If you are also going to file ITR for Assessment Year (AY) 2023-24, then this is important news for you. You have to file your ITR before 31st July. If you also want to get tax exemption, then you should know the difference between tax exemption, tax rebate and tax deduction. Today we are telling you what is the difference between these three.
Today is the last day of the month of June and the month of July is going to start from tomorrow. July is the last month to file Income Tax Return (ITR). You have time till 31st July to file ITR.
In such a situation, if you also want tax exemption, then you should know what is the difference between exemption, rebate and deduction. Exemption, rebate and deduction are commonly known as tax exemption synonyms and people often think of them as the same. But let us tell you that the meaning of these three is different which you should know before filing ITR .
What is Tax Exemption?
Tax exemption means that no tax will be levied up to a certain level of income. Currently, income tax exemption is available up to a total annual income of Rs 2.5 lakh. Suppose a person is earning 2.5 lakh rupees in a year, then he does not need to pay any income tax.
But if a person is earning Rs 3 lakh, then he will have to pay tax only on Rs 50,000. Tax exemption can be considered as complete relief from tax and can be claimed from specific portions of income and not from gross total income.
Various exemptions have been given under the Income Tax Act, 1961 such as income under the head Salary and income under the head Capital Gains, which is tax-free subject to certain criteria . House rent allowance, leave travel allowance and perks like mobile phone and laptop will be exempt while computing salary income. Similar exemption exists for other categories of income as well.
What is Tax Deductions
Taxpayers are eligible for tax deductions that relate to specific deductions such as investments made (Section 80C) or amounts spent (Section 80D or Section 80E). Tax deductions are available only to those who are filing ITR under the old tax regime.
This deduction is based on tax saving investments like life insurance premium, medical insurance premium , PPF and tuition fees. Where tax exemption means no tax is levied on the income, deduction is the reduction in the gross income of the taxpayer on which tax will be calculated.
What is Tax Rebate
Tax rebate is different from tax exemption and deduction. Under tax rebate, a limit is fixed up to which the income is tax-exempt under section 87A of the Income Tax Act, 1961. However, if the annual income exceeds the limit, then tax has to be paid on the entire income tax.
This is followed under the new tax regime. If the income goes above Rs 5 lakh in the financial year 2022-23, then the entire income (except the exemption limit) will be taxed. Let us tell you that in the financial year 2023-24, the exemption limit has increased to Rs 7 lakh.
For example, for FY23, income tax is exempted up to an income of Rs 5 lakh. Accordingly, if a person is earning an income of Rs 5 lakh annually, then the entire income is tax-free. However, if the annual income is Rs 5.1 lakh, the entire Rs 2.6 lakh will be taxed (as income up to Rs 2.5 lakh is exempt).
