Prof. Anand S
Taxes and Death are inevitable. However, we can do something to reduce the burden of tax every year. We make investments and incur expenses, some of which qualify for either an exemption or a deduction. Are these different? Indeed, these are, but the effect is the same.
Exemptions deal with different sources of income that are not considered while calculating our taxable income. These incomes may be exempt entirely or partially depending on the provisions in the Income Tax Act.
<aside> 👉🏽 Section 10 of the Income Tax Act specifies many exempt incomes. For instance, agricultural income and sums received from a life insurance policy (subject to some conditions) are examples of gains that are entirely exempt from income tax. On the other hand, exemption of long-term capital gains on listed equity shares up to ₹1 lakh per year is an example of a partially exempt income.
</aside>
Deductions are amounts that are allowed to be deducted or reduced from our gross taxable income.
<aside> 👉🏽 Chapter VI A of the Income Tax Act specifies deductions to promote the habit of saving and investment in us. Section 80 C allows deductions of up to ₹1.5 lakh a year. One can claim these by making investments in various instruments such as Equity-Linked Savings Schemes, Public Provident Fund and New Pension Scheme (NPS) or through expenses such as repayment of home loan principal. Also, a deduction is allowed for health insurance premium payment under Section 80 D
</aside>
Other examples are the 30% deduction on income from house property or the standard deduction of ₹50,000 a year from our salary income. Donations to certain specified funds, interest on home and education loans can also be claimed as deductions from your taxable income.