Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Money / Calculators/  DYK: Tax deduction, exemption and rebate are three different concepts
BackBack

DYK: Tax deduction, exemption and rebate are three different concepts

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

Pradeep Gaur/MintPremium
Pradeep Gaur/Mint

It’s tax filing season and while filing your return, you will have to deal with a few jargons. Among many, you should know the basic difference among tax exemption, deduction and rebate. All three help you bring down your tax outgo, but are different in nature.

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, she can claim exemption by reinvesting the amount in another residential property or notified bonds within the stipulated time. Investment in bonds has to done within six month of sale, whereas she can invest in a new residential property within two years or get a property constructed within three years from date of sell. To continue being eligible for claiming tax exemption, she must deposit the unutilized amount in Capital Gain Account Scheme before filing return for that financial year.

TAX DEDUCTION

After taking into account exempt incomes, deductions are considered. It is the amount of income an assessee can claim as deduction from 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 1.5 lakh under section 80C for investments made in instruments such as equity-linked savings schemes, Public Provident Fund, and National Savings Certificates. Expenses such as children’s education fee, and stamp duty paid on registration of a house, also qualify for deduction under the same section. There are various other sections such as 80D, 80E, 80U and 80TTA which also qualify for deduction. Limit and avenues differ in each section. Interest payment of up to 2 lakh on home loan for a self-occupied house is also deductible under section 24(b) and if the property is let out, the entire interest amount can be claimed as deduction.

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 5 lakh in a financial year, she is allowed to claim 2,000 as tax rebate. Say, an assessee has a taxable income of 3 lakh for the financial year 2014-15; her tax liability would be 5,000 excluding education cess (income up to 2.5 lakh is exempt from tax for the assessment year 2015-16). However, as her income is less than 5 lakh, she can claim a rebate of 2,000, making her liable for a tax of 3,000, excluding cess.

These 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.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 02 Jul 2015, 06:50 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App