Deductions refer to specific expenses, investments, or contributions that can be subtracted from the total taxable income, resulting in a lower tax liability. They are provided under the provisions of the tax laws to incentivize certain activities, encourage savings and investments, or provide relief in specific situations.
Key Deductions commonly available to Taxpayers
Types of Deductions
Standard Deduction
- A fixed deduction allowed to individuals and/or salaried employees, which is a flat amount subtracted from the total income before calculating the taxable income.
- The standard deduction is a simplified deduction and does not require specific expenses or investments.
Specific Deductions
- These deductions are available for specific expenses, investments, or contributions made by taxpayers.
- Some common types include:
- Deductions for Medical Expenses: Deductions for medical treatment and health insurance premiums paid for self, spouse, children, or parents.
- Deductions for Home Loan Interest: Deductions for interest paid on home loans taken for the purchase, construction, or renovation of a residential property.
- Deductions for Education Expenses: Deductions for tuition fees paid for children’s education.
- Deductions for Charitable Contributions: Deductions for donations made to eligible charitable institutions or funds.
- Deductions for Retirement Savings: Deductions for contributions made to recognized retirement savings schemes such as the Employee Provident Fund (EPF), Public Provident Fund (PPF), or National Pension System (NPS).
- Deductions for Business Expenses: Deductions for business-related expenses incurred in generating income, such as rent, salaries, utilities, etc.
Limitations and Conditions
- Deductions are subject to specific limits and conditions set by the tax laws.
- Some deductions have a maximum limit or a percentage limit based on the amount spent or invested.
- Certain deductions may be available only to specific categories of taxpayers, such as senior citizens or individuals with disabilities.
Documentation and Proof
- Taxpayers need to maintain proper documentation and proof of the expenses, investments, or contributions for which deductions are claimed.
- Receipts, bills, certificates, or other supporting documents may be required to substantiate the claims during tax assessments or audits.
Filing and Claiming
- Deductions are claimed while filing the tax return by providing the necessary details and supporting documents.
- Taxpayers should accurately calculate and report the eligible deductions to benefit from the tax savings.
