First, One Basic Point 👇
Most people assume: “Money came into my bank account, so it’s income. Income means tax.”
That’s wrong. Under the Income Tax Act, tax is levied on income — not on every receipt.
A credit in your bank statement could be: - Your own money being transferred - A loan - A capital receipt - Exempt income
In all these cases, not a rupee of tax is payable. But reporting may still be required — that’s covered at the end.
⚖️ Note: The return you are filing this season is for FY 2025-26 (AY 2026-27), which is still governed by the Income Tax Act, 1961. The new Income Tax Act, 2025 takes effect from 1 April 2026 (Tax Year 2026-27) — section numbers will change, but the substance of these rules remains the same.
📋 THE FULL LIST AT A GLANCE
35 receipts that can land in your bank account with zero tax. Detailed explanation and examples for each follow below.
Part 1 — This Isn’t Income at All 🚫
Part 2 — Gifts 🎁
Part 3 — Retirement & Salary 👔
Part 4 — Investments & Insurance 📈
Part 5 — Property & Agriculture 🌾
Part 6 — Business, Firm & Others 🏢
Part 7 — Money Received, Tax Still Zero 🎯
➕ Part 8: Where exactly to report each of these in your ITR — including the new Schedule EI field introduced this year.
📖 NOW, THE DETAIL
PART 1 — “This Isn’t Income at All” 🚫
1️⃣ Transfer from Your Own Account to Your Own Account
Example: Ramesh transfers ₹5,00,000 from his SBI account to his HDFC account. 👉 HDFC shows a ₹5 lakh credit. Tax = ZERO. It’s a self-transfer, not income.
⚠️ This still shows up in your AIS. If a notice comes, you must produce both bank statements.
2️⃣ Loan Received
Example: Sita takes a ₹30,00,000 home loan. ₹30 lakh is credited to her account. 👉 Tax = ZERO. A loan is a liability, not income. It has to be repaid.
Same rule applies to a loan from a friend, gold loan, personal loan, business OD — all of them. ✅ Keep proof: loan agreement / sanction letter. Without it, the AO can treat it as an “unexplained cash credit” under Sec 68 and tax it at 60% + surcharge + cess ≈ 78%. This is genuinely dangerous.
3️⃣ Reimbursement of Expenses
Example: Kiran books a ₹18,000 flight ticket for official work on his personal card. The company reimburses him. 👉 Tax = ZERO. This is expenditure coming back, not income. (Provided it’s an actual expense with proper bills.)
4️⃣ Advance / Security Deposit
Example: Lakshmi rents out her shop and receives a ₹2,00,000 refundable deposit. 👉 No tax on the deposit (it’s refundable). But the rent is taxable.
5️⃣ Income Tax Refund (the Principal Part)
Example: Anil receives a refund of ₹42,000 — comprising ₹40,000 excess TDS + ₹2,000 interest u/s 244A. 👉 ₹40,000 = no tax (it’s your own money coming back). 👉 ₹2,000 interest = taxable under Income from Other Sources. Most people miss this point!
6️⃣ Insurance Claim for Damage / Loss
Example: After a car accident, the insurer pays a claim of ₹1,50,000. 👉 Tax = ZERO. It’s a capital receipt — compensation for a loss, not income.
PART 2 — Gifts 🎁 (Section 56(2)(x))
7️⃣ Gifts from Relatives — No Limit
Whatever the amount — fully exempt.
Who qualifies as a “relative”? (The Act has a closed list — anyone outside it is NOT a relative):
Example (exempt): Father gifts ₹15,00,000 → Tax = ZERO, however large the amount.
Example (TAXABLE ⚠️): A cousin gifts ₹80,000 → a cousin is NOT a relative! The entire ₹80,000 is taxable (not just ₹30,000 — the full amount).
🔴 Common mistake: Cousins, nephews and nieces are not relatives under this section. This is where most people get caught.
8️⃣ Marriage Gifts — No Limit, From Anyone
Example: Friends and relatives together give ₹6,00,000 at a wedding (₹4 lakh of it from non-relatives). 👉 Tax = ZERO. Marriage is the only occasion where the donor can be anyone and the amount can be anything.
⚠️ This benefit is only for the person getting married — not for parents or guests. ⚠️ Birthdays, anniversaries, housewarmings — this exemption does not apply.
9️⃣ Gifts from Non-Relatives up to ₹50,000
This is an aggregate limit — not per gift, but total for the year.
Example A: Friend A gives ₹20,000 + Friend B gives ₹25,000 = ₹45,000 → Tax = ZERO ✅ Example B: Friend A ₹20,000 + Friend B ₹25,000 + Friend C ₹10,000 = ₹55,000 → the entire ₹55,000 is taxable ❌
👉 Exceed by even ₹1 and the whole amount becomes taxable — not just the excess. This is the “all or nothing” rule.
🔟 Inheritance / Will / Gift in Contemplation of Death
Example: Grandfather passes away; under his will, ₹25,00,000 is received. 👉 Tax = ZERO. No limit whatsoever.
1️⃣1️⃣ Receipt from HUF by a Member — Sec 10(2)
Example: On partition of the HUF, a member receives ₹10,00,000. 👉 Tax = ZERO.
PART 3 — Retirement & Salary Receipts 👔
1️⃣2️⃣ Gratuity — Sec 10(10)
• Government employees: fully exempt
• Private employees: exempt up to ₹20,00,000 (lifetime limit)
Example: ₹18,50,000 gratuity after 25 years of service → Tax = ZERO. If ₹24 lakh is received → ₹20 lakh exempt, ₹4 lakh taxable.
1️⃣3️⃣ Leave Encashment (at retirement) — Sec 10(10AA)
• Government: fully exempt
• Non-government: exempt up to ₹25,00,000 (raised from ₹3 lakh in 2023)
⚠️ Leave encashed while still in service is fully taxable. Only encashment at retirement/resignation is exempt.
1️⃣4️⃣ VRS Compensation — Sec 10(10C)
Exempt up to ₹5,00,000 (once in a lifetime, and the scheme must comply with Rule 2BA).
1️⃣5️⃣ Commuted Pension — Sec 10(10A)
• Government: fully exempt
• Non-government with gratuity: 1/3rd of the full commuted value exempt
• Non-government without gratuity: 1/2 exempt
⚠️ Monthly uncommuted pension is fully taxable.
1️⃣6️⃣ EPF Withdrawal — Sec 10(12)
Withdrawal after 5 years of continuous service → fully exempt.
Example: After 8 years of service, ₹9,00,000 PF is withdrawn → Tax = ZERO.
⚠️ Withdrawal before 5 years → taxable, with TDS u/s 192A (if ₹50,000 or more). ⚠️ Interest on employee contributions exceeding ₹2,50,000 per year (₹5,00,000 where the employer makes no contribution) is taxable — as per Rule 9D.
1️⃣7️⃣ NPS — Sec 10(12A) & 10(12B)
• 60% lump sum at maturity (age 60) → exempt
• Partial withdrawal up to 25% of own contribution → exempt
• Monthly pension from annuity → taxable
PART 4 — Investments & Insurance 📈
1️⃣8️⃣ PPF — Sec 10(11)
Interest and maturity — fully exempt. EEE category. Example: ₹42,00,000 maturity after 15 years → Tax = ZERO.
1️⃣9️⃣ Sukanya Samriddhi Yojana
Interest and maturity — fully exempt. Money deposited in a daughter’s name is entirely tax-free on maturity after 21 years.
2️⃣0️⃣ Life Insurance Maturity — Sec 10(10D)
Exempt — but conditions apply! This is important:
Example (exempt): ₹10 lakh sum assured, ₹80,000 premium → only 8% → maturity of ₹14 lakh is fully exempt ✅ Example (taxable): ₹10 lakh sum assured, ₹1,50,000 premium → 15% → maturity is taxable ❌
2️⃣1️⃣ Death Claim — Always Exempt
Example: A nominee receives a death claim of ₹1,00,00,000. 👉 Tax = ZERO. Regardless of the premium, regardless of whether it’s a ULIP — none of the above limits apply. A death claim is always exempt.
2️⃣2️⃣ FD / Mutual Fund Maturity — the Principal Portion
Example: A ₹5,00,000 FD matures at ₹6,20,000 after 3 years. 👉 ₹5,00,000 principal = no tax 👉 ₹1,20,000 interest = taxable
The bank shows a ₹6.2 lakh credit — but tax applies only to the ₹1.2 lakh. This confuses a lot of people.
Same for MFs/shares: not the full sale value — only the capital gain is taxed.
2️⃣3️⃣ Tax-Free Bonds — Sec 10(15)
Interest on NHAI, PFC, REC, IRFC tax-free bonds → fully exempt.
2️⃣4️⃣ NRE Account Interest — Sec 10(4)(ii)
Example: An NRI earns ₹3,50,000 interest on an NRE FD. 👉 Tax = ZERO (as long as the person remains a non-resident). ⚠️ NRO account interest → fully taxable, with 30% TDS.
PART 5 — Property & Agriculture 🌾
2️⃣5️⃣ Agricultural Income — Sec 10(1)
Example: ₹8,00,000 earned from selling a paddy crop. 👉 Tax = ZERO. ⚠️ But partial integration applies: if agricultural income exceeds ₹5,000 and non-agricultural income exceeds the basic exemption limit, the agri income is aggregated for rate purposes (your tax goes up, though no tax is charged on the agri income itself).
2️⃣6️⃣ Sale of Rural Agricultural Land
Rural agricultural land is not a capital asset at all. So there is no capital gain.
What counts as “rural”? Based on municipality population and aerial distance:
Example: Village land sold for ₹60,00,000, satisfying the rural test. 👉 Tax = ZERO. The full ₹60 lakh lands in the bank, with not a rupee of tax.
⚠️ For urban agricultural land, capital gains do apply (relief available under Sec 54B).
2️⃣7️⃣ Compensation on Compulsory Acquisition
• Sec 10(37): Compulsory acquisition of urban agricultural land (subject to the 2-year usage condition) → exempt
• RFCTLARR Act, 2013, Sec 96: compensation under an award/agreement under that Act → exempt (confirmed by CBDT Circular 36/2016)
2️⃣8️⃣ Sale of Property — Sec 54 / 54F / 54EC
Not exempt outright, but with planning the tax can be brought to ZERO.
Example: A flat is sold for ₹80 lakh with an LTCG of ₹30 lakh. A new house is purchased for ₹35 lakh (Sec 54). 👉 Tax = ZERO — even though ₹80 lakh was credited to the bank.
Sec 54EC: invest up to ₹50 lakh in NHAI/REC bonds within 6 months → LTCG exempt.
PART 6 — Business, Firm & Others 🏢
2️⃣9️⃣ Share of Profit from a Partnership Firm — Sec 10(2A)
Example: A partner’s share of firm profit is ₹12,00,000. 👉 Tax = ZERO in the partner’s hands (the firm has already paid tax at 30%). ⚠️ But remuneration and interest on capital are taxable in the partner’s hands.
3️⃣0️⃣ Business Turnover ≠ Income
Example: A kirana shop receives ₹90,00,000 in UPI collections during the year. 👉 Tax is not on ₹90 lakh — only on the net profit (say 8% → ₹7.2 lakh).
3️⃣1️⃣ Scholarship — Sec 10(16)
Example: A student receives a scholarship of ₹2,50,000. 👉 Tax = ZERO (where it is granted to meet the cost of education). Government, private or trust — same treatment.
3️⃣2️⃣ Government-Approved Awards — Sec 10(17A)
An award or reward approved by the Central/State Government → exempt. Example: A ₹10,00,000 cash award from a State Government for a sporting achievement → Tax = ZERO.
3️⃣3️⃣ Lump-Sum Alimony
A one-time lump-sum alimony under a court settlement is generally treated as a capital receipt and not taxed (supported by several Tribunal/High Court decisions). ⚠️ Monthly alimony is taxable. ⚠️ This is not a statutory exemption — it’s a judicial position. Documentation and the decree are essential.
PART 7 — Money Received, But Tax Is Zero Anyway 🎯
3️⃣4️⃣ Up to ₹12 Lakh Under the New Regime — Sec 87A
From FY 2025-26: - Taxable income up to ₹12,00,000 → rebate of ₹60,000 → tax ZERO - For the salaried: add the ₹75,000 standard deduction → tax ZERO up to ₹12,75,000
Example: Salary ₹12,75,000 → less standard deduction → ₹12,00,000 → tax ₹60,000 → 87A rebate ₹60,000 → Net tax = ZERO ✅
⚠️ 87A conditions: - Only for a resident individual — not available to NRIs, HUFs or firms - Not available against special rate income (STCG u/s 111A, LTCG u/s 112A) - Marginal relief applies where income marginally exceeds ₹12 lakh
📌 Budget 2026 update: No change to the slabs or 87A — the same structure continues for FY 2026-27.
3️⃣5️⃣ Senior Citizens — Sec 80TTB
Deduction of up to ₹50,000 on bank/post office interest (age 60+, old regime). Example: FD interest of ₹48,000 with no other income → Tax = ZERO.
PART 8 — Where Exactly to Report These in Your ITR 📝
This is where most of the confusion lies. And this year, Schedule EI has changed.
What Changed in AY 2026-27
The Income Tax Department updated the ITR utility and schema for AY 2026-27:
1. The old catch-all field “Other Exempt Income” under Schedule EI was removed.
2. A new specific option — “Receipts not in the nature of income” — was introduced, giving a structured way to report receipts that are not income in the first place.
3. After practitioners pointed out there was no residual bucket left for genuinely exempt income that didn’t fit a named category, the utility was updated again to add a residual “Other Income” column under exempt income.
So Schedule EI now effectively has two residual buckets — and knowing which one to use is the whole game.
⚠️ Important: This change currently exists in the online portal and JSON utilities only. It has not been carried into the notified ITR forms or their PDF versions. Check the live utility before finalising.
The Distinction That Resolves Everything
This maps exactly onto the structure of this article: Part 1 items are “not income at all”. Parts 3–6 are mostly “exempt income”.
Mapping — Item by Item
➡️ Named EI Rows (always use these first, never the residual)
➡️ “Other Income” — Residual Exempt Income
It is income; a section exempts it:
• PPF / EPF maturity — Sec 10(11) / 10(12)
• NPS 60% lump sum — Sec 10(12A)
• Gratuity, leave encashment, VRS, commuted pension — only the exempt portion
• LIC maturity u/s 10(10D) and death claims
• Share of profit from a firm — Sec 10(2A)
• Scholarship u/s 10(16); Government awards u/s 10(17A)
• Sec 10(37) / RFCTLARR compensation
➡️ “Receipts Not in the Nature of Income” — Never Was Income
• Gifts from specified relatives
• Marriage gifts; inheritance / will
• Sale proceeds of rural agricultural land (not a capital asset)
• Loans received
• Insurance claim for damage to an asset
• Receipt from HUF u/s 10(2)
• Lump-sum alimony (if taking that position)
➡️ Don’t Touch Schedule EI At All 🚫
🔴 This last group is where clients most often over-report. And over-reporting is worse than under-reporting — it creates contradictions across schedules that are hard to explain later.
Narration Discipline ✍️
Broad or casual descriptions must be avoided. Amounts reported should reconcile with bank statements, AIS, TIS, Form 26AS and supporting documents. Any mismatch between the return and the information available with the department may invite queries.
Is This Disclosure Mandatory?
No — it is voluntary. Reporting these receipts is not legally mandatory. But the disclosure option helps avoid scrutiny, particularly where the transaction is already visible through the department’s data systems.
The logic is simple: the disclosure does not create a liability. It prevents the question from being asked.
Practical rule — disclose when the receipt is large AND visible:
The test: would the department see this and wonder where it came from? If yes, disclose.
⚠️ IMPORTANT WARNINGS — Don’t Miss These!
1. Exempt ≠ No Reporting
Exempt income should still be disclosed in Schedule EI (see Part 8 for exactly which row). Non-disclosure of large receipts invites a notice. Especially: - Agricultural income - PPF/EPF maturity - Gifts from relatives (keep documentation ready) - LIC maturity
2. Everything Shows Up in AIS/TIS
Bank deposits of ₹10 lakh+, property of ₹30 lakh+, cash transactions — all get reported under SFT. The department already knows. Always check your AIS before filing.
3. Cash Gifts and Sec 269ST — the ₹2 Lakh Limit 🔴
Receiving ₹2,00,000 or more in CASH in a day / in a single transaction / for a single event → 100% penalty u/s 271DA (on the recipient!). 👉 Even if the gift is exempt under income tax, taking it in cash attracts a penalty. ✅ Always take it by bank transfer or cheque.
4. Gift Documentation
For any large gift from a relative, keep these ready: - Gift deed / declaration letter (donor and donee details, relationship, amount, date) - Bank transfer proof - Donor’s PAN and source of funds - Donor’s ITR (for large amounts)
5. Clubbing Provisions — Sec 64
Example: You gift ₹20 lakh to your wife → the gift is exempt ✅. But if she puts it in an FD, the ₹1.4 lakh interest earned is clubbed back into your income! Same for a gift to a minor child → income is clubbed with the parent’s (₹1,500 per child exempt).
6. No Loan Documentation?
Sec 68 unexplained cash credit → Sec 115BBE → 60% + 25% surcharge + cess ≈ 78%, with no deduction allowed. A loan agreement is non-negotiable.
Watch the Boundary — Where People Slip ⚡
Every one of these pairs looks similar. Only one side is tax-free.
Final Word 💬
“A credit in the bank means income” is a myth. “Exempt income need not be shown in the ITR” is equally a myth.
Knowing both is the correct approach. If you report exempt income properly in the ITR and keep your documentation ready, a notice holds no fear.
And this year the department has made it easier — the new “Receipts not in the nature of income” option in Schedule EI finally gives a proper home to gifts, loans and rural land proceeds. Use it where the amount is large and visible. Use it correctly (Part 8).
ITR due date: 31 July 2026 (non-audit cases, FY 2025-26).
📞 Questions?
CA Durganjali Balusu M/s Durganjali & Associates, Hyderabad 📱 9014644586 | 🌐 cadurganjali.in Income Tax • GST • MCA/ROC Compliance
Disclaimer: This article is for general educational purposes only. Statutory provisions are as applicable to FY 2025-26 (AY 2026-27) under the Income-tax Act, 1961. Please obtain professional advice for your specific case.
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