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5 Common Income Tax Deductions Every Taxpayer Should Know About

Fri Apr 07 2023

Recently, India recorded strong growth in direct tax collection for the financial year FY23. The net collections stood at ₹16.61 crores in the said fiscal, registering an increase of 17.63% YoY. Also, the collections have exceeded budgeted estimates by a whopping ₹2.41 lakh crore.

In India, particularly, the middle-class segment pays a significant amount of money from their salaries towards Income Tax, which the government uses to provide facilities to the citizens of India. 

The government has given s few provisions to help people save their taxes. Individuals can lower their tax liability and keep their taxes through a tax deduction. Let's understand it through this article.

What is Tax Deduction?

As a taxpayer, you can invest in numerous investments and expenses during the financial year, and once you claim them, they are considered tax deductions. It is a benefit that helps reduce your overall tax liability. The government has set a limit and amount that can be claimed as tax deductions, depending on the benefit type.

In case of tax deduction, you must invest in various schemes such as paying for life insurance policies, home loan EMIs, fixed deposits, tuition fees, etc. 

Various Kinds of Tax Deductions

The government of India has launched several ways through which a taxpayer can reduce their taxable income and increase tax deductions. These tax deductions are under different sections, such as 80C, 80CCF, 80G, 80D, 80DD, 80E, etc. Here are the top five standard Income tax deductions for your reference:

1. Public Provident Fund

As per Indian Income Tax Act, 1961, if a taxpayer contributes towards their public provident fund (PPF), they are eligible for tax deduction benefits of up to Rs. 1.5 lakh under section 80 C. 

2. Premiums on Life Insurance Policies

As per the Indian Income tax act, taxpayers can get income tax deductions by paying life insurance premiums for themselves, their spouses, and their children. It is also claimed under Section 80C, and the amount received on the policy's maturity is tax-free. It also depends on the terms and conditions mentioned in the life insurance policy.

3. Fixed Deposits (FD)

Many Indian banks offer tax savings on fixed deposit schemes. For example, a taxpayer can get tax deductions by investing in a five-year bank fixed deposit under section 80 C. But remember, the interest a taxpayer will earn on their fixed deposit will be subject to tax.

4. Tuition Fee

Parents of children studying in an Indian School, University, or College are eligible for tax deduction benefits on their tuition fees. The tuition fee can be claimed under section 80C of the Indian Income tax act. 

However, it should be underlined that the price must go towards providing any two children with a full-time education. Additionally, any amount paid towards the development of the educational institute or donation is not considered under tuition fee and cannot be claimed.

5. House Rent

Salaried taxpayers who don't stay in their accommodation and stay in a rented place are eligible for tax deductions on the house rent they pay during the financial year. These deductions are covered under section 80GG of the Indian income tax act. Employees will need to show rent receipts as a part of the proof to claim these deductions.

Benefits of Tax Deductions

Here are some of the benefits of tax deductions:

  1. With the help of tax deductions, taxpayers can save a significant amount from their taxable income, thus saving on taxes paid.
  2. A taxpayer can save money by investing in different areas that can be claimed under tax deductions.
  3. The saved money can be used for future investments to increase income.

To Sum it up

Tax is an essential element that every earning person has to pay. The more the person earns, the higher will be the tax slabs. To manage and save on the potential tax that one needs to pay during the financial year, the Indian government has taken out specific provisions. 

According to those provisions, the taxpayer can invest and avail of claims and benefits under the different sections of the Indian Income Tax Act, 1961.

byKiruthika AS

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