How to Fill Exempt Income Schedule in ITR-1 (FY 2024–25)
- PRITI SIRDESHMUKH
- 5 hours ago
- 8 min read
The Income Tax Department requires taxpayers filing ITR-1 (Sahaj) to report exempt income even if it is not taxable. Accurate disclosure ensures transparency and prevents notices or mismatched entries in the Annual Information Statement (AIS). Exempt income includes items like interest from PPF, HRA, gratuity, dividends, and agricultural income up to ₹5,000. Understanding how to fill this schedule correctly helps avoid errors and keeps your ITR fully compliant with CBDT guidelines. Platforms like TaxBuddy make this process seamless by guiding users step by step while filing returns online.
Table of Contents
Understanding Exempt Income and Its Purpose
Exempt income refers to any earnings that are not subject to tax under the Income Tax Act, 1961. While these incomes are tax-free, they still need to be reported in the ITR for transparency and verification purposes. This disclosure helps the Income Tax Department reconcile information reflected in the Annual Information Statement (AIS) and prevents unnecessary scrutiny or notices. By including exempt income, taxpayers maintain a clear financial record and demonstrate compliance with reporting requirements.
Common Types of Exempt Income Under ITR-1
Exempt income covers various categories defined under Section 10 and other provisions. Some common examples include House Rent Allowance (HRA), Leave Travel Concession (LTC), leave encashment, gratuity, and interest earned on Public Provident Fund (PPF). Dividends, long-term capital gains from certain equity transactions, and agricultural income up to ₹5,000 also qualify as exempt income for ITR-1 filers. Each source of income should be reported correctly under the appropriate category to avoid misclassification.
Step-by-Step Process to Fill Exempt Income Schedule in ITR-1
Filing exempt income in ITR-1 is a straightforward process on the income tax e-filing portal. After logging into the portal, select the “File ITR” option, choose “Individual,” and select “ITR-1 (Sahaj).” Navigate to the “Taxes Paid & Verification” tab where the “Exempt Income (For Reporting Purpose)” section appears. Choose the correct nature of income, such as interest from PPF, HRA exemption, or agricultural income, and enter the corresponding amount. If you have multiple exempt incomes, use the “Add” option to record each separately. Once entered, save the details before proceeding to the next section. Remember that agricultural income exceeding ₹5,000 must be reported in ITR-2, not ITR-1.
Key Categories and Sections to Report Under ITR-1
The main exempt income categories include allowances, retirement benefits, interest income, and agricultural earnings. Under Section 10(13A), the exempt portion of HRA can be disclosed. Section 10(10) applies to gratuity received from employers, while Section 10(10AA) covers leave encashment on retirement. Interest from PPF is exempt under Section 10(11), and dividend income under Section 10(34). Agricultural income up to ₹5,000 can be included in ITR-1 under Section 10(1). Correct classification is essential to ensure proper validation of the ITR form.
Important Rules and Precautions While Filing Exempt Income
Taxpayers must ensure they disclose all exempt income sources, even if no tax is payable. This is mandatory for accurate record-keeping. Supporting documents such as PPF statements, salary slips, or employer-issued HRA certificates should be retained for reference. Avoid including taxable income under the exempt category, as this can lead to discrepancies during assessment. Additionally, choose the correct ITR form — ITR-1 for incomes within the ₹5,000 agricultural income limit, and ITR-2 for higher amounts or additional income sources.
Example of Filling Exempt Income in ITR-1 (FY 2024-25)
Consider a taxpayer who earned ₹3,000 as PPF interest, ₹2,000 from small-scale farming, and an exempt HRA component of ₹8,000. These entries should be added separately in the “Exempt Income” section. The total exempt income will amount to ₹13,000. This disclosure provides clarity in the return and aligns with the data reported by financial institutions or employers to the Income Tax Department.
What to Do After Disclosing Exempt Income
Once the exempt income section is filled, proceed to enter all active bank accounts under the same tab. Dormant accounts that have been inactive for more than two years can be excluded. Select the primary account for refund purposes to ensure faster credit processing. After verifying all entries, review the return summary, complete the verification process, and submit the ITR. Retain an acknowledgment copy for future reference.
Key Updates for FY 2024-25 in ITR-1 Exempt Income Schedule
For FY 2024-25, the agricultural income reporting limit under ITR-1 remains up to ₹5,000. The new tax regime continues to be the default selection in the e-filing interface; however, exemptions like HRA and LTC remain applicable only under the old regime. The Income Tax Department has also enhanced the e-filing system for smoother data entry and faster validation of exempt income fields, reducing filing errors and technical rejections.
Common Mistakes to Avoid When Filling Exempt Income Schedule
Many taxpayers make unintentional mistakes while reporting exempt income in ITR-1, often due to misunderstanding the purpose of the disclosure. One of the most common errors is omitting exempt income entirely, under the false assumption that since it is not taxable, it need not be reported. However, the Income Tax Department requires even tax-free income to be disclosed for verification and compliance purposes. Failure to do so may lead to discrepancies between your return and the data reflected in your AIS or Form 26AS, potentially resulting in scrutiny or notices.
Another frequent mistake is entering incorrect or estimated amounts instead of referring to accurate records such as salary slips, Form 16, bank passbooks, or PPF account statements. Incorrect reporting may distort your income details and cause mismatches with employer or bank data submitted to the tax department. Some taxpayers also confuse taxable allowances with exempt ones, leading to misclassification of income. For instance, including a fully taxable allowance like conveyance or meal allowance under exempt income can create errors in computation.
It is equally important to avoid merging different types of exempt income into a single entry. Each source — such as interest from PPF, agricultural income, or the exempt portion of HRA — must be entered separately with its correct nature and amount. This level of detail ensures transparency and allows the system to correctly interpret the source of each income type.
In some cases, individuals forget to switch to ITR-2 when their agricultural income exceeds ₹5,000 or when they have other non-eligible income sources. Filing under the wrong ITR form can lead to rejection or defective return notices. Therefore, always verify eligibility before filing and review every entry carefully before submission. Keeping supporting documents organized and cross-checking all exempt amounts with reliable records are essential steps to ensure your ITR is accurate, compliant, and error-free.
How TaxBuddy Simplifies ITR Filing and Exempt Income Disclosure
TaxBuddy simplifies the entire filing process by offering both self-filing and expert-assisted options through its AI-driven platform. Users can easily upload Form 16, review auto-filled exempt income details, and ensure all disclosures comply with the latest rules. The mobile app provides personalized guidance, automated calculations, and real-time validation, helping users file accurate returns without confusion or manual effort.
Conclusion
Filling the Exempt Income Schedule correctly prevents compliance issues and ensures smooth processing of returns. Reporting every source of exempt income accurately reflects financial transparency and maintains a clean record with the Income Tax Department. For those seeking expert guidance or AI-driven assistance in ITR filing, it is advisable to use TaxBuddy’s expert-assisted services or self-filing tools. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy provides both self-filing and expert-assisted plans. The self-filing option allows taxpayers to file their returns independently using guided steps and AI-based error checks. The expert-assisted plan, on the other hand, connects users with qualified tax professionals who review documents, identify deductions, and ensure complete compliance. This flexibility helps taxpayers choose the level of support they need based on their comfort and complexity of their income structure.
Q2. Which is the best site to file ITR?
The official income tax e-filing portal (www.incometax.gov.in) remains the most reliable government platform for filing ITR. However, for those who want a simplified, user-friendly experience with guided assistance and auto-error checks, TaxBuddy is among the best options. It ensures accurate computation, seamless data import from Form 16, and personalized advice for choosing between the old and new tax regimes.
Q3. Where to file an income tax return?
Income tax returns can be filed online through the Income Tax Department’s official e-filing website or via authorized tax filing platforms like TaxBuddy. Filing through TaxBuddy’s web or mobile app provides an easier process with pre-filled data, real-time validations, and expert guidance. Once the return is filed, it must be e-verified using Aadhaar OTP, bank account, or net banking to complete the process.
Q4. Is it mandatory to report fully exempt income in ITR-1?
Yes, even though exempt income is not taxable, it must be disclosed in ITR-1. The Income Tax Department requires this for record verification and to ensure data consistency with information received from banks, employers, or investment platforms. Reporting exempt income also reduces the chances of receiving unnecessary notices or queries during assessment.
Q5. What happens if exempt income is not reported in ITR?
Failure to report exempt income can lead to discrepancies when cross-verifying your income data with the AIS or Form 26AS. Although no tax is due on such income, the mismatch might attract an inquiry or clarification notice from the tax department. It is always better to declare every income source, even if it is tax-free, to maintain full compliance.
Q6. Can agricultural income above ₹5,000 be shown in ITR-1?
No. ITR-1 allows reporting of agricultural income only up to ₹5,000. If the agricultural income exceeds this limit, the taxpayer must file ITR-2. This is because higher agricultural income affects the computation of total income and requires additional disclosure details that ITR-1 does not support.
Q7. Does HRA fall under exempt income for reporting purposes?
Yes, the exempt portion of House Rent Allowance (HRA) under Section 10(13A) must be reported as exempt income in ITR-1. Only the exempt amount—calculated using rent paid, salary, and city of residence—is reported under the “Exempt Income (For Reporting Purpose)” section. The remaining taxable portion is automatically included in the salary income component.
Q8. Are dividends and PPF interest mandatory to report as exempt income?
Yes. Even though dividend income from domestic companies and interest earned on Public Provident Fund (PPF) are exempt from tax, they should be disclosed in the exempt income schedule. This helps the Income Tax Department reconcile your financial data with that reported by financial institutions, ensuring transparency and reducing audit risks.
Q9. What is the difference between exempt income and deductions under Chapter VI-A?
Exempt income refers to income that is not taxable at all under specific sections like 10(11) or 10(13A). Deductions under Chapter VI-A, such as those under Sections 80C, 80D, or 80G, are reductions applied to taxable income after computing gross total income. In short, exemptions exclude certain incomes from tax altogether, while deductions reduce the taxable portion of your total income.
Q10. Do I need to attach proofs for exempt income in the ITR form?
No documents or proofs need to be uploaded while filing the ITR. However, it is important to retain supporting records like salary slips, HRA receipts, PPF passbook entries, or dividend statements. These may be required if the Income Tax Department seeks clarification later or during a scrutiny assessment.
Q11. Which tax regime allows reporting of exempt income in ITR-1?
Exempt incomes can be reported in ITR-1 under both regimes, but most exemptions such as HRA, LTC, and standard deduction apply only under the old tax regime. The new regime offers lower tax rates but removes most exemptions and deductions. It’s advisable to evaluate which regime offers better tax savings before selecting one while filing.
Q12. Can TaxBuddy help compare old and new tax regimes before filing returns?
Yes. TaxBuddy’s platform automatically compares both tax regimes based on your income, deductions, and exemptions. It shows which regime results in lower tax liability and helps you make an informed decision. This feature, available in both the web and mobile versions, ensures that taxpayers always choose the most beneficial option before final submission.
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