Apply for Tax Deductions

Tax Deductions

There are various kinds of income tax deductions that can be used to reduce the taxable income in India. There are 19 ways in which tax deductions can be availed, ranging from public provident funds to life insurance and loans.

Income Tax deductions

Tax deduction refers to claims made to reduce your taxable income, arising from various investments and expenses incurred by a taxpayer. Thus, income tax deduction reduces your overall tax liability. It is a kind of tax benefit which helps you save tax. However, the amount of tax you can save depends on the type of tax benefit you claim.

Tax Deducted at Source

To collect tax efficiently and quickly, the Income Tax department of the Government of India has introduced a system called TDS (tax deducted at source). Using TDS, tax can be deducted/collected at source of income. TDS is an indirect method of collecting tax by the government. It ensures a regular source of revenue for the government by ensuring the tax is collected as income is earned and not when a taxpayer files returns at the end of the year.
Any authorized person/institution on whom the responsibility of collecting tax is entrusted collects tax and pays it to the government on behalf of an individual payer. In return, the individual taxpayer gets a TDS certificate stating that the tax has been paid on his/her behalf. Thus, tax is deducted at source and is forwarded to the government on behalf of the payer. This provision of deduction of tax at source is applicable to several payments such as salary, commission, interest on fixed deposits, brokerage, professional fees, contract payments, and royalty etc.

Benefits of Tax Deductions

Tax deductions help you reduce an amount from your taxable income and save tax. When you claim an income tax deduction, it reduces the amount of your income that is subject to tax.

Reduced taxable income helps you save and invest money in other areas.

Tax deduction first reduces the income subject to the highest tax brackets. So, you can claim deduction for the amounts spent in tuition fees, medical expenses, and charitable contributions.

Income Tax Return is mandatory and you cannot completely avoid paying tax. But with proper planning, you can reduce your taxable income.

Various Types of Tax Deductions in India

Public Provident Fund (PPF)

Public Provident Fund (PPF) By contributing to your PPF account, you can get tax deduction under Section 80C, the Indian Income Tax Act, 1961.

Life Insurance Premiums

You can get an income tax deduction for paying premium towards life insurance policies for self, spouse and child under section 80C of the Indian Income Tax Act, 1961. The amount received on maturity of the policy is free from tax. However, it is subject to the terms and conditions mentioned in your policy.

National Saving Certificate (NSC)

The amount invested in NSC is eligible for tax deduction under section 80C of the Indian Income Tax Act, 1961. National Saving Certificates is one of the highly secured modes of investments in India. But, the interest earned from NSC is taxable. As an NSC is a cumulative scheme, interest is reinvested and qualifies for tax deduction.

Bank Fixed Deposits (FDs)

You can get tax deduction by investing in fixed deposits for a tenure of 5 years, under section 80C of the Indian Income Tax Act, 1961. Many banks in India offer tax saving fixed deposits. However, the interest accrued on FDs is subject to tax

Senior Citizen Savings Scheme (SCSS)

Senior citizens can get tax deduction by investing in Senior Citizen Savings Scheme offered by banks. These schemes are eligible for tax deduction under Section 80C of the same act. The interest earned from these schemes is entirely taxable.

Post Office Time Deposit (POTD)

Investing in a five-year Post Office Time Deposit (POTD), you can get tax deduction under Section 80C. However, interest accrued on the same is fully taxable.

Unit-linked Insurance Plans (ULIP)

Investing in ULIPs for yourself, spouse and your children, you can get tax deductions under Section 80C.

Home Loan EMIs

Home Loan EMIs Equated monthly installments paid to repay the principal amount of your home loan are eligible for income tax deductions under section 80C of the same act.

Mutual Funds

Mutual Funds & ELSS Investing in mutual funds and equity-linked savings scheme, you are eligible for tax deductions under section 80C, the Indian Income Tax Act, 1961.

Stamp Duty and Registration

Stamp Duty and Registration Charges for a Home Stamp duty and registration fee paid for transferring property are entitled for income tax deduction under section 80C, the Indian Income Tax Act, 1961.

Retirement Savings Plan

You can also get income tax deductions by investing in retirement plans offered by LIC or other insurance providers. Contribution to the National Pension Scheme is also eligible for tax deduction.

Tuition Fees

Tuition fee paid for your children’s education qualifies for income tax deduction under section 80C. However, the fee needs to be paid for full-time education in an Indian university, college and school for any two children. Tuition fee does not include any donations or development fee towards education institutions.

Medical Insurance Premiums

Medical Insurance Premiums Health insurance premium paid for self, spouse and children 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 for youngsters and Rs. 30,000 for senior citizens.

Infrastructure Bonds

Infrastructure Bonds Investing in infrastructure bonds, you become eligible for income tax deductions under section 80CCF of the Indian Income Tax Act.

Charitable Contribution

Charitable Contribution Donating for charitable tasks will help you reduce your taxable income under section 80G of the Indian Income Tax Act, 1961. However, make sure that you declare the whole contribution before 31st December each year.

Treatment of Disabled Dependents

Treatment of Disabled Dependents Under section 80DD of the Indian Income Tax Act, 1961, you can get income tax deductions for medical expense incurred in the treatment of any disabled dependent of yours.

Deduction for Preventive Health Check-ups

Deduction for Preventive Health Check-ups An amount of Rs.5000 spent for preventive health check-ups of an individual or his/her family members qualifies for tax deduction under section 80D of the Indian Income Tax Act, 1961.

Interest Paid on Education Loan

Interest Paid on Education Loan You can get tax deduction on the interest paid for an educational loan under section 80E of the Indian Income Tax Act, 1961. The loan can be taken to pursue higher education by the employee, or for his/her spouse, children or a student to whom the employee is a legal guardian.

Deduction on House Rent Paid

Deduction on House Rent Paid An employee can get income tax deduction for the house rent paid, if the employee or his/her spouse does not own residential accommodation at the place of employment. This deduction is usually applicable for salaried taxpayers under section 80GG of the Indian Income Tax Act, 1961.

FAQ

Tax deduction decreases the tax liability of a person by decreasing his taxable income.

Yes, any individual can go for tax smile, if they fall under these categories:

Income from salary, Income from one house property, income from the family pension or getting by interest.

Tax deduction decreases the tax liability of a person by decreasing his taxable income.

The due date as per Income tax return financial year, 31st July but it is extended till November 30th.

You can file after the last date however; you will have to pay penalty interest that is 1% per month for late filing.

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