Differences Between Deduction and Exemption

1. Deduction means subtraction i.e. an amount that is eligible to reduce taxable income. 

• Exemption means exclusion, i.e. if certain income is exempt from tax then it will not contribute to the total income of a person.

2. Deduction is a concession, but 

• Exemption is relaxation.

3. Deduction applies to tax deductible income, whereas 

• only tax-free income is eligible for tax exemption.

4. Deduction is allowed to specific persons that qualify the particular criteria. 

• Exemption is allowed to all the persons.

5. Deduction is conditional, i.e. it is allowed only to those who qualify the eligibility criteria. 

• Exemption is unconditional.

6. The objective of providing deduction is to encourage savings and investments in certain instruments while the 

• Exemption is to help the weaker section of society.

7. Section 80C to 80U of Income-tax Act, 1961 deals with Deduction whereas 

• Exemptions are provided in Section 10.

8. Deductions are first added to GTI and then deducted from it. 

• Exemptions do not form part of total income.