What is Meant by Tax Deductions?
A tax deduction is a benefit that reduces the taxable income of a taxpayer upon the fulfilment of certain conditions. Different countries have different tax codes which allow taxpayers to deduct a range of taxable income expenses.
In India, salaried workers make up the country's largest chunk of total taxpayers, and the contribution they make to the tax revenue is very high. Income tax deductions give the salaried community several ways to save cash. With these deductions and exemptions, one may significantly reduce their tax payable.
Tax Deductions in India Explained
The Income Tax Act, 1961, lays down a host of tax deduction options for various category of people, such as individuals, businesses, senior citizens, HUF, firms, etc. Some of the popular tax deductions have been explained below.
Section 80C is the most commonly used income tax saver option. Any individual or Hindu Undivided Families (HUF) investing or spending on stipulated tax-saving avenues during a given financial year can enjoy a tax deduction of up to Rs 1.5 lakh.
Apart from this, Section 80D gives a deduction of up to Rs 50,000 on medical costs. One could save tax on the medical insurance premiums charged to self, family, and dependent parents for their wellbeing.
Another main mechanism for tax savings is the interest owed on home loans. Homeowners are given the right to claim up to Rs 2 lakh as a deduction for self-occupied property interest on a home loan.
A deduction available to any category of people is Section 80G. It provides an assessee option to claim an income tax deduction for making contributions to charities.
Other Deductions Available
There are other deductions, such as the interest paid to an education loan and purchase of an electric vehicle. Also, expenditure on disabled dependants is allowed as a deduction to a certain extent. Also, interest income on the savings bank deposit is allowed as a deduction up to a certain limit.
Deduction vs Exemption
There is a key difference between tax deductions and the tax exemptions. The former allows a limited part of the expense escape taxability, and the remaining expense is taxed as per the Income Tax Act, 1961. In the case of the latter, the entire income coming from certain sources is exempt from taxes on the whole.
