Managing Income Tax

Introduction

This guide explains how tax deductions and declarations work under the Indian Income Tax Act. You’ll learn what deductions are available, why they exist, and how employees can declare them to reduce taxable income.

Who is this Article for?

• Payroll Admins – Learn how to set up declaration cut-off dates and manage employee declarations.

• Employees – Understand how to submit tax declarations and optimize your tax liability in Keka.

What are Tax Deductions?

Under the Income Tax Act, individuals can claim certain deductions from their taxable income. These deductions reduce the portion of income subject to tax, which lowers the overall tax liability.

Deductions can include:

• Standard Deduction

• Chapter VI-A deductions (Sections 80C to 80U)

• Deductions for specific income, such as interest on home loans

• Tax-exempt allowances, like HRA or LTA

Why are the Deductions Provided?

The government offers deductions to encourage specific financial behaviors, such as saving for retirement, investing in certain funds, or paying for health insurance. These incentives align personal spending with broader economic and social goals.

What are Tax Declarations?

A tax declaration is when an employee informs their employer about planned investments or expenses that qualify for deductions.

Declaring this information allows the employer to adjust monthly TDS (Tax Deducted at Source), so the employee’s take-home pay reflects the reduced tax liability.

Types of Deductions Available

The Indian tax system offers two regimes:

• Old Tax Regime – Higher tax rates but a wide range of deductions.

• New Tax Regime – Lower tax rates but fewer deductions.

Comparison of Deductions under Old vs New Regime