What is Tax Exemption
A tax exemption is the right to exclude all or some income from taxation by federal or state governments. Most taxpayers are entitled to various exemptions to reduce their taxable income, and certain individuals and organizations are completely waived off from paying taxes.
When certain conditions are met, a tax deduction that is a portion of taxable income may be excluded from taxation, while a tax exemption constitutes the income that is not subjected to taxation in the first place.
Following are the types of Tax Exemptions
ETE: Investments qualify for a tax exemption, interest owing is taxed, but maturity value is not taxed. EET: Investment value is taxed, but the interest accrued or paid is exempt. EEE: Indicates that all three transactions of the instrument are tax-exempt.
EPFs and NPSs offer EEE benefits, which means they are tax exempt while invested, on the interest rate, and upon maturity.
What is the income tax slab for a salaried person in India?
In order to manage their taxes efficiently, the assessee could utilize deductions, exemptions, and allowances available under the Old Tax Slab framework.
New Tax Slab
Most of the tax deductions and exemptions are not allowed under New Tax Slab Regime. But, some of the deductions like EPF under section 80CCD (2) of the Income Tax Act are allowed, provided the limit does not exceed 10% of the employee's previous year's salary. There is no age-based distinction in the new tax regime's slab rates. The basic income threshold exempt from tax for senior citizens (aged 60 to 80 years) and super seniors (aged above 80 years) is, however, 3 lakh and 5 lakh respectively under the previous tax system.
However, a person cannot deduct up to 70 income taxes under the new tax system while determining their taxes. Due to this, each individual must determine which tax system is more advantageous for them based on the type of investments they make and the profits they receive.
All the salaried individuals below the age of 60 years who earn up to 2.5 Lakhs are exempted from the interest rate. Earning above 2.5 Lakhs and below 5 Lakhs have to pay an interest rate of 5%. Those with incomes between Rs. 5 lakh and Rs. 7.5 lakh must pay an interest rate of 10%. Above 7.5 lakh and below 10 lakh entail interest of 15%. Even after that, 2.5 Lakhs comes along with a 5% increase in interest rate in each slab, and above 15 Lakhs have to pay a 30% interest rate. There is also a tax slab for senior citizens employees which exempts up to 3 Lakhs. Further, 3-5 Lakhs at 5% interest rate is paid. From 5-10 lakh, senior citizen employees have to pay a 20% interest rate. And above 10 lakh 30% interest rate has to be paid.
This identifies that the interest rates are comparatively less when compared to people below the age of 60.
How can salaried people save tax?
While calculating income tax for salaried people, a number of standard deductions are made. These deductions help in saving tax for salaried employees. Some of the main standard tax deductions are House Rent Allowance, Leave travel allowance, standard deductions, deductions against loan interest rates. HRA sometimes saves the amount equal to 40-50% of your salary. 2 trips in four years by the government saves a lot of your money and tax. Salaried employees are exempted from the 50,000 amount as deductions by the government. Deductions against loan amount can save upto 1.5 to 2 lakhs of your salary thereby saving a lot of your tax. Sign Up to PensionBox and download the app on Android and on IOS.