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Types of Taxable and NoN-Taxable Income


There is no escape from taxes. They are mandatory for citizens all around the world. Unless you live in a country known to be a tax haven, you have to pay them. Taxes are collected in various forms, such as state taxes, central taxes, direct taxes, indirect taxes, etc. In India, there are mainly two types of taxes, direct and indirect taxes.

Direct Tax

Direct Taxes are taxes paid directly to the government by individual taxpayers and business organizations or corporations. Income Tax, Corporate Tax and Wealth Tax are examples of direct taxes.

Indirect Tax

Indirect Taxes are taxes that you, as a customer, pay to the seller, who in turn pays it to the government. Sales Tax, Goods and Services Tax, and Value-Added Tax are examples of indirect taxes.

Additional Read: How to save taxes for salaried individuals

Although some deductions and exemptions are not taxable, almost all income is considered taxable. Taxable income is collected from individual taxpayers, Hindu Undivided Families, companies, firms, and local authorities. And the tax levied is for the income earned. Let’s look at five primary taxable and non-taxable income in India:

Employee compensations

The income received by an employee from the employer falls under this category. It includes salaries, wages, pension, bonus, fringe benefits, employee awards, etc.

Capital Gains

Income generated from assets held by individuals is known as capital gains. It includes the resale of properties, equities, bonds, stocks, etc.

Profits from Business/Profession

If you are self-employed or have a business, the gains you earn from your profession or business is considered taxable. Entrepreneurs, chartered accountants, freelancers, lawyers, and doctors are a few examples of those who fall under this category.

Interest on Investments

Interest in investments is taxable. Earnings from interest on fixed deposits, bonds, and debentures, income generated from dividends, rental income from properties, are a few examples of taxable income.

Miscellaneous Taxable Income

That includes alimony, pension received after the death of a pensioner, income generated from hobbies, profits from gambling and lottery, and earnings from winnings or partaking in game shows, etc.

Additional Read: What are the benefits of filing income tax return on time

Although most income is taxable, there are a few exemptions. This type of income is referred to as non-taxable income. Non-taxable income is income that is earned but not subject to taxation. Five primary incomes that are exempted from taxes are as follows:

Agricultural Income

Earnings from farming and agriculture are tax-free. Income earned from poultry and cattle rearing is also considered agricultural income.


Income tax is exempted on gifts received on the occasion of marriage. Gifts received from immediate family and relatives is also tax-free. Property tax received as a gift is also excused.

Interest on PF and PPF

Money received from Employees Provident Fund and Public Provident Fund is tax-free.

Academic Scholarships

If you receive any money to finance the cost of your education, that money is entirely exempt from tax.

Bonds and Certificates

Interest earned from specific tax-free certificates and capital investment bonds is exempted from taxes.

Other Income

Other non-taxable income includes leave and travel allowance, house rent allowance, interest earned on the savings bank account, leave encashment on the retirement of central and state government employees.


Unless the government of India explicitly exempts a particular income, all income earned is taxable and should be recorded by filing the income tax return.

Additional Read: All about Income Tax in India: Basics, tax slabs and e-filing process


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