Tax deductions are amounts that taxpayers can subtract from their taxable income, thereby reducing the amount of income subject to taxation. Tax deductions are generally expenses incurred by a taxpayer that the government deems eligible to reduce taxable income. These expenditures are often related to specific activities or behaviors that the government wants to encourage or support.
Various Categories of Income Tax Deductions in India
In India, there are various types of income tax deductions available to individuals and businesses. Here are some common ones:
Standard Deduction: Salaried individuals are eligible for standard deduction on their gross salary income up to a certain limit. This cut was re-introduced in the budget in place of the earlier transport allowance and medical reimbursement.
Life Insurance Premiums: Individuals can claim deduction on premiums paid for life insurance policies for themselves, their spouse and dependent children under Section 80C of the Income Tax Act.
Bank Fixed Deposits (FDs): Interest earned on bank fixed deposits is taxable as per the income tax slab of the individual. However, individuals can claim deduction on investments made in tax-saving fixed deposits under Section 80C of the Income Tax Act.
Education Expenses: Deduction can be claimed under Section 80C of the Income Tax Act on tuition fees paid for the education of up to two children. This deduction covers fees paid to any school, college, university or educational institution located in India.
Donations: Contributions made to eligible charitable organizations and certain government funds are deductible under section 80G of the Income Tax Act. Taxpayers can claim deduction ranging from 50% to 100% of the amount donated, subject to specified limits and conditions.
Public Provident Fund (PPF): Contributions made to the Public Provident Fund (PPF) are eligible for deduction under Section 80C of the Income Tax Act. The interest earned and maturity amount on PPF is tax-free, making it a popular tax-saving investment option.
Senior Citizen Savings Scheme (SCSS): Senior citizens can invest in the Senior Citizens Savings Scheme (SCSS) and claim deduction under Section 80C of the Income Tax Act. Interest earned on SCSS deposits is taxable, but eligible for investment deduction.
Mutual Funds and ELS: Investments made in Equity Linked Savings Scheme (ELSS) of mutual funds are eligible for deduction under Section 80C of the Income Tax Act. ELSS funds offer tax benefits as well as capital growth potential.
Retirement Savings Plan: Contributions made to retirement savings schemes like the National Pension System (NPS) are eligible for deduction under the Income Tax Act.
Stamp Duty and Registration: Taxpayers can claim deduction on stamp duty and registration fees paid for purchase of residential property under section 80C of the Income Tax Act, subject to specified limits.
National Pension System (NPS): Contributions made to the National Pension System (NPS) are eligible for deduction under the Income Tax Act.
