7 Tax-Free Income Sources in India for Big Savings in 2026

Understanding tax-free incomes can help you plan better and retain more of what you earn. From agricultural income to select government savings schemes, India's tax laws provide multiple exemptions that benefit different sections of society. Here are seven key income sources that are completely tax-free in India.

Agricultural income from farming on agricultural land in India is fully tax-exempt under Section 10(1). This includes rent from agricultural land, income from growing and selling crops like vegetables, fruits, grains, and spices, and profits from selling rural agricultural farmland. However, agricultural income from foreign land is fully taxable in India.

When you receive your share of profit from a partnership firm or Limited Liability Partnership (LLP), it's completely tax-free under Section 10(2A) since the firm already pays tax on its total income. This avoids double taxation. However, this applies only to profit distribution; salary, interest, or remuneration paid to partners remains taxable.

Public Provident Fund (PPF) offers 7.1% interest compounded annually with complete tax freedom under the Exempt-Exempt-Exempt (EEE) status. You get tax deduction under Section 80C for contributions up to Rs 1.5 lakh annually (under the old tax regime). The interest earned from annual contributions is tax-free, and the matured amount after 15 years is also exempt from taxation.

The Sukanya Samriddhi Yojana (SSY) is a government scheme for girl children that offers 8.2% interest per annum with full tax exemption under the EEE category. Parents can invest between Rs 250 and Rs 1.5 lakh yearly and claim tax deduction under Section 80C. The interest earned is completely tax-free, and the proceeds on maturity after 21 years are also tax-exempt. You can open this account until your daughter turns 10.

Scholarships received for education purposes are completely tax-free under Section 10(16), with no limit on the amount. This applies to scholarships from government institutions, private organizations, educational institutes, or international sources. Even foreign scholarships are tax-exempt in India. Awards and prizes from specific government authorities under Section 10(17A) are also not taxed.

Life insurance maturity proceeds are tax-free under Section 10(10D) with conditions. For non-ULIP policies issued after April 1, 2023, the annual premium must not exceed Rs 5 lakh. ULIPs issued after February 1, 2021, stay tax-free if the aggregate annual premium is Rs 2.5 lakh or less. For policies between April 2003 and March 2012, the premium shouldn't exceed 20% of the sum assured; after April 2012, premiums below 10% of the sum assured qualify for tax exemption.

Gratuity, a one-time payment received at retirement or exit from employment, is tax-exempt under Section 10(10). For private sector employees, gratuity up to Rs 20 lakh is completely tax-free. Government employees enjoy full tax exemption on gratuity received. This retirement gift is a significant way to secure financial stability without the burden of taxes.