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As soon as the season of filing income tax returns (ITR), people start looking for ways to save tax. During this time, the three words are heard the most – deduction, exgamption and rebate. Most people find these three words the same and this is the biggest mistake here.
These three mean different and not understanding them properly can make it difficult for you. While filing ITR, even a small mistake can send you notice of Income Tax Department. So let’s understand the difference between these three in very easy language.
1. Tax Examption means the income that does not tax
Understand this in the easiest way – Exgption means that the government does not consider some of your earnings as part of your total income. That is, there is no question of tax on this. This money is separated even before joining your tax earnings.
2. Tax deduction means reducing tax income
You get the benefit of deduction on your total income. First, all your earnings (eg salary, profit from business etc.) are added, which is called ‘gross total income’. After this, the government gives you a discount on certain types of investment or expenses, which is called deduction. This exemption is reduced from your total income and then the amount left is taxed.
3. Direct exemption on tax rebate i.e. tax rebate
The rebate is completely different from these two. When the tax is calculated on your taxable income, that is, it is known that how much tax you want to pay, then the government gives a direct discount on that tax amount. This is called tax rebate.
Difference in easy language
- Deduction: Reduce some amount from the total earnings, so that less money is taxed.
- Rebate: After all the accounts, finally a direct discount on the tax amount.
Therefore, the next time you file ITR, there are no confuse about these three words. Their right understanding will not only help you save tax, but will also save you from any kind of mistake.
