Exemption from paying income taxes
Income tax exemptions are granted on specific sources of income rather than on overall income. It may also imply that you are exempt from paying taxes on income derived from that source. Agriculture revenue, for example, is free from taxation. Moreover, long-term capital gains from the sale of a property might be tax-free if reinvested in real estate or selected bonds within a defined time period. Salary earners get a housing rent allowance (HRA) as part of their pay. Under certain situations, this component may be utilised to claim tax exemption.
Deduction for taxes
Income tax deductions, on the other hand, may be claimed on the gross total income. Some defined investments and expenditures are eligible for tax breaks. Deductions may be claimed for investments in certain mutual funds, student loan interest repayment, and premium payments for medical insurance. In addition, salaried taxpayers may deduct Rs.40,000 from their gross wage. This standard deduction is now worth Rs.50,000. This decreases their overall taxable income and, as a result, their tax liability.
What is the Different Between Deduction and Exemption?
Income tax deductions, on the other hand, may be claimed on the gross total income. Some defined investments and expenditures are eligible for tax breaks. Deductions may be claimed for investments in certain mutual funds, student loan interest repayment, and premium payments for medical insurance. In addition, salaried taxpayers may deduct Rs.40,000 from their gross wage. This standard deduction is now worth Rs.50,000. This decreases their overall taxable income and, as a result, their tax liability.
Although a deduction is a component of Gross Total Income (GTI), anybody might profit from it depending on application. In contrast, the exception is not included in GTI. The following article highlights the significant distinctions between deduction and exemption.
The Base for Comparison Deluction
| Basis for Compaison | Deduction | Exemption |
|---|---|---|
|
Meaning |
A deduction is a subtraction, i.e. a sum that may be used to lower taxable income. |
Exemption indicates exclusion; for example, if some money is exempt from tax, it does not add to a person's total income. |
|
What is it? |
Concession |
Relaxation |
|
Concept |
The amount of the deduction is first added to the gross income and then subtracted to arrive at the net income. |
The exempted income is not deducted from the taxpayer's total income; the whole amount is an exemption. |
|
Earnings are |
Deductible on taxes |
The goal is to avoid paying taxes. |
|
Objective |
To encourage the general public's savings and investments. |
To promote that specific portion where tax is exempt. |
|
Sections |
Sections 80 D through 80 U cover deductions. |
Section 10 addresses exemptions. |
|
Allowable to |
Certain individuals |
All the persons |
|
Conditional |
Yes |
No |
Tax Deduction vs. Tax Exemption: How Do They Work?
Deduction from taxes
When you deduct the appropriate amounts from your income, your total taxable income decreases. As a consequence, the amount of tax you must pay is lowered. Overall, when you claim tax deductions, you benefit from lower taxes.
Assume you are qualified to claim a tax deduction of Rs. 40,000 under the Income Tax Act of 1961. Assume your entire income is Rs. 4,40,000. Your total tax deduction after claiming the tax deduction would be Rs. 4,00,000.
Exemption from Tax
These are effectively tax-free products. As a result, you owe no taxes on such earnings. Certain types of income may be partly tax-exempt, while others may be entirely tax-free.
For example, if your total revenue for the fiscal year is Rs. 2,00,000. Moreover, you earn a tax-free income of 50,000. In this situation, your total taxable income would remain at Rs. 150,000 (rather than Rs. 2,50,000), since the additional 50,000 is tax-free.
Tax Deduction Categories
Income tax Section 80C
First and foremost, we shall discuss Section 80C. In this regard, Rahul claims that most people believe that income up to Rs 5 lakh is tax-free, which is not the case. In reality, income of up to 2.5 lakhs is free from taxation. After that, a refund of up to Rs 12,500 is allowed under section 87A for the following Rs 2.5 lakh. In this manner, tax exemption is possible on a total salary of 5 lakhs. Apart from that, tax exemption may be obtained under section 80C on investments up to Rs 1.50 lakh in schemes like as term insurance, 5-year FD, senior citizen savings plans, and ELSS mutual funds.
Income tax Section 80CCD
If you invest in the National Pension Plan, you may be eligible for a tax break under Section 80CCD. Tier 1 accounts in NPS are tax deductible. Tax relief is available via NPS under Section 80CCD (1B) of the Income Tax Act on investments up to Rs 50,000. Once you have reached the Rs 1.5 lakh limit under Section 80C, NPS might help you save even more money in taxes.
Income tax Section 80D
You may save tax on your income by purchasing health insurance for yourself, your family, and your dependant parents. If you are under the age of 60, you may earn a Rs 25,000 refund by paying premiums for yourself, your life partner, and your children under this provision. Individuals who are above the age of 60 may claim a deduction of up to 50,000 rupees under section 80D. Nevertheless, if both the taxpayer and his parents are above the age of 60, a deduction of up to Rs 1 lakh may be claimed.
Income tax Section 80DDB
If a dependent member of your family is suffering from a severe disease, the amount spent on his treatment is also tax deductible. This list includes all illnesses such as cancer, haemophilia, thalassemia, and AIDS. This deduction is available under section 80DDB for costs made for the treatment of parents, spouses, children, or dependent siblings. You must, however, have a medical certificate. This deduction might range from Rs.40,000 to Rs.1 lakh depending on age and other factors.
Income tax Section 80EE
If your house loan is less than Rs 35 lakh and the value of your property is less than Rs 50 lakh, you may claim an extra deduction of Rs 50,000 (Section 24) on home loan EMI interest under Section 80EE. Nevertheless, no additional property should be registered in his name at the time of loan acceptance.
Section 80 of the EEA
Section 80EEA allows you to claim an extra tax deduction of Rs 1.5 lakh on home loan interest if you have taken out a house loan. Nevertheless, the stamp value of the home cannot be more than Rs 45 lakh. Apart from that, the mortgage must have been obtained between April 1, 2019 and March 31, 2022. If you are buying a property in a metropolis, the carpet area should not exceed 60 square metres; nevertheless, this restriction may change in other places.
Income tax Section 80E
If you have taken out a loan for your own, your life partner’s, or your child’s higher education, you may claim a tax break on the interest paid on the loan. Nonetheless, it must be obtained from a reputable organisation or bank. An exemption may be available for the current assessment year as well as up to seven subsequent evaluation years.
Income tax Section 80GG
Salaried workers who reside in leased housing might minimise their tax burden by taking advantage of the home rent allowance. 60,000 per year under Section 80GG. The highest monthly exemption permitted is Rs. 5,000.
Income tax Section 80 TTB
Salaried workers who reside in leased housing might minimise their tax burden by taking advantage of the home rent allowance. 60,000 per year under Section 80GG. The highest monthly exemption permitted is Rs. 5,000.