UNIT 4
DEDUCTION FROM TOTAL INCOME
Deductions under chapter VI A
Basic Rules
2. Limit of deduction: The aggregate amount of deduction under chapter VIA cannot exceed Gross Total Income of the assessee excluding -
3. Deduction must be claimed: Deduction under chapter VIA shall be available only if the assessee claims for it.
4. Double deduction not permissible: Where deduction under any section of chapter VIA has been claimed then the same shall not qualify for deduction in any other section.
(1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to 80U.
(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee.
(3) Where, in computing the total income of an association of persons or a body of individuals, any deduction is admissible under section 80G or section 80GGA or section 80GGC or section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80-I or section 80-IA or section 80-IB or section 80-IC or or or section 80J or section 80JJ, no deduction under the same section shall be made in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals.
(4) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading "C.—Deductions in respect of certain incomes", where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
(5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading "C.—Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder.
(6) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading "C.—Deductions in respect of certain incomes", where any goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the undertaking or unit or enterprise or eligible business and, the consideration, if any, for such transfer as recorded in the accounts of the undertaking or unit or enterprise or eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of any deduction under this Chapter, the profits and gains of such undertaking or unit or enterprise or eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date.
Explanation.—For the purposes of this sub-section, the expression "market value",—
(i) in relation to any goods or services sold or supplied, means the price that 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;
(ii) in relation to any goods or services acquired, means the price that 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;
(iii) in relation to any goods or services sold, supplied or acquired means the arm's length price as defined in clause (ii) of section 92F of such goods or services, if it is a specified domestic transaction referred to in section 92BA.
(7) Where a deduction under any provision of this Chapter under the heading "C.—Deductions in respect of certain incomes" is claimed and allowed in respect of profits of any of the specified business referred to in clause (c) of sub-section (8) of section 35AD for any assessment year, no deduction shall be allowed under the provisions of section 35AD in relation to such specified business for the same or any other assessment year.
Applicable to: An Individual or a Hindu Undivided Family (whether resident or non-resident)
Condition to be satisfied: Assessee has made a deposit or an investment in any one or more of the listed items (as given below) during the previous year.
Various options under 80C:
Maximum Premium allowed is 20% of Sum Assured
2. Investment/Contribution in Public Provident Fund (PPF)
3. Investment in National Savings Certificate (NSC)- VIII or IX issue
4. Contribution for participating in the Unit-linked Insurance Plan (ULIP) of Unit Trust of India (UTI) or ULIP of LIC Mutual fund u/s 10(23D) formerly known as Dhanraksha 1989.
5. Sum paid to effect or keep in force a contract for notified annuity plan of the LIC or any other insurer.
6. Subscription to notified units of a specified Mutual fund u/s 10(23D)/ administrator or the specified company as referred in sec. 2 of UTI (ELSS, 2005).
7. Any sum paid as subscription to Home Loan Account Scheme or notified pension fund of the National Housing Bank.
8. Any sum paid as subscription to a notified deposit scheme of Public sector companies or Any authority constituted in India for the purpose of satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or for both.
9. Repayment of Principal amount of Housing Loan.
10. Investment in Debentures/Equity shares of a Public Financial Institution.
11. Subscription to units of any mutual fund u/s 10(23D) provided amount of subscription to such units is subscribed only in the eligible issue of capital.
12. Investment as term deposit for a period of 5 years or more with a scheduled bank.
13. Notified Bonds issued by the National Bank for Agriculture and Rural Development (NABARD).
14. Senior Citizens Savings Scheme Rules, 2004
15. 5 year time deposit in an account under the Post Office Time Deposit Rules, 1981.
Deductions only for Individuals:
Quantum of Deduction:
Deduction under this section shall be minimum of the following:
● Aggregate of the eligible contributions, expenditure or investments (discussed above).
● Rs 1,50,000.
Contribution to Pension Fund of LIC or any other insurer
Applicable to: An individual (irrespective of residential status or citizenship of the individual)
Condition to be satisfied
1. Amount paid under an annuity plan: During the previous year, assessee has paid or deposited a sum under an annuity plan of the Life Insurance Corporation of India (LIC) or any other insurer for receiving pension from the fund referred to in Sec. 10(23AAB).
2. Payment out of taxable income: The amount must be paid out of income which is chargeable to tax. However, it is not necessary that such income relates to current year.
Quantum of deduction
Minimum of the following -
a) Amount deposited; or
b) Rs 1,50,000
Other Points
a) Treatment of Interest or Bonus accrued: Interest or bonus accrued or credited as per the scheme to the assessee’s account shall not be eligible for deduction.
b) Withdrawal from such fund [Sec. 80CCC(2)]: Any amount received by the assessee or his nominee as pension; or on surrender of such annuity is taxable in the hands of recipient in the year of receipt.
Note: Interest or bonus received from such fund shall also be taxable.
c) Deduction u/s 80C [Sec.80CCC(3)]: Deduction u/s 80C will not be available for the amount paid or deposited and for which deduction has been claimed u/s 80CCC.
Medical Insurance Premium
Applicable to: An individual or an HUF (irrespective of residential status or citizenship)
Conditions to be satisfied
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Nature of Payment | Expenditure for | Quantum of Deduction |
Medical Insurance Premium or Contribution to Central Govt Health Scheme or Preventive Health Check up | For Individual: Himself/ Herself or Spouse or dependent children
For HUF: Any member | Lower of : Amount actually spent, or Rs. 25,000 pa
(Where the person, for whom such premium (not for payment made for preventive health check up) is paid, is a senior citizen, then maximum limit of deduction shall be increased to Rs 50,000 instead of Rs 25,000) |
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2. Individual/HUF | ||
Nature of Payment | Expenditure for | Quantum of Deduction |
Medical Insurance Premium or Preventive Health Check up | Parents (whether dependent or not) | Lower of : Amount actually spent, or Rs. 25,000 pa
(Where the person, for whom such premium (not for payment made for preventive health check up) is paid, is a senior citizen, then maximum limit of deduction shall be increased to Rs 50,000 instead of Rs 25,000) |
Note: The deduction for payment made for preventive health check up (for self, spouse, dependent children and parents) for category 1 & 2 does not exceed in the aggregate Rs 5,000 subject to overall limit of Rs 25,000/- or Rs 50,000/- | ||
3. Individual/HUF | ||
Nature of Payment | Expenditure for | Quantum of Deduction |
Amount paid on account of medical expenditure provided mediclaim insurance is not paid on the health of such person | Expenditure incurred for any of the following person who is a senior citizen: In case of Individual a. Himself/herself, spouse; or b. dependent children; or c. Either or both of the parents In case of HUF Any member of the family | Lower of : Medical Expenditure incurred, or Rs. 50,000 pa |
2. Mode of payment: The premium or medical expenditure must be paid by any mode other than cash. However, payment shall be made by any mode, including cash, in respect of any sum paid on account of preventive health check-up.
Interest on Educational Loan
Applicable to: An Individual (irrespective of residential status and citizenship of the individual).
Conditions to be satisfied
1. Loan from specified institution: The assessee had taken a loan from -
1) an approved charitable institution
2. Purpose of loan: The loan must have been taken for the purpose of pursuing higher education of himself/herself or for any other following persons:
a. Spouse
b. Children (dependent or not); or
c. the student for whom the individual is the legal guardian
“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 or by any other authority authorised by the Central Government or State Government or local authority to do so
3. Payment of interest: The assessee pays interest on such loan.
Quantum of deduction: Amount paid during the year by way of payment of interest.
Maximum permissible period for which deduction is available
Deduction under this section shall be allowed for the initial assessment year and 7 assessment years immediately succeeding the initial assessment year* or until interest is paid by the assessee in full, whichever is earlier.
*Initial Assessment Year means the assessment year relevant to the previous year, in which the assessee starts repaying the loan or interest thereon.
Taxpoint
■ The deduction is available for a maximum period of 8 consecutive years.
■ The period starts from the year in which the assessee starts paying the interest on such loan.
Deduction in respect of Handicapped/Disabled Person
Applicable to: A resident individual (irrespective of citizenship) or a resident HUF
Section 80DD Maintenance of Dependent Disabled Relative | Section 80U Deduction for Disabled Assessee |
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Dependent Relative of Assessee | Assessee himself |
Relative means: Individual- Spouse, children, parents, brothers and sisters of the individual HUF – Any member of HUF |
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2. Condition | |
1. Assessee incurred medical expenses and other expenses for maintenance of Disabled relative. 2. Medical Certificate is furnished with return of income | - |
3. Quantum of Deduction- Same for 80DD & 80U | |
Disability from 40% to 79% - Rs 75,000 Disability of 80% and above(Severe Disability) - Rs 1,25,000
Note: Deduction under section 80DD is irrespective of the amount spent on maintenance of disable dependent relative. | |
Applicable to: An individual (other than senior citizen covered u/s 80TTB) or a Hindu Undivided Family.
Conditions to be satisfied
Gross total income of an assessee includes any income by way of interest on deposits (not being time deposits) in a savings account with:
- a banking company;
- a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or
- a Post Office
Quantum of deduction
Minimum of the following
a. Interest on such deposits in saving account
b. Rs 10,000
Note: As per Notification No. 32/2011 dated 03-06-2011, interest on Post Office Saving Bank is exempt u/s 10(15(i) to the extent of the interest of Rs 3,500 (in case of single account) and Rs 7,000 (in case of joint account)
Key Takeaways:
1) Deduction under chapter VIA shall be available only if the assessee claims for it.
2) Deduction u/s 80C will not be available for the amount paid or deposited and for which deduction has been claimed u/s 80CCC.
References:
1) Income Tax Act with Gist of Supreme Court Rulings Book (Bharat Law House.)
2) Income Tax Law & Accounts For B.Com Vth Semester of Calicut University (English, Paperback, Dr. H.C. Mehrotra, Dr. S.P. Goyal)
