The most common tax deductions and exemptions you may not know about!

India's tax laws allow various deductions and exemptions to individuals and businesses to help reduce their taxable income and ultimately, their tax liability. By understanding these deductions and exemptions, one can effectively plan their finances and taxes. Here's a brief overview of deductions and exemptions in India.

Deductions

Deductions are expenses that can be subtracted from an individual's gross total income to reduce the taxable income. The Income Tax Act provides for various deductions, some of which are:

1. Section 80C: This section provides a deduction of up to Rs 1.5 lakh for investments in various instruments such as Public Provident Fund (PPF), National Pension System (NPS), Equity-Linked Savings Scheme (ELSS), and life insurance premiums.

2. Section 80D: This section provides a deduction for medical insurance premiums paid for self, spouse, and children up to Rs 25,000. For senior citizens, the deduction limit is up to Rs 50,000.

3. Section 80E: This section provides a deduction for interest paid on education loans for higher studies.

4. Section 80TTA: This section provides a deduction for interest earned on savings accounts up to Rs 10,000.

Exemptions

Exemptions refer to income that is exempt from tax. The Income Tax Act provides for various exemptions, some of which are:

1. House Rent Allowance (HRA): If an individual receives HRA from their employer, they can claim an exemption under Section 10(13A) of the Income Tax Act. The exemption is the least of the actual HRA received, 50% of salary for individuals living in metro cities, and 40% of salary for individuals living in non-metro cities.

2. Leave Travel Allowance (LTA): An exemption can be claimed for expenses incurred for travel within India. The exemption is available for two trips in a block of four years, and the exemption is the least of the actual expenses incurred, economy class airfare, or prescribed limits.

3. Agriculture Income: Agricultural income is exempt from tax in India.

4. Long-term capital gains: Long-term capital gains from the sale of equity shares and equity-oriented mutual funds are exempt from tax if they are held for more than one year.

Deductions and Exemptions are essential tools that individuals and businesses can use to reduce their taxable income and ultimately, their tax liability. It is important to note that there are certain conditions that must be fulfilled to avail of these deductions and exemptions, and it is always advisable to consult a tax professional or financial advisor for guidance on tax planning and investments. By proper tax planning and investment, one can effectively utilize these deductions and exemptions and save taxes legally.