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Income Tax deductions for 2019!

Often underestimating the economic conditions of the country is a poor state analyzing the self-growth.


Most countries employ a progressive income tax system in which higher-income earners pay a higher tax rate compared to their lower-income counterparts.

In USA, this was incorporated first, as Its original purpose was to fund the repayment of a $100 million debt incurred from war-related expenses. After the war, the tax was repealed and then reinstated during the early 20th century.

In the INDIA, the Internal Revenue Service (IRS) collects taxes and enforces tax law. The IRS employs a complex set of rules and regulations regarding re-portable and taxable income, deductions, credits, ET al.


Individual Income Tax

Because of exemptions, deductions and credits, most individuals do not pay taxes on all of their income. The IRS offers a series of deductions which taxpayers use to reduce their taxable income.

For example, if a taxpayer earns $100,000 in income and qualifies for $20,000 in deductions, the taxable income reduces to $80,000 ($100,000 – $20,000). Tax credits are used to reduce the taxpayer’s tax obligation or amount owed. To illustrate, if an individual owes $20,000 in taxes but qualifies for $4,500 in credits, his tax obligation reduces to $15,500 ($20,000 – $4,500).


Business Income Taxes

Businesses pay income taxes on their earnings; the IRS considers corporations, partnerships, self-employed contractors and small businesses as taxable entities.

These entities report their business income and then deduct their operating and capital expenses. The difference is their taxable business income.


How does income tax affect the country in the short run?

Economic activity reflects a balance between what people, businesses, and governments want to buy and what they want to sell. In the short run—focusing on the next one or two years—economic policy has greater impact on the demand side. When the economy is weak, for example, the Federal Reserve tries to boost consumer and business demand by cutting interest rates or purchasing financial securities. Congress, for its part, can boost demand by increasing spending and cutting taxes.


Tax cuts increase household demand by increasing workers’ take-home pay. Tax cuts can boost business demand by increasing firms’ after-tax cash flow, which can be used to pay dividends and expand activity, and by making hiring and investing more attractive.



How much tax cuts boost demand (or tax hikes restrain it) depends on the sensitivity of household and business behavior.

—For example, how households divide increased after-tax income between consumption and saving, and whether businesses choose to hire and invest more. Economists summarize these effects in a simple measure, the output multiplier, expressing how many dollars of increased economic activity result from a dollar reduction in taxes or a dollar increase in government spending. The Congressional Budget Office (CBO) has estimated such multipliers for a mix of tax and spending policies


How does Income tax affect the country in long run?

Economic activity reflects a balance between what people, businesses, and governments want to buy and what they want to sell. In the short run, demand factors loom large. In the long run, though, supply plays the primary role in determining economic potential.

Also, know that, our productive capacity depends on the size and skills of the workforce; the amount and quality of machines, buildings, vehicles, computers, and other physical capital that workers use; and the stock of knowledge and ideas.



Apart from the normal work incentives we have, the

By influencing incentives, taxes can affect both supply and demand factors. Reducing marginal tax rates on wages and salaries, for example, can induce people to work more. Expanding the earned income tax credit can bring more low-skilled workers into the labor force.

Lower marginal tax rates on the returns to assets (such as interest, dividends, and capital gains) can encourage saving. Reducing marginal tax rates on business income can cause some companies to invest domestically rather than abroad. Tax breaks for research can encourage the creation of new ideas that spill over to help the broader economy. And so on.

Note, however, that tax reductions can also have negative supply effects. If a cut increases workers’ after-tax income, some may choose to work less and take more leisure. This “income effect” pushes against the “substitution effect,” in which lower tax rates at the margin increase the financial reward of working.


Tax provisions can also distort how investment capital is deployed. Our current tax system, for example, favors housing over other types of investment. That differential likely induces over investment in housing and reduces economic output and social welfare.



Tax cuts can also slow long-run economic growth by increasing budget deficits. When the economy is operating near potential, government borrowing is financed by diverting some capital that would have gone into private investment or by borrowing from foreign investors. Government borrowing thus either crowds out private investment, reducing future productive capacity relative to what it could have been, or reduces how much of the future income from that investment goes to US residents. Either way, deficits can reduce future well-being.


The long-run effects of tax policies thus depend not only on their incentive effects but also on their budgetary effects. If Congress reduces marginal tax rates on individual incomes, for example, the long-run effects could be either positive or negative depending on whether the resulting impacts on saving and investment outweigh the potential drag from increased deficits.



That leaves open questions on how large incentive and deficit effects are, and how to model them for policy analysis. The Congressional Budget Office and the Joint Committee on Taxation each use multiple models that differ in assumptions about how forward-looking people are, how the INDIA connects to the global economy, how government borrowing affects private investment, and how businesses and individuals respond to tax changes.

Models used in other government agencies, in think tanks, and in academia vary even more. The one area of consensus is that the most pro-growth policies are those that improve incentives to work, save, invest, and innovate without driving up long-run deficits.


The Urban-Brookings Tax Policy Center (TPC) has developed its own economic model to analyze the long-run economic effects of tax proposals. In TPC’s model, simple reduced-form equations based on empirical analysis determine the impact of tax policy on labor supply, saving, and investment. TPC used this model to estimate the long-run economic and revenue effects of the Tax Cuts and Jobs Act.



Case study:

Does constructing a new house and applying for a bank loan will be categorized to income tax deduction on my home loan interest? or the second house?

You will be eligible for a deduction on the interest outgo on this house, provided the construction is completed within five years from the end of the financial year in which you took the home loan. The deduction can be availed starting the year in which the construction of the house is completed. The interest for the period during which the house was under construction can be availed in five equal installments after the construction is completed.

However, the overall loss one can claim under the head ‘house property’ is restricted to Rs 2 lakhs only.




Several banks offer loans for educational purpose. Apart from tuition fees, the loan could cover expenses like hostel charges, library /laboratory fees, travel expenses and passage money for studies abroad. The borrower can claim tax exemption on interest paid under Section 80 E. However, it comes with certain riders.


The loan should be taken from a bank, financial institution or a government-approved charitable institution for higher studies. Courses eligible for the deduction include graduation, post-graduation, professional courses and other courses approved by the UGC, the government or the AICTE. As far as studying abroad is concerned, loans can be availed for job-oriented graduation courses offered by reputed universities, post graduation courses like MS, MBA and MCA, and other professional courses.




Physical Verification of ITR:

There are chances you cannot verify ITR through electronic methods. You would have to send a signed copy of ITR-V to the IT Department. Before sending ITR-V take a look at these points:

The ITR-V is a document of one-page, which you must sign in blue ink. This could be sent through ordinary or speed post.

(You cannot courier this document). You don’t need to send any supporting documents.You get intimation via SMS on mobile and email ID after ITR is received by tax department.

This intimation is for ITR-V receipt and not for processing ITR.’CPC,

Who is most affected by tax changes this year?

Those most at risk for receiving less money in their tax refunds are taxpayers who itemize their deductions and have no dependents, homeowners in high tax states and employees who have reimbursed business expenses, according to Lynn Ebel, the director of the Tax Institute at H&R Block. Families with children under the age of 17 will likely get a higher refund, she says, because the child tax credit jumped in size under the law, to $2,000 per qualifying child plus a new $500 credit for other qualifying dependents.


That the number of people who will receive lower-than-usual tax refunds will grow is quite likely, says Mark Jaeger, he director of tax development at the tax preparation firm.


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