tax-exempt

1. Not subject to taxation, as the capital or income of a philanthropic organization.
2. Producing interest that is exempt from income tax: tax-exempt bonds.

To be free from, or not subject to, taxation by regulators or government entities. A tax exempt entity can be excused from a single or multiple taxation laws. Governments are often trying to encourage investment when exempting taxation.

Investopedia Says:
Certain securities or investor groups can be referred to as tax exempt. For example, the interest earned from municipal bonds is exempt from federal or state taxation. Many pension plans and income trusts are also designed to be tax exempt at the corporate level.

Other forms of tax exempt entities include, but are not limited to, churches, religious organizations, amateur sports leagues and charities that try to provide relief for the poor and underprivileged.

Related Links:
Investing in these bonds may offer a tax-free income stream but they are not without risks. The Basics of Municipal Bonds
Find out how to determine whether the tax exemption offered by "munis" benefits you. Weighing The Tax Benefits Of Municipal Securities
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Stay up-to-date on regulation amendments to avoid penalties as well as take advantage of new opportunities. Tax-Law Changes: Involuntary Cash-Out and Roth 401(k) and 403(b)

Free from tax liability. This status is granted to most municipal bonds, which pay interest that is totally free from federal taxes. Municipal bond interest is also usually tax-exempt to bondholders who are residents of the issuing state. However, other states may impose taxes on interest earned from out-of-state bonds. Certain organizations, such as registered charities, religious organizations, educational institutions, and nonprofit groups, also hold tax-exempt status, meaning they are exempt from federal, state, or local government taxes. Earnings on assets held for at least five years inside a Roth Ira also accumulate tax-free, as long as they are withdrawn after the account holder reaches age 591⁄2.

Not subject to tax. Most commonly used to describe tax exempt interest, which is interest paid by the states or their subdivisions and is exempt from federal income taxes. I.R.C. §103. Interest paid by the states was initially exempted from federal income taxation in 1913 under the belief that taxing such interest would unconstitutionally interfere with the state's ability to raise funds. The exemption is now retained by Congress as a form of revenue sharing with the states. Bittker, Federal Taxation of Income, Estates and Gifts 15.2.1 (2d ed. 1989).

The adjective has one meaning:

Meaning #1: (of goods or funds) not taxed
  Synonyms: tax-free, untaxed