Introduction
Tax deductions are the sum of money that can be reduced from the total taxable income. To get the net income of a taxpayer, the deduction amount is first included in the gross total income and then subtracted from it. It is kind of concession received by the taxpayers from the income tax department. The tax deductions also promote investments and savings by a taxpayer.
What is Tax Deductions / Credits?
In a financial year, whatever income you earn under five income heads is summed up to the gross total income, which is chargeable to income tax. However, to compute the net taxable income of an assessee, certain deductions are applicable, on which income tax is not chargeable. The deductions available under the income tax act is specific to certain taxpayers under certain conditions. It covers sections that define deductions to be made in computing the total income (Section 80A), deductions in respect of life insurance premium, deferred annuity, contribution to provident fund, subscription to certain equity shares or debentures etc (section 80C) and many more.
Who is eligible to pay?
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A detailed breakdown of the procedure for filing the tax
According to the income tax act, tax deductions are investments and payments that are reduced from the gross total income for calculating the taxable income. If the total gross income is NIL, no deductions are allowed or the deduction amount cannot exceed the amount to gross total income. In other words, deductions are allowed to the extent of the gross total income.
There are three categories of deductions:
Deduction regarding certain payments: Some examples include medical insurance premium, life insurance premium paid and donations to charitable institutions. Deduction regarding certain incomes: Some examples include royalty on patents and specific incomes from cooperative societies.Other deductions
Deductions are different from exemptions. Exemptions are those incomes that are not considered when computing the total income whereas the deductions are the part of the total income that is subtracted to derive the net taxable income.
