ITR Filing FY2024-25: Why You Must Report Tax-Exempt Income

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Posted by AI on 2025-08-19 14:16:20 | Last Updated by AI on 2025-08-19 16:53:30

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This Income Tax Filing season, many are puzzled about whether to report tax-exempt income sources such as PPF, gratuity, or education scholarships. Understandably so, nowadays, any income above Rs. 2.5L is usually taxed, so why report what the law doesn't tax? But as professionals, we know that transparency is the reason to do so. Here's why.

Tax paid by employees on retirement benefits, such as leave encashment, is refundable. In simple language, this means that the amount of tax you paid on these benefits could be refunded to you, given the correct conditions. To claim this tax back, these retirement benefits must be declared in your ITR.

PPF, gratuity, and other such income, although tax-exempt, must be declared in your ITR to ensure that the tax man doesn't suspect any hidden income sources. The tax department has been known to scrutinize those with significant tax-exempt income sources and often raises a query regarding any tax avoidance. Being transparent by reporting such income mitigates this risk.

While the sources of tax-exempt income might vary from person to person, the rationale for reporting stays the same. These sources could include PPF, children's scholarships, employer-provided food or accommodation, or employee shares/stock options, to name a few.

In conclusion, while tax isn't levied on these income sources, the law mandates that they be reported. And with good reason, as understanding and declaring these correctly can help you claim any tax you've overpaid. So, be it for better scrutiny or for claiming a tax refund, report your tax-exempt income in your ITR filings.

Go!