What is income tax exemption?  A tax exemption is the right to have all or part of one’s income free from federal or state taxation. The majority of taxpayers are eligible for numerous exemptions that lower their taxable income and select persons and organisations are fully tax free. Tax exemptions are similar to but not the same as tax deductions. A tax deduction is a part of taxable income that can be deducted from taxation if certain requirements are met, whereas a tax exemption is income that is not taxed in the first place. Meanwhile, regardless of taxable income, a tax credit is applied to lower the amount of tax owing. Tax exempt organizations: When organizations serve the public good, such as religious or philanthropic groups, the government usually exempts them altogether from paying income taxes. The government relieves certain organizations of their tax burdens, allowing them to continue to promote public welfare. Non-profit organizations in the United States are usually exempt from federal taxes. Charities, churches, schools and labour unions are among these groups. Non-profit tax exemptions are based on a variety of variables, including the organization’s mission, activities and revenue sources. State tax rules vary, but such groups are typically exempt from state income and property taxes, as well as sales taxes in some cases. Individual tax exemptions: An individual can claim one tax exemption if he or she is not listed as dependent on another taxpayer’s return. This is a yearly rise in a fixed amount. The exemption decreases taxable income in the same way that a deduction does, but with fewer limitations. Both spouses receive an exemption if the taxpayer is married and submits a combined tax return. Example of tax exemption: To stimulate the local economy, state and municipal governments offer tax breaks to enterprises. If a company relocates its activities to a certain geographic location, it may be exempt from municipal property taxes. Many telecommunication companies in Massachusetts are exempt from paying sales taxes since they provide internet access, cable television and public television and broadcasts. Decoding income tax exemptions

• The acronym EET stands for exempt-exempt-taxable, which means that an investor can get two exemptions on their assets.
• The final exemption means that any lump sum payment made at maturity or withdrawal is tax free.

Exempt, Exempt and Exempt  EEE stands for Exempt, Exempt and Exempt and it has 3 types. “Exempt 1” indicates an investment qualifies for a deduction and a portion of the yearly income equal to the investment amount is not taxable. “Exempt 2” means an investment qualifies for a deduction and a portion of the annual income equal to the investment amount is not taxable.  It says that investment income is exempt. “Exempt 3” denotes that the withdrawal of funds from the investment is tax free. Exempt investment instruments are those that do not require a licence. Exempt, Exempt, Taxed  The acronym EET stands for exempt-exempt-taxable, which means an investor can get two exemptions on their assets. The first exemption indicates that a certain investment is exempt. The second indicates that dividends and interest earned throughout the holding term are tax free as well. taxable , on the other hand, means that the lump sum received at maturity or withdrawal is taxable. An example of EET is an equity-linked savings plan (ELSS). An ELSS has a three-year statutory lock-in period and is eligible for a tax exemption under the IT act, which allows for a tax exemption up to $1.5 lakh. Exempt, Taxed, Exempt The first exemption means that investment qualifies for exemption. The term taxable denotes a taxable return during the holding period. The final exemption means that any lump sum payment at maturity or withdrawal is tax free. Normally, a tax saving five year fixed deposit fits into this category, where the investment qualifies for an exemption, but the interest income is taxable and the maturity is exempt. National saving systems are another example of this group. Section 80C of the Income Tax Act allows for a tax deduction on these items.