Budget 2021 is coming to a close. Every time there is hope from the budget that there will be some announcements in it for the income taxpayers. To understand the things related to income tax, first of all, it is important to understand what are tax exemption, tax deduction and tax rebate. There are many of us who are often confused about these three terms. Many people consider tax exemption and deduction to be the same. The definition and use of these three terms are very different from each other. Let’s know about them…
Tax exemption (tax exemption)
First of all, consider tax exemption. Income tax law exempts taxable income from income tax to a certain extent. Apart from this, there are some expenses, income or investments which are not taxed, that is, they fall into the Examinations category. For example gifts from special and selected relatives. Talking about taxable income, no tax has to be paid on taxable income up to Rs 2,50,000, tax is suspended on this amount. Therefore, this amount is also called as the adopted limit.
Tax rebate means the tax liability which the government waives. In the interim budget of 2019, the tax rebate limit was increased from 2500 to 12500. That is, the government waives the income tax liability of up to Rs 12500. Due to this decision, no tax has to be paid currently on taxable income up to Rs 5 lakh because the tax on this income limit falls under the rebate category. So the government forgives him.
Keep in mind that the tax rebate is not minus. For example, if you have to pay a total tax of Rs 13,000, then it is not possible that you reduce the rebate limit of Rs 12500 and deposit the remaining Rs 5,000 as tax. The amount of tax to be made has increased by more than Rs. 12500, then you will have to deposit the entire amount of Rs. 12501 as tax.
As the name itself suggests, deduction means subtraction. Tax deduction means tax deduction. Income tax law gives the taxpayer the benefit of various tax deductions under different sections so that the tax burden can be reduced on them.
One is the standard deduction. The standard deduction is a fixed amount. Any taxpayer can deduct it directly from his gross total income. Currently, the limit for standard deduction is Rs 50000. The rests are some investments and expenses such as investment in schemes like PPF, NPS, life insurance policy, home loan etc. The investment amount was spent in a way. These can be claimed under various sections of the Income Tax Act, and the taxable income can be reduced. The taxpayer can reduce his tax liability by disclosing these investments/expenses in the income tax return. For example, tax deduction up to Rs 1.5 lakh can be claimed under section 80C.