Question

why is exemption and deduction provided to the tax payer?​

Answer 1

Various types of exemptions and deductions are provided by the central government to people while paying taxes to motivate investment.

Explanation:

• The Indian taxation system is building such a manner that each person has to pay tax when his income reaches a certain extent.
• However, the government has introduced the concept of exemptions and deductions which are basically tax-saving instruments.
• These have been introduced by the government to motivate people to invest their money. Mostly, exemptions and deductions are provided on investments and charity. Such a step would encourage people to invest their money in assets instead of keeping it in banks which would increase the money supply in the economy.