What are Deductions and Exemptions?

Hi Friend,

Do you want to know what is the difference between exemption and deduction? My wife and I are both professionals. My wife is a complete novice with no prior experience. As a result, her earnings were below the tax bracket. I easily comprehended the concepts of deductions and exemptions in income tax while filing the IT return. Hence, let me share my learnings about the same with you all.

Income tax is a mandatory responsibility imposed on all citizens based on their ability to pay, age, and gender. The tax legislation provides several provisions for deductions and exemptions, which reduce the overall tax liability and provide relief to the assessee from payment of taxes.

Are deductions and exemptions the same thing? This question might bother you. However, I would like to say that, these two are not the same thing. The basic difference is the sum is initially included in the taxpayer's income, and then the deduction is allowed according to the rules, i.e. in full or in part, or when specific circumstances are met. A tax exemption, on the other hand, is income that is not subject to taxation.

The amount that will be removed from the gross amount is referred to as a deduction. According to the Income Tax Act, deductions are payments or investments made by the assessee that reduce their gross total income by a certain amount or percentage to arrive at total taxable income.

• Deduction for specific payments, such as life insurance premiums, medical insurance premiums, charitable contributions, and so on

• Deduction for certain types of income, such as revenue from cooperative societies, royalties on patents, and so on

• Additional deductions

The term exemption comes from the word exempt, which refers to an amount that is not subject to taxation. Exemptions in income tax refer to incomes that are not included in the total income calculation. As a result, such sources of income are excluded from taxable incomes or are not taxed.

Certain incomes are totally tax-free, such as agricultural income, according to the list of exempted incomes. However, certain incomes are partially exempt from taxation, with the exemption being limited to a particular amount. The portion of partially exempted income that exceeds the tax threshold will be taxed and factored into the gross total income calculation.

I hope this clarifies your doubt about the difference between exemption and deduction:)

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