Exempt Income
Most income tax systems exclude certain classes of income from the taxable income base. Such exclusions may be referred to as exclusions or exemptions. Systems vary highly. Among the more commonly excluded items are:
- Income earned outside the taxing jurisdiction. Such exclusions may be limited in amount.
- Interest income earned from subsidiary jurisdictions.
- Income consisting of compensation for loss.
- The value of property inherited or acquired by gift.
Some tax systems specifically exclude from income items that the system is trying to encourage. Such exclusions or exemptions can be quite specific or very general.
Among the types of income that may be include are classes of income earned in specific areas, such as special economic zones, enterprise zones, etc. These exemptions may be limited to specific industries. As an example, India provides SEZs where exporters of goods or providers of services to foreign customers may be exempt from income taxes and customs duties.
Read more about this topic: Tax Exemption
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