What Does Tax Exemption Mean?

Tax exemption is when a person or organisation will not be taxed for a purchase or type of earnings that usually would be subject to some form of taxation. Certain tax systems offer a tax exemption to organisations, persons, income, property or other items taxable under the system. Tax exemption may also refer to a personal allowance or a type of monetary exemption.  This occurs when an individual claims for this exemption to reduce a type of taxable income. Tax exempt status may provide a potential taxpayer complete relief from tax, other instances could be tax at a reduced rate, or even tax on only a portion of the items subject to tax.  Examples of tax exemption include exemption of charitable organizations from property tax and income tax; similarly exemption is provided to veterans and can occur under some multi-jurisdictional principles.

However, not only does tax exemption mean to be exempt from a general rule rather than complete exclusion from it, it can also been the complete removal from it. This removal can be from a particular item or class and is done instead of a reduction of taxable items, which is achieved by the deduction of other items.  Furthermore, though tax can be granted by any governmental level that imposes a form of taxation, in some systems restraints on such exemption generally by lower tier government units.

These exemptions to tend to be categorised and generally come in the form of charitable organisation exemption, which include religious organisation, fraternal organisations, public charities and any other organisation that is deemed to provide some sort of social or public service.  Other categories would include: Governmental entitlement, pension schemes, education institutions, reciprocal exemption, sales tax and other non-profit entities.

A tax exemption is a form of being exempted from all forms of taxes of the state or the nation in which the payment of taxes is a compulsion and has to be collected from every individual or organization. In normal circumstances tax exemption is provided to an individual or a certain organization that falls under the protected class of some kind. Tax exemptions are usually meant to reduce the burden of paying taxes on a certain segment of the society and are done with the best of interests for the promotion of economic activity.

The criteria for the exemptions of taxes are: - the age of the individual paying the taxes, ownership of types of properties, geographic position of the possessions and the income level of the individual paying the taxes.