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DEDUCTIONS AVAILABLE UNDER INCOME TAX ACT

DEDUCTIONS AVAILABLE UNDER INCOME TAX ACT

In our previous post we have seen, section 10 exempts certain incomes. Such income are excluded from total income and do not enter into the computation process at all. On the other hand, Chapter VI-A of Income Tax contains deductions from gross total income. The important point to be noted here is that if there is no gross total income, then no deductions will be permissible. These deductions contains deductions in respect of certain payments, deductions in respect of certain incomes, deductions in respect of other income and other deductions.

Deductions in respect of certain payments

Deductions u/s Section 80C

Eligible Assessee – Individual or HUF

Eligible Payments –  Contribution to PPF, Payment of LIC premium, etc. Sums paid or deposited in the previous year by way of –

  • Life insurance premium
  • Contribution to PPF/ SPF/ RPF and approved superannuation fund
  • Repayment of housing loan taken from Govt., bank, LIC, specified employer etc.
  • Tuition fees to any Indian university, college, school for full -time education of any two children
  • Term deposit for a fixed period of not less than 5 years with schedule bank
  • Subscription to notified bonds of NABARD
  • Five year post office time deposit
  • Senior Citizen’s Savings Scheme Account etc.

Permissible Deduction – Sum paid or deposited, subject to a maximum of Rs. 1,50,000

Deductions u/s 80CCC

Eligible Assessee – Individual

Eligible Payments – Contribution to certain pension funds. Any amount paid or deposited to keep in force a contract for any annuity plan of LIC of India or any other insurer for receiving pension from the fund.

Permissible Deduction –  Amount paid or deposited, subject to a maximum of Rs. 1,50,000

Deduction u/s 80CCD

Eligible Assessee – Individuals employed by the Central Government or any other employer; Any other individual assessee.

Eligible Payments –  Contribution to Pension Scheme of Central Government   An individual employed by the Central Government on or after 1.1.2004 or any other employer or any other assessee, being an individual, who has paid or deposited any amount in his account under a notified pension scheme [National Pension Scheme & Atal Pension Yojana]

Permissible Deduction –  

  1. Employee’s Contribution/ Individual’ Contribution
    • In case of a salaried individual, deduction of own contribution under section 80CCD(1) is restricted to 10% of his salary.
    • In any other case, deduction under section 80CCD(1) is restricted to 20% of gross total income.
    • Further, additional deduction of upto Rs. 50,000 is available under section 80CCD(1B).
  2. Employer’s Contribution – The entire employer’s contribution would be included in the salary of the employee. The deduction of employer’s contribution under section 80CCD(2) would be restricted to 10% of salary.

Note –As per section 80CCE,maximum permissible deduction u/s 80C, 80CCC & 80CCD(1) is Rs.1,50,000. However, the limit Rs. 1.50 lakh under section 80CCE does not apply to deduction under section 80CCD(2) and 80CCD(1B).

Deduction u/s 80D

Eligible Assessee – Individual and HUF

Eligible Payments –  Medical Insurance Premium

  • Any premium paid, otherwise than by way of cash, to keep in force an insurance on the health of –

in case of an individual

self, spouse and dependent children

in case of HUF

family member
  • In case of an individual, contribution, otherwise than by way of cash, to CGHS or any other scheme as notified by Central Government.

(Permissible Deduction – Maximum Rs. 25,000 (Rs. 50,000, in case the individual or his or her spouse is a senior citizen) )

  • Any premium paid, otherwise than by way of cash, to keep in force an insurance on the health of parents, whether or not dependent on the individual.

(Permissible Deduction – Maximum Rs. 25,000 (Rs. 50,000, in case either or both of the parents are senior citizen(s)))

Notes:

  1. Any amount paid, otherwise than by way of cash, on account of medical expenditure incurred on the health of the assessee or his family member or his parent, who is a senior citizen and no amount has been paid to effect or to keep in force an insurance on the health of such person. ( Permissible Deduction – Amount paid subject to a cap of Rs. 50,000 (in case one parent is a senior citizen, in respect of whom insurance premium is paid, and the other is a senior citizen on whom medical expenditure is incurred, the total deduction cannot exceed Rs. 50,000) )
  2. Payment, including cash payment, for preventive health check up of himself, spouse, dependent children and parents. ( Permissible Deduction – Amount paid subject to a cap of Rs. 5,000, in aggregate (subject to the overall individual limits of Rs. 25,000/50,000, as the case may be))

Deduction u/s 80DD


Eligible Assessee – Resident Individual or HUF

Eligible Payments – Maintenance including medical treatment of a dependant disabled

Any amount incurred for the medical treatment(including nursing), training and rehabilitation of a dependent disabled

and / or

Any amount paid or deposited under the scheme framed in this behalf by the LIC or any other insurer or Administrator or Specified Companyand approved by Board.

Meaning of Dependant

In case of Dependant
An individual Spouse, children, parents, brothers, sisters
A HUF Any member

Persons mentioned in column (2) should be wholly or mainly dependanton the person mentioned in corresponding column (1) for support and maintenance. Such persons should not have claimed deduction under section 80U in computing total income of that year.

Permissible Deduction –     Flat deduction of Rs. 75,000. In case of severe disability (i.e. person with 80% or more disability) the flat deduction shall be Rs. 1,25,000.

Deduction u/s 80DDB

Eligible Assessee – Resident Individual or HUF

Eligible Payments – Deduction for medical treatment of specified diseases or ailments

Amount paid for specified diseases or ailment

Assessee Amount spent
An individual For himself or his dependant being spouse, children, paents, brothers or sisters wholly or mainly dependant on the individual for support and maintenance
A HUFFor any member

Permissible Deduction –  

Actual sum paid or Rs. 40,000 (Rs. 1,00,000, if the payment is for medical treatment of a senior citizen), whichever is less,

minus

the amount received from the insurance company or reimbursed by the employer.

Deduction u/s 80E

Eligible Assessee –  Individual

Eligible Payments –  Interest on loan taken for higher education

Interest on loan taken from any financial institution or approved charitable institution.

Such loan is taken for pursuing his higher education or higher education of his or her relative i.e., spouse or children of the individualor the student for whom the individual is the legal guardian

Permissible Deduction –  The deduction is available for interest payment in the initial assessment year (year of commencement of interest payment) and seven assessment years immediately succeeding the initial assessment year

(or)

until the interest is paid in full by the assessee, whichever is earlier.

Deduction u/s 80EE

Eligible Assessee – Individual

Eligible Payments –  Deduction for interest on loan borrowed from any financial institution (bank/housing finance company) for acquisition of residential house property

(In case the property is self -occupied, the deduction would be over and above the deductionof Rs. 2 lakhs under section 24; In case the property is let- out, entire interest can be claimed as deduction under section 24 while computing income from house property.

However, deduction under section 80EE can be claimed during the pre-construction period, when deduction under section 24 is not permissible. Such interest on which deduction under section 80EE has been claimed cannot be included in pre-construction interest for deduction und er section 24 later on in instalments).

Permissible Deduction –  Deduction of upto Rs. 50,000 would be allowed in respect of interest on loan taken from a financial institution.

Conditions

  • Loan should be sanctioned during P.Y.2016-17
  • Loan sanctioned ≤ Rs. 35 lakhs
  • Value of house ≤ Rs. 50 lakhs
  • The assessee should not own any residential house on the date of sanction of loan.

Deduction u/s 80G

Eligible Assessee – All assessees

Eligible Payments and Permissible Deduction – Donations to certain funds, charitable institutions etc.There are four categories of deductions –

Category Donee
(I) 100% deduction of amount donated, without any qualifying limit Prime Minister’s National Relief Fund, National Children’s Fund, Swachh Bharat Kosh, National Defence Fund etc.
(II) 50% deduction of amount donated, without any qualifying limit Prime Minister’s Drought Relief Fund, Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, Rajiv Gandhi Foundation.
(III) 100% deduction of amount donated, subject to qualifying limit Government or local authority, institution for promotion of family planning etc.
(IV) 50% deduction of amount donated, subject to qualifying limit Government or any local authority to be used for charitable purpose, other than promotion of family planning, notified temple, church, gurudwara, mosque etc.

Calculation of Qualifying limit for Category III & IV donations:

Step 1: Compute adjusted total income, i.e., the gross total income as reduced by the following:

1. Deductions under Chapter VI-A, except u/s 80G
2. Short term capital gains taxable u/s 111A
3. Long term capital gains taxable u/s 112 & 112

Step 2: Calculate 10% of adjusted total income.

Step 3: Calculate the actual donation, which is subject to qualifying limit

Step 4: Lower of Step 2 or Step 3 is the maximum permissible deduction.

Step 5: The said deduction is adjusted first against donations qualifying for 100% deduction (i.e., Category III donations). Thereafter, 50% of balance qualifies for deduction under section 80G.

Note – No deduction shall be allowed for donation in excess of Rs. 2,000, if paid in cash.

Deduction u/s 80GG

Eligible Assessee – Individual not in receipt of house rent allowance

Eligible Payments –  Rent paid for residential accommodation

Permissible Deduction – Least of the following is allowable as deduction:(1)25% of total income;

(2)Rent paid – 10% of total income

(3)Rs. 5,000 p.m.

No deduction if any residential accommodation is owned by the assessee/his spouse/minor child/HUF at the place where he ordinarily resides or performs the duties of his office or employment or carries on his business or profession.

Deduction u/s 80GGB

Eligible Assessee – Indian company

Eligible Payments –  Contributions to political parties

Any sum contributed by it to a registered political party or an electoral trust.

Permissible Deduction –  Actual contribution (otherwise than by way of cash)

Deduction u/s 80GGC

Eligible Assessee – Any person, other than local authority and an artificial juridical person funded by the Government.

Eligible Payments –  Contributions to political parties

Amount contributed to a registered political party or an electoral trust.

Permissible Deduction –  Actual contribution (otherwise than by way of cash)

Deductions in respect of Certain Incomes

Deduction u/s 80JJAA

Eligible Assessee – An assessee to whom section 44AB applies, whose Gross total income includes profits and gains derived from business

Eligible Payments – Deduction in respect of employment of new employees

Permissible Deduction – 30% of additional employee cost incurred in the previous year. Deduction is allowable for 3 assessment years including assessment year relevant to the previous year in which such employment is provided.

Deduction u/s 80QQB

Eligible Assessee – Resident individual, being an author

Eligible Payments – Royalty income, etc., of authors of certain books other than text books

Consideration for assignment or grant of any of his interests in the copyright of any book, being a work of literary, artistic or scientific nature or royalty or copyright fee received as lumpsum or otherwise.

Permissible Deduction – Income derived in theexercise of profession or Rs.3,00,000, whichever is less.

In respect of royalty or copyright fee received otherwise than by way of lumpsum, income to be restricted to 15% of value of books sold during the relevant previous year.

Deduction u/s RRB

Eligible Assessee – Resident individual, being a patentee

Eligible Payments – Royalty on patentsAny income by way of royalty on patents registered on or after 1.4.2003

Permissible Deduction – Whole of such income or ` 3,00,000,whichever is less.

Deductions in respect of Other Income

Deduction u/s 80TTA

Eligible Assessee – Individual or a HUF, other than a resident senior citizen

Eligible Payments – Interest on deposits in savings account

Interest on deposits in a savings account with a bank, a co-operative society or a post office (not being time deposits, which are repayable on expiry of fixed periods)

Permissible Deduction – Actual interest subject to a maximum of Rs. 10,000.

Deduction u/s 80TTB

Eligible Assessee – Resident senior citizen (i.e. an individual of the age of 60 years or more at any time during the previous year)

Eligible Payments – Interest on deposits with banking company, co-operative society engaged in the business of banking or a post office.

Permissible Deduction –  Actual interest or Rs. 50,000, whichever is less

Other Deductions

Deduction u/s 80U

Eligible Assessee – Resident Individual

Condition for deduction – Deduction in case of a person with disability

Any person, who is certified by the medical authority to be a person with disability.

Permissible Deduction – Flat deduction of Rs. 75,000, in case of a person with disability.

Flat deduction of Rs. 1,25,000, in case of a person with severe disability (80% or more disability).

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