Taxable income is deducted from some of the total income of taxpayers. These help in reducing the total taxable income.
Several types of tax benefits are available under the Income Tax Act. They help in reducing your tax liability. Anyone can take advantage of them. Come, let’s know about them here.
1. Exemption: It means expenditure, income or investment that is not taxed. This reduces your total taxable income. For example, dividends from equity shares and mutual funds are exempt from tax. There is no need to pay any tax on such income.
2. Deductions: Taxable income is deducted from some of the total income of taxpayers. Investment up to Rs 1,50,000 under section 80C, Mediclaim for self / parent under section 80D, Interest on loan for higher education of self / relative under section 80E, Donation taxable income given under 80G Subtract from
3. Rebate: The amount left after exemption and deduction is called total taxable income. This is the tax liability. After the tax is calculated, rebate gives relief to the amount paid as income tax. This is the amount of tax that is not required to be paid to the taxpayer. If a rebate is received due to certain type of investment, then the actual tax due after the calculation of income tax is reduced.
4. Allowance: These are given in addition to salary. These are given to meet certain expenses. Some of the common types of allowances include DA, House Rent, LTA, Education, Medical Transport etc.
5. Indexation: It is used to adjust the purchase price of the investment. Its purpose is to include the effect of inflation in investment. Indexation helps reduce long term capital gains. This helps in reducing taxable income.
Contents of this page courtesy the Center for Investment Education and Learning (CIEL). Contribution of Girija Gadre, Aarti Bhargava and Labdi Mehta.
Also Read: How can you check your income tax refund status see full process
