Is the term income tax exemption creating confusion in your head? So don’t worry here in this blog we have broken down a detailed guide where you can understand income tax exemption in India.
And how you can save your money on your taxes we have got all the tiny details to make filing your taxes a breeze. So read the blog till the end and save your money.
Introduction
Income tax is a type of tax that the government collects from people and businesses based on their income. On the other hand, the Government uses this tax for building roads, schools, and hospitals. However, the term income tax exemption means the government allows some people not to pay tax on a certain portion of the total income. As a result, their overall tax amount is reduced.
Eligibility for Income Tax Exemption:
The Income Tax Act in India has formed some rules that help to reduce the amount of taxes. As per these rules, people can exclude certain things from their income while they calculate how much tax they need to pay. However, the things which can be excluded depend upon the age gender job, and expenses in a year.
If somebody in India earns less than five lakhs a year then they do not have to pay any tax as per section 87A of the Income Tax Act. So let’s move forward and take a look at types of income tax exemption.
- Basic exemption: The Indian government sets a limit every year which decides how much you can earn without paying any tax. For example, in the financial year 2000 – 2021, different limits were set for the different age groups like 2.5 lakhs if you are under 60 years old 3 lakhs if you are between 60 to 80 years, and 5 lakhs for those who are above 80 years.
- House rent allowance: If you live in a rented house then you can avoid paying tax on it. This exemption is under section Section10(13A) of the Income Tax Act.
- Leave travel allowance: If your salary contains a leave travel allowance given by your organization to cover travel expenses all over India. You can avail of this allowance wise in every four years but it contains some conditions which you must meet.
- Investments and Expenses: The government of India wants people to invest in public Provident funds (PPF), National savings certificates (NSC), Equity linked saving schemes (ELSS), etc., and to encourage people to invest in such schemes the government gives tax exemptions on money invested in these schemes.
- Donation: And if someone donates money to some charities then you can get a tax deduction as per section 80G of the Income Tax Act. This means that to reduce the amount of tax you must try to give some donations.
How to Claim an Income Tax Exemption
Every one of us wants to save money from tax deductions. however many of us are not even aware of how we can claim income tax exemption. So let’s learn how we can claim income tax exemption.
- Learn about the types of tax exemptions.
- Arrange all the required documents.
- Learn about the limits and rules.
- Calculate your taxable income.
- File your Income Tax Return (ITR).
- Include exemptions in your ITR.
Conclusion
When it comes to financial planning learning about income tax exemption is very essential. It is also very important to note that not all income types can get income tax exemption hence it is advisable to always consult a text expert to get proper guidance so that you can avail maximum benefit.
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