difference between Exemption fromTax and deduction from tax

shailesh agarwal (professional accountant)   (7642 Points)

24 December 2008  

 What is difference between Exemption fromTax and deduction from tax. Please expalin?

Best Answer

There are certain incomes on which TAX is not charged (fully or to som extent) they are called tax exempted incomes. For example the income from PPF investment is TAX exempted.

Your 2nd phrase should have been "deduction from income" or "tax deduction". There are some incomes, where employer or payer is expected to deduct the TAX (at a standard rate) in advance, before maing the payment to you. That is called Tax Deducted at source. Example, bank deducts 10% TDS, before the final payment of interest on FD. A corporate tenant will deduct 15% TDS before making the rental payments.