Tax is not a topic that everybody loves but tax deduction will surely bring excitement to all taxpayers. Nobody enjoys paying taxes, but everyone enjoys taking advantage of tax deductions. To put it another way, a tax deduction reduces your taxable income, lowering your tax liability. Some people wrongly believe that a tax deduction represents a reduction in the amount of taxes owing. That is a tax credit, which reduces the amount of taxes payable directly rather than simply lowering your taxable income.

To file your Income tax return in Tambaram, Chennai with tax deductions Get in touch with Phoenixtax- Tax consultants.

What is tax deduction?

A tax deduction is a reduction in taxable income that reduces a person’s or an organization’s tax burden. Deductions are expenses that a taxpayer incurs during the year that can be either applied to or excluded from their gross income to determine the amount of tax owed.

Difference between tax exemption and tax deduction

 Tax Exemption: An income or investment that is not taxable can qualify for a tax exemption. These earnings or investments are related to a specific type of income and can only be claimed under that heading. The multiple heads of income are totaled to arrive at the gross income after deducting permitted exemptions from the specific income head. For example, you can claim an exemption for House Rent Allowance (HRA), Leave Travel Allowance (LTA), and Leave Encashment under the ‘Income from salary’ heading. The taxable component of ‘Income from Salary’ would be acquired when these exemptions are claimed.

Tax Deduction: It allows you to lower your tax bill. The Income Tax Act allows you to deduct a portion of your gross total income after you’ve calculated it. As a result, your income decreases, and your tax liability decreases.

Advantages of tax deduction:

There are several advantages to taking a tax deduction, including:

  • Tax deductions allow you to minimize your taxable income and save money on taxes. The amount of your income that is liable to tax is reduced when you claim an income tax deduction.
  • Taxable income is reduced, which allows you to save and invest in other areas.
  • The income due to the higher tax marginal rates is initially reduced through tax deductions. As a result, you can deduct the costs of tuition, medical expenses, and charitable contributions.
  • You cannot entirely avoid paying tax if you do not file an income tax return. However, with careful preparation, you can lower your taxable income. The amount of tax owing.

Income Tax slabs for residents under 60 years of age in India

  • Income of up to Rs. 25,00,000 is exempt from taxation.
  • Income between Rs. 2,50,001 and Rs. 5,00,000 is taxed at 5% of total income (after deduction of Rs. 2,50,000) + 4%Cess.
  • Income between Rs. 5,00,001 and Rs. 10,00,000 is taxed at a rate of 20% of total income (after deduction of Rs.5,00,000) 12,500 rupees + 4%Cess.
  • Income over Rs.10,00,000 is taxed at Rs.1,12,500 + 30% of total income (after deduction of Rs. 10,00,000) +4%Cess.

Individuals between the ages of 60 and 80 are subject to the following tax rate:

  • Income of up to Rs. 3,00,000 is exempt from taxation.
  • Income between Rs. 3,00,001 and Rs. 5,00,000 is taxed at 5% of total income (after deduction of Rs. 3,00,000) Plus 4Cess.
  • Income between Rs. 5,00,001 and Rs. 10,00,000 is taxed at + of 20% of total income (after deduction of Rs.5,00,000) +Cess.
  • Income over Rs.10,00,000 is taxed at Rs.1,10,000 + 30% of total income (after deduction of Rs. 10,00,000) +4% Cess.

Individuals above 80 years of age are subject to the following tax rate:

  • Income of up to Rs. 5,00,000 is exempt from taxation..
  • Income between Rs. 5,00,001 and Rs. 10,00,000 is taxed at + of 20% of total income (after deduction of Rs.5,00,000) +4%Cess.
  • Income over Rs.10,00,000 is taxed at Rs.1,00,000 + 30% of total income (after deduction of Rs. 10,00,000) +4% Cess.

Therefore, you can lower your taxable income by claiming deductions for your annual savings and then paying income tax on the final sum.

Types of tax deductions in India

Deductions are allowed in several parts of the Indian income tax act, which are detailed below.

  1. Section 80C

PPF, EPF, LIC premiums, equity linked savings schemes, principal payments on home loans, stamp duty and registration fees for property purchases, etc. Section 80C of the Income Tax Act allows deductions for Sukanya smriddhi yojana (SSY), National saving certificate (NSC), Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5 years, Infrastructure bonds, and so on.

  • Section 80CCC

Investments to annuity pension schemes can be deducted under Section 80CCC. The annuity pension or amount received upon surrender of the annuity, including any interest or bonus accrued on the annuity, is taxable in the year of receipt. Amount deposited in an annuity plan of LIC or another insurer for a pension from a fund described in Section 10 (23AAB)

  • Section 80CCD

Section 80CCD (1): Contribution by employees under section 80CCD (1) The following are the maximum deductions that can be made:

  • 10% of your annual salary (in case taxpayer is employee)
  • 20% of total gross income (in case of self employed)
  • Rs 1.5 lakh (maximum permitted under section 80C)

Section 80CCD (1b): For money deposited in an NPS account, an additional deduction of Rs 50,000 is allowed. The Atal Pension Yojana premiums are also fully deductible.

Section 80CCD (2): Under this clause, employers can remove up to 10% of their basic wage plus dearness allowance as a contribution. Only salaried employees are eligible for this deduction, self-employed individuals are not eligible.

  • Section 80CCF

Investors benefit from Section 80CCF of the Income Tax Act, which provides tax deductions for government-approved infrastructure bond programs. It allows taxpayers to deduct the amount they invest in certain government-approved infrastructure bonds. This clause allows the taxpayer to deduct up to Rs. 20,000 from their total taxable income each year.

  • Section 80D

Deduction available for medical insurance premiums paid. As a citizen or a HUF can deduct Rs.25,000 for insurance for yourself, your spouse, and your dependent children under section 80D. If your parents are under the age of 60, you can claim Rs 25,000 additional deduction for their insurance. If both parents are above 60 then, the deduction amount is Rs 50,000, up from Rs 30,000 in Budget 2018. If both the taxpayer and the parent(s) are 60 years old or older then, the maximum deduction allowed under this section is Rs.1 lakh.

  • Section 80DD

A resident individual or a HUF can claim deductions under Section 80DD of Income tax Act for the following expenses:

  • A handicapped dependent relative receives medical treatment (including nursing), training, and rehabilitation.
  • Investment or deposit to a designated scheme for the support of a disabled dependent relative.
  • Where the handicap is 40% or more but less than 80%, a fixed deduction of Rs 75,000 is made.
  • Fixed deduction of Rs 1,25,000 in cases of severe disability (disability of 80% or more).
  • Section 80DDB

Medical illness incurred for the treatment of specified diseases or illness such as Chorea, Motor Neuron Disease, Dementia, Ataxia, Aphasia, and Parkinson’s Disease are examples of neurological disorders with a disability level of 40% or higher. AIDS stands for Acute Immunodeficiency Syndrome. Cancer that is malignant, renal failure that is chronic, Hematological disorders such as hemophilia and thalassemia are examples of hematological disorders.

  • Section 80E

Section 80E of the Income Tax Act of 1961 allows anyone who has sought for a loan for higher education to benefit from tax savings. Even if a person has taken the maximum allowed deduction of INR 1,50,000 under Section 80C, they can still take advantage of Section 80E.

  • Section 80G

Section 80G of the Income Tax Act largely deals with charitable contributions, with the goal of providing tax benefits to those who engage in philanthropic activities. Donations to specific funds or charities are eligible for tax deductions under this clause. An amount donated to a qualifying charity by an individual can be claimed as a tax deduction when submitting a tax return.

  1. Section 80GG

Section 80GG found in Chapter VI-A of the Income Tax Act of 1961 was created to provide relief to those who do not receive a house rent allowance but must pay rent to stay in their home. Thus, even if a person does not receive a dwelling rent allowance, he or she can claim a deduction for rent paid. To be eligible for a deduction under this clause, an individual must be self-employed or salaried. Individuals can claim a deduction for housing rent paid under section 80GG. The rent paid for the house must be for his or her own stay.

  1. Section 80GGA

Section 80GGA allows you to deduct contributions to scientific research and rural development from your taxes. It is only available to those who do not have a source of income from a business or profession. There is no limit to the amount of money that can be donated to organizations that follow the principles outlined in this section. Donations that exceed Rs 10,000 are not tax deductible. It’s important to double-check that the institution where the donation is being made is registered and that their registration number is still valid on the day of the donation.

  1. Section 80GGC

Individuals who donate to any political party can deduct their contributions from their taxes under Section 80GGC of the Income Tax Act of 1961. However, there are some rules and conditions that must be adhered to in order to receive the rewards. Before applying for a tax deduction, be sure you meet the eligibility requirements as well as the deduction limit. It states that an assessed can deduct payments to a political party or election trust. As long as the money isn’t given in cash, the entire amount is likely to be included in the tax deduction.

  1. Section 80U

Section 80U of the Income Tax Act of 1961 allows Indian residents with a 40% disability to claim a tax deduction. For claiming this deduction under Section 80U, there are different conditions and procedures to follow. Section 80U of the Income Tax Act deals with tax deductions for citizens of India who are classified as disabled by the government. Any individual who has been a resident of India for the assessment year and suffers from at least 40% handicap as defined by the law is eligible for deductions under the Income Tax Act, 1961.

Determine the categories and sections under which you can claim an income tax deduction in advance, armed with this knowledge. This will enable you to pay less income tax at the end of the year. For more help get in touch with the Phoenixtax- Tax consultant in Chennai.