Income Tax Deduction
Income tax is a form of direct taxes imposed by the federal or state governments of a particular country upon the citizens or legal entities of the state. Income tax can mainly take two forms, i.e. a personal income tax or a corporate income tax. It is a direct levy on the entities of the state and thus the most difficult to avoid on their part.
Most of the countries of the world impose a progressive tax system where the amount of tax paid increases with the amount of income. Although income tax evasion can be observed in many countries, it still remains the most popular mode of direct taxation.
Income Tax Deductions can be referred to Tax Deductible Expenses which can reduce the amount of taxable income or can mean Tax Deductions at Source (TDS) which merely mean that eligible taxes are deducted from income of the “assessee” when it is paid to him by his employer. Tax deductible expenses can include charitable contributions made to welfare organizations which can reduce the amount of taxable income. As taxes are a fraction of the amount of taxable income, these sorts of schemes allow individuals to pay less amounts of taxes.
For example, income tax deductions can be availed under the following heads under the Federal Tax System in place in the USA:
Exemptions: These will include earnings made from life insurance contracts, earnings from gifts and inheritances and interest from state and municipal bonds.
Standardized Deductions: When individuals have minimal “below-the-line” deductions, standardized deductions are allowed to the tune of $4850 when filing tax returns singly even in case of marriage. For married couples filing joint returns this figure is $9700 and for qualifying widower with dependent child standardized deductions are allowed up to $9500.
Itemized Deductions: Casualty losses, interest paid on mortgage, medical expenses incurred and property taxes fall under its ambit.
Miscellaneous Itemized Deductions: These will include charitable contributions with losses incurred, taxes paid and interest paid.
It should be noted in this context that the Federal Tax System is administered by the Internal Revenue Service (IRS) in accordance with the Internal Revenue Code of 1986 under the Department of Treasury and taxable income is arrived at by deducting itemized and standardized contributions from the Adjusted Gross Income of the individuals. Owing to most of the charitable contributions being non-itemized in nature, the department also plans to bring these contributions under the ambit of deductible expenses.
The Indian tax system in accordance with the Income Tax Act, 1961 and its subsequent amendments provides for tax deductions at source for all positive salaries under any head of income. According to the Income Tax Department, under the Department of Revenue, Ministry of Finance, income from capital gains is also taxed under Income Tax Laws. Interest on securities, interest other than interest on securities, winning from lottery or horse races is liable to income tax deductions at source also including payments for commission brokerage and payment in respect of Deposits under the National Savings Scheme (NSS).
Tax deductions at source allows the employers to make the tax payment on part of the employee with the Income Tax Department which will be deemed as payment of the applicable tax in time of assessment by the Department. Income tax exemptions or reliefs under the Indian tax system include application for registration with charitable or religious trusts, accumulation of income of these organizations and investment undertaken by these trusts or bodies. Investment on profits of certain developmental activities like construction of highways and industrial parks are exempt from income taxes in India.
In case of UK, Her Majesty Department of Revenue and Customs (HMRC), tax deductible expenses are allowed on certain expenses necessary to complete the work from which income was derived. These may include professional subscriptions and mileage and other expenses and part of home expenses where the house was used to derive some part of income.
The Australian Taxation Office generally allows for tax deductible expenses where activities for the future generations of profits arising from personal or business investment are not taxed. This may include loans to buy company shares.
In conclusion, it might be stated that income tax deductions or exemptions and reliefs is an integral part of the governments’ monetary policy to keep stability in the economy.
Income tax is a form of direct taxes imposed by the federal or state governments of a particular country upon the citizens or legal entities of the state. Income tax can mainly take two forms, i.e. a personal income tax or a corporate income tax. It is a direct levy on the entities of the state and thus the most difficult to avoid on their part.
Most of the countries of the world impose a progressive tax system where the amount of tax paid increases with the amount of income. Although income tax evasion can be observed in many countries, it still remains the most popular mode of direct taxation.
Income Tax Deductions can be referred to Tax Deductible Expenses which can reduce the amount of taxable income or can mean Tax Deductions at Source (TDS) which merely mean that eligible taxes are deducted from income of the “assessee” when it is paid to him by his employer. Tax deductible expenses can include charitable contributions made to welfare organizations which can reduce the amount of taxable income. As taxes are a fraction of the amount of taxable income, these sorts of schemes allow individuals to pay less amounts of taxes.
For example, income tax deductions can be availed under the following heads under the Federal Tax System in place in the USA:
Exemptions: These will include earnings made from life insurance contracts, earnings from gifts and inheritances and interest from state and municipal bonds.
Standardized Deductions: When individuals have minimal “below-the-line” deductions, standardized deductions are allowed to the tune of $4850 when filing tax returns singly even in case of marriage. For married couples filing joint returns this figure is $9700 and for qualifying widower with dependent child standardized deductions are allowed up to $9500.
Itemized Deductions: Casualty losses, interest paid on mortgage, medical expenses incurred and property taxes fall under its ambit.
Miscellaneous Itemized Deductions: These will include charitable contributions with losses incurred, taxes paid and interest paid.
It should be noted in this context that the Federal Tax System is administered by the Internal Revenue Service (IRS) in accordance with the Internal Revenue Code of 1986 under the Department of Treasury and taxable income is arrived at by deducting itemized and standardized contributions from the Adjusted Gross Income of the individuals. Owing to most of the charitable contributions being non-itemized in nature, the department also plans to bring these contributions under the ambit of deductible expenses.
The Indian tax system in accordance with the Income Tax Act, 1961 and its subsequent amendments provides for tax deductions at source for all positive salaries under any head of income. According to the Income Tax Department, under the Department of Revenue, Ministry of Finance, income from capital gains is also taxed under Income Tax Laws. Interest on securities, interest other than interest on securities, winning from lottery or horse races is liable to income tax deductions at source also including payments for commission brokerage and payment in respect of Deposits under the National Savings Scheme (NSS).
Tax deductions at source allows the employers to make the tax payment on part of the employee with the Income Tax Department which will be deemed as payment of the applicable tax in time of assessment by the Department. Income tax exemptions or reliefs under the Indian tax system include application for registration with charitable or religious trusts, accumulation of income of these organizations and investment undertaken by these trusts or bodies. Investment on profits of certain developmental activities like construction of highways and industrial parks are exempt from income taxes in India.
In case of UK, Her Majesty Department of Revenue and Customs (HMRC), tax deductible expenses are allowed on certain expenses necessary to complete the work from which income was derived. These may include professional subscriptions and mileage and other expenses and part of home expenses where the house was used to derive some part of income.
The Australian Taxation Office generally allows for tax deductible expenses where activities for the future generations of profits arising from personal or business investment are not taxed. This may include loans to buy company shares.
In conclusion, it might be stated that income tax deductions or exemptions and reliefs is an integral part of the governments’ monetary policy to keep stability in the economy.