Tax-Free Income in India FY 2025-26

Updated: 3 June 2026 · Income-tax Act 2025 · FY 2025-26 / AY 2026-27

In FY 2025-26, salaried individuals with gross income up to ₹12.75 lakh pay zero tax under the new regime. Beyond this threshold, several incomes remain permanently exempt — including agricultural income, PPF interest, EPF withdrawal after 5 years, gratuity up to ₹20 lakh, and life insurance maturity proceeds — all under the umbrella of Section 10 of the Income-tax Act.

₹12.75L

Effective zero-tax limit for salaried individuals under the new regime (FY 2025-26): ₹12L income covered by 87A rebate + ₹75K standard deduction — no income tax payable.

Zero Tax Under the New Regime — How It Works

Budget 2025 doubled the Section 87A rebate to ₹60,000, wiping out tax liability for taxpayers with net taxable income up to ₹12 lakh under the new tax regime. Salaried employees additionally claim a ₹75,000 standard deduction, pushing the effective tax-free threshold to ₹12.75 lakh gross salary.

This does not apply to special-rate incomes such as short-term capital gains (STCG) under Section 111A (15%) or long-term capital gains (LTCG) under Section 112A (12.5%). The 87A rebate cannot offset tax on such incomes.

Section 10 — Permanently Exempt Incomes

Section 10 of the Income-tax Act lists incomes that are excluded from total income — they are not merely deductions but true exemptions, meaning they are never added to your taxable income at all.

Income Type	Section	Limit / Condition
Agricultural income	10(1)	Fully exempt; partial integration applies if non-agri income exceeds basic exemption
Share of HUF income	10(2)	Member's share of HUF income — fully exempt in member's hands
LTA (Leave Travel Allowance)	10(5)	Twice in a 4-year block; actual travel cost within India; old regime only
Death-cum-retirement gratuity	10(10)	Up to ₹20 lakh for private sector; fully exempt for govt employees
Commuted pension (govt employees)	10(10A)	Fully exempt for central/state govt employees; 1/3rd exempt for others with gratuity
EPF withdrawal	10(12)	Exempt after 5 continuous years of service
PPF interest & maturity	10(11)	Fully exempt — no cap on interest or maturity amount
HRA exemption	10(13A)	Old regime only; least of: actual HRA, 50%/40% of salary, rent paid minus 10% of salary
Life insurance maturity	10(10D)	Exempt if premium ≤ 10% of sum assured; death claim always exempt
Scholarships & awards	10(16)	Fully exempt — educational scholarships, state awards, Bharat Ratna etc.
Income of minor (clubbed)	10(32)	₹1,500 exemption per minor child after clubbing with parent's income
Long-term capital gains on equity (up to ₹1.25L)	112A	LTCG on listed equity/equity MF up to ₹1.25 lakh per year — exempt

Agricultural Income — Fully Exempt but Watch Partial Integration

Agricultural income from land situated in India is completely exempt under Section 10(1). This includes income from farming, rent on agricultural land, and income from a farm house used for agricultural purposes.

However, a partial integration rule applies: if your non-agricultural income exceeds the basic exemption limit (₹2.5 lakh), the tax is calculated by adding agricultural income on top, computing tax at those rates, and then deducting the notional tax on agricultural income alone. This effectively means agricultural income pushes you into a higher slab even though it itself is not taxed.

PPF — The Complete Tax-Free Triple Exemption

The Public Provident Fund enjoys EEE (Exempt-Exempt-Exempt) status — the deposit is deductible under Section 80C (up to ₹1.5L/year), the annual interest credited is exempt under Section 10(11), and the maturity amount (after 15 years) is fully exempt. There is no cap on the exemption of interest or maturity proceeds. With a maximum contribution of ₹1.5 lakh per year and the current interest rate of 7.1%, PPF remains one of the most efficient tax-free investment options.

HRA Exemption — Old Regime Only

House Rent Allowance is exempt under Section 10(13A) only for those in the old tax regime. The exempt amount is the least of: (a) actual HRA received, (b) 50% of salary for metro cities / 40% for non-metros, (c) rent paid minus 10% of salary. If you pay rent to a parent, you can claim HRA — but the parent must show it as rental income in their ITR.

Under the new regime, HRA exemption is not available. The only deduction available in the new regime is the ₹75,000 standard deduction for salaried individuals.

Life Insurance Maturity — Conditions for Exemption

Maturity proceeds from a life insurance policy are exempt under Section 10(10D) provided: for policies issued after 1 April 2012, the annual premium should not exceed 10% of the sum assured at any point during the policy term. For older policies (issued before 1 April 2003), there is no premium-to-sum-assured condition. Death claims are always fully exempt without any condition.

For ULIPs issued after 1 February 2021 where aggregate annual premium across all ULIPs exceeds ₹2.5 lakh, the gains are taxable as capital gains — not eligible for Section 10(10D) exemption.

Frequently Asked Questions

Is FD interest income tax-free?

No. Fixed deposit interest is fully taxable as "Income from Other Sources" at your applicable slab rate. Banks deduct TDS at 10% on FD interest exceeding ₹40,000 per year (₹50,000 for senior citizens). If you are in the 30% tax bracket, you must pay additional tax beyond the TDS deducted. Senior citizens can submit Form 15H to banks to prevent TDS deduction if their total income is below the taxable threshold, but the interest itself remains taxable and must be reported in your ITR.

Is rental income from a house property tax-free?

No. Rental income from house property is taxable under the head "Income from House Property." However, certain deductions are allowed: a standard deduction of 30% of net annual value (NAV), municipal taxes paid, and home loan interest (up to ₹2 lakh under old regime). The effective tax on rental income is therefore lower than the gross rent. Agricultural land rent is an exception — income from renting out agricultural land is exempt under Section 10(1) as it is treated as agricultural income.

Is PF/EPF withdrawal taxable?

EPF withdrawal is tax-free under Section 10(12) if you have completed at least 5 continuous years of service with your employer(s). If you withdraw before 5 years, the entire withdrawal (employer contribution + interest) becomes taxable as salary income. TDS is deducted at 10% (if PAN is provided) or 34.608% (if no PAN) on premature withdrawals exceeding ₹50,000. Transfers between EPF accounts while changing jobs do not trigger tax. Voluntary Provident Fund (VPF) enjoys the same tax treatment as EPF.

Is life insurance maturity amount tax-free?

Life insurance maturity proceeds are exempt under Section 10(10D) only if the annual premium does not exceed 10% of the sum assured (for policies issued after 1 April 2012). For policies issued before that date, the limit was 20%. For ULIPs issued after 1 February 2021 with aggregate annual premium exceeding ₹2.5 lakh, the maturity proceeds are taxable as capital gains. Death claims are always fully tax-free regardless of premium amount. Keyman insurance maturity is also taxable.

Up to how much income is tax-free under the new regime in FY 2025-26?

Under the new tax regime for FY 2025-26, effective income up to ₹12.75 lakh is tax-free for salaried individuals. This works as: (1) Income up to ₹12 lakh attracts zero tax due to the Section 87A rebate of ₹60,000 (announced in Budget 2025); (2) Additionally, salaried employees get a ₹75,000 standard deduction, making gross salary up to ₹12.75 lakh effectively tax-free. For non-salaried individuals, the limit is ₹12 lakh. Note: income from capital gains or special rate income cannot be set off against the 87A rebate.

Income Tax Slabs FY 2025-26 Section 80C Deductions HRA Exemption Calculator Agricultural Income Tax EPF Taxation Guide New vs Old Tax Regime

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