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Deduction

Updated on April 16, 2021 , 380 views

What is a Deduction?

A deduction is one such expense that can be deducted from the gross Income of an individual or a married couple. The reason behind this subtraction is to decrease the amount that is generally subjected to income tax.

Deduction

Mostly, it is also referred to as an allowable deduction.

Explaining Deduction

In the country, salaried employees are the major chunk of taxpayers. And, their contribution to the collection of tax is quite substantial. In a way, income tax deductions provide several opportunities to save tax. With these deductions, it becomes easier to decrease the tax amount to a great extent.

The Standard Deduction

While putting the Union Budget 2018, the Indian Finance Minister announced a standard deduction that amounts to Rs. 40,000 for salaried individuals. However, back in 2019, this limit was increased to Rs. 50,000.

This was introduced in the place of medical reimbursement and transport allowance. As a result of it, now salaried individuals can get an additional income tax exemption of Rs. 5,800.

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Types of Deduction

Although the government allows claiming deductions in regards to several sections, here are a few essential ones that turn out to be helpful to a great extent.

Deduction for Higher Studies Loan (Section 80E)

The Income Tax Act offers a deduction on education loan interest. However, the condition to claim this deduction is that the loan should be taken from a financial institute or a Bank either by the person himself or his spouse.

Deduction for Donations (Section 80G)

This section helps an gain income tax deduction to assessee who donates to charitable trusts and organizations. This deduction generally varied on the Basis of the receiving organization.

Let’s take a deduction example here. Suppose that you earn Rs. 50,000 in a month and make a donation of Rs. 1,000 to an NGO every month. Thus, you will be eligible to claim your deduction for this donation, which will decrease your taxable income to Rs. 49,000.

Deduction on Interest of Savings Account (Section 80TTA)

This section provides a deduction of up to Rs. 10,000 on income that is earned from the interest on Savings Account. This exemption can be availed by HUFs and individuals. In case the income earned is less than Rs. 10,000; the whole amount can be deducted. And, if the amount is more than Rs. 10,000; the entire amount will be taxable.

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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