Tax Exemption

Tax Exemption implies that within a state or nation the some parts of the taxes, which are collected, are subjected to certain exemption policies. In general, a Tax Exemption is offered to an individual or organization that the government desires to promote economically. This is because 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. Tax Exemptions are present all over the world. For instance, there are the exemptions from the property tax, and also many others like exemptions on income tax that includes exemptions for dependents or children financially dependent on the individual paying the tax.

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

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. This category includes educational scholarships, life insurance dealings, gifts, 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 who gets the benefit of property Tax Exemptions in some countries. 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.

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