Income tax allowances and deductions are measures in tax law that allow taxpayers to decrease their taxable income and thereby lessen their tax burden. The allowance meaning in income tax is a specified amount of money deducted from a taxpayer's income before computing their tax due. The amount of tax deduction or allowance a person can claim is determined by their income level, kind of income, and expenses or investments made throughout the year.
Here are the different types of income tax deductions and allowances:
The interest paid on a house loan for a self-occupied property is deductible up to INR 2,00,000.
You can claim an income tax deduction of up to INR 25,000 for the medical insurance premiums paid for yourself, your spouse, and your children (unmarried). In addition, a deduction of up to INR 50,000 is allowed for senior citizens.
Under this section, you can claim a deduction of up to INR 1.5 Lakh annually for investments made in specified instruments such as Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF), National Savings Certificate (NSC), and Fixed Deposits (FD).
This section allows you to claim a deduction of up to INR 50,000 annually for investments made in the National Pension Scheme (NPS).
If you have taken an education loan, this section enables you to claim a deduction.
Several allowances are exempt from income tax, which means they are not counted toward the taxpayer's taxable income. Some of the most popular tax-free allowances are listed below:
A salaried individual living in a rented property can claim a deduction for HRA from their employer. The deduction is determined by the amount of rent paid and the city you live in.
Employers provide leave travel allowances to cover the costs of vacation travel for both employees and their families.
The purpose of this allowance is to help employees with their travel costs.
Here’s a table explaining the percentage of tax that a working professional has to pay:
Every taxpayer must understand income tax deductions and allowances to minimise taxable income and maximise their financial savings. More importantly, you must know how to manage your finances to avoid financial difficulties and pay your taxes and bills on time. With Fi Money, you can do all.
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Income tax deduction amounts vary depending on several variables, including the type of income and particular tax laws. You may deduct various expenditures, including investments, healthcare, and insurance premiums.
A maximum of INR 1.5 Lakh tax can be exempted as per the Income Tax law.
