Learn everything there is to know about tax exemptions in India for the fiscal year 2023–2024. This thorough book will help you manage the complexity of taxation and make informed decisions to reduce your tax bill and maximise your savings. It covers everything from comprehending various types of exemptions to the latest modifications in tax regulations.
Introduction
Depending on the income category, many tax exemption categories exist in India. You may claim tax exemptions for some types of income, including pensions, agricultural income, various allowances, and more. TDS, or Tax Deduction at Source, can also be used in India to avoid paying income tax.
Since tax exemptions allow for the exclusion or reduction of specific forms of income from taxable computations, understanding them is essential for both people and corporations. This blog will explore the many types of tax exemptions available, current revisions to the tax code, and helpful insights to aid you in navigating the intricate world of Indian taxation.
Whether you earn a salary, are self-employed, or own a business, this guide will provide the information you need to maximise your tax planning and savings.
Did you know?
Tax exemptions may change with the budget release for each fiscal year. As the nation's economic and budgetary situation changes, the government adds new exemptions, amends already-existing ones, and sets new thresholds and restrictions. Taxpayers must keep up with these developments to maximise their tax planning and take advantage of available exemptions.
What Are Tax Exemptions?
In India, a tax exemption is a legally mandated exclusion from taxable income or the lack of taxation in certain situations. A portion of your tax liability may be subject to partial or complete tax relief, lower tax rates, or partial tax levy.
In the Budget 2023, Finance Minister Nirmala Sitharaman unveiled many initiatives for taxpayers. Sitharaman has improved the appeal of the new income tax system for salaried people by raising the basic exemption threshold, increasing the rebate, and changing the income tax slabs. In the new tax system, standard deductions were also introduced by Budget 2023.
Tax Exemptions After Union Budget Of 2023
There are some tax exemptions after the 2023 union budget, and these are as follows:
1. Increase in the Basic Exemption Limit
The basic exemption threshold under the new tax system was Rs 2,50,000. The Union Finance Minister recommended raising the basic exemption ceiling to Rs. 3,000,000 in Budget 2023.
This indicates that a gross annual income of Rs. 3,00,000 will not be subject to taxation.
2. Reduced Number of Income Tax Brackets
The new tax system previously had six taxation slabs. The Union Finance Minister has suggested reducing the number of income tax brackets to 5 in Budget 2023, as follows:
|
TOTAL INCOME (₹) |
TAX RATE |
|
Upto ₹3,00,000 |
Nil |
|
₹3,00,001 to ₹6,00,000 |
5% |
|
₹6,00,001 to ₹9,00,000 |
10% |
|
₹9,00,001 to ₹12,00,000 |
15% |
|
₹12,00,001 to ₹15,00,000 |
20% |
|
Above ₹15,00,000 |
30% |
3. Standard Deduction
A salaried person could previously only use the standard deduction u/s 16 under the previous tax system, which allowed for a deduction of ₹50,000 from the taxable income.
By Section 16 of the new tax code, a salaried employee may now deduct a standard amount of ₹50,000 from their taxable income.
4. Increased Tax Exemption Threshold for Leave Encashment
Non-government salaried employees are immune from taxes when they retire and cash their leave benefits. Previously, there was a ₹3-lakh cap on tax exemptions.
Back in 2002, when salaries were low, the cap was set. Over the past 20 years, salary increases prompted the government to reevaluate the tax exemption for leave encashment after retirement.
The union finance minister, Nirmala Sitharaman, has recommended raising this tax exemption threshold on leave encashment at retirement to Rs 25 lakhs in Budget 2023. According to this rule, the sum (up to Rs 25 lakhs) paid on leave encashment after retirement shall not be subject to income tax for salaried non-government workers.
Over Rs 25 lakhs in leave encashment would be taxed at the individual slab rate.
5. Raising the Rebate Ceiling
Previously, if a person's total income was up to ₹5 lakhs, they may claim a maximum rebate of ₹12,500 u/s 87A of the Income Tax Act. On a salary of ₹5 lakhs, an individual might, in basic terms, save ₹12,500 in net tax.
Nirmala Sitharaman suggested raising the income cutoff for receiving the rebate to ₹7 lakhs in the new tax system in Budget 2023. It implies that a person with a gross annual income of ₹7 lakhs won't have to pay any income tax.
Income Tax Exemptions in India
Let's better understand the new laws and regulations relating to income tax exemptions in India before making any financial arrangements for the forthcoming fiscal year. The finance minister unveiled the budget for the following year in February 2023, and it made a few adjustments to the new tax structure.
The finance minister lowered the tax brackets and included the salaried class and pensioners in the standard deduction.
The numerous tax exemption sections that are available in India are shown below.
|
Relevant Section |
Nature of Income |
|
10-(1) |
Revenue generated from agriculture |
|
10-(2) |
Income share from HUF income |
|
10-(2A) |
The portion of a company's profit is subject to separate tax filings. |
|
10-(3) |
Received no more than Rs. 2500 from a horse race or Rs. 5000 per PM from a random gift. |
|
10-(10D) |
LIC Policy receipts |
|
10-(16) |
Educational costs scholarship |
|
10-(17) |
MLA/MP allowances <= ₹600 pm |
|
10-(17A) |
Prizes or honours that the State/Central government and others have authorised. |
|
10-(26) |
Members of scheduled tribes in Ladakh and the North Eastern States who receive income from such areas. |
|
10-(26A) |
Revenue earned by a Ladakh inhabitant either outside of India or in the region. |
|
10-(30) |
Approved Tea Board program subsidy. |
|
10-(31) |
The replanting subsidy from a concerned board under approved plans. |
|
10-(32) |
The minimal amount eligible for a tax exemption is Rs. 1,500 per minor child or the amount of income added to the parent's income. |
|
10-(33) |
Earned dividends from Indian companies, income from mutual funds, UTI, and venture capital. |
|
10-(A) |
Profits from a free trade zone or tech park for software and hardware for up to ten years. |
|
10-(B) |
Earnings from computer software, goods production, or solely export-focused businesses. |
|
10-(C) |
IGC and IIDC's new projects in the NE region will make money for ten years. |
|
10-(15)(i), (ii) and (iic) |
Up to the stipulated maximum, premiums, interest, and payment received from bonds, securities, capital investments, or relief bonds that have been informed. |
|
10-(15)(iv)(h) |
A corporation in the public sector that pays interest on its bonds and debentures. |
|
10-(15)(iv)(i) |
Employees of the Central or State governments or the public sector may deposit interest as part of a government retirement plan for which interest is paid. |
|
10-(15)(vi) |
Interest on specific gold deposit bonds. |
|
10-(15)(vii) |
Interest on bonds from local authorities. |
|
10-(5) |
Receiving a Leave Travel Allowance (LTA) should not exceed what the central government pays its employees. |
|
10-(5B) |
For up to 48 months, the employer will pay the employee's income tax if they are paid as a technician with specified specialised abilities in a particular industry. Their employment began after March 31, 1993. |
|
10(7) |
Indian citizens are given allowances for serving overseas. |
|
10-(8) |
Through the cooperative technical assistance program, foreign countries compensate Indian government employees. Where the government pays the income tax, there is also no income tax on income from other countries. |
|
10-(10) |
Death and retirement benefits under the Gratuity Act of 1972 are limited to 15 days of salary per completed service year for U.S. (2) to (4). |
|
10-(10A) |
Government-set pension fund conversion options include LIC U/S 10(23AAB) or Statutory Corporation, pension conversion from employers that provide gratuities, and 1/3 of the pension amount that does not include gratuities or half of the pension. |
|
10-(10AA) |
Unused paid time off from State and federal governments and the lesser of Rs. 1,35,360- or 10-months’ income for other employers. |
|
10-(10B) |
The government sum announced under Section 25 F(b) of the 1947 ID Act, or the smaller of retrenchment compensation or it. |
|
10-(10C) |
Sums received upon voluntary retirement or termination up to a maximum of Rs. 5 lakhs. |
|
10-(11) |
Further informed about government securities or payments made by the 1925 Provident Fund Act. |
|
10-(12) |
Recognised provident fund contributions up to the 4th Schedule Part-A Rule-8's set restrictions. |
|
10-(13) |
Superannuation fund payments that have been approved. |
|
10-(13A) |
In Chennai, Mumbai, Calcutta, and Delhi, the HRA is the lesser of the actual rent, over 10% of the basic pay, the actual HRA, or 50% of the basic pay (the basic pay is 40% in other cities). |
|
10-(14) |
Benefits/additional compensation specifically designated to cover necessary expenses incurred while performing activities. |
|
10-(18) |
Pensions for family members or recipients of bravery awards. |
1. House Rent Allowance Exemption
Another tax break offered to employees in India to cover costs associated with renting a home is the HRA (House Rent Allowance). The HRA exception is provided by IT Act U/S 10(13A) Rule 2A. The total sum IS subject to tax and DOES NOT APPLY to employee housing in their own homes.
2. Exemption from Service Tax
A tax exemption is in place when clients pay tax for services and transactions. When the value of services in a fiscal year exceeds Rs 10 lakh, a 14% tax is applied. Along with those on the negative list, 39 services are tax-exempt, including the income tax exemption for artisans in India.
3. Tax Exemption for Student Loans
This is exempt from taxes under Section 80E and offers tax-free loan interest. Conditions are as follows:
- You are an individual, so the only deduction is for loan interest.
- The money is borrowed from a bank, institution, or designated charitable organisation as an educational loan for the taxpayer, their spouse, their kids, or the legal guardian of a minor.
- Your taxable income is used to pay the loan interest.
- There is no cap on it; deductions may be requested up to eight years before the loan is repaid.
4. Exemption from Tax on Capital Gains
- Section 54 – Capital Gains on Sale of residential house
- Section 54B – Capital Gains on Transfer of agricultural land
- Section 54D – Capital Gains on a transfer through compulsory land acquisition and building of an industrial undertaking
- Section 54EC – Capital Gains not chargeable on investments in certain bonds
- Section 54F – Capital Gains in Case of Investment in a residential house
Apart from the exemptions mentioned above, individuals can claim other exemptions like Leave Travel Allowance, Exemption on loan taken for the purchase of a car, TDS (tax deducted at source) exemptions, etc.
Conclusion
This article will explain the idea of tax exemption in India and the various income tax exemptions available. You can take the necessary actions to qualify for tax exemption by adhering to these laws and regulations.
You are eligible for several deductions and exclusions under the Income Tax Act 1961, including the significant ones covered here. Good Luck with filing your ITR!
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