Income Tax

Deductions available while computation of Income

Tax plays an integral role in a country’s economy as it accounts for a major portion of income earned by the government which it uses for the welfare of the Indian citizens. Every taxpayer is obligated to pay taxes depending on their n accordance with the tax slabs. However, such taxes can be harsh on the assessee’s bank balance. Therefore, the government also provides certain provisions for saving tax by way of tax deductions which can help in reducing the taxable income of the assessee, thereby lowering their overall tax liability and helping them save on taxes. It is worth noting that there are various tax deductions which can be availed by the assessee, but most of the assesses are deprived of availing such deductions due to a lack of clarity in respect of the same.
The present article discusses the Deduction available to the assessee while computation of Income to provide a better understanding of this subject.

Investments that are Eligible for Deductions u/s 80C

The following are the investments eligible to be deducted u/s 80C of the Income Tax Act during the computation of income

• PPF (Public Provident Fund)^[1]
• EPF (Employee Provident Fund)
• Voluntary Provident Fund
• ELSS (Equity Linked Savings Scheme)
• NSC (National Savings Certificate)
• Five-Year Tax Saving Bank Fixed Deposit
• Five-Year Post Office Time Deposit
• SCSS (Senior Citizens Savings Scheme)
• Infrastructure Bonds
• NABARD Rural Bonds
• Unit Linked Insurance Plan
• Sukanya Samidhi Scheme

Eligible Expenses Tax Deductions under Section 80C

The following are the eligible expenses for tax deductions u/s 80C of the IT Act 1961 at the time of computation of income

• Payment of premium made for Life insurance policies
• Tuition fees for the education of children
• Repayment of home loan principal amount
• Registration fees and stamp duty for house property

Tax Deductions under Section 80C

There are numerous payments which are eligible for deduction under 80C at the time of computation of income. Apart from the expenses/ investments mentioned above, the following investments are eligible for deductions which are available for individuals as well as HUF, with this amount being a combination of deductions provided u/s 80 C, 80 CCC and 80 CCD.

• Payments made towards the construction or purchase of a residential property
• Payments are issued towards a fixed deposit with a minimum tenure of 5 years
• This section provides various additional deductions such as investment in senior citizens saving schemes, mutual funds, s and purchase of NABARD bonds, to name a few.

Subsections under Section 80C

This section consists of an exhaustive list of eligible deductions while the computation of income leading to the creation of suitable sub-sections to provide clarity to assesses enlisted below –

• Section 80CCC: This section of the IT Act enumerates the scope for tax deductions on investment in pension funds from any insurer with a maximum deduction of Rs 1.5 lakh only by individual taxpayers.
• Section 80CCD: – It has been introduced with the aim of encouraging the habit of savings among individuals, providing them with an incentive for investing in pension schemes as notified by the Central Govt Contributions made by an individual and their employer, both are eligible for tax deduction only if such the deduction is less than 10% of the salary of the person. This deduction is only available to individual assessees.
• Section 80CCD (1): All individuals having subscriptions to the National Pension Scheme (NPS) are eligible to claim tax benefits u/s 80 CCD (1) up to the maximum limit of Rs.1.5 lakh. Additionally, an exclusive tax deduction for investments of up to Rs.50,000 in NPS (Tier I account) can be availed by the subscribers under Section 80 CCD (1B).
• Section 80CCF can be availed by HUFs and Individuals; Section 80CCF has provisions for tax deductions on the subscription of long-term infrastructure bonds as notified by the government upto a maximum deduction of Rs 20,000
• Section 80CCG: Section 80CCG of the IT Act allows a maximum deduction of Rs 25,000/ yr; investments in govt. notified equity savings schemes are allowed for deductions at a limit of 50% of the amount invested.

Tax Deductions under Section 80D

Section 80D of the Act provides deductions on amounts spent by an individual towards the payment of premium of a health insurance policy, including payment made on behalf of a spouse, parents, children, or self to a Central Govt health plan. At the time of computation of income, the assessee can claim a deduction upto the below-mentioned amount.

An amount of Rs 15,000 can be availed as a deduction when paid towards the insurance for spouse, self or dependent children, while this amount is Rs 30,000 if the person is over the age of 60 years.

Section 80DDB

Section 80DDB can be availed by HUFs and resident individuals and deals with provisions relating to deductions on the expense incurred by a person’s family on medical treatment of certain diseases with a permitted deduction of Rs 40,000, which can be increased to INR 60,000 (Union Budget 2015) in case of a senior citizen. This deduction can help during the computation of income by reducing the taxable income of the assessee.

Tax Deductions under Section 80E

This deduction had been introduced with the intention of encouraging higher education without the fear of an additional tax burden. Under this provision, the assessee can claim tax deductions for the interest repayment of a loan taken for pursuing higher education.

This loan can be taken either by the assessee himself/herself or to sponsor the education of his/her ward/child. This deduction is only available to individuals, with loans taken from approved charitable organizations and financial institutions permitted for tax benefits.

Subsections of Section 80E

The subsections of Section 80E are provided below, and the assessee can claim a deduction under them at the time of computation of income.

Section 80EE:

This deduction can only be availed by individual assessees with respect to the interest repayment of a loan taken by them for buying a residential property. The maximum deduction permitted here is Rs 3 lakhs.

Tax Deductions under Section 80G

The objective of Section 80G is to encourage taxpayers towards donating to funds and charitable institutions, offering tax benefits on monetary donations. This deduction is available to all assessees upon them providing the proof of payment, with the limit of deductions decided on the basis of a few factors.

• 100% deductions with no limit: Donations to funds like NDF PMNRF National Illness Assistance Fund, etc., qualify for a 100% deduction on the donated amount
• 100% deduction with qualifying limits: Donations made to local authorities, institutes, or associations for promoting family planning and development of sports qualify for a 100% deduction based on certain qualifying limits.
• 50% of deduction without qualifying limits: Donations made to funds like the Rajiv Gandhi Foundation, PMs Drought Relief fund, etc., are eligible for a 50% deduction.
• 50% of deduction with qualifying limit: Donations to religious organisations, local authorities for reasons apart from family planning and other charitable institutes can claim a 50% deduction, subject to certain qualifying limits.

· The qualifying limit is 10% of the total gross income of a taxpayer.

Subsections of Section 80G

This section has been further subdivided into four sections to simplify understanding.

• Section 80GG: Individual taxpayers not receiving HRA can avail deduction on the rent paid by them, subject to a maximum amount = of 25 per cent of their total income or Rs 2,000 a month. The lower of these options can be availed as a deduction.
• Section 80GGA: This tax deduction can be availed by all assessees if they do not earn any income through profit or gain from a business or profession. Donations by such members for the purpose of enhancing social/statistical scientific research or towards the National Urban Poverty Eradication Fund can avail of tax benefits.
• Section 80GGB: this type of deduction can be availed by only Indian Companies, with regard to the amount they donated to a political party or electoral trust qualifying for deductions.
• Section 80GGC: here, the funds donated/contributed by a taxpayer to a political party or electoral trust are allowed for deduction. Local authorities and artificial juridical persons aren’t entitled to the tax deductions available u/s 80GGC.

Deductions Available u/s 80 IA

Section 80 IA enumerates an avenue for all taxpaying assessees to avail deductions on the profits derived through industrial activities at the time of computation of income. These industrial undertakings can be power generation, telecommunication industrial parks, SEZs, etc.

The following subsections are associated with Section 80-IA

• Section 80-IAB: Section 80 IAB can be utilized
• by SEZ developers on their profits through the development of SEZs. These SEZs should be notified after 1/4/2005 for availing of the deduction
• Section 80-IB: This can be used by all assessees deriving profits from hotels, ships, cold storage plants, multiplex theatres, housing projects, convention centres, scientific research and development, etc.
• Section 80-IC: This deduction can be utilized by all assessees having profits from states categorised as special such as Manipur, Assam, Meghalaya, Uttaranchal, Himachal Pradesh, Arunachal Pradesh, Tripura Mizoram and Nagaland.
• Section 80-ID: All assessees deriving profits or gain from hotels and convention centres can avail deduction under this section only if their establishments are located in certain specified areas.
• Section 80-IE: All assessees having undertakings in North-East India can avail deductions under this Section, subject to certain conditions.

Tax Deductions u/s 80J

• This section was amended for the purpose of including two subsections, 80JJA and 80 JJAA.
• Section 80 JJA: Section 80 JJA deals with deductions allowed on profits and gains from assessees involved in the business of processing/treating and collecting bio-degradable waste for producing biological products like bio-fertilizers, bio-pesticides, biogas, etc. All assessees dealing in this area are eligible for deductions under this section. The deduction can be claimed as equivalent to 100% of their profits for five successive assessment years since the time their business started.
• Section 80 JJAA: Deductions u/s 80 JJAA can be claimed by Indian companies deriving profits from the manufacture of goods in factories. A deduction of 30% of the salary of new full-time employees for a time span of 3 AYs can be claimed. The accounts of such companies must be audited by a CA, and he shall submit a report reflecting the returns. Employees employed contract basis for a period < 300 days in the preceding year or those working in managerial or administrative posts don’t qualify for deductions.

Deduction available u/s 80LA

• Deductions u/s 80LA can be availed by Scheduled Banks having offshore banking units in SEZs, entities of IFSC and banks established outside India, as per the laws of a foreign nation.
• These assessees can get deductions = 100% of the income for the first 5 yrs & 50% of the income generated through such transactions for the subsequent 5 years, according to land rules.
• Such entities must have relevant permission, either under the Banking Regulation Act or SEBI Act or registration under any other relevant law.

Tax Deduction under Section 80P

Section 80P provides tax deductions to the cooperative societies, on their income, only upon satisfying the prescribed conditions. A 100% deduction is available to cooperative societies earning the income through cottage industries, banking, fishing, the sale of agricultural harvest grown by members & milk supplied by members to milk co-operative societies, which can be beneficial at the time of computation of income

Cooperative societies being involved in other forms of business can get deductions ranging between Rs 50,000 and Rs 1 lakh, based on their type of work.

• Deductions which are available to all cooperative societies are listed below.
• Income earned by renting warehouses
• Income earned via interest on money which is lent to other societies
• Income earned by way of interest from securities or properties

Deduction available u/s 80QQB

Section 80QQB allows tax deductions on royalty earned from selling books while computation of income. Only resident Indian authors can claim deductions under this section, up to a maximum limit set at Rs 3 lakhs. Royalty on literary, artistic and scientific books is tax deductible. On the other hand, royalties from textbooks, journals, diaries, etc., don’t qualify for tax benefits. If an author is getting royalties from abroad, the said amount must be brought into the country within a specified time period for availing of the tax benefits.

Tax Deduction under Section 80RRB

The patent holders can avail of tax incentives under Section 80RRB, providing tax relief to resident individuals receiving an income by means of royalty on their patent. Royalty up to Rs 3 lakhs can be claimed as deductions if the patent is registered after 31/3/2003. Individuals receiving royalty from foreign shores need to bring the said amount to the country within a specific time period in order to avail of tax deductions on such royalty.

Tax Deduction under Section 80TTA

HUFs and Individual taxpayers can claim deductions under Section 80TTA. This section allows deductions of Rs 10,000 / yr on the interest earned on money that has been invested in bank savings accounts in the nation.

Tax Deduction under Section 80U

Individual resident taxpayers with disabilities can only claim tax deductions under this section at the time of computation of income. Individuals having certification by relevant medical authorities to be a Person with a Disability are eligible for a deduction of a maximum of Rs 75,000 / yr. Individuals having severe disabilities are entitled to a maximum deduction of Rs 1.25 lakh if they meet the required criteria. Some of the disabilities for tax benefits are autism, mental retardation, cerebral palsy, etc.

Conclusion

It is important for every assessee to have a thorough knowledge of the deductions available while computation of income in order to avail of the same and enjoy the tax benefits attached to such deductions and lower their tax liability.

Read Also: Tax Computation on House Property Income