Income Tax Deduction Vs Tax Exemption Vs Tax Rebate.. !

In India, it’s  Income tax filing season & while filing your return, you will have to deal with a few jargons.

Among many, you should know the basic difference among

1. Income Tax Exemption,

2. Income Tax Deduction and

3. Income Tax Rebate.

All three help you bring down your tax outgo, but are different in nature.

1. INCOME TAX EXEMPTION..!

This is applicable on income or / part of income that is exempt from tax or / on which the assessee is not liable to pay tax.

While calculating tax liability, exempt incomes are the first that get reduced from gross income.

For instance, if house rent allowance is a part of an assessee’s salary component, it is exempted from tax subject to certain rules.

Also, in case an assessee has made long-term capital gains by selling a house, he / she can claim exemption by reinvesting the amount in another residential property or / notified capital bonds within the stipulated time. 

Investment in capital gain bonds has to done within 6 month of sale, whereas he/ she can invest in a new residential property within two (2) years or get a property constructed within three (3) years from date of sell.

To continue being eligible for claiming tax exemption, he/ she must deposit the unutilized amount in Capital Gain Account Scheme before filing return for that financial year. (April 1 to March 31)

2. INCOME TAX DEDUCTION..

After taking into account exempt incomes, deductions are considered. It is the amount of income an assessee can claim as deduction from he /her gross income.

It could be an investment made or / expenses incurred by an assessee on specified avenues under different sections of the Income-tax Act, 1961, which qualify for deductions.

For instance, an assessee can claim deduction of up to Rs.1.5 lakh under section 80C for investments made in instruments like equity-linked savings schemes (ELSS), Public Provident Fund (PPF), and National Savings Certificates (NSC).

Expenses like as children’s education fee, and stamp duty paid on registration of a house, also qualify for deduction under the same section. T

Here are various other sections like 80D, 80E, 80U etc.. which also qualify for deduction.

Limit & avenues differ in each section.

Interest payment of up to Rs.2 lac on housing loan for a self-occupied home is also deductible under section 24(b) and if the property is let out, the entire interest amount can be claimed as deduction.

3. INCOME TAX REBATE..

It is the amount of tax that an assessee is not liable to pay. Take the rebate under section 87A, for instance. As per this section, if an assessee has an income below Rs.5 lakh in a financial year, he / she is allowed to claim Rs.2,000 as tax rebate.

Say, an assessee has a taxable income of Rs.3 lakh for the financial year 2014-15; her tax liability would be Rs.5,000 excluding education cess (income up to Rs.2.5 lakh is exempt from tax for the assessment year 2015-16).

However, as her income is less than Rs.5 lakh, he/ she can claim a rebate of Rs.2,000, making her liable for a tax of Rs.3,000, excluding cess.

These income tax exemptions, deductions and rebates are allowed by the income tax department to bring down tax liability of an individual.

One should take full advantage of these benefits to enhance savings and investments.

Src: Mint

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