When a person, organization, or another company meets certain requirements, the government may reduce or eliminate their responsibility to pay certain taxes. This is known as a tax exemption. Activities that are thought to be helpful to the general public or society, such as helping those in need, schooling, or religious activities, are the objectives for this monetary support.
Tax Exemption Types Personal Exemptions:
- Permit people to withhold for themselves and their dependents a certain amount from their taxable income.
- Income Exemptions: There are some forms of income that are not considered taxable income, such as interest from municipal bonds, gifts, and inheritances.
- Property Exemptions: Certain individuals (such as veterans) and nonprofit and religious organizations may be excluded from paying property taxes.
- Sales Tax Exemptions: A number of products and services, including food, medications, and instructional materials, may not be subject to sales tax.
Benefits of Tax Exemptions:
- Tax exemptions on charitable contributions encourage donations to nonprofit organizations from both private citizens and businesses.
- Supports Public Services: To run more profitably and offer necessary services at a reduced cost, schools, hospitals, and other service providers sometimes rely on their tax-exempt status.
- Economic Stimulus: By putting more money in the hands of customers and businesses, exemptions can encourage spending and investment to move forward the cycle of economy.
- Social Welfare: Exemptions can lessen poverty and advance social justice by lowering the tax burden on low-income individuals and families.
Schemes in India for exemptions
- Section 80C: Tax deductions of up to ₹1.5 lakh for investments made in certain funds, including life insurance premiums, National Savings Certificates (NSC), Employees’ Provident Funds (EPF), and Public Provident Funds (PPF).
- Section 80D: Deductions for health insurance policy premiums, up to ₹25,000 for the individual, spouse, and kids, with an extra ₹25,000 for parents (or ₹50,000 if the parents are elderly)
- In Sections 11 and 12A: money received by trusts and institutions with charitable or religious purposes is exempt as long as it is put to good use.
- Special Economic Zones (SEZs): To encourage exports, businesses operating in SEZs are entitled to tax holidays and lower tax rates for predetermined durations.
- Agricultural Income: In order to support the farming community, agricultural income is completely exempt from tax under Section 10(1).
