Tax exempt
Income, or an account, that a particular tax does not apply to, so the earnings are kept in full instead of being taxed now or taxed at withdrawal.
Exemption removes the tax rather than moving it. In the United States the two cases most people meet are interest on municipal bonds, which is generally free of federal income tax, and a qualified withdrawal from a Roth account, where neither the growth nor the withdrawal is taxed. Some organisations are tax exempt as entities too, which is a separate use of the same phrase.
Exempt yields are quoted lower precisely because of the exemption, so ranking them against taxable yields at face value can get the answer backwards. The comparison that works is a tax equivalent yield, the taxable rate you would need to match the exempt one after tax. It turns on your marginal tax rate, so the same exempt bond is worth more to a higher earner than to a lower one. Quoting two rates on different bases and comparing them anyway is the same habit the APR against APY calculator exists to correct, though the mismatch there is compounding rather than tax.
The mistake is treating exempt as absolute. Exemption is granted by a particular level of government for a particular thing. Municipal interest that escapes federal income tax in the United States may still be taxed by a state. A Roth account is exempt at withdrawal only because the contribution went in already taxed, so the exemption was bought rather than given. Exempt and tax deferred get swapped constantly, and deferral only postpones a bill that still arrives.