Income Tax Deductions Laws

The rate of income tax in India is as high as 30 percent, for individuals with income over Rs.5,00, 000. Such a large amount may prove financially burdensome for the average citizen.

However, it is possible to make significant tax savings with proper planning and budgeting. The Income Tax Act of 1946 has several provisions for tax deductions, helping to not only save on tax payments, but adopt appropriate savings and investment habits.

Basic Rules for Income Tax Deductions

The primary rule for claiming deduction is that this amount can not exceed the Gross Total Income (GTI).

Here, the GTI refers to the aggregate of income from different heads, including salary, house property and capital gains. Other stipulations for tax deductions are:

• Deduction can only be claimed by the assessee (tax-payer), and not by anyone else on his/her behalf
• The assessee must furnish copies of all relevant materials while making a claim.
• The deduction has to be ideally claimed within the current assessment year. Some claims can, however, be carried forward to the subsequent year. 

Income Tax Deduction Schemes

Investing in a pension plan, such as an annuity plan with Life Insurance Corporation, is the most popular avenue for claiming a tax deduction. The Income Tax Act, 1961 allows tax deductions on the premiums paid towards such schemes, subject to a cap of Rs.1,00,000/- on the claim amount. Also, bear in mind that the holder of such policy is liable to make tax payments on principal amount at the time of maturity. Other investments that qualify for income tax deductions are:

• Post office schemes
• Purchase of bonds and debentures of a public sector company or cooperative society
• Investment in government managed schemes, such as the national saving schemes and time deposit schemes
• Purchase of UTI and Mutual Fund units
• Investment in projects of welfare and development authorities