DEDUCTIONS
“Deductions” for the purpose of this chapter refers to deductions available from Gross
total income. A set of specific deductions considering various socio economic factors
have been provided under this chapter. As a learner of the subject, try to understand the
logical reasoning behind each and every deduction, this would help you to appreciate
the provisions. India has a savings to GDP ratio of over 35% which is significant and was
one of the prime factors to protect the economy from the recent global economic
recession. One of the main reasons for such high savings ratio, apart from the
conservative nature of the Indian population, is the tax incentives which are made
available to promote long term savings. This and many more incentives are being
offered for various classes of persons to promote social and economic causes. The total
set of deductions available can be broadly categorised as:
S/No Category Sections Classification as per
Act
1 Basics 80A, 80AB, 80AC Deductions
pertaining to
certain payments
2 Deductions pertaining
to
Investments
80C, 80CCC, 80CCD,
80CCE, 80CCG
Deductions
pertaining to
certain payments.
80U is classified
under
“other deductions”
3 Deductions pertaining
to medical treatment
and expenses
80D, 80DD, 80DDB,
80U
4 Deductions pertaining
to certain
contributions
80G, 80GGA, 80GGB,
80GGC
5 Deductions pertaining
to
Expenditure
80E, 80GG
6 Deductions pertaining
to Industrial
Undertakings
80IA, 80IAB, 80IB,
80IC, 80ID, 80IE
Deductions
pertaining to
certain incomes”.
7 Deductions pertaining
to Specified certain
incomes”. Businesses
80JJA, 80JJAA, 80LA,
80P
8 Deductions pertaining
to certain Incomes
80QQB, 80RRB,
80TTA
Classification as per Act is given for students to understand as to how the
sections are grouped. Also references are made in this chapter based on
classifications under the Act. Category based split is given only for easier understanding.
11.1 Basics
Prior to claiming deductions, we need to understand the fundamental provisions for the
purpose of allowing deductions. These are discussed as under:
- Sec 80A: General rules for deductions to be made in computing total income
- Sec 80AB: Deductions pertaining to specified incomes u/s 80IA to 80RRB, to be made
with respect to income included in the gross total income
- 80AC: Deduction not to be allowed unless return of income is furnished.
11.1.1 General rules for deductions to be made in computing total income - Sec
80A
• Deduction cannot exceed gross total income: Deduction u/s 80C to 80U shall be
allowed against the gross total income of an assessee. Aggregate of deductions under
this chapter cannot exceed the gross total income of an assessee
• No deduction in the case of members of AoP and BoI if allowed to an AoP/BoI:
Where a deduction has been allowed under this chapter for an AoP or BoI, no deduction
for the same payment / income shall be made in computing the total income of a
member of the AoP or BoI in relation to the share of such member in the income of the
AoP or BoI.
• Specific provisions for assessees claiming deduction u/s 10A, 10AA, 10B, 10BA
or u/s
80IA to 80RRB (“Deductions pertaining to certain incomes”) – sec 80IA(7) to (11)
– Audit of Accounts: Accounts of such undertaking has to be mandatorily audited
– Inter unit Transfer of goods and services at market value between an eligible
and non eligible undertaking: Where an assessee claiming deduction under the above
mentioned sections (considered as eligible business) transfers’ goods and services to
non eligible businesses or vice versa, such transfer has to be made at market value.
Where the transfers have not been made at market value, profits or gains shall be
recomputed valuing the transfers at market values and deductions shall be computed
on such recomputed profits and gains.
Where in case the aforesaid arrangement involves a specified domestic
transaction
referred to in Sec 92BA, the amount of profits from such transaction shall
be determined
having regard to arm’s length price as defined u/s 92F
Double deduction not allowed: No deduction shall be allowed against such profits and
gains under any other provisions of this Act for the relevant assessment year.
– Deduction not to exceed relevant profits and gains: The amount of deduction shall
not exceed the profit and gains of such undertaking or eligible business.
– Power of Central Government to notify: The Central Government has power to
notify certain undertakings to which the provisions of the relevant section shall not
apply.
– Deduction has to be claimed by the assessee: Where an assessee fails to make a
claim in his return of income, no deduction shall be allowed.
• Specific provision for avoidance of double deduction u/s 35AD: Where an
assessee has claimed deduction under this chapter u/s 80IA to 80RRB (“Deductions
pertaining to certain incomes”), such assessee shall not be eligible for claiming
deduction u/s 35AD even if the assessee is carrying on a specified business u/s 35AD.
Chapter VIA deduction is not available against the following incomes:
• Long term capital gains
• Short term capital gains u/s 111A
• Casual income- winnings from lotteries, card games etc
• Incomes covered under the following sections:
– 115A: Dividends, royalty and fees for technical services of a non resident or foreign
company.
– 115AB: Income from units purchased in foreign currency or capital gains arising on
their transfer.
– 115AC: Income from bonds or Global Depository Receipts (GDR) purchased in foreign
currency or capital gains arising on their transfer, where the assessee is a non resident .
– 115ACA: Income from bonds or Global Depository Receipts (GDR) purchased in
foreign currency
or capital gains arising on their transfer, where the assessee is a resident Indian
working
with a specified employer
– 115AD: Income of Foreign Institutional Investors from securities or capital gains
arising from their transfer.
– 115BBA: Income of non resident sportsmen or sports associations
– 115D: Income of non resident Indian under specific circumstances.
The term “market value” shall mean:
In relation to any goods or services
sold or supplied
The price 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.
In relation to any goods or services
Acquired
The price 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 statutory or regulatory
restrictions, if any.
In relation to any goods
or services sold, supplied or
acquired which are considered as
“Specified Domestic Transactions”
referred u/s 92BA
Arm’s length price as defined u/s 92F
11.1.2 Deductions pertaining to specified incomes u/s 80IA to 80RRB, to be made
with respect to income included in the gross total income – Sec 80AB:
• Where the assessee is eligible for deduction u/s 80IA to 80RRB,
• Deduction shall be allowed on such income computed in accordance with the
provisions of the Act prior to claiming any deduction under Chapter VIA
Therefore income for the purpose of claiming deduction u/s 80IA to 80RRB
shall be income computed after providing for set off and carry forward of
losses, clubbing of incomes etc but prior to any deduction u/s 80C to 80U.
If income of an assessee is increased consequent to computation of arm’s
length price u/s 92C(4), such increase is not to be considered for the
purpose of deduction u/s 80C to 80U- IGate Global Solutions Ltd vs CIT
(2008) 24 SOT 3 (Bangalore).
11.1.3 Deduction not to be allowed unless return of income is furnished within
due date-
Sec 80AC
• Where an assessee is claiming deduction u/s 80IA, 80IAB, 80IB, 80IC, 80ID or 80IE
• No deduction shall be allowed unless,
• The assessee files his return of income within the due date u/s 139(1)
Due date for filing return of income u/s 139(1):
Assessee Due date
• Company
• Non corporate assessees whose accounts are
required to be
audited under Income tax Act or any other law
• Working partner of a firm whose accounts are
required to be audited
30th September of
the assessment year
Company assessee which is required to furnish a
report u/s 92E (transfer pricing cases)
30th November of the
assessment year
Any other assessee 31st July of the
assessment year
11.2 Deductions pertaining to investments
This set of sections consists of tax incentives available for making certain specified
investments.
The benefits of investment incentives are however restricted only to individual or HUF
assessees.
Deduction for investments is contained in the following sections:
Section Eligible assessee Eligible assessee
80C Individual or HUF Investment in
provident fund, life
insurance, equity
shares etc
80CCC Individual Contribution to
pension funds
80CCD Individual Contribution to a
notified pension
scheme
80CCE NA Limit on deduction u/s
80C, 80CCC and 80CCD
11.2.1 Investment in provident fund, life insurance, equity shares etc – Sec 80C
Section Investment Eligible
Assessee
Remarks/
Conditions
80C(2)(i) Life insurance
premium
Individual
and HUF
In case of
individual:
Insurance can be
taken on the life of:
• Individual
• Spouse
• Any child
In case of HUF:
Insurance can be
taken
on the life of any
member of HUF
Deduction
restricted to 10% of
Capital
Sum Assured or
15% of Capital Sum
Assured if the
individual is
suffering from
disability of severe
disability as
covered u/s 80U or
is suffering from
disease or ailment
as covered u/s
80DDB
80C(2)(ii) Contribution to
deferred annuity
Individual
being a
Government
Employee
The contract for
annuity should not
contain an option
for the insured to
receive a cash
payment in lieu of
the payment of
annuity (i.e. it
should be a non
commutable
deferred annuity
plan).
Investment shall be
for the benefit of :
• Individual
• Spouse
• Any child
80C(2)(iii) Contribution to
deferred annuity
Individual being a
Government
employee
Contribution should
be made as a
deduction from
salary. Sum
deducted shall
not exceed 1/5th of
the salary
Contribution shall
be for the benefit of:
• Individual
• Spouse
• Children
80C(2) (iv) Contribution to a
provident fund to
which Provident
Funds Act 1925
applies
(statutory
provident
fund)
Individual NA
80C(2) (v) Contribution to a
notified provident
fund set up by
Central Government
(15
year public
provident
fund)
Individual
and HUF
In case of
individual:
Investment shall be
in the name of :
• Individual
• Spouse
• Any child
In case of HUF:
Investment shall be
madein the name of
any member of HUF.
Maximum
investment ceiling
as per
Public Provident
Scheme is Rs
1,00,000.
However there is no
ceiling under the
Income Tax Act
80C(2)(vi) Contribution to Individual being an NA
recognised
provident fund
Employee
80C(2)
(vii)
Contribution to an
approved
superannuation
fund
Individual
being an
employee
NA
80C(2)
(viii)
Subscription to a
notified security or
deposit scheme.
Individual
and HUF
Scheme of deposit
or security must be
notified by the
Central Government
in
the Official Gazette
National Savings
Scheme has since
been
Notified
80C(2)
(ix)
Subscription to a
notified
savings certificates
–
National Savings
Certificates
(VIII Issue
Individual
and HUF
Savings certificates
must be notified by
the Central
Government in the
Official
Gazette
Interest accrued on
these certificates is
deemed to be
reinvested and also
qualify for
deduction under
this section.
80C(2)
(x)
Contribution to a
specified
unit linked plan
(ULIP) of UTI
Individual
and HUF
In case of
individual:
Investment shall be
in the name of :
• Individual
• Spouse
• Any child
In case of HUF:
Investment shall be
made in the name of
any member of HUF
80C(2)
(xi)
Contribution to a
specified unit linked
Individual and HUF Insurance plan shall
be notified by the
plan (ULIP) of
LIC Mutual Fund
referred u/s
10(23D)
Central Government
in the Official
Gazette
In case of
individual:
Investment shall be
in the name of :
• Individual
• Spouse
• Any child
In case of HUF:
Investment shall be
made
in the name of any
member of HUF
80C(2)
(xii)
Contribution to a
contract for annuity
plan of LIC or
any other insurer
Individual
and HUF
Annuity plan shall
be notified by the
Central Government
in the Official
Gazette
80C(2)
(xiii)
Subscription to
units of
any Mutual Fund
referred u/s
10(23D) or from the
Administrator or
the specified
company under
any notified plan
Individual
and HUF
Scheme shall be
notified by the
Central
Government in the
Official Gazette
80C(2)
(xiv)
Contribution to
pension fund set up
by any Mutual Fund
referred u/s
10(23D)
or from the
Administrator or
the specified
company
under any notified
scheme
Individual Pension scheme
shall be notified by
the
Central Government
in the Official
Gazette
80C(2)
(xv)
Subscription to any
deposit scheme or
Individual
and HUF
Scheme of deposit
or pension fund
contribution to a
pension fund set up
by
National Housing
Bank
shall
be notified by the
Central Government
in
the Official Gazette
80C(2)
(xvi)
Subscription to any
such deposit
scheme of:
(a) a public sector
company engaged
in providing long-
term finance for
construction or
purchase
of houses in India
for
residential
purposes; or
(b) any authority
constituted in India
by
or under any law
enacted either for
the purpose of
dealing with
andsatisfying the
need for
housing
accommodation
or for the purpose
of
planning,
development
or improvement of
cities,
towns and villages,
or for
both
Individual
and HUF
Scheme of deposit
shall be notified by
the Central
Government in the
Official
Gazette
80C(2)
(xvii)
Payment of tuition
fees
whether at the time
of
admission or
Individual Tuition fees exclude
any payment
towards
any development
fees or donation or
thereafter:
(a)to any university,
college, school or
other
educational
institution
situated within
India
(b) for the purpose
of fulltime
Education
payment of similar
nature.
Deduction shall be
restricted to any
two
children of an
individual.
80C(2)
(xviii)
Principal
repayment of
housing loan taken
for
the purpose of
acquisition
or construction of
house
property
Individual
and HUF
Repayment of the
amount borrowed
by the
assessee from:
• Central or State
Government
• Any bank
including a
cooperative bank
• LIC
• National Housing
Bank
• Any Indian public
company specified
u/s 36(1)(viii)
• Any company in
which the public are
substantially
interested or any
cooperative
society engaged in
financing
the construction of
houses
• Assessee’s
employer where
such
employer is an
authority or a board
or a corporation or
any other body
established or
constituted under a
Central or State Act,
or
• Assessee’s
employer where
such
employer is a public
company or a
public sector
company or a
university
established by law
or a college
affiliated
to such university
or a local authority
or
a co-operative
society.
80C(2)
(xviii)
Stamp duty,
registration
fee and other
expenses for
the purpose of
transfer of
such house
property to the
assessee
Individual
and HUF
Deduction shall not
be available for
payment towards:
(A) the admission
fee, cost of share
and
initial deposit which
a shareholder of a
company or a
member of a co-
operative
society has to pay
for becoming such
shareholder or
member; or
(B) the cost of any
addition or
alteration
to, or renovation or
repair of, the house
property which is
carried out:
- after the issue of
the completion
certificate or
- after the house
property or any
part thereof has
been occupied.
(C) any expenditure
eligible for
deduction
u/s 24
80C(2)
(xix)
Subscription to
equity
shares or
debentures
forming part of an
eligible
issue of an
approved
public company or
subscription to an
eligible issue of
capital by public
financial institution.
Individual
and HUF
Eligible issue of
capital means an
issue by
a public company
formed and
registered
in India or a public
financial institution
and the entire
proceeds of such
issue are
utilized wholly and
exclusively for the
purpose of business
referred u/s
80IA(4).
80C(2)
(xx)
Subscription to
units of
any mutual funds
referred
u/s 10(23D)
Individual
and HUF
The amount of
subscription to such
units
is subscribed only
in the eligible issue
of
capital of any
company.
Eligible issue of
capital shall have
the
same meaning as
given u/s
80C(2)(xix)
80C(2)
(xxi)
Investment in term
deposit
with a scheduled
Individual
and HUF
Term deposit shall
be for a period of
not
bank less than 5 years
Scheme of deposit
shall be notified by
the
Central Government
in the Official
Gazette
80C(2)
(xxii)
Subscription to
specified
bonds issued by
National
Bank for
Agriculture
and Rural
Development
(NABARD)
Individual
and HUF
Bonds shall be
notified by the
Central
Government in the
Official Gazette
80C(2)
(xxiii)
Contribution under
the
Senior Citizens
Savings
Scheme Rules, 2004
Individual
and HUF
NA
80C(2)
(xxiv)
Contribution to five
year term deposit in
an account under
the Post Office Term
Deposit Rules, 1981.
Individual
and HUF
NA
• Deduction u/s 80C is allowed only on payment basis
• Benefit of deduction under this section is available to a non resident individual
• Deduction u/s 80C towards life insurance premiums shall be restricted to the extent of
least
of the following:
– Actual amount of premium paid
10% of actual capital sum assured (Amendment by Finance Act 2012)
Actual capital sum assured has been defined in relation to a life insurance policy shall
mean the
minimum amount assured under the policy on happening of the insured event at any
time during the term of the policy, not taking into account—
(i) the value of any premium agreed to be returned; or
(ii) any benefit by way of bonus or otherwise over and above the sum actually assured,
which is to be or may be received under the policy by any person.
Withdrawal of deduction u/s 80C
Section Deduction Withdrawal /
Violation event
Consequences of withdrawal
80C(5)(i Payment of life
insurance premium
u/s
80C(2)(i)
In the case of
single
premium-
withdrawal
within two
years of
commencement
In any other
case – before
premiums
have been paid
for two years
No deduction shall be allowed
in the year of withdrawal
80C(5)(ii) Contribution to
ULIP
u/s 80C(2)(x)/(xi)
Terminates his
participation to
the
plan within five
years from the
date of
commencement
Aggregate deductions allowed
in the preceding years shall be
deemed to be income of the
year of violation/ withdrawal
and charged to taxation. 80C(5)(iii) Principal
repayment of
housing loan and
payment
of stamp duty etc
u/s 80C(2)(xviii)
Where the
house property
is transferred
within five
years from
the end of the
financial year
in which
possession of
such property
was obtained
or Where there
is a refund or
otherwise of
any sum
specified u/s
80C(2)(xviii)
80C(6) Investment in
eligible
equity shares or
Where such
shares or
debentures are
Aggregate deductions allowed
in the preceding years shall be
deemed to be income of the
debentures u/s
80C(2)
(xix)
transferred
within a period
of three years
from the date of
acquisition.
year of violation/ withdrawal
and charged to taxation.
80C(6A) Contribution under
the
Senior Citizens
Savings
Scheme Rules, 2004
u/s 80C(2)(xxiii)
Contribution to five
year term deposit in
an
account under the
Post
Office Term Deposit
Rules, 1981 u/s
80C(2)
(xxiv)
Where the
amount is
withdrawn by
the assessee
from his
account
within period
of five years
from the
date of deposit
Aggregate deductions allowed
in the preceding years shall be
deemed to be income of the
year of violation/ withdrawal
and charged to taxation.
The following amounts shall not to be charged
to taxation u/s 80C(6A):
Interest on deposits u/s 80C(2)(xxiii)/(xxiv)
which have been included in the total income for
the previous year or any prior year. Any amount
received by the nominee or legal heir of the
assessee, on the death of such assessee, other
than interest, if any, accrued
There on, which was not included in the total
income of the assessee for the previous year or
years preceding such previous year.
Full-time education includes any educational course offered by any
university, college, school or other educational institution to a student who
is enrolled full-time for the said course. It is also clarified that full-time
education includes play-school activities, prenursery and nursery classes. The amount
allowable as tuition fees shall include any payment of fee to any university, college,
school or other educational institution in India except the amount representing
payment in the nature of development fees or donation or capitation fees or payment of
similar nature – Circular No 1/2010 dated 11-01-2010.
11.2.2 Contribution to pension funds – Sec 80CCC
Particulars Provisions
Eligible assessee Individual assessees only
Eligible investment Contribution to a contract of any annuity
plan of LIC or any other approved insurer
for receiving pension from a fund set up by
LIC or any other insurer referred u/s
10(23AAB)
Quantum of deduction Amount invested or Rs 1 lakh whichever is
lower
Consideration on maturity/ closure – Sec
80CCC(2)
The following amounts received from the
fund shall be chargeable to taxation in the
year of receipt as income of the assessee /
nominee:
• Any amount on surrender of the annuity
plan either / whether in whole or in part
• Pension received from the annuity plan
Conditions Investment has to be made out of income
chargeable to tax
Deduction is available only on payment
basis
Where a deduction has been allowed
under this section, no deduction shall be
allowed u/s 80C for the same contribution.
• Amount invested does not include interest or bonus accrued on existing fund
balance
• Benefit of deduction under this section is available to a non resident individual also.
11.2.3 Contribution to a notified pension scheme – Sec 80CCD
Particulars Provisions
Eligible assessee All Individual assesses
Eligible investment Contribution to a pension scheme notified
by the Central Government
Quantum of deduction In case of employee
assessees:
A: Contribution by
employee:
Lower of actual
contribution or 10%
of salary for the
previous year.
B: Contribution by
employer:
Lower of actual
contribution or 10%
of salary for the
In case of any
other individual
assessees:
Lower of actual
contribution or
10% of gross total
income for
the previous year
previous year.
Consideration on maturity/ closure –Sec
80CCD(3)
The following amounts received from the
fund shall be chargeable to taxation in the
year of receipt as income of the assessee /
nominee:
• Any amount on closure or opting out of
pension scheme
• Pension received from the annuity plan
No income shall however arise u/s
80CCD(3) if the amount received is used
for purchasing an annuity plan in the same
previous year.
Conditions Deduction is available only on payment
basis
Salary = Basic + DA taken for retirement benefits. Salary excludes all other
allowances and perquisites.
• Benefit of deduction under this section is available to a non resident individual
also.
11.2.4 Limit on deduction u/s 80C, 80CCC and 80CCD – Sec 80CCE
Aggregate deduction u/s 80C, 80CCC and 80CCD cannot exceed Rs 1.5 lakh(effective AY
2015 – 16). For the purpose of limits u/s 80CCE (i.e Rs 1,00,000), employer’s
contribution to notified pension u/s 80CCD shall not to be included. In other words, the
total limit for deduction u/s 80C, 80CCC and 80CCD shall be Rs 1,00,000 plus employer’s
contribution u/s 80CCD.
Deduction in respect of investment made under an equity savings scheme- Sec
80CCG
• Eligible assessee: Resident individual considered as a new retail investor as per
notification issued by the Central Government for the purpose of this section. The gross
total income of the assessee for the relevant previous year shall not exceed Rs 10 lakhs.
• Eligible investment: Investment in listed shares in accordance with the scheme
notified.
• Deduction: 50% of the amount invested or Rs 25,000 whichever is less
• Minimum lock-in period: The investment is locked-in for a period of three years from
the date of acquisition in accordance with the scheme
• Restriction: Where an assessee has claimed and allowed a deduction under this
section for any assessment year in respect of any amount, he shall not be allowed any
deduction under this section or any subsequent assessment year.
• Consequences in the event of violation: If the assessee, in any previous year, fails to
comply with any condition specified, deduction originally allowed shall be deemed to be
the income of the assessee of such year of violation.
Notification No 51/2012 dtd 23rd Nov 2012 : New retail investor means the following
resident individual who:
- has not opened a demat account and has not made any transactions in the derivative
segment as at the date of notification
- has opened a demat account before the notification of the scheme but has not made
any transactions in the derivative segment as at the date of notification
Note: Any individual who is not the first account holder of an existing joint demat
account shall be
deemed to have not opened a demat account for the purpose of this scheme
11.3 Deductions pertaining to medical treatment and expenses
Here, we shall look at deductions which are available for various expenses pertaining to
medical treatment, insurance and maintenance. These deductions can be broadly
classified as:
Section Eligible assessee Description
80D Individual or HUF Health insurance and
contribution to Central
Government Health Scheme
80DD Resident Individual and HUF Maintenance of a
dependant person with
disability
80DDB Resident Individual and HUF Medical treatment etc
80U Resident Individual Individual with disability
11.3.1 Health insurance and contribution to Central Government Health Scheme –
Sec 80D
Particulars Provisions
Eligible
assessee
Individual and HUF
Eligible
Expenditure
Medical insurance premium or contribution to Central Government
Health
and payment for preventive health check up
Quantum of
Deduction
In the case of an individual
For family : Rs 15,000
For parents : Rs 15,000
In the case of HUF : Rs 15,000
Additional deduction of Rs 5, 000 is available where the payment is
made for
the benefit of a senior citizen –
Condition Payment shall be made by any mode other than cash.
Payment shall be made out of income chargeable to tax.
Family means Spouse and Dependent Children
In case of HUF policy can be taken on any member of the HUF
Preventive health checkup included within Sec 80D:
Any payment made on account of preventive health check-up of the
assessee or his family shall be eligible for deduction u/s 80D.Payment for
preventive health checkup would fall within the overall limit of Rs 15,000 or Rs
20,000 as the case may be. However maximum deduction towards preventive health
check up for the assessee, his family and parents cannot exceed Rs 5,000.
Payments for preventive health checkup can be made in cash however all other
mediclaim insurance payments shall be eligible for deduction only if the payment is
made by any mode other than cash.
Age-limit for the purpose of senior citizen for this section has been reduced from 65
years to 60 years
Illustration 1
Mr Sundara Rajan aged 28 years, made the following payments during the previous
year. Discuss the tax implications
Particulars Amount
Mediclaim insurance premium for self Rs 7,000
Mediclaim insurance for mother aged 65 years Rs 11,000
Mediclaim insurance for father aged 72 years Rs 12,000
Master health check up for mother Rs 2,500
Master health check up for father Rs 3,500
Comprehensive Master health check up for self Rs 6,500
Would your answer change if the assessee had spent a sum of Rs 2,500 towards
comprehensive master health check-up for self instead of Rs 6,500.
Particulars Remarks / Computation Amount
Mediclaim insurance
premium for self
Allowed subject to an
overall limit of Rs 15,000
Rs 7,000
Mediclaim insurance for
other aged 65 years
Allowed subject to an
overall limit of Rs 20,000
Rs 11,000
Mediclaim insurance for
father aged 72 years
Allowed subject to an
overall limit of Rs 20,000
Rs 12,000
Total deduction for
mediclaim
Insurance
Restricted to Rs 7,000 for
the assessee and Rs 20,000
for the parents
Rs 27,000
Master health check up for
mother
Rs 2,500
Master health check up for
father
Rs 3,500
Comprehensive Master
health check up for self
Rs 6,500
Total preventive
expenditure
Rs 12,500
Maximum preventive
expenditure allowed as a
deduction u/s 80D
Rs 5,000 (this is the
aggregate limit for the
assessee, family and
parents)
Rs 5,000
Total deduction u/s 80D Rs 32,000
Particulars Remarks / Computation Amount
Mediclaim insurance for
mother aged 65 years
Allowed subject to an
overall
limit of Rs 20,000
Rs 11,000
Mediclaim insurance for
father aged 72 years
Rs 12,000
Master health check up for
Mother
Allowed subject to the
overall limit of Rs 20,000
and
sublimit of Rs 5,000
Rs 2,500
Master health check up for
father
Rs 3,500
Total deduction for
mediclaim
insurance for parents
Restricted to Rs 20,000 for
the parents
Rs 20,000
Since the mediclaim insurance premium paid for parents exceeds Rs 20,000, there
seems to be
no surplus limits available for claiming preventive health check up expenditure
incurred for parents of the assessee
Mediclaim insurance
premium for self
Allowed subject to an
overall
limit of Rs 15,000
Rs 7,000
Comprehensive Master
health
Allowed subject to the
overall limit of Rs 15,000
Rs 2,500
check up for self and
sublimit of Rs 5,000
Total deduction for
mediclaim
insurance for self
(assessee)
Restricted to Rs 15,000 Rs 9,500
Total deduction u/s 80D Rs 32,000
11.3.2 Maintenance of a dependant person with disability – Sec 80DD
Particulars Provision
Eligible
Assessee
Resident Individual and Resident HUF
Eligible
Expenditure
• Medical treatment, training and rehabilitation of a dependant
suffering
from permanent physical disability OR
• Amount deposited in an approved scheme of LIC/ UTI for the
benefit of
the dependant relative
Quantum of
Deduction
Fixed Deduction of Rs 50,000 irrespective of actual expenditure
incurred /
amount deposited
In case of severe disability (80% or more) deduction enhanced
to Rs 1,00,000
Conditions Disability to be certified by a medical authority and a copy of the
same to be furnished with ITR
Relative is not dependant on any other person and does not
claim deduction u/s 80U
Where the dependant relative predeceases the assessee, any
amount received from the scheme shall be treated as income of
the assessee in the year of such receipt.
Where condition of disability is temporary and requires
reassessment after a specified period, the certificate shall be
valid for the period starting from the assessment year relevant
to the previous year during which the certificate was issued and
ending with the assessment year relevant to the previous year
during which the validity of the certificate expire
11.3.3 Medical treatment etc – 80DDB
Eligible
assessee
Resident Individual and Resident HUF
Eligible
Expenditure
In case of an individual amount paid for medical Treatment of
specified diseases for self or dependent. In case of HUF amount paid
for medical treatment for any member of HUF
Quantum of
Deduction
Rs 40,000 or actual expenditure whichever is less
Rs 60,000 or actuals whichever is less for senior citizens
Conditions Certificate by a specified medical authority to be filed with the ITR
Any reimbursement from employer or insurance company should be
reduced from the above limits for claiming deduction
Specified diseases include neurological / Cancer/ AIDS/ Renal failure/
Haemophilia/ Thalassaemia
Dependent means spouse, children, parents, brothers and sisters of
the individual or any of them.
Specified Diseases means
• Neurological Diseases i.e. (a) Dementia (b) Dystonia Musculorum Deformans, (c)
Motor Neuron Disease, (d) Ataxia, (e) Chorea, (f) Hemiballismus, (g) Aphasia (h)
Parkinsons Disease – Where it is certified to be 40% and above.
• Malignant Cancer
• Full Blown Acquired Immuno Deficiency Syndrome (AIDS)
• Chronic Renal Failure
• Haemophilia
• Thalassaemia
Illustration 2
Compute the eligible deduction allowed under Chapter VIA in the hands of Mr. Varun
from the following information submitted by him for the assessment year 2015-16.
Sl.No. Particulars Rs.
1 Life insurance premium(LIP) on his own life(sum
assured-35,000)
8,000
2 LIP on the life of his wife 5,000
3 LIP on the life of dependent brother 4,000
4 Repayment of housing loan taken from LIC (principal
amount –Rs.20,000 and interest Rs.25,000
45,000
5 Five year time deposit with post office 20,000
6 Contribution to PPF 15,000
7 Contribution to approved superannuation fund 5,000
8 Tution fees for 3 children
A- 55,000 (Development fees – Rs.30,000)
B- 10,000
C- 5,000 70,000
9 Subscription to units of ELSS Mutual fund scheme 10,000
10 Amount paid towards insurance policy on the health
of self by
credit card
12,000
11 Amount paid towards insurance policy on the health
of his wife and dependent children by cheque
13,000
12 Amount paid towards medical treatment under a
scheme framed by the UTI for such a purpose of his
dependent father in law who is suffering from HIV.
40,000
13 Amount paid towards medical treatment for
dependent sister who is suffering from tuberculosis
45,000
Solution:
Computation of eligible deduction under Chapter VIA in the hands of Mr. Varun for
Assessment year 2015-16.
Deduction available u/s 80C
Particulars Computation/Remarks Rs.
LIP on his own life
(restricted
to 10% of sum assured)
35,000*10% 3,500
LIP on the life of his wife 5,000
LIP on the life of dependent
Brother
Not eligible -
Repayment of Housing
Loan
Only Principal amount
eligible
20,000
Contribution to PPF Eligible 15,000
Contribution to approved
superannuation fund
Eligible 5,000
Tution fees Development fees is not
allowed as a
deduction and deduction
can be claimed on tution
fees for maximum 2
children.
So deduction claimed as
follows:
A - Rs.25,000 (Rs.55,000-
Rs.30,000).
B - Rs.10,000
35,000
Subscription to units of
ELSS
Mutual fund scheme
Eligible Eligible
Total 1,13,500
Restricted to 1,00,000
Deduction u/s 80D/80DD/80DDB
Particulars Section Ref Computation/Remark Rs.
Amount paid
towards insurance
policy on the health
of self by
credit card
80D Eligible 12,000
Amount paid
towards insurance
policy on the health
of his wife and
dependent children
by
cheque
80D Eligible but restricted
to Rs.3,000 since
deduction is
restricted to a
maximum of
Rs.15,000 in case of
his
Family
3,000
Amount paid
towards medical
treatment under a
scheme
framed by the UTI
for such a
purpose of his
dependent father
in law who is
suffering from
severe disability
80DD Eligible amount is
Rs. 1,00,000 because
of severe disability
irrespective of the
amount spent and the
person dependent
can be anyone.
1,00,000
Amount paid
towards medical
treatment for
dependent sister
who is suffering
from specified
disease and
ailments prescribed
under section
80DDB
80DDB Amount actually paid
or Rs. 40,000
whichever is lower
40,000
Total u/s 80D,80DD,80DDB 1,55,000
Total Chapter VI A Deduction 2,55,000
11.3.4 Individual with disability – Sec 80U
Particulars Provisions
Eligible assessee Resident Individual with Disability
Eligible expenditure Deduction available irrespective of
whether expenditure is incurred or not.
Quantum of deduction Fixed Deduction of Rs 50,000 in case of a
person with disability Fixed Deduction of
Rs 1,00,000 in case of a person with severe
disability
Conditions Certificate by a specified medical authority
to be filed with the income tax returns.
• The assessee should be certified to be a person with disability at any time of the
previous year
• Disability means
– Blindness
– Low Vision
– Leprosy-Cured
– Hearing Impairment
– Loco motor Disability
– Mental Retardation
– Mental Illness
• In accordance with Circular 5/2007, dated 26-07-07 Taxpayers should not enclose
with the return
forms any statement showing the computation of income or tax, copies of balance-sheet,
profit and loss account, TDS/ TCS certificates, proof of payment of advance tax or self-
assessment tax, and other certificates or reports as required under the Act. However,
these documents shall have to be
acquired and retained by the assessee and produced before the Assessing Officer on
demand by him
Section Eligible assessee Description
80G All Assessees Donations to Certain Funds,
Charitable Institutions, etc.
80GGA Assessee without
business income
Donations for Scientific
Research or Rural
Development
80GGB Indian Company Contributions to Political
Parties by Companies
80GGC Any Assessee except
Local Authority
Contributions to Political
Parties
11.4.1 Donations to Certain Funds, Charitable Institutions, etc. – Sec 80G
Particulars Provisions
Eligible assessee All Assessees
Eligible
Contributions
Donations in money made to specified institutions / funds. List of
donations are discussed later
Quantum of
Deduction
Deductions are generally available on the following basis based on
the type
of donation made.
1. Eligible for 100% deductions without qualifying limits
2. Eligible for 50% deduction without qualifying limits
3. Eligible for 100% deduction with qualifying limits
4. Eligible for 50% deduction with qualifying limits
Maximum Deduction in respect of the Aggregate Donations made
where
qualifying limit is applicable is restricted to 10% of Adjusted
Gross Total
Income. Other Donations are allowed to the extent paid.
Determination of Adjusted Gross Total Income is discussed below
Conditions Donation in kind is not considered for this section
Approval once granted u/s. 80G(5)(vi) shall continue to be
valid to
Perpetuity
80G(5D)- Mode of payment of donations
No deduction shall be allowed under this section in respect of donation of any
sum exceeding ten thousand rupees unless such sum is paid by any mode
other than cash.
However the section does not use the term “aggregate” sum exceeding Rs
10,000. Hence it
is possible to consider a case where an assessee has made multiple donations to the
same
institution or different donations of sums not exceeding Rs 10,000 during the previous
year and
the entire donation paid shall be eligible for deduction u/s 80G.
11.4.1a Determination of Adjusted Gross Total Income
Adjusted Gross Total Income:
Gross Total Income ****
Less: Long Term Capital Gains ****
Short Term Capital Gains under section 111A ****
Deductions u/s 80C to 80U excluding 80G ****
Income on which tax is not payable ****
Income u/s 115A/115AB/115AC/115ACA/115AD ****
Adjusted Gross Total Income: ****
11.4.1b Donations eligible for 100% deduction without qualifying limits
1. National Defence Fund set up by Central Government
2. Prime Minister’s National Relief Fund
3. Prime Minister’s Armenia Earthquake Relief Fund
4. Africa (Public Contributions India) Fund
5. National Foundation for Communal Harmony
6. Approved University/ Educational Institution of National Eminence
7. Maharashtra CM’s Earthquake Relief Fund
8. Any fund set up by State Govt of Gujarat, exclusively for providing relief to victims of
earthquake in Gujarat
9. Zila Saksharita Samiti
10. National/ State Blood Transfusion Council
11. Fund set up by State Govt to provide medical relief to the poor
12. Army Central Welfare Fund / Indian Naval Benevolent Fund/ Air Force Central
Welfare Fund
13. Andhra Pradesh CM’s Cyclone Relief Fund, 1996
14. National Illness Assistance Fund
15. Chief Minister’s Relief Fund or Lt Governor’s Relief Fund
16. National Sports Fund set up by Central Govt
17. National Cultural Fund set up by the Central Govt
18. Fund for Technology Development and Application, set up by the Central Govt
19. National Trust for Welfare of persons with Autism, Cerebral Palsy, Mental
retardation and
Multiple Disabilities
11.4.1c Donations eligible for 50% deduction without qualifying limits
1. Jawaharlal Nehru Memorial Fund
2. PM’s Drought Relief Fund
3. National Children’s Fund
4. Indira Gandhi Memorial Trust
5. Rajiv Gandhi Foundation
11.4.1d Donations eligible for 100% deduction WITH qualifying limits
1. Donation to Govt or any approved local authority or institution or association for
promoting
Family Planning
2. Donation by a company assessee, to Indian Olympic Association or to any such other
similar association notified by Central Govt for the development infrastructure for
sports and games or the sponsorship of sports and games in India.
11.4.1e Donations eligible for 50% deduction WITH qualifying limits
1. Govt or any approved local authority/ institution or association to be utilized for any
charitable purpose other than family planning
2. Any other fund fulfilling the conditions of 80G(5)
3. To any authority constituted in India by or under any law for satisfying the need for
housing accommodation or for the purpose of planning development or improvement of
cities, towns and villages or both
4. Corporation promoting the interests of minority community
5. Notified mosque, temple, church, gurudwara or other place notified by the Central
Govt to be of historic, archaeological or artistic importance
Illustration 3
The following information is extracted in relation to the finances of Mr S, for the
assessment year 2015-16.
Particulars Amount
Gross Total Income 3,00,000
Long Term Capital Gains, in above 50,000
Short Term Capital Gains, in above 25,000
Contributions towards PPF 25,000
Mediclaim Premium paid for Self 2,000
Mediclaim Premium paid for Son not Dependant on him 3,000
Donations Made
- PM’s National Relief Fund 2,500
- National Sports Fund 4,500
- National Children’s Fund 4,000
- Delhi University (declared as an institution of national eminence) 10,000
- National Blood Transfusion Council 5,000
- SKS Charitable Institution (approved) 12,500
- Local Authority for promoting Family Planning 15,000
- Daughter’s old Clothing donated to “Banyan” – cost 5,000
- Jawaharlal Nehru Memorial Funds 12,000
Compute Income Chargeable to Taxation
Solution:
Particulars Amount
Gross Total Income 3,00,000
Less : Deduction under Chapter VIA
1. 80C 25,000
2. 80D – Self 2,000
3. 80D – Son (Not Dependent) 3,000 5,000
4. 80G
A. 100% Without Qualifying Limit
PM’s National Relief Fund 2,500
National Sports Fund 4,500
Delhi University 10,000
National Blood Transfusion Council 5,000 22,000
B. 50% Without Qualifying Limit
National Children’s Fund (4,000) 2,000
Jawaharlal Nehru Memorial Fund (12,000) 6,000 8,000 (60,000)
Sub-Total 2,40,000
C. Actual Donation Made with Qualifying Limit
Local Authority - Family Planning 15,000
SKS Charitable Institution (approved) 12,500
Total Paid 27,000
10% of Adjusted Gross Total Income (note 2) 22,000
Maximum Deduction 22,000
Allowed as follows
First - adjusted against 100% deduction (15000) 15,000
Second – Adjusted against 50% deduction (7,000) 3,500 18,500 18,500
Total Taxable Income 2,21,500
Note 1: Donation in Kind is not deductable
Note 2: Adjusted Gross Total Income –
Gross Total Income 3,00,000
Less: Long Term Capital Gains 50,000
Less: Deduction under Chapter VI A except 80G 30,000
2,20,000
11.4.2 Donations for Scientific Research or Rural Development – Sec 80GGA
Particulars Provisions
Eligible
assessee
Assessee not having any Business or Professional Income
Eligible
Contributions
Contribution to an approved research association / University,
College or Other Institution which has as its object, the
undertaking of scientific research or research in social science
or statistical research
Contribution to an Association engaged in Rural development or
eradication of poverty
Quantum of
deduction
100% of Sum Paid
Conditions NA
No deduction shall be allowed under this section in respect of donation of any sum
exceeding ten thousand rupees unless such sum is paid by any mode other than cash.
Deduction for assessees engaged in business or profession in respect of
expenditure on
Scientific Research is allowed under section 35. Scientific Research may be carried on
- By the assessee relating to his business
- By making payment to outside agencies engaged in scientific research work.
Deduction for assessees engaged in business or profession in respect of expenditure by
way of payments to associations and institutions for carrying out Rural Development
Programmes or to the National Urban Poverty Eradication Fund is allowed under
section 35CCA.
Hence deduction u/s 80GGA is categorically restricted only to assessees not having
business or professional income.
11.4.3 Contributions to Political Parties by Companies – Sec 80GGB
Particulars Provisions
Eligible assessee Indian Company
Eligible
Contributions
Contribution to a political party or an electoral trust
Quantum of
deduction
100% of Sum Paid
Conditions Political Party means a political party registered under section 29A
of
the Representation of the People Act, 1951
Illustration 4
Palistan India Cements Ltd, an Indian company contributed Rs. 1,50,000/- to AIADMK, a
political party towards advertisement in brochure published by the political party. The
company wishes to know the tax implication under the Income tax act, 1961.
Solution:
The expenditure is not eligible for deduction u/s 37(2B) of the Act however the
company can claim deduction u/s 80 GGB of any sum contributed to any political party
or an electoral trust. Therefore Rs.1,50,000/- may be claimed as a deduction u/s 80GGB
of the act.
11.4.4 Contributions to Political Parties – Sec 80GGC
Particulars Provisions
Eligible assessee Any person other than a company except local authority or every
other
artificial juridical person wholly or partly funded by the
Government
Eligible
Contributions
Contribution to a political party or an electoral trust
Quantum of
deduction
100% of Sum Paid
Conditions Political Party means a political party registered under section 29A
of
the Representation of the People Act, 1951
While Sec 80GGB allows deduction in respect of Indian Companies, Sec 80GGC
allows deduction in respect of any person - which can be interpreted to include a
foreign company. However the concern in the interpretation is the fact that heading of
Sec 80GGB states “Deduction in respect of contributions given by companies to political
parties”. Therefore an alternate view could be that since foreign companies are outside
the ambit of Sec 80GGB, they are not eligible for deduction.
11.5 Deductions pertaining to expenditure
The taxation laws have also provided incentives in respect of certain expenditure
incurred by the
assessee. The basis behind these incentives is that the individual should not be
burdened in respect of expenditure for necessities like education and housing. The
deductions under this classification are as follows.
Section Eligible assessee Description
80E Individuals Payment towards Interest
on Education Loan
80GG Individual Payments towards Rent
11.5.1 Payment towards Interest on Education Loan – Sec 80E
Particulars Provisions
Eligible assessee Individual Assessees
Eligible expenditure Any sum paid by the individual in the previous year by way of
interest on educational loan.
Quantum of
deduction
100% of Sum Paid
Conditions Loan should have been taken from any financial institution or
any
approved charitable institution
Loan must have been taken for pursuing higher education of self
or
Relatives Deduction shall be allowed for 8 assessment years
starting from the assessment year in which the assessee starts
paying the interest on
loan or until the interest thereon is paid in full, whichever is
earlier
• Higher education means any course of study pursued after passing the Senior
Secondary
Examination or its equivalent from any school, board or university recognised
by the Central Government or State Government or Local Authority
• Relative means the spouse and children of the individual or the student for whom the
individual is the legal guardian
• Principal component of education loan repaid shall not qualify for any deduction.
11.5.2 Payments towards Rent – Sec 80GG
Particulars Provisions
Eligible assessee Individual Assessees
Eligible
Expenditure
Rent Paid for residential accommodation, whether furnished or
unfurnished.
Quantum of
Deduction
Lower of the following will be allowed as a deduction
• Excess of rent paid over 10% of Adjusted Total Income
• 25% of Adjusted Total Income
• Rs 2000 per month
Adjusted total income = Gross total income (–)Long Term
Capital Gains
(–) All other deductions under Chap VI A except 80GG (-)
Income u/s
115A to 115D
Conditions The individual is either a self employed person or he is an
employee who
is neither entitled to any house rent allowance or rent free
accommodation
The individual, spouse or minor child or a HUF of which the
individual
is a member does not own any residential accommodation at
the place
where the assessee ordinarily resides or works or carries on
his business or profession Where the assessee owns any
residential accommodation at any place other than the place of
residence or work of the assessee, then such property should
not be assessed in the hands of the assessee as Self Occupied
Property. Declaration in Form 10BA to be filed along with
returns
11.5. Payments towards Rent – Sec 80GG
Particulars Provisions
Eligible assessee Individual Assessees
Eligible
Expenditure
Interest payable on loan taken from any financial institutionfor
the purpose of acquisition of residential House Property
Quantum of
Deduction
Deduction allowed to the extent of Rs. 1 lakh
Conditions The loan has to be sanctioned by the financial institution
during the period commencing on 1st April, 2013 and ending on
31st March, 2014
The amount of loan sanctioned should not exceed Rs. 25 Lakhs
The value of the residential house property to be acquired
should not exceed Rs. 40 Lakhs
The assessee should not own any other residential house
property on the date of sanction of the loan
If the interest does not exceed Rs. 1 Lakh for the Assessment
Year 2014 -15, the balance interest, upto Rs. 1 Lakh may be
claimed in the Assessment Year 2015 -16
11.6 Deductions pertaining to Industrial Undertakings
In order to promote industrial undertakings of specific nature the Income Tax Act
provides for certain deductions in respect of incomes arising to such undertakings. The
provisions relating to the same are discussed under the following sections
Section Eligible assessee Description
80IA Undertaking or enterprise engaged
in infrastructure development etc
Deductions in respect of
profit and gains
by undertakings or
enterprises engaged in
infrastructure development
etc.
80IAB Undertaking or enterprise engaged in
development of Special Economic Zone
Deductions in respect of
profit and gains by
undertakings or
enterprises engaged in
development of Special
Economic Zone
80IB Industrial Undertakings other than
Infrastructural Development
Undertakings
Deductions in respect of
profit and gains by
industrial undertakings
other than
Infrastructural
Development Undertakings
80IC Industrial Undertakings /
Enterprises in Certain Special
Category States
Deductions in respect of
Certain Undertakings or
Enterprises in certain
Special Category States
80ID Hotels and Convention Centres in
Specified Areas
Deductions in respect of
profits and gains from
business of Hotels and
Convention
Centres in Specified Areas
80IE Undertakings in North Eastern
States
Deductions in respect of
Undertakings in North
Eastern States
11.6.1 Deductions in respect of profit and gains by undertakings or enterprises
engaged in infrastructure development etc – Sec 80IA
Particulars Provisions
Eligible assessee Undertaking or enterprise engaged in infrastructure
development etc. as follows
• Undertaking / enterprise engaged in the business of
Developing any
infrastructure facility, Operating and maintaining any
infrastructure facility,
or Developing, operating and maintaining any
infrastructure facility
• Undertaking which is engaged in the business of
providing telecommunication service etc.
• Undertaking which develops, maintains etc. an
industrial park
• Undertaking which is engaged in generation,
transmission, distribution of power etc.
• An undertaking owned by an Indian Company and set
up for reconstruction or revival of a power generating
plant
Eligible Income Profits and Gains derived by above undertakings or
enterprises
Quantum of deduction For Undertaking engaged in the business of providing
telecommunication services etc., :
• For the first five consecutive assessment years – 100%
• Subsequent five consecutive assessment years – 30%
Out of 15 years beginning with the year in which
enterprise starts providing telecommunication services.
For Undertakings engaged in developing etc of
infrastructure facility other than port, airport, inland
waterway, inland port or navigational channel in the
sea,
• 100% of Profits for 10 consecutive assessment years
out of 20 years beginning with the year in which it
commences operations
For Other Undertakings
• 100% of Profits for 10 consecutive assessment years
out of 15 years beginning
with the year in which it commences operations
Conditions Profits and Gains of eligible business for the purposes of
section 80IA shall be computed as if such eligible
business were the only source of income of the assessee
during the previous year
Accounts to be mandatorily audited. Refer Para 11.1 for
further conditions under section 80IA
Other conditions specific to each type of undertaking
mentioned above is discussed in detail below.
11.6.1.1 Essential Conditions for enterprises carrying on the business of
infrastructure facility – Sec 80IA(4)(i)
• The enterprise should carry on
– Developing any infrastructure facility
– Operating and maintaining any infrastructure facility
– Developing, operating and maintaining any infrastructure facility
• Enterprise should be owned by
– Indian Company
– Consortium of companies
– Board or Corporation or authority or any other body established or constituted under
any
State or Central Act
• The Enterprise should have entered into an agreement with the Central/State Govt or
a local authority or any other statutory body for the purpose
• The term “Infrastructure Facilities” includes
– Road including toll road, bridge or rail system
– Widening of Existing Road by Constructing Lanes as a part of highway project
(inserted by
Circular No 2010, dt 18.05.2010)
– Port, airport, inland water ways, inland port or navigational channel in sea
– Water supply project, irrigation project, water treatment system, sanitation and
sewerage system or solid waste management system
– Highway project including housing or other activities being an integral part of the
highway project.
• The enterprise has commenced its operations on or after 01.04.1995
Assessee carrying on the business of container handling cranes at Jawaharlal
Nehru Port Trust can be considered as developing, maintaining and
operating an infrastructural facility and is entitled to deduction under section 80IA –
CIT vs. ABG Heavy Industries Ltd (2010) 189 Taxman 54 (Bom)
In order to be eligible for deduction u/s 80-IA, development should be that of
infrastructure facility as a whole and not a particular part of it – Taher Ali Industries &
Projects Pvt Ltd v ACIT (2011) 10
taxmann. com 243 (HYD)
Deduction under section 80-IA is not allowable on amount of duty drawback. CIT vs.
Orchev Pharma (P.) Ltd. [2012] 25 taxmann.com 518 (SC)
Texturing and twisting of polyester yarn amount to manufacture for purpose of
deduction under section 80-IA . CIT vs. Yashasvi Yarn Ltd. [2012] 25 taxmann.com
266 (SC)
Assessee was engaged in building and developing industrial parks. It availed deduction
u/s 80-IA. During relevant assessment year assessee was denied said deduction on
ground that industrial park developed by it was not notified by CBDT till end of relevant
year and, therefore, deduction under section 80-IA(4)(iii) was wrongly claimed. It was
found that assessee had developed industrial park as per approval grantedby Ministry
of Commerce under rule 18C of Income-tax Rules. It was held that once approval was
granted by Ministry of Commerce, CBDT was required to notify industrial park for
benefit under section 80-IA and assessee will be eligible for impugned deduction. DCIT
vs. Ganesh Housing Corporation Ltd [2012] 25 taxmann.com 305 (SC)
11.6.1.2 Essential Conditions for an undertaking engaged in providing
telecommunication services etc. – Sec 80IA(4)(ii)
• The undertaking should carry on the business of providing telecommunication
services whether basic or cellular, including
– radio paging,
– domestic satellite services or
– network of trunking,
– broadband network and internet services
• Entity should not be formed by splitting or reconstruction of an existing business
• Should not be formed by transfer to a new business plant and machinery previously
used for any purpose. However used plant and machinery can be transferred upto 20%
of the total value of new plant and machinery in the new undertaking
• The undertaking should have commenced services on or after 01.04.1995 but before
31.03.2005
11.6.1.3 Essential Conditions for undertaking which develops, maintains etc. any
industrial park or Special Economic Zone – Sec 80IA(4)(iii)
• Undertaking should be engaged in
– Developing an Industrial Park
– Developing and Operating an Industrial Park
– Maintaining and Operating an industrial park
• Such industrial park should be notified by the Central Government in accordance with
a scheme framed for such purpose
• The industrial park should begin to operate, develop etc at any time on or after
01.04.1997 but before 01.04.2011
11.6.1.4 Essential Conditions for undertaking engaged in generation of power etc
– Sec
80IA(4)(iv)
• Undertakings set up in any part of India engaged in
– Generation of Power
– Generation and Distribution of Power
– Transmission or Distribution through transmission or distribution line (In such cases
only income from laying of such network of new lines is covered)
– Substantial Renovation and Modernisation of Existing Transmission or Distribution
Lines
• The benefit under this section is available to all categories of assessees
• The entity should not be formed by splitting or reconstruction of an existing business.
However this condition shall not apply in the case of revival or rehabilitation an
undertaking under circumstances u/s 33B
• The enterprise should not be formed by transfer to a new business, plant and
machinery previously used for any purpose. However “used plant and machinery” can
be transferred up to 20% of the total value of new plant and machinery in the new
undertaking
• The term “used plant and machinery” does not include plant and machinery used
outside
India by any other person (other than the assessee) provided
– Such plant and machinery was not, at any time, used within India
– Such machinery was imported from any country outside India
– No depreciation has been allowed under this Act for any person at any time in the past
on such plant and machinery
Students please note, there is a lot of similarity between the above conditions
and the conditions prescribed for claiming additional depreciation u/s 32(iia)
• The enterprise should begin to generate power on or after 01.04.1993 but before
31.03.2012
• The enterprise should begin transmission and distribution of power on or after
01.04.1999 but before 31.03.2013 (Extended by one year vide Finance Act, 2012)
11.6.1.5 Essential Conditions for undertaking set up for reconstruction or revival
of a power generating plant – Sec 80IA(4)(v)
• Such undertaking must be owned by an Indian Company
• Such company is formed before 31.12.2005 and the Company is notified before
31.12.05 for the purposes of this clause
• The enterprise should begin to generate or transmit or distribute power before
31.03.2011
11.6.1.6 Special Conditions in respect of Profits of housing or other activities
which are an integral part of the Highway Project – Sec 80IA(6)
• Notwithstanding any provision as discussed above
• Where housing or other activities which are an integral part of the Highway Project
are carried on by the assessee
• Income from such source shall be computed in accordance with Rule 18BBE as
prescribed
• Profits arising from such business shall not be liable to tax if
– The profits had been transferred to a special reserve account
– Amount from such reserve account is utilized for the highway project
– The amount shall be utilized for the purpose within three years from the year end of
the year in which the amount was transferred to reserve account
– Amount remaining unutilized shall be taxable as income of the year in which such
transfer to reserve took place.
11.6.2 Deductions in respect of profit and gains by undertakings or enterprises
engaged in development of Special Economic Zone – Sec 80IAB
Particulars Provisions
Eligible assessee Undertaking or enterprise engaged in development of
Special Economic Zone notified on or after 01.04.2005 under
the Special Economic Zones Act, 2005
Eligible Income Profits and Gains derived by above undertakings or
enterprises
Quantum of deduction 100% of profits and gains derived by such business for any
10 consecutive assessment years out of 15 years beginning
with the year in which the Special Economic Zone has been
notified by the government.
Conditions Profits and Gains of eligible business for the purposes of
section 80IAB shall be computed as if such eligible business
were the only source of income of the assessee during the
previous year
Accounts to be mandatorily audited. Refer Para 11.1 for
further conditions under section 80IA
Existing Developers of Special Economic Zones will get
deduction only for the un-expired period of 10 consecutive
assessment years
Where a Developer who develops SEZ on or after 01.04.2005
transfers the operation and maintenance of SEZ to another
Developer, the deduction shall be allowed to such transferee
Developer for the remaining period in the 10 consecutive
assessment years as if no transfer had taken place
11.6.3 Deductions in respect of profit and gains by industrial undertakings other
than Infrastructural Development Undertakings – Sec 80IB
Particulars Provisions
Eligible assessee Undertaking engaged in the business of
- An Industrial Undertaking including cold storage and cold
chain facility
- A ship
- A hotel
- Multiplex Theatres
- Convention Centres
- Scientific and Industrial Research and Development
- Commercial Production and Refining of Mineral Oil
- Developing and Building Housing Projects
- Processing, Preservation and packaging of Fruits or Vegetables
- Integrated business of Handling, Storage and Transportation of
Food Grains
- Operating and Maintaining a Hospital in Rural Area
- Operating and Maintaining a Hospital located anywhere in
India other than
the excluded area
Eligible Income Profits and Gains derived by above undertakings or enterprises
Quantum of
deduction
1. Industrial Undertaking
(i) Set up in J&K
(ii) In Category ‘A’ districts
(iii) Operating a Cold Chain Facility
a. Owned by a Company First 5 yrs 100%
Next 5 yrs 30%
b. Owned by a Co-op Society First 5 yrs 100%
Next 7 yrs 20%
c. Owned by Others First 5 yrs 100%
Next 5 yrs 25%
2. Industrial Undertaking in Industrially backward Category ‘B’
District
a. Owned by a Company First 3 yrs 100%
Next 5 yrs 30%
b. Owned by a Co-op Society First 3 yrs 100%
Next 9 yrs 25%
c. Owned by Others First 3 yrs 100%
Next 5 yrs 25%
Deduction is available from the year in which the undertaking
commences operations.
Company Assessee engaged in Scientific Research and
Development are eligible
for a 100% deduction of profits for 10 consecutive assessment
years beginning from initial assessment year if such company
was approved at any time after 31.03.2000 but before
01.04.2007
Conditions The entity should not be formed by splitting or reconstruction of
an existing business. However this condition shall not apply in
the case of revival or rehabilitation an undertaking under
circumstances u/s 33B
The enterprise should not be formed by transfer to a new
business, plant and machinery previously used for any purpose.
However “used plant and machinery” can be transferred up to
20% of the total value of new plant and machinery in the new
undertaking It manufactures or produces any article or thing,
other than any article or thing specified in the Eleventh
Schedule, or it operates one or more cold storage plants or
operates cold chain facility in any part of India
In case the industrial undertaking manufactures or produces any
article or thing, it should employ 10 or more workers in a
manufacturing process carried on with the aid of power or 20 or
more workers in a manufacturing process carried on without the
aid of power Profits and Gains of eligible business for the
purposes of section 80IAB shall be computed as if such eligible
business were the only source of income of the assessee during
the previous year Accounts to be mandatorily audited. Refer
Para 11.1 for further conditions under section 80IA
Other conditions specific to each type of undertaking mentioned
above is discussed in detail below
State with reasons, whether the following statements are true or false, with regard to
the
provisions of the Income-tax Act, 1961:
For grant of deduction under section 80-IB, filing of audit report in prescribed form is
must for a
corporate assessee; filing of return within the due date laid down in section 139(1) is
not required
Solution:
False. Return has to be submitted within the due date laid down in section 139(1) to
avail deduction under section 80-IB.
Illustration 5
Determine whether Mr. A is eligible for deduction u/s 80IB
1. Mr. A carries on his proprietary business with three industrial undertakings.
a) First undertaking is into integrated business of handling, storage and transportation
of food grains and is formed by transfer of machinery or plant previously used for by
Mr. X. The total value of plant & machinery in the books of this undertaking is Rs. 100
Lakhs and the value of the used plant and machinery transferred is Rs. 25 Lakhs. Profit
from the undertaking is Rs. 150 Lakhs
b) Second undertaking is into developing and building housing projects and is formed
by splitting up of an existing undertaking “Royal Housing Projects India Limited”. Profit
from the undertaking is Rs. 120 Lakhs
c) Third undertaking is into processing, preservation and packaging of fruits or
vegetables and is newly formed and the machinery and plant is newly acquired. Profit
from the undertaking is Rs.150 Lakhs.
Solution:
1(a) As per Section 80IB, the enterprise should not be formed by transfer to a new
business, plant and machinery previously used for any purpose. However “used plant
and machinery” can be transferred upto 20% of the total value of new plant &
machinery in the new undertaking. In the present case, even though Mr.A is eligible
assessee in respect of this undertaking, since the total value of used plant & machinery
exceeds 20% of total value of plant & machinery therefore this undertaking is not
eligible for deduction u/s 80IB.
1(b) As per Section 80IB, one of the conditions for claiming deduction is that the entity
should not be formed by splitting or reconstruction of an existing business. In the
present case, since the undertaking is formed by splitting or reconstruction of an
existing business it is not eligible for deduction u/s 80IB even though Mr.A is eligible
assessee in respect of this undertaking. 1(c) Mr. A is an eligible assessee in respect of
this undertaking and other conditions are also complied with for the purpose of
claiming deduction u/s 80IB of the Act, therefore deduction is available to an extent of
100% of profits for the first 5 years and 25% for the next 5 years.
The assessee who was engaged in manufacture and selling of additives on
commission basis,was not entitled to deduction under section 80-IB in
respect of service income and commission because those incomes were not
derived from activity of industrial undertaking. Indian Additives Ltd. vs. DCIT [2012]
25 taxmann.com 412 (SC) Blending and bottling of Indian Manufactured Foreign
Liquor (IMFL) would amount to ‘manufacture’ for purpose of claiming deduction under
section 80-IB. CIT vs. Vinbros & Co.[2012] 25 taxmann.com 367 (SC)
11.6.3.1 Undertaking producing or refining mineral oil in the North Eastern
Region or in any part of India – Sec 80IB(9)
• The undertaking should be located in the North Eastern Region – Arunachal Pradesh,
Assam,
Manipur, Meghalaya, Mizoram, Nagaland and Tripura
• If the undertaking is located in any other part of India it should have begun
commercial production of mineral oil on or after 01.04.1997
The provisions of this clause shall not apply to blocks licensed under a contract
awarded after the 31st day of March, 2011 under the New Exploration Licencing
Policy announced by the Government of India vide Resolution No. O-
19018/22/95-ONG.DO.VL, dated the 10th February, 1999 or in pursuance of any law for
the time being in force or by the Central or a State Government in any other manner
• It is engaged in the business of refining mineral oil on or after 01.10.1998 but not later
than 31.03.2012
• It is engaged in the commercial production of natural gas on or after 01.04.2009
• 100% deduction of profits is available for 7 assessment years beginning from the
assessment year in which the undertaking commences operations
11.6.3.2 Undertaking engaged in developing and building housing projects – Sec
80IB(10)
• Deduction allowed to all assessees on account of housing project approved by a local
authority before 31.03.2008
• Project is on a plot of land which is minimum one acre in size
• Built up area of residential units should be within the limits specified below:
1. Project in Delhi, Mumbai or within 25 kms from their municipal limits : Max 1000
sqft
2. Other places : Max 1500 sqft
Built up area of shops and commercial establishments within the housing
project should be the Higher of the following
1. 3% of aggregate BUA
2. 5000 sqft
• Where the project approval is obtained more than once, the date of first approval shall
be considered
The under taking shall commence the development and construction of the
housing project on or after 01.10.98 and the project is completed:
• Where the project has been approved before 01.04.2004 but not later
than
31.03.2005: Before 31.03.2008
• Where the project has been approved after 01.04.2004 but before 31.03.2005:
within 4 years
from the end of the year of approval
- In any other case: Within 5 years from the end of the year of approval.
• Date of completion certificate of the local authority shall be deemed to be the
completion date
• Deduction: 100% of the profits from the project
• With effect from 01/04/2010, where the undertaking which develops and builds the
housing projects allots a residential unit to a person being an individual, no other
residential unit in such housing project is allotted to any of the following persons,
namely:—
(i) the individual or the spouse or the minor children of such individual,
(ii) the Hindu undivided family in which such individual is the karta,
(iii) any person representing such individual, the spouse or the minor children of such
individual or the Hindu undivided family in which such individual is the karta.
The deduction can be claimed on a year to year basis where the assessee is
showing profit from partial completion of the project in every year In case it is
later found that the condition of completing the project within specified time limit has
not been satisfied, the deduction granted in earlier years shall be withdrawn
11.6.3.3 Undertaking engaged in the business of processing, preservation, and
packaging of fruits or vegetables, meat products etc. or integrated business of
handling, storage and transportation of food grains – Sec 80IB(11A)
• Operations must commence on or after 01.04.2001 but before 01.04.2009
• Deductions are allowed as follows beginning from the year in which the undertaking
commences operations
– Owned by a Company First 5 yrs 100%
Next 5 yrs 30%
– Owned by Others First 5 yrs 100%
Next 5 yrs 25%
11.6.3.4 Undertaking operating and maintaining a hospital in Rural Area – Sec
80IB(11B)
• The hospital is constructed at any time after 01.10.2004 but before 31.03.2008
• The hospital has at least 100 beds for its patients
• The construction of the hospital is in accordance with the regulations, for the time
being in force, of the local authority.
• Certificate from auditor to be furnished along with returns
• Deduction: 100% of profits for 5 consecutive years beginning from the year in which
the undertaking commences operations
• A hospital shall be deemed to have been constructed on the date on which a
completion certificate in respect of such construction, is issued by the concerned local
authority.
11.6.3.5 Undertaking Operating and Maintaining a Hospital located anywhere in
India other than excluded areas – Sec 80IB(11C)
• The hospital is constructed at any time after 01.04.2008 but before 31.03.2013
• The hospital has at least 100 beds for its patients
• The construction of the hospital is in accordance with the regulations, for the time
being in force, of the local authority.
• Certificate from auditor to be furnished along with returns
• Deduction: 100% of profits for 5 consecutive years beginning from the year in which
the undertaking commences operations
• A hospital shall be deemed to have been constructed on the date on which a
completion certificate in respect of such construction, is issued by the concerned local
authority.
Excluded Area means area comprising of
- Greater Mumbai urban agglomeration
- Delhi urban agglomeration
- Kolkatta urban agglomeration
- Chennai urban agglomeration
- Hyderabad urban agglomeration
- Bangalore urban agglomeration
- Ahmedabad urban agglomeration
- District of Faridabad
- District of Gurgaon
- District of Gautam Budh Nagar
- District of Ghaziabad
- District of Gandhinagar
- City of Secunderabad
11.6.4 Deductions in Respect of Certain Undertakings or Enterprises in certain
Special
Category States – Sec 80IC
Particulars Provisions
Eligible assessee Undertaking or enterprise engaged in business of
• Manufacturing or producing any article or thing (except
those mentioned
in Schedule XIII) in any notified specified area in the States of
Sikkim,
Himachal Pradesh, Uttaranchal, or the North Eastern States
• Manufacturing or producing any article or thing or an
operation mentioned
in Schedule XIV in any area other than a Notified Specified
Area in the
said States
Eligible Income Profits and Gains derived by above undertakings or
enterprises
Quantum of deduction In case of Sikkim or North Easter Region :–
- 100% of profits and gains for ten assessment years
In case of Himachal Pradesh or Uttaranchal :–
- For First 5 years 100%
- For Next 5 years – if company 30%
– if others 25%
Conditions The entity should not be formed by splitting or reconstruction
of an existing
business. However this condition shall not apply in the case of
revival or
rehabilitation an undertaking under circumstances u/s 33B
The enterprise should not be formed by transfer to a new
business, plant
and machinery previously used for any purpose. However
“used plant and
machinery” can be transferred up to 20% of the total value of
new plant and
machinery in the new undertaking
It has commenced activities or undertakes substantial
expansion during
- 23.12.2002 to 01.04.2007 in the State of Sikkim
- 07.01.2003 to 01.04.2012 in the State of Himachal Pradesh,
or
Uttaranchal
- 24.12.1997 to 01.04.2007 in any of the North Eastern States
Specified Area means, 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 Area or Theme Park as
notified by the board in accordance with the scheme framed and notified by the Central
Government in this regard, in the State of Sikkim, Himachal Pradesh, Uttaranchal, or in
any of the North-eastern States Substantial Expansion means increase in the investment
in plant and machinery by at least 50% of the book value of 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.
11.6.5 Deductions in Respect of profits and gains from business of Hotels and
Convention
Centres in Specified Areas – Sec 80ID
Particulars Provisions
Eligible assessee Undertaking or enterprise engaged in business of
• Hotel located in Delhi and districts of Faridabad,
Gurgaon, Gautam budh
• Nagar, and Ghaziabad
• Building, owning and Operating a Convention
Centre located in Delhi and
districts of Faridabad, Gurgaon, Gautam budh
Nagar, and Ghaziabad
• Hotel located in the specified district having a
World Heritage Site
Eligible Income Profits and Gains derived by above undertakings
or enterprises
Quantum of deduction 100% of profits and gains derived by such
business for 5 consecutive assessment years
beginning with the year in which the business
starts functioning
Conditions The entity should not be formed by splitting or
reconstruction of an existing
business. However this condition shall not apply in
the case of revival or
rehabilitation an undertaking under circumstances
u/s 33B
The enterprise should not be formed by transfer to
a new business, building,
plant and machinery previously used as a hotel or
convention centre. However
“used plant and machinery” can be transferred up
to 20% of the total value of
new plant and machinery in the new undertaking
Hotel in District of World Heritage Site should start
functioning after
01.04.2008 but before 31.03.2013
Other business should start functioning after
01.04.2007 but before 31.07.2010
Certificate from auditor in Form 10CCBBA to be
furnished along with returns
11.6.6 Deductions in respect of Undertakings in North Eastern States – Sec 80IE
Particulars Provisions
Eligible assessee Any assessee who begins or begun in any of the
North Eastern States:
• To manufacture or production of an eligible
article or thing
• To undertake substantial expansion to
manufacture or production of an
eligible article or thing
• Carrying on an eligible business
Eligible Income Profits and Gains derived by above
undertakings or enterprises
Quantum of deduction 100% of profits and gains derived by such
business for 10 consecutive assessment years
beginning with the year in which the business
starts functioning
Conditions The entity should not be formed by splitting or
reconstruction of an existing business. However
this condition shall not apply in the case of
revival or rehabilitation an undertaking under
circumstances u/s 33BThe enterprise should
not be formed by transfer to a new business,
plant and machinery previously used as a hotel
or convention centre. However “used
plant and machinery” can be transferred up to
20% of the total value of new plant and
machinery in the new undertaking The
undertaking has commenced operations after
01.04.2007 but before 01.04.2017
Accounts to be mandatorily audited. Refer Para
11.1 for further conditions under section 80IA
• Eligible Article or Thing means article or things other than the following
– Goods falling under Chapter 24 of the First Schedule to the Central Excise Tariff Act,
1985
which pertains to tobacco and manufactured tobacco substitutes
– Pan Masala as covered under Chapter 21 of the First Schedule to the Central Excise
Tariff Act 1985
– Plastic Carry Bags of less than 20 microns as specified by the Ministry of Environment
and Forest
vide notification number SO 705(E), dated 02.09.1999 and SO 698(E) dated 17.06.2003
– Goods falling under Chapter 27 of the First Schedule to the Central Excise Tariff Act
1985 relating
to products produced by petroleum oil or gas refineries
• Eligible Business means the business of
– Hotel (two-star and above)
– Adventure and Leisure Sports including Ropeways
– Providing medical and health services in the nature of nursing home with a minimum
capacity of
twenty five beds
– Running an Old age home
– Operating Vocational Training Institute for hotel management, catering and food craft
entrepreneurship
development, nursing and paramedical, civil aviation related training, fashion designing
and industrial training
– Running Information Technology related training centre
– Manufacturing of Information Technology Hardware
– Bio Technology
11.7 Deductions pertaining to Specified Businesses
This set of deductions consists of tax incentives available to certain business units.
These deductions have been given in order to promote certain types of business
keeping the larger interest of the nation.. Deduction against income of such business is
contained in the following sections:
Section Eligible assessee Description
80JJA All Assessees in business of
conversion of bio
degradable
waste into productive
resources
Deduction in respect of
profits and gains from
business of collecting and
processing of
biodegradable
waste
80JJAA Indian Company Deduction in respect of
Employment of New
Workmen
80LA Offshore Banking Units and
International Financial
Centre
Deduction in respect of
Certain Income of Offshore
Banking Units and
International Financial
Centre
80P Co Operative Societies Deduction in respect of
income of Co-Operative
Societies
11.7.1 Deduction in respect of profits and gains from business of collecting and
processing of bio-degradable waste – Sec 80JJA
Particulars Provisions
Eligible assessee Assessee is in business of collecting and processing or
treating of biodegradable
waste for
- Generating power
- Producing, bio-fertilizers, bio-pesticides, or other biological
agents
- Producing Bio Gas
- Making Pellets or Briquettes for Fuel
- Organic Manure
Eligible Income Profits and Gains derived by above undertakings or
enterprises
Quantum of deduction 100% of profits and gains derived by such business for 5
consecutive assessment years beginning with the year in
which the business starts functioning
11.7.2 Deduction in respect of Employment of New Workmen – Sec 80JJAA
Particulars Provisions
Eligible assessee Indian Company
Eligible Income Profits and Gains derived by undertakings or
enterprises engaged in manufacture of goods
Quantum of deduction 30% of additional wages paid to new regular workmen
employed by the assessee in the previous year.
Deduction allowed for 3 years including the year in
which employment is
provided
Conditions The factory should not be formed by hiving off or
transferring from an existing entity or acquired by the
assessee company as a result of amalgamation with
another company. . Auditors report in Form 10 DA
should be filed with the return of income.
• Regular Workmen does not include
– Casual labour
– Contract Labour
– Any other workman employed for less than 300 days during the previous year
• Additional Wages means
– wages paid to new regular workmen in excess of 100 workers additionally employed
during the
previous year
– In case of existing undertakings additional wages will be nil if the increase in the
number of regular
workmen during the year is less than 10% of existing number of workmen employed as
on the last day of the preceding year.
Illustration 6
As on 31.03.2015 the number of regular workmen employed by an industrial
undertaking was
130. The following recruitments were made during the previous year
1. Casual Workmen w.e.f. 14.04.2014 8
2. Contract Labour w.e.f. 01.06.2014 22
3. Workmen employed by company
a. W.e.f. 01.05.2014 15
b. W.e.f. 15.06.2014 10
c. W.e.f. 01.08.2014 5
d. W.e.f. 15.10.2014 2
Determine the amount of deduction allowable under section 80JJAA for the company
during the assessment year 2015-16, if the salary paid to each new employee is Rs
2,500 p.m.
Solution:
Number of New Regular Workmen in respect of whom deduction is allowed
1. Casual Workmen Nil (No deduction as not regular workmen)
2. Contract Labour Nil (No deduction as not regular workmen)
3. Workmen Employed
a. W.e.f. 01.05.2014 15
b. W.e.f. 05.06.2014 10
c. W.e.f. 01.08.2014 Nil (employed less than 300
days)
d. W.e.f. 15.10.2014 Nil (employed less than 300
days)
25
Total Wages paid to the workmen
1. Those employed in May (15*11months*Rs 2500) = 4,12,500
2. Those employed in June (10*10months*Rs 2500) = 2,50,000
3. Total 6,62,500
Note: It is assumed that full month wages are paid to people employed on 05.06.2014
Number of New Workmen employed is greater than 10% of the existing strength
Therefore, Deduction allowed under section 80JJAA = Rs 6,62,500*30% = Rs 1,98,750.
11.7.3 Deduction in respect of Certain Income of Offshore Banking Units and
International
Financial Centre – Sec 80LA
Particulars Provisions
Eligible assessee - Scheduled Bank having an Off shore unit in an SEZ
- Foreign Bank having an Off shore unit in an SEZ
- Unit of International Financial Services Centre
Eligible Income - Income from Offshore Banking Unit in SEZ
- Income from business referred to in Sec 6(1) of Banking
Regulation Act, 1949
- Income from any Unit of International Financial Services
Centre from business for which it has been approved for
setting up such a Centre in SEZ
Quantum of deduction First 5 years 100% of income
Next 5 years 50% of income
Beginning from the year in which permission was obtained
from the relevant
authority
Conditions Auditors report in Form 10CCF should be filed with the
return of income.
A copy of permission under Banking Regulation Act in
respect of Offshore Unit to be furnished along with returns.
In accordance with Circular 5/2007, dated 26-07-2007.
Taxpayers should not enclose with the return forms any
statement showing the computation of income or tax,
copies of balance-sheet, profit and loss account, TDS/ TCS
certificates, proof of payment of advance tax or self-
assessment tax, and other certificates or reports as
required under the Act. However, these documents shall
have to be acquired and retained by the assessee and
produced before the Assessing Officer on demand by him.
11.7.4 Deduction in respect of income of Co-Operative Societies – Sec 80P
Particulars Provisions
Eligible assessee Co-operative Societies
Eligible Income Income from the following activities of any society
are eligible
- Carrying on business of banking and providing
credit facilities to its members
- Cottage Industry
- Marketing of Agricultural Produce Grown by its
members
- Processing agricultural produce of members
without aid of power
- Collective disposal of labour of its members
- Purchase of agricultural implements, seeds,
livestock etc for the purpose of supplying them to
members
- Fishing and allied activities
- Supply of milk, oilseeds, fruits or vegetables
grown or raised by members by
- Primary Co-Operative Societies
- Investment with other Co-Operative Societies
resulting in income by way of interest or dividend
- Letting of Godowns or Warehouses for storage,
processing or facilitating the marketing of
commodities
Quantum of deduction In respect of Co-operative Societies engaged in
above activities : 100% of income
In respect of Co-Operative Societies deriving
income from other activities :
Income is deductible up to limits as follows
- In case of Consumer Co-Operative Society
1,00,000
- In case of other Cooperative Societies 50,000
In respect of Co-Operative Societies whose Gross
Total Income does not exceed Rs
20,000 : 100% of Income by way of interest on
securities or income from house property
Conditions Deduction in respect of Income from business of
banking shall not be available to
co-operative banks other than a Primary
Agricultural Credit Society or a Primary
Co-Operative Agricultural and Rural Development
Bank.
Fishing or Allied activities shall include Catching,
Curing, Processing, Preserving, Storing or
Marketing of Fish or the purchase of material and
equipment in connection therewith for the
purpose of supplying them to its members.
Deduction in case of fishing and allied activities
and collective disposal of labour is available only
where the society, by its rules and bye-laws,
restricts its voting
rights to the following class of members only
The individuals who contribute their labour or
who carry out fishing and allied
activities
- The co-operative credit societies which provide
financial assistance to the society
- The State Government
Deduction in case of Primary Co-Operative
Societies as stated above is available
only if they supply to
- A Federal Co-Operative Society being a society
engaged in the business of
supplying milk, oilseeds, fruits or vegetables
- The Government or a Local Authority
- A Government Company as defined in section 617
of the Companies Act, 1956
or a statutory corporation engaged in the business
of supplying milk, oilseeds,
fruits or vegetables
Regional Rural Banks are not eligible for deduction under section 80P of the
Income-tax Act, 1961 from the assessment year 2007-08 onwards.
Furthermore, the Circular No.319 dated 11- 1-1982 deeming any Regional Rural Bank
to be cooperative society stands withdrawn for application with effect from assessment
year 2007-08. - CIRCULAR NO. 6/2010 DATED 20-9-2010
11.8 Deductions pertaining to certain Incomes
Deductions under this category have been offered to persons in receipt of Royalty. The
provisions relating to the same are discussed in the following sections
Section Eligible assessee Description
80QQB Resident Individual Deduction in respect of
Royalty Income etc., of
authors of
certain books other than
text books
80RRB Resident Individual Deduction in respect of
Royalty on Patents
11.8.1 Deduction in respect of Royalty Income etc., of authors of certain books
other than text books - Sec 80QQB
Particulars Provisions
Eligible assessee Resident Individual Assessees
Eligible Income Royalty income of an Author in the nature of
- Lumpsum Consideration for the assignment or grant of any
interest in
Copyright of the book
- Royalty or Copyright Fees (whether receivable in lumpsum
or
otherwise)
Quantum of deduction 100% of such income subject to a maximum of Rs 3,00,000
If consideration is not received in lumpsum, gross income
exceeding 15% of the value of the books sold during the year
is not eligible.
Conditions Assessee must be an author. Author includes Joint Author
Book should be a work of literary, artistic or scientific nature
Income must be from the exercise of his profession
Where income is earned outside India, only so much of the
amount that is brought into India in convertible forex within 6
months from the end of the previous year or such other
extended time period as the competent authority may allow,
shall be considered for the purposes of this section Auditor’s
report in Form 10 CCD must be furnished with return of
income. The certificates must be obtained from the person
responsible for making payment as well as from RBI for
repatriation of funds.
Illustration 7
Mr. Arun is a well-known author and has recently authored a book on Mechanics useful
for students in physics and has received Rs. 4,00,000 as lump-sum consideration for the
assignment of his interest in the copyright of such book. Apart from this book work, he
is a visiting faculty for various schools and his income from such services is
Rs.15,00,000 and interest on Bank deposit is Rs. 50,000/-. He pays a rent of Rs. 15,000
per month is respect of furnished accommodation. He pays Rs. 20,000 as life insurance
premium for self. He had taken a loan of Rs.15,00,000/- in the month of April 2012 from
a Bank for pursuing the MBA course by his daughter from ISB, Hyderabad. During the
previous year 2012-13, he repaid the 1st instalment of loan of Rs. 1,50,000 and interest
of Rs. 2,00,000. Compute the Total Income for assessment year 2015-16.
Solution:
Computation of Total income of Mr. Arun for AY 2015-16
Particulars Computation/Ref Rs.
Income from
Other sources
-Visiting faculty
fees
received
-Interest on Bank
Deposit
-Lumpsum
consideration
received from
books.
15,00,000
50,000
4,00,000
Gross Total
Income
19,50,000
Less: Deduction
under
Chapter VIA
Section 80C 20,000
Section 80 QQB 100% of such income or Rs. 3,00,000
whichever is less is allowed as a
deduction.
3,00,000
Section 80 GG Least of the following
i. Excess of rent paid over 10% of total
income (refer note)
Rent paid (15,000 x 12) – 1,80,000
Less: 10% of total income 1,43,000
37,000
ii. 25% of total income (14,30,000 x
25%)
3,57,500
iii. Ceiling limit Rs.2,000 p.m. 24,000
24,000
Total Income 14,06,000
Note: The total income for the purpose of deduction u/s 80GG is Gross Total income as
reduced by deductions under chapter VI-A except 80GG.
Gross Total Income 19,50,000
Less Deductions under Chapter VIA other than Sec 80GG 5,20,000
Adjusted Gross Total Income 14,30,000
11.8.2 Deduction in respect of Royalty on Patents – Sec 80RRB
Particulars Provisions
Eligible assessee Resident Individual Assessees
Eligible Income Royalty income of a Patentee
Quantum of deduction 100% of such income subject to a
maximum of Rs 3,00,000
Conditions Assessee must be the patentee, co patentee
or the true and first inventor of an
invention whose name is registered under
the Patents Act 1970
Patent should be registered under the
Patents Act 1970 on or after 01.04.2003
Where income is earned outside India,
only so much of the amount that is brought
into India in convertible forex within 6
months from the end
of the previous year or such other
extended time period as the competent
authority may allow, shall be considered
for the purposes of this section Auditor’s
report in Form 10 CCE must be furnished
with return of income. The certificates
must be obtained from the person
responsible for making payment as well as
from RBI for repatriation of funds.
Where the name of assessee has been removed from the patents register or
the patent is revoked, by the order of High Court, the deduction under this
section shall be deemed to have been wrongly allowed for the period for
which such exclusion was made. Rectification return u/s 154(7) read with Sec 155(17)
shall be made by the assessee considering the exemption as income of the respective
previous year
Illustration 8
Mr. Ram is a scientist and has recently invented a medicine that can cure cancer and has
registered the patent under the Patents Act 1970. Fortis hospital wanted to take the
patent rights and agreed to pay Rs.10,00,000/- as Royalty to Mr. Ram. Mr.Ram wants to
know the tax implications of the said transaction.
Solution:
As per section 80RRB, the assessee can claim deduction of the Royalty income at 100%
of such income subject to a maximum of Rs.3,00,000. In the present case, the eligible
deduction u/s 80RRB is Rs.3,00,000/-.
Deduction in respect of interest on deposits in savings account - 80TTA
Act 2012
Eligible assessee: Individual or HUF
Eligible income: Interest on deposits (not being time deposits) in a savings account
with—
(a) a banking company
(b) a co-operative society engaged in carrying on the business of banking (including a
co-operative land mortgage
bank or a co-operative land development bank) or
(c) a Post Office
Deduction: Actual interest earned or Rs 10,000 whichever is less
Restriction: Where income is derived from any deposit in a savings account held by, or
on behalf of, a firm, an
association of persons or a body of individuals, no deduction shall be allowed under this
section to any partner
of the firm or any member of the association or any individual of the body.
“Time deposits” means the deposits repayable on expiry of fixed periods