What is tax exemption and what you need to know about it

Thought leadership

What is tax exemption and what you need to know about it

If you are looking to take control of your personal finance, one thing that you should familiarize yourself with is how tax exemption works. This will give you direction in terms of working towards your savings and money goals.

Tax exemption is your right to have a part or all of your income exempt from a country’s taxation policy.

Most taxpayers are eligible for several exemptions that can be used to lower the income on which they are expected to pay taxes. You should also know that some people and organizations are fully free from paying taxes.

The Indian government offers several tax exemptions to raise investments and boost active economic activity across the strata of society. For example, it grants an exemption on insurance premiums to encourage more individuals to buy life insurance and some of the incomes that are exempt are agricultural income, pension, and allowances, among others. There is also a Deduction of Tax at Source (TDS) that can be availed after an agreement with your employer.

How the Union Budget 2023 impacts things

In the Union Budget 2023, it was announced that the standard deduction benefit of Rs 50,000 will be available for the salaried and pensioners under the new tax regime. Family pensioners have the right to claim a Rs 15,000 deduction under the new income tax regime. This makes it crucial for those dealing with their personal finance on their own to know how tax deductions and exemptions for salaried taxpayer functions.

TDS Exemption in Budget 2023

TDS or Tax Deducted at Source is deducted by the first party who pays to the second party, whether salary or a professional fee. Banks also deduct tax from interest payments at the source. The funds are subsequently credited to one’s tax account after the first party files tax returns with the government. If the TDS is greater than the amount calculated for the same on your taxable income, you can either claim it against the amount of tax required to pay or request a refund.

How income tax rebate works

An income tax rebate is a refund that a taxpayer is eligible for when the taxes paid by them, typically through TDS exceed their tax liability. So, don’t forget to avail a refund on tax money at the end of the financial year every time your tax liability is less than that of the amount paid. You must also know that as taxpayers, you are expected to file for Income Tax Rebate within a specified period if you want the refund option to hold.