Tax Free Income

There's a saying "there's no free lunch". But when it comes to taxataion there are some which are free and govt. of india is generous compared to many other countries. Let us try to cover all the potential tax free income you can have

First there's stocks and equity oriented mutual funds which have no tax on long term gains. Thus you buy them and hold them for more than 12 months and they've appreciated you have a tax free money.

Then there is the dividends declared by listed equities (in india) are completely tax free in the hands of the investors. Same is applicable to dividends declared by mutual funds (although the funds itself will have to pay a dividend distrubution tax 10+ percentage - it will eventually affect the value of your fund - hence not completely free of tax for you).

Another golden thing (until the govt figures out Exempt-Exempt-Tax EET model for it - i'll have a post on it later) is your retirement saved money like PF, PPF and even Life insurance policies. The money earned by them are completely tax free (not to mention they might get you a tax exemption on your income earned - look at 80C section post previously). PPF is the best among this since it can be withdrawn lot earlier and no overheads (like life insurance company profits affecting its bonuses). PPF has a limit of 70,000 per individual per tax year.

Then there's this obscure thing lot of us don't know about - your post office savings account interest is tax free - although it pays a measly 3.5 percent or so its same as your normal bank savings account interest (which is taxable) hence can be considered as alternative.