A common man is most of the times confused between the terms – Income Tax Rebate, Income Tax Deduction and Income Tax Exemption and ends up using them interchangeably. Although, all these terms are beneficial to the taxpayer and reduce their tax burden, the meaning and treatment of all these terms is different and is explained in this article.
Before understanding the meaning of these terms, it is important for a taxpayer to understand how tax on income is calculated:-
| Income from Salaries | |||
| Salary received | xxx | ||
| (Less) Amt Exempt | (xxx) | xxx | |
| Income from House Property | |||
| Rent received | xxx | ||
| (Less) Income Tax Deduction | (xxx) | xxx | |
| Income from Business/Profession | |||
| Income earned | xxx | ||
| (Less) Income Tax Deduction | (xxx) | xxx | |
| Income from Capital Gains | |||
| Capital Gains | xxx | ||
| (Less) Amt Exempt under Section 54, 54EC, 54F | (xxx) | xxx | |
| Income from Other Sources | |||
| Income from Other Sources | xxx | ||
| (Less) Amt Exempt | (xxx) | xxx | |
| Gross Total Income | xxx | ||
| (Less) Income Tax Deductions under Chapter VI-A | (xxx) | ||
| Total Taxable Income | xxx | ||
| Tax on total taxable income as per Income Tax Slab Rates | xxx | ||
| (Less) Income Tax Rebate | (xxx) | ||
| Total Tax payable | xxx | ||
Income Tax Exemptions
Income Tax Exemptions are allowed to be claimed from a specific source of Income and not from the Gross Total Income. For eg: Income Tax Exemptions allowed under head salary are not allowed to be claimed from any other head.
Recommended Read:
- Income Tax Exemption from Leave Travel Allowance
- Income Tax Exemption from Pension Income
- Income Tax Exemption from Leave Encashment
- Income Tax Exemption from House Rent Allowance
Similarly, Income Tax Exemptions allowed to be claimed under head Capital Gains under Section 54, 54EC, 54F etc are not allowed to be claimed under any other head
Thus, Income Tax Exemptions are those items which are allowed to be claimed only from a specific source of Income and not from the Total Income
Income Tax Deduction
Income Tax Deduction is allowed to be claimed from the total income under each head and also from the gross total income. Deductions are allowed to be claimed in case the taxpayer has incurred some specified expenditure or made specified investments.
Examples of Income tax deductions allowed are as follows:-
- Deduction under Section 80C for specific type of Investments
- Deduction under Section 80E for repayment of Interest on Education Loan
- Deduction under Section 80G for Donations
- Deduction under Section 80TTA for Interest on Savings Account
- Deduction under Section 80D for Payment of Medical Insurance Premium
Income Tax Rebate
Income Tax Rebates are those items which are allowed to be claimed from the total tax payable. It is pertinent to note that Income Tax Exemptions and Income Tax Deductions are allowed from to be claimed from the Income whereas Rebate is allowed to be claimed from the Tax payable.
Various types of Rebates available for an Individual taxpayer are as follows
