INDIAN INCOME TAX 7 -- PERMISSIBLE DEDUCTIONS FROM GROSS TOTAL INCOME

Permissible deductions from Gross Total Income (treatment is not exhaustive)

Deductions allowed under Chapter VI-A i.e., sections 80C to 80U, cannot exceed gross total income of an assessee excluding short term capital gains under section 111A and any long term capital gains. Some deductions under sections 80C to 80DDB are listed below.

Section 80C deductions

Deduction under this section is available only to an individual or an HUF.

Section 80C of the Income Tax Act allows certain investments and expenditure to be deducted from total income up to the maximum of Rs 100,000.

1. Contribution to approved superannuation fund/public provident fund/recognized provident fund/statutory provident fund. Provident fund contribution should not exceed 1/5 of salary & public provident fund.
2. Payment of life insurance premium. It is allowed on premium paid on self, spouse and children even if they are not dependent on father or mother (subject to a maximum of 20% of sum assured upto FY 2012-13, from FY 2013-14 20% has been reduced to 10%).
3. Payment in respect of non-commutable deferred annuity.
4. Unit linked Insurance policy of UTI/LIC Mutual fund Dhanraksha.
5. Subscriptions to National Savings Certificates VIII issues.
6. Deposits with National Housing Bank.
7. Principal part of loan taken for acquiring Residential House Property; provided that the house should not be transferred within 5 years Loan for land cost for residential house is also qualified.
8. Subscriptions to schemes of PSU's providing long term finance for housing, or of housing boards constituted in India for infrastructural development of cities/towns.
9. Notified annuity plan of LIC or of any other approved insurer.
10. Units of Mutual Fund or UTI.
11. Notified pension fund by UTI or approved mutual fund.
12. Tuition fees (not including donation or development fees) towards full-time education including play-school activities, pre-nursery & nursery classes, of any 2 children of an individual, paid to University, College or School in India.
13. Investments in shares or debentures with a lock-in-period of 3 years, of approved public company exclusively engaged in infrastructure facility or power sector.
14. Subscription to the bonds issued by NABARD as specified by Central Government.
15. Any sum deposited as 5 years time deposit under Post Office Term Deposit.
16. Any sum deposited in Senior Citizen Savings Scheme.
17. Any sum deducted from salary of Government employee (subject to maximum 20% of salary) towards deferred annuity plan for benefit of self, spouse or any children.
18. Term deposit with scheduled bank for a period of not less than 5 years as per scheme notified by Central Government.
19. Investing in units of notified mutual fund investing in approved public companies engaged in infrastructure facility or power sector.

Section 80CCC

Payments made to LIC or to any other approved insurer under an approved pension plan is admissible for deduction under this section. Then pension plan policy should be for individual himself out of his taxable income. The deduction is least of the amount paid or ₹ 100,000.

Section 80CCD

Contribution made by the assessee and by employer to a Notified Pension Scheme is admissible for deduction under this section. The assesse should be an individual who is employed on or after 1 January 2004. The deduction shall be equal to the amount contributed by the assessee and/or by the employer, not exceeding 10% of his salary (basic+dearness allowance). Even a self-employed person can claim this deduction which will be restricted to 10% of gross total income.

The total deduction available to an assessee under sections 80C, 80CCC & 80CCD is restricted to ₹ 100,000 per annum. However, employer's contribution to Notified Pension Scheme under section 80CCD is not a part of the limit of ₹ 100,000.

Section 80D: Medical insurance premiums

Health insurance, popularly known as Mediclaim Policies, provides a deduction of up to 35,000.00 (₹15,000.00 for premium payments towards policies on self, spouse and children and ₹15,000.00 for premium payment towards non-senior citizen dependent parents or ₹20,000.00 for premium payment towards senior citizen dependent). This deduction is in addition to ₹100,000 savings under IT deductions clause 80C. For consideration under a senior citizen category, the incumbent's age should be 60 years during any part of the current fiscal, e.g. for the fiscal year 2010-11, the incumbent should already be 60 as on 31 March 2011), This deduction is also applicable to the cheques paid by proprietor firm.

Section 80DDB : Deduction in respect of medical treatment, etc

Deduction is allowed to resident individual or HUF in respect of expenditure actually during the PY incurred for the medical treatment of specified disease or ailment as specified in the rules 11DD for himself or a dependent relative or a member of a HUF

Section 80CCG : RGESS

Deduction of 50% is allowed on investments up to Rs:50,000 under the Rajiv Gandhi Equity Savings Scheme on select securities.

Section 80E : Education loan interest

Interest payment on education loan for education in India or abroad gets deduction under this section. Education loan should be for self, spouse, child or the one whose leaga guardian the assessee is.

Section 80TTA : Interest on Savings Account

Up to Rs 10,000 earned as interest from savings account in bank, post office or a co-operative society can be claimed for deduction under this section. This rebat is applicable for individuals and HUFs .

Section 80U : Disability

Disabled persons can get a flat deduction on Income Tax on producing their disability certificate. If disability is severe Rs 1 lakh can be claimed else Rs 50,000.

Section 24 : Interest on housing loans

For self occupied properties, interest paid on a housing loan up to Rs150,000 per year is exempt from tax. This deduction is in addition to the deductions under sections 80C, 80CCF and 80D. However, this is only applicable for a residence constructed within three financial years after the loan is taken and also the loan if taken after 1 April 1999.

If the house is not occupied due to employment, the house will be considered self occupied.

For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. However, the rent is to be shown as income from such properties. 30% of rent received and municipal taxes paid are available for deduction of tax.

Govt. has announced that for the year 2013-14, an additional deduction of Rs. 100,000 would be allowed to be deducted for the payment of Interest on Home Loan u/s 80ee. This deduction would be allowed provided that the total value of the loan is not more than Rs. 2.5 million and the total value of the house is not more than Rs. 4 million and the loan should be a fresh loan taken during the financial year 2013-14. This deduction would be over and the Rs. 150,000 deduction

The losses from all properties shall be allowed to be adjusted against salary income at the source itself. Therefore, refund claims of T.D.S. deducted in excess, on this count, will no more be necessary.

Disclaimer

In this note, we have attempted to summarise some of the significant aspects to be kept in mind by readers to ensure compliance of Income tax laws and regulations. Readers should ensure to verify specific provisions as applicable to each case before taking any business decisions. It would be pertinent to note that some changes are being made to the Income tax laws and rules and regulations on a continuous basis by way of notifications, clarifications etc issued by the department based on their practical experience in implementing the legislation.

It may be noted that nothing contained in this note should be regarded as our opinion.  Professional advice should be sought for applicability of legal provisions based on specific facts. Though reasonable efforts have been taken to avoid errors or omissions in this note we are not responsible for any liability arising to readers directly or indirectly due to any mis-statements or error contained in this note. It must be noted that the views expressed in the note are based on our understanding of the law and regulations as published by the Government authorities and we may or may not agree or subscribe to such views/ interpretations.