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All about Tax Exemption, Tax Deduction and Tax Rebate?

Image Of Difference Between Tax Exemption and Tax Deduction

19-10-2022 |

The various terminologies related to income tax* in India may appear to be confusing, but it is extremely crucial for every taxpayer to be familiar with these terms. They are especially important since taxpayers need to file income tax* returns each year, and any excess tax money can be refunded to them.
 

Apart from that, there are also various schemes and investments, such as Public Provident Fund, life insurance, National Pension System and others, on which one can claim tax deductions and exemptions up to a certain limit. It is mainly for this reason and many more that one should know what terms like tax exemption, tax deduction, and tax rebate mean.
 

What are Tax Exemptions?
 

Some sources of income in India are exempt from taxes and they do not attract any tax. When you compute your tax liability, these exemptions will be deducted from your gross salary. One such example is the House Rent Allowance (HRA) which is partially exempt from tax under certain conditions.
 

If you claim your HRA, then you will be eligible for the exemption under this salary component. However, it is important that you meet the criteria for an HRA exemption. For salaried individuals, the calculation of HRA is in accordance with Section 10 (13A) of the Income Tax Act, Rule 2A.
 

LTA (Leave Travel Allowance) and any pension or gratuity are also included under tax exemption that one may receive during the assessment year. If the payment for the purchase of certain perquisites such as mobiles and laptops has been made or, in certain cases, if your company provides accommodation for official tours, this amount may will also be tax-exempt subject to fulfilment of applicable conditions.
 

These are some of the tax exemptions that can be claimed under “Income from Capital Gains”:
 

  • The exemption that is given if a new house is purchased a year before the sale or within two years after the sale of a property.
  • There is an exemption on investments of gains arising from sale of a residential property on some long-term bonds under the government that is made for a lock-in period of at least a 3-year tenure.
     

Before you file your income tax* returns, be sure to inform your employer about all the tax-exempt components of your income. TDS will be calculated on the remaining income and deducted as per your income tax* slab.
 

Since 2016, you can also get a tax exemption if you have a start-up that has been operating since April 01, 2016, and has an annual turnover of ₹25 crores. Such enterprises or start-ups can avail of a tax holiday for a period of three years within the first seven years. Also, start-ups can be eligible for a ₹10,000-crore fund in the form of venture capital from the Government, subject to fulfilment of conditions and furnishing applicable documentations.
 

What are Tax Deductions?
  

You can derive your total gross income once the exempt income on your total salary has been  accommodated, and you can also reduce the gross income through certain tax deductions. You can claim some deductions on premiums paid for life insurance plans, medical insurance and other savings and investment schemes. This will reduce the taxable income and help taxpayers save more.

 

Payments such as the premiums of life insurance plans, can be claimed as tax deductions under Section 80C of the Income Tax Act. The balance amount will come under your income tax* slab as the taxable amount.
 

These are the deductions that you can claim on investments:
 

  • Deductions under Section 80C of the Income Tax Act on investments in Public Provident Fund, National Savings Certificate, Employee Provident Fund, Equity-Linked Savings Scheme and more.
  • Medical or health insurance premiums or health rider# premiums are eligible for tax deductions under Section 80D of the Income Tax* Act. Tata AIA Life insurance plans also offer these tax deductions on the premium payments as per the prevailing tax laws.
  • The interest payable by the taxpayer on the repayment of a child education loan qualifies for tax deductions under Section 80E.
  • Charitable donations made by the taxpayer can qualify for deductions under Section 80G of the Income Tax* Act.
  • The interest earned on your savings account are eligible for deductions under Section 80TTA.
     
What is Tax Rebate?

 

Picture Of Tax Exemption Deduction


An income tax* rebate means a tax relief that an individual can receive if the taxes they are liable to pay is less  Tax rebate helps individuals with low income to decrease their tax burden through the reduction of taxable income. This will also comprise what can be claimed from the total tax payable.
 

One can claim tax deductions and exemptions on their income. However, in the case of a tax rebate, one can only claim tax on the amount of tax payable. Therefore, income tax* rebate only applies to the following taxpayer categories:
 

  • Individuals with an annual income of less than ₹5 Lakh.
  • Individuals eligible for a rebate on total tax payable or ₹2,500, whichever is lesser.


For instance, if the TDS deducted by your employer or the Tax Deducted at Source is more than your tax liability, then you can claim the surplus from the Income Tax Department. Your tax liability can be easily computed when you file your income tax* returns.
 

As per the Income Tax* Act, an individual assessee can claim a tax refund only if they file their income tax* returns within the due date for the assessment year by July 31 each year or on a date notified by the government.
 

When filing the returns on the official website of the Income Tax* Department, fill out the ITR form, as applicable, correctly, and then click on the “Validate” and “Taxes paid and Verification”. Your tax refund, if any, will be automatically calculated. This will also be validated by the Income Tax Department, and they will certainly refund the amount to you within a given timeline.
 

Conclusion


Most people whose taxes are filed by their agents or accounts or those who have just joined the workforce and are new to the concept of taxes may initially struggle to understand how tax* exemption, tax* deduction and tax* rebate work. However, with the explanation given above, it is easy to understand that though the three terms are related, they have their own relevance and are applied differently in the tax* system of India.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

As a salaried individual, will my investments be taxable?

If you are earning a salary, then TDS will be deducted as per the applicable TDS rates before you receive your salary. You can file your income tax* returns with the TDS certificate issued by your employer. In case you choose to make certain investments with your salary, you can claim tax* deductions of up to ₹1.5 Lakh per year under Section 80C of the Income Tax* Act, provided these investments are eligible for tax* deductions.

Can I avoid paying more taxes?

You can avoid losing money paid on taxes by filing your income tax* returns on time. In case you are eligible for a tax* refund, the Income Tax* Department will return the same to you within a specified timeline. The taxes you pay are based on the income you earn and the tax* bracket you fall under.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • #Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums, and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch.