Hello everyone!
Will someone please tell me about the difference between deductions & exemptions?
Actually, I know the difference but I just want to know the tax treatment of both, particularly, is there any effect of these on the total tax liability?
Deductions are allowed after arriving Gross Total Income ie. after aggregation and set-off. If GTI is zero no deduction would be available. Where as exempted item of income would not form part of Total Income. Exemption is given before aggregation and set-off.
this can be illustrated as below:
X is a co-operative society having business income Rs 5,00,000/- and house property loss Rs3,00,000/-. Its business income is eligible for deduction u/s 80P.
in this case GTI is 5,00,000 + (-) 3,00,000 = 2,00,000
Less; deduction u/s 80P = 2,00,000 ( though BI is 5 lakh deduction is limited to GTI available)
Taxable income = Nil
If in the above case no deduction u/s 80P is avilable but BI includes exempt income to the tune of Rs 4,00,000
then GTI is (5,00,000 - 4,00,000) + (-) 3,00,000 = (-) 2,00,000
Taxable income = Nil ( HP loss 2 lakh will be allowed to carry forward)
Oh! Thaaaaaaaaaaaaaaank you so much Sir!!
It is really helpful to me!!!
Thanks again.
Have a great day ahead.
CAclubindia
