Partial Exemption

Partial exemption refers to a situation where only a portion of an income is exempt from tax, while the remaining part is taxable. Such exemptions are granted under specific provisions of the Income Tax Act and depend on factors like the nature of income, amount received, or fulfillment of prescribed conditions. Common examples include House Rent Allowance (HRA), gratuity, leave encashment, and commuted pension, where exemptions are allowed up to certain limits, and the balance is taxed as income. Example: If an employee receives House Rent Allowance (HRA), a part of it is exempt based on factors such as salary, rent paid, and city of residence, while the remaining portion is taxable.