How to save tax using exemptions and deductions?

Learn how you can save more through smart use of tax exemptions and deductions. This guide will help you save more and pay less tax.

Taxes are something everyone has to deal with, and understanding how they work can make a big difference in how much you actually pay. By using tax exemptions and deductions wisely, you can significantly reduce your taxable income.

But first, what are these terms?

Taxable Income

This is the portion of your income that is subject to income tax. Yes, not everything you earn is directly taxable.

Tax Exemptions

Tax exemptions are specific parts of your income that are not taxable. Certain allowances or parts of your salary are exempt (subtracted) from being taxed, reducing your total taxable income.

Here are a few common Tax exemptions

Tax Deductions

These are expenses or investments you can subtract from your income. These are not part of your salary. You get them by investing, saving, or spending on specified avenues. So basically you need to spend money (expense/invest) to claim them.

Here are a few common deductions

Let’s understand with an example

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Example

Here’s annual income and deductible expenses of Rajesh, a product manager, living in Mumbai:

Total Deductions + Exemptions

Taxable Income Calculation

‍Note: New tax regime has a higher standard deduction amount and lower tax rates, but most of the exemptions and deductions are not applicable.

Wondering which tax regime to choose?

The choice between the old and new regime largely depends on your income level and the amount of deductions and exemptions you can claim.
Here are a few calculations that can help you decide between the old vs the new tax regime:

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Summary

To make your life easier, we have summarised the above Read here. Hope you enjoyed it!