Income-tax Act provides certain deductions to compute the actual taxable income. The nature of deductions from total income is different for each category of income. The document will provide a list of all deductions available to different categories of taxpayers for different categories of incomes and the conditions thereof.
1. Deduction is limited to whole of the amount paid or deposited subject to a maximum of Rs. 1,50,00012. This maximum limit of Rs. 1,50,00012 is the aggregate of the deduction that may be claimed under sections 80C, 80CCC and 80CCD.
2. The sums paid or deposited need not be out of income chargeable to tax of the previous year. Amount may be paid or deposited any time during the previous year, but the deduction shall be available on so much of the aggregate of sums as do not exceed the total income chargeable to tax during the previous year.
3. Life Insurance premium is part of gross qualifying amount for the purpose of deduction under section 80C. Payment of premium which is in excess of 10 per cent (if policy is issued on or after 1-4-2013, 15% in case of insurance on life of person with disability referred to in section 80U or suffering from disease or ailment specified in section 80DDB/rule 11DD) of actual capital sum assured shall not be included in gross qualifying amount. The value of any premiums agreed to be returned or of 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, shall not be taken into account for the purpose of calculating the actual capital sum assured.
The limit of 10 per cent will be applicable only in the case of policies issued on or after 1-4-2012. In respect of policies issued prior to 1-4-2012, the old limit of 20 per cent of actual sum assured will be applicable.
With effect from 1-4-2013, 'actual capital sum assured' 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—
(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.
(i) terminates his contract of insurance, by notice to that effect or where the contract ceases to be in force by reason of failure to pay any premium, by not reviving contract of insurance,—
(a) in case of any single premium policy, within two years after the date of commencement of insurance; or
(ii) terminates his participation in any unit-linked insurance plan (ULIP), by notice to that effect or where he ceases to participate by reason of failure to pay any contribution, by not reviving his participation, before contributions in respect of such participation have been paid for five years; or
(iii) transfers the house property before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, or receives back, whether by way of refund or otherwise, any sum specified in that clause,
(a) no deduction shall be allowed to the assessee with reference to any of such sums, paid in such previous year; and
(b) the aggregate amount of the deductions of income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.
If any equity shares or debentures, with reference to the cost of which a deduction is allowed, are sold or otherwise transferred by the assessee to any person at any time within a period of three years from the date of their acquisition, the aggregate amount of the deductions of income so allowed in respect of such equity shares or debentures in the previous year or years preceding the previous year in which such sale or transfer has taken place shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.
A person shall be treated as having acquired any shares or debentures on the date on which his name is entered in relation to those shares or debentures in the register of members or of debenture-holders, as the case may be, of the public company.
5. If any amount, including interest accrued thereon, is withdrawn by the assessee from his deposit account made under (a) Senior Citizen Saving Scheme or (b) Post Office Time Deposit Rules, before the expiry of the period of five years from the date of its deposit, the amount so withdrawn shall be deemed to be the income of the assessee of the previous year in which the amount is withdrawn and shall be liable to tax in the assessment year relevant to such previous year.
(i) any amount of interest, relating to deposits referred to above, which has been included in the total income of the assessee of the previous year or years preceding such previous year; and
(ii) any amount received by the nominee or legal heir of the assessee, on the death of such assessee, other than interest, if any, accrued thereon, which was not included in the total income of the assessee for the previous year or years preceding such previous year.
2. If sum is borrowed for acquiring a capital asset, interest thereon pertaining to the period before asset is first put to use shall not be allowed as deduction.
3. W.e.f. assessment year 2016-17, bad-debts shall be allowed as deduction even if they are not written-off from books of accounts. Such deduction shall be allowed if amount of debt or part thereof has been taken into account in computing income on the basis of Income Computation and Disclosure Standards notified under section 145(2) without recording the same in the accounts.
4. With effect from assessment year 2018-19 business of developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility, has been included.
With a view to ensure that the capital asset on which investment linked deduction has been claimed is used for the purposes of the specified business, sub-section (7A) has been inserted in section 35AD to provide that any asset in respect of which a deduction is claimed and allowed under section 10AA, shall be used only for the specified business for a period of 8 years beginning with the previous year in which such asset is acquired or constructed. Moreover, if such asset is used for any purpose other than the specified business, the total amount of deduction so claimed and allowed in any previous year in respect of such asset (as reduced by the amount of depreciation allowable in accordance with the provisions of section 32 as if no deduction had been allowed under section 10AA), shall be deemed to be income of the assessee chargeable under the head "Profits and gains of business or profession" of the previous year in which the asset is so used. However, this provision will not apply to a company which has become a sick industrial company under section 17(1) of the Sick Industrial Companies (Special Provisions) Act within the time period of 8 years as stated above.
♦ Where any deduction under section 35AD has been availed of by the assessee on account of capital expenditure incurred for the purposes of specified business in any assessment year, no deduction under section 10AA shall be available to the assessee in the same or any other assessment year in respect of such specified business.
5. With effect from assessment year 2015-16 a new Explanation 2 has been inserted in section 37(1) to clarify that expenditure incurred by the assessee on Corporate Social Responsibility activities in accordance with section 135 of the Companies Act, 2013 will not be considered as expenditure incurred by the assessee for the purposes of the business or profession.
6. Following chart explains amendments made in section 40(a)(i) with effect from the assessment year 2015-16 :
7. Following amendments have been made in section 40(a)(ia) with effect from the assessment year 2015-16 :
• Coverage of disallowance extended - Before amendment, disallowance provisions of section 40(a)(ia), covered TDS default under sections 193, 194A, 194C, 194D, 194H, 194-I and 194J. After amendment, disallowance under section 40(a)(ia), will cover any amount payable to a resident which is subject to TDS.
• Only 30 per cent expenditure to be disallowed - In case of TDS default, 30 per cent of expenditure (not 100 per cent) will be disallowed.
9. With effect from assessment year 2015-16 limit of Rs. 50 lakhs applies to total amount invested during financial year in which original asset is transferred and in subsequent financial year.
13. Where deduction is claimed under this section, deduction in relation to same amount cannot be claimed under section 80C.
14. Section 80CCE provides that the aggregate amount of deductions under section 80C, section 80CCC and section 80CCD shall not, in any case, exceed Rs. 1,50,000
With effect from assessment year 2015-16, amended sub-section (1) has clarified that a non-government employee can claim deduction under section 80CCD even if his date of joining is prior to January 1, 2004.
15. With effect from the assessment year 2012-13 section 80CCE is amended so as to provide that contribution made by the Central Government or any other employer to a pension scheme under sub-section (2) of section 80CCD shall not be included in the limit of deduction of Rs. 1,50,000 provided under section 80CCE.
With effect from assessment year 2016-17, sub-section (1A) of Section 80CCD which laid down maximum deduction limit of Rs. 1,00,000 (under sub-section (1)) has been deleted.
Further, a new sub-section (1B) is inserted to provide for additional deduction to the extent of Rs. 50,000. The additional deduction is not subject to ceiling limit of Rs. 1,50,000 as provided under Section 80CCE.
However, it is to be noted that addition deduction of Rs. 50,000 shall not be allowed in respect of contribution which is considered for deduction under Section 80CCD(1), i.e., within limit of 10% of salary/gross total income
Any payment from NPS to an employee because of closure or his opting out of the pension scheme is chargeable to tax. However, with effect from the assessment year 2017-18, the whole amount received by the nominee from NPS on death of the assessee shall be exempt from tax.
With effect from assessment year 2014-15 (a) investment in listed units of an equity oriented fund is also permitted; (b) deduction shall be allowed for three consecutive assessment years, beginning with the assessment year relevant to previous year in which the listed equity shares or listed units of equity oriented fund were first acquired and (c) gross total income of the assessee for relevant assessment year shall not exceed twelve lakh rupees.
17. Section 80D is amended by the Finance Act, 2015. From assessment year 2016-17 onwards the deduction under Section 80D will be available as per the limit specified below:
*‘Senior citizen’ means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.
**‘Very senior citizen’ means an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.
18. Maximum deduction is Rs. 40,000 (Rs. 60,000 where expenditure is incurred for a senior citizen and Rs. 80,000 in case of very senior citizen[w.e.f assessment year 2016-17])
With effect from assessment year 2016-17, the taxpayer shall be required to obtain a prescription from a specialist doctor (not necessarily from a doctor working in a Government hospital) for availing this deduction.
19. Scope of 'higher education' is enlarged with effect from assessment year 2010-11 to cover 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 authorized by the Central Government or State Government or local authority to do so.
With effect from 1-4-2010 the scope of expression 'relative' has also been enlarged to cover the student for whom the taxpayer is the legal guardian.
20. Donation of any sums paid by the assessee, being a company, in the previous year as donations to the Indian Olympic Association or to any other association or institution established in India, as the Central Government may, having regard to the prescribed guidelines, by notification in the Official Gazette, specify in this behalf for—
is eligible for the purpose of deduction under section 80G [this is in consequence of omission of section 10(23)].
21. Donation made to an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both is also eligible for the purpose of deduction under section 80G from the assessment year 2003-04 [this is in consequence of omission of section 10(20A)].
22. With effect from 1-4-2013 no deduction shall be allowed in respect of donation of any sum exceeding ten thousand rupees unless such sum is paid by any mode other than cash.
23. With effect from 1-4-2013 no deduction shall be allowed under this section in respect of any sum exceeding ten thousand rupees unless such sum is paid by any mode other than cash.