receipt may remain exempt while a related deduction disappears. That distinction runs through the list.
Free toolSubstantial Presence Test CalculatorThe 2026 framework changes how familiar exemptions should be read
References such as Section 10, Section 56, Section 80C and Section 112A remain familiar from the Income-tax Act, 1961. Taxpayers dealing with tax year 2026-27 should also identify the corresponding provisions under the Income-tax Act, 2025.
The transition does not automatically remove every established exemption. It does mean that section numbering and some substantive rules have changed. Sovereign Gold Bond treatment illustrates the shift.
The ₹5,000 limit attached to agricultural income in AY 2026-27 is an ITR-1 eligibility condition, not a general exemption ceiling. A person can have exempt income and still need to consider its effect on the return or tax calculation.
The first six receipts are exempt only for defined reasons
| Receipt | Main condition or limitation |
|---|---|
| Agricultural Income | Exempt under Section 10(1), but partial integration and return-filing rules can apply |
| Gifts from specified relatives | Generally outside Section 56(2)(x), without a ₹50,000 ceiling for a qualifying relative |
| Inheritance | Generally not taxed on receipt; later rent or gains may be taxable |
| Qualifying scholarship | Must meet education costs under Section 10(16) |
| Certain disaster compensation | Depends on the payer, legal provision and statutory conditions |
| Sovereign Gold Bond redemption | From tax year 2026-27, original subscription and continuous holding until maturity matter |
1. Agricultural Income
Agricultural income is exempt from central income tax under Section 10(1), but the legal definition is narrower than simply earning money from an activity connected with rural land. Partial integration can bring it into the rate calculation when the taxpayer also has specified non-agricultural income.
The receipt can also affect filing. For AY 2026-27, ITR-1 eligibility allows agricultural income only up to ₹5,000, subject to the other requirements for that return.
2. Gifts from specified relatives
A gift from a qualifying relative generally falls outside the rule in Section 56(2)(x). The statutory relationship matters. Covered relatives include a spouse, siblings, siblings of a spouse, siblings of either parent, lineal ascendants and descendants, and spouses of specified relatives.
There is generally no ₹50,000 ceiling for such a gift. A father who gives ₹10 lakh to his adult daughter does not make that amount taxable merely because it exceeds ₹50,000. Interest earned after investment can be taxable, and clubbing rules may apply to transfers to a spouse or minor child.
3. Inheritance
Cash, a home, land, shares, securities and other property received under a will or by inheritance are generally not taxed as income at the time of receipt. The later use of the asset is different.
Rent from an inherited apartment can be taxable. A later sale can trigger capital-gains rules, including special rules for the cost and holding period of inherited property.
4. Scholarships for education costs
A scholarship granted to meet education costs is exempt under Section 10(16). Its purpose matters. A genuine education scholarship should not automatically be treated as salary because the recipient is a student or researcher.
Calling compensation a scholarship does not settle the issue if the payment is actually for employment or services.
5. Death, injury or disaster compensation
The word “compensation” does not itself create an exemption. Section 10(10BC), for example, covers qualifying compensation paid by the Central Government, a State Government or a local authority to an individual or legal heir because of a disaster, subject to statutory conditions.
Taxpayers should identify why the money was paid, who paid it and which law, scheme, insurance arrangement or employment provision governs it.
6. Sovereign Gold Bond redemption
The 2026 framework narrows the familiar exemption for Sovereign Gold Bond capital gains. It applies where the taxpayer subscribed at the original issue and held the bond continuously until redemption at maturity.
An investor who bought the bond from another person in the secondary market should not assume the same exemption. Periodic interest is a separate issue and does not become exempt merely because qualifying redemption gains may be exempt.
Investment and retirement receipts carry thresholds, not blanket promises
7. Listed equity long-term gains
The Section 112A rule provides a ₹1.25 lakh annual threshold for qualifying long-term equity capital gains. It does not mean that equity investments worth ₹1.25 lakh are tax-free, or that every stock-market profit below that figure qualifies.
The government raised the threshold from ₹1 lakh to ₹1.25 lakh as part of the 2024 capital-gains changes. Gains above the applicable threshold remain subject to the relevant rules.
8. Public Provident Fund
The Public Provident Fund has traditionally been associated with exempt contributions, exempt interest and exempt maturity proceeds, subject to the governing conditions. The deduction for contributions is a separate question.
Under the new tax regime, most Chapter VI-A deductions are unavailable except for specified exceptions. A taxpayer therefore should not assume that an account’s favourable treatment automatically creates the same current-year deduction available under the old regime.
9. Recognized provident fund withdrawal
Withdrawal from a recognized provident fund can be exempt when the employee meets the required continuous-service conditions and the surrounding circumstances qualify. Service with a previous employer can count when the balance is properly transferred.
Specified reasons beyond the employee’s control can also create exceptions. The treatment of an accumulated balance is separate from the treatment of interest linked to high employee contributions.
10. Sukanya Samriddhi Account
Sukanya Samriddhi provides tax-favoured savings for a girl child. Eligible contributions can receive the relevant old-regime deduction, while interest and qualifying withdrawals or maturity proceeds receive favourable treatment under the applicable rules.
The account’s exempt treatment does not guarantee a Section 80C deduction under the new regime.
11. Gratuity
Gratuity may be fully or partly exempt depending on the employee’s category and circumstances. Government employees and private-sector employees can receive different treatment.
For covered non-government employees, the current threshold guidance identifies ₹20 lakh as the relevant ceiling. The actual exemption can be lower because the calculation also considers salary, length of service, coverage under the Payment of Gratuity Act and the amount received.
12. Voluntary retirement compensation
Qualifying compensation under a voluntary retirement or separation scheme can receive an exemption under Section 10(10C). The exempt amount is the least of the prescribed calculation, the amount actually received and the statutory ₹5 lakh ceiling.
A payment labelled VRS does not automatically qualify. The employee must meet the statutory conditions.
Salary-linked exemptions change sharply between tax regimes
13. House Rent Allowance
House Rent Allowance can receive partial exemption under Section 10(13A) when the prescribed calculation and actual rent payments support the claim. The exemption is unavailable when the employee owns the accommodation or has not actually paid rent.
The new tax regime does not allow this exemption. An employee cannot simply remove the HRA amount shown in a salary structure from taxable income after choosing that regime.
14. Leave Travel Allowance
Leave Travel Allowance or Leave Travel Concession can be exempt when statutory conditions are met. The benefit generally concerns qualifying fare for eligible journeys within India.
Hotel bills, sightseeing, meals and general vacation spending do not automatically qualify merely because they occurred during the same trip. The selected tax regime must also be considered.
15. Interest on specified tax-free bonds
Interest is exempt only when the particular security qualifies under the applicable provision. A government-backed bond, a public-sector bond or a tax-saving investment is not automatically a source of tax-free interest.
Investors must distinguish a deduction for buying an investment from an exemption on the interest. Older notified tax-free bond issues may receive different treatment from ordinary taxable bonds.
Five other exemptions remain tied to the exact legal source
Indian law also contains exemptions outside the 15 categories above:
- A qualifying amount received by an individual as a member of a Hindu Undivided Family can be excluded under Section 10. Salary, interest or another payment received from an HUF in a different legal capacity requires separate treatment.
- A partner’s share of profit from a firm that is separately assessed is exempt in the partner’s hands. Remuneration and interest paid to the partner are separate receipts.
- Certain life-insurance proceeds can qualify for exemption, but premium thresholds, policy dates, policy type and other conditions can affect the result.
- Leave encashment received on retirement can be fully exempt or subject to limits, depending on the employee’s category and statutory rules.
- Certain commuted pension receipts can receive full or partial exemption. Regular uncommuted pension should not automatically be treated the same way.
A tax-free receipt can still affect a return
Exempt income and income that can be ignored for filing purposes are not always the same. Agricultural income can affect the appropriate ITR form, while exempt-income disclosures can remain relevant in a return.
An exemption also differs from a deduction and a rebate. An exemption keeps qualifying income outside taxable income. A deduction reduces taxable income when an eligible amount is allowed. A rebate reduces tax after calculation.
The regime choice matters most where a benefit is a Chapter VI-A deduction or a specifically restricted salary exemption. It does not mean every independently exempt receipt becomes taxable under the new regime.
The 2026 SGB amendment shows why the date and source of an investment matter. Original subscription and continuous holding until maturity are now central to the redemption exemption under the new framework.
The Income-tax Act, 2025 applies from tax year 2026-27. This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.
