Tax Exemption

An amount or type of income that is completely excluded from taxation, either for the taxpayer or for specific categories of income.

## Tax Exemption

A tax exemption fully excludes certain income or entities from taxation. Unlike a deduction (which reduces taxable income), an exemption removes income from the tax base entirely.

### Types

- **Personal exemption**: A per-person amount excluded from tax (suspended in the US since TCJA 2017, but exists in many other countries).
- **Income-type exemption**: Specific income sources excluded (e.g., municipal bond interest in the US).
- **Entity exemption**: Organizations exempt from tax (nonprofits, religious organizations).

### Examples

| Country | Exemption |
|---------|----------|
| UK | £12,570 Personal Allowance |
| Germany | €11,784 Grundfreibetrag (2025) |
| India | ₹300,000 (new tax regime) |
| Philippines | ₱90,000 of 13th month pay |
| UAE | All personal income |

### Exemption vs. Zero-Rate Bracket

Functionally, a tax-free allowance and a 0% bracket produce the same result: no tax on the first portion of income. The UK's Personal Allowance is technically an exemption that phases out above £100,000.

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