There are many exemptions to the payment of tax according to Income Tax Act 1961, by proving with evidence i.e. by submitting documents which specifies how the income was obtained to the income tax department at the time when tax return is filed will ensure exemption if the specified conditions are met.
Tax exemptions are provided for agricultural income, receipts from Hindu Undivided Family, share of a partner of affirm, when tax is assessed separately, receipts from lottery or horse race less than Rs5000/-, interest on bonds and security and bank account in any of the Indian banks held by Non Resident Indian, national saving certificates, leave travel cost if not exceeding the specified amount, shooting of a film by a foreigner or nonresident Indian on Indian soil, scientific research, incomes of foreigners as passage money, remuneration received by ambassador and diplomats, incomes received by Indians from a foreign companies while stay in India, income from foreign philanthropic institutions, Nonresident Indian working in a foreign ship, salaries to Nonresident professors and teachers, incomes received by scientist, retirement death gratuity, gratuity not exceeding 2 and half lakhs rupees, pension, leave encashment not exceeding 8months of income, compensation paid to employee not exceeding Rs 50,000/-, payment made for Bhopal gas leak, Voluntary retirement money not exceeding Rs 5 lakhs, payment of life insurance policy or statutory provident fund, credit from provident fund and superannuation fund.
These are not all, there are many more exemptions. They are special allowance given to a employee, special benefits given to a employee, premiums received on foreign currency, notified securities, capital investment bonds, relief bond interest, bonds owned by Non Resident Indian, securities under Ceylon Monetary Act1949, interest paid to a bank outside India, interest received from the Indian Government for money lent to them, interest received for industrial undertaking in India, purchase of raw material machinery from abroad, receipt of interest from scheduled bank for foreign currency deposit, interest received from public company, scholarships granted for education purpose, daily allowances of MPs, and MLAs, constituency allowance of MPs, awards received, rewards from government, income of development and housing authority and income of approved scientific and research association, the list goes on and on.
So since there are wide ranges of exemptions available, we should go through the income tax section on exemption and utilize the same to save on our income tax.