What are Tax Deductions?
Tax deduction refers to claims for the deduction of eligible tax expenses from a person’s taxable income. Deductions in tax law are an essential part of changing an individual’s or a corporation’s taxable gross income into the net income that will be taxed.
In general, a taxpayer can take deductions for expenses that were incurred during the tax year for which the return is being filed.
What is the Difference Between a Tax Deduction and Tax Exemption?
Both the terms ‘tax deduction’ and ‘tax exemption‘ refer to situations where you can reduce your taxable income, thereby lowering your tax liability.
The main difference between tax deductions and tax exemptions is that a deduction reduces your taxable income while an exemption removes you or some of your income from paying taxes entirely.
For instance, if you have a taxable income of 100,000 and a tax deduction of 10,000 including non-salary tax deductions as per form 26q, then you will only be taxed on 90,000. The lower your taxable income, the less tax you need to pay. You can visit Khatabook to know more about form 26q.
Helps You Save
Tax deductions are good for both your wallet and the economy. Deductions reduce an amount from your taxable income, which, in turn, reduces the amount of tax you owe to the government. The more deductible expenses you have, the fewer taxes you have to pay. When you spend money on a deductible item, it also supports businesses, which keeps the economy strong.
Allows Planning Spending in Other Areas
it helps you master the art of managing your finances and helps you save and invest money in other areas. It is a form of income tax allocation that you can use to lower the actual amount of taxes you need to pay. If you are aware of how much will be deducted from your taxable income, then you may be able to adjust your withholding and increase your take-home pay during the rest of the year.
Encourages Good Behaviour
Depending on the laws at the time you can invest your money in essential areas like education, medicine, charitable purposes and in turn claim deductions., This, in turn, encourages positive and society-favoring activities.
What is Tax Deducted at Source?
TDS is often an overlooked concept, especially for people working in companies. Employees apply for things like EPFO mobile number change just because their HR told them without even knowing the details of epfo. Similar is the case with TDS, everyone knows there is a deduction but is not sure what it is. So let’s simplify the meaning of TDS.
To collect tax efficiently and quickly, India’s Income Tax Act has empowered Government to collect taxes at the source itself. As per this provision, a certain percentage of the payment made by you to another party (say a contractor, vendor, etc.) may be deducted as tax and paid to the Government. This tax deducted is treated as advance payment of income tax. The party from whom tax is deducted need not file for the same income again. He just needs to claim credit for the TDS amount in his return of income.