Deductible

Reviewed by Sweta | Updated on Sep 28, 2020

Introduction

Deductible refers to tax deductions for investments and expenses a taxpayer can reduce from their taxable income. Deductibles are generally for investments, tax savings, and expenditure incurred by a taxpayer.

In the case of a taxpayer carrying on business or profession, deductibles also include various expenses for carrying on the business and other specified deductions. A taxpayer can claim a deductible from individual incomes and from the gross income.

Understanding Tax Deductions/ Credits

The gross income is the aggregate amount of income from all the sources. In India, the sources of income include income from salary, house property, business or profession, capital gains and other sources. After aggregating all the incomes, a taxpayer can claim deductions as may be prescribed under the law.

While arriving at the aggregate income, a taxpayer in India can claim various tax exemptions and set off for brought forward losses and current year losses. Tax exemptions include exemptions for certain investment incomes, maturity proceeds of insurance, capital gains exemptions and other specified exemptions.

Deductions before aggregation of income include a deduction for tax losses. A taxpayer can claim set off for business losses of the current year and for brought forward business losses. Similarly, a deduction is available for loss from house property.

Capital losses, however, are treated differently. A taxpayer can claim a deduction for capital loss only from another capital gain subject to rules inter se.

The deductions from gross income include those to promote tax savings, investments, or for other specified payments. In the case of income from salary, a taxpayer can claim a standard deduction up to Rs 50,000 from their gross salary. Similarly, in the case of house property, a taxpayer can claim a standard deduction of 30% of the annual rent.

Conclusion

A taxpayer can claim all tax deductions only in an income tax return. The annual tax return falls due after the end of each financial year. The due date for a salaried or non-audit case is generally 31 July of the assessment year. In audit cases and transfer pricing cases, the due date is 31 October and 30 November respectively.