Tax Exemption & Its Various Categories

Finding it challenging to decode what tax exemption is and the categories present under it? Tax exemptions help taxpayers to decrease their tax liability. In India, tax exemption laws include provisions that allow certain taxpayers to save taxes on specific income or transactions. 

The government provides these exemptions to encourage particular activities or provide relief to specific individuals or entities. This blog helps you understand about the tax exemptions and their various categories in India. Keep reading!

Various Sections of Tax Exemptions in India

The Government of India offers various tax exemptions on property and income taxes. Following is a list of the various tax exemptions in India:

Section	Description
10(1)	Exemption on income generated from agricultural activities.
10(2)	Exemption on income received as a share from a Hindu Undivided Family.
10(2A)	Exemption on profit share from a firm where taxes are filed separately.
10(3)	Exemption on casual income not exceeding Rs. 5,000 and winnings from horse races not exceeding Rs. 2,500.
10(4)	Exemption on interest earned from notified bonds or NRE accounts.
10(6)	Exemption on income earned by foreign citizens serving as ambassadors or diplomats in India.
10(7)	Exemption on benefits received while serving as the head of the Indian government.
10(8)	Exemption on payments from foreign governments for taxes due in India under technical cooperation programs.
10(10)	Exemption on gratuity received by government servants upon retirement or death.
10(10A)	Exemption on commuted pension received from the government or statutory body.
10(10AA)	Exemption on leave encashment for central or state government employees.
10(10B)	Exemption on the commission received by employees for retrenchment.
10(10D)	Exemption on receipts from life insurance policies.
10(13)	Exemption on payments received from approved superannuation funds.
10(13A)	Exemption on house rent allowance subject to certain conditions.
10(14)	Exemption on special allowances or benefits granted to meet expenses incurred in performing duties.
10(15)(i)(iib)(iic)	Exemption on interests, premiums, redemptions, or other payments from specified securities.
10(15)(iv)(h)	Exemption on interest paid by public sector companies on bonds and debentures.
10(15)(iv)(i)	Exemption on interest paid by the government on deposits made by employees for retirement.
10(15)(vii)	Exemption on interest received on notified local authorities' bonds.
10(15)(vi)	Exemption on interest received on notified gold deposit bonds.
10(17)	Exemption on awards and rewards received from central and state governments.
10(17A)	Exemption on awards and rewards approved by the government.
10(18)	Exemption on pension received by gallantry award winners.
10(19)	Exemption on pension received by the family of armed forces personnel.
10(26)	Exemption on income of members of scheduled tribes in specified regions.
10(26A)	Exemption on the income of Ladakh residents.
10(30)	Exemption on subsidy from Tea Board under an approved scheme.
10(31)	Exemption on subsidy from concerned boards under approved replantation schemes.
10(32)	Exemption on the income of minors clubbed with individuals up to a specified limit.
10(33)	Exemption on dividends earned from specified sources.
10(A)	Exemption on profits earned in free trade zones or designated technology parks.
10(B)	Exemption on profits from complete export-oriented undertakings.
10(C)	Exemption on profits from newly established undertakings in specified regions.
10(5)	Exemption on leave travel assistance or concession subject to certain conditions.
10(5B)	Exemption on remuneration received by technicians with specialised knowledge.

 

TDS Exemption

TDS, or Tax Deducted at Source, is when tax is deducted by a payer from payments made to individuals, such as salary or professional fees, and from interest payments by banks. The deducted tax is then deposited with the government and credited to the taxpayer's tax account.

TDS rates have been reduced by 25% in response to COVID-19, affecting non-salaried payments to Indian residents holding valid PAN cards. This TDS exemption applies to various payments, including contracts, professional fees, interest, rent, dividends, commissions, and brokerage. When an employer deducts Income Tax from an employee's salary, it is termed a Deduction of Tax at Source.

HRA Exemption

Want to know what tax exemption is in House Rent Allowance (HRA)? It is provided to employees to offset the cost of rented accommodation. Under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules, a portion of the HRA is exempt from tax as an HRA exemption.

However, to qualify for this exemption, the employee must pay rent for a property that they do not own. If the employee resides in their property, the HRA is fully taxable.

Service Tax Exemption

The government imposes a tax on certain services provided to customers, known as the service tax. This tax is only applicable if the total value of services provided in a financial year exceeds Rs. 10 Lakh.

The current service tax rate is 14%, and 39 services are exempt from this tax due to the negative list. Knowing which services are exempted can help individuals and businesses better plan their finances.

Tax Exemption on Education Loan

The interest you pay on the education loan is fully deductible under Section 80E of the Income Tax Act, with no limit on the amount. This applies to loans taken for full-time studies in any recognised institution, in India or abroad.

Remember, you can claim this benefit for a maximum of 8 years from the first year of interest repayment. For specific details and eligibility requirements, consult a tax advisor.

Tax Exemption on Car Loan

Tax benefits on the interest paid on car loans is exclusively available to businessmen or self-employed individuals, subject to certain conditions.

To qualify for this benefit, individuals must declare the profit earned and demonstrate that the vehicle is utilised for business purposes. Salaried individuals are not eligible to claim this tax benefit.

Tax Exemption for Ladies

Tax exemptions for women are permitted under various sections of the Income Tax Act, including Sections 80C and 80D to 80U. These exemptions encompass a range of financial instruments and expenditures:

• Public Provident Fund
• National Savings Certificate
• Five-year Fixed Deposit
• Life Insurance Corporation policies
• Equity Linked Savings Scheme
• Pension Plans
• Employee Provident Fund
• Health Insurance
• Education Loan
• Donations to research and development programs and political parties.

These provisions offer women opportunities to optimize their tax planning and financial management.

LTA Exemption

The tax exemption for travel expenses applies solely to travel conducted within the geographical boundaries of India. It encompasses only the actual expenses directly related to travel and excludes incidental costs like accommodation, meals, or shopping. Eligible modes of travel for this exemption include bus, economy airline, or train.

Also Read - A Guide to Tax-Saving Options Under Section 80C 

Income Tax Exemption Limit

Understanding these exemption limits is crucial as they impact the amount of income tax you may be required to pay. To help you better understand, here is a breakdown of the income tax slab:

Income	For General Citizens	For Senior Citizens	For Super Senior Citizens
Within Rs. 2.5 Lakh	Nil	Nil	Nil
Between Rs. 2.5 Lakh and Rs. 3 Lakh	5%	Nil	Nil
Between Rs. 3 Lakh and Rs. 5 Lakh	5%	5%	Nil
Between Rs. 5 Lakh and Rs. 10 Lakh	20%	20%	20%
More than Rs. 10 Lakh	30%	30%	30%

 

What is the Standard Deduction?

The Standard Deduction is a fixed deduction of Rs. 50,000 from taxable income under the head of salaries. It offers taxpayers a straightforward reduction in their taxable income without the need for submitting disclosures or investment proofs.

Introduced in the Interim Budget of 2019, the Standard Deduction replaced two previous deductions: travel allowance and medical deduction. This simplification aims to streamline tax filing procedures for individuals.

Also Read - How to Save Income Tax in New Tax Regime?

To Conclude

Understanding what tax exemption is can help individuals and businesses alike in maximising savings and optimising financial management. It is crucial to stay informed about the latest updates and regulations to make informed decisions and ensure compliance with tax laws. By utilising available exemptions wisely, taxpayers can pave the way for a more secure and prosperous financial future.

Disclaimer

This blog provides informational content on tax benefits and rules based on the current provisions of the Income Tax Act of India, 1961. The interpretations are subject to change as per amendments made by the Government of India. Applicable rates of GST and cess will be as per the current regulations. Readers must seek professional advice for accurate and up-to-date information.
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