Tax Exemption in India

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India has a well developed three-tier federal tax structure. According to Chapter III of the Income Tax Act, 1961 there is a provision of exemptions in income tax. Tax Exemption induces reduction of the tax burden on a specific section of the society to
achieve some level of equilibrium among all. To encourage some economic activities through the process of reduction of the tax burden on some organizations or individuals involved in that activity is also another cause for Tax Exemptions. For instance, there are exemptions from the property tax, and also an individual is exepted from paying income tax if there are dependents or children financially dependent on him/her.

Tax Exemptions have the authority to bring about social and economic changes within the society followed by unprecedented consequences. However, for such exemptions on tax some conditions are mandatory to follow. Some of them are like-
  • The age of the individual taxpayer
  • The public services performed by the individual taxpayers
  • The type of property owned by the individual
  • The geographic location of property
  • The net income of the individual paying the tax
  • The value of the taxable property
India tax exemptions are specified incomes on which a person can get exemptions. It means that at the time of calculating annual income, this type of income will not come under the purview of tax.

The different sections under tax exemption in India

  • Sec 10(1) for exemption on income from agriculture
  • Sec 10(2) for exemption on income received from a Hindu undivided family(HUF) as a part of the family income or income from a family estate
  • Sec 10(2A) for exemption on income of a partner of a firm who has separately filed his tax returns
  • Sec 10(3) for exemption on income received in the non recurring or casual form but not exceeding Rs. 5,000 and in case of winnings from a horse race it should not exceed Rs. 2,500
  • Sec 10(4)(i) for exemption on income from interests on bonds and securities which includes premium on repurchase of bonds
  • Sec 10(4B) for exemption on income from interest on specific savings certificate issued by the central government
  • Sec 10(5) for exemption on the value of the Leave Travel Concession (LTC) not more than actual amount spent
  • Sec 10(5A) for exemption on specific payment to a non-resident person or a foreigner for the purpose of shooting a film in India
  • Sec 10(5B) for exemption on income tax which is paid by the employer on behalf of the salary of certain employees from outside the country, indulged in scientific research
  • Sec 10(6)(ii) for exemption on income received by the diplomats, ambassador, etc
  • Sec 10(6)(vi) for exemption on income received by the employees of the foreign companies
  • Sec 10(6)(vi a) for exemption on income received from any international philanthropic organizations
  • Sec 10(11) for exemption on income received from Statutory Provident Fund and Public Provident Fund
  • Sec 10(13) for exemption on income received from Superannuation Fund within a specific limit
  • Sec 10(13A) for exemption on specific allowance to employees such as house rent allowance
  • Sec 10(30) for exemption on income received in form of subsidy from the Tea board
  • Sec 10(31) for exemption on income received in form of subsidy from the specific boards of the coffee, rubber, cardamom, and other commercial crops
Some other categories includes combat-pay to military officers, inheritances, payments for personal injuries, employee discounts, and income from local bonds. There are a number of protected classes like widows, people above 65, war-retired persons, and disabled persons
However, one should not get confused with the concepts of Tax Deduction and Tax Exemption, as when an expense received by a taxpayer is deduced from the gross income it results in the lowering of the net taxable income it is tax deduction and not Tax Exemption. There are many types of income and benefits being exempted from income taxes to a limited extent.

In countries like the United States, there are some non-profit organizations, such as churches, schools and charitable organizations that fall under the Income Tax Exemption. Some other institutions enjoying similar privileges are amateur sports leagues, farm associations, labor unions, and groups of veterans or present members of the U.S. Armed Forces.

Within the taxation laws of some states, there are also provisions for Tax Exemptions from property taxes, sales taxes and state income taxes. One of the major positive effects of Tax Exemption from property tax or any other local taxes is the way to attract commerce to regions under the brunt of economic depression. There are also Personal Tax Exemptions that can reduce the taxable income on the tax return. Generally, the Tax Exemptions are allowed for the individual as well as for spouses and dependents. However, in order to enjoy the Tax Exemption for the dependents there are certain tests like Member of Household or Relationship Test, Gross Income Test, Support Test, Joint Return Test, and Citizenship Test. At times when any family group jointly supports a relative or a parent, there are Multiple Support Agreements under which the taxpayer can claim Tax Exemption on the tax return.

Last Updated on July 8, 2015

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