1 | P a g e

EXEMPTIONS AND CORPORATE DEDUCTIONS

Index

Sr. No. Particulars Page No.

1 Introduction 2-6

2 Exemption available under Section 10 7-26

a. Illustrations 27-28

b. Newspaper Article 29-30

3. Corporate Deductions under section 80 32-44

a. Illustrations 45-46

b. Newspaper Article 47

4. Bibliography 48

2 | P a g e

Introduction:

Exemptions:

India tax exemptions are specified incomes on which a person can get exemptions. It means that at the

time of calculating annual income, this type of income will not come under the purview of tax.

The various items of income referred to in the different clauses of section 1O are excluded from the total

income of an assessee . These incomes are known as exempted incomes. Consequently, such income shall not

enter in1to the computation of taxable income or the rate of tax.

Restrictions on allowability of expenditure [Section 14A] - (I) As per section 14A, expenditure incurred

in relation to any exempt income is not allowed as a deduction while computing income under any of the five

heads of income [Sub-section (1)].

However, the Assess ing Officer is not empowered to reassess under section 147 or to pass an order increasing the

liability of the assessee by way of enhancing the assessment or reducing a refund already made or otherwise

increase the liability of the assessee under section 154, for any assessment year beginning on or before 1.4.2001 i.e.

For any assessment year prior to A.Y. 2002-03 [Proviso to sub-section (1)].

The Assessing Officer is empowered to determine the amount of expenditure incurred in relation to such

income which does not form part of total income in accordance with such method as may be prescribed [Sub-

section (2)]. The method for determining expenditure in relation to exempt income is to be prescribed by the

CBDT for the purpose of disallowance of such expenditure under section 14A. Such method should be

adopted by the Assessing Officer if he is not satisfied with the correctness of the claim of the assessee, having regard

to1 the accounts of the assessee. Further, the Assessing Officer is empowered to adopt such method, where an

assessee claims that no expenditure has been incurred by him in relation to income which does not form part of total

income [Sub-section (3)]. Rule 80 lays down the method for determining the amount of expenditure in relation to

income not includible in total income.

If the Assessing Officer, having regard to the: accounts of the assessee of a previous year, is not satisfied with -

The correctness of the claim of expenditure by the assessee; or

The claim made by the assessee that in expenditure has been incurred in relation to exempt income for

such previous year.

3 | P a g e

He shall determine the amount of expenditure in relation to such income in the manner provided hereunder -

The expenditure in relation to income not forming part of total income shall be the aggregate of the

following:

The amount of expenditure directly rela1ling to income which does not form part of total income;

In a case where the assessee has incurred expenditure by way of interest during the previous year which

is not directly attributable to any particular income or receipt, an amount computed in accordance with the

following formula, namely:

A * B/C

Where,

A = amount of expenditure by way of interest other than the amount of interest included in clause (I) incurred

during the previous year;

B = the average of value of investment, income from which does not or shall not form part of the total income, as

appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;

C = the average of total assets as appearing in the balance sheet of the assessee , on the first day and the last day

of the previous year:

'Total assets' means total assets as appearing in the balance sheet excluding the increase on account of revaluation

of assets but including the decrease on account of revaluation of assets. An amount equal to one-half per cent of

the average of the value of investment, income from which does not or shall not form part of the total income, as

appearing in the balance sheet of the assessee , on the first day and th1 last day of the previous year. Difference

between Section 10 and Chapter VI-A deductions - Certain other incomes are also wholly or partly rendered tax-

free by being allowed as deductions in computation of total income under Chapter VI-A. Students should note a

very important difference between exemptions under section 1O and the deductions under Chapter VI-A.

While the incomes which are exempt under section 1O will not be included for computing total income, incomes

from which deductions are allowable under Chapter VI-A will first be included in the gross total income (GTI) and

then the deductions will be allowed. Let us now see the various incomes that are exempt from tax and the

conditions to be satisfied in order to be eligible for exemptions.

4 | P a g e

Deductions:

As we have seen earlier, section 10 exempts certain incomes. Such income are excluded from total income and do

not enter into the computa1tion process at all. On the other hand, Chapter VI-A contains deductions from gross total

income. Tile important point to be noted here is that if there is no gross total income, then no deductions will be

permissible. This Chapter contains deductions in respect of certain payments, deductions in respect of certain incomes

and other deductions.

Section 80A:

(i) Section 80A(1) provides that in computing the total income of an assessee, there shall be allowed from his

gross total income, the deductions specified in sections 80C to 80U.

(ii) According to section 80A(2), the aggregate amount of the deductions under this chapter shall not, in any case,

exceed the gross total income of the assessee. Thus, an assessee cannot have a loss as a result of the

deduction under Chapter VI-A and claim to carry forward the same for the purpose of set-off against his

income in the subsequent year.

(iii) Section 80A(3) provides that in the case of AOP/801, if any deduction is admissible under section

80G/80GGA/80GGC/80- IA/80-18/80-IC/'80-ID/80-IE, no deduction under the same section shall be made

in computing the total income ,of a member of the AOP or 801 in relation to the share of such member in

the income of the AOP or 801.

(iv) The profits and gains allowed as deduct ion under section 1OAA or under any provision of Chapter VIA

under the heading "C.-Deductions in respect of certain incomes" in any assessment year, shall not be

allowed as deduction under any other provision of the Act for such assessment year [Sub-section (4)];

(v) The deduction, referred to in (iv) above, shall not exceed the profits and gains of the undertaking or

unit or enterprise or eligible business, as the case may be [Sub-section (4)];

(vi) No deduction under any of the provisions referred to in (iv) above, shall be allowed if the deduction

has not been claimed in the return of income [Sub-section (5)];

(vii) The transfer price of goods and services between such undertaking or unit or enterprise or eligible

business and any other business of the assessee shall be determined at the market value of such goods

or services as on the date of transfer [Sub-section (6)].

(viii) For this purpose, the expression "market value" has been defined to mean, -

5 | P a g e

(a) in relation to any goods or services sold or supplied, the price that such goods or services

would fetch if these were sold by the undertaking or unit or enterprise or eligible business

in the open market, subject to: statutory or regulatory restrictions, if any;

(b) in relation to any goods or services acquired, the price that such goods or services would cost if

these were acquired by the undertaking or unit or enterprise or eligible business from the open

market, subject to statuto1ry or regulatory restrictions, if any;

(ix) Where a deduction under any provision 01' this Chapter under the heading "C - Deductions in respect of

certain incomes" is claimed, and allowed in respect of the profits of such specified business for any

assessment year, no deduction under section 35AD is permissible in relation to such specified business for

the same or any other assessment year.

In short, once the assessee has claimed the benefit of deduction under section 35AD for a particular year in

respect of a specified business, he cannot claim benefit under Chapter VI-A under the heading "C.-Deductions

in respect of certain incomes" for the same or any other year and vice versa.

Section 80AB: This section provides that for the purpose of calculation of deductions specified in

Chapter VI-A under the heading "C - Deductions in respect of certain incomes", the net income computed in

accordance wi1th the provisions of the Act (before making any deduction under Chapter VI-A) shall alone be

regarded as income received by the assessee and which is included in his gross total income. Accordingly, the

deductions specified in the aforesaid sections will be calculated with reference to the net income as

computed in accordance with the provisions of the Act (before making deduction under Chapter VI-A) and not

with reference to the gross amount of such income. This is notwithstanding anything contained in the

respective sections of Chapter VI-A.

Section 80AC: Furnishing return of income on or before due date mandatory for claiming

exemption under sections 80-IA, BO-IAB, 80-IB, 80-IC, 80-ID and 80-IE

(i) Section 80AC stipulates compulsory filing of return of income on or before the due date specified under

section 139(1), as a pre-condition for availing benefit under the following sections -

(1) Section 80-IA applicable to undertakings or enterprises engaged in infrastructure development.

(2) Section 80-IAB applicable to undertakings or enterprises engaged in any business of developing a special

economic zone.

(3) Section 80-18 applicable to certain industrial undertakings other than infrastructure development

6 | P a g e

undertakings.

(4) Section 80-IC applicable to certain undertakings or enterprises in certain special category States.

(5) Section 80-10 applicable to undertak ings engaged in the business of hotels and convention centres in

specified area.

(6) Section 80-IE applicable to certain unde1rtakings in North-Eastern States.

Section 808(5): "Gross total income" means the total income computed in accordance with the provisions of

the Act without making any deduction under Chapter VI-A. "Computed in accordance with the provisions of

the Act" implies-

(i) that deductions under appropriate comp1utation section have already been given effect to;

(ii) that income of other persons, if includibl1e under sections 60 to 64, has been included;

(iii) the intra head and/or inter head losses have been adjusted; and

(iv) that unabsorbed business losses, unabsorbed depreciation etc., have been set-off. Let us first consider the

deductions allowable in respect of certain payments.

7 | P a g e

Exemptions available under Section 10:

Agricultural Income Section 10(1) - provides that agricultural income is not to be included in the total

income of the assessee. The reason for totally exempting agricultural income from the scope of central

income tax is that under the Constitution, the Parliament has no power to levy a tax on agricultural income.

Indirect way of taxing agricultural income - However, a method has been laid down to levy tax on agricultural

income in an indirect way. This concept is known as partial integration of taxes. It is applicable to individuals,

HUF, unregistered firms, AOP, 801 and artificial persons. Two conditions which need to satisfied for partial

integration are:

The net agricultural income should exceed Rs. 5,000 p.a.and Non-agricultural income should exceed the maximum

amount not chargeable to tax. (i.e., 5,00,000 for very senior citizens. 3,00,000 for senior citizens, and 2,50,000 for

all other individuals and hufs).

It may be noted that aggregation provisions do not apply to company, firm assessed as such (FAS), co-operative

society and local authority. The object of aggregating the net agricultural income with non-agricultural income is to

tax the non-agricultural income at higher rates.

Amounts received by a member from the income of the HUF [Section 10(2)) - As seen in the first Chapter,

a HUF is a 'person' and hence a unit of assessment under the Act. Income earned by the HUF is assessable le in its

own hands.

In order to prevent double taxation of one and the same income, once in the hands of the HUF which earns it and

again in the hands of a member when it is paid out to him, section 10(2) provides that members of a HUF do

not have to pay tax in respect of any amounts received by them from the family.

The exemption applies only in respect o1' a payment made by the HUF to its member

Out of the income of the family or

Out of the income of the impartible 1estate belonging to the family.

Share income of a partner [Section 10(2A)] - This clause exempts from tax a partner's share in the total income

of the firm. In other words, the partner's share in the total income of the firm determined in accordance with the

profit-sharing ratio will be exempt from tax.

Exemption to non-residents and person resident outside India [Section 10(4)]

8 | P a g e

This clause provides that in the 1case of a non-resident, any income by way of interest on Central

Government securities as may be prescribed will be exempt. Even income by way of premium on the redemption of

such bonds is exempt.

However, the Central Government shall not notify any such bonds or securities after 1.6.2002. Hence, this exemption

will no more be available in respect of any further issue of bonds or securities on, or after the 1.6.2002.

In the case of an individual who is a person resident outside India, as defined in Foreign Exchange Management

Act, 1999 (FEMA, 1999), any income by way of interest on moneys standing to his credit in a Non-resident

(External) Account (NRE Ale) in any bank in India will be exempt, subject to fulfillment of certain conditions.

In this context, it may be noted that the joint holders of the NRE Accounts do not constitute an AOP by merely

having these accounts in joint names. The benefit of exemption under section 10(4)(ii) will be available to such

joint account holders, subject to fulfillment of other conditions contained in that section by each of the

individual joint account holders.

Interest on savings certificates [Section 10(48)] - An individual, being a citizen of India or a person of

Indian origin, who is non-resident shall be entitled for exemption in respect of interest on such saving

certificates issued before 1.6.2002 by the Central Government and notified by it in the Official Gazette in this

behalf.

However, to claim such exemption, the individual should have subscribed to such certificates in convertible

foreign exchange remitted from a country outside India in accordance with the provisions of t11e FEMA, 1999.

Leave travel concession [Section 1O(fi)]

This clause exempts the leave travel concession (LTC) received by employees from their employers for proceeding

to any place in India,

Either on leave or

After retirement from service or

After termination of his service.

The benefit is available to individuals - citizens as well as non-citizens - in respect of travel concession or

assistance for himself or herself and for his/her family- i.e., spouse and children of the individual and parents,

brothers and sisters of the individual or any of them wholly or mainly dependent on the individual.

9 | P a g e

Limit of exemption - The exemption in all cases will be limited to the amount actually spent subject to such

conditions as specified in Rule 28 regarding the ceiling on the number of journeys for the place of destination.

Under Rule 28, exemption will be. available in respect of 2 journeys performed in a block of 4 calendar years

commencing from the calendar year 1986. Where such travel concession or assistance is not availed by the

individual during any block of 4 calendar years, one such unveiled LTC will be carried forward to the immediately

succeeding block of 4 calendar years and will be eligible for exemption.

Monetary limits - Where the journey is performed on or after the 1.10.1997, the amount exempted under

section 10(5) in respect of the value of LTC shall be the amount actually incurred on such travel subject to the

following conditions:

Where it is performed by airman amount not exceeding the air economy fare of the National Carrier by the shortest 1route

to the place of destination;

Where places of origin of journey and destination are connected by rail and the journey is performed by any mode of

transport other than by air an amount not exceeding the air-conditioned first class rail fare by the shortest route to the

place of destination; and

Where the places of origin o1' journey and destination or part thereof are not connected by rail, the amount eligible

for exemption shall be, -

Where a recognized public transport system exists, an amount not

Exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of

destination; and

(8) where no recognized public transport system exists, an amount equivalent to the air-conditioned first

class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.

Note: The exemption n referred to shall not be available to more than two surviving children of an individual

after 1.10.1998. This restrictive sub-rule shall not apply in respect of children born before 1:10.1998 and also in

case of multi pie births after one child.

Exemption in the case of individuals, who are not citizens of India (Section 10(6)] individual assessees

who are not citizens of India are entitled to certain exemptions:

10 | P a g e

Section 10(6)(ii) grants exemption to a person in respect of the remuneration received by him for services

as an official of an embassy, high commission, legation, consulate or the trade representation of a foreign State

or as a member of the staff of any of these officials.

Conditions

The remuneration received b1 our corresponding Government officer’s resident in such foreign countries should be

exempt.

The above-mentioned officers should be the subjects of the respective countries and should not be engaged in any other

business or profession or employment in India.

Section 10(6)(vi) provides that remuneration received by a foreign national as an employee of a foreign enterprise

for service rendered by him during his stay in India is also exempt from tax.

Conditions

The foreign enterprise is not engaged in a business activity in India;

The employee's stay in India does not exceed a total of 90 days in the previous year;

The remuneration is not liable to be deducted from the employer's income chargeable to tax under the a1ct.

Section 10(6)(viii) provides that salary income received by or due to a non-citizen of India who is also non-

resident for services rendered in connection with his employment on a foreign ship where his total stay in India

does not exceed a total of 90 days in the previous year.

Section 10(6)(xi) provides that any· remuneration received by employees of foreign Government from their

respective Government during their stay in India in connection with their training in any establishment or office of the

Government or any public-sector undertaking is exempt from tax. For this purpose, the expression 'public sector

undertaking' will cover Statutory Corporations; companies wholly owned by the Central Government or State

Government car jointly by the Central and State Government and subsidiaries of such companies, societies registered

under the Societies Registration Act, 1860 or any other similar law, which are wholly financed by the Central Government

or State Government or jointly by the Central or State Government.

Tax on royalty or fees for technical services derived by foreign companies [Section 10(6A)] - The benefit

of exemption under this section is available to foreign companies only. As per this clause, tax paid by the

11 | P a g e

Government or by an Indian concern on behalf of a foreign company is exempt in the hands of such foreign

company provided all the following conditions are satisfied:

Such tax must have been payable by the foreign company in respect of income received from the Government

or the Indian concern by way of royalty or fees for technical services.

Such income by way of royalty or fees for technical services must have been received in pursuance of an

agreement made by the foreign company with the Government or the Indian concern on or after 1.4.1976

but before 1.6.2002 and such agreement must have been. approved by the Central Government. However,

Where the agreement relates to a subject matter which is included in the industrial policy of the Government and such

agreement is in accordance with that policy, no approval of the Central Government is necessary.

Tax paid on behalf of non-resident (!Section 10(68)] - This clause provides that the amount of tax paid by

Government or an Indian concern on behalf of a non-resident or a foreign company in respect of its income will

not be included in computing the total income of such non-resident or foreign company in pursuance of an

agreement entered before 1.6.2002 between the Central Government and the Government of foreign State or an

international organization under the terms of that agreement or of any related agreement which has been

approved before 1.6.2002 by the Central Government.

Tax paid on behalf of foreign stat1e or foreign enterprise on amount paid as consideration of

acquiring aircraft, etc. On lease [Section 10(688)] - Under this section, exemption is provided in respect

of tax paid by an Indian company engaged in the business of operation of an aircraft, on income derived by the

Government of a foreign State or a foreign enterer is as; a consideration of acquiring an aircraft or aircraft engine on

lease under an agreement entered into after 31.3.1997 but before 1.4.1999 or entered into after 31.3.2007 and

approved by the Central Government. However, payment for providing spares, facilities or services in

connection with the operation of leased aircraft is not covered under this clause.

Income from projects connected with the security of India [Section 10(6C)] - Any income arising to such

foreign company as the Central Government may notify, by way of fees for technical services received in p1ursuance

of an agreement entered into with that Government for providing services in or outside India in projects connected

with security of India will be exempt. Such exemption is also available in respect of royalty for technical

services arising to the foreign company.

12 | P a g e

Allowances payable outside India [Section 10(7)] - Allowances or perquisites paid or allowed as such

outside India by the Government to a citizen of India for services rendered outside India are exempt from tax.

Students may remember that in such cases under section 9(1)(iii), the income cha1rgeable under the head 'Salaries'

is deemed to accrue in India. The residential status of the recipient will, however, not affect this exemption.

Co-operative technical assistance programs [Sections 10(8) and (9)] - Individuals who are assigned duties in

India in connection with any co-operative technical assistance programme and projects would be exempt from tax on

their receipts by way of:

(i) Remuneration received directly or indirectly from the Government of a foreign State for rendering such

services; and

(ii) Any other income accruing or arising outside India (but is not deemed to accrue or arise in India) in

respect of which the individual is required to pay income-tax or other social security tax to the

Gov1ernment of that foreign State similar exemption would be available under section 10(9) in respect

of the income of any member of the family of any such individual referred to above provided that the

income:

Actually, accrues outside India;

Cannot be deemed to accrue or arise in India; and

In respect of which such member is required to pay income or social security tax to the Government of that foreign

State.

Consultant remuneration [Sections 10(8A) and (88)) - Under clause (8A), any remuneration or fee

received by a consultant, directly or indirectly, out of the funds made available to an international organization

(agency) under a technical assistance grant agreement with the agency and Government of a foreign State is

exempted from income­ tax. The expression "Consultant means any individual who is either not a citizen of India

or, being a citizen of India, is resident but: not ordinarily resident, or any other person who is a non-resident and is

engaged by the agency for rendering technical services in India in accordance with an agreement entered into by

the Central Government and the State agency and the agreement relating to the engagements of the consultant is

approved by the prescribed authority. Under clause (88), the remuneration received by an employee of the

consultant is exempted from income-tax provided such employee is either not a citizen of India or, being a

citizen of India, is resident but not ordinarily resident and the contract of his service is approved by the

prescribed authority before the commencement of his service. Section 10(9) discussed above exempts the income of

13 | P a g e

any member of the family of any such individual as is referred to in clauses (8A) and (88) accompanying him to

India, which accrues or arises outside India, and in respect of which such member is required to pay any income or

social security tax to the country of his origin.

Gratuity [Section 10(10))

Retirement gratuity received under the Pension Code Regulations applicable to members of the Defense Service

is fully exempt from tax.

Central I State Government Employees: Any death cum retirement gratuity is fully exempt from tax.

Non-government employees cov1hed by the Payment of Gratuity Act, 1972

Any death-cum-retirement gratuity is exempt from tax to the extent of least of the following: (I) 10,00,000

Gratuity actually received

15 days' salary based on last drawn salary for each completed year of service or part thereof in excess of 6 months

Note: Salary for this purpose means basic salary and dearness allowance. No. Of days in a month for this purpose,

sl1all be taken as 26.

Non-government employees not covered by the Payment of Gratuity Act,1972

Any death cum retirement gratuity is exempt from tax to the extent of least of the following:

(I) 10,00,000

Gratuity actually received

Half month's salary (based on last 1O months' average salary immediately preceding the month of

retirement or death) for each completed year of service (fraction to be ignored)

Note: Salary for this purpose means basic salary and dearness allowance, if provided in the terms of employment

for retirement benefits, forming part of salary and commission which is expressed as a fixed percentage1e of

turnover.

Students must also note the following points:

Gratuity received during the period of service is fully taxable.

14 | P a g e

Where gratuity is received from 2 or more employers in the same year then aggregate amount of gratuity

exempt from tax cannot exceed 10 ,00,000.

Where gratuity is received in an) I earlier year from former employer and again received from another

employer in a later year, the limit of 10,00,000 will be reduced by the amount of gratuity exempt earlier.

The exemption in respect of gratuities would be available even if the gratuity is received by the widow, children

or dependents of a deceased employee.

Payment in commutation of pension [Section 10(10A)] Pension is of two types: commuted and

unconfuted. Uncommuted Pension: Uncommuted pension refers to pension received periodically. It is

fully taxable in the hands of both government and non-government employees.

Commuted Pension: Commuted pension means lump sum amount taken by commuting the whole or part of the

pension. Its treatment is discussed below:

Employees of the Central Government/local authorities/Statutory Corporation/ members of the Defense

Services: Any commuted pension received is fully exempt from tax.

Non-Government Employee: Any commuted pension received is exempt from tax in the following manner:

If the employee is in receipt of gratuity,

Exemption = 1/3rd of the amount of p1ension which he would have received had he commuted the whole

of the pension.

= [1/3xcomputed pension Received/Commutation % x 100]

If the employee does not receive ve any gratuity

Exemption =1/2 of the amount of pension which he would have received had he commuted the whole of

the pension.

= [1/2xcomputed pension Received/Commutation % x 100]

15 | P a g e

Exemption of amount received by waif of encashment of unutilized earned leave on retirement [Section

10(1OAA)] - It provides exemption in respect of amount received by way of encashment of unutilized earned leave

by an employee at the time of his retirement whether on superannuation or otherwise. The provisions of this clause are

mentioned below:

Government employees: Leave salary received at the time of retirement is fully exempt from tax.

Non-government employees: Leave salary received at the time of retirement is exempt from tax to the extent of

least of the following:

(I) 3,00,000

Leave salary actually received

10 months' salary (on the basis of average salary of last 10 months)

Cash equivalent of leave (based on last 10 months' average salary immediately preceding the date of

retirement) to the credit of the employee at the time of retirement or death. Earned leave entitlement cannot

exceed 30 days for every year of actual service rendered for the employer from whose service he has retired.

Note:

Leave salary received during the period of service is fully taxable.

Where leave salary is received from two or more employers in the same year, then the aggregate amount of leave

salary exempt from tax cannot exceed 3,00,000.

Where leave salary is received in any earlier year from a former employer and again received from another

employer in a later year, the limit of 3,00,000 will be reduced by the amount of leave salary exempt earlier.

Salary for this purpose means basic salary and dearness allowance, if provided in the terms of employment for

retirement benefits and commission which is expressed as a fixed percentage of turnover.

'Average salary' will be determined on the basis of the salary drawn during the period of ten months immediately

preceding the date of his retirement whether on superannuation or otherwise.

Retrenchment compensation [Section 10(108)] - Retrenchment compensation will be exempt from tax subject

to the following limits:

Amount calculated in accordance with the provisions of section 25F of the Industrial Disputes Act, 1947

16 | P a g e

I.e. X Avg salary of last 3 months x completed yrs. of service and part thereof in excess of 6 months 26

or

An amount, not less than Rs. 5,00,000 as may be notified by the Central Government in this behalf,

Whichever is lower.

The retrenchment compensation for this purpose means the compensation paid under Industrial Disputes Act,

1947 or under any Pict, Rule, Order or Notification issued under any law. It also includes compensation paid or1

transfer of employment under section 25F or closing down of an undertaking under section 25FF of the Industrial

Disputes Act, 1947.

The above limits will not be applicable to cases where the compensation is paid under any scheme approved by

the Central Government for giving special protection to workmen under certain circumstances.

Exemption of compensation received on account of disaster [Section 10(10BC)]

This clause exempts any amount received or receivable as compensation by an individual or his legal heir on

account of any disaster.

Such compensation should be granted by the Central Government or a State Government or a local

authority.

However, exemption would not be available in respect of compensation for alleviating any damage or loss, which

has already been allowed as deduction under the Act.

"Disaster" means a catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or manmade

causes, or by accident or negligence. It should have the effect of causing -

Substantial loss of life or human su1ffering; or

Damage to, and destruction of, property; or

Damage to, or degradation of, environment.

It should be of such a nature or magnitude as to be beyond the coping capacity of the community of the

affected area.

17 | P a g e

Voluntary Retirement Receipts [Section 10(10C)] - Compensation received by an employee at the time of

voluntary retirement is exempt from tax subject to the following conditions:

Eligible Undertakings - The employee of the following undertakings are eligible for exemption under this

clause:

Public sector company

Any other company

An authority established under a Central/State or Provincial Act

A local authority

A co-operative society

A University established or incorporated under a Central/State or Provincial Act and an Institution declared to be a

University by the University Grants Commission.

An Indian Institute of Technology

Such Institute of Management as the Central Government may, by notification in the Official Gazette, specify in

this behalf

Any State Government

The Central Government

An institution, having importance throughout India or in any state or states, as the Central Government may specify

by notification n the Official Gazette.

Limit: The maximum limit of exemption should not exceed Rs. 5 lakhs.

Such compensation should be at the time of his voluntary retirement or termination of his service, in accordance

with any scheme or schemes of voluntary retirement or, in the case of public sector company, a scheme of

voluntary separation. The exemption will be available even if such compensation is received in installments.

The schemes should be framed in accordanc1 with such guidelines, as may be prescribed and should

include the criteria of economic viability.

Guidelines: Rule 2BA prescribes the following, guidelines for the purposes of the above clause:

18 | P a g e

1. It applies to an employee of the company or the authority, as the case may be, who has completed 10

years of service or completed 40 years of age.

However, this requirement is not applicable in case of an employee of a public-sector company under the

scheme of voluntary separation framed by the company.

It applies to all employees by whatever name called, including workers and executives of the company or

the authority except directors of a company or a cooperative society.

The scheme of voluntary retirement or separation must have been drawn to result in overall reduction in

the existing strength of the employees of a company or the authority or a cooperative society.

The vacancy caused by the voluntary retirement or separation must not be filled up.

The retiring employee of a company shall not be employed in another company or concern belonging to

the same management.

The amount receivable on account of voluntary retirement or separation of the employee must not exceed

the amount equivalent to three months' salary for each completed year of service or salary at the time of

retirement multiplied by the balance months of service left before the date of his retirement or

superannuation.

Receipts from LIC [Section 10(1OD)] - This clause clarifies that any sum received under a life insurance

policy, including the sum allocated by way of bonus on such policy shall not be included in the total

income of a person.Recently, policies were introduced in respect of which the premium payable was very

high. Sometimes, such premium was payable on a one-time basis. They are similar to deposits or bonds.

With a view to ensure that such insurance policies are treated at par with other investment schemes, clause

(100) has been 1rationalised as follows -

In respect of policies issued between 1.4.2003 and 31.3.2012

Any sum received, under an insurance policy issued on or after 1.4.03 in respect of which the premium payable/paid

during any o1f the years during the term of the policy exceeds 20% of the actual capital sum assured, shall not be

exempt. Therefore , sum received in respect of such policies issued prior to 1.4.03 will continue to enjoy exemption.

However, such sum received under such policy on the death of a person shall continue to be exempt.

For the purpose of calculating the actual capital sum assured under this clause,

19 | P a g e

The value of any premiums agreed to be returned or

The value of any benefit by way of bonus or otherwise, over and above the sum actually assured,

Shall not be taken into account. Such premium or bonus may be received either by the policy holder or by any other

person. Any sum received under section 800D (3) shall not be exempt under this clause in addition to sum

received under 8000A(I) or under a Key man insurance policy.

Payment from provident funds [Sections 10(11) and (12)] - The following payments received by an assessee

will be fully exempt ·from tax:

Provident Fund (PF) to which Provident Fund Act, 1925, applies; or

Public Provident Fund.

Accumulated balance payable to an employee participating in a RPF (subject to certain conditions).

The conditions for the purpose of RPF above are as follows:

The employee should have rendered continuous service with the employer from whom the amount is received for a

period of at least five years; or

Where the employee had not rendered such continuous services the reason for the termination of his service

should have b1een his ill-health or contraction or discontinuance of employer's business or any other cause

beyond the control of the employee.

If such conditions are not satisfied the payments become taxable in the hands of the employee.

Payment from Sukanya Samriddhi Account [Section 10(11A)) - A special small savings instrument for the

welfare of the girl child was announced in the Union Budget in July 2014. To give effect to this announcement,

Sukanya Samriddhi Account Rules, 2014 have been introduced.

The following are the tax benefits envisaged in the Sukanya Samriddhi Account scheme: ­

The investments made in the Scheme will be eligible for deduction under section BOC.

The interest accruing on deposits in such account will be exempt from income tax.

The withdrawal from the said scheme in accordance with the rules of the said scheme will be exempt from tax.

20 | P a g e

New clause (11A) has been inserted in section 10 to provide that any payment from an account opened in

accordance with the Sukanya Samriddhi Account Rules, 2014, made under the Government Savings Bank Act,

1873, shall not be included in the total income of the assessee.

Accordingly, the interest accruing on deposits in, and withdrawals from any account under the said scheme

would be exemp1f.

Payment from superannuation funds [Section 10(13)] - Any payment received by any employee from an

approved superannuation fund shall be entirely excluded from his total income if the payment is made:

On the death of a beneficiary;

To an employee in lieu or in commutat ion of an annuity on his retirement at or after a specified age or on his

becoming incapacitated prior to such retirement; or

By way of refund of contribution on the death of a beneficiary; or

By way of contribution to an employee in his leaving the service in connection with which the fund is established

otherwise than by retirement at or after a specified age or his becoming incapacitated prior to such retirement.

In the case of (d) above the amount of exemption will be to the extent the payment made does not exceed the

contribution made prior to 1-4··1962 and the interest thereon.

House rent allowance (HRA) [Section 10(13A)] - HRA is a special allowance specifically granted to an

employee by his employer towards payment of rent for residence of the employee granted to an employee is exempt

to the extent of least of the following:

Metro Cities (i.e. Delhi, Kolkata, Mumbai,

Chennai)

Other Cities

1) HRA actually received. 1) HRA actually received

2) Rent paid-10% of salary for the relevant

period

2) Rent paid - 10% of salary for

the relevant period

3) 50% of salary for the relevant period 3) 40% of salary for the relevant period

21 | P a g e

Note:

Exemption is not available to an assessee who lives in his own house, or in a house for which he has not incurred the

expenditu1re of rent.

Salary for this purpose means basic salary, dearness allowance, if provided in terms of employment and commission

as a fixed percentage of turnover.

Relevant period means the period during which the said accommodation was occupied by the assessee during the

previous year.

Educational scholarships (Section 10(16)) - The value of scholarship granted to meet the cost of education

would be exempt from tax in the hands of the recipient irrespective of the amount or source of scholarship.

Payments to MPs & MLAs (Section 10(17)] - The following incomes of Members of Parliament or State

Legislatures will be exempt:

(i) Daily allowance received by any Member of Parliament or of State Legislatures or any Committee thereof.

(ii) In the case of a Member of Parliament or of any Committee thereof, any allowance received under

Members of Parliament (Constituency Allowance) Rules, 1986; and

(iii) Any constituency allowance received by any person by reason of his membership of any State Legislature

under any Act or rules made by that State Legislature.

Awards for literary, scientific and artistic works and other awards by the Government [Section

10(17A)] - Any award instituted in the public interest by the Central/State Government or anybody

append by the Central Government and a reward by Central/State Government for such purposes as may be approved

by the Central Government in public interest, will enjoy exemption under this clause.

Pension received by recipient of gallantry awards [Section 10(18)] - Any income by way of pension

received by an individual who has been awarded "Param Vir Chakra" or "Maha Vir Chakra" or "Vir Chakra" or such

other gallantry award as the Central Government may, by notification in the Official Gazette, specify in this behalf.

In case of the death of the awardee, any income by way of family pension received by any member of the family

of the individual shall also be exempt under this clause. The expression "family" shall have the meaning assigned to it

in the Explanation to clause (5) of the said section.

22 | P a g e

Family pension received by widow/children/nominated heirs of members of armed forces [Section 10(19)] -

Exemption is available in respect of family pension received by the widow or children or nominated heirs, of a

member of the armed forces (including para-military forces) of the Union, where the death of such member

has occurred in the course of operational duties, in specified circumstances and circumstances.

Income of local authorities [Section 10(20)] - (I) All income arising to a local authority, other than from

trade or business carried on by it which accrues or arises from the supply of commodity or service under its

jurisdictional area is excludible from its total income.

Exemption is available to income derived by a local authority from the supply of water or electricity even outside its

juridical area.

For the purposes of this clause, "local authority" means the following:

Panchayat

Municipality

Municipal Committee and District Board legally entitled to, or entrusted by the Government with the control or

management of a Municipal or local Fund

Cantonment Board

Income of news agency [Section 10(:228)] - (I) This clause provides income-tax exemption on any income

of such news agency set up in India solely for collection and distribution of news as specified by the Central

Government.

However, in order to get this exemption, the news agency should:

Apply its income or accumulate it for application solely for collection and distribution of news.

It should not also distribute its income in any manner to its members.

Any notification issued by the Central g1overnment under this clause will have effect for 3 assessment years. It may

include an assessment year or years commencing before the date of notification.

However, once the notification has b1een issued, the notification may be rescinded approval if at any time the

Government is satisfied that the news agency has not applied or accumulated or distributed its income in accordance

with the provisions of this section.

23 | P a g e

The notification may be rescinded after giving reasonable opportunity to the assessee. A copy of the order shall be

sent to the Assessing Officer as well as the assessee. Income of professional associations [Section 10(23A)] -

(I) Associations or institutions of the following classes approved by the Government and applying their income

or accumulating it solely to their objects shall be exempt from tax on certain items of their income. The

association or institution must:

Be established in India;

Have as its object the control, supervision, regulation or encouragement of the profession of law, medicine,

accountancy, engineering or architecture, or any other profession specified by the Central Government.

All income arising to such an association, except the following categories of income, are exempt from inclusion in

income:

Income under the head 'interest on securities';

Income under the head 'income from house property';

Income received for rendering any: specific service; and

Income by way of interest or dividends derived from its investments.

However, approval once granted may be withdrawn if at any time the Government is satisfied that -

The association or institution has not applied or accumulated its income in accordance with the provisions

of t11e section;

The activities of the association or institution are not being carried out in accordance with the conditions imposed on

the basis of which the approval was granted .

Such withdrawal shall be made after giving reasonable opportunity to the assessee. A copy of the order shall be sent to

the Assessing Officer as well as the assessee.

Income of institutions established by armed forces [Section 10(23AA)] • Any income received by any

person on behalf of any regimental fund or non-public fund established by the armed forces of the Union for

the welfare of the past and present members of such forces or their dependents is exempt from tax.

Students may note that donations to such institutions will qualify for deduction under section 80G.

24 | P a g e

Income of Funds established for we1lfare of employees of which such employees are members [Section

10(23AAA)]- A number of funds have been established for the welfare of employees or their dependents in

which such employees themselves are members. These funds are utilized to provide cash benefits to a member on

his superannuant ion, or in the event of his illness or illness of any member of his family, or to the dependents of a

member on his death.

Income of Fund set up by Life Insurance Corporation under pension scheme [Section 10(23AA8)]

- Any income of a fund set up by the LIC of India or any other insurer under a pension scheme to which

contribution is made by any person for receiving pensions from such fund. Such scheme should be approved by the

Controller of Insurance or the IRDA.

Income of authorities set up under State or Provincial Act for promotion of Khadi and Village

Industries [Section 10(2388)) - Income derived by authorities similar to Khadi and Village Industries

Commission, set UIP under any State or Provincial Act, for the development of Khadi or Village industries

in the state is exempt from tax.

Income of authorities set up to administer religious or charitable trusts [Section 10(2388A ) - (I)

Income of bodies or author ities established, constituted or appointed under any enactment for the administration

of public, religious or charitable trust or endowments (including math, temples, gurdwaras, wakfs, churches,

synagogues, aviaries or other places of public religious worship) or societies for religious or charitable purpose is

exempt from tax.

(ii) However, exemption will apply to the income of the administrative bodies or authorities but shall not apply to

the income of any such trust, endowment or society mentioned above.

Income of European Economic Community (EEC) [Section 10(23888)) - This clause provides

exemption on any income of the EEC derived in India by way of interest, dividends or capital gains from

investments made out of its funds under a scheme notified by the Government.

Income derived by the SAARC Fund for Regional Projects (Section 10(23BBC)] - Any income derived

by the SAARC Fund for Regional Projects which was set up by Colombo Declaration shall be exempt.

Income of the IRDA (Section 10(23BIBE)] - Any income of the IRDA established under section 3(1) of the IRDA

Act, 1999 will be exempt.

25 | P a g e

Exemption of income of Central Electricity Regulatory Commission (Section 10(23BBG)] - This

section provides exemption to any income of Central Electricity Regulatory Commission constituted under sub-sect

ion (1) of Section 76 of the Electricity Act, 2003.

Exemption of income of Prasar Bharati (Broadcasting Corporation of India) (Section 10(23BBH)]

- Any income of the Prasar Bharati (Broadcasting Corporation of India) established under section 3(1) of the Prasar

Bharati (Broadcasting Corporation of India) Act, 1990 is exempt under this section.

Income of Mutual Fund [Section 10(230)] -(I) The income of a Mutual Fund set up by a public-sector bank I

public financial institution I SEBI I RBI subject to certain conditions is exempt.

(ii) "Public sector bank" means SBI or any nationalized bank or a bank included in the category "other public

sector banks" by the Rl31, for example, IDBI Bank.

Note: The income of a mutual fund registered under the SEBI will be exempt without any conditions laid

down by the Central Government In the case of other mutual funds, the conditions will be applicable.

Exemption of income of Investor Pro1tection Fund set up by depositories [Section 10(23ED)] -

Consequent to amendment in the SEBI (Depositories and Participants) Regulations, 1996, in the year 2012, there is a

compulsory requirement for depositories to set up an Investor Protection Fund.

"Depository" means a company formed and registered under the Companies Act, 1956 and which has been granted a

certificate of 1registration under section 12(1A) of the SEBI Act, 1992. Under section 10(23EA), income by way

of contributions from a recognized stock exchange received by an Investor Protection Fund set up by the

recognized stock exchange is exempt from taxation. In line with section 10(23EA), the Finance Act, 2013 has

inserted section 10(23ED) to provide that any income, by way of contribution from a depository, of such

Investor Protection Fund set up by a depository in accordance with the regulations made under the SEBI Act, 1992

and the Depositories Act, 1996, will not be included while computing the total income of such investor protection

fund. The Central Government, would, by way of notification in the Official Gazette: specify such investor

protection funds set up by depositories in accordance with the SEB I and depositories regulations. However, where

any amount standing to the credit of the fund and not charged to income-tax during any previous year is

shared wholly or partly with a depository, the amount so shared shall be deemed to be the income of the previous

year in which such amount is shared. Accordingly, such amount would be chargeable to income-tax.

26 | P a g e

Income of trade unions [Section 10(24)] - Any income under the heads "income from house property'' and

"income from other sources" of a registered trade union, within the meaning of the Trade Unions Act, 1926, formed

primarily for the purpose of regulating the relations between workmen and the employers or between workmen

and workmen will be exempt. Further, this exemption is also available in respect of an association of such registered

unions.

Income tax exemption to Employees: state Insurance (ESI) Fund [Section 10(25A)] - The contributions

paid under ESI Act, 1948 and all other moneys received on behalf of the ESI Corporation are paid into a Fund called

the ESI Fund. This Fund is held and administered by the ESI Corporation. The amounts lying in the Fund are to be

expended for payment of cash benefits and provision of medical treatment and attendance to insured persons

and their families, establishment and maintenance of hospitals and dispensaries, etc. Any income of the ESI Fund is

exempted.

Income of member of a scheduled tribe [Section 10(26)] - A member of a Scheduled Tribe residing in -

Any area (specified in the Constitution)

In the States of Manipur, Tripura, Arunachal Pradesh, Mizoram and Nagaland, or

In the Ladakh region of the state of Jamrnu and Kashmir is exempt from tax on his income arising or accruing -

From any source in the areas or States aforesaid.

By way of dividend or interest on securities.

27 | P a g e

Illustration:

Example 1:

Example 2:

28 | P a g e

29 | P a g e

News Article:

“Budget 2016: Income tax exemption threshold to be raised to Rs 3 lakh from Rs 2.5 lakh”

Date: 19 Feb 2016

Source: The financial Express

Budget 2016 countdown: Individual taxpayers could get some relief as finance minister Arun Jaitley is likely to

raise the minimum income threshold for paying personal income tax for those below 60 years of age to Rs 3

lakh a year from Rs.2.5 lakh at present, multiple sources told FE.

The income levels where the tax kicks in for senior citizens (of age above 60 years) and super seniors (age

above 80 years) could also be correspondingly raised. In case of senior citizens, the current threshold for paying

tax is Rs.3 lakh while it is Rs.5 lakh for super senior citizens. However, the higher slabs are unlikely to be

revised, the sources added.

Currently, income tax is payable at 10% of the amount by which the income exceeds Rs 2.5 lakh (up to Rs 5

lakh), at 20% (between Rs.5 lakh-10 lakh) and at 30% (above Rs 10 lakh) in case of individuals up to 60 years

of age and HUFs.

Jaitley may also reintroduce the extra window of Rs 50,000 for claiming deductions under Section 80C for

investments in infrastructure bonds. Currently, various specified investments are eligible for deductions subject

to threshold of Rs 1.5 lakh and additionally, a deduction of Rs 50,000 is allowed for contributions to the

National Pension System under Section 80CCD.

The government is aggressively taking steps to bring in more individuals under the tax net but it also wants to

reduce the burden on the lower strata of the tax-paying community to the extent possible. “Of course, we are

taking measures to bring in more persons under the tax net. We have a target of about 10 million new tax payers

to be added in the current financial year. Till November, we added 3.74 million new taxpayers because of these

measures,” revenue secretary Hasmukh Adhia had said in a recent interview with FE. In India, there are about

35-40 million individual taxpayers, a tiny segment considering the country’s huge population.

“Considering the savings rate and inflation, the threshold limit (for personal income tax) is expected to be raised

so as to provide more disposable income in the hands of the individual. This could help in channelising the

higher disposable incomes towards increasing consumption and thereby the economic growth,” said Vineet

Agarwal, partner at KPMG in India.

30 | P a g e

Although, Arun Jaitley has already announced that his government cannot afford a ‘populist’ Budget and rather

there are needs for structural reforms, he is unlikely to turn a blind eye to the demands from the individual

taxpayers. “The finance minister could look at increasing the limit under Section 80C up to Rs 250,000 so that

people channelise their savings into investment linked deductions,” said Divya Baweja, partner at Deloitte

Haskins & Sells. The government extended the limit to Rs 1.5 lakh in 2014-15 from Rs 1 lakh earlier. This

includes investments in schemes such as postal deposit, provident funds, pension schemes, mutual funds and

insurance.

The deduction for NPS investment has helped individuals at higher tax brackets to save more funds. For

instance by availing the Rs 50,000 of deduction for NPS, the tax burden for individuals in the highest 30% tax

bracket could come down by Rs 16,000, while it will be Rs 10,000 for those on the 20% tax slab and Rs 5,000

for those paying 10% tax.

“Budget 2016: Start-ups get 100% tax exemption for 3 years on profits”

Date: 29 Feb 2016

Source: DNA

Government on Monday announced a slew of initiatives in the Budget for startups, including 100% tax

exemption for three years and allocation of Rs 500 crore for SC/ST and women entrepreneurs, aimed at

facilitating growth for these new businesses. "It is proposed to provide a deduction of 100% of the profits and

gains derived by an eligible startup from a business involving innovation development, deployment or

commercialisation of new products, processes or services driven by technology or intellectual property,"

Finance Minister Arun Jaitley said while announcing Union Budget 2016-17 in Parliament.

This benefit will be available to an eligible startup which is setup before April 1, 2019, he added.

Similarly, to promote innovation, a special patent regime has been proposed with a 10% rate of tax on income

from worldwide exploitation of patents developed and registered in India. Under the 'Start Up India Action

Plan', the proposal is also to establish a 'Fund of Funds' which intends to raise Rs 2,500 crore annually for four

years to finance the startups.

Besides, the Budget allocates Rs 500 crore for scheduled caste, scheduled tribes and women entrepreneurs in the

Budget under the Stand-Up India scheme.

31 | P a g e

Subho Ray, President of Internet and Mobile Association of India said the move will help startups with better

incubation, talent and capital. "The ease of registration process and the hope to complete the task in one day is a

welcome measure along with the three year tax holiday for startups," Practo founder and CEO Shashank ND

added. However, some startups also found some announcements to be "mere lip service".

"I see a lot of announcements mere lip service vs making any actual on ground difference. For example, most

large technology based scalable companies require heavy upfront investments and do not make any profits in

first few years so, the tax holiday is not going to be very helpful... A lot more needs to change to actually

facilitate the startup ecosystem in the long run," Shimply.com founder and CEO Rajat Garg said.

Anurav Rane, CEO and founder of PlanMyMedicalTrip.com added that while efforts by the government are

really appreciated, it’s disheartening to see "categorization of startups basis caste". Another positive step seen is

the proposed lowering of corporate income tax rate for the next financial year of companies with turnover not

exceeding Rs.5 crore to 29% plus surcharge and cess. The Budget also proposes to insert a new Section 54EE to

provide exemption from capital gains tax if the proceeds are invested in units of such specified fund, subject to

the condition that the amount remains invested for 3 years failing which the exemption shall be withdrawn. The

investment in the units of the specified fund shall be allowed up to Rs.50 lakh.

Also, to provide relief to those willing to setup a startup by selling a residential property to invest in the shares

of such company, an amendment to section 54GB has been proposed. This will provide long term capital gains

arising on account of transfer of a residential property shall not be charged to tax if such capital gains are

invested in subscription of shares of a company and the individual/HUF holds more than 50% shares of the

company. "Entrepreneurship learning through Massive Open Online Course (MOOCS) will provide access to

educational resources across the country. These positive moves will spark a new energy in the startup sector

which is expected to raise $700 million and will generate around 5,000 jobs in the next 12 months," SpiderG

CEO and co-founder Ashwani Rathore said. Besides, to tap tax on income accruing to foreign e-commerce

companies from India, the Budget proposes a person making payment to a non-resident without a permanent

establishment to withhold tax at 6% for amounts exceeding Rs 1 lakh in a year for online advertisement. This

"equalisation levy" will only apply to B2B transactions.

Saurabh Srivastava, co-founder of Indian Angel Network said the 3-year tax exemption will reduce compliance

burden and cash outflows, allowing ventures to invest in product development and scaling-up the businesses.

32 | P a g e

Corporate Deductions under Section 80:

Deduction for donations towards Social Causes [Section 80G]

The various donations specified in Sec. 80G are eligible for deduction up to either 100% or 50% with or

without restriction as provided in Sec. 80G. 80G deduction not applicable in case donation is done in form

of cash for amount over Rs 10,000.

Donations with 100% deduction without any qualifying limit:

National Defence Fund set up by the Central Government

Prime Minister's National Relief Fund

National Foundation for Communal Harmony

An approved university/educational institution of National eminence

Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that

district

Fund set up by a State Government for the medical relief to the poor

National Illness Assistance Fund

National Blood Transfusion Council or to any State Blood Transfusion Council

National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and

Multiple Disabilities

National Sports Fund

National Cultural Fund

Fund for Technology Development and Application

National Children's Fund

Chief Minister's Relief Fund or Lieutenant Governor's Relief Fund with respect to any State or

Union Territory

33 | P a g e

The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central

Welfare Fund, Andhra Pradesh Chief Minister's Cyclone Relief Fund, 1996

The Maharashtra Chief Minister's Relief Fund during October 1, 1993 and October 6,1993

Chief Minister's Earthquake Relief Fund, Maharashtra

Any fund set up by the State Government of Gujarat exclusively for providing relief to the victims

of earthquake in Gujarat

Any trust, institution or fund to which Section 80G(5C) applies for providing relief to the victims

of earthquake in Gujarat (contribution made during January 26, 2001 and September 30, 2001) or

Prime Minister's Armenia Earthquake Relief Fund

Africa (Public Contributions — India) Fund

Swachh Bharat Kosh (applicable from financial year 2014-15)

Clean Ganga Fund (applicable from financial year 2014-15)

National Fund for Control of Drug Abuse (applicable from financial year 2015-16)

Donations with 50% deduction without any qualifying limit.

Jawaharlal Nehru Memorial Fund

Prime Minister's Drought Relief Fund

Indira Gandhi Memorial Trust

The Rajiv Gandhi Foundation

Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross total income

Government or any approved local authority, institution or association to be utilised for the

purpose of promoting family planning

Donation by a Company to the Indian Olympic Association or to any other notified association or

institution established in India for the development of infrastructure for sports and games in India

or the sponsorship of sports and games in India.

34 | P a g e

Donations to the following are eligible for 50% deduction subject to 10% of adjusted gross total income

Any other fund or any institution which satisfies conditions mentioned in Section 80G(5)

Government or any local authority to be utilised for any charitable purpose other than the purpose

of promoting family planning

Any authority constituted in India for the purpose of dealing with and satisfying the need for

housing accommodation or for the purpose of planning, development or improvement of cities,

towns, villages or both

Any corporation referred in Section 10(26BB) for promoting interest of minority community

For repairs or renovation of any notified temple, mosque, gurudwara, church or other place.

Deductions on Contribution by Companies to Political Parties

Section 80GGB: Deduction on contributions given by companies to Political Parties

Deduction is allowed to an Indian company for amount contributed by it to any political party or an

electoral trust. Deduction is allowed for contribution done by any way other than cash.

Political party means any political party registered under section 29A of the Representation of the People

Act. Contribution is defined as per section 293A of the Companies Act, 1956.

Deduction in respect of donations for scientific research and rural development [Section 80GGA]

(i) Section 80GGA grants deduction in respect of the donations made for scientific research or rural

development by any assessee not having income chargeable under the head "Profits and gains of business or

profession".

(ii) The following donations would qualify for deduction under this section -

1. Any sum paid by the assessee in the previous year to a research association which has, as its object, the

undertaking of scientific research or to a University, college or other institution to be used for

scientific research.

2. Any sum paid by the assessee in the previous year to an association or institution which has as its object

the undertaking of any programme of rural development to be used for carrying out any programme

of rural development approved by the prescribed authority for purposes of section 35CCA or to an

35 | P a g e

institution or association which has as its object the training of persons for implementing programmes of

rural development. It is, however, essential that in respect of both the aforesaid donations, the

association or institution to which the donation is given must be approved by the prescribed authority;in

the case of donation for scientific research, the donation must be to the institution approved under section

35(1)(ii) whereas in the case of donation for rural development the institution or association must be

approved by the prescribed authority under section 35CCA(2).

3. Any sum paid to a Research Assoc ia1tion which has as its object the undertaking of research in social

science or statistical research, University, College or other institution to be used for research in social

science or statistical research. Such Research Association, University,Colle:ge or institution must be

approved under section 35(1)(iii).

4. Any sum paid to a public-sector company or a local authority or to an association or institution

approved by the National Committee for carrying out any eligible project or scheme.

5. However, the assessee must furnish a certificate referred to in section 35AC from such public-sector

company or local authority or association or institution. The expression "National Committee" and "eligible

project or scheme" shall have the meanings respectively assigned to them in the Explanation to section

35AC.

Special provisions in respect of certain undertakings or enterprises in certain special category States

[Section 80-IC]

(i) This section allows tax holiday to the new undertakings or existing undertakings on their substantial

expansion in the states of Himachal Pradesh, Uttaranchal, Sikkim and North­ Eastern States.

(ii) For this purpose, "substantial expansion" means increase in the investment in plant and machinery by at least

50% of the book value of the plant and machinery (before taking depreciation in any year), as on the

first day of the previous year in which the substantial expansion is undertaken.

(iii) The tax holiday in the states of Himachal Pradesh and Uttaranchal will be 100% for the first five

assessment years and 25% (30% in the case of a company) for the next five assessment years.

(iv) However, tax holiday in the states of Sikkim and North-Eastern States will be 100% for ten assessment

years commencing from the initial assessment year.

(v) For the purpose of exemption, two classifications have been made and the Thirteenth Schedule and

36 | P a g e

Fourteenth Schedule have been inserted in the Income-tax Act. The said Schedules specify the list of

articles and the States for the purposes of availing deduction under this section.

(vi) The first classification is applicable to undertakings or enterprises which manufacture or produce any

article or thing, not being any article or thing specified in the 13th Schedule (namely, tobacco, aerated

beverages, pollution causing paper and paper products etc.) in any export processing zone or integrated

infrastructure development centre or industrial growth centre or industrial estate or industrial park or

software technology park or industrial areas or theme park in these States as notified by the Board.

(vii) The second classification is applicable to those undertakings or enterprises which manufacture or

produce article or thing specified in the 14th Schedule only in these States without any specification of the

specified zone, area etc.

(viii) The period during which the undertakin1s in different States should begin or should have begun to

manufacture or produce are given hereunder –

Himachal Pradesh From 7.1.03 and ending before

1.4.2012

Uttaranchal Sikkim From 23.12.02 and ending before 1.4.2007

North-Eastern States

From 24.12.97 and ending before 1.4.2007

(ix) No benefit to these undertakings will be available under any of the sections in Chapter VIA in

relation to the profits and gains of such undertakings.

(x) While computing the total period of 10 years the period for which the benefit under section 8018 has

already been availed,if any, shall also be included.

(xi) The other conditions such as that it should not be formed by splitting or reconstruction of a business

already in existence,or by transfer to a new business of plant and machinery previously used for any

purpose are the same as are appli,cable for claiming benefit under section 801A.

(xii) Where any goods or services held 1'or the purposes of the eligible business are transferred to any

other business carried on by the assessee, or vice versa, and if the consideration for such transfer

does not co1rrespond with the market value of the goods or services then the profits and gains of the

37 | P a g e

eligible business shall be computed as if the transfer was made at market value. However, if, in the

opinion of the Assessing Officer, such computation presents exceptional difficulties, the Assessing

Officer may compute the profits on such reasonable basis as he may deem fit.

(xiii) The deductions claimed and allowed under this section shall not exceed the profits and gains of

the eligible business. Further, where deduction is claimed and allowed under this section for any

assessment year no deduction in respect of such profits will be allowed under any other section under

this chapter.

(xiv) The Assessing Officer is empowered to make an adjustment while computing the profit and gains

of the eligible business on the b.:1sis of the reasonable profit that can be derived from the transaction,

in case the transaction between the assessee carrying on the eligible business under section 80-IC

and any other person is so arranged that the transaction produces excessive profits to the eligible

business.

Deduction in respect of profits and gains from business of collecting and processing of bio-degradable

waste [Section 80 JJA]

(i) This section provides for deduction in respect of profits and gains from the business of collecting and

processing bio-degradable waste.

(ii) The deduction is allowable where the gross total income of an assessee includes any profits and gains

derived from any of the following businesses -

(1) collecting and processing or treating of bio-degradable waste for generating power, or

(2) producing bio-fertilizers, bio-pesticides or other biological agents, or

(3) producing bio-gas, or

(4) making pellets or briquettes for fuel or organic manure.

(iii) The deduction allowable under this section is an amount equal to the whole of such profits and gains

for a period of five consecutive assessment years beginning with the assessment year relevant to the

previous year in which the business commences.

Deduction in respect of employment of new workmen [Section 80 JJAA]

(iv) Section 80JJAA provides that the deduc1tion thereunder shall be available to an assessee

(v) deriving profits from manufacture of goods in its factory.

38 | P a g e

(vi) Where the gross total income of such an assessee includes any profits and gains derived from the

manufacture of goods in a1 factory, it would be allowed a deduction of an amount equal to 30% of

additional wages pa1id to the new regular workmen employed by the assessee in such factory , in the

previous year, for three assessment years including the assessment year relevant to the previous year in

which such employment is provided.

(vii) (iii) However, the deduction shall not be available if the factory is acquired by the assessee by way of

transfer from any other person or as a result of any business reorganisation.

(viii) The following conditions have to be fulfilled in order to be eligible for the deduction under this

section:

(1) The assessee's gross total income should include profits and gains from manufacture of goods

in a factory. The factory should not be acquired by the assessee by way of transfer from any

other person or as a result of any business reorganization.

(3) The assessee should furnish along wi1th the return of income a report of a chartered accountant

in the prescribed form giving the prescribed particulars.

(4) In case of a new factory, in the first previous year, it employs more than 50 regular workmen.

Additional wages would mean the wages paid to new regular workmen in excess of 50 workmen

employed during1 the previous year.

(5) In the case of an existing factory, the number of regular workmen employed during the relevant

previous year should be equal to at least 110% of the regular workmen employed in such factory

as on the last day of the preceding year. If not, the additional wages would be Nil.

(v) "Regular Workmen" does not include -·

(1) a casualworkman; or

(2) a workman employed through contract labour; or

(3) any other workman employed for a period of less than 300 days during the previous year.

39 | P a g e

Deductions in respect of profits and gains from undertakings or enterprises engaged in

infrastructure development, etc. [Section 80-IA]:

(i) Applicability: Section 80-IA (1) provides a ten-year tax holiday to an assessee, whose gross total income

includes any profits and gains derived by an undertaking or enterprise from an eligible business i.e., business

referred to in sub-section (4), namely:

(1) Infrastructure facility - Any enterprise carrying on the business of:

(a) developing

(b) operating and maintaining; or

(c) developing, operating and maintaining any infrastructure facility. Conditions: However,

such enterprise must fulfil the following conditions:

(i) It must be owned by a company registered in India or by a consortium of such companies or by an author

ity or a board or a corporation or any other body established or constituted under any Central or State

Act.

(ii) It has entered into an agreement with the Central or a State Government or a local authority or statutory

body for (i) developing or (ii) operating and maintaining, or (iii) developing, operating and maintaining a

new infrastructure facility.

(iii) It starts operating and maintaining such infrastructure facility on or after 1-4-1995.

(iv) However, where an enterprise which developed such infrastructure facility transfers it to another

enterprise on or after 1-4-199!9, and such transferee enterprise ise operates and maintains it according to

the agreement drawn up with the Government, etc., this section will apply to the transferee enterprise for

the unexpired period of deduction (which was available to the first enterprise).

(v) Meaning of "infrastructure facility": For this purpose, ‘infrastructure facility' means:

(vi) a road, including toll road, a bridge or a rail system;

(i) a highway project including housing cir other activities being an integral part of the highway project;

(ii) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or

solid waste management system; and

(iii) a port, airport, inland waterway or inland port or navigational channel in the sea.

Note - 1. Structures at the ports for storage, loading and unloading etc. will be included in the definition of port

40 | P a g e

for the purpose of section 810-IA, if the concerned port author ity has issued a certificate that the said structures

form part 01'the port.

Effluent treatment and conveyance system is a part of water treatment system and would accordingly, qualify as

an infrastructure 'facility for the purpose of section 80-IA.

Deduction in respect of profits a1nd gains by an undertaking or enterprise engaged in

development of SEZ [Section 80-IAB]

(i) Sub-section (1) provides for a deductiion of 100% of profits and gains derived by an undertaking or

an enterprise from any business of developing a SEZ for 10 consecutive assessment years.

(ii) The deduction is available to an assess,ee, being a Developer, whose gross total income includes any

profits and gains derived by an undertaking or an enterprise from any business of developing a SEZ,

notified on or after 1st Ap1ril, 2005 under the SEZ Act,2005. Developer means -

a) a person who, or

b) a State Government which

c) has been granted a letter of approval by the Central Government under section 3(10) of the SEZ

Act, 2005.

d) A developer includes –

e) an authority and

f) a Co-developer.

g) Co-developer means -

h) a person who, or

i) a State Government which has been granted a letter of approval by the' Central Government

under section 3(12) of the SEZ Act , 2005.

(iii) The deduction shall be allowed only if the accounts are audited by a Chartered Accountant and

the audit report is furnished a1long with the return of income.

(iv) The assessee has the option of claiming the said deduction for any ten consecutive assessment years

out of fifteen years beginning from the year in which a SEZ has been notified by the Central

Government.

(v) In a case where an undertaking, being1 a Developer, who develops a SEZ on or after 1.4.2005 and

transfers the operation and ma ntenance of such SEZ to another Developer, the deduction under sub-

41 | P a g e

section (1) shall be allowed to such transferee Developer for the remaining period in the ten

consecutive assessment years as if the operation and maintenance were not so transferred to the

transferee Developer.

(vi) The profits and gains from the eligible business should be computed as if such eligible business were the

only source of income of the assessee during the relevant assessment year.

(vii) Where any goods or services held for the purposes of eligible business are transferred to any other

business carried on by the assessee or, where any goods held for any other business are transferred

to the eligible business and, in either case, if the consideration for such transfer as recorded in the

accounts of the eligible business does not correspond to the market value thereof, then the profits

eligiblle for deduction shall be computed by adopting market value for such goods or services. lni

case of exceptional difficulty in this regard, the profits shall be computed by the Assessing Officer on a

reasonable basis.Where due to the close connection between the assessee and the other person or for

any other reason, it appears to the Assess ing Officer that the profits of eligible business is

increased to more than the ordinary profits, ttle Assessing Officer shall compute the amount of profits on a

reasonable basis for allowing the' deduction.The Assess ing Officer is empowered to make an

adjustment while computing the profit and gains of the eligible business on the basis of the reasonable

profit that can be derived from the transaction,in case the transaction between the assessee carrying on

the eligible business under section 80-IAB and any other person is so arranged that the transaction

prciduces excessive profits to the eligible business.

(viii) The deduction under this section should not exceed the profits of such eligible business of the

undertaking or the enterprise.

(ix) Further, where any amount of profits of an undertaking or enterprise is allowed as deduction

under this section, no deduction under any other provision of Chapter VI-A is allowable in respect of

such profits.

(x) The Central Government may notify that the benefit conferred by this section shall not apply to any

class of industrial undertaking or enterpr ise with effect from any specified date.

(xi) Where any undertaking of an Indian company which is entitled to the deduction under this section is

transferred before the expiry of the period of deduction to another Indian company in a scheme of

amalgamation or demerger , no deduction shall be admissible to the amalgamating or demerged

company for thle previous year in which the amalgamation or demerger takes place and the

42 | P a g e

amalgamated or the resulting company shall be entitled to the deduction as if the amalgamation or

demerger had not taken place.

Deductions in respect of profits and gains from certain industrial undertakings other than

infrastructure development undertakings, etc. [Section 80-IB]

Applicability

This section will be applicable to assesses,whose gross total income includes any profits and gains derived from

any of the following business activities -

An industrial undertaking including a small scale industrial undertaking (SSI)

Any company carrying on scientific and industrial research and development. An undertaking which begins

commercial production or refining of mineral oil or commercial production of natural gas in licensed blocks.

An undertaking engaged in construction and development of housing projects approved by a local authority. An

industrial undertaking deriving profits from the business of setting up and operating a cold chain facility for

agricultural produce. An undertaking deriving profits from the business of processing, preservation and

packaging of fruits or vegetables or meat and meat products or poultry or marine or dairy products or from the

integrated business of handling, storage and transportation of food gra ins. An undertaking operating and

maintaining a hospital in anywhere in India, other than an excluded area. Conditions to be fulfilled, amount of

deduction and period of deduction

Undertakings engaged in commerci1al production or refining of mineral oil or commercial production

of natural gas in licensed blocks [Sub-section (9))

Conditions: In order to claim deduction under the section, the undertaking should be engaged in commercial

production or refining of mineral oil or commercial production of natural gas in licensed blocks.

The following further conditions should be fulfilled -

In case of an undertaking engaged in commercial l production of mineral oil -

Where such operations are carried oiut in the North-Eastern Region, it has begun commercial production

before 1.4.1997.

Where such operations are carried out in any part of India, it begins commercial production on or after

1.4.1997.

43 | P a g e

A sunset clause for tax holiday in respect of certain undertakings engaged in commercial production of

mineral oil has now been inserted. Accordingly, the above deduction for commercia l production of mineral

oil will not be available for blocks licensed under a contract awarded after 31.3.2011 under the New Exploration

Licensing Policy or in pursuance of any law for the time being in force or by the Central or a State Government in

any other manner.

In case of an undertaking engaged in refining of mineral oil, it begins refining of mineral oil on or after 1-10-

1998 but not later than 31.3.2012.

In case of an undertaking engaged in commercial production of natural gas in licensed blocks -

the blocks are licensed under the VIII Round of bidding for award of exploration contracts ("NELP-Vlll") under

the New Exploration Licensing Policy announced by the Government of India vide Resolution No.0-

19018/22/95-0NG.DO.VL, dated 10th February, 1999; or

the blocks are licensed under the IV Round of bidding for award of exploration contracts for Coal Bed Methane

blocks

and begins commercial production of natural! gas on or after 1st April,2009.

Note - All blocks licensed under a single contract to be treated as a single "undertaking•

For the purposes of claiming deduction under sub-section (9), all blocks licensed under a single contract,

which has been awarded -

under the New Exploration Licensing Policy announced by the Government of India vide Resolution No.0-

19018/22/95-0NG.DO.VL, dated 10.2.1999 or

in pursuance of any law for the time being in force or

by Central or a State Government in any other manner shall be treated as a single "undertaking".

This definition of "undertaking" will be applicable both in relation to mineral oiland natural gas.

Rate and period of deduction: The deducting will be allowed at 100% of the profits and gains from such

business for 7 consecutive assessment years including the initial assessment year

i.e. the assessment year relevant to the previous year in which the undertaking commences the commercial

production or refining of mineral oil.

44 | P a g e

100% Tax Deduction U/s 80IAC

The profit of a startup will get tax deduction u/s 80IAC equal to 100% of the profit earned in 3 out of first five years. So

salient rules for claiming deduction u/s 80IAC are as under:

1. Startup is incorporated on or after the 1st day of April, 2016 but before the 1st day of 20 April, 2019;

2. The total turnover of business of startup does not exceed twenty-five crore rupees in any of the previous

years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and

3. Deduction u/s 80IAC is allowed to eligible startups setup before 01/04/2019 only.

4. The deduction is for eligible business or professional income.

5. The deduction of one hundred per cent. is allowed for three consecutive assessment years.

6. The assessee can chose the start year of three consecutive years out of first five years.

7. Startup should not:

(i) be started by splitting up, or the reconstruction, of a business already in existence.

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any

purpose.

45 | P a g e

Illustrations:

Example 1.

Example 2:

46 | P a g e

Example 3:

47 | P a g e

News Article

“Government releases roadmap for phasing out corporate tax exemptions; no

weighted deductions from April 1, 2017”

Date: 20 Nov 2015

Source: Economic Times of India

NEW DELHI: Keeping up the reforms momentum, India has a announced a detailed plan to phase out tax

exemptions and bring down corporate tax rate to 25% from 30% now. The apex direct taxes body, the Central

Board of Direct Taxes, has said profit linked, investment linked and area based deductions will be phased out

for both corporate and non-corporate tax payers. It has said the provisions having a sunset date will not be

modified to advance the sunset date. Similarly, the sunset dates provided in the income act will not be

extended.

In case of tax incentives with no terminal date, a sunset date of March, 31, 2017 will be provided either for

commencement of the activity or for claim of benefit depending upon the structure of the relevant provisions

of the Act.

There will be no weighted deduction with effect from April 1, 2017.

In his February budget speech, Jaitley had announced that the government would cut the corporate tax rate to

25% while phasing out incentives.

"A regime of exemptions has led to pressure groups, litigation and loss of revenue," the finance minister had

said. "It also gives room for avoidable discretion. I, therefore, propose to reduce the rate of corporate tax from

30% to 25% over the next four years."

Even though the basic rate of corporate tax is 30%, the effective one is much lower at 23% because of

incentives. Globally, corporate tax rates are much higher than those for personal income tax. In India, the

income tax rate is as high as 30%. "We lose out on both counts, i.e. we are considered as having a high

corporate tax regime but we do not get that tax due to excessive exemptions," Jaitley had said.

In FY15, the government is estimated to have had to forego Rs.62,400 crore in corporate taxes on account of

various incentives, up from Rs.57,800 crore a year ago.

48 | P a g e

Bibliography

http://business.mapsofindia.com/india-tax/exemption.html#sthash.kqdkmiok.dpuf

http://www.taxexemption.in/exemption.html

http://taxguru.in/income-tax/allowances-exemptions-categories-tax-payers.html

http://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx

http://incometaxmanagement.com/pages/tax-ready-reckoner/exempted-incomes/1-5-exempted-

incomes-sec-10(1)-to-10(4)(ii).html#1

http://www.financialexpress.com/economy/tax-exemption-threshold-to-be-raised-to-rs-3-

lakh/213013/

http://www.startupsofindia.in/2016/03/section-80iac-startup-tax-100-deduction-under-section.html

http://economictimes.indiatimes.com/news/economy/finance/government-releases-roadmap-for-

phasing-out-corporate-tax-exemptions-no-weighted-deductions-from-april-1-

2017/articleshow/49859749.cms

http://www.dnaindia.com/money/report-budget-2016-start-ups-get-100-tax-exemption-for-3-years-

on-profits-2183981

http://www.startupsofindia.in/2016/03/section-80iac-startup-tax-100-deduction-under-section.html