Understanding Tax Deduction With the Help of a Tax Calculator

Understanding the concept of deductions and various sections can be daunting for first-time taxpayers, but the tax calculator can easily solve this task.

Navigating through the complexities of tax returns and deductions may seem complicated, but an online income tax calculator is a great way to bifurcate the actual taxable amount. These deductions help taxpayers to maximize their tax savings and exemptions by discovering various investment options.

Let's see how a tax calculator can assist you with a better understanding of tax deductions.

What is Tax Deduction?

Many people get confused between the terms exempt and deductions. Tax exemptions are offered when a taxpayer invests in a government scheme or program and receives a full exemption for a certain amount. For example, investing in the Senior Citizen Scheme fully exempts the interest gain.

On the other hand, deductions mean a partial reduction of payable tax. For example, you will get a tax deduction when paying for a home loan EMI.

The government collects tax through TDS, or tax-deducted sources, which are income sources that are taxed as soon as you earn them. Rather than requiring you to file, the government collects the tax quickly so that the tax collection can be done promptly. Individuals can file returns and claim for several deductions as per government sections.

Types of Tax Deduction

There are various deductions as a tax-paying citizen you can use to reduce payable tax and claim your return. These tax deductions are:

• Investing in PPF (public provident fund) under Section 80C Income Tax Act, 1961.
• Deduction for paying life insurance premiums under Section 80C.
• The amount invested in a National Saving Certificate is eligible for tax deduction.
• Investing in Post Office Time Deposit is also tax deducted.
• The Senior Citizen Saving Scheme provides deduction.
• Home loan EMI and Stamp Duty Charges come under tax deduction.
• ULIP plans, mutual funds, and equity-linked Saving schemes make you eligible for tax deductions.
• Medical insurance premiums, tuition fees paid, investing in retirement savings plans by LIC, and donating to charity under Section 80G Income Tax Act, 1961 all come under deductions.
• Additionally, bearing expenses for treatment to disabled dependents comes under deduction under the Section 80DD Income Tax Act 1961.
• Under 80EEB of the Income Tax Act, taxpayers can claim tax savings on interest paid for loans to purchase electric vehicles up to Rs 1.5 lakh.
• For the intellectual property owner, the government provides a deduction under Section 80RRB for royalty payment received on books, art, patent ideas, or inventions.

Apart from these deductions, the earlier government used to provide Rs 60,000 and Rs 80,000 deductions to both senior citizens and super senior citizens, respectively. That has now been changed to Rs 1 lakh for both under the new regime.

These tax deductions encourage citizens to make charitable contributions to society, which leads to the betterment of society. They also allow salaried taxpayers to discover new avenues of investment, such as real estate or government-launched schemes. With the help of an Online income tax calculator, here's how you can understand tax deductions.

How Tax Calculators Help in Understanding Tax Deductions

While filing your taxes, it is essential to pre-determine your precise and actual payable amount. An income tax calculator can help you do this. To determine the actual value, you are required to enter various deductions based on the sections mentioned above and schemes.

By entering such information, you'll learn your actual tax amount, and you'll also be able to find various exemptions under government schemes to help you with your financial planning.

Why Understanding Tax Deductions Could be Beneficial

If you are already aware of the actual payable tax amount, then you can prepare yourself with foolproof financial planning. Understanding all sorts of applicable tax deductions with the help of a tax calculator makes it convenient to allocate your funds accordingly and discover better investment options.