Deductions Of Computing Total Income Sec 80C

DEDUCTIONS TO BE MADE IN COMPUTING TOTAL INCOME

Provided by the Income Tax Act, 1961.

Contained in Chapter VI – A and in the form of deductions from section 80C to 80U.

They are the permissible amount by which the gross total income is reduced to arrive at the total income liable to tax.

They are intended to act as incentive to the assessee for achieving certain economic objectives.

INTRODUCTION

BASIC RULES

Following are the basic rules for deduction 1.The aggregate amount of deductions under sections 80C to 80U

cannot exceed gross total income(gross total income after excluding long term capital gains, short term capital gain under section 111A, winnings from lottery, crossword puzzles etc.)

2.These deductions are to be allowed only if the assessee claims

these and gives the proof of such investments/ expenditure/ income.

Categories of Deductions

To encourage

savings

For certain personal

expenditure

For socially desirable activities

For physically disabled persons

SECTION 80C

Deductions In Respect Of life Insurance Premia etc The following payments/investments qualify for deduction under this section. The total

amount of investments made during the P.Y. under these below mentioned schemes is known as Gross Qualifying Amount ( GQA )

1. Life Insurance premium paid on a policy taken on his own life, life of the spouse or any child (child may be dependent/ independent ). In the case of a Hindu undivided family, policy may be taken on the life of any member of the family. The premium paid should be maximum of 20% of sum assured .

2. Any sum deducted from salary payable to a Government employee for thepurpose of securing him a deferred annuity (subject to a maximum of 20% of salary)

3. Contribution towards statutory provident fund and recognized provident fund.

4. Contribution towards 15 year public provident fund (maximum of Rs 70,000).

5. Contribution towards an approved superannuation fund

6. Subscription to National Savings Certificates, VIII Issue .

7. Contribution for participating in the Unit-Linked Insurance Plan (ULIP) of Unit Trust of India..

Continued• 8. Contribution for participating in the unit-linked insurance plan (ULIP) of

LIC Mutual Fund (i.e. Dhanraksha plan of LIC Mutual Fund)

• 9.Payment for notified annuity plan of LIC (i.e. Jeevan Dhara, Jeevan Akshay New Jeevan Dhara ,etc ) or any other insurer.

• 10. Subscription towards notified units of Mutual Fund or UTI

• 11. Contribution to notified pension fund set up by Mutual Fund or UTI .

• 12. Any sum paid (including accrued interest) as subscription to Home Loan Account Scheme of the National Housing Bank

• 13. Any sum paid as tuition fees to any university/college/educational institution in India for full time education.

Amount Of Deduction

We add the amounts invested / spent in above mentioned schemes and this amount is known as Gross qualifying amount. The amount deductible is a) Gross qualifying amount; or

b) Rs 1,00,000 Whichever is less

EXAMPLE

• From the following particulars in respect of Mr. Adarsh an author of books, find out deduction allowable to him u/s 80c for A.Y 2013-14

PARTICULAR AMOUNT (`)

Life Insurance premium (on his own life) policy taken in 2010 22,000

Sum Assured on above policy 2,00,000

Contribution to unrecognised provident fund 1,000

Contribution to public provident fund 45,000

Subscription to N.S.C(VII issue) 8,000

Accrued interest on N.S,C 8,000

Life Insurance Premium (on his mother policy) 5,000

Repayment of Bank loan Borrowed for construction of the house 21,000

Amount entitled to deduction u/s 80cFor the Assessment Year 2013-14

PARTICULAR AMOUNT(`)

Life Insurance premium (on his own life) policy taken in 2010(premium does not exceed 20% of sum assured)

22,000

Contribution to public provident fund 45,000

Subscription To N.S.C VII Issue 8,000

Accrued Interest on N.S.C VII Issue deemed to be reinvested 8,000

Life Insurance Premium (on his mother policy) Nil

Repayment of Bank loan Borrowed for construction of the house 21,000

TOTAL INCOME 1,04,000

Maximum Limit of qualifying amount under section 80c is ` 1,00,000

Note : Contribution to unrecognised provident fund does not qualify for deduction u/s 80c

SECTION 80CCC – PAYMENT IN RESPECT OF PENSION FUND

Deduction in respect of contribution to certain pension funds

• It Provides for deduction to an individual for any amount paid or deposited by him in an annuity plan of life insurance plan of the life insurance Corporation of India or any other insurer for receiving pension from the fund . The deduction under this section is the amount to paid of ` 1,00,000, which ever is less

• Conditions For deductions(1) The amount should have been paid out of his income Chargeable to tax(2) If the assessee or his nominee surrenders the annuity before the

maturity date of such annuity , the surrenders value shall be taxable in the hands of the assessee or his nominee

(3) The amount received by the assessee or his nominee as pension will be taxable in the hands of the assessee or his nominee

(4) Where any amount has been allowed as a deduction as a deduction u/s 80CCC no deduction shall be allowed u/s 80c

SECTION 80CCD – PAYMENT TO NEW PENSION SCHEME

DEDUCTION IN RESPECT OF CONTRIBUTION TO PENSION SCHEME OF CENTRAL GOVERNMENT (SEC. 80CCD)

(1) Who is entitled to it. (i) An employee of central government or any other employer who has been appointed on or after January 1, 2004 or (ii) an assessee being an individual

(2) Item Eligible for deduction. Amount deposited during previous year in the pension scheme fulfilled by the central government

(3) Quantum Of deduction: (i) Amount deposited by the employee or 10% of his salary whichever is less (ii) Amount contributed by the central government other employees or 10% of salary whichever is less (iii) In case of other individual , upto 10% of his gross total income in P.Y

(4) Where any amount has been allowed as a deduction under this section, no deduction with reference to such amount u/s 80c

(5) Tax Liability : Where any amount together with amount accrued thereon, is received by the assessee or his nominee or pension is received in P.Y, it shall be chargeable to tax as the income of that P.Y

SECTION 80CCE – LIMIT ON DEDUCTIONS

Aggregate amount of deductions

If an assessee is having/claiming deduction u/s 80C,80CCC, and 80CCD, then the provisions of Sec 80E is to be applied. According to this section the deduction is least of the following two amounts:

Aggregates of the gross qualifying amount u/s 80C,80CCC, and 80CCD.

Rs 1,00,000

Example The basic salary Of Mr. A is ` 20,000 p.m . He is entitled to dearness

allowance forms part of pay for retirement benefits. Both Mr .A and his employer contribute 15% of basic salary to pension scheme referred to in section 80CCD. Explain the treatment in respect of such condition in hands of Mr .A.

Solution Tax treatment in hands Of Mr. A in respect of employer and own

contribution to pension scheme referred to un Section 80CCD(a) Employer contribution to such pension scheme would be treated as salary

since it is specifically included in definition of salary under section 17(1)(viii). Therefore `36,000, being 15% of basic salary of `2,40,000, will be included in Mr. A salary

(B) Mr A contribution to pension scheme is allowable as deduction under section 80CCD(1). However , the deduction on restricted to 10% of salary . Salary , for this purpose, means basic pay plus dearness allowance, if it forms part of pay

Continued Therefore ,salary for the purpose of deduction under section

80CCD,in this case would bePARTICULAR AMOUNT(`

)

Basic salary = `20,000x12Dearness Allowance= 40% of `2,40,000= `96,00050% Of DA forms part of pay= 50% of `96,000Salary for purpose of deduction under section 80CCD

Deduction Under section 80CCD(1)= 10% of` 2,88,000(as against actual contribution of `36,000, being 15% Of basic salary of `2,40,000)

2,40,000

48,0002,88,000

`28,800

(C) Employer contribution to pension scheme would be allowable ,as deduction u/s 80CCD(2) subject to a minimum of 10% of salary. Therefore , deduction under section 80CCD (2), would be restricted to `28,800, even though the entire contribution of `36,000 is included in salary . However, this deduction of employer contribution of `28,800 to pension scheme would the overall limit of `1 lakh under section 80CCE .

SECTION 80CCG: Deduction of investment in listed equity shares

Deduction in respect of investment in listed equity shares

Where a resident individual acquires listed equity shares he shall be entiled to deduction of 50% of the amount invested in such equity shares during previous year or 25,000, whichever is less

Conditions for deductions(i) The gross total income of the assessee does nit exceed 10 lakh

rupees(ii) The assessee is a new retail investor , as may be specified in the

scheme(iii) The Investment is made in such listed equity shares ,as may be

specified in th scheme(iv) The investment is locked – in for a period of three years from the

date of acquisition of shares(v) Any other condition as may be prescribed

Continued

If the assessee fails to comply with any condition in any previous year ,the deduction allowed shall be deemed to be the income of the assessee of such previous year to tax

Section 80CCG has been amended as under w.e.f A.Y 2014-151 The investment is listed units of an equity oriented fund shall also be

eligible for deduction2 The limit of gross total income of the assessee has been enhanced

from ten lakh rupees to twelve lakh rupees3 The assessee can invest and get deduction for three consecutive

assessment years, beginning with the assessment year relevant to the previous year in which listed equity shares or listed units of equity oriented fund were first acquired , instead of one assessment year.