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Deductions


Contents
1 Deductions from total income amount above Rs. 5 lacs, is to be subjected to income-tax ?
2 Deduction in respect of pension funds u/s 80ccc.
3 Deduction in respect of medical insurance premium u/s 80-d.
4 Deduction for physically handicapped & disabled dependent u/s. 80dd.
5 Deduction for medical treatment Of serious ailments u/s 80ddb.
6 Seduction for repayment of loan taken for higher education u/s 80e.
7 What is an approved financial institution or charitable institution?
8 What is 'higher education' and initial assessment year?
9 Deduction in respect of donations for charitable purposes u/s 80-g
10 Deduction for donations made to national sports fund.
11 Deduction for donations made to indian olympic association.
12 Hundred per cent deduction to donations made to the national trust for welfare of persons with autism, cerebral palsy, mental retardation and multiple disabilities
13 Deduction for house rent paid u/s 80-gg.
14 Deduction for remuneration received in foreign currency from employer u/s 80rra.
15 Deduction u/s sou for assessee, suffering from physical disability.
16 What are the limits of these deductions?
17 Is the drawing & disbursing officer bound to give credit (while deducting tds from salaries) for donations?
18 What does the word "dependent" imply?

DEDUCTIONS FROM TOTAL INCOME

From the gross total income there are certain deductions which go to reduce the taxable income. Very briefly they are explained.

DEDUCTION IN RESPECT OF PENSION FUNDS U/S 80CCC.

With effect from A.Y. 1997-98, a new section namely 80CCC has been enacted which provides that if an assessee being an individual pays or deposits any amount out of his income chargeable to tax to effect or keeps in force a contract for any annuity plan of Life Insurance Corporation of India for receiving pension from the fund referred to in section 10(23AAB) he shall be allowed a deduction of the amount deposited or Rs. 10,000 whichever is less.

If the assessee or his nominee receives any pension or any money on the surrender of whole or part of the policy, the same shall be taxable in the year of receipt in the hands of the recipient. However, as per section 10(10A), any payment in commutation of pension received from LIC, will be exempt w.e.f. A.Y. 1997-98.

However, the assessee shall not be entitled to claim a rebate u/s 88 for the premium paid on the above policy if he has claimed deduction u/s 80-CCC.

DEDUCTION IN RESPECT OF MEDICAL INSURANCE PREMIUM U/S 80-D.

Section SOD of the Income-tax Act provides for a deduction upto Rs. 10,000 from the total income of a tax payer, being an individual or a HUF, in respect of any sum paid by cheque, to effect or keep in force an insurance policy on the health of the individual and his family members (including dependant parents). Witheffect from A.Y. 2000-01 and subsequent years, the monetary limit of deduction under section 80-D, has been raised from its present level of Rs. 10,000 to Rs. 15,000 if the amount is paid to keep in force an insurance on the health of the assessee or his wife or her husband or dependent parents and who is a senior citizen. In the case of a H.U.F. the enhanced limit is available if policy is on the health of member of H.U.F..

DEDUCTION FOR PHYSICALLY HANDICAPPED & DISABLED DEPENDENT U/S. 80DD.

A deduction of Rs. 15,000 u/s 80DD was allowed to an individual or HUF in respect of expenditure incurred on medical treatment of a handicapped dependent. Similarly, u/s 80DDA a separate deduction to a parent or guardian in respect of deposits upto Rs.20,000 made in specified schemes of Life Insurance Corporation & Unit Trust of India was available to provide for the future needs of the said dependent.

The old sections 80DD and 80DDA have been merged into a new see. 80DD. Now, w.e.f. 1-4-2000 i.e. for A.Y. 2000-01 and subsequent years, a total deduction of Rs.40,000 will be available to the parent or guardian in respect of either medical expenditure incurred on medical treatment of or for the future needs of the disabled or handicapped dependent.

DEDUCTION FOR MEDICAL TREATMENT QF SERIOUS AILMENTS U/S 80DDB.

With effect from A.Y. 1997-98 a new section 80DDB has been enacted which provides that if a resident individual or H.U.F. actually incurs expenditure for the medical treatment of specified serious disease or ailment for himself or a dependant relative or a member of HUF then a sum of Rs.40,000 w.e.f. 1.4.2000 i.e. for A.Y.2000-01 and subsequent year(s), shall be allowed as deduction.

If the expenditure incurred is in respect of the assessee or his wife or her husband or dependent parents and who is a senior citizen then w.e.f. 1,4.2000 i.e. for A.Y.2000-01 and subsequent year(s) the limit of Rs.40,000 would stand increased to Rs.60,000. In the case of a H.U.F. the enhanced limit is available if expenditure is for specified medical treatment of member oftheH.U.F..

For availing this deduction a certificate in prescribed form has to be furnished.

DEDUCTION FOR REPAYMENT OF LOAN TAKEN FOR HIGHER EDUCATION U/S 80E.

Section 80E provides for a deduction upto Rs.40,000 w.e.f. A.Y. 2001-02 and subsequent year(s), in respect of repayment of loan or interest on such loan, taken for higher education by an individual. The loan is to be taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education.

This deduction is allowed in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the loan referred to above together with interest there upon is repaid by the assessee in full, whichever is earlier.

WHAT IS AN APPROVED FINANCIAL INSTITUTION OR CHARITABLE INSTITUTION?

"Financial Institution" means a banking company to which the Banking Regulation Act, 1949 applies or any other institution which the Central Government may notify and a "Charitable Institution" means a notified institution u/s 10(2C) or u/s 8OG(2)(a) established for charitable purposes.

WHAT IS 'HIGHER EDUCATION' AND INITIAL ASSESSMENT YEAR?

"Higher education" means full-time studies for any graduate or postgraduate course in engineering,medicine, management, or for postgraduate course in applied sciences or pure sciences, including mathematics and statistics and Initial assessment year' means assessment year in which the assessee starts repaying the loan or interest.

DEDUCTION IN RESPECT OF DONATIONS FOR CHARITABLE PURPOSES U/S 80-G

Tax relief in respect of donations to certain funds, approved educational institution(s) of national importance, charitable institutions etc. is admissible u/s 80-G of the Act. It will have to be claimed by the tax payers at the time of assessment and is not to be allowed by the Tax-Deducting-Authority. The qualifying amount for deduction will be 50% of the amount.

Section 80-G now also provides for 100% deduction for donations to Zila Saksharta Samitis constituted in the districts under the Chairmanship of the District Collectors for the purpose of improving primary education in rural or semi-urban areas (towns with a population not exceeding one lakh according to the latest census) for literacy and post-literacy efforts.

However, where contributions are made to a university or any approved educational Institution of national importance, or Chief Minister's Earth Quake Relief Fund, Maharashtra; or to approved institutions promoting family planning; or the Prime Minister's National Relief Fund, the Africa Fund, and the National Foundation for Communal Harmony, etc. are eligible @100%.

Also, deduction of hundred percent of donations made by tax payers to a fund set up by a State Government for the medical relief of the poor; National or State Blood Transfusion Councils and Defence Services Funds for welfare of their personnel is available. For e.g. organisations like the National Council of Blood Transfusions, Army Central Welfare Fund, Indian Naval Benevolent Fund, and Air Force Central Welfare Fund.

DEDUCTION FOR DONATIONS MADE TO NATIONAL SPORTS FUND.

Hundred percent deduction for donations made to National Sports Fund is also available u/s 80-G. This has been done for raising the standard of sports and games to international levels, easy access to world class facilities, equipment and scientific backup to sports persons and to facilitate availability of funds for the promotion of sports and games in the country. Deduction for donations made to National Cultural Fund on similar lines @ 100% deduction is also available for deduction made to the National Cultural Fund.

DEDUCTION FOR DONATIONS MADE TO INDIAN OLYMPIC ASSOCIATION.

For the development of infrastructure for sports 85 games in the Country and for their sponsorship, an assessee company can derive w.e.f. 1.4.2001 i.e. for A.Y.2001-02 and subsequent year(s), the benefit of 100% deduction u/s 80G for donations to Indian Olympic Association or any other notified association.

HUNDRED PER CENT DEDUCTION TO DONATIONS MADE TO THE NATIONAL TRUST FOR WELFARE OF PERSONS WITH AUTISM, CEREBRAL PALSY, MENTAL RETARDATION AND MULTIPLE DISABILITIES

Section 80G of the Income-tax Act, allows a deduction of 50% of the contribution in the computation of income of the donor. However, in respect of donations to certain funds, 100% deduction is allowed.

For alleviating the suffering of those with autism, cerebral palsy, mental retardation and multiple disabilities, with effect from 1st April, 2002, ie. in relation to the A.Y. 2002-2003 and subsequent years, now the benefit of 100% deduction is provided to donations made to the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities.

DEDUCTION FOR HOUSE RENT PAID U/S 80-GG.

An assessee is entitled to a deduction u/s 8OGG in respect of house rent paid by him for his own residence, subject to the following conditions: -

a) the assessee has not been in receipt of any house rent allowance specifically granted to him which qualifies for exemption under section 10(13A) of the Act;

b) he will be entitled to a deduction in respect of house rent paid by him in excess of 10 percent of his total income,  subject to a ceiling of 25 percent thereof or Rs.2,000     per  month,   whichever is Less.     The  total income   for   working   out   these   percentages   will   be computed before making any deduction U/S 8OGG;

c) the assessee does not own

i) any residential accommodation himself or by his spouse or minor child or where such assessee is a member of a Hindu Undivided Family, by such family, at the place where he ordinarily resides or performs duties of his office or carries on his business or profession; or

ii) at any other place, any residential accommodation being accommodation in the occupation of the assessee.

d) the accommodation occupied by him for the purpose of his own residence is in any of the following places: -

i)Agra, Ahmedabad, Allahabad, Amritsar, Bangalore, Bhopal, Calcutta, Coimbatore, Delhi, Faridabad, Gwalior (Lashkar), Hyderabad, Indore, Jabalpur, Jaipur, Kanpur, Lucknow, Ludhiana City, Madurai, Nagpur, Patna, Pune, Srinagar, Surat, Vadodra (Baroda) or Varanasi (Banares) or the urban agglomeration of each of such places; or

ii)Bombay, Calicut, Cochin, Ghaziabad, Hubli-Dharwad, Madras, Sholapur, Trivandrum or Visakhapatnam.

DEDUCTION FOR REMUNERATION RECEIVED IN FOREIGN CURRENCY FROM EMPLOYER U/S 80RRA.

In the case of an individual who is a citizen of India a deduction is allowable if total income includes any remuneration received by him in convertible foreign exchange from a foreign employer or an Indian concern for any services rendered by him outside India.

The deduction u/s 80RRA, had provided for a deduction equal to 50 per cent of such income or remuneration or 75 per cent of such income or remuneration as is brought into India, whichever is higher.

Effective from A.Y. 97-98 and subsequent years, this deduction shall now be equal to 75% of the foreign exchange earnings, which are brought into India within a period of six months from the end of the previous year or within such further extended period.

The assessee has to furnish a certificate in the prescribed form along with the return of income for claiming the deduction. The due date for filing the return of income for such taxpayers is 31st October.

In the case of an employee of Central or State Government, or a person who was immediately before taking up the service outside India, in the employment of the Central or State Government, the deduction will be allowed only if the service of the employee is sponsored by the Central Government.

In the case of any other individual, the deduction will be allowed only if he is a 'technician1 and the terms and conditions of his service outside India are approved by the Central Government. This deduction te allowed with reference to the remuneration received by the individual in foreign currency for services rendered outside India.

Thus, if the remuneration is paid to the Indian technician etc., partly in Indian currency, that portion will not be taken into account for purposes of this deduction.

Likewise, if a part of the remuneration, although paid in foreign currency relates to service rendered in India, then such part of the remuneration will also not qualify.

The expression "foreign employer" has been defined to mean (i) the Government of a foreign State; or (ii) a foreign enterprise; or (iii) any association or body, established outside India.

Now w.e.f. 1.4.01 i.e. for A.Y.2Q01-02 and onwards this deduction would stand reduced from 75% of such remuneration to 60% in A.Y. 2001-02, 45% for A.Y. 2002-03, 30% for A.Y. 2003-04 and 15% for A.Y. 2004-05.

DEDUCTION U/S SOU FOR ASSESSEE, SUFFERING FROM PHYSICAL DISABILITY.

A deduction of Rs.40,000 is allowed while computing the total income of an Individual suffering from permanent physical disability (including blindness) or mental retardation. These should be certified by a Government Hospital. The disability must have the effect of reducing considerably such individual's capacity for normal work or engaging in a gainful employment or occupation,

SOME OTHER DEDUCTIONS WHICH ARE ALSO ALLOWABLE ARE AS UNDER: -

1)  Donations to approved scientific/social organisations doing  science/statistical  research,   rural  development, conservation of natural resources, afforestation or eligible project (Section 80-GGA).

2) Income,   of  an   individual   or   a  Hindu   Undivided Family, by way of deposits in banks and certain other investment incomes like interest on NSC,  NDS,  Post Office   (Monthly   Income   A/C)   Rules   1987   upto   an aggregate of Rs.9,000 u/s SOL is available for interest on interest  from  bank  deposits  etc.   and  an   additional deduction upto Rs. 3,000 in respect of interest on any security of the Central/State Government.

3) Under section 80R of the Income-tax Act, a professor, teacher or a research worker rendering service abroad is entitled to a deduction from the remuneration received from a foreign university, educational institution, etc., while computing his income chargeable to tax.    This deduction is available to a resident citizen.
With effect from 1st April, 1997, they would be entitled to a deduction from the remuneration received equal to 75% of the foreign exchange earnings, which are brought into India within a period of six months from the end of the previous year or within such further extended period. The assessee shall have to furnish a certificate in the prescribed form along with the return of income.Due date for filing the return in the case of such taxpayers is 31st October. Now w.e.f. 1.4.2001 i.e. from A.Y.2001-02 this deduction stands reduced from 75% of such remuneration to 60% in A.Y. 2001-02, 45% for A.Y. 2002-03, 30% for A.Y. 2003-04 and 15% for A.Y. 2004-05.

4) Golden Handshake to employees of a Cooperative Society, a University, a notified Management Institute or of an I.I.T. would be tax-exempt. The amount received by an employee from the employer, at the time of voluntary retirement, calculated in accordance with any scheme or schemes of voluntary retirement framed under Rule 2BA of the IT Rules 1962, will be exempt subject to a maximum of Rs.5 lakhs. The other payments like gratuity, leave-encashment etc. will be governed by the other provisions of IT Act 1961.

5) The government has set up a fund called 'National Urban Poverty Eradication Fund'.    Donations made to this fund qualify for 100% deduction u/s 80-GGA.   This deduction is only available to tax payers other than those
deriving income from business or profession.

WHAT ARE THE LIMITS OF THESE DEDUCTIONS?

The sum total of these deductions is limited to the amount of gross total income.

IS THE DRAWING & DISBURSING OFFICER BOUND TO GIVE CREDIT (WHILE DEDUCTING TDS FROM SALARIES) FOR DONATIONS?

No. In respect of donations made for charitable purposes (except to specified funds like Prime Minister's National Relief Fund] the tax relief is to be claimed in the income tax return and allowed by the Assessing Officer if found to be in order.

WHAT DOES THE WORD "DEPENDENT" IMPLY?

The word dependent means a person who is not dependent for his support or maintenance on any person other than the assessee.

 

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