DEDUCTIONS FROM GROSS TOTAL INCOME
What are the basic rules governing deductions under Sections 80C to 80U?
-> The following essential rules have to be kept in mind while calculating deductions under sections 80C to 80U:
- Deductible from grows total income- These deductions are allowed from gross total income.
- Aggregate deduction not to exceed GTI- The aggregate amount of deductions under sections 80C to 80U cannot exceed gross total income (i.e., gross total income after excluding long-term capital gains, short-term capital gain taxable under section 111A, winning from lotteries, races, etc., and income referred to in sections 115A 115AB 115AC 115AD, 115BBA and 115D) For instance, if gross total income is mil, deductions under these sections cannot be claimed.
- “Net income- Deduction under sections 80-IA to 8OU is admissible in respect of “net income” computed under the provisions of the Act (i.e., income arrived at after deducting permissible deductions and adjusting current or brought forward losses).
- Restrictions applicable in the case of deduction under sections 10A, 10AA, 10B, 10BA and 80H to 8ORRB- The following restrictions and special provisions are applicable in the case of deduction under sections 10A, 10AA, 10B, 10BA and 80H to 80RRB-
- Double deduction is not possible in respect of the same business income under any of the above sections.
- The aggregate deductions under the various provisions referred to above; shall not exceed the profits and gains of the undertaking or unit or enterprise or eligible business, as the case may be.
- No deductions under the above provisions shall be allowed if the deduction has not been claimed in the return of income.
- Deduction under sections 80HH to SORRB is not available, if return of income is not submitted on or before due date under section 139(1).
- For the purpose of claiming deduction under the above sections, the transfer price of goods and services between the undertaking (e unit or enterprise eligible for these deductions) and any other undertaking or unit or enterprise or business of the assessee, shall be determined at the market value (or arm’s length price) of such goods or services as on the date of transfer
- Revenue subsidies (eg, transport subsidy, power subsidy, interest subsidy, etc) received from the Government towards reimbursement of cost of production/manufacture or for sale of the manufactured goods are part of profits and gains of business derived from an industrial undertaking/eligible business, for the purpose of computing deduction available under sections 80-IA, 80-IB, etc. – Circular No. 39/2016, dated November 29, 2016.
- Disallowances under sections 32, 40(a) (ia), 40A (3), 43B, etc. (and other specific disallowances) related to the business activity against which the Chapter VI-A deduction (ie, sections 80C to 80U) has been claimed, result in enhancement of the profits of the eligible business, and deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance – Circular No.37/2016, dated November 2, 2016.
Deduction in respect of Life Insurance Premia, Deferred Annuity, Contributions to Provident Fund, Subscription to Equity Shares or Debentures, etc (Sec. 80C)
-> Section 80C provides deduction in respect of specified qualifying amounts paid or deposited by the assesse in the previous year. The following are salient features of section 80C-
- Who can claim deduction under section 80C- Deduction under section 80C is available only to an Individual or a Hindu undivided family.
- What is the basis of deduction- Deduction is available on actual payment basis. For instance, if insurance premium becomes due on March 24, 2019 and actually paid on April 1, 2019, such premium is qualified for deduction under section 80C for the previous year 2019-20.
- How much deduction available under section 80C- The maximum amount deductible under section 80C is Rs 150,000.
- Is there any combined maximum ceiling- The aggregate amount of deduction under sections 80C, 80CCC and 80CCD(1), [i.e., contribution by an employee (or any other individual) towards National Pension Scheme (NPS)] cannot exceed Rs. 1,50,000 However, employer’s contribution towards NPS (up to 10 per cent of salary) shall not be considered for the ceiling of Rs. 1,50.000.
- Is there any deduction in respect of accrued interest of National Saving Certificates – Amount invested in National Saving Certificates VIII Issue or IX Issue (NSC) is eligible for deduction under section 80C within the overall limit given above. This investment is for 5 years or 10 years and the amount invested along with interest is paid back to the investor at the time of maturity. However, interest is taxable annually on accrual basis. The accrued interest for any year (except for last year) is deemed as reinvestment and the same is entitled for deduction under section 80C.
Deduction in respect of National Savings Scheme- To What Extent Available [Sec. 80CCA]
-> Individual and Hindu Undivided Family (HUF) assessees can claim deduction under this section.
Total amount of deduction can be claimed under section 80CCA is restricted to the limit prescribed under section 80C.
Provisions in the Income Tax Act related Section 80CCA are:
80CCA (1) Where an assessee, being-
(a) an individual, or
(b) a Hindu undivided family
has in the previous year-
(i) deposited any amount in accordance with such scheme as the Central Government may, by notification63 in the Official Gazette, specify in this behalf ; or
(ii) paid any amount to effect or to keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may, by notification65 in the Official Gazette, specify, out of his income chargeable to tax, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income of the whole of the amount deposited or paid (excluding interest or bonus accrued or credited to the assessee’s account, if any) as does not exceed the amount of twenty thousand rupees in the previous year :
Provided that in relation to-
(a) the assessment years commencing on the 1st day of April, 1989 and the 1st day of April, 1990, this sub-section shall have effect as if for the words “twenty thousand rupees”, the words “thirty thousand rupees” had been substituted;
(b) the assessment year commencing on the 1st day of April, 1991 and subsequent assessment years, this sub-section shall have effect as if for the words “twenty thousand rupees”, the words “forty thousand rupees” had been substituted:]
[Provided further that no deduction under this sub-section shall be allowed in relation to any amount deposited or paid under clauses (i) and (ii) on or after the 1st day of April, 1992.
(2) Where any amount-
(a) standing to the credit of the assessee [under the scheme referred to in clause (i) of sub-section (1)] in respect of which a deduction has been allowed under sub-section (1) together with the interest accrued on such amount is withdrawn in whole or in part in any previous year, or
(b) is received on account of the surrender of the policy or as annuity or bonus in accordance with the annuity plan of the Life Insurance Corporation in any previous year,
an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee of that previous year in which such withdrawal is made or, as the case may be, amount is received, and shall, accordingly, be chargeable to tax as the income of that previous year :
Provided that nothing contained in this sub-section shall apply to any amount received by the assessee on account of the surrender of the policy in accordance with the terms of the annuity plan of the Life Insurance Corporation where the assessee elects to surrender before the 1st day of October, 1992, the said annuity plan in respect of which he had paid any amount under clause (ii) of sub-section (1) before the 1st day of April, 1992.
(3) Notwithstanding anything contained in any other provision of this Act, where a partition has taken place among the members of a Hindu undivided family or where an association of persons has been dissolved after a deduction has been allowed under sub-section (1), the provisions of sub-section (2) shall apply as if the person in receipt of income referred to therein is the assessee.
Equity Linked Savings Scheme- When deductions are available [Sec. 80CCB]
-> Section 80CCB relating to deduction in respect of investment made in accordance with the notified Equity Linked Savings Scheme was inserted for the assessment years 1991-93. No deduction is available from the assessment year 1993-94.
Deduction in respect of Pension Fund- When available [Sec. 80CCC]
-> The following are salient features of section 80CCC –
- Who can claim deduction under section 80CCC- Deduction under section 80CCC is available only to an individual.
- What is the qualifying payment to avail deduction- Amount should be paid or deposited under an annuity plan of the LIC of India or any other insurer for receiving pension. Amount should be paid or deposited out of income chargeable to tax.
- How much deduction available under section 80CCC- The maximum amount deductible under section 80CCC is Rs. 1, 50,000.
- Is there any combined maximum ceiling- The aggregate amount of deduction under sections 80C, 80CCC and 80CCD (1) [i.e., contribution by an employee (or any other individual) towards National Pension Scheme (NPS)] cannot exceed Rs. 1, 50,000. However, employer’s contribution towards NPS (to the extent of 10 per cent of employee’s salary) shall not be considered for the ceiling of Rs. 1, 50,000.
- What is tax treatment of pension- If deduction is claimed under section 80CCC and later on pension is received by the assessee (or his nominee), such pension will be taxable in the hands of recipients in the year of receipt. Likewise, where (after claiming deduction under section 80CCC) the assessee or his nominee surrenders the annuity before maturity date of such annuity, the surrender value shall be taxable in the hands of the assessee or his nominee, as the case may be, in the year of the receipt.
Deduction in respect of contribution to a national pension system (NPS) (Sec. 80CCD)
-> The following are salient features of section 80CCD-
- What is NPS- NPS covers New Pension Scheme (notified under Notification No. F.No. 5/7/2003-ECB & PR dated December 22, 2003) and Atal Pension Yojana (as per Notification No. SO 529(E), dated February 19, 2016).
- Who can join NPS- An individual who is employed by the Central Government (on or after January 1, 2004) will have to join NPS on compulsory basis. Any other employee (irrespective of date of joining employment) may become member of NPS (it is optional). Even a self-employed person may join NPS.
- Employer’s contribution to NPS- Is it income-Employer’s contribution to NPS is taxable as salary income in the year of contribution.
- Deduction available under section 80CCD (2) in respect of employer’s contribution to NPS- Contribution by the employer to NPS is deductible in the hands of the concerned employee in the year in which contribution is made. However, no deduction is available in respect of employer’s contribution, which is in excess of 10 per cent of the salary of the employee.
- Deduction available under section 80CCD (1) in respect of employee’s contribution to NPS- Employee’s contribution to NPS is deductible in the year in which contribution is made. However, deduction on account of employee’s contribution to NPS is limited to 10 per cent of the salary of employee. If contribution is made by a person (other than an employee), deduction is limited to 10 per cent (20 per cent from the assessment year 2018-19) of gross total income.
- Is there any combined maximum ceiling- The aggregate amount of deduction under sections 80C 80CCC and 80CCD (1) cannot exceed Rs 1, 50,000. However, employer’s contribution towards NPS (to the extent of 10 per cent of employee’s salary) shall not be considered for the ceiling of Rs. 1, 50,000.
- Additional deduction of Rs. 50,000 under section 80CCD(18)- From the assessment year 2016-17, sub-section (18) has been inserted in section 80CCD so as to provide for an additional deduction in respect of any amount paid (up to Rs 50,000) for contributions made by any individual assessee under the NPS. On this additional contribution, the ceiling of Rs. 1, 50,000 (as given above) is not applicable.
- What is tax treatment of pension-The amounts standing to the credit of an assessee in NPS, for which a deduction has already been claimed by the assessee, and accretions to such account, shall be taxed as follows-
|Partial withdrawal from NPS (to the extent it does not exceed 25% of an employee’s contribution)Amount received by an employee [or a non-employee (applicable from the assessment year 2019-20) on closure of his account or on his opting out of the NPS.In (2), amount is received by a nominee on the death of the assessee.Pension received out of NPS.Amount received in (2), (3), (4) is utilized for purchasing an annuity plan in the same previous year.Pension received out of annuity plan purchased in (5).||Exempt |
- What is “salary”-For calculating 10 per cent limit for the above purpose, “salary” includes dearness allowance, if the terms of employment so provide and commission (if commission is calculated at a percentage of turnover achieved by an employee). However, it excludes all other allowances and perquisites (in other words, “salary” for this purpose has the same meaning which is applicable in the case of house rent allowance).
Deduction in respect of investment made under any Equity saving Scheme [Sec. 80CCG]
-> The provisions of section 80CCG are given below-
► Conditions – Deduction under this section is available if the following conditions are satisfied –
1. The assessee is a resident individual (maybe ordinarily resident or not ordinarily resident).
2. His gross total income does not exceed Rs. 12 lakh.
3. He has acquired listed shares or listed units in accordance with a notified scheme. 4. The assessee is a new retail investor as specified in the above notified scheme.
5. The investment is locked-in for a period of 3 years from the date of acquisition in accordance with the above scheme.
6. The assessee satisfies any other condition as may be prescribed.