TaxFinancial Glossary
Deduction (Tax)
Definition
An amount subtracted from your gross total income to arrive at taxable income. Common deductions include Section 80C (Rs 1.5 lakh for PPF, ELSS, EPF, etc.), Section 80D (health insurance premiums), and Section 80CCD(1B) (Rs 50,000 for NPS). Deductions reduce taxable income, not tax payable directly.
Why It Matters
A Rs 1.5 lakh deduction under Section 80C does not save you Rs 1.5 lakh in tax — it saves you Rs 1.5 lakh multiplied by your marginal tax rate. At the 30% slab, the actual tax saving is Rs 46,800 (including cess). Understanding this distinction prevents overestimating the benefit of tax-saving investments.