“Deductions”
from Your Income for Saving Income Tax
INTRODUCTION
For savings income tax on your taxable income the Income tax Law provides for various deductions.
The total income as computed under different heads of income and after set-off of losses, etc. has to be further reduced by certain deductions as per Chapter VIA in the IT Act, which have been amended from time to time. The deductions for AY 2012-2013 and AY 2013-2014 are described below.
Chapter VIA - In The IT Act
Chapter VIA of the IT Act provides for a straight deduction of the whole or a specified percentage of the amount qualifying for the same in computing the total income. It has been made clear in Section 80A(2) that the aggregate of these deductions cannot exceed the gross total income of the assessee. Section 80A(3) provides that where a deduction has been allowed under Sections 80G, 8OGGA, 8OHH, 8OHHA, 8OHHB, 8OHHC, 8OHHD, 80-I, 80-IA or 80J, (described later) in computing the total income of AOP. or body of individuals, no deduction under the same section shall be allowed in computing the total income of a member of the association or body, in relation to his share in the income of the association or body.
Section 80B contains defmitions of certain
terms used in Chapter VIA. The term “Gross total income” under Section 80B(5)
means the total income computed in accordance with the provisions of the IT Act
before making any deduction under Chapter VIA.
(A) DEDUCTION U/S 80C
For the FY 2012-2013, Individuals and HUFs are entitled to claim tax deduction under Section 80C of the Income-tax Act, 1961 by making investments and in certain assets and certain stop hated expenditure upto a maximum of ` 1 Lakh. This deduction is available irrespective of the taxable income of the tax payer.
The tax payers should remember that Section 80C to the Income-tax Act 1961 a deduction would be permissible to all individuals and Hindu-undivided families in respect of investment made by them, or expenses incurred by them, as mentioned in the said Section 80C of the Income-tax Act, 1961. The maximum amount that can be invested/spent for claiming the tax deduction is ` 1,00,000. The best part of the new provision is that the tax payer can invest the entire sum of ` 1 Lakh without worrying about any sub-limits used to be the case earlier. Thus, if an individual, say is interested to make payment of ` 1 Lakh only for Life Insurance Premium then he can do so and enjoy full deduction to the extent of ` 1 lakh. Similarly if a person wishes no other investment to avail tax deduction then he can do and avail deduction on housing loan repayment to the full extent of ` 1 Lakh. Similarly, one another person, say is interested to spend the entire ` 1 lakh on the education of his children, he can also do so and enjoy full tax benefit of deduction under the new Section 80C of the Income-tax Act, 1961.
The following is the list of items which are eligible for aggregate tax deduction of ` 1,00,000 as per Section 80C:-
1. Payment for Life Insurance Premium
2. Payment for Deferred Annuity Plan
3.
Deferred Annuity payable by Government
4. Contribution to Public Provident Fund
5. Contribution to Provident Fund set up by Central Government
6. Contribution to Recognised Provident Fund
7. Contribution to recognized superannuation fund
8. Subscription to any security or deposit notified by Government
9. Subscription to Saving Certificates
10. Subscription for Unit Linked Insurance Plan 1971
11. Contribution for Unit Linked Insurance Plan of LIC Mutual Fund
12. Payment for annuity plan of LIC or any other insurer
13. Subscription to units of notified mutual funds
14. Contribution to Notified pension fund of mutual fund
15. Pension fund set up by National Housing Bank
16. Subscription to a deposit scheme of public sector company engaged in providing long term finance for housing.
17. Tuition fees of two children in India.
18. Payment of installment for self-financing of a residential property for repayment of loan.
19. Subscription to equity shares or debentures as approved for infrastructure.
20. Subscription to any units of mutual fund as approved by the Central Board of Direct Taxes.
21. Term-deposit for a fixed period of not less than five years with a scheduled bank.
22. Rural Bonds of NABARD would also qualify for tax deduction under Section 80C.
23. 5-year deposit in an account under the
P.O. Time Deposit Rules 1981.
24. Deposit in an account under the Senior Citizens Savings Scheme.
Note: Total amount allowed as deduction is limited to ` 1 Lakh inclusive of deduction as per Section 80C, 8OCCC, 8OCCD and Section 8OCCE.
(B) Deduction In Respect Of Contributions To Certain Pension Funds—Section 8OCCC
A deduction upto ` 1 Lakh would be allowed to an individual, within the combined overall limit of ` 1 Lakh provided in Section 80C in respect of any contribution made towards a new personal-cum family pension scheme of LIC. The amount of pension received in the hands of the contributor or the nominee shall, however, be taxable but the commuted amount received on maturity of the scheme would be totally exempt from income tax.
Thus, the total deductions under Section 80C and 8OCCC combined will be only 1,00,000 as per Section 8OCCE.
(C) Deduction U/S 88CCD
This Section provides for deduction in respect of contribution to pension scheme of Central Government. As per this Section if an individual employed by the Central Government on or after the 1st day of January, 2004, has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with and subject to, the provision of this Section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid. or deposited as does not exceed ten per cent of his salary in the previous year. Similarly, a non-salaried employee will be allowed deduction of a maximum upto 10% of his gross total income in the previous year. Now from 1-5-2009 all individuals are now entitled to make investment in the New Pension Scheme (NPS) within the combined maximum limit of 1 lath for Sections 80C, 8OCCC and 8OCCD.
As per the Finance Act, 2011 the contribution made by the Central Government or any other employer to the Pension Scheme under Section 8OCCD(2) shall be excluded from the limit of ` 1 Lakh.
Amount contributed by employer to Pension Scheme is perquisite in the hands of the employee and tax deduction is allowed to an employee as per Section 8OCCD(l) in respect of the amount contributed by the employee. In case more than 10% of the salary is contributed to the Pension Scheme the same will not be allowed as a business expense to employer but for the purpose of taxing the employee the entire amount as contributed by employer would be taxed as “salary” of the employee. Without any upper limit, over and above the contribution of the employee, the amount as is contributed by the employer upto 10% of employee’s salary would enjoy extra deduction as per Section 8OCCD(2) without any upper limit.
Thus, if the salary of the employee is ` 10 Lakh and the employer as well as the employee contribute 10% of the salary to the Pension Scheme, then in that situation the total deduction would be ` 1 Lakh as per Section 8OCCD(l) and a further ` 1 Lakh as per Section 8OCCD(2). Hence, the total deduction would be ` 2 Lakh.
(D) Deduction In Respect Of Subscription To Long-Term Infrastructure Bonds — Section 8OCCF.
For the A.Y. 2012-2013 in computing the total income of the assessee (individual and Hindu undivided family) the amount invested in infrastructure bonds would be allowed as a 100% deduction equal to the amount actually invested subject to a maximum sum of ` 20,000. The tax deduction for investment in Infrastructure Bonds is not permissible for the A.Y. 2013-2014.
(E) Deduction In Respect Of Medical Insurance Premia — Section 80D
A deduction upto ` 15,000 in respect of medical insurance premia for the health of the assessee or his spouse or dependent parents or dependent children or any member of the HUF would be allowed
as a deduction. If such persons are senior
citizens, the deduction is upto ` 20,000.
Pm additional deduction upto ` 15,000 to an individual would be ailowed on any payment made for health insurance premia on the life of his parent or parents (whether dependent or not). If the parent is a senior citizen, the deduction would be allowed upto ` 20,000. Deduction would also be allowed in respect of contribution made to Central Government Health Scheme by including such contributions under the provisions of Section 80D. Health check-up expenses would also be permissible within the above mentioned overall limit for the A.Y. 2013-2014.
(F) Deduction In Respect Of Maintenance Including Medical Treatment Of Handicapped Dependent — Section 8ODD
Section 8ODD provides that the parents or guardian could claim a deduction upto `50,000 for the medical treatment and for future needs of the medical treatment by paying or depositing under any scheme of LIC of UTI for the maintenance of the handicapped dependant, in the manner most suited to his needs. This is subject to certain provisions regarding taxation of the amount in case the handicapped dependant pre-deceases the individual or the member of the HUF.
Higher education would be allowed to persons with severe disability. For this purpose the definition of disability would be as mentioned in clause (t) of Section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995.
To mitigate the hardship of guardians of a dependant person it is now provided in the law to allow full deduction of the amount of 50,000 to remove eventuality of insistence by the Assessing Officer to produce evidence regarding the expenditure. Thus, this deduction would be allowable where the assessee has incurred any expenditure or made a payment in the LIC or UTI specified schemes. The deduction in the case of a dependent person with severe disability would be ` 1,00,000.
The Finance (No.2) Act, 2004 has extended
the scope of deduction to cover a person with severe disability referred to in
clause (o) of Section 2 of the National Trust for Welfare of Persons with
Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999.
(G) Deduction In Respect Of Medical Treatment Of Terminal Ailments, Etc. — Section 8ODDB
Income-tax deduction in respect of medical treatment is permissible to individual tax payers as well as to the Hindu Undivided Family in terms of the provisions contained in Section 8O DDB of the Income Tax Act, 1961. This section was amended by the Finance Act, 2003. Unfortunately all ailments and diseases are not entitled to the income-tax deduction. Only selected diseases and ailments as are prescribed by the Central Board of Direct Taxes are entitled to deduction while computing the net taxable income of a tax payer. Rule 11 DD of the Income Tax Rules, 1962 specifies the diseases as also the ailments for the purposes of deduction under Section 80 DDB of the Income-Tax Act, 1961. The specified diseases and ailments as per the recent Notification No. 246/2003 (F No. 142/1 7/2003-TPL) dated 17-10-2003 are as under:
(i) Neurological Diseases where the disability level has been certified to be of 4O% and above:
(a)
Dementia,
(b) Dystonia Musculorum Deformans,
(c) Motor Neuron Disease,
(d) Ataxia, (e) Chorea,
(f) Hemiballismus,
(g) Aphasia, and
(h) Parkinsons Disease.
(b) Dystonia Musculorum Deformans,
(c) Motor Neuron Disease,
(d) Ataxia, (e) Chorea,
(f) Hemiballismus,
(g) Aphasia, and
(h) Parkinsons Disease.
(ii)
Malignant Cancers
(iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS)
(iv) Chronic Renal Failure
(v) Hematological disorders
(a) Hemophilia
(b) Thalassaemia
The provisions of Section 8ODDB now provide for a deduction for only the above mentioned diseases or ailments in respect of medical treatment by the individual tax payer for himself or for his
dependant. For this purpose the spouse,
children, parents, brothers and sisters of the individual or any of them would
be treated as “dependant” of the individual tax payer. In the case of Hindu
Undivided Family, the deduction would be permissible in respect of expenses so
incurred on medical treatment of disease or ailment for any member of the Hindu
Undivided Family. If the expenditure is in respect of a dependant, then such
person should be wholly or mainly dependant on the individual or the HUF for his
support and maintenance.
The amount which is allowed as a deduction in respect of medical treatment of the above mentioned diseases or ailments would be actual amount paid or a sum of ` 40,000 whichever is less, in respect of that previous year in which such amount was actually paid. However, for Senior Citizens the limit of deduction would get enhanced to ` 60,000. Similarly, if the expenses are incurred by the Hindu Undivided Family for its member who happens to be a Senior Citizen, then also the amount of deduction would be ` 60,000. The above amount of deduction shall be further reduced by amount received from the Insurance Company or the Employer.
All those tax payers who would like to claim deduction in respect of medical treatment of above mentioned diseases or ailments should remember that the above deduction from the total income of the tax payer would be permissible to the tax payer only when the assessee furnishes with its return of income, a certificate in Form No. 10-I from a specialist working in a Government Hospital. In case the said Form No. 10-I is not submitted with the income-tax return then no deduction would be permissible to the assessee.
Thus, the provisions as are contained in Section 8ODDB provide for deduction from total income of a taxpayer on account of expenses so incurred only on selected diseases or ailments as are mentioned in rule 11 DD. However, in view of the new amendments deduction would be allowed only when the actual expenditure has been so incurred by the person claiming such deduction. Likewise, the submission of new form No. 10-I has also become mandatory. Tax payers should thus claim the above deduction only after careful screening of their facts and papers. From a practical angle it is
suggested that those persons who are
eligible to claim the above expenditure on account of medical treatment should
prepare a list of various expenses so incurred on medical treatment and should
attach a zerox copy of all bills and vouchers with the Income-tax return to avoid
any disallowance.
(H) Deduction Of Interest On Loan For Higher Studies — Section 80E
Full deduction would be permissible for interest on lon without any upper limit for higher education for eight years. No deduction, is however, available, for repayment of an education loan. The deduction for interest on loan taken for education of spouse or children would also enjoy deduction to the individual tax payer without any upper limit.
Higher education means any course of study pursued after passing the senior secondary examination or equivalent from any school, board or university recognized by the central government or state government or local authority or by any other authority authorised by the central government or state government ot local authority to do so. Now even the student for whom the individual is the legal guardian will also be entitled to the above deduction under Section 80E.
(I) Deduction In Respect Of Donations To Certain Funds, Charitable Institutions, Etc. — Section 80G
It provides for a straight deduction of 50% of the qualifying amount of donations (up to a maximum of 10% gross total income) in computing the total income of an assessee. In some cases it is 100%. The 100% of the donation made by tax payers to funds established by the state governments to provide medical care to the poor will be allowed as deduction. Likewise, 100% deduction will be allowed in the case of tax payers who make a donation to the National Council of Blood Transfusion headed by the Additional Secretary (AIDS Control Project) in the Government of India, or the state councils headed by the Secretary, Health, of the concerned state government/union territory, to be set up in consultation with the National Council. Similarly, 100% deduction will be allowed in respect of donations made to the Army Central Welfare Fund, Indian Naval Benevolent Fund, Air Force Central Welfare Fund and National Cultural Fund, Fund for Technology Development & Applications, I.O.A. and certain funds for Kargil jawans. Where any trust, etc. spends not more tha” 3% of its income on any religious purpose, exemption would not be denied.
The deduction by an assessee to the Chief Minister’s Relief fund urthe Lieutenant Governor’s Relief Fund in respect of any state or union territory, as the case may be, will be 100%, provided such a fund is the only one of its kind, established in the state or the union territory and is under the overall control of the chief secretary or the Department of Finance of the state or the union territory, as the case may be, and is administered as may be specffied by the state government or the lieutenant governor, as the case may be.
(J) Deduction In Respect Of House Rent — Section 8OGG
A deduction is allowed to an assessee not being one who has any income chargeable under the head “Salaries” and who is in receipt of any income by way of house rent allowance, in respect of house rent paid by him in excess of 10% of his total income but subject to a ceiling of 25% thereof, or ` 2,000 per month, whichever is less subject to certain other conditions like furnishing of a Form No. 10BA by the employee to the employer.
(K) Deduction In The Case Of Permanent Physical Disability (Including Blindness) — Section 80U
A totally blind or physically handicapped or mentally retarded individual is allowed a deduction equal to ` 50,000 in the computation of total income subject to fulfilling certain conditions. For severe disability the deduction will be ` 75,000. From the A.Y. 2010-2011, the deduction for a person with severe disability would be ` 1,00,000. Disability certificate should be enclosed with every return, etc.