Unearned Income

Aisha (Finance Professional) (7547 Points)

23 January 2023  

Unearned income refers to income that is received from sources other than active work or services rendered. It is income that is not earned through an individual's own efforts or labor. Examples of unearned income include:

  • Interest and dividends from investments
  • Rent from property
  • Capital gains from the sale of assets
  • Income from trust funds or inheritance
  • Pension and annuity income
  • Social security benefits

The exemptions and deductions available for unearned income are provided under various sections of the Income Tax Act. Here are some of the key sections and limits:

  1. Section 10(13A) of the Income Tax Act provides for a deduction for House Rent Paid. The maximum deduction that can be claimed is the least of the following:
  • Rent paid minus 10% of the total income
  • 50% of the total income (if the property is located in a metro city) or 40% (if it's located elsewhere)
  1. Section 80TTA of the Income Tax Act provides for an exemption for Interest on Deposits. The maximum amount of interest that can be claimed as exempt is Rs. 10,000 per financial year.
  2. Section 10(38) of the Income Tax Act provides for an exemption for Long-term Capital Gains on the sale of certain assets. The maximum amount of capital gains that can be claimed as exempt is Rs. 1 Lakh per financial year.