What is Tax Shield?

As I mentioned earlier, the tax shield meaning is a reduction in taxable income achieved through claiming allowable deductions under Indian tax laws. It effectively lowers the total tax liability by utilizing specific expenses, investments, or costs to reduce taxable income. In India, various tax-saving provisions act as tax shields for individuals and businesses. Common examples include:

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1. Under Section 24(b) of the Income Tax Act, individuals can claim a deduction on home loan interest payments up to Rs2 lakh per annum.

2. Investments under Section 80C: Investments like ELSS funds, Public Provident Fund (PPF), National Savings Certificates (NSC), and life insurance premiums qualify for deductions up to Rs1.5 lakh.

3. Under Section 80D, premiums paid for health insurance policies offer a tax shield.

4. A tax shield not only reduces tax but also encourages certain types of financial behavior. It includes saving for retirement, purchasing insurance, or investing in housing.

For more details, you must read my previous answer. I hope you understand what is the tax shield.

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How To Save Tax on Salary: Tips and Tricks 

As a taxpayer you must know what is tax shield? Tax shield is a reduction in taxable income achieved by claiming allowable deductions. It in turn lowers the overall tax liability. In India, businesses and individuals use tax shields to take advantage of specific deductions, such as interest on loans, depreciation, and other allowable expenses, to reduce their taxable income.

• Depreciation is an accounting method that allows businesses to allocate the cost of a tangible asset over its useful life. Under Indian tax laws, depreciation is deductible from income, reducing the total taxable amount. This is commonly used for fixed assets like machinery, vehicles, and buildings.

• Businesses and individuals can claim a deduction for the interest paid on loans (such as home loans, education loans, and business loans). For instance, under Section 24(b) of the Income Tax Act, the interest paid on a home loan is deductible from taxable income, providing a tax shield for property owners.

• Deductions under Section 80C, 80D, and others for investments in provident funds, life insurance, and health insurance premiums also provide tax shields. These reduce taxable income while encouraging savings and investment.

• Operating expenses like salaries, rent, and utilities are deductible as business expenses, offering another form of tax shield to businesses.

• Lower Tax Liability: By reducing taxable income, tax shields lower the amount of tax owed.

• Encourages Investment: Tax shields incentivize investment in assets like real estate and equipment, benefiting businesses.

• Maximises Savings: Individual taxpayers can save on taxes by utilising deductions effectively.

This is all about what is the tax shield.

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