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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 |
