You do your social duty without fail by paying your taxes, right? How do you feel if you get a relaxation for your taxes? Does it not feel great? There are many income tax relaxations you are eligible for. Read more to learn about the income tax relaxations in India.
You are liable to pay income tax based on the tax slab system, according to the Indian Income Tax Department. A slab system means your tax rates differ based on your income range. If your income increases, your tax rates also increase. It comes into effect for a progressive and fair tax system. These income tax slabs change annually during every budget.
You fall under any of the three categories according to the usage of slab rates.
- Individuals (aged less than 60 years), which includes residents and non-residents
- Resident Senior citizens (60 to 80 years of age)
- Resident Super senior citizens (aged more than 80 years)
However, you also have income tax relaxation. A tax relaxation is a right to have your income or part of your income exempt from taxation. Most of you are eligible for many exemptions that lower your taxable income, while some people and organizations are free from paying taxes.
The Income Tax Act of India offers a lot of tax exemptions to raise investments and support your economic status. For example, it grants an exemption on insurance premiums to encourage you to buy life insurance. Some of the other incomes that are exempt are agricultural income, pensions, allowances, etc. You can also claim a tax deduction at the source.
Let us dive deep into income tax relaxation in India and how you can make the most of it.
Is There Any Relaxation in Income Tax?
Yes, you can claim income tax relaxation that you are eligible for and save your hard-earned money. You can claim relaxations on your investments and expenses. You can claim deductions on your health insurance, life insurance, long-term savings in FD, PPF, and mutual funds savings, etc., In addition to these, the rent you pay for your house, the tuition fees you pay for your children(up to 2), your home loan, and your education loan are all eligible for deductions.
Several sections and subsections deal with these relaxations. Use them wisely and save your money. Are you aware of the available income tax exemptions? Let us have a look into those.
What Is the Income Tax Exemption for Fy 2022 23?
First, you should know the meaning of Income tax exemption. It means a part of your income is not liable to tax under these sections. Do read below for more information on exemptions.
A new tax regime came into effect after the union budget in February 2023. You can opt between the old or new tax regime. You are not liable to pay income tax if your annual income is Rs 3 Lakhs. It was Rs.2.5 Lakhs previously. However, under the new tax regime, you are not eligible for deductions and exemptions. You have a standard deduction of Rs.50,000. Other than this, you cannot claim any other deductions that are available in the old tax regime.
The maximum income tax exemption limit under the old tax slab is Rs.1.5 Lakhs. It includes House Rent Allowance, Leave Travel Allowance, Home loan interest deductions, and many more under section 80C. You cannot enjoy all these deductions under the new tax regime. Hence, analyze your financial transactions carefully and choose either of the regimes for the most benefit. Let us know more about 80C deductions.
How Much Is the Exemption under 80C?
Section 80C deals with all your deductions and it is the most popular section of the income tax act. Please find below the limits under section 80C.
You can claim a maximum deduction of up to Rs. 1.5 lakh per annum under section 80C from your taxable income. It deals with investments, savings, and some expenditures that can avail deductions on income tax. Some of those are
- Premium Payment toward your life insurance
- Subscription for Payment for deferred annuity for self or immediate family
- Your contribution towards the Employees Provident Fund Scheme
- Your contribution towards Public Provident Fund
- Your contribution towards any recognised provident fund
- Investments you did through deposits of 10 years or 15 years with Post Office Savings Bank
- Investments did as a subscription to recognised securities or deposits scheme (e.g. – National Savings Scheme)
- Your payments toward the principal of your housing loan
- Your payments towards the tuition fees of any two children’s full-time education in Indian institutes
However, you can claim a maximum of Rs.1.5 Lakhs under section 80C though you are eligible for more exemptions. Also, know the maximum limit of your tax exemption other than the 80C exemptions below.
What Is the Limit of Tax Exemption?
The maximum limit of tax exemption is Rs 2,50,000 for Individuals, HUF below 60 years aged, and NRIs. An additional 4% Health & education cess will apply to your tax amount. However, know the list of incomes that are exempted from the income tax and benefits you.
Who Is Exempted from Income Tax?
Section 10 of the Income Tax Act, of 1961 states that you can enjoy tax exemption if you are a salaried employee. This provision intends to alleviate the burden of various taxes such as rent and travel allowances, gratuity, etc.
The following are the incomes that come under an exemption under this respective section of the Income Tax Act of 1961.
- Agricultural Income
- The Income of Hindu Undivided Family (HUF)
- Tax Exemption on Profit Share from firm/LLP
- Leave Travel Concession
- Allowances Paid by the Indian Government
- Voluntary Retirement Scheme
- Life Insurance Policies
- Exemption to Gratuity
- Pension Received by Employees
- Leave Salary
- The amount received from Provident Fund
- Awards and Scholarships
- House Rent Allowance (HRA)
- Allowances under Section 10 (14)
The above-said incomes are exempted from paying income tax.
FAQ: Income Tax Relaxation
1. What is the exemption limit for income tax 2022 23?
The maximum exemption limit for income tax 2022 23 is Rs.2.5 Lakhs. If your gross income is below Rs.2.5 Lakhs, you are not liable to pay tax. In addition to this, you can claim deductions and exemptions up to Rs.2.5 Lakhs under the income tax slab 2022-23.
2. Who is eligible for tax exemption?
Everyone is eligible for tax exemption. If you are liable to pay income tax, you can also enjoy the benefits of tax exemptions and relaxations.
You can claim deductions under sections 80C, 80D, 80EEA, etc. while filing your income tax returns. Also, if your annual income does not exceed Rs 5 lakh, you are eligible for a tax rebate of up to Rs 12,500.
3. What are the benefits of tax exemptions?
Income Tax exemptions have several advantages to offer. They are:
- Tax deductions reduce your taxable income and save your tax amount.
- If the tax on your income reduces, it develops a savings habit in you and invests your money.
- Income Tax deductions relieve the income subject to the maximum tax brackets. Hence, you can claim deductions for the money spent on medical expenses, tuition fees, and charitable expenses.
An income Tax Return (ITR) is necessary, i.e., you cannot avoid paying taxes. However, you can lessen your taxable income through proper planning.
4. Are 6 lakhs income tax-free?
Under the new tax regime, Rs. 6 lakhs are tax-free. You are not liable to pay any income tax if your annual income is 6 Lakhs under the new tax regime suggested in Feb 2023.
However, in the old tax regime, you should pay 10% of your income as tax if you possess an annual income of 6 Lakhs. If you claim deductions under the old tax regime, your total taxable income reduces to Rs.5 Lakhs which is tax-free though.
As you see from the above article, you can enjoy income tax relaxation under various sections. These relaxations are there to develop the habit of savings and investments among people. Section 80C is the most popular section for claiming deductions. You can claim a maximum of Rs.1.5 Lakhs under this section. Leverage these benefits and save your hard-earned money from paying taxes. Do you still have doubts regarding income tax relaxation? Feel free to contact us.
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