ITR filing FY 2024-25: Don't make the mistake of not reporting tax exempt incomes such as PPF, gratuity; here's why

Time of India

3 days ago

But many taxpayers make the mistake of not mentioning exempt incomes in their income tax return. (AI image)
ITR filing FY 2024-25: PPF interest is tax free. So is the interest coming from tax free bonds. The maturity proceeds of life insurance plans are also exempt from tax. But while the taxman lets you pocket these tax free incomes, he demands full disclosure.
'While exempt income is not taxable, it is mandatory to disclose it in ITR under the 'Exempt Income' schedule,' advises Nishant Khemani, Managing Partner of the Saturn Consulting Group.
There are several sources of tax free income (see table). But many taxpayers make the mistake of not mentioning these incomes in their return. Reporting your exempt income in your tax return isn't just about ticking a box — it's about ensuring that you don't face scrutiny later in life.
When it comes to filing your tax return, transparency is critical. The return must account for all financial transactions during the year. This includes incomes that are tax free.
This disclosure is mandatory if your gross total income exceeds the basic exemption limit or you are otherwise required to file an ITR. Though there is no penalty for not reporting this income, taxpayers who include this income in the tax return will find it easier to explain the source of funds in future, especially for high-value exempt receipts like maturity of PPF account or life insurance policy.
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'If a large amount (more than Rs 50 lakh) is deposited in a savings bank account in a year, the bank is obliged to report it to the tax authorities,' warns Umesh Jethani, Founder of Apki Return.
Keep in mind that the Annual Information Statement may already have records of exempt income (tax-free bond interest, life insurance receipts, provident fund payments). If these are missing from your ITR, it can trigger a notice for 'information mismatch'. Though it will ultimately get resolved, there is the possibility of a delay in processing refunds if the return is flagged for verification.
Exempt income
Income tax section
Exemption condition
Receipts from Provident Fund
10(11)
Fully exempt.
PPF interest
10(11)
Fully exempt.
Withdrawal from Provident
Fund after 5 years
10(12)
Fully exempt.
Sukanya scheme interest & maturity
10(11A)
Fully exempt.
Life insurance maturity proceeds
10(10D)
Exempt if annual premium is up to 10% of sum assured
Leave encashment on retirement
10(10AA)
Fully exempt for Govt employees; partly exempt for others.
Retrenchment compensation
10(10B)
Exempt up to specified limits.
VRS receipts
10(10C)
Exempt up to ₹5 lakh once in a lifetime.
Tax-free bond interest
10(15)
Applies to notified bonds (e.g., NHAI, REC).
Gifts from specified relatives
56(2)(x)
Exempt if from defined relatives, on marriage or mundan ceremony
Scholarships
10(16)
Fully exempt.
Awards and rewards (approved by govt)
10(17A)
Exempt if notified.
Gratuity
10(10)
Exempt up to ₹20 lakh for non-Govt.
HUF income
10(2)
Exempt if received as a member of HUF.
Share of profit from a
partnership firm
10(2A)
Exempt in partner's hands; firm pays tax.
Agricultural income
10(1)
Fully exempt; must still be disclosed. If more than ₹5,000, separate computation in Schedule EI.
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