NEW DELHI :
While doing tax planning, you should not only look at the prevailing income tax rates and slabs but also take advantage of any available tax rebate, exemption or deduction to reduce your total tax outgo. As the three terms sound to have a similar meaning, several taxpayers get confused in the terminology. According to the Income Tax Act, tax rebate, tax deduction and tax exemption have different implications. Here’s an explainer.
Tax exemption:
The income tax department treats certain sources of income as being tax-exempt, which means that you do not need to pay tax on such any such form of income. While calculating the total taxable income, exempted income is the first one which gets deducted. Tax exemptions for the salaried class include LTA or LTC, house rent allowance (HRA), receipts from life insurance policy, etc.
After reducing your tax-exempt income from the total income, you get gross total income.
Tax deduction:
Whatever tax deductions you are eligible for gets reduced from your gross total income. Two major deductions that you could be eligible for is a standard deduction of ₹40,000 and all other deductions under various sub-sections of Section 80 the Income Tax Act. Investments and expenses made under Section 80 (C) include provident fund (EPF, PPF and VPF), tuition fees, mutual fund ELSS, NSC, tax savings fixed deposits (FD), etc. Besides, there are several other deductions under Section 80 (D), 80 (E) and 80 (G).
When you minus deductions from the gross total income, you get your taxable income.
Tax rebate:
You can calculate your tax liability from the taxable income but the income tax department also offers rebate on the tax liability in certain cases. Under Section 87A of the Income Tax Act, those in the ₹5 lakh income bracket, can claim a rebate of upto ₹12,500 in FY 2019-20. It essentially means that if your taxable income is upto ₹5 lakh, you will have to pay zero tax.
Source: livemint
