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Deductions
from Gross Total Income and Tax Rebates
5.1
Deductions
Under the scheme of computation of total
income under the Income Tax Act, the income falling under each head
is to be computed as per the relevant provisions of the Act relating
to computation of income under that head (Refer Chapter IV). The
aggregate of income under each head is known as 'Gross Total Income'
out of which certain deductions are permitted to arrive at the Total
Income'. These deductions are explained in this Chapter.
5.2
Deductions in respect of certain payments
5.2.1
Medical Insurance premia (Sec. 800)
Premium paid upto the maximum amount
of Rs. 10,000/-in a year, in respect of medical insurance on the
health of the individual or the wife/husband or dependent parents
or dependent children of such individual is allowed as a deduction
provided the insurance is in accordance with the approved scheme
of the General Insurance corporation and the premium is paid by
cheque. If, however, any of the insured persons is a senior citizen,
deduction can be of an amount upto Rs. 15000.
5.2.2
Payments for medical treatment of handicapped dependents (Sec. 80DD
and 80DDA)
Where an assessee being an individual
or a Hindu Undivided family resident in India incurs any expenditure
for the medical treatment, nursing, training and rehabilitation
of a handicapped dependent, deduction of Rs. 40,0007- is allowed
from gross total income. The deduction includes payment or deposit
under an approved scheme of the L.I.C. or the U.T.I. providing for
payment of annuity or lump sum amount for the benefit of the handicapped
dependent in the event of assessee's death.
5.2.3
Where an Indian resident incurs any expenditure for the medical
treatment
Where an Indian resident incurs any
expenditure for the medical treatment of specified disease or ailment
for himself or a dependent relative, he is allowed a deduction of
an amount actually incurred subject to maximum of Rs. 40,000/-.
If he or any dependent relative is senior citizen, the deduction
can go upto Rs. 60,000. The amount of deduction is to be determined
after reducing the amount received under medical insurance (Sec.
80DDB).
5.2.4
Repayment of loan taken as a student for pursuing higher studies
(Sec. 80E)
Any repayment of the principal amount
of loan taken from a financial institution or a recognised charitable
organisation for higher studies and interest thereon is allowed
as a deduction upto a maximum amount of Rs. 40,000/- in a year.
The relief is available to persons who have undertaken graduate
or post graduate courses in any branch of engineering, medicine
or management or post-graduate courses in any university in pure
sciences, applied sciences, mathematics or statistics. This deduction
is allowed for a maximum period of 8 years beginning with the year
in which repayment starts.
5.2.5
Donations to certain Funds, Charitable Institutions etc. (Sec. 80G)
Donations/contributions made to recognised
charitable trusts/institutions and certain specified Funds are allowed
as deduction. Full deducation is allowed in respect of certain donations
like contributions towards the Prime Minister's National Relief
Funds, Prime Minister's Armenia Earthquake Relief Fund, Chief Minister's
Relief Fund, Africa Fund, National Foundation for Communial Harmony,
Zita Saksharta, Samitis for Primary and Adult Education, National
Sports Fund, National Cultural Fund. Fund for Technology Development
and Application, Indian Olympic Association (by companies
only) and to the government, local authority or approved institution/organisation
for promotion of family planning. Full deduction is also admissible
in respect of any sum paid to a University or any approved educational
institution of national eminence. Donations/contributions to other
recognised charitable trusts and specified funds qualify for deduction
of 50% of the amount donated or contributed. Deductions in respect
of certain donations, such as donations to National Minorities Development
and Finance Corporation are subject to overall qualifying limit
of 10% of the 'Gross Total Income'.
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5.2.6
Rent payment (Sec. 80GG)
Expenditure in excess of 10% of total
income incurred by an assessee (not in receipt of house rent allowance)
on payment of rent in respect of residential accomodation occupied
by him for his own residence is allowed deduction upto Rs. 2,0007-
per month or 25% of total income, whichever is less.
5.2.7
Contributions for scientific research etc. (Sec. 80GGA)
Complete deduction is allowed in respect
of contribution to-
- Approved scientific research associations, University,College
or other institution for scientific research;
- Approved University, college or institution for research in
social science or statistical research;
- Approved association/institution having as its object the undertaking
of any program of conservation of natural resources or of afforestation;
- Rural Development Fund set up, and notified by the Central Government;
- Fund for afforestation notified by the Central Government;
- Public sector company, local authority or association or institution
approved by the National Committee for carrying out any eligible
project for social and economic welfare.
- National Urban Poverty Eradication Fund.
These deductions are not allowed to
those whose gross total income includes income chargeable under
the head 'Profits and Gains of business or profession'. It is because
they are entitled to claim such payments as allowable deductions
in computation of income from business or profession.
5.2.8
Expenditure on employment of new workmen (Sec. 80JJAA)
Deduction of amount equal to 30% of
additional wages paid to the new regular workmen by an Indian Company
deriving profit from any industrial undertaking is allowed. Additional
wages for this purpose means wages paid to new regular workmen in
excess of one hundred workmen employed during the year and in case
of an existing undertaking in excess of 10% of existing workmen.
5.3
Deduction in respect of certain income included in gross total income
5.3.1
Profit or gain derived from export or work done abroad.
Profit or gains derived from certain
business activities qualify for deduction-fully or partly-subject
to fulfilment of following conditions:-
- The enterprise is run by resident of India;
- Consideration for sale or work done is received in foreign currency;
- Consideration is brought to India-fully or in the case mentioned
at 1 below of amount equal to admissible deduction-in convertible
foreign exchange;
- Such amount is brought within six months or such extended time
as may be permitted by R.B.I, or any other competent authority
regulating payment and dealing in foreign exchange;
- In cases mentioned at 1,2 and 3, a specified percentage of profit
is carried to reserve account to be utilised for business purposes
(not distribution of dividend or profit) for five years.
The business activities and admissible
deduction are—
| 1 |
Execution of projects outside India
(Sec. 80HHB) |
upto 2000-1 |
-50% |
| |
For 2001-2 |
-40% |
| For 2002-3 |
-30% |
| For 2003-4 |
-20% |
| For 2004-5 |
-10% |
| From 2005-6 |
Nil |
| 2 |
Execution of World-bank aided housing
projects (Sec. 80 HHBA) |
--Do--
|
| 3 |
Services provided to foreign tourists
by hotels or tour operators (sec. 80 HHD) |
--Do--
|
| 4 |
Export of goods or mercandise (Sec.
80HHC) |
upto 2000-1 |
-100% |
| |
For 2001-2 |
-80% |
| For 2002-3 |
-60% |
| For 2003-4 |
-40% |
| For 2004-5 |
-20% |
| For 2005-6 |
Nil |
| 5 |
Export or transmission of computer
software or rendering of technical services outside India for
development or production thereof (Sec. 80HHE) |
--Do--
|
| 6 |
Export or transmission of computer
software or rendering of technical services outside India for
development or production thereof (Sec. 80HHE) |
--Do--
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5.3.2.
Profits and gains from industrial undertaking (sec. 80-1A and sec.
80-1B)
Deduction is allowed from profits and
gains from -
| (i) Enterprise carrying on business
of (i) developing, (ii) maintaining and operating or (iii) developing,
maintaining and operating infrastructure facility (such as road,
highway, bridges, airports, rail systems, water treatment, solid
waste management systems, etc. on BOT, BOOT or similar basis)
which is owned by a company under agreement with the government
or any statutory authority and which makes such facility operational
after 1.4.95. The deduction also applies to housing or other
activities which are integral part of the highway project. |
100% of profit for initial five
years and 30% thereafter so that the deduction will be available
for ten consecutive assessment years falling within a period
of fifteen assessment years. (The period will be twenty years
in respect of water supply, irrigation, sanitation and sewerage
project).
|
|
(ii) Undertaking which starts
providing telecommunication services between 1.4.1995 and
31.3.2000.
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100% of profit for initial five years and thereafter
30% of profit in the case of companies and 25% in the case of others for five years so that the deduction
will be available for 10 consecutive years falling within fifteen
initials assessment years |
| iii) Undertaking which begins to operate a notified
industrial park for the period beginning 1.4.1997 and ending
31.3.2002. |
--Do--
|
| (iv) Industrial undertaking for generation or
generation and distribution of power set up in any part of India
which begins to generate power between 1.4.1993 and 31.3.2003
or engaged in laying a net work of new transmission or distribution
lines between 1.4.1999 and 31.3.2003. |
--Do--
|
| (v) Undertakings not being small scale undertakings
beginning production (other than of low priority items of eleventh
schedule) between 1.4.91 and 31.3.95 |
30% of profit for companies and 25% for others.
The deduction is for 12 years in the case of cooperative societies
and 10 years for others. |
|
(vi) Small scale industrial undertakings
set up anywhere which begin production of articles or operation
of Cold Storage between 1.4.95 and 31.3.2002.
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30% of profit for companies and
25% for others for 12 years in the case of Cooperative Societies
and 10 years in the case of others.
|
| (vii) Industrial undertaking for producing articles
or operating cold storage located in industrially backward state
specified in the Eighth Scheduled which begins production or
operation between 1.4.1993 and 31.3.2002. |
100% of profit for initial five years and thereafter
30% for companies and 25% for other assesses, so that total
number of years for which deduction is admissible will be 12
for Co-operative Societies and ten for others. In case of notified
Industries in North-Eastern Region 100% deduction is admissible
for ten assessment years. |
| (viii) Industrial undertaking for producing articles
or operating Cold Storage in notified backward districts of
category A which begins production or operation between 1.10.94
and 31.3.2002. |
--Do--
|
| (ix) Industrial undertaking for producing articles
or operating Cold Storage in notified backward districts of
category B which begins production or operation between 1.10.94
and 31.3.2002. |
100% deduction for initial three years and thereafter
30% for companies and 25% for others for further five years
so that the total period for which deduction is allowable will
be 8 years. (12 years for cooperative societies). |
| (x) Ships brought into use between 1.4.1990 and
31.3.95 |
30% of profit for ten years |
| (xi) The business of hotel (other 50% of profit
for ten than those located in Calcutta, years. Chennai,
Delhi and Mumbai) located in a hilly area or a rural area or
a place of pilgrimage or any other place specified by the Central
Government and which starts functioning between 1.4.97 and 31.3.2001. |
|
| (xi) The business of hotel (other
than those located in Calcutta,
. Chennai,
Delhi and Mumbai) located
in a hilly area or a rural area or a place of pilgrimage or any other place specified
by the Central Government and which starts functioning between 1.4.97 and
31.3.2001. |
50% of profit for ten years |
|
(xii)The
business of approved
hotel (except those located
in Calcutta, Chennai, Delhi and Mumbai) which are located in places other than
those mentioned at (xi) above and which starts functioning
between 1.4.97 and 31.3.2001.
|
30%
of profit for ten years |
|
(xiii)Company
registered in India carrying on scientific
and industrial research and development which is approved
by the prescribed authority at any time before 1.4.1999.
|
100% of profits for five years |
|
{xiv)Undertaking which begins
for initials commercial production or
refining of mineral oil in North Eastern Region before 1.4.1997 and in any part of India on
or after 1.4.1997 (in case of refining on or after
1.10.1998)
|
100%
of profit seven
years |
|
xv) Undertaking engaged in
developing and building
housing projects approved before
31.3.2001 by a local authority,
subject to certain conditions,
commencing activities on or after 1.10.1998
and completing the same by
31.3.2003
|
100% of profit derived from such business |
| (xvi)
Undertakings engaged in setting up and operating a
Cold chain facility for agricultural
produce commencing
operation between 1.4.1999
and 31.3.2003 |
100% for initials five years and thereafter 30%
for companies and 25% for others so that thetotal period does
not exceed 10 years (12 years for cooperative societies). |
|
5.3.3
Profit from business of collecting and processing of biodegradable
waste (Sec. 80JJA)
Whole of such income is allowed as deduction
for five consecutive assessment years where such collection, processing
or treating is for generating power, producing bio-gas, bio-fertilizers,
bio-pesticide and for making pellets of briquettes or fuel or organic
manure.
5.3.4
Interest on certain deposits, saving instruments, dividend, income
from units etc. (Sec. SOL)
Deduction is allowed upto an amount
of Rs. 12,000/- in respect of income from long term saving instruments,
deposits etc. Some of such instruments/schemes etc. are :-
- Security of Central or State Government
- National Saving Certificates (VI, VII or VIII issue)
- Notified debentures
- National Deposits Scheme
- Post Office (Time deposit) Scheme, Post Office (Recurring
Deposit) National Saving Scheme 1992.
- Deposits with Banking company or Industrial Development Bank
of India or a Cooperative Society
- Deposits with certain Financial Corporations providing long
term finance for industrial development
- Deposits with housing authorities
- Interest on deposits from Co-operative Society
- Deposits with housing finance companies
Where, however, full deduction in respect
of items at (i) cannot be given because of the limit of Rs.12,000/-,
an additional deduction upto Rs. 3,000/- can be allowed to cover
these items.
5.3.5
Certain income of co-operative societies (Sec. SOP)
Complete deduction is allowed in respect
of income of cooperative societies engaged in the business of banking,
cottage industry, marketing of agricultural produce, purchase of
agricultural implements etc. intended for agriculture, processing
of agricultural products without the aid of power, collective disposal
of the labour of its members of fishing or allied activities. Complete
deduction is also allowed to the primary societies engaged in supplying
milk, oil seeds, fruits or vegetables raised or grown by its members
to the Federal Co-operative Society, Government, local authority
or a Government company. For societies engaged in activities other
than those mentioned earlier, a separate deduction upto Rs. 1,00,0007-
is available with respect to profit from such other activities to
a consumers' cooperative society and upto Rs. 50,0007- to any other
cooperative society. Apart from this general deduction, the whole
of certain types of income is allowed as deduction. Income by way
of dividend or interest from investments with other cooperative
society and income from letting godowns for specific purposes are
allowed as deduction in full. Cooperative societies, not engaged
in transport and manufacturing business and having gross total income
of upto Rs. 20,0007- are entitled to deduction of whole of interest
on securities and income from house property.
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5.3.6
Income of totally blind or physically handicapped resident persons
or their parent (Sec. SOU)
A deduction of Rs. 40,0007- is allowed
out of the income of an individual who at the end of the year was
totally or partially blind or who suffered from a permanent physical
disability or mental retardation of the order which had the effect
of reducing substantially his capacity to engage in a gainful employment.
This deduction is available only to
a resident individual.
5.4
Deduction in respect of income received in foreign currency
5.4.1
Income from services for use Outside India
Income from certain services rendered
abroad or for use outside India qualify for deduction subject to
the following conditions:-
- Services are rendered by persons resident in India or in case
of income referred to at 2 & 4 (Sec. 80R and 80RRA) by a person
who is citizen of India.
- Consideration is received in foreign currency.
- The same is brought in India in convertible foreign exchange
within six months from the end of the previous year or within
such extended time as may be permitted by the Reserve Bank or
any competent authority regulating payment of or dealing in foreign
exchange.
- The deduction is equal to the specified percentage of the income
so brought in India.
Income qualifying for deduction and
admissible deductions
| 1. Royalties, commission, fees or or any similar
payment received from foreign government or a foreign enterprise
for use outside India of any patent invention, design or registered
trade mark-(Sec. 80-O) |
Upto 2000-1 |
50% |
| |
For 2001-2 |
40% |
| For 2002-3 |
30% |
| For 2003-4 |
20% |
| For 2004-5 |
10% |
| For 2005-6 |
Nil |
| 2. Remuneration of a professor, teacher or research
worker for service rendered in these capacities during stay
outside India (Sec. 80-R) |
Upto 2000-1 |
75% |
| |
For 2001-2 |
60% |
| For 2002-3 |
45% |
| For 2003-4 |
30% |
| For 2004-5 |
15% |
| For 2005-6 |
Nil |
| 3.Income of author, playwright,artist, musician,
actor or sportsman (including an athlete) received from a foreign
government or a person not resident in India (Sec. 80-RR) |
--Do--
|
|
4.Remuneration from an employer for services rendered outside
India received by
- a serving of former government employee if such services
are sponsored by the Central government or
- any other individual as a technician if the terms and
conditions of service outside India is approved by the Central
Government or the prescribed authority. (Sec. 80-RRA)
|
--Do--
|
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5.5
Tax Rebates (Sec 88 and 88B)
5.5.1
A tax rebate @25% for authors, artists and sportsman and ©20% for
others of the amount saved and invested in specified areas is allowable
subject to the maximum of Rs. 17,500/- for authors, artists and
sportsman and Rs. 12,000/- for others. Certain payments which qualify
for such tax rebate are:-
- Life Insurance premium or payment for a contract of deferred
annuity.
- Contribution to a statutory or recognised provident fund,
approved superannuation fund or public provident fund.
- Payment in a ten year or fifteen year account under the Post
Office (Cumulative Time Deposit) Scheme.
- Subscription to the National Savings Certificate (VIII issue).
- Contribution to unit Linked Insurance Plan of the Unit Trust
of India or Dhanaraksha-1989 plan of the LIC Mutual Fund.
- Contribution to "Jeevan Dhara" and "Jeevan
Akshay", annuity plans of the Life Insurance Corporation
of India.
- Subscription to the notified schemes of the Unit Trust of
India or other notified mutual Funds (rebate allowable on amount
upto Rs. 10,000/-)
- Subscription to the notified Pension Funds of the notified
Mutual Funds or the Unit Trust of India.
- Subscription to home loan account scheme of National Housing
Bank.
- Subscription to the National Savings Scheme of the Government.
- Money spent on acquisition or construction of residential
house or repayment of loan taken for the purpose from specified
sources, Rebate is admissible in respect of such expenditure
upto Rs. 20,000/-
- Subscription to equity shares or debentures or to units of
any mutual fund approved by the Board or to any eligible issue
of capital by any public financial institution provided no benefit
has been taken under section 54EA and 54EB (Para 4.5.7).
5.5.2
A tax rebate equal to 100% of tax or Rs. 15000/- whichever is
less is allowed to a resident senior citizen who is aged 65 years
or more at any time during the previous years.
5.5.3
A woman resident of India who is below the age of 65 years at any
time during the previous year is entitled to a tax rebate of an
amount upto Rs. 5000/-
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