To understand exempt income, you need to understand taxable income. Simply put, exempt income is NOT ADDED to your total taxable income, and hence, NOT TAXABLE.

In India tax is charged on Total Income of a person. Total taxable income is derived after adding up income from five sources namely,

• Income from Salary,
• Income from House Property,
• Income from Business Profession and Vocation,
• Income from Capital Gains, and
• Income from Other Sources.

Exempt income is one that is not chargeable to tax or the income that does not form part of TOTAL INCOME under Income Tax Act, 1961.

This includes:

• Income from Agriculture,
• Dividends Income received from companies
• Interest received from PPF,
• Income from Gratuity, leave encashment, voluntary retirement compensation etc, (Read footnote)
• Amounts received via claims and bonuses from insurance policies.

The list could go on, if you have any specific income you want to know whether it's exempt or not, drop a comment.

Footnote:

At certain times, you may need to fulfill certain conditions to claim some of these incomes as exempt income.