TYPES OF DEDUCTIONS OF CERTAIN INCOMES UNDER INCOME TAX ACT, 1961

Types of deductions:

  1. Investment Deduction – Section 80C

Section 80C is one of the most popular & well-known sections among taxpayers since it allows them to lower their taxable income by making tax-saving investments or incurring qualified costs. Individuals and HUFs alike can save Rs. 1.5 lakhs in taxes by using Section 80C. An individual can invest in a number of instruments to qualify for the Section 80C deduction, including but not limited to ELSS (Equity Linked Savings Schemes), NPS (National Pension Scheme) (National Pension Scheme), ULIPs (Unit Linked Investment Plans), PPF (Public Provident Fund) and EPF (Employee Provident Fund).

  1. Premium Paid for Annuity Plan of LIC or Other Insurer Deduction – Section 80CCC

This section allows a person to deduct the amount paid to a life insurance company for an annuity plan. The payment must, however, be sent to one of the funds listed in Section 10(23AAB). The proceeds from the policy in the form of annuity pensions or surrenders are taxed. Interest and bonuses on the same are taxed as well.

  1. Contribution to Pension Account Deduction – Section 80CCD
  • Section 80CCD(1) – Employee Contribution: On amount deposited in pension accounts, tax deductions are available. The highest deduction you can claim is the lesser of 10% of your pay if the person is working as an employee or 20% of an individuals’ gross total income if he/she is working as a self-employed person or Rs. 1.5 lakhs.
  • Section 80CCD(1B) – Self Contribution: This new section provides an additional deduction of up to Rs. 50,000 for deposits made to the National Pension Scheme (NPS) or an individuals’ Atal Pension Yojana account.
  • Section 80CCD(2) – Employer’s Contribution: An individual can claim an additional deduction for upto 10 percent on his/her employer’s contribution to his/her pension account.

 

  1. Medical Insurance Premium Deduction – Section 80D

A deduction of Rs. 25,000 can be claimed if an individual has taken a health insurance for himself/herself, their husband/wife and dependent children. An additional deduction is available upto 25,000 for parents who are under 60 years of age. Also, the deduction limit goes to Rs. 1 Lakhs for parents and taxpayers aged above 60 years.

  1. Rehabilitation of Handicapped Dependent Relative Deduction – Section 80DD

Deduction on Medical expenses which can include training, rehabilitation and nursing of handicapped relative who is dependent on the taxpayer can be claimed if he/he is a resident individual or HUF. Similar deduction can be availed by HFU or resident individual if he/she has paid some amount to a specified scheme towards caretaking of handicapped relative dependent on him/her. These deductions can go upto Rs. 75,000 for disability of 40-80 percent and Rs. 1,25,000 for disability that is severe i.e. 80 percent or more. 

  1. Medical Expenditure on Dependent Relative or on Self Deduction– Section 80DDB

An individual can claim a deduction of up to Rs. 40,000 for expenditures incurred for treatment of selected medical illnesses for himself/herself or his/her dependents if he/she are under the age of 60. All members of the HUF under the age of 60 are eligible for the deduction. If the expenses are paid for a senior citizen, individuals or HUFs can claim a deduction of up to Rs.1 lakh.

  1. Deduction from Gross Total Income for Interest on Saving Bank – Section 80TTA

A deduction of upto Rs. 10,000 can be claimed by an individual or HUFs on interest earned from the savings account. This account could be kept at a bank, a cooperative organisation, or the post office. This provision does not allow for interest on recurring deposits, fixed deposits, or corporate bonds to be deducted.

  1. Deduction for House Rent Paid Where HRA (House Rent Allowance) is not Received – Section 80GG

If an individuals’ company does not pay for his/her HRA, he/she can claim a deduction on rent paid if they themselves, their spouse, or a minor child do not own residential housing at work. An individual must, however, not have any other self-occupied residential property and must be renting and paying rent.

  1. Interest on Education Loan for Higher Studies Deduction – Section 80E

Deduction on the interest paid on Education loan can be availed if an individual, their spouse, children or legal wards has taken out a higher education loan. Under this clause, no monetary upper limit is prescribed but the deductions can be claimed for the lesser of the two – eight years from the year or beginning of loan repayment or until the entire interest is paid off.

  1. Home Loan Interest for First Time Home Owners Deduction – Section 80EE

If an individual is a first-time home buyer, he/she can claim a deduction of up to Rs. 50, 000 on house loan interest. This clause, which was introduced in Fiscal year 2013-14, allowed for a deduction of up to Rs. 1 lakh for Fiscal Year 2013-14 and Fiscal Year 2014-15. It was reintroduced in FY 2016-17 with a lower maximum deduction limit.

  1. Deduction on Rajiv Gandhi Equity Saving Scheme – Section80CCG

A resident individual can claim a deduction under Section 80CCG if he/she has a gross total income of less than Rs. 12 Lakh. There are some conditions which follows this section, they include – the investment being a listed investor as per notified scheme requirements, individual being a new retail investor as per the notified scheme requirements and the investment should be made in a scheme with a maximum lock-in-period of three years from the date of acquisition as per notified scheme. In this case, the deduction amount will be lower of – (1) 50 percent of investment in equity shares and (2) Rs. 25,000 for three successive Assessment Years.

  1. Person suffering from Physical Disability Deduction – Section 80U

An individual can claim a deduction of up to Rs. 75,000 if he/she is a resident individual with a physical handicap, such as blindness or mental retardation. The deduction limit for serious disabilities has been increased to Rs. 1.25 lakhs.

  1. Donations towards Social Causes Deduction – Section 80G

The donations listed in this section are tax deductible up to 100% or 50%. Donations with 100 percent deductions with no qualifying limit includes National Defence Fund by the GOI, National Illness Assistance Fund, National Foundation for Communal Harmony, etc. Donations with 50 percent deduction with no qualifying limit includes Prime Minister’s Drought Relief Fund, The Rajiv Gandhi Foundation, etc. Similarly, there are other donations with 100 percent deduction subject to 10 percent of gross total income and donations eligible for 50 percent deduction subject to 10 percent of gross total income. 

  1. Deduction on contributions given by companies to Political Parties – Section 80GGB

An Indian firm can claim a deduction for contributions given to a political party or electoral trust registered under Section 29A of the Representation of People Act (REPA) in any form other than cash. Companies are allowed to deduct 100% of their contributions.

  1. Deductions on contributions given by any person to Political Parties – Section 80GGC

Individuals can deduct contributions to a political party or electoral trust made in any form other than cash. This deduction is not available to companies, artificial juridical persons, or local governments that are sponsored entirely or partially by the government.

  1. Deduction with respect to any Income by way of Royalty of a Patent – Section 80RRB

Section 80RRB was enacted to ensure that those who have performed exceptionally well are rewarded. This clause permits individuals to deduct money received as royalties from their income tax, in order to encourage them to continue producing valuable work.

  1. Deduction of Interest on Deposits for Senior Citizens – Section 80TTB

This component was first added in the 2018 budget. Senior citizens can receive deductions on deposit income of up to Rs. 50,000.

Recent Court Rulings:

  1. PCIT v. JSW Steel Ltd. (2020)

The High Court of Bombay ruled that section 153A of the Income Tax Act specifies that if any assessment procedures relating to any assessment year coming within a term of six assessment years are ongoing, they will be eased. Once an assessment has been abated, both the assessee and revenue have the opportunity to claim deductions and other benefits.

 

  1. Sesa Goa Ltd. v. JCIT (2020)

The HC of Bombay ruled that there is no mention of a “Cess” in the wording of section 40(a) (ii). It is stated that “any rate or tax levied” on “profits and gains of business or profession” is not deductible. As a result, it could not be acknowledged that a “tax” in the character of a “cess” is also not deductible. If the legislature wanted to make it illegal to deduct money paid to, say, the “education cess” or any other “cess,” it could have easily incorporated a reference to “cess” in Section 40(a) (ii). Because it hasn’t, it’s safe to assume that the legislature didn’t intend to prohibit the deduction of payments paid to the “cess.”

 

  1. CIT v. Mahindra & Mahindra Ltd (2018)

The apex court noted the legal provision and held that the assessee must claim an allowance or deduction for any year in respect of loss, expenditure, or trading liability incurred, and that if the creditor remits or waives any such liability, the assessee is liable to pay tax under section 41 of the Act. The section’s goal is to ensure that the assessee does not profit twice: first through a deduction and again by not being taxed on the benefit he receives in a later year based on the deduction he received earlier owing to remission of such liability.

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