We know that five heads of Income combine to form Gross Total Income

Out of these,Certain Items called Deductions are reduced to arrive at Net total Income.

Tax is imposed on this Net total income as shown below

 

Particulars Amt
Income from Salaries xx
Income from House Property xx
Profits and Gains of Business and Profession xx
Income from Capital Gains xx
Income from Other Sources xx
Gross Total Income xx
Less   
Deductions under Chapter VIA xx
Net Total Income  
Tax on Net total Income xx

hence Deductions lead to decrease in Income and hence decrease in tax

Hence these are beneficial to the assessee

Lets study these in detail here  

 

Example

Suppose a person has Taxable Salary Income of 500000 and Interest Income of 20000

He has invested 50000 in Life Insurance for which deduction is available in Income Tax

What is his Gross Total Income and Net Total Income

Answer

Particulars Amt
Income from Salaries 500000
Income from House Property  
Profits and Gains of Business and Profession  
Income from Capital Gains  
Income from Other Sources 20000
Gross Total Income 520000
Less   
Deductions under Chapter VIA 50000
Net Total Income  
Tax on Net total Income 470000
  1. Income Tax
  2. Deductions Under Chapter VIA

About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 10 years. He also provides Accounts Tax GST Training in Delhi and Pune.