Introduction: Income Tax Deduction is a way of reducing the total amount of taxable income of an individual or a company i.e. the taxpayers, though this is dependent upon the type of tax benefit claimed by the taxpayer.
Benefits of Tax Deductions:
There are a number of benefits associated with tax deduction which include:
Reduces the total taxable income of an individual and saves tax for the taxpayer.
The money saved can be invested somewhere else. E.g.: tax-free government bonds, shares and securities, fixed deposits, etc.
Tax deduction first decreases the income which is to be taxed subject to the highest tax bracket and then the claims for tuition fees, medical expenditure, charitable donations, etc are claimed.
Income tax cannot be evaded but can be reduced by applying the tax deductions.
Types of Tax Deductions
(Under the section 80C of the IT act of 1961)
Public Provident Fund (PPF):
Under the section 80C of the IT act of 1961 PFF can be contributed to the PFF account.
Life Insurance Premiums:
Deductions can be made in the income tax for Life Insurance premiums of self, spouse and children. The amount received on maturity is free of tax however the terms and conditions are applied.
National Saving Certificate (NSC):
The investments made under the NSC are eligible for tax deductions and is considered to be a very secure medium of investment in the country. However the interest earned is taxable income, if the interest is reinvested it can also be a tax-deductible amount.
Bank Fixed Deposits (FDs):
Fixed Deposit investments are eligible for tax deduction for a period of 5 years however the interest earned is subject to tax. Many banks in India provide with an option of tax saving fixed deposits too.
Senior Citizen Savings Scheme (SCSS):
The SCSS scheme offered by the banks is also a way of saving some tax but the interest earned is all taxable.
Post Office Time Deposit (POTD):
A 5 year investment in POTD has an option for tax deduction in the IT act however the interest accrued is fully taxable.
Unit-linked Insurance Plans (ULIP):
ULIP investments made for self, spouse, and children are tax deductible under the IT act of 1961.
Home Loan EMIs:
EMI or Equated monthly installments are totally eligible for tax deductions.
Mutual Funds & ELSS:
The investment in mutual funds is eligible for tax deductions however the investment is subject to market fluctuation.
Stamp Duty and Registration Charges for a Home:
The duty paid for transfer of property is eligible for tax deductions under the IT act of 1961.
Retirement Savings Plan:
Retirement and savings plans are eligible for tax deductions by investing in these plans offered by LIC or other insurance companies, any contribution to the NPS (National Pension Scheme) is eligible for tax deductions too.
The children tuition fee paid for educational expenses is eligible for tax deductions too for any two children in an Indian University or Institutions.
Medical Insurance Premiums:
The Health insurance premium paid for any of the self, spouse and children is eligible for tax deductions however the deduction allowed for a person below the age of 60 is Rs.25,000 and a senior citizen it varies upto Rs. 30,000. qualifies for income tax deduction under section 80D of the Indian income Tax Act, 1961. The deduction allowed under this section is Rs. 25,000
Investments in infrastructure bonds are eligible for Income Tax Deduction.
Declaring the amount of charity done before 31st December of the year would help you reduce your taxable income.
Treatment of Disabled Dependents:
Under section 80DD of the Indian Income Tax Act, 1961 deductions in the income tax are allowed
Deduction for Preventive Health Check-ups:
Amount upto Rs.5,000 spend for health and checkups of self or family is eligible for income tax deduction.
Interest Paid on Education Loan:
Tax Deduction on the interest paid on education loan are eligible for self, spouse or children or a student to whom the employee is the legal guardian.
Deduction on House Rent Paid:
The house rent paid is eligible for tax deduction if the employee his or her spouse does not own any accommodation.
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