Kolkata: With FY26 behind us, the Income TaxReturn (ITR) filing season will begin in some time. To many taxpayers, the very mention of Income Tax sounds
like gobbledygook — something unnecessarily complex, filled with jargons and almost impossible to understand. While the government has attempted to reinvent the Income Tax Act 1961 into a less inscrutable Income-Tax Act 2025, some of the basic jargons still remain far from clear to the average taxpayer. For those who will be filing ITR for the first time, it is important that a few of the basics become clear. It will help them understand under what bracket of income tax will they fall and how much can they save on income tax. These terms are exemption, deduction and rebate. Let’s have a closer look at what they mean and how these can determine the amount of income tax that you may have to pay for FY26.
What is exemption in income tax?
The sense in which the word exemption is used in Income Taxis a direct carry over of the normal meaning of the word. ‘Exemption’ implies that certain portions of your income will be exempted from taxation. In other words, these will not come under Income Tax. There are certain types of income that are exempted from Income Tax. Agricultural income is one. Other examples are HRA or House Rent Allowance and certain other inflow of money such as LTA (Leave Travel Allowance) interest from PPF (Public Provident Fund), gifts from relatives, life insurance payments, interest on tax-free bonds etc.
What is Deduction in Income Tax?
Again, here too the meaning of the word deduction in Income Tax is a direct carry over of the literal meaning. It refers to a sum of money that is deducted or subtracted from the total income of an individual. For example, if you have put some money in life insurance policies, PPF or ELSS (Equity linked Savings Scheme) or NSC (National Savings Certificates), the amount — upto a level of Rs 1.5 lakh per annum — will be deducted from the taxable income. Medical insurance premium and the interest that you pay on home loans are also eligible for deduction. If taxable income is reduced, the tax payable also goes down. The deductions are mostly available in the old tax regime and not in the new tax regime.
What is Rebate in Income Tax?
The rebate causes a reduction of the actual tax liability of an individual. It comes into play only after the tax amount has been calculated. Therefore, it can be regarded as a concession on your actual tax. The rebate is higher in the new tax regime — up to Rs 60,000 for annual income of Rs 12 lakh) that in the old tax regime where it is Rs 12,500 for annual income up to Rs 5 lakh.
