What is a Tax Deduction
Every employee is liable to pay certain taxes that are due for. Such an amount that is deducted from the tax payer’s salary is known as tax deduction. A tax deduction is generally a boon to the employee’s, since it helps them in reducing their taxes by a certain percentage. This is usually dependent upon their income band. Usually individuals are given tax deduction based on the salary bracket they fall into.
Independent business personal’s tax deductions are of great benefit to individuals; here half the amount of social security and medical expenses can be deducted from the income. It also helps them in use these deductions to take away from their business expenses in general. These general costs include cost to set up home office, health and medical expenses etc. But for those individuals who get both self employment income and salary income the calculation will be different. In such cases the salary income will be taxed for social security and medical expenses.
Independent professionals pay both the employer’s and employee’s portion of social security and medical insurance amount. Hence for this reason they are allowed to deduct half of the total sum of both social security and medical insurance paid by them. This amount has to be deducted from the gross salary, in this case only income tax amount varies for deduction. The general business expenses or deductions is very delicate, hence they need to be documented.
Sometimes even telephone and internet expenses may also be claimed for deduction provided they are used only for business purpose. For this reason all the receipts and phone bills are to be carefully documented to claim deduction on them. This implies only to self employed individuals. The types of tax deductions depend on the economy’s tax system. In India we have something called Tax deducted at source. There are various types of income for which tax is deducted at source.
It is very important for every individual to know the category of income they fall into so that they have an idea on what type of income tax is deducted at source. The following types of income will come under the bracket of tax deduction at source.
- Salaries that come under section 192 of IRS
- Section 193 which deals with interest on securities.
- Other interests received under section 194A
- Lottery winning under section 194B
- Rent received that exceeds that limit of Rs. 120000 under section 194I
- Any income of the kind of foreign currency section 196C
- Commission on insurance for agents under 194D
The list goes on; every citizen has a right to know what kind of tax deduction he or she is eligible for.