Unit 4

Deductions from Total Income

Q1) What are the provisions of Sec 80A related to deduction from total income? (8 Marks)

A1) (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 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.

Q2) What are the particulars relating to deductions under Sec 80C? (8 Marks) (2019)

A2) Deduction under Section 80C

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:

1. Investment in Life Insurance Premium (LIC)

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:

1. Contribution made towards statutory provident fund (SPF) and recognised provident fund (RPF).
2. Contribution made towards approved superannuation fund (ASAF).
3. Contribution to Sukanya Samriddhi Account Scheme.
4. Contribution to any notified pension fund set up by a Mutual Fund u/s 10(23D) or by the administrator or the specified company referred u/s 2 of the UTI.
5. Any payment of tuition fees to any university, college, school or other educational institution situated within India for the purpose of full-time education. Restriction on number of child: Deduction shall be allowed in respect of maximum 2 children.

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

Q3) What is deduction 80CCC? What are the particulars relating to deductions under Sec 80CCC? (5 Marks)

A3) Section 80CCC of the Income Tax Act of 1961 provides deductions of up to Rs. 1.5 lakhs per annum for contributions made by an individual towards specified pension funds that are offered by a life insurance. The deduction is within the limit of section 80C. The Section 80CCC exemption limit includes the money spent on the purchase of a new policy or payments made towards renewal or continuation of an existing policy. The primary condition for availing this exemption is that the policy for which the money has been spent must be providing a pension or a periodical annuity. Section 80CCC is read along with Section 80C and Section 80CCD (1), thereby limiting the total exemption limit to Rs. 1,50,000/- per annum.

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.

Q4) What do you mean by deduction 80D under the IT act, 1961? What are the provisions of Sec 80D? (5 Marks)

A4) Section 80D of the Income Tax Act deals with tax benefits available on the amount a taxpayer pays as the premium for health insurance cover. The deductions are also available on health top ups, super top ups and critical illness covers. In India, less than one-fifth of the population has health insurance cover. The bulk of the healthcare cost in India is met out of savings or borrowings. The government provides the tax benefit so that citizens are encouraged to buy health insurance and protect themselves from financial distress because of unanticipated hospitalisation expenses. As per the Income Tax Department, Government of India, the deduction in respect of medical insurance premium under Section 80D is described below:

Deduction in Respect of Medical Insurance Premium [Section 80D]

As per section 80D, an individual or a HUF can claim deduction in respect of the following payments:

1. Medical insurance premium paid by assessee, being individual/HUF by any mode other than cash.
2. Any contribution made by assessee, being individual to Central Government Health Scheme or such other Scheme as may be notified by the Central Government.
3. Sum paid by assessee, being individual on account of preventive health check-up. Medical expenditure incurred by assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person.

Medical Insurance Premium

Applicable to: An individual or an HUF (irrespective of residential status or citizenship)

Conditions to be satisfied

1. Payment for health insurance or medical check-up: The assessee has made payment for health insurance of the following person:

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.

Q5) What are the provisions of Sec 80E? (5 Marks)

A5) With the growth of the Indian economy and rise in income levels, the spending on education has increased too, that accounts for the second-highest share of wallet for middle-class households in the country. The spending for pursuing education can let you save on income taxes. You can claim deduction of Interest paid on loan taken for pursuing higher education from taxable income under section 80E of the IT Act. According to Section 80E the deduction is allowed on the total interest amount of the EMI paid during the financial year. The loan has to be taken from a bank or financial institution for the purpose of pursuing higher studies. One needs to obtain a certificate from the bank wherein the principal and interest amounts of the education loan paid during the financial year should be mentioned separately. It is because no deduction is allowed on the principal repayment amount.

The eligibility criteria for deduction under Section 80E is as follows:

• Any individual applying for a loan for further studies or higher education for himself or on behalf of their spouse, children or student for whom the individual is legal guardian
• Companies and Hindu Undivided Family (HUF) cannot claim deduction
• Only the tax payer who has applied for the loan can claim deduction

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 -

• a financial institution; or

• 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.

Tax point

■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.

Q6) What is tax deduction? To whom Sec 80DD and 80U is applicable? (5 Marks) (2018)

A6) Tax deduction refers to claims made to reduce your taxable income, arising from various investments and expenses incurred by a taxpayer. Thus, income tax deduction reduces your overall tax liability. It is a kind of tax benefit which helps you save tax. However, the amount of tax you can save depends on the type of tax benefit you claim. There are a number of benefits associated with tax deduction which include:

• Tax deductions help you reduce an amount from your taxable income and save tax. When you claim an income tax deduction, it reduces the amount of your income that is subject to tax.
• Reduced taxable income helps you save and invest money in other areas.
• Tax deduction first reduces the income subject to the highest tax brackets. So, you can claim deduction for the amounts spent in tuition fees, medical expenses, and charitable contributions.

Section 80U offers tax benefits if an individual suffers a disability, while Section 80DD offers tax benefits if an individual taxpayer’s dependent family member(s) suffers from a disability. Sec 80DD And Sec 80U is applicable to: A resident individual (irrespective of citizenship) or a resident HUF.

Q7) Explain ant ten deductions available under the Income Tax act, 1961. What is the Quantum of deduction available under Sec 80CCD? (12 Marks)

A7) Mentioned below are a number of different tax deduction options.

1. Public Provident Fund (PPF)

By contributing to your PPF account, you can get tax deduction under Section 80C, the Indian Income Tax Act, 1961.

2.     Life Insurance Premiums

You can get income tax deduction for paying premium towards life insurance policies for self, spouse and child under section 80C of the Indian Income Tax Act, 1961. The amount received on maturity of the policy is free from tax. However, it is subject to the terms and conditions mentioned in your policy.

3.     National Saving Certificate (NSC)

The amount invested in NSC is eligible for tax deduction under section 80C of the Indian Income Tax Act, 1961. National Saving Certificates is one of the highly secured modes of investments in India. But the interest earned from NSC is taxable. As an NSC is a cumulative scheme, interest is reinvested and qualifies for tax deduction.

4.     Bank Fixed Deposits (FDs)

You can get tax deduction by investing in fixed deposits for a tenure of 5 years, under section 80C of the Indian Income Tax Act, 1961. Many banks in India offer tax saving fixed deposits. However, the interest accrued on FDs is subject to tax

5.     Senior Citizen Savings Scheme (SCSS)

Senior citizens can get tax deduction by investing in Senior Citizen Savings Scheme offered by banks. These schemes are eligible for tax deduction under Section 80C of the same act. The interest earned from these schemes is entirely taxable.

6.     Post Office Time Deposit (POTD)

Investing in a five-year POTD, you can get tax deduction under Section 80C. However, interest accrued on the same is fully taxable.

7.     Unit-linked Insurance Plans (ULIP)

Investing in ULIPs for yourself, spouse and your children, you can get tax deductions under Section 80C.

8.     Home Loan EMIs

Equated monthly installments paid to repay the principal amount of your home loan are eligible for income tax deductions under section 80C of the same act.

9.     Mutual Funds & ELSS

Investing in mutual funds and equity-linked savings scheme, you are eligible for tax deductions under section 80C, the Indian Income Tax Act, 1961.

10. Stamp Duty and Registration Charges for a Home

Stamp duty and registration fee paid for transferring property are entitled for income tax deduction under section 80C, the Indian Income Tax Act, 1961

Quantum of Deduction

Deduction u/s 80CCD (1)

A. In case of salaried individual

Lower of the following         Rs

● Amount so paid or deposited        ***

● 10% of his salary in the previous year       ***

***

Add: The whole of the contribution made by the employer to such

Account to the maximum of 10% of his salary1 in the previous year.  ***

Amount of Deduction        ***

B. In case of other individual

Lower of the following

● Amount so paid or deposited

● 20% of his gross total income in the previous year

Additional Deduction u/s 80CCD(1B)

Lower of the following shall also be eligible for deduction    Rs

● Contribution to the scheme by any individual [Other than amount

Claimed and allowed as deduction u/s 80CCD (1)]     ***

●Rs 50,000

*Salary means Basic + DA

Q8) What are the provisions of Sec 80TTA AND 80TTB? (5 Marks)

A8) Section 80TTA provides a deduction of Rs 10,000 on interest income. This deduction is available to Resident Individual or HUF (other than those assessees who has covered in Section 80TTB).

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)

Section 80TTB of Income Tax Act, 1961

Where a taxpayer’s gross total income includes any income by way of interest on deposits then such income is tax-free. The taxpayer must be a resident of India and a senior citizen. A senior citizen is an individual who is of the age of sixty years or more at any time during the relevant previous year.

The income way of interest on a deposit with:

• a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies
• a co-operative society engaged in carrying on the business of banking. a co-operative land mortgage bank or a co-operative land development bank
• a Post Office under Indian Post Office Act, 1898

The assessee can claim tax exemption while computing his/ her total income

The maximum deduction allowed u/s 8TTB is Rs 50000 for a financial year.

• In case the total interest is less than Rs 50000 then the actual interest is exempt.
• In case the total interest is more than Rs 50000 then only Rs 50000 is allowed as tax exemption

Q9) What are the basic rules for deductions under Chapter VI A? (8 Marks)

A9) Chapter VI A of Income Tax Act contains various sub-sections of section 80 that allows an assessee to claim deductions from the gross total income. Chapter VI A of Income Tax Act contains various sub-sections of section 80 that allows an assessee to claim deductions from the gross total income on account of various tax-saving investments, permitted expenditures, donations etc. Such deductions allow an assessee to considerably reduce the tax payable.

The Chapter VI A of Income Tax Act contains the following sections:

80C: Deduction in respect of life insurance premium, deferred annuity, contributions to provident fund (PF), subscription to certain equity shares or debentures, etc. The deduction limit is Rs 1.5 lakh together with section 80CCC and section 80CCD (1).

80CCD(1B): Deduction up to Rs 50,000 in respect of contribution to pension scheme of Central Government (NPS).

80CCD (2): Deduction in respect of contribution to pension scheme of Central Government by employer. Tax benefit is given on 14 per cent contribution by the employer, where such contribution is made by the Central Government and where contribution is made by any other employer, tax benefit is given on 10 per cent.

80D: Deduction in respect of Health Insurance premium. Premium paid up to Rs 25,000 is eligible for deduction for individuals, other than senior citizens. For senior citizens, the limit is Rs 50,000 and overall limit u/s 80D is Rs 1 lakh.

80DD: Deduction in respect of maintenance including medical treatment of a dependent who is a person with disability. The maximum deduction limit under this section is Rs 75,000.

80DDB: Deduction in respect of expenditure up to Rs 40,000 on medical treatment of specified disease from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist, as may be prescribed.

80E: Deduction in respect of interest on loan taken for higher education without any upper limit.

80EE: Deduction in respect of interest up to Rs 50,000 on loan taken for residential house property.

80EEA: Deduction in respect of interest up to Rs 1.5 lakh on loan taken for certain house property (on affordable housing).

80EEB: Deduction in respect of interest up to Rs 1.5 lakh on loan taken for purchase of electric vehicle.

80G: Donations to certain funds, charitable institutions, etc. Depending on the nature of the done, the limit varies from 100 per cent of total donation, 50 per cent of total donation or 50 per cent of donation with a cap of 10 per cent of gross income.

80GG: Deductions in respect of rent paid by non-salaried individuals who don’t get HRA benefits. Deduction limit is Rs 5,000 per month or 25 per cent of total income in a year, whichever is less.

80GGA: Full deductions in respect of certain donations for scientific research or rural development.

80GGC: Full deductions in respect of donations to Political Party, provided such donations are non-cash donations.

80TTA: Deductions in respect of interest on savings bank accounts up to Rs 10,000 in case of assessees other than Resident senior citizens.

80TTB: Deductions in respect of interest on deposits up to Rs 50,000 in case of Resident senior citizens.

80U: Deduction in case of a person with disability. Depending on type and extent of disability maximum deduction allowed under this section is Rs 1.25 lakh.

Deductions under chapter VI A

Basic Rules

1. Deductions not available from: Deductions under chapter VIA are not available from -

• Long-term capital gain;
• Short term capital gain covered u/s 111A (i.e., STCG on which STT is charged); and
• Casual income like winning from lotteries, races, etc.

2.     Limit of deduction: The aggregate amount of deduction under chapter VIA cannot exceed Gross Total Income of the assessee excluding -

• Long term capital gain;
• Short term capital gain covered u/s 111A;
• Casual income like winning from lotteries, card-games, horse races, etc.; and
• Income referred in Sec.115A, 115AB, 115AC, 115ACA, etc.

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.

Q10) What are the conditions to be satisfied to get deduction under Section 80D? (5 marks)

A10) Conditions to be satisfied

1. Payment for health insurance or medical check-up: The assessee has made payment for health insurance of the following person:

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.

Q11) What are the conditions to be satisfied to get deduction under Section 80E? What is the maximum permissible period for which deduction is available? (5 marks)

A11)

Conditions to be satisfied

1. Loan from specified institution: The assessee had taken a loan from -

• a financial institution; or

• 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.

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.