What is a tax deduction?

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1.      What is a tax deduction?


A tax deduction is simply an item that helps you reduce your taxable income by the amount of the deduction. So by utilizing that particular deduction, you can reduce the amount of income tax by reducing the amount of your taxable income.

For example: If you have a taxable income of Rs. 2,50,000 for the financial year, and you invest Rs. 70,000 in PPF and Rs. 30,000 in Equity Linked Savings Schemes, then your taxable income is: Gross Taxable Income: Rs. 2,50,000

Deductions:
PPF: Rs. 70,000
ELSS: Rs. 30,000
Total Deductions: Rs. 1,00,000
Net Taxable Income: Rs. 1,50,000

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