Income tax is a tax that is imposed by the government on individuals and businesses alike on the income they earn in an entire fiscal year. It is compulsory for every individual to file their annual income tax and pay their due, anyone who fails to do so could face criminal prosecution. The purpose of the taxes paid by citizens in a country acts as a source of revenue for the government. With the help of this revenue, the government focuses on what is known as capital expenditure. Capital expenses are the ones where the government focuses on the betterment of its citizens by building amenities like, airports, railways, roads, bridges, schools, colleges, factories, etc.
Some people may think that after calculations the amount of money they have to pay as taxes may seem like a big number. But there is a way around it. That is what we call income tax deduction. Income tax deduction gives a salary class individual an opportunity to save taxes. This year at the annual union budget, the government announced some new tax structures by adding a few income tax slabs and modifying the rates. After looking at them, the taxes may seem increased but the deductions and exemptions will help reduce your taxes substantially. So here is a list of some major deductions that you should keep in mind while filing the taxes.
- Exemption of House Rent Allowances
A salaried individual who lives in a rented apartment can claim the benefit of House Rent Allowance (HRA) while filing your taxes. The rent that you pay can be partially or completely reduced from your income tax. But if you are not living in a rented house and still continue to receive HRA, then the amount will be taxable. Just make sure you save the receipts and paperwork related to your rent that could be served as proof while filing income tax.
- Medical Insurance Deduction
People often buy medical insurance for their own health, their family’s health and their dependent parents. And pay their premiums on a regular basis. Medical Insurance Deduction or Section 80D can be claimed on the premiums you pay while filing your income tax. If your employer pays your premiums on your behalf, it is still eligible for deduction.
- Interest on home loan (section 80C and section 24)
Homeowners have an option to claim almost Rs. 2 lac as a deduction for the interest on the home loan and self-occupied properties. This is one of the most widely used tax saving tools. If the house property is let out, you can claim a deduction for the entire interest pertaining to such a home loan.
- Deduction on loan from higher studies (section 80E)
Income tax act allows the deduction of interest on education loans. The only condition attached to this is that the loan should be taken from a financial institution for the purpose of pursuing higher education in India or abroad by the individual claiming it or by his/her spouse and children. A legal guardian can also avail this tax deduction.
- Deduction on donation (section 80G)
Charity is one of the noblest of all expenditures. Under section 80G of the income tax act 1961, any individual who makes a donation to a charitable organization can claim a tax deduction. The assessee can avail a deduction of 50% to 100% of the amount donated, with or without any restrictions.
- Standard Deduction
During the union budget of 2018, the government announced a standard deduction of Rs. 40000 for salaried employees. The limit of Rs. 40000 was then increased to Rs. 50000 during the annual union budget of the year 2019.
There are many more ways of income tax deduction than the ones mentioned above. So the next time you file your income tax, research a little about the deductions. You will end up saving a lot of money in the longer run.