4 Replies to “What is difference between Exemption fromTax and deduction from tax. Please expalin?”

  1. There are certain incomes on which TAX is not charged (fully or to som extent) they are called tax exempted incomes. For example the income from PPF investment is TAX exempted.

    Your 2nd phrase should have been “deduction from income” or “tax deduction”. There are some incomes, where employer or payer is expected to deduct the TAX (at a standard rate) in advance, before maing the payment to you. That is called Tax Deducted at source. Example, bank deducts 10% TDS, before the final payment of interest on FD. A corporate tenant will deduct 15% TDS before making the rental payments.


  2. Under IT ACT, governement itself exempts certain Incomes to fall under Tax purview like HRA subject to three conditions at present, Medical reimbursements up o Rs 15000/ per Annum, Transport subsidy up to Rs 800/ per month etc.,. Though the individuals get the Income in the above , Income need not be inculuded in the taxable portion. Hence, Tax need not be deducted and paid.

    Deducted from Tax: TDS deducted and remitted by other IT Assess and such deductions can be deducted from the Tax payable at the end of such deductee.

  3. Exemptions from tax are covered under section 10 and 11 of the income tax act and deductions are covered under chapter VIA of the IT act.
    Certain incomes are exempt and they are not considered during the calculation of total income such as interest from ppf, dividends from indian companies, agricultural income, income from NRE account, etc. These are known as exempt incomes.
    But deductions are done from taxable income suppose you invest in ELSS, PPF, LIC ,etc. pay medical insurance or donate to approved charitable institutions then you get deductions from your gross total income. There are however limitations to the quantum of deductions.

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