Income Exempt From Tax: Complete List from Schedule II (Income Tax Act 2025)

Under the Income-tax Act, 2025, section 11(1) says that income listed in Schedules II to VI is left out of your total income, provided you meet the conditions attached to it. Schedule II is the main list for individuals, and Schedules III to VI cover other persons and cases (gratuity and leave salary sit in section 19, not in the Schedules). It has 17 items, including agricultural income, scholarships, Sukanya Samriddhi payouts, Agniveer Corpus Fund payments, and certain life insurance, provident fund and NPS receipts. If a condition is not met in a tax year, that income is taxed (section 11(2)).

This guide goes through the section, every Schedule II entry in plain language, the numeric limits that decide whether an entry stays exempt, and the mistakes that turn exempt money into taxable income. All figures come from the Act as amended by the Finance Act, 2026 (effective 1 April 2026, tax year 2026-27). Last reviewed on 10 November 2026.

What does "income not included in total income" mean?

Total income is the amount on which tax is computed. Income that is "not included" never enters that amount, so no tax is charged on it. Section 11 sets out four rules:

• Section 11(1): income listed in Schedules II, III, IV, V and VI is not included in total income, subject to the conditions given there.
• Section 11(2): if the conditions are not satisfied in a tax year for an item, that income is charged to tax for that year.
• Section 11(3) and (4): persons listed in Schedule VII are not chargeable to tax on their total income if they meet the Schedule VII conditions; otherwise their income is taxed. This is a different list, covering persons rather than types of income.
• Section 11(5): the Central Government can make rules or issue notifications for the Schedules. Several Schedule II entries depend on such notifications (Sl. Nos. 3, 11, 12, 13).

Schedule II itself is read with "Notes" below its table, which define terms such as "special policy" and "premium to sum assured ratio". Those definitions are covered further down.

How does the exemption test work?

What income is exempt under Schedule II of the Income-tax Act, 2025?

The table below lists all 17 entries, with the condition in column C reduced to a line. Entries 2, 3, 4, 6 and 15 have numeric tests and get their own sections after the table.

Sl. No.	Income not included in total income	Condition (column C)
1	Agricultural income	Nil
2	Sum received under a life insurance policy, including bonus	Premium to sum assured test by period of issue; aggregate premium caps for policies issued from 1 April 2023; exclusions for Keyman policies and section 127(4) sums
3	Payment from a provident fund under the Provident Funds Act, 1925, or another provident fund notified by the Central Government	Interest on contributions above Rs 5,00,000 (no employer contribution) or Rs 2,50,000 (other cases) in a tax year is not exempt, for contributions on or after 1 April 2021
4	Accumulated balance payable to an employee in a recognised provident fund, to the extent in paragraph 8 of Part A of Schedule XI	Same contribution limits as Sl. No. 3
5	Payment from a Sukanya Samriddhi Account (Scheme, 2019)	Nil
6	Payment from the National Pension System Trust	On closure or opting out (section 124 scheme), and not more than 60% of the total amount payable
7	Payment from the Agniveer Corpus Fund to an Agnipath enrollee or the nominee	Nil
8	Payment from an approved superannuation fund	Payment on one of the listed events (death, commutation of annuity, refund of contributions, transfer to a section 124 pension scheme)
9	Scholarships	Granted to meet the cost of education
10	Any award or reward, in cash or kind	Award instituted in the public interest by the Central or a State Government, or by another body approved by the Central Government; or a reward by the Government for approved public-interest purposes
11	Interest, premium on redemption or other payment on Central Government securities, bonds, annuity certificates, savings certificates and deposits	The certificates and deposits must be notified, subject to the conditions and limits in the notification
12	Interest on Gold Deposit Bonds (Scheme, 1999) or Gold Monetisation Scheme, 2015 certificates notified by the Central Government	Nil
13	Interest on bonds of a local authority or a State Pooled Finance Entity	As specified by the Central Government by notification
14	Income from transfer of a unit of the Unit Scheme, 1964 (Schedule I to the UTI Transfer of Undertaking and Repeal Act, 2002)	Transfer takes place on or after 1 April 2002
15	Payment from the NPS Trust to a Unified Pension Scheme subscriber	Received on superannuation, voluntary retirement or retirement under rule 56(j) of the Fundamental Rules, and not more than 60% of the Individual corpus as defined in the Department of Financial Services notification dated 24 January 2025
16	"Lump sum amount" from the NPS Trust to a Unified Pension Scheme subscriber	The lump sum is as per clause (vi) of Para 2 of the same notification
17	Income covered by section 10(15)(iii), (15)(iv)(c) to (h) or (36) of the Income-tax Act, 1961	Nil in Schedule II; the conditions in those 1961 Act provisions continue to apply

Is agricultural income exempt from tax?

Yes. Sl. No. 1 excludes agricultural income and the condition column says "Nil". The Schedule II text I worked from does not define the term, so check the Act's definition of agricultural income before treating a receipt as exempt.

When is a life insurance maturity amount exempt?

Sl. No. 2 covers any sum received under a life insurance policy, including bonus. Whether it stays exempt depends on when the policy was issued. Death proceeds are outside these tests: the condition applies to policies issued in the listed periods "except where such sum is received on the death of a person".

Policy issued	Condition for exemption
1 Apr 2003 to 31 Mar 2012	Premium to sum assured ratio is 20% or less
1 Apr 2012 to 31 Mar 2013	Ratio is 10% or less
1 Apr 2013 to 31 Jan 2021	Ratio is 15% or less for a special policy; 10% or less for other policies
1 Feb 2021 to 31 Mar 2023	Unit linked (ULIP): ratio 15% or less (special) or 10% or less (other), and aggregate premium of all such policies in any tax year of their term is Rs 2,50,000 or less. Other than ULIP: ratio 15% or less (special) or 10% or less (other)
On or after 1 Apr 2023	ULIP: same ratio test and Rs 2,50,000 aggregate premium cap. Other than ULIP: same ratio test and aggregate premium of Rs 5,00,000 or less

Key definitions (Note 1 to Sl. No. 2):

• Premium to sum assured ratio is the highest percentage of annual premium payable to the "actual capital sum assured" during the policy term. "Actual capital sum assured" has the meaning in paragraph 2(2) of Schedule XV.
• Special policy is a policy on the life of a person with disability or severe disability (section 154), or a person suffering from a disease or ailment specified in rules under section 128.
• Keyman insurance policy is a policy taken by a person on the life of another who is or was an employee, or is or was connected with the business, including a policy assigned to someone at any time during its term. Sums from Keyman policies are never excluded under Sl. No. 2.

Two more points from clauses (b) and (c): the Rs 2,50,000 and Rs 5,00,000 aggregate caps do not apply to a policy issued on or after 1 April 2025 by the International Financial Services Centre Insurance Office; and any sum received under section 127(4) is also not eligible. Section 127(4) deems the amount paid or deposited for a disabled dependant's maintenance to be the assessee's income if the dependant dies before the individual or HUF member.

How much provident fund interest is exempt?

Sl. No. 3 (funds under the Provident Funds Act, 1925, or notified funds) and Sl. No. 4 (recognised provident fund balances) share one limit. Interest accrued in the tax year is not exempt when it is attributable to contributions by the person on or after 1 April 2021 that exceed, in a tax year:

Situation	Contribution limit per tax year
Employer contributes to the fund	Rs 2,50,000
No contribution by the employer	Rs 5,00,000

The amount of interest that loses exemption is "computed in such manner as may be prescribed". That prescribed method is not in Schedule II, so this article does not compute the taxable interest figure.

Worked example 1: is the provident fund interest exempt? (tax year 2026-27)

Assumptions: Anil is a salaried employee in a recognised provident fund (Sl. No. 4). His employer also contributes. Every contribution is made on or after 1 April 2021.

Step	Figure
Anil's own contribution, Rs 30,000 a month x 12	Rs 3,60,000
Limit where the employer contributes (Sl. No. 4(a)(ii)(B))	Rs 2,50,000
Contribution above the limit (3,60,000 − 2,50,000)	Rs 1,10,000
Result	Interest attributable to the excess is not exempt; how much interest that is gets computed in the prescribed manner.

If Anil had contributed Rs 2,00,000, the limit would not be crossed and the full interest would remain exempt under this condition.

How much of an NPS payout is exempt?

Sl. No. 6 excludes a payment from the National Pension System Trust when two conditions are both met: the payment is on closure of the account or opting out of the pension scheme referred to in section 124, and it does not exceed 60% of the total amount payable at that time.

For Unified Pension Scheme subscribers, Sl. No. 15 uses the same 60% ceiling but measured against the "Individual corpus", and applies on superannuation, voluntary retirement or retirement under rule 56(j) of the Fundamental Rules (where not treated as a penalty under the Central Civil Services (Classification, Control and Appeal) Rules, 1965). Sl. No. 16 separately excludes the "lump sum amount" under clause (vi) of Para 2 of the notification dated 24 January 2025.

Worked example 2: NPS withdrawal on closure (tax year 2026-27)

Assumptions: Sunita closes her NPS account (not a Unified Pension Scheme account). The total amount payable on closure is Rs 20,00,000.

1. Ceiling under Sl. No. 6(b) = 60% x Rs 20,00,000 = Rs 12,00,000.
2. If she takes Rs 12,00,000 as a lump sum, the payment does not exceed 60%, so condition (b) is met. Condition (a) is met because it is on closure.
3. If the payout were Rs 14,00,000 (70%), condition (b) would fail. Under section 11(2) the income is then charged to tax, and how much is taxed should be confirmed with a CA.

Worked example 3: life insurance maturity (policy issued 15 June 2024)

Assumptions: Ravi's policy is not a unit linked policy, is not a special policy, and is not a Keyman policy. Annual premium is Rs 90,000 and the actual capital sum assured is Rs 10,00,000. It is his only policy issued on or after 1 April 2023, and it matures in tax year 2026-27.

Test	Calculation	Result
Issued on or after 1 Apr 2023, other than ULIP	Two conditions apply: ratio test and aggregate premium test	Both must be met
Ratio, "other" policy limit 10%	90,000 ÷ 10,00,000 = 9%	Met (9% is not more than 10%)
Aggregate premium limit Rs 5,00,000	Rs 90,000 only	Met

The maturity amount, including bonus, is not included in Ravi's total income. Had the premium been Rs 1,20,000, the ratio would be 12%, above 10%, and the sum would be taxable unless the policy qualified as a special policy (15% limit).

Real-life scenarios

Meena's scholarship. Meena, a postgraduate student, receives a Rs 8,000 monthly scholarship from a trust to cover tuition and books. Sl. No. 9 excludes scholarships granted to meet the cost of education. The condition is about the purpose of the grant. If the same trust paid her a monthly amount unrelated to her education, the Sl. No. 9 condition would not be met.

Ravi's gallantry reward. A State Government gives Ravi a cash reward for rescuing flood victims. Sl. No. 10(b) covers a reward by the Central or a State Government for purposes approved by the Central Government in the public interest. If the reward is not for an approved purpose, the exemption is not available.

Kavita's daughter's Sukanya account. Kavita withdraws the maturity amount from her daughter's account opened under the Sukanya Samriddhi Account Scheme, 2019. Sl. No. 5 says "Nil" in the condition column, so any payment from the account is excluded.

Rajesh's old UTI units. Rajesh sells units of the Unit Scheme, 1964 in tax year 2026-27. Sl. No. 14 excludes income from such a transfer when it happens on or after 1 April 2002, so his gain is not included.

What about Agniveer and superannuation fund payments?

Sl. No. 7 excludes any payment from the Agniveer Corpus Fund to an Agnipath enrollee or the nominee with no further condition. Section 125 allows the matching deduction for contributions to the fund and defines the Agnipath Scheme and the fund.

Sl. No. 8 covers an approved superannuation fund, but only when the payment is made on one of five occasions: death of a beneficiary; commutation of an annuity on retirement at a specified age or incapacity; refund of contributions on death; refund of contributions to an employee who leaves service (limited to contributions made before the Act's commencement and interest on them); or transfer to the employee's section 124 pension scheme account.

Is salary, gratuity, leave encashment, HRA or NRE interest exempt too?

Yes, but these are not in Schedule II. Readers who know the 1961 Act's list of exempt incomes should look in three other places in the 2025 Act.

Receipt	Where in the Act	What the text says
Gratuity	Section 19(1), Table Sl. Nos. 3 to 6	Death-cum-retirement and defence gratuity: entire amount. Payment of Gratuity Act: amount as restricted by section 4(2) and (3) of that Act. Other gratuity: the least of actual amount, the notified limit and half a month's salary per completed year. Section 19(2)(a) reduces the limit by gratuity exempted in earlier tax years.
Leave salary on retirement	Section 19(1), Sl. Nos. 13 and 14	Central or State Government employee: entire amount. Others: the least of the cash equivalent (earned leave capped at 30 days per year of service), 10 times average monthly salary of the preceding ten months, the notified limit and the amount received.
Voluntary retirement	Section 19(1), Sl. No. 12	The lower of the compensation received and Rs 5,00,000, under a scheme of the kind listed in section 19(2)(h), and only once (section 19(2)(e)(ii)).
Retrenchment compensation to a workman	Section 19(1), Sl. Nos. 10 and 11	The least of compensation received, the amount under section 25F(b) of the Industrial Disputes Act, 1947, and the notified amount (not less than Rs 50,000).
Commuted pension	Section 19(1), Sl. Nos. 7 to 9	Entire amount for Government and similar schemes; for other employers, one-third of the pension (gratuity received) or one-half (no gratuity), on a commuted-value basis.
Rent allowance (HRA-type)	Schedule III, Sl. No. 11	Special allowance for rent actually paid, to the extent prescribed, where the house is not owned by the assessee. Conditions (a) to (d) must all be met.
Leave travel concession	Schedule III, Sl. No. 8	Travel within India on leave or after retirement, subject to prescribed journeys and amount per head, never more than the expense actually incurred.
NRE account interest	Schedule IV, Sl. No. 1	Interest on a Non-Resident (External) account held by an individual resident outside India (FEMA, section 2(w)), or one permitted by the RBI to hold such an account.

Schedule III also covers other income of individuals and HUFs, among them a member's receipts from a Hindu undivided family (Sl. No. 1, not covered by section 99(3) and (4)), a partner's share of the firm's profit (Sl. No. 2, as per the profit-sharing ratio in the deed), disaster compensation from the Government (Sl. No. 3), partial NPS withdrawal up to 25% of the person's own contributions (Sl. No. 4), gallantry-award pension (Sl. No. 14) and income of a minor child clubbed under section 99(1)(c), up to Rs 1,500 per child (Sl. No. 17). Schedules V and VI deal with investment funds, business trusts and International Financial Services Centre income. The rent-allowance and travel-concession limits are "as prescribed", so check the prescribed amounts before claiming. See our guides on salary income and exempt income of non-residents.

Is dividend or interest income exempt?

Not under Schedule II. Section 11 and Schedule II contain no entry for dividends, bank interest or mutual fund income, so such receipts are not excluded by these Schedules. The Central Government securities, savings certificates and local authority bond interest in Sl. Nos. 11 to 13 are exempt only if notified. Members of a Scheduled Tribe in specified areas and Sikkimese individuals have separate Schedule III entries (Sl. Nos. 19 and 20).

Common mistakes

• Treating every maturity as exempt. The ratio and aggregate premium tests depend on the date of issue. Check each policy, not the product label.
• Ignoring provident fund contribution limits. The limits in Sl. Nos. 3 and 4 are per tax year and apply to contributions on or after 1 April 2021. High voluntary contributions create taxable interest.
• Taking more than 60% as an NPS lump sum. The 60% ceiling is a condition, not a guideline. Crossing it fails condition (b).
• Assuming "notified" items need no check. Sl. Nos. 3, 11, 12 and 13 depend on notifications by the Central Government. Confirm the instrument is notified and note its limits.
• Mixing up Schedule II with Schedule VII. Schedule II lists types of income. Schedule VII lists persons not chargeable to tax on total income (section 11(3)).
• Forgetting that a failed condition makes the income taxable. Section 11(2) applies year by year.

Quick reference: limits that decide exemption

Entry	Limit or test
Life insurance, ratio (policies from 1 Apr 2013)	15% special policy; 10% other
Life insurance, ULIP aggregate premium (issued from 1 Feb 2021)	Rs 2,50,000
Life insurance, other than ULIP aggregate premium (issued from 1 Apr 2023)	Rs 5,00,000
Provident fund contributions, employer contributes	Rs 2,50,000 per tax year
Provident fund contributions, no employer contribution	Rs 5,00,000 per tax year
NPS closure or opting out	60% of total amount payable
UPS payment on retirement	60% of Individual corpus
UTI Unit Scheme, 1964 transfers	On or after 1 April 2002

Where this is in the Act

• Section 11: incomes not included in total income (Schedules II to VII).
• Schedule II: the 17-entry table, with Notes 1 to 4.
• Section 124: pension scheme of the Central Government (referred to in Sl. Nos. 6 and 8(e)).
• Section 125: Agnipath Scheme and Agniveer Corpus Fund (Sl. No. 7).
• Section 127(4): sums excluded from Sl. No. 2.
• Section 128: specified disease rules for "special policy" (Note 1(e)).
• Section 154: person with disability or severe disability (Note 1(e)).
• Schedule XI, Part A, paragraph 8: recognised provident fund balance (Sl. No. 4).
• Schedule XV, paragraph 2(2): "actual capital sum assured" (Note 1(a)).

For the wider picture of what is and is not taxable, see our guide on the scope of total income.

How do CA firms track exempt income conditions across clients?

For a CA firm, the work is knowing which clients hold policies issued in which period, who crosses the provident fund contribution limit, and which maturities or withdrawals fall due this year. Finexo's practice management software keeps client records, tasks and deadlines in one place so these checks are not missed. It does not decide whether an income is exempt.

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.