Understand Income Tax Deductions & Exemptions

‘Tax Benefit’ generally refers to any tax law that gives the taxpayers an opportunity to reduce the tax bill when they certify certain tax eligibility requirements. To the taxpayer’s aid, Tax Benefit comes in several forms like income tax deductions, exemptions, and credit. The amount of tax the taxpayer is able to save while filing their Income Tax Returns depends on the benefit claimed as different benefits offer different forms of saving. In this article, we will concentrate on Income Tax Deductions. 

The most prevalent type of Income Tax Benefit is the Income Tax Deduction. When a taxpayer claims an Income Tax Deduction, it lessens the amount of the taxpayer’s income that is subject to tax. The amount of the Income Tax Deduction that a taxpayer is eligible to claim is exactly the amount of the reduction made to the taxable income. Claimed often, Income Tax Deductions cover the cost of education and fees, medical expenditures, charitable donations/contributions as well as state income taxes. Yet another benefit to an Income Tax Deduction is that it reduces the taxpayer’s income, which is subjected to the highest tax brackets. 

An Income Tax Exemption provides the taxpayer with the ultimate tax benefit as the income does not end up on their tax return, and even if it does, it usually comes off in another section of the Income Tax Return. Exemptions typically classify specific types of income as tax-free. One of the largest Income Tax Exemptions available to taxpayers is the foreign earned income exemption. Unlike Income Tax Deductions, Income Tax Exemptions are not subject to limitations or reductions; the taxpayer must meet the requirements to exclude the income from taxation. 

Did you know, under Section 80G of the Income Tax Act, 1961 - any contributions made in the form of donations to certain relief funds and charitable institutions can be availed as an Income Tax Deduction? To avail of this benefit, a taxpayer must produce a standard receipt given by the trust/entity as an attestation of the donation/contribution made. In this receipt, one must ensure that it contains the name, address, PAN Number of the trust, the registration number of the trust, name of the donor and, the amount donated, written clearly in figures and words. These details are extremely crucial and will be required at the time of filing Income Tax Returns to claim deductions. 

Save the Children is present in 80 countries globally, working to make a difference in the lives of underprivileged children. They run solely on donations to sustain their projects and continue setting up many more, which is why a person’s support is vital. Any donation made by you – one-time or monthly, will be utilised by them to plan and implement projects that help benefit the disadvantaged children of our nation. 

All the donations made to Save the Children India are eligible for tax exemption under Section 80G of the Income Tax Act, 1961. To know more, visit https://supportapps.savethechildren.in/DonorSummary/.