The union finance minister Nirmala Sitraman, on Saturday at parliament, presented the annual budget of 2020, which brings out a new tax regime with more tax slabs and lower tax rates. This was the most awaited demand by most taxpayers, but it came with the motion of removal of all the deductions and exemptions available.
Adding to the lines on new regime, the finance minister gave taxpayers a choice between the new regime and existing one, leaving it to them to decide which they would be comfortable with. All these factors acting together, instead of tax laws getting simpler, they are now more complex to comprehend. While the tax rates are high, there are a lot of ways to reduce your tax liability.
Over the years the government, through addition of clauses to the Income Tax Act, has given Indian taxpayers over 70 exemptions and deduction options through which they can bring down their taxable income and hence pay less.
While exemptions are part of your salary, like the House Rent Allowance (HRA) and Leave Travel Allowance (LTA), deductions allow you to lower your tax amount by investing, saving or spending on specific items. The biggest section for deduction is Section 80c through which the payable can bring down the taxable income by Rs.1.5 lakh. Moreover, there are several other sections that brings tax deductions on things ranging from interest on loans (home and education) to premiums pay for health insurance.
Most common exemptions and deductions availed by Indian taxpayers.
House Rent Allowance
Leave Travel Allowance
Mobile and Internet Reimbursement
Food Coupons or Vouchers
Company Leased Car
Public Provident Fund
ELSS (Equity Linked Saving Scheme)
Employee Provident Fund
Life Insurance Premium
Principal and Interest component of Home Loan
Children Tuition Fees
Health Insurance Premiums
Investment in NPS
Tuition fee for Children
Saving Account Interest
Over the globe, Countries making tax income generally use one of two systems: –
The territorial system brings out, only local income – income from a source inside the country – is taxed. In the residence-based system, residents of the country are taxed on their worldwide (local and foreign) income, while nonresidents are taxed only on their local income. In addition, a small number of countries also tax the worldwide income of their nonresident citizens in some cases.
Countries with a residence-based system of taxation ( such as India) usually allow deductions or credits for the tax that residents already pay to other countries on their foreign income. Many countries also sign tax treaties with each other to eliminate or reduce double taxation. In the case of corporate income tax, some countries allow an exclusion or deferment of specific items of foreign income from the base of taxation.