Income tax deductions:
Tax deductions are the legal methods to save your taxable salary. The tax deductions are also called tax breaks. The benefits of tax deductions apply for people with taxable income. Filing income tax returns (ITR) help to acquire tax deductions. Want to measure the value of a tax deduction? Just multiply the size of the tax deduction with the rate of your tax bracket.
What is income tax?:
Income tax depends on your status, salary, residency (NRI or Indian residents), and age. The government gains most of its income through taxes of the citizens. Hence, every person paying tax is contributing to the development of the nation. That makes him a responsible citizen. Collected income tax increased from 6.95 lakh-crores to 11.37 lakh-crores in the last five years.
Advantages of tax deductions:
- One pays less tax to the government.
- You can use the amount saved through tax deductions for additional purposes. Then invest it to increase wealth.
- It gives a better sense of right over the income that you earn.
Income tax deductions and new tax slab:
The Government of India removed nearly seventy income tax deductions under the new tax regime. If you opt for the new tax regime, the deductions like LTA (Leave Travel Allowance) are not applicable. Same for HRA (House Rent Allowance – 80GG) and 80C (Investments). You can choose between the old and new tax regime. Opt the one which is ideal for you. The old tax regime is better for people claiming income tax deductions.
Lesser-known tax deductions:
Renting your parents’ house:
Paying rent to your parent’s empowers you to acquire a tax break under the segment 10(13A). On the chance that you are remaining in your parents’ house, and paying rent to them, you can guarantee tax deduction. You have to present the lease receipt with the name of the proprietor and the rent paid. You also may have to indicate the PAN (Permanent Account Number) of the house owner. This is applicable only if the measure of lease surpasses one lakh rupees for every annum. If your lease is short of one lakh rupees, you don’t have to submit the PAN number of your landlord. As it is you are in any case obligated to your parents for all that they accomplished for you. So you can contribute while deducting tax!
2. House registration:
A house purchaser can file tax exclusion on the stamp obligation and a part of registration costs while buying a home. This tax deduction falls under the segment 80C. The highest limit of one-lakh fifty thousand is pertinent. Apply for this tax break just in the time of documenting your assessment form (ITR). This derivation gives a lift to individuals needing to purchase a house. Satisfy your fantasy about possessing a house and profit this tax exclusion!
3. Medical expenses of parents:
A tax deduction is available for your parents’ treatment. You can apply for the deduction of the costs of medical expenses. This income tax deduction falls under section 80D. You can expect a deduction of fifty thousand. This deduction is applicable only if your parents do not have a health insurance policy.
4. The interest you pay on educational loans:
One can obtain a tax deduction on the interest paid on educational loans. People pursuing higher education can apply for this. So can people paying the interest of the loan as a legal guardian. The deduction falls under section 80E. You can claim the deduction from the year of payment of interest.
5. Infrastructure bonds:
The government periodically issues infrastructure bonds to generate funds for development. Taxpayers can avail exemption on investing in these bonds. One can find a list of these bonds in the National Stock Exchange (NSE) website. The same can be found in the Bombay Stock Exchange (BSE) website. To avail tax deduction on these infrastructure bonds, an upper limit of rupees two lakhs is available. This deduction falls under section 80 CCF.
6. Tax break on charity:
Income taxpayer can file exemption on donations to recognized charitable organizations in the income tax return (ITR). There is no upper limit for the donations for an income tax deduction. One must donate any amount exceeding Rs.2000 in any form other than cash to avail the income tax deduction. Donations made to certain funds like Prime Minister Relief Fund, Rajiv Gandhi Fund, etc. are fifty per cent deductible. This income tax deduction falls under section 80G.
7. Interest on deposits by senior citizens:
Senior citizens (people aged above sixty years) can avail income tax deduction on their deposits. TAX deduction on the interest obtained through these from banks or post-offices is present. The limit of exemption is fifty thousand. This tax break falls under section 80TTB of the income tax act.
8. Leave encashment salary:
An employee who does not avail the number of leaves during a calendar year can encash them. He or she can encash these at the time of retirement. An income tax deduction is available on this terminal deduction. This income tax deduction falls under section 10(10 AA), and also section 89.
Gratuity is another terminal benefit. It means that an employee receives this benefit while leaving the job or after retirement, after certain years of service. This amount is eligible for an income tax deduction. However, some rules apply. The upper limit to avail the income tax deduction is twenty lakh rupees. It falls under section 10(10) of income tax.
10. Commutation of pension:
Commutation of pension is drawing some portion of the pension in advance. The retiring employees may seek to commute their pension and take advance pension for the purpose of resettlement. In the meanwhile, the employer pays the remaining amount of pension until the commutation period ends. Such a commuted pension is eligible for an income tax deduction for government employees. Half of the commuted pension of non-government employees is applicable for an income tax deduction.
In the recent online calculators like ETMoney help to file tax returns. Taxpayers should ensure that the returns filed for income tax deductions are accurate and have supportive documents, receipts, etc.