India vs. U.S.: Deductions
Now, let us closely explore the difference between the Indian tax and the U.S tax savings , by means of tax deductions.
Under the Indian tax system, an annual taxable income under ₹4 lakh is considered exempt from tax. This means that an income ranging from ₹0 to ₹4 lakh will be levied 0% tax. Even if your income is above this threshold, you can lower your taxable income by availing the standard deduction of ₹50,000 under the old regime and ₹75,000 under the new regime if you are a salaried individual or various other tax deductions such as Section 80C, 80CCD and 80E. Please note that most of the popular deductions/exemptions (80C, 80D, HRA, LTA, etc.) are not allowed under the new tax regime.
Under the American tax system, there is no threshold that is exempt from tax. The minimal tax that must be levied on a taxable income, even if it is $0, is 10%.
However, the tax system in the US does provide all its taxpaying citizens with the option of availing a standard deduction. If you opt for the standard deduction as a US taxpayer, that amount is deducted from your taxable income. The applicable tax rates are then levied on the resulting amount.
Alternatively, you can choose not to go for the standard deduction and instead personally itemise your tax returns. With this option, you can choose your own specific deductions as they apply to you. As a US taxpayer, you can choose whichever one of these options results in the lowest taxable income for you.
