Income-tax returns: What is the difference between exemption, deduction and tax rebate when filing ITR?

Income-tax returns: All Indian residents are required to file their ITR for income tax purpose and report earnings from various sources such as salary, profits, gains from sale of real estate, capital gains, interest and dividend payments, etc.

While the e-filing process has become quicker and easier over the years, the process can be daunting for first-time filers. Here is a breakdown of some of the important terms you need to know when filing your returns. We take a look at the difference between deductions, exemptions and rebate.

What is income tax exemption?

Exemption in income tax are provided on sources of income as defined in the income tax act. For example: income generated from agriculture is exempted from tax, gains from sale of property reinvested into another real estate, payment made for house rent (under certain conditions) is also exempted.

• Section 10: This section deals with exemptions related to agriculture income, education and hostel allowance for children, gratuity under voluntary retirement, HRA, leave travel allowance, life insurance premium, pension, provident fund, and more.

What are income tax deductions?

Deductions are investments and expenditure that can be claimed on the gross total income that reduces a taxpayers' total taxable income and thus reduces tax payable. This includes investments made in education, medical insurance, or specified mutual funds.

• Standard deduction: Salaried individuals can claim upto ₹50,000 from gross income.
• Section 80C: This allows deduction of up to Rs1.5 lakh for investments in equity-linked saving scheme (ELSS), five-year fixed deposits, home loan principal repayment, LIC premium, National Savings Certificate (NSC), PPF, Senior Citizens Saving Scheme (SCSS), and Sukanya Samriddhi Yojana; and stamp duty and registration charges.

• Section 80D: Allows deductions of up to Rs.25,000 for medical insurance premium (for elf, spouse, and dependent children) paid during the financial year. Additional deductions of up to ₹25,0000 medical insurance premium of parents aged within 60 years; and of ₹50,000 for parents aged over 60 years.
• Section 24: Allows deductions of up to ₹2 lakh on home loan repayments or loss from house property, in case of a self-occupied property. For rented property, you can claim the whole amount of interest paid on housing loan.

What is income tax rebate?

Unlike tax exemptions and tax deductions, income tax rebate is supposed to be claimed from the total tax payable. This is under Section 87A for income within the 10% tax slab.

• Under the new tax regime, a rebate of ₹60,000 is allowed for an income up to ₹12 lakhs.

• Under the old regime, a rebate of ₹12,500 is allowed for an income up to ₹5 lakhs.
• Rebate cannot be claimed against LTCG and STCG under Section 112A and Section 111A of the Income Tax Act (both deal with profits from shares); and for income taxed at special rates such as winnings from lottery and game shows.
• Rebate is only allowed for individuals. Companies and Hindu Undivided Families (HUFs) cannot claim this.

Exemption vs Deduction vs Rebate: Quick comparison

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