Income that is exempt — PPF interest, qualifying EPF interest, tax-free life-insurance maturity, agricultural income — is not taxed, but it must still be disclosed in the "Schedule EI" (Exempt Income) of your ITR. These exemptions sit in Section 11 of the Income-tax Act, 2025 (the old Section 10). Watch the traps: post-office SCSS/MIS/NSC interest is taxable (not exempt), and EPF interest on contributions above ₹2.5 lakh a year is taxable.
"Exempt" does not mean "invisible". Incomes the law chooses not to tax — the interest your PPF earns, a tax-free insurance payout, agricultural income — are still meant to be reported in your return, in a dedicated section called Schedule EI (Exempt Income). Disclosing them costs you nothing in tax and keeps your return consistent with the data the department already sees in your AIS. The real mistakes people make are two: they either skip disclosing exempt income (creating a mismatch), or they wrongly assume something is exempt when it is actually taxable — the classic being post-office scheme interest. Get those two right and exempt income is simple.
Certain receipts are listed by law as not included in your total income — they are collected in Section 11 of the Income-tax Act, 2025, which is the successor to the old Section 10 that everyone knew for exemptions like 10(10D), 10(11) and 10(12). Because they are outside total income, no tax is charged on them and they do not affect your slab (with one exception, agricultural income, which is used only to work out the rate on your other income). But "outside total income" is a computation rule, not a licence to omit them from the form — the ITR gives them their own schedule precisely so you can show them.
The interest your Public Provident Fund earns each year, and the maturity amount, are fully exempt. You do not pay tax on them — but you report the interest in Schedule EI. This answers the common worry "is PPF interest taxable and reportable?": it is not taxable, but yes, reportable as exempt income. The same treatment applies to a Sukanya Samriddhi account. Keeping these in Schedule EI year on year also builds a clean record of how your PPF corpus grew, which is useful if the source of a later withdrawal is ever questioned.
Interest on your Employees' Provident Fund is exempt in the normal case, and the accumulated balance is exempt on withdrawal if you have completed five years of continuous service. Two situations make it taxable, and you must report those parts as taxable income, not exempt: first, interest on your own contributions above ₹2.5 lakh in a year (₹5 lakh where there is no employer contribution) is taxable — the EPFO maintains a separate taxable sub-account and deducts TDS on that interest; second, if you withdraw before completing five years, the withdrawal (including the exempt-till-then interest and the employer's share) becomes taxable, often with TDS. So the exempt slice goes in Schedule EI, and any taxable slice goes under salary/other sources.
A life-insurance maturity or bonus is exempt under the old Section 10(10D) (now within Section 11) only if the policy met the premium-to-sum-assured limits — broadly, annual premium not exceeding 10% of the sum assured for policies issued after 1 April 2012 (15% for policies on a disabled or specified-illness life). Newer high-premium policies have a further cap: ULIPs with annual premium above ₹2.5 lakh, and other policies issued from 1 April 2023 with aggregate annual premium above ₹5 lakh, lose the exemption and the maturity becomes taxable. Where the payout is not exempt, the insurer deducts TDS and you report it as income; where it is exempt, you report it in Schedule EI. A death claim to a nominee remains exempt regardless.
This is where people most often go wrong. Interest from the Senior Citizens' Savings Scheme (SCSS), the Post Office Monthly Income Scheme (POMIS), NSC, KVP and time deposits is taxable, not exempt — it is reported under income from other sources and taxed at your slab, even though it comes from the post office. Only PPF and Sukanya interest among small-savings products is exempt. NSC interest has a twist worth knowing: the annual accrued interest is taxable each year, but because it is reinvested it also qualifies for the ₹1.5 lakh deduction (Section 123, the old Section 80C) in the years it accrues, except in the final year. So "post office" does not mean "tax-free" — check each scheme.
In ITR-2 and ITR-3, there is a dedicated Schedule EI with lines for interest income exempt, dividend exempt (limited now), agricultural income and "others" — enter your PPF/EPF exempt interest and any exempt insurance maturity there. In ITR-1, there is a single "Exempt income" field where you report the total with a nature-of-income code. Agricultural income above ₹5,000 pushes you out of ITR-1 into ITR-2 and is used for rate purposes. Whichever form you use, the figure is disclosure-only — it does not add to your tax. Reconcile it against your AIS, which now reports interest credited by banks, the post office and the EPFO.
Say in a year you earn ₹90,000 of PPF interest, ₹48,000 of SCSS interest, and receive a ₹3 lakh insurance maturity on a policy well within the premium limits. The PPF ₹90,000 and the ₹3 lakh maturity are exempt — you put them in Schedule EI and pay no tax. The SCSS ₹48,000 is taxable — it goes under income from other sources and is taxed at your slab (a senior can set part of it against the Section 153 interest deduction, old 80TTB). So of the three receipts, two are exempt-but-disclosed and one is fully taxable — mixing them up either overpays tax or triggers a mismatch. Getting each into the right bucket is the whole job.
The recurring errors: not disclosing exempt income at all, which leaves an AIS gap; treating post-office SCSS/MIS/NSC interest as exempt when it is taxable; missing the taxable EPF interest on contributions above ₹2.5 lakh; assuming every insurance maturity is tax-free when high-premium policies are now taxable; and forgetting agricultural income, which must be disclosed and can affect your rate. Disclose everything in the right schedule, tax what is taxable, and your return matches the department's data — which is exactly what avoids a notice.
PPF interest is fully exempt — you do not pay tax on it — but you should still disclose it in the Schedule EI (exempt income) of your ITR. The same applies to Sukanya Samriddhi interest.
Exempt PPF and EPF interest is reported in Schedule EI (or the exempt-income field of ITR-1). But EPF interest on your own contributions above ₹2.5 lakh a year is taxable and goes under income from other sources, as does any withdrawal made before completing five years of service.
No. SCSS, POMIS, NSC and KVP interest is taxable and reported under income from other sources at your slab rate. Among small-savings products only PPF and Sukanya interest is exempt.
It is exempt only if the policy met the premium limits (broadly premium up to 10% of sum assured, and aggregate annual premium under ₹5 lakh for policies from April 2023, ₹2.5 lakh for ULIPs). If it exceeds those limits the maturity is taxable; if exempt, disclose it in Schedule EI.
We sort every receipt into the right schedule — exempt vs taxable — and file a return that matches your AIS.
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