EduPristine www.edupristine.com Deduction under Income Tax Chapter VI-A
Gross Total Income vs. Total Income Gross Total Income (GTI) means the aggregate of income computed under each head as per provisions of the Act GTI is computed after giving effect to the provisions for clubbing of incomes and set off of losses, but before making any deductions under Chapter VIA of the Act In order to compute Total Income, deductions under Chapter VIA are considered and adjusted from GTI The aggregate amount of deductions under Chapter VIA cannot exceed GTI of the assessee 1
Major Sections under Chapter VI-A 80C 80CCC 80CCG 80D 80DD 80E 80G 80TTA 80U 2
Section 80C 80C 80CCC 80CCG 80D 80DD 80E 80G 80TTA 80U 3
Section 80C Available for individual or a Hindu undivided family The total limit under this section is Rs 1.50 lakh from Financial Year (FY) 2014-15 Before FY 2014-15 the limit was Rs. 1 Lakh Deduction is available if made investments or utilized money for below mentioned purpose: Life Insurance Premium - Policy must be in the assesse's or spouse's or any child's name (child may be dependent/independent, minor/major, or married/unmarried). For a HUF, it may be on life of any member of HUF Sum paid under non commutable deferred annuity for an individual on the life of the assesse, spouse or any child Sum deducted from salary payable to Government Servant for securing deferred annuity for self-spouse or child. Payment limited to 20% of salary Contribution made under Employee's Provident Fund Scheme or Recognized Provident Fund Contribution to a 15 year Public Provident Fund (PPF). Under the PPF scheme, maximum contribution is Rs 1,50,000 from Assessment Year 2015-16 4
Section 80C Contribution to PPF for individual can be in the name of the assesse, the spouse or any child. For a HUF, it can be in the name of any member of the family Sum deposited in Five Year Deposit Scheme in Post Office Amount deposited under Senior Citizens Saving Scheme Subscription to any notified securities/notified deposits scheme. e.g. NSS Subscription to any National Savings Certificate e.g. NSC VIII issue and IX issue. Accrued Interest (which is considered reinvested) also qualifies for deduction for any year (except the last year) Contribution to Unit Linked Insurance Plan of LIC Mutual Fund e.g. Dhanraksha 1989 and contribution to Unit Linked Insurance Plan of UTI Contribution to notified Pension Fund set up by Mutual Fund or UTI Sum paid as subscription to Home Loan Account Scheme of the National Housing Bank or contribution to any notified deposit scheme/pension fund set up by National Housing Bank Subscription to deposit scheme of a public sector, company engaged in providing housing finance (public deposit scheme of HUDCO) 5
Section 80C Payments of installments or part payments or repayment of loan taken for buying or constructing residential house property. Also allowed for stamp duty, registration fees and other expenses for purpose of transfer of such property to the assesse. However, if the property is transferred before the expiry of 5 years from the end of the financial year in which possession of such property is obtained by him, the aggregate amount of deduction of income so allowed for various years shall be liable to tax in that year Contribution to notified annuity Plan of LIC (e.g. Jeevan Dhara and Jeevan Akshay) or Units of UTI / notified Mutual Funds Subscription to equity shares/ debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions Tuition fees paid to any school, college, university or other educational institution situated within India for the purpose of full time education of any two children (including payments for play school, pre nursery and nursery) Subscription to any notified bonds of NABARD (National Bank for Agriculture and Rural Development) 6
Section 80CCC 80C 80CCC 80CCG 80D 80DD 80E 80G 80TTA 80U 7
Section 80CCC The deduction u/s 80CCC is available to an individual assessee Also available to a non resident individual Another condition for claiming deduction u/s 80CCC is that the amount of contribution paid in respect of which deduction has to be claimed, must have been paid out of the income chargeable to tax of the concerned individual assessee Contributions made towards pension plans of LIC or other insurers are eligible for deduction u/s 80CCC The amount of deduction u/s 80CCC together with deduction available u/s 80C is maximum Rs. 1.5 Lacs Where deduction has been allowed u/s 80CCC, deduction u/s 80C will not be available in respect of the payment towards such annuity plan 8
Section 80CCG 80C 80CCC 80CCG 80D 80DD 80E 80G 80TTA 80U 9
Section 80CCG A new scheme was introduced to encourage flow of saving in financial instruments and improve the depth of domestic capital market Also aims to promote an equity culture in India Expected to widen the retail investor base in the Indian securities markets and further the goal of financial stability and financial inclusion The Scheme is named after the former Prime Minister of India Mr. Rajiv Gandhi Provide for a one time deduction to a resident individual Who acquires listed equity shares in a previous year in accordance with a scheme notified by the Central Government The deduction was 50 % of amount invested in such equity shares or 25,000, whichever is lower Maximum deduction of 50,000 in such listed equity shares Gross total income of the assessee for the relevant assessment year should be less than or equal to 10 lakh 10
Section 80CCG Assessee should be a new retail investor as per the requirement specified under the notified scheme The investment should be made in such listed investor as per the requirement specified under the notified scheme Minimum lock in period in respect of such investment is three years from the date of acquisition in accordance with the notified scheme 11
Section 80DD 80C 80CCC 80CCG 80D 80DD 80E 80G 80TTA 80U 12
Section 80D This deduction is allowed only to an individual (resident / non resident/ Indian citizen/ foreign citizen) or a Hindu undivided family (resident/ non resident) Payment is made towards premium for mediclaim policy Fixed benefit policies like personal accident and critical illness policies do not qualify for this deduction In case of the individual taxpayer, following payment also qualifies for the deduction Payment made to the Central Government Health Scheme Preventive health check-up will also qualify towards this deduction Payment has to be made by a mode other than cash (e.g. credit card, cheque, net banking etc.) Deduction under Section 80D is not allowed for payment through cash However, payment on account of preventive health check-up can be made by any mode (including cash) 13
Section 80DD 80C 80CCC 80CCG 80D 80DD 80E 80G 80TTA 80U 14
Section 80DD To be claimed by Resident Individual/HUF May be ordinary resident Indian or Not ordinary resident Indian May be foreign citizen or Indian citizen Non resident can not claim this deduction. Incurs any expenditure for the medical treatment, training and rehabilitation of a disabled dependant or Deposits any amount in schemes like Life Insurance Corporation for the maintenance of a disabled dependent Deduction of Rs 50,000 is available 15
Section 80E 80C 80CCC 80CCG 80D 80DD 80E 80G 80TTA 80U 16
Section 80E Available to an individual, not to HUF or other type of Assessee Amount of interest paid is eligible for deduction No cap on the amount to be deducted No benefit available on the repayment of principal amount of the loan If Interest is been paid during the previous year and was paid out of income chargeable to tax Interest should have been paid on loan taken by him Loan from any financial institution or any approved charitable institution for pursuing his higher education Interest on Loan taken from relatives or friends will not be eligible Higher education means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized 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 17
Section 80E Loan should have been taken for the purpose of pursuing higher studies of Individual, Spouse, Children of Individual or of the student of whom individual is legal Guardian Parents are also eligible to claim deduction of interest paid by them on loan taken for their children s education Deduction shall be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier The tax benefits on education loan are only valid once you start the repayment and moreover they are only available up to eight years If loan tenure exceeds eight years, cannot claim for deductions beyond eight years 18
Section 80E Loan should be in the name of Individual If parents, spouse or sibling has taken the loan for your studies, then individual not entitled to get tax benefit The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies like hostel charges, transport charges etc Repayments of education loan NOT covered under Section 80C Course may be in or outside India 19
Section 80G 80C 80CCC 80CCG 80D 80DD 80E 80G 80TTA 80U 20
Section 80G Section 80G has been introduced by Government to give tax benefits on donations The amount donated towards charity attracts deduction under section 80G of the Income Tax Act, 1961 21
Section 80G Available to all kind of Assessee Donations made to foreign trusts do not qualify for deduction Donation to Political Parties is not eligible for deduction Only donation made to made to prescribed funds and institutions qualify for deduction 22
Section 80G Deduction of Donation Under Section 80G Without any Maximum Limit Subject to Maximum Limit of 10% of adjusted gross total income 100% deduction of the amount donated 50% deduction of the amount donated 100% deduction of the amount donated 50% deduction of the amount donated 23
Without any Maximum / Qualifying Amount 24
Donations with 100% deduction without any qualifying limit Prime Minister s National Relief Fund National Defense Fund Prime Minister s Armenia Earthquake Relief Fund The Africa (Public Contribution India) Fund The National Foundation for Communal Harmony Approved university or educational institution of national eminence The Chief Minister s Earthquake Relief Fund, Maharashtra Donations made to Zila Saksharta Samitis The National Blood Transfusion Council or a State Blood Transfusion Council The Army Central Welfare Fund or the Indian Naval Benevolent Fund or The Air Force Central Welfare Fund Army Central Welfare Fund, Indian Naval Ben. Fund, Air Force Central Welfare Fund National Illness Assistance Fund Chief Minister s or Lt. Governor s Relief Fund National Sports Fund National Cultural Fund 25
Donations with 100% deduction without any qualifying limit Government or local authority or institution or association towards promoting family planning Central Government's Fund for Technology Development & Application National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation & Multiple Disabilities Indian Olympic Association or other such notified association Andhra Pradesh Chief Minister s Cyclone Relied Fund 26
Donations with 50% deduction without any qualifying limit Jawaharlal Nehru Memorial Fund Prime Minister s Drought Relief Fund National Children s Fund Indira Gandhi Memorial Trust The Rajiv Gandhi Foundation Donations to government or local authority for charitable purposes (excluding family planning) Authority or corporation having income exempt Donations for repair/ renovation of notified places of worship World Vision India Udavum Karangal 27
With Maximum / Qualifying Limit of 10% of Adjusted Gross Income 28
Maximum / Qualifying Limit The qualifying limits u/s 80G is 10% of the adjusted gross total income The limit is to be applied to the adjusted gross total income The adjusted gross total income for this purpose is the gross total income (i.e. the sub total of income under various heads) reduced by the following: Amount deductible under Sections 80CCC to 80U (but not Section 80G) Exempt income Long-term capital gains Income referred to in Sections 115A, 115AB, 115AC, 115AD and 115D, relating to non-residents and foreign companies 29
Donations with 100% deduction with qualifying limit Donations to the Government or a local authority for the purpose of promoting family planning Sums paid by a company to Indian Olympic Association 30
Donations with 50% deduction with qualifying limit Donation to the Government or any local authority to be utilized by them for any charitable purposes other than the purpose of promoting family planning 31
Section 80TTA 80C 80CCC 80CCG 80D 80DD 80E 80G 80TTA 80U 32
Section 80TTA Available if total income of an assessee includes any income by way of interest on deposits in a savings account with Bank Co-operative society engaged in carrying on business of banking Post Office Maximum Deduction Rs 10,000 Available for Individual or a Hindu undivided family, 33
Section 80U 80C 80CCC 80CCG 80D 80DD 80E 80G 80TTA 80U 34
Section 80U Deduction available in case of a person with disability Certified by the medical authority to be a person with disability Deduction Severe Disability Rs 100,000 Others Rs 50,000 Furnish a copy of the certificate issued by the medical authority in the prescribed form and manner 35
Deduction in relation to royalty, copyright, etc. Deduction u/s 80QQB Eligibility Deduction in respect of royalty or copyright fees of authors Maximum Deduction in case of lump sum consideration 100% of the royalty income etc. subject to a maximum of Rs.3,00,000 Maximum Deduction in other cases In case of royalty or copyright fees, not in lump sum consideration, maximum deduction is 15% of the value of books sold during the Previous Year Deduction u/s 80RRB Eligibility Deduction in respect of royalty on patents Maximum Deduction 100% of such income subject to a maximum Rs.3,00,000 36
Deduction for interest on loan for residential house property Deduction u/s 80EE Eligibility Deduction in respect of interest on loan for residential house property Conditions Assessee has taken a loan from a financial institution during Financial Year 2013-14, for acquiring residential house property. Amount of loan does not exceed Rs.25 lakhs. Value of house property does not exceed Rs.40 lakhs. Assessee does not own any residential house property on the date of sanction of loan Maximum Deduction Interest payable for the previous year shall be deductible for the Assessment Year 2014-15 subject to a maximum of Rs.1 lakh 37
Case Studies on Deductions 38
Case 1 Deduction u/s 80C Mr. N is employed at a gross salary of Rs.8,00,000. He gets Rs.15,000 interest on bank deposit. He has made the following investment/deposit during the year 2013-2014. Besides, interest of Rs.1,632 on NSC-VIII, (purchased during the year 2008-2009) has been credited on them during the year 2013-2014. Compute deduction u/s 80C for the Assessment Year 2014-2015. 39
Case 1 Deduction u/s 80C (Solution) Computation of Deduction u/s 80C of Mr. N for the Assessment Year 2014-2015 40
Case 2 Deduction u/s 80D Mr. C, manager of L Ltd., has paid Rs.38,000 during the Previous Year 2013-2014 by way of medical insurance under GIC approved medical policies. The details are given as below: For himself Rs.6,000 For Mrs. C, a Canadian citizen, resident in Toronto and not dependent on him Rs.5,000 For B, married son living with him and dependent on him Rs.3,000 For D, minor son resident in Toronto and not dependent on him Rs.3,000 For Mrs. B, daughter-in-law, dependent on him Rs.5,000 For E, a minor grandson dependent on him Rs.3,000 For K, father, 67 years, resident and dependent on him Rs.3,000 For M, mother, 66 years, resident in Toronto and dependent on him Rs.6,000 For Grandfather, dependent on him, 95 years of age and resident in India Rs.4,000 C has earned gross salary of Rs.2,50,000 during the year and also earns Rs.95,000 as interest from 7% Capital Investment Bonds, purchased on 31 May 2004. Compute his eligible deduction u/s 80D for the Previous Year 2013-2014 assuming the following situations: I. Premium is paid by cheque from his salary income. II. Premium is paid in cash from his salary income. He holds a valid receipt for cash payment. III. Premium is paid by cheque out of interest from 7% Capital Investment Bonds, acquired on 31-5-2004. IV. Premium is paid in cash out of interest from 7% Capital Investment Bonds, acquired on 1-6-2004. 41
Case 2 Deduction u/s 80D (Solution) Computation of Deduction for Medical Insurance Premium u/s 80D 42
Case 2 Deduction u/s 80D (Solution) contd. Notes: Medical insurance premium on spouse s health is always eligible irrespective of whether the spouse is dependent on the assessee or not. The condition of dependency applies only in case of children and parents. Medical premium on health of grandson, grandparents, daughter-in-law or son-in-law are not eligible for deduction u/s 80D. Only the premium on health of dependent father will qualify for relaxation as a senior citizen. Since dependent mother is non-resident and, therefore, outside the purview of being a senior citizen. However, the premium for health of mother will qualify for the normal limit irrespective of the residential status. Any premium paid in cash or by cheque or out of exempted income does not quality for deduction u/s 80D. 43
Computation 44
Computation Income Head 1 Particulars Income from Salary Income by way of allowance Taxable value of perquisite Less: Allowances / Taxes Taxable income under the head "Salaries" 45
Computation Income Head 2 Particulars Income from house property Adjusted net value Less:Deduction under section 24 Taxable income under the head "Income from House Property" 46
Computation 3 Profits and gains of business or profession Net profit as per P & L a/c Add:Amounts which are not allowed Taxable under the head "Profit and Gains of Business or Profession" 47
Computation Income Head 4 Particulars Capital gains Amount of gains Less:Amount exempt under sections 54 Taxable under the head "Capital Gains" 48
Computation Income Head 5 Particulars Income from other sources Gross income Less:Deductions under section 57 Taxable income under the head "Income from Other Sources" 49
Computation Particulars Total Gross Income (i.e. 1+2+3+4+5) Less:Deductions under Sections 80C to 80U Total income or net income liable to tax Amount xx (xx) xx Particulars Tax on net income Add:Surcharge Tax and surcharge Add: Education cess and secondary and higher education cess Less:Rebate under sections 86, 89,90, 90A and 91 Less: Pre-Paid Taxes Less: Tax deducted or collected at source Less: Tax paid in advance / Advance Tax Less: Tax paid on self assessment Tax to be paid / (refund) Amount xx xx xx xx (xx) (xx) (xx) (xx) (xx) xx 50
Case Studies on Total Income Computation 51
Case 1 Total Income Computation R borrowed a sum of Rs.25,00,000 from the State Bank of India @ 12% p.a. on 1.5.2013 and purchased a house property for Rs.36,00,000 on the same day. He does not own any residential house property on the date of taking the loan. He has been using the house property for his own residence since its acquisition. Compute the total income of R assuming he has salary income of Rs. 9,60,000 and he deposited Rs.1,30,000 in PPF during the previous year 2013-14. 52
Case 1 Total Income Computation (Solution) Computation of total income of R for Assessment Year 2014-15 Note: Total interest @ 12% on Rs.25,00,000 for 11 months = 25,00,000 (12/100) x (11/12) = Rs.2,75,000 53
Case 2 Comprehensive Problem on Total Income M, resident in India, furnishes the following particulars of his receipts and outgoings during the Previous Year 2013-2014. Receipts: I. Income from Salary Rs.2,00,000 II. Income from House Property Rs.3,00,000 III. Gross winning from crossword puzzle Rs.3,50,000 Outgoing : I. Term deposits for a fixed period of 5 years with a scheduled bank Rs.15,000 II. Medical insurance premium: a) For himself Rs.4,000 b) His wife, not dependent Rs.3,000 c) Mother, non-resident, 67 years, dependent Rs.5,000 III. M had borrowed a sum of Rs.2,00,000 in 2003 @ 9% interest to complete his B.Tech. degree from Delhi University. In March 2014, he repaid a sum of Rs.75,000 (including Rs.20,000 interest) Students are required to compute Total Income of M for the Assessment Year 2014-2015 54
Case 2 Comprehensive Problem on Total Income (Solution) Computation of Total Income for AY 2014-2015 55
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