Difference between Exemptions & Deductions under the Income Tax Act

What are Deductions under the Income Tax Act, 1961?

Chapter VI-A of Income Tax Act contains various sub-sections of section 80 that allows an assessee to claim deductions from the gross total income on account of various tax-saving investments, permitted expenditures, donations, etc.

 

What are Exemptions under the Income Tax Act, 1961?

Exemptions are provided on particular sources of income and not on the total income. It can also mean that you do not have to pay any tax for income coming from that source.

For example- As per Section 10(1) of the Income Tax Act, 1961 - Income from agriculture is exempted.

 

Difference between Exemptions & Deductions

Basis	Exemptions	Deductions
Incidence	These are not included in our Taxable income.	These are deducted from our Gross total income.
Application	Applied at each head of income.	Applied at Gross total income.

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