Tax Exemption on Personal Savings

Income-tax and wealth-tax exemption on personal savings fatting in certain specified categories is often given to provide relief to a tax-payer, in the hope that, he might thus save a part of his income in the tax-exempt forms of savings. For, while the disposable income after tax of a taxpayer increases with the exemption and the effective rate of tax on his income gets reduced, the expectation is that the relief will induce the tax-payer to increase savings in the specified forms and will thereby increase the level and flow of personal savings in the economy.