DEDUCTIONS 80C, 80CCC, 80CCD, 80CCE, 80CCG 80D, 80DD, 80DDB, 80U. Deductions pertaining to certain payments. 80U is classified under other deductions

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1 DEDUCTIONS Deductions for the purpose of this chapter refers to deductions available from Gross total income. A set of specific deductions considering various socio economic factors have been provided under this chapter. As a learner of the subject, try to understand the logical reasoning behind each and every deduction, this would help you to appreciate the provisions. India has a savings to GDP ratio of over 35% which is significant and was one of the prime factors to protect the economy from the recent global economic recession. One of the main reasons for such high savings ratio, apart from the conservative nature of the Indian population, is the tax incentives which are made available to promote long term savings. This and many more incentives are being offered for various classes of persons to promote social and economic causes. The total set of deductions available can be broadly categorised as: S/No Category Sections Classification as per Act 1 Basics 80A, 80AB, 80AC Deductions pertaining to certain payments 2 Deductions pertaining to Investments 3 Deductions pertaining to medical treatment and expenses 4 Deductions pertaining to certain contributions 5 Deductions pertaining to Expenditure 6 Deductions pertaining to Industrial Undertakings 7 Deductions pertaining to Specified certain incomes. Businesses 8 Deductions pertaining to certain Incomes 80C, 80CCC, 80CCD, 80CCE, 80CCG 80D, 80DD, 80DDB, 80U 80G, 80GGA, 80GGB, 80GGC 80E, 80GG 80IA, 80IAB, 80IB, 80IC, 80ID, 80IE 80JJA, 80JJAA, 80LA, 80P 80QQB, 80RRB, 80TTA Deductions pertaining to certain payments. 80U is classified under other deductions Deductions pertaining to certain incomes.

2 Classification as per Act is given for students to understand as to how the sections are grouped. Also references are made in this chapter based on classifications under the Act. Category based split is given only for easier understanding Basics Prior to claiming deductions, we need to understand the fundamental provisions for the purpose of allowing deductions. These are discussed as under: - Sec 80A: General rules for deductions to be made in computing total income - Sec 80AB: Deductions pertaining to specified incomes u/s 80IA to 80RRB, to be made with respect to income included in the gross total income - 80AC: Deduction not to be allowed unless return of income is furnished General rules for deductions to be made in computing total income - Sec 80A Deduction cannot exceed gross total income: Deduction u/s 80C to 80U shall be allowed against the gross total income of an assessee. Aggregate of deductions under this chapter cannot exceed the gross total income of an assessee No deduction in the case of members of AoP and BoI if allowed to an AoP/BoI: Where a deduction has been allowed under this chapter for an AoP or BoI, no deduction for the same payment / income shall be made in computing the total income of a member of the AoP or BoI in relation to the share of such member in the income of the AoP or BoI. Specific provisions for assessees claiming deduction u/s 10A, 10AA, 10B, 10BA or u/s 80IA to 80RRB ( Deductions pertaining to certain incomes ) sec 80IA(7) to (11) Audit of Accounts: Accounts of such undertaking has to be mandatorily audited Inter unit Transfer of goods and services at market value between an eligible and non eligible undertaking: Where an assessee claiming deduction under the above mentioned sections (considered as eligible business) transfers goods and services to non eligible businesses or vice versa, such transfer has to be made at market value. Where the transfers have not been made at market value, profits or gains shall be recomputed valuing the transfers at market values and deductions shall be computed on such recomputed profits and gains. Where in case the aforesaid arrangement involves a specified domestic transaction referred to in Sec 92BA, the amount of profits from such transaction shall be determined having regard to arm s length price as defined u/s 92F

3 Double deduction not allowed: No deduction shall be allowed against such profits and gains under any other provisions of this Act for the relevant assessment year. Deduction not to exceed relevant profits and gains: The amount of deduction shall not exceed the profit and gains of such undertaking or eligible business. Power of Central Government to notify: The Central Government has power to notify certain undertakings to which the provisions of the relevant section shall not apply. Deduction has to be claimed by the assessee: Where an assessee fails to make a claim in his return of income, no deduction shall be allowed. Specific provision for avoidance of double deduction u/s 35AD: Where an assessee has claimed deduction under this chapter u/s 80IA to 80RRB ( Deductions pertaining to certain incomes ), such assessee shall not be eligible for claiming deduction u/s 35AD even if the assessee is carrying on a specified business u/s 35AD. Chapter VIA deduction is not available against the following incomes: Long term capital gains Short term capital gains u/s 111A Casual income- winnings from lotteries, card games etc Incomes covered under the following sections: 115A: Dividends, royalty and fees for technical services of a non resident or foreign company. 115AB: Income from units purchased in foreign currency or capital gains arising on their transfer. 115AC: Income from bonds or Global Depository Receipts (GDR) purchased in foreign currency or capital gains arising on their transfer, where the assessee is a non resident. 115ACA: Income from bonds or Global Depository Receipts (GDR) purchased in foreign currency or capital gains arising on their transfer, where the assessee is a resident Indian working with a specified employer 115AD: Income of Foreign Institutional Investors from securities or capital gains arising from their transfer. 115BBA: Income of non resident sportsmen or sports associations 115D: Income of non resident Indian under specific circumstances. The term market value shall mean: In relation to any goods or services sold or supplied The price such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions if any.

4 In relation to any goods or services Acquired In relation to any goods or services sold, supplied or acquired which are considered as Specified Domestic Transactions referred u/s 92BA The price such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market,subject to statutory or regulatory restrictions, if any. Arm s length price as defined u/s 92F Deductions pertaining to specified incomes u/s 80IA to 80RRB, to be made with respect to income included in the gross total income Sec 80AB: Where the assessee is eligible for deduction u/s 80IA to 80RRB, Deduction shall be allowed on such income computed in accordance with the provisions of the Act prior to claiming any deduction under Chapter VIA Therefore income for the purpose of claiming deduction u/s 80IA to 80RRB shall be income computed after providing for set off and carry forward of losses, clubbing of incomes etc but prior to any deduction u/s 80C to 80U. If income of an assessee is increased consequent to computation of arm s length price u/s 92C(4), such increase is not to be considered for the purpose of deduction u/s 80C to 80U- IGate Global Solutions Ltd vs CIT (2008) 24 SOT 3 (Bangalore) Deduction not to be allowed unless return of income is furnished within due date- Sec 80AC Where an assessee is claiming deduction u/s 80IA, 80IAB, 80IB, 80IC, 80ID or 80IE No deduction shall be allowed unless, The assessee files his return of income within the due date u/s 139(1)

5 Due date for filing return of income u/s 139(1): Assessee Company Non corporate assessees whose accounts are required to be audited under Income tax Act or any other law Working partner of a firm whose accounts are required to be audited Company assessee which is required to furnish a report u/s 92E (transfer pricing cases) Any other assessee Due date 30th September of the assessment year 30th November of the assessment year 31st July of the assessment year 11.2 Deductions pertaining to investments This set of sections consists of tax incentives available for making certain specified investments. The benefits of investment incentives are however restricted only to individual or HUF assessees. Deduction for investments is contained in the following sections: Section Eligible assessee Eligible assessee 80C Individual or HUF Investment in provident fund, life insurance, equity shares etc 80CCC Individual Contribution to pension funds 80CCD Individual Contribution to a notified pension scheme 80CCE NA Limit on deduction u/s 80C, 80CCC and 80CCD Investment in provident fund, life insurance, equity shares etc Sec 80C Section Investment Eligible Assessee Remarks/ Conditions

6 80C(2)(i) 80C(2)(ii) Life insurance premium Contribution to deferred annuity Individual and HUF Individual being a Government Employee In case of individual: Insurance can be taken on the life of: Individual Spouse Any child In case of HUF: Insurance can be taken on the life of any member of HUF Deduction restricted to 10% of Capital Sum Assured or 15% of Capital Sum Assured if the individual is suffering from disability of severe disability as covered u/s 80U or is suffering from disease or ailment as covered u/s 80DDB The contract for annuity should not contain an option for the insured to receive a cash payment in lieu of the payment of annuity (i.e. it should be a non commutable deferred annuity plan). Investment shall be for the benefit of : Individual Spouse

7 80C(2)(iii) 80C(2) (iv) 80C(2) (v) Contribution to deferred annuity Contribution to a provident fund to which Provident Funds Act 1925 applies (statutory provident fund) Contribution to a notified provident fund set up by Central Government (15 year public provident fund) Individual being a Government employee Individual Individual and HUF 80C(2)(vi) Contribution to Individual being an NA Any child Contribution should be made as a deduction from salary. Sum deducted shall not exceed 1/5th of the salary Contribution shall be for the benefit of: Individual Spouse Children NA In case of individual: Investment shall be in the name of : Individual Spouse Any child In case of HUF: Investment shall be madein the name of any member of HUF. Maximum investment ceiling as per Public Provident Scheme is Rs 1,00,000. However there is no ceiling under the Income Tax Act

8 80C(2) (vii) 80C(2) (viii) 80C(2) (ix) 80C(2) (x) 80C(2) (xi) recognised provident fund Contribution to an approved superannuation fund Subscription to a notified security or deposit scheme. Subscription to a notified savings certificates National Savings Certificates (VIII Issue Contribution to a specified unit linked plan (ULIP) of UTI Contribution to a specified unit linked Employee Individual being an employee Individual and HUF Individual and HUF Individual and HUF Individual and HUF NA Scheme of deposit or security must be notified by the Central Government in the Official Gazette National Savings Scheme has since been Notified Savings certificates must be notified by the Central Government in the Official Gazette Interest accrued on these certificates is deemed to be reinvested and also qualify for deduction under this section. In case of individual: Investment shall be in the name of : Individual Spouse Any child In case of HUF: Investment shall be made in the name of any member of HUF Insurance plan shall be notified by the

9 80C(2) (xii) 80C(2) (xiii) 80C(2) (xiv) 80C(2) (xv) plan (ULIP) of LIC Mutual Fund referred u/s 10(23D) Contribution to a contract for annuity plan of LIC or any other insurer Subscription to units of any Mutual Fund referred u/s 10(23D) or from the Administrator or the specified company under any notified plan Contribution to pension fund set up by any Mutual Fund referred u/s 10(23D) or from the Administrator or the specified company under any notified scheme Subscription to any deposit scheme or Individual and HUF Individual and HUF Individual Individual and HUF Central Government in the Official Gazette In case of individual: Investment shall be in the name of : Individual Spouse Any child In case of HUF: Investment shall be made in the name of any member of HUF Annuity plan shall be notified by the Central Government in the Official Gazette Scheme shall be notified by the Central Government in the Official Gazette Pension scheme shall be notified by the Central Government in the Official Gazette Scheme of deposit or pension fund

10 80C(2) (xvi) 80C(2) (xvii) contribution to a pension fund set up by National Housing Bank Subscription to any such deposit scheme of: (a) a public sector company engaged in providing longterm finance for construction or purchase of houses in India for residential purposes; or (b) any authority constituted in India by or under any law enacted either for the purpose of dealing with andsatisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both Payment of tuition fees whether at the time of admission or Individual and HUF Individual shall be notified by the Central Government in the Official Gazette Scheme of deposit shall be notified by the Central Government in the Official Gazette Tuition fees exclude any payment towards any development fees or donation or

11 80C(2) (xviii) thereafter: (a)to any university, college, school or other educational institution situated within India (b) for the purpose of fulltime Education Principal repayment of housing loan taken for the purpose of acquisition or construction of house property Individual and HUF payment of similar nature. Deduction shall be restricted to any two children of an individual. Repayment of the amount borrowed by the assessee from: Central or State Government Any bank including a cooperative bank LIC National Housing Bank Any Indian public company specified u/s 36(1)(viii) Any company in which the public are substantially interested or any cooperative society engaged in financing the construction of houses Assessee s employer where such employer is an authority or a board or a corporation or any other body established or

12 80C(2) (xviii) Stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee Individual and HUF constituted under a Central or State Act, or Assessee s employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society. Deduction shall not be available for payment towards: (A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a cooperative society has to pay for becoming such shareholder or member; or (B) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out: - after the issue of the completion

13 80C(2) (xix) 80C(2) (xx) 80C(2) (xxi) Subscription to equity shares or debentures forming part of an eligible issue of an approved public company or subscription to an eligible issue of capital by public financial institution. Subscription to units of any mutual funds referred u/s 10(23D) Investment in term deposit with a scheduled Individual and HUF Individual and HUF Individual and HUF certificate or - after the house property or any part thereof has been occupied. (C) any expenditure eligible for deduction u/s 24 Eligible issue of capital means an issue by a public company formed and registered in India or a public financial institution and the entire proceeds of such issue are utilized wholly and exclusively for the purpose of business referred u/s 80IA(4). The amount of subscription to such units is subscribed only in the eligible issue of capital of any company. Eligible issue of capital shall have the same meaning as given u/s 80C(2)(xix) Term deposit shall be for a period of not

14 80C(2) (xxii) 80C(2) (xxiii) 80C(2) (xxiv) bank Subscription to specified bonds issued by National Bank for Agriculture and Rural Development (NABARD) Contribution under the Senior Citizens Savings Scheme Rules, 2004 Contribution to five year term deposit in an account under the Post Office Term Deposit Rules, Individual and HUF Individual and HUF Individual and HUF less than 5 years Scheme of deposit shall be notified by the Central Government in the Official Gazette Bonds shall be notified by the Central Government in the Official Gazette NA NA Deduction u/s 80C is allowed only on payment basis Benefit of deduction under this section is available to a non resident individual Deduction u/s 80C towards life insurance premiums shall be restricted to the extent of least of the following: Actual amount of premium paid 10% of actual capital sum assured (Amendment by Finance Act 2012) Actual capital sum assured has been defined in relation to a life insurance policy shall mean the minimum amount assured under the policy on happening of the insured event at any time during the term of the policy, not taking into account (i) the value of any premium agreed to be returned; or (ii) any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person.

15 Withdrawal of deduction u/s 80C Section Deduction Withdrawal / Violation event 80C(5)(i 80C(5)(ii) 80C(5)(iii) 80C(6) Payment of life insurance premium u/s 80C(2)(i) Contribution to ULIP u/s 80C(2)(x)/(xi) Principal repayment of housing loan and payment of stamp duty etc u/s 80C(2)(xviii) Investment in eligible equity shares or In the case of single premiumwithdrawal within two years of commencement In any other case before premiums have been paid for two years Terminates his participation to the plan within five years from the date of commencement Where the house property is transferred within five years from the end of the financial year in which possession of such property was obtained or Where there is a refund or otherwise of any sum specified u/s 80C(2)(xviii) Where such shares or debentures are Consequences of withdrawal No deduction shall be allowed in the year of withdrawal Aggregate deductions allowed in the preceding years shall be deemed to be income of the year of violation/ withdrawal and charged to taxation. Aggregate deductions allowed in the preceding years shall be deemed to be income of the

16 80C(6A) debentures u/s 80C(2) (xix) Contribution under the Senior Citizens Savings Scheme Rules, 2004 u/s 80C(2)(xxiii) Contribution to five year term deposit in an account under the Post Office Term Deposit Rules, 1981 u/s 80C(2) (xxiv) transferred within a period of three years from the date of acquisition. Where the amount is withdrawn by the assessee from his account within period of five years from the date of deposit year of violation/ withdrawal and charged to taxation. Aggregate deductions allowed in the preceding years shall be deemed to be income of the year of violation/ withdrawal and charged to taxation. The following amounts shall not to be charged to taxation u/s 80C(6A): Interest on deposits u/s 80C(2)(xxiii)/(xxiv) which have been included in the total income for the previous year or any prior year. Any amount received by the nominee or legal heir of the assessee, on the death of such assessee, other than interest, if any, accrued There on, which was not included in the total income of the assessee for the previous year or years preceding such previous year. Full-time education includes any educational course offered by any university, college, school or other educational institution to a student who is enrolled full-time for the said course. It is also clarified that full-time education includes play-school activities, prenursery and nursery classes. The amount allowable as tuition fees shall include any payment of fee to any university, college, school or other educational institution in India except the amount representing payment in the nature of development fees or donation or capitation fees or payment of similar nature Circular No 1/2010 dated Contribution to pension funds Sec 80CCC Particulars Eligible assessee Eligible investment Provisions Individual assessees only Contribution to a contract of any annuity plan of LIC or any other approved insurer

17 Quantum of deduction Consideration on maturity/ closure Sec 80CCC(2) Conditions for receiving pension from a fund set up by LIC or any other insurer referred u/s 10(23AAB) Amount invested or Rs 1 lakh whichever is lower The following amounts received from the fund shall be chargeable to taxation in the year of receipt as income of the assessee / nominee: Any amount on surrender of the annuity plan either / whether in whole or in part Pension received from the annuity plan Investment has to be made out of income chargeable to tax Deduction is available only on payment basis Where a deduction has been allowed under this section, no deduction shall be allowed u/s 80C for the same contribution. Amount invested does not include interest or bonus accrued on existing fund balance Benefit of deduction under this section is available to a non resident individual also Contribution to a notified pension scheme Sec 80CCD Particulars Provisions Eligible assessee Eligible investment Quantum of deduction All Individual assesses Contribution to a pension scheme notified by the Central Government In case of employee assessees: A: Contribution by employee: Lower of actual contribution or 10% of salary for the previous year. B: Contribution by employer: Lower of actual contribution or 10% of salary for the In case of any other individual assessees: Lower of actual contribution or 10% of gross total income for the previous year

18 Consideration on maturity/ closure Sec 80CCD(3) Conditions previous year. The following amounts received from the fund shall be chargeable to taxation in the year of receipt as income of the assessee / nominee: Any amount on closure or opting out of pension scheme Pension received from the annuity plan No income shall however arise u/s 80CCD(3) if the amount received is used for purchasing an annuity plan in the same previous year. Deduction is available only on payment basis also. Salary = Basic + DA taken for retirement benefits. Salary excludes all other allowances and perquisites. Benefit of deduction under this section is available to a non resident individual Limit on deduction u/s 80C, 80CCC and 80CCD Sec 80CCE Aggregate deduction u/s 80C, 80CCC and 80CCD cannot exceed Rs 1.5 lakh(effective AY ). For the purpose of limits u/s 80CCE (i.e Rs 1,00,000), employer s contribution to notified pension u/s 80CCD shall not to be included. In other words, the total limit for deduction u/s 80C, 80CCC and 80CCD shall be Rs 1,00,000 plus employer s contribution u/s 80CCD. Deduction in respect of investment made under an equity savings scheme- Sec 80CCG Eligible assessee: Resident individual considered as a new retail investor as per notification issued by the Central Government for the purpose of this section. The gross total income of the assessee for the relevant previous year shall not exceed Rs 10 lakhs. Eligible investment: Investment in listed shares in accordance with the scheme notified. Deduction: 50% of the amount invested or Rs 25,000 whichever is less Minimum lock-in period: The investment is locked-in for a period of three years from the date of acquisition in accordance with the scheme Restriction: Where an assessee has claimed and allowed a deduction under this section for any assessment year in respect of any amount, he shall not be allowed any deduction under this section or any subsequent assessment year. Consequences in the event of violation: If the assessee, in any previous year, fails to comply with any condition specified, deduction originally allowed shall be deemed to be the income of the assessee of such year of violation.

19 Notification No 51/2012 dtd 23rd Nov 2012 : New retail investor means the following resident individual who: - has not opened a demat account and has not made any transactions in the derivative segment as at the date of notification - has opened a demat account before the notification of the scheme but has not made any transactions in the derivative segment as at the date of notification Note: Any individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purpose of this scheme 11.3 Deductions pertaining to medical treatment and expenses Here, we shall look at deductions which are available for various expenses pertaining to medical treatment, insurance and maintenance. These deductions can be broadly classified as: Section Eligible assessee Description 80D Individual or HUF Health insurance and contribution to Central Government Health Scheme 80DD Resident Individual and HUF Maintenance of a dependant person with disability 80DDB Resident Individual and HUF Medical treatment etc 80U Resident Individual Individual with disability Health insurance and contribution to Central Government Health Scheme Sec 80D Particulars Provisions Eligible assessee Eligible Expenditure Quantum of Deduction Individual and HUF Medical insurance premium or contribution to Central Government Health and payment for preventive health check up In the case of an individual For family : Rs 15,000

20 Condition For parents : Rs 15,000 In the case of HUF : Rs 15,000 Additional deduction of Rs 5, 000 is available where the payment is made for the benefit of a senior citizen Payment shall be made by any mode other than cash. Payment shall be made out of income chargeable to tax. Family means Spouse and Dependent Children In case of HUF policy can be taken on any member of the HUF Preventive health checkup included within Sec 80D: Any payment made on account of preventive health check-up of the assessee or his family shall be eligible for deduction u/s 80D.Payment for preventive health checkup would fall within the overall limit of Rs 15,000 or Rs 20,000 as the case may be. However maximum deduction towards preventive health check up for the assessee, his family and parents cannot exceed Rs 5,000. Payments for preventive health checkup can be made in cash however all other mediclaim insurance payments shall be eligible for deduction only if the payment is made by any mode other than cash. Age-limit for the purpose of senior citizen for this section has been reduced from 65 years to 60 years Illustration 1 Mr Sundara Rajan aged 28 years, made the following payments during the previous year. Discuss the tax implications Particulars Amount Mediclaim insurance premium for self Rs 7,000 Mediclaim insurance for mother aged 65 years Rs 11,000 Mediclaim insurance for father aged 72 years Rs 12,000 Master health check up for mother Rs 2,500 Master health check up for father Rs 3,500 Comprehensive Master health check up for self Rs 6,500 Would your answer change if the assessee had spent a sum of Rs 2,500 towards comprehensive master health check-up for self instead of Rs 6,500. Particulars Remarks / Computation Amount Mediclaim insurance premium for self Mediclaim insurance for other aged 65 years Allowed subject to an overall limit of Rs 15,000 Allowed subject to an overall limit of Rs 20,000 Rs 7,000 Rs 11,000

21 Mediclaim insurance for father aged 72 years Total deduction for mediclaim Insurance Master health check up for mother Master health check up for father Comprehensive Master health check up for self Total preventive expenditure Maximum preventive expenditure allowed as a deduction u/s 80D Allowed subject to an overall limit of Rs 20,000 Restricted to Rs 7,000 for the assessee and Rs 20,000 for the parents Rs 2,500 Rs 3,500 Rs 6,500 Rs 12,500 Rs 5,000 (this is the aggregate limit for the assessee, family and parents) Rs 12,000 Rs 27,000 Rs 5,000 Total deduction u/s 80D Rs 32,000 Particulars Remarks / Computation Amount Mediclaim insurance for Rs 11,000 mother aged 65 years Allowed subject to an Mediclaim insurance for overall Rs 12,000 father aged 72 years limit of Rs 20,000 Master health check up for Allowed subject to the Rs 2,500 Mother Master health check up for overall limit of Rs 20,000 and Rs 3,500 father sublimit of Rs 5,000 Total deduction for mediclaim insurance for parents Restricted to Rs 20,000 for the parents Rs 20,000 Since the mediclaim insurance premium paid for parents exceeds Rs 20,000, there seems to be no surplus limits available for claiming preventive health check up expenditure incurred for parents of the assessee Mediclaim insurance premium for self Comprehensive Master health Allowed subject to an overall limit of Rs 15,000 Allowed subject to the overall limit of Rs 15,000 Rs 7,000 Rs 2,500

22 check up for self Total deduction for mediclaim insurance for self (assessee) and sublimit of Rs 5,000 Restricted to Rs 15,000 Rs 9,500 Total deduction u/s 80D Rs 32, Maintenance of a dependant person with disability Sec 80DD Particulars Eligible Assessee Eligible Expenditure Quantum of Deduction Conditions Provision Resident Individual and Resident HUF Medical treatment, training and rehabilitation of a dependant suffering from permanent physical disability OR Amount deposited in an approved scheme of LIC/ UTI for the benefit of the dependant relative Fixed Deduction of Rs 50,000 irrespective of actual expenditure incurred / amount deposited In case of severe disability (80% or more) deduction enhanced to Rs 1,00,000 Disability to be certified by a medical authority and a copy of the same to be furnished with ITR Relative is not dependant on any other person and does not claim deduction u/s 80U Where the dependant relative predeceases the assessee, any amount received from the scheme shall be treated as income of the assessee in the year of such receipt. Where condition of disability is temporary and requires reassessment after a specified period, the certificate shall be valid for the period starting from the assessment year relevant to the previous year during which the certificate was issued and ending with the assessment year relevant to the previous year during which the validity of the certificate expire Medical treatment etc 80DDB

23 Eligible assessee Eligible Expenditure Quantum of Deduction Conditions Resident Individual and Resident HUF In case of an individual amount paid for medical Treatment of specified diseases for self or dependent. In case of HUF amount paid for medical treatment for any member of HUF Rs 40,000 or actual expenditure whichever is less Rs 60,000 or actuals whichever is less for senior citizens Certificate by a specified medical authority to be filed with the ITR Any reimbursement from employer or insurance company should be reduced from the above limits for claiming deduction Specified diseases include neurological / Cancer/ AIDS/ Renal failure/ Haemophilia/ Thalassaemia Dependent means spouse, children, parents, brothers and sisters of the individual or any of them. Specified Diseases means Neurological Diseases i.e. (a) Dementia (b) Dystonia Musculorum Deformans, (c) Motor Neuron Disease, (d) Ataxia, (e) Chorea, (f) Hemiballismus, (g) Aphasia (h) Parkinsons Disease Where it is certified to be 40% and above. Malignant Cancer Full Blown Acquired Immuno Deficiency Syndrome (AIDS) Chronic Renal Failure Haemophilia Thalassaemia Illustration 2 Compute the eligible deduction allowed under Chapter VIA in the hands of Mr. Varun from the following information submitted by him for the assessment year Sl.No. Particulars Rs. 1 Life insurance premium(lip) on his own life(sum 8,000 assured-35,000) 2 LIP on the life of his wife 5,000 3 LIP on the life of dependent brother 4,000 4 Repayment of housing loan taken from LIC (principal 45,000 amount Rs.20,000 and interest Rs.25,000 5 Five year time deposit with post office 20,000 6 Contribution to PPF 15,000 7 Contribution to approved superannuation fund 5,000 8 Tution fees for 3 children

24 A- 55,000 (Development fees Rs.30,000) B- 10,000 C- 5,000 70,000 9 Subscription to units of ELSS Mutual fund scheme 10, Amount paid towards insurance policy on the health 12,000 of self by credit card 11 Amount paid towards insurance policy on the health 13,000 of his wife and dependent children by cheque 12 Amount paid towards medical treatment under a 40,000 scheme framed by the UTI for such a purpose of his dependent father in law who is suffering from HIV. 13 Amount paid towards medical treatment for dependent sister who is suffering from tuberculosis 45,000 Solution: Computation of eligible deduction under Chapter VIA in the hands of Mr. Varun for Assessment year Deduction available u/s 80C Particulars Computation/Remarks Rs. LIP on his own life 35,000*10% 3,500 (restricted to 10% of sum assured) LIP on the life of his wife 5,000 LIP on the life of dependent Brother Not eligible - Repayment of Housing Loan Only Principal amount eligible 20,000 Contribution to PPF Eligible 15,000 Contribution to approved Eligible 5,000 superannuation fund Tution fees Development fees is not allowed as a deduction and deduction can be claimed on tution fees for maximum 2 children. So deduction claimed as follows: A - Rs.25,000 (Rs.55,000- Rs.30,000). B - Rs.10,000 35,000

25 Subscription to units of ELSS Mutual fund scheme Eligible Eligible Total 1,13,500 Restricted to 1,00,000 Deduction u/s 80D/80DD/80DDB Particulars Section Ref Computation/Remark Rs. Amount paid towards insurance policy on the health of self by credit card 80D Eligible 12,000 Amount paid towards insurance policy on the health of his wife and dependent children by cheque Amount paid towards medical treatment under a scheme framed by the UTI for such a purpose of his dependent father in law who is suffering from severe disability Amount paid towards medical treatment for dependent sister who is suffering from specified disease and ailments prescribed under section 80DDB 80D 80DD 80DDB Eligible but restricted to Rs.3,000 since deduction is restricted to a maximum of Rs.15,000 in case of his Family Eligible amount is Rs. 1,00,000 because of severe disability irrespective of the amount spent and the person dependent can be anyone. Amount actually paid or Rs. 40,000 whichever is lower 3,000 1,00,000 40,000

26 Total u/s 80D,80DD,80DDB 1,55,000 Total Chapter VI A Deduction 2,55, Individual with disability Sec 80U Particulars Provisions Eligible assessee Eligible expenditure Quantum of deduction Conditions Resident Individual with Disability Deduction available irrespective of whether expenditure is incurred or not. Fixed Deduction of Rs 50,000 in case of a person with disability Fixed Deduction of Rs 1,00,000 in case of a person with severe disability Certificate by a specified medical authority to be filed with the income tax returns. The assessee should be certified to be a person with disability at any time of the previous year Disability means Blindness Low Vision Leprosy-Cured Hearing Impairment Loco motor Disability Mental Retardation Mental Illness In accordance with Circular 5/2007, dated Taxpayers should not enclose with the return forms any statement showing the computation of income or tax, copies of balance-sheet, profit and loss account, TDS/ TCS certificates, proof of payment of advance tax or selfassessment tax, and other certificates or reports as required under the Act. However, these documents shall have to be acquired and retained by the assessee and produced before the Assessing Officer on demand by him

27 Section Eligible assessee Description 80G All Assessees Donations to Certain Funds, Charitable Institutions, etc. 80GGA Assessee without business income Donations for Scientific Research or Rural Development 80GGB Indian Company Contributions to Political Parties by Companies 80GGC Any Assessee except Local Authority Contributions to Political Parties Donations to Certain Funds, Charitable Institutions, etc. Sec 80G Particulars Eligible assessee Eligible Contributions Quantum of Deduction Conditions Provisions All Assessees Donations in money made to specified institutions / funds. List of donations are discussed later Deductions are generally available on the following basis based on the type of donation made. 1. Eligible for 100% deductions without qualifying limits 2. Eligible for 50% deduction without qualifying limits 3. Eligible for 100% deduction with qualifying limits 4. Eligible for 50% deduction with qualifying limits Maximum Deduction in respect of the Aggregate Donations made where qualifying limit is applicable is restricted to 10% of Adjusted Gross Total Income. Other Donations are allowed to the extent paid. Determination of Adjusted Gross Total Income is discussed below Donation in kind is not considered for this section Approval once granted u/s. 80G(5)(vi) shall continue to be valid to Perpetuity 80G(5D)- Mode of payment of donations No deduction shall be allowed under this section in respect of donation of any sum exceeding ten thousand rupees unless such sum is paid by any mode other than cash. However the section does not use the term aggregate sum exceeding Rs 10,000. Hence it

28 is possible to consider a case where an assessee has made multiple donations to the same institution or different donations of sums not exceeding Rs 10,000 during the previous year and the entire donation paid shall be eligible for deduction u/s 80G a Determination of Adjusted Gross Total Income Adjusted Gross Total Income: Gross Total Income **** Less: Long Term Capital Gains **** Short Term Capital Gains under section 111A **** Deductions u/s 80C to 80U excluding 80G **** Income on which tax is not payable **** Income u/s 115A/115AB/115AC/115ACA/115AD **** Adjusted Gross Total Income: **** b Donations eligible for 100% deduction without qualifying limits 1. National Defence Fund set up by Central Government 2. Prime Minister s National Relief Fund 3. Prime Minister s Armenia Earthquake Relief Fund 4. Africa (Public Contributions India) Fund 5. National Foundation for Communal Harmony 6. Approved University/ Educational Institution of National Eminence 7. Maharashtra CM s Earthquake Relief Fund 8. Any fund set up by State Govt of Gujarat, exclusively for providing relief to victims of earthquake in Gujarat 9. Zila Saksharita Samiti 10. National/ State Blood Transfusion Council 11. Fund set up by State Govt to provide medical relief to the poor 12. Army Central Welfare Fund / Indian Naval Benevolent Fund/ Air Force Central Welfare Fund 13. Andhra Pradesh CM s Cyclone Relief Fund, National Illness Assistance Fund 15. Chief Minister s Relief Fund or Lt Governor s Relief Fund 16. National Sports Fund set up by Central Govt 17. National Cultural Fund set up by the Central Govt 18. Fund for Technology Development and Application, set up by the Central Govt 19. National Trust for Welfare of persons with Autism, Cerebral Palsy, Mental retardation and Multiple Disabilities c Donations eligible for 50% deduction without qualifying limits

29 1. Jawaharlal Nehru Memorial Fund 2. PM s Drought Relief Fund 3. National Children s Fund 4. Indira Gandhi Memorial Trust 5. Rajiv Gandhi Foundation d Donations eligible for 100% deduction WITH qualifying limits 1. Donation to Govt or any approved local authority or institution or association for promoting Family Planning 2. Donation by a company assessee, to Indian Olympic Association or to any such other similar association notified by Central Govt for the development infrastructure for sports and games or the sponsorship of sports and games in India e Donations eligible for 50% deduction WITH qualifying limits 1. Govt or any approved local authority/ institution or association to be utilized for any charitable purpose other than family planning 2. Any other fund fulfilling the conditions of 80G(5) 3. To any authority constituted in India by or under any law for satisfying the need for housing accommodation or for the purpose of planning development or improvement of cities, towns and villages or both 4. Corporation promoting the interests of minority community 5. Notified mosque, temple, church, gurudwara or other place notified by the Central Govt to be of historic, archaeological or artistic importance Illustration 3 The following information is extracted in relation to the finances of Mr S, for the assessment year Particulars Amount Gross Total Income 3,00,000 Long Term Capital Gains, in above 50,000 Short Term Capital Gains, in above 25,000 Contributions towards PPF 25,000 Mediclaim Premium paid for Self 2,000 Mediclaim Premium paid for Son not Dependant on him 3,000 Donations Made - PM s National Relief Fund 2,500 - National Sports Fund 4,500 - National Children s Fund 4,000 - Delhi University (declared as an institution of national eminence) 10,000

30 - National Blood Transfusion Council 5,000 - SKS Charitable Institution (approved) 12,500 - Local Authority for promoting Family Planning 15,000 - Daughter s old Clothing donated to Banyan cost 5,000 - Jawaharlal Nehru Memorial Funds 12,000 Compute Income Chargeable to Taxation Solution: Particulars Amount Gross Total Income 3,00,000 Less : Deduction under Chapter VIA 1. 80C 25, D Self 2, D Son (Not Dependent) 3,000 5, G A. 100% Without Qualifying Limit PM s National Relief Fund 2,500 National Sports Fund 4,500 Delhi University 10,000 National Blood Transfusion Council 5,000 22,000 B. 50% Without Qualifying Limit National Children s Fund (4,000) 2,000 Jawaharlal Nehru Memorial Fund (12,000) 6,000 8,000 (60,000) Sub-Total 2,40,000 C. Actual Donation Made with Qualifying Limit Local Authority - Family Planning 15,000 SKS Charitable Institution (approved) 12,500 Total Paid 27,000 10% of Adjusted Gross Total Income (note 2) 22,000 Maximum Deduction 22,000 Allowed as follows First - adjusted against 100% deduction (15000) 15,000 Second Adjusted against 50% deduction (7,000) 3,500 18,500 18,500 Total Taxable Income 2,21,500 Note 1: Donation in Kind is not deductable Note 2: Adjusted Gross Total Income Gross Total Income 3,00,000 Less: Long Term Capital Gains 50,000 Less: Deduction under Chapter VI A except 80G 30,000 2,20,000

31 Donations for Scientific Research or Rural Development Sec 80GGA Particulars Provisions Eligible assessee Eligible Contributions Quantum of deduction Conditions Assessee not having any Business or Professional Income Contribution to an approved research association / University, College or Other Institution which has as its object, the undertaking of scientific research or research in social science or statistical research Contribution to an Association engaged in Rural development or eradication of poverty 100% of Sum Paid NA No deduction shall be allowed under this section in respect of donation of any sum exceeding ten thousand rupees unless such sum is paid by any mode other than cash. Deduction for assessees engaged in business or profession in respect of expenditure on Scientific Research is allowed under section 35. Scientific Research may be carried on - By the assessee relating to his business - By making payment to outside agencies engaged in scientific research work. Deduction for assessees engaged in business or profession in respect of expenditure by way of payments to associations and institutions for carrying out Rural Development Programmes or to the National Urban Poverty Eradication Fund is allowed under section 35CCA. Hence deduction u/s 80GGA is categorically restricted only to assessees not having business or professional income Contributions to Political Parties by Companies Sec 80GGB Particulars Eligible assessee Eligible Contributions Quantum of deduction Conditions Provisions Indian Company Contribution to a political party or an electoral trust 100% of Sum Paid Political Party means a political party registered under section 29A of the Representation of the People Act, 1951

32 Illustration 4 Palistan India Cements Ltd, an Indian company contributed Rs. 1,50,000/- to AIADMK, a political party towards advertisement in brochure published by the political party. The company wishes to know the tax implication under the Income tax act, Solution: The expenditure is not eligible for deduction u/s 37(2B) of the Act however the company can claim deduction u/s 80 GGB of any sum contributed to any political party or an electoral trust. Therefore Rs.1,50,000/- may be claimed as a deduction u/s 80GGB of the act Contributions to Political Parties Sec 80GGC Particulars Eligible assessee Eligible Contributions Quantum of deduction Conditions Provisions Any person other than a company except local authority or every other artificial juridical person wholly or partly funded by the Government Contribution to a political party or an electoral trust 100% of Sum Paid Political Party means a political party registered under section 29A of the Representation of the People Act, 1951 While Sec 80GGB allows deduction in respect of Indian Companies, Sec 80GGC allows deduction in respect of any person - which can be interpreted to include a foreign company. However the concern in the interpretation is the fact that heading of Sec 80GGB states Deduction in respect of contributions given by companies to political parties. Therefore an alternate view could be that since foreign companies are outside the ambit of Sec 80GGB, they are not eligible for deduction Deductions pertaining to expenditure The taxation laws have also provided incentives in respect of certain expenditure incurred by the assessee. The basis behind these incentives is that the individual should not be burdened in respect of expenditure for necessities like education and housing. The deductions under this classification are as follows.

33 Section Eligible assessee Description 80E Individuals Payment towards Interest on Education Loan 80GG Individual Payments towards Rent Payment towards Interest on Education Loan Sec 80E Particulars Eligible assessee Eligible expenditure Quantum of deduction Conditions Provisions Individual Assessees Any sum paid by the individual in the previous year by way of interest on educational loan. 100% of Sum Paid Loan should have been taken from any financial institution or any approved charitable institution Loan must have been taken for pursuing higher education of self or Relatives Deduction shall be allowed for 8 assessment years starting from the assessment year in which the assessee starts paying the interest on loan or until the interest thereon is paid in full, whichever is earlier Higher education means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or Local Authority Relative means the spouse and children of the individual or the student for whom the individual is the legal guardian Principal component of education loan repaid shall not qualify for any deduction Payments towards Rent Sec 80GG Particulars Provisions Eligible assessee Eligible Expenditure Quantum of Deduction Individual Assessees Rent Paid for residential accommodation, whether furnished or unfurnished. Lower of the following will be allowed as a deduction Excess of rent paid over 10% of Adjusted Total Income

34 Conditions 25% of Adjusted Total Income Rs 2000 per month Adjusted total income = Gross total income ( )Long Term Capital Gains ( ) All other deductions under Chap VI A except 80GG (-) Income u/s 115A to 115D The individual is either a self employed person or he is an employee who is neither entitled to any house rent allowance or rent free accommodation The individual, spouse or minor child or a HUF of which the individual is a member does not own any residential accommodation at the place where the assessee ordinarily resides or works or carries on his business or profession Where the assessee owns any residential accommodation at any place other than the place of residence or work of the assessee, then such property should not be assessed in the hands of the assessee as Self Occupied Property. Declaration in Form 10BA to be filed along with returns Payments towards Rent Sec 80GG Particulars Provisions Eligible assessee Individual Assessees Eligible Interest payable on loan taken from any financial institutionfor Expenditure the purpose of acquisition of residential House Property Quantum of Deduction allowed to the extent of Rs. 1 lakh Deduction Conditions The loan has to be sanctioned by the financial institution during the period commencing on 1 st April, 2013 and ending on 31 st March, 2014 The amount of loan sanctioned should not exceed Rs. 25 Lakhs The value of the residential house property to be acquired should not exceed Rs. 40 Lakhs The assessee should not own any other residential house property on the date of sanction of the loan If the interest does not exceed Rs. 1 Lakh for the Assessment Year , the balance interest, upto Rs. 1 Lakh may be claimed in the Assessment Year

35 11.6 Deductions pertaining to Industrial Undertakings In order to promote industrial undertakings of specific nature the Income Tax Act provides for certain deductions in respect of incomes arising to such undertakings. The provisions relating to the same are discussed under the following sections Section Eligible assessee Description 80IA 80IAB 80IB Undertaking or enterprise engaged in infrastructure development etc Undertaking or enterprise engaged in development of Special Economic Zone Industrial Undertakings other than Infrastructural Development Undertakings 80IC Industrial Undertakings / Enterprises in Certain Special Category States 80ID 80IE Hotels and Convention Centres in Specified Areas Undertakings in North Eastern States Deductions in respect of profit and gains by undertakings or enterprises engaged in infrastructure development etc. Deductions in respect of profit and gains by undertakings or enterprises engaged in development of Special Economic Zone Deductions in respect of profit and gains by industrial undertakings other than Infrastructural Development Undertakings Deductions in respect of Certain Undertakings or Enterprises in certain Special Category States Deductions in respect of profits and gains from business of Hotels and Convention Centres in Specified Areas Deductions in respect of Undertakings in North Eastern States