Deductions Under ‘Chapter VI-A’ in respect of ‘Incomes’ are Allowed from Section 80-IA To 80U

Deductions Under 'Chapter VI-A' in respect of 'Incomes' are Allowed from Section 80-IA To 80U

Table of Contents

1. Section 80-IAC: Deduction in respect of Eligible Business or Eligible Start Up

Understanding of Section 80-IAC

The Income Tax Act, 1961 provides various deductions for taxpayers to reduce their taxable income. One such deduction is Section 80-IAC, which is specifically designed to encourage the growth of eligible businesses and startups in India. In this blog post, we will explore the details of Section 80-IAC and how it can benefit eligible businesses and startups.

The provisions of Section 80IAC towards Deduction in respect of Eligible Business or Eligible Start Up with following conditions are given below –

Eligibility Criteria –

The following conditions should be satisfied –

  1. The assessee is a company or a limited liability partnership (LLP) and engaged in an eligible business (“eligible business” means a business carried out by an eligible start up engaged in innovation, development or  improvement of products or processes or services or a scalable business model with a high potential of  employment generation or wealth creation).
  2. The above company or LLP is incorporated after March 31, 2016 but before April 1, 2021.
  3. Annual business turnover of the company or LLP does not exceed Rs. 25 crore in the previous year relevant to the assessment year for which deduction is claimed under section 80-IAC.
  4. It holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government.
  5. The above company or LLP is not formed by splitting up, or the reconstruction, of a business already in existence. However, this condition is not applicable in respect of a start-up which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to  in section 33B.
  6. It is not formed by the transfer to a new business of machinery or plant previously used for any purpose [it is subject to a few exception].
  7. Eligible startups must be recognized by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India. DIPP recognition is based on specific criteria related to innovation and job creation.

Deduction Amount

The deduction under Section 80-IAC is available for three consecutive assessment years, starting from the year in which the eligible business or startup commences its operations. The deduction amount is:

  • 100% of the profits and gains derived from the eligible business or startup for the first three assessment years.
  • 50% of the profits and gains derived from the eligible business or startup for the next two assessment years.

Application Procedure

To claim the deduction under Section 80-IAC, eligible businesses and startups need to follow these steps:

  • File the income tax return for the relevant assessment year.
  • Calculate the taxable income after considering all other deductions and exemptions.
  • Claim the deduction under Section 80-IAC by filling the necessary details in the income tax return form.
  • Submit the income tax return form along with the required supporting documents to the Income Tax Department.

Deduction Not to be Allowed in cases where Return is not Filed within the Specified Time limit [Section 80AC]:

Under Section 80AC, if an Assessee is eligible for any deduction or exemption under the Act, the benefit can only be claimed if the income tax return is filed on or before the specified due date. This provision ensures that taxpayers fulfill their filing obligations in a timely manner in order to avail the tax benefits they are entitled to.

[Section 80-IAC(1)]: 100% Deduction of Profit from Eligible Business

Section 80-IAC(1) of the Income Tax Act, 1961 allows for a 100% deduction of profit from eligible businesses. This section was introduced to promote and encourage startups in India. In this blog post, we will explore the details of this section and understand how it can benefit startups.

Eligibility Criteria

To avail the benefits under Section 80-IAC(1), a startup needs to meet certain eligibility criteria:

  • The startup should be incorporated as a private limited company or a limited liability partnership (LLP) after April 1, 2016, but before April 1, 2021.
  • The turnover of the startup should not exceed Rs. 25 crores in any of the previous financial years.
  • The startup should be engaged in innovation, development, deployment, or commercialization of new products, processes, or services driven by technology or intellectual property.

Duration of Deduction

The deduction under Section 80-IAC(1) can be claimed for 3 consecutive assessment years out of the first 10 years since incorporation. This means that a startup can enjoy the benefits of this section for a maximum of 3 years.

Calculation of Deduction

Once a startup fulfills the eligibility criteria and is within the duration of deduction, the deduction amount can be calculated as follows:

  • The eligible startup can claim a deduction of 100% of the profits and gains derived from the eligible business.
  • The deduction is available only on the profits and gains derived from the eligible business and not on any other income or losses.
  • The deduction amount is to be calculated before any other deductions such as depreciation, brought forward losses, etc.

Advantages of Section 80-IAC(1)

Section 80-IAC(1) provides several advantages for startups:

  • It helps in reducing the tax liability of startups by allowing a deduction of 100% of the profits and gains.
  • The deduction can be claimed for 3 consecutive assessment years, providing stability and support to startups during the initial years.
  • It encourages innovation and technological development by incentivizing startups engaged in such activities.

[Section 80-IAC(2)]: Deduction to be Allowed for any 3 Consecutive Assessment years out of 10 years

Section 80-IAC(2) of the Income Tax Act, 1961 provides a significant deduction for eligible startups. According to this provision, startups can claim a deduction for any three consecutive assessment years out of ten years. This deduction is aimed at promoting and supporting innovation and entrepreneurship in India.

The deduction allowed under Section 80-IAC(2) applies to eligible startups that have obtained a certification from the Inter-Ministerial Board of Certification. This certification is granted to startups that meet certain criteria related to innovation, scalability, and potential for employment generation.

Once a startup has obtained the certification, it becomes eligible to claim a deduction of 100% of its profits and gains for any three consecutive assessment years out of ten years. This deduction can be a significant boost for startups, as it allows them to retain a larger portion of their earnings and reinvest it into their business.

Conditions for Availing the Deduction

While the deduction is beneficial for startups, there are certain conditions that must be met in order to avail it. These conditions include:

  • The startup must be incorporated as a private limited company
  • It must be engaged in innovation, development, deployment, or commercialization of new products, processes, or services driven by technology or intellectual property
  • The turnover of the startup must not exceed INR 25 crore in any previous year
  • The startup must not have been formed by splitting up, or reconstruction, of a business already in existence

[Section 80- IAC(3)]: Conditions to be satisfied to Claim Exemption under section 80-IAC(1)

This section applies to a start-up which fulfils the following conditions, namely:—

(i)         it is not formed by splitting up, or the reconstruction, of a business already in existence:

Provided that this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section;

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

Explanation 1.—For the purposes of clause (ii) above, any machinery or plant which was used outside india by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:—

(a)    such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;

(b)     such machinery or plant is imported into India;

(c)     no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee

Explanation 2.—Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed 20% of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.

[Section 80-IAC(4)]: Further Conditions applicable for an Assessee Claiming Deduction under Section 80-IAC

The provisions contained in section 80-IA(5) and 80-IA(7) to (12) shall, so far as may be, apply to the eligible business under this section. These provisions relate to the following:—

(i)         Computation of profits of eligible business [Section 80-IA(5)]

(ii)        Audit of accounts [Section 80-IA(7)]

(iii)       Inter-unit transfer of goods [Section 80-IA(8)]

(iv)       Restriction on double deduction [Section 80-IA(9)]

(v)        Restriction on excessive profits [Section 80-IA( 10)]

(vi)       Power of Central Government to notify undertakings to which section 80-lB will not apply [Section 80-IA(11)]

Explanation.—For the purposes of this section,—

(i)         “eligible business” means a business carried out by an eligible start up engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation;

(ii)        Meaning of “eligible start up”

“Eligible start-up” means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions, namely:—

(a)    it is incorporated on or after the 1 st day of April, 2016 but before the 1 St day of April, 2022; [Extended upto 1-4-2023 by the Finance Bill, 2022]

(b)   the total turnover of its business does not exceed 100 crore in any of the previous year relevant to the assessment year for which deduction under sub-section (1) is claimed; and

(c)    it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government.

Note.—Since eligible company also means “eligible start up”. Investment in LLPs shall also be eligible for exemption under section 80GB provided it carries on an eligible business.

(iii)       “limited liability partnership” means a partnership referred to in section 2(l)(n) of the Limited Liability Partnership Act, 2008

2. Section 80-IBA: Deduction in respect of Profits and Gains from Housing Projects

Understanding of Section 80-IBA

Section 80-IBA of the Income Tax Act, 1961, provides a deduction in respect of profits and gains from housing projects. This section was introduced to promote the development of affordable housing in India and incentivize builders and developers to participate in this crucial sector.

Eligibility Criteria

To avail the benefits of Section 80-IBA, a housing project must fulfill certain criteria:

  • The project should be approved by the competent authority between June 1, 2016, and March 31, 2022.
  • The carpet area of the houses should not exceed 60 square meters in metropolitan cities and 90 square meters in non-metropolitan cities.
  • The project should be completed within five years from the end of the financial year in which the approval was granted.

Deduction Amount

The amount of deduction available under Section 80-IBA is calculated as follows:

  • For projects located in the metropolitan cities, a deduction of 100% of the profits and gains derived from the eligible housing project is allowed for a period of Five (5) consecutive assessment years.
  • For projects located in non-metropolitan cities, a deduction of 100% of the profits and gains derived from the eligible housing project is allowed for a period of Seven (7) consecutive assessment years.

Conditions for Availing Deduction

While Section 80-IBA provides a lucrative deduction, there are certain conditions that need to be fulfilled:

  • The project should be completed within the specified time frame.
  • The project should be sold to individual buyers and not to companies or firms.
  • The project should not be transferred to any other person before the expiry of the specified time frame.

Section 80-IBA of the Income Tax Act, 1961, has played a crucial role in promoting affordable housing in India. The deduction provided under this section has incentivized builders and developers to contribute to this important sector, leading to increased supply and affordability. It is a significant step towards fulfilling the dream of every Indian to own a house.

[Section 80-IBA(1)]: 100% Deduction of Profit from Housing Projects

Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building housing projects, there shall, subject to the provisions of this section, be allowed, a deduction of an amount equal to 100% of the profits and gains derived from such business provided the project fulfils the conditions mentioned in section 80-IBA(2).

To help migrant labourers and to promote affordable rental, the Finance Act, 2021 has allowed deduction by inserting sub-section (1A) under section 80-IBA also to such rental housing project which is notified by the Central Government in the Official Gazette and fulfils such conditions as specified in the said notification.

The new sub-section (1A) provides as under:

100% Deduction of Profit the Business of Developing and Building Rental Housing Project [Section 80-IBA(IA)]:

Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building rental housing project, there shall be allowed a deduction of an amount equal to 100%. of the profits and gains derived from such business.

“Rental housing project” means a project which is notified by the Central Government in the Official Gazette under this clause on or before 31.3.2022 and fulfills such conditions as may be specified in the said notification;’

[Section 80-IBA(2)]: Conditions to be Fulfilled

For the purposes of section 80-TBA(1), a housing project shall be a project which fulfils the following conditions, namely:—

(a)        the project is approved by the competent authority after 1.6.2016, but on or before 31.3.2022;

(b)        the project is completed within a period of 5 years from the date of approval by the competent authority:

(i)         where the approval in respect of a housing project is obtained more than once, the project shall be deemed to have been approved on the date on which the building plan of such housing project was first approved by the competent authority; and

(ii)        the project shall be deemed to have been completed when a certificate of completion of project as a whole is obtained in writing from the competent authority.

(c)        the carpet area of the shops and other commercial establishments included in the housing project does not exceed 3% of the aggregate carpet area;

(d)        the project is on a plot of land measuring not less than—

(i) 1000 square metres where such project is located within the cities of Chennai, Delhi, Kolkata or Mumbai, or

(ii) 2000 square metres where the project is located in any other place;

(e)        the project is the only housing project on the plot of land as specified in clause (d) above; (f) the carpet area of the residential unit comprised in the housing project does not exceed—

(i) 30 square metres where such project is located within the cities of Chennai, Delhi, Kolkata or Mumbai; or

(ii) 60 square metres, where the project is located in any other place;

(g)        where a residential unit in the housing project is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual;

(h)        the project utilises—

(i) not less than 90% of the floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Government or the State Government or the local authority, as the case may be, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai, or

(ii) not less than 80% of such floor area ratio where such project is located in any place other than the place referred to in sub-clause (i); and

(i)         the assessee maintains separate books of account in respect of the housing project.

(3A) Conditions mentioned in clauses (d) to (i) above have been substituted by the following conditions in respect of projects approved on or after 1.9.2019 [W.e.f. A.Y. 2020-21]

The Finance (No. 2) Act, 2019 has substituted the conditions mentioned in clauses (d) to (i) above by the following conditions given in clauses (d) to (j) below in respect of projects approved on or after 1.9.2019:

(a)        the project is on a plot of land measuring not less than—

(i)  1000 square metres, where such project is located within the metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or

(ii)  2000 square metres, where such project is located in any other place;

(b)        the project is the only housing project on the plot of land as specified in clause (d);

(c)        the carpet area of the residential unit comprised in the housing project does not exceed—

(i)  60 square metres, where such project is located within the metropolitan cities of Bengaluru., Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or

(ii)  90 square metres, where such project is located in any other place;

(d)        the stamp duty value of a residential unit in the housing project does not exceed Rs.45,00,000;

(e)        where a residential unit in the housing project is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual;

(f)         the project utilises—

(i)  not less than 90% of the floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Government or the State Government or the local authority, as the case may be, where such project is located within the metropolitan cities of Bengaluru., Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or

(ii)  not less than 0% of such floor area ratio where such project is located in any place other than the place referred to in sub-clause (i); and

(g)        the assessee maintains separate books of account in respect of the housing project.

Nothing contained in this section shall apply to any assessee who executes the housing project as a works-contract awarded by any person (including the Central Government or the State Government). [Section 80-IBA(3)]

[Section 80-IBA (4)]: Consequences if the project is not completed within a period of 5 years from the date of approval

Where the housing project is not completed within the period specified under section 80-IBA(2)(b) (i.e., 5 years) and in respect of which a deduction has been claimed and allowed under this section, the total amount of deduction so claimed and allowed in one or more previous years, shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which the period for completion so expires.

Section 80-IBA(2)(b) of the Indian Income Tax Act, 1961 specifies the conditions that must be met in order to claim a deduction under Section 80-IBA for profits and gains derived from the business of developing and building housing projects.

One of the conditions is that the housing project must be completed within a period of three years from the date of approval by the competent authority. However, Section 80-IBA(2)(b) provides for an extension of this period in certain cases.

The extension is available for housing projects that are affected by any of the following factors:

·         Force majeure, such as natural disasters, wars, or civil unrest.

·         Government delays, such as delays in obtaining approvals or permissions.

·         Other unforeseen circumstances beyond the control of the assessee.

To claim the extension, the assessee must apply to the competent authority within six months of the expiry of the three-year period for completion of the housing project. The competent authority will grant the extension if it is satisfied that the delay was due to any of the factors listed above.

The maximum extension that can be granted is two years. This means that the assessee will have a total of five years to complete the housing project from the date of approval by the competent authority.

It is important to note that the extension is available only for the purpose of claiming the deduction under Section 80-IBA. It does not extend the period for completion of the housing project under any other law or regulation.

[Section 80-IBA(5)]: Deduction under any other Provisions of the Act Not Allowed if the same is claimed under this section

Section 80-IBA(5) was introduced to promote the development of affordable housing projects in India. It allows developers to claim a deduction of 100% of the profits derived from such projects, subject to certain conditions. This deduction is available for a period of five years, starting from the year in which the project is completed and the certificate of completion is obtained.

While Section 80-IBA(5) provides a generous deduction for affordable housing projects, it also restricts the taxpayers from claiming the same deduction under any other provisions of the Act. This means that if a developer chooses to claim the deduction under Section 80-IBA(5), they cannot claim any other deductions that may be available for the same project under other sections of the Act.

For example, if a developer qualifies for a deduction under both Section 80-IBA(5) and Section 80-IB, they will have to choose only one of the deductions. They cannot claim both deductions for the same project.

This restriction is aimed at preventing taxpayers from double-dipping and claiming excessive deductions for the same project. It ensures that the tax benefits provided under the Act are balanced and fair.

Section 80-IBA(5) of the Income Tax Act provides a valuable deduction for affordable housing projects. However, taxpayers must be aware that claiming this deduction will preclude them from claiming any other deductions for the same project under other provisions of the Act.

It is important for taxpayers to carefully evaluate their options and choose the deduction that provides the maximum benefit.

3. [Section 80JJAA]: Deduction in respect of Employment of New Employees

Section 80JJAA of the Indian Income Tax Act, 1961 provides a valuable deduction for employers who create new employment opportunities in the country. This deduction encourages job creation and promotes economic growth. The deduction is available for three consecutive assessment years, starting from the year in which additional employment is created.

Eligibility Criteria

To avail the deduction under Section 80JJAA, certain conditions need to be fulfilled:

  • The employer should be engaged in the business of manufacturing or production of goods in India.
  • The employer should have employed additional employees in the previous year compared to the base year.
  • The new employees should be employed for a minimum of 240 days in the previous year.
  • The deduction under Section 80JJAA is available to Indian companies, Indian limited liability partnerships (LLPs), and Indian firms (including limited liability partnerships) engaged in manufacturing or production activities.
  • The new employees must be hired on a regular basis and must not be hired on contract or temporary basis.

Amount of Deduction

The deduction under Section 80JJAA is available for a specific period and is calculated as a percentage of the additional wages paid to the new employees. The deduction is available for three consecutive assessment years:

  • For the first year, the deduction is 30% of the additional wages paid to new employees.
  • For the second year, the deduction is 30% of the additional wages paid to new employees.
  • For the third year, the deduction is 40% of the additional wages paid to new employees.

Procedure to Claim Deduction

To claim the deduction under Section 80JJAA, employers need to follow these steps:

  • Maintain proper records of the additional employees employed during the previous year.
  • Calculate the additional wages paid to these employees during the previous year.
  • File the income tax return for the respective assessment year.
  • Claim the deduction under Section 80JJAA while filing the income tax return.

Documents required:

To claim the deduction under Section 80JJAA, the enterprise must submit the following documents along with its income tax return:

  • A list of the new employees hired in the current financial year.
  • Proof of the salary, wages, and other benefits paid to the new employees.
  • A certificate from the auditor certifying that the enterprise has met the eligibility conditions for the deduction.

Example:

Let’s say Company X is an Indian company engaged in the business of manufacturing electronic goods. In the financial year 2022-23, Company X hired 100 new employees on a regular basis. The total salary, wages, and other benefits paid to the new employees in the financial year 2022-23 was Rs. 10 crore.

Company X is eligible for a deduction of Rs. 3 crore (30% of Rs. 10 crore) under Section 80JJAA for the financial year 2022-23.

Important Points to be Note:

The deduction under Section 80JJAA is available over and above the deduction of Rs. 1.5 lakh under Section 80C.

The deduction is not available for the following:

  • Enterprises that are engaged in the business of providing services.
  • Enterprises that are formed by splitting up or restructuring an existing enterprise.
  • Enterprises that are amalgamated with another enterprise.

Explanation. —For the purposes of this Section 80-JJAA

(i)    Additional Employee Cost:

“Additional employee cost” means total emoluments paid or payable to additional employees employed during the previous year:

Provided that in the case of an existing business, the additional employee cost shall be nil, if

(a)  there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year;

(b)  emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account or such other electronic mode as may be prescribed:

Provided further that in the first year of a new business, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost;

Provided further that where an employee is employed during the previous year for a period of less than 240 days or 150 days, as the case may be, hut is employed for a period of 240 days or 150 days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly.

The above proviso has rationalized the deduction of 30% by allowing the benefit for a new employee who is employed for less than the minimum period of 240 days or 150 days, as the case may be, during the first year but continues to remain employed for the minimum period of 240 days or 150 days, as the case may be, in the subsequent year.

(ii)   Additional employee:

“Additional employee” means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year, but does not include,—

(a)  an employee whose total emoluments are more than 25,000 p.m.; or

(b)  an employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; or

(c)  an employee employed for a period of less than 240 days during the previous year:

Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel or footwear or leather products, the provisions of sub-clause (c) above shall have effect as if for the words “240 days”, the words “150 days” had been substituted; or

(d)  an employee who does not participate in the recognised provident fund;

(iii) Emoluments:

“Emoluments” means any sum paid or payable to an employee in lieu of his employment by whatever name called, but does not include—

(a)  any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the benefit of the employee under any law for the time being in force; and

(b)  any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like.

Note.—If a company opts to be taxed under section 115BAA or it is eligible for benefit of section 115BAB, the deduction under section 80JJAA and section 80M shall still be allowed although it is not allowed any other deduction under Chapter VIA. Similarly, if an individual/HUF or a co-operative society opts to be taxed under section 115BAC or section 115BAD, as the case may be, the deduction under section 80JJAA shall still be allowed although it is not allowed any other deduction under Chapter VIA.

4. Section 80P: Deduction in respect of Income of Co-operative Societies

Understanding of Section 80P

Section 80P of the Income Tax Act, 1961 provides a deduction in respect of income of co-operative societies. This section aims to promote the growth and development of co-operative societies by providing them with tax benefits. This deduction is available to cooperative societies that are engaged in certain specified activities, such as:

  • Marketing agricultural produce grown by its members
  • Purchasing seeds, livestock, or agricultural tools to supply to its members
  • Processing agricultural products from its members without the aid of power
  • Cottage industries
  • Supplying milk raised by its members to a federal milk cooperative society
  • Other activities, subject to certain conditions

Eligibility

To be eligible for the deduction under Section 80P, a co-operative society must meet certain conditions:

  • The co-operative society must be engaged in carrying on the business of banking or providing credit facilities to its members.
  • The co-operative society must not have any members who are not individuals.
  • The co-operative society must not have any income from investments or deposits with any other co-operative society or bank.

Deduction Amount

The deduction under Section 80P is calculated as a percentage of the profits and gains derived by the co-operative society from its eligible activities. The percentage varies depending on the type of co-operative society:

  • Co-operative banks: 100% of the profits and gains
  • Other co-operative societies: 50% of the profits and gains

Limitations

There are certain limitations on the deduction under Section 80P:

  • The deduction is not available in respect of any income of the co-operative society which is chargeable under the head ‘Profits and gains of business or profession’.
  • The deduction is not available to co-operative societies engaged in certain specified activities such as banking, providing credit facilities, and marketing of agricultural produce.

(A) Where 100% Deduction is Allowed U/s Section 80P

In the case of the following co-operative societies, full deduction is allowable in respect of following incomes:

(1) Profits Attributable to certain Specified Activities [Section 80P(2)(a)]:

100% of the profits, included in Gross Total Income, attributable to any one or more of the following activities are deductible to a co-operative society engaged in:

(i)         carrying on the business of banking or providing credit facilities to its members; or

(ii)        a cottage industry; or

(iii)       the marketing of the agricultural produce grown by its members; or

(iv)       the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members; or

(v)        the processing, without the aid of power, of the agricultural produce of its members; or

(vi)       the collective disposal of the labour of its members; or

(vii)      fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members. [Section 80P(2)(a)]

However, in case of co-operative societies falling under clauses (vi) and (vii) above, the deduction, is available subject to the condition that the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:—

(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities;

(2) the co-operative credit societies which provide financial assistance to the society;

(3) the State Government.

 (2) Profits of certain Primary Co-operative Societies [Section 80P(2)(b)]:

100% of the profits, included in Gross Total Income are deductible in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to—

(i)          a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or

(ii)         the Government or a local authority; or

(iii)       a Government company as defined in section 617 of the Companies Act, 1956 or a statutory corporation (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public).

(3)   Income from Investment with Other Co-operative Societies [Section 80P(2(d)]:

100% of the profits, included in Gross Total Income are deductible in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society.

(4)  Income from Letting of “Godowns or Warehouse” [Section 80P(2)(e)]:

100% of the profits, included in Gross Total Income are deductible in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities.

(B) Where Deduction is Allowed to a Limited Extent

In the following cases, the co-operative societies are entitled to deduction to a limited extent:—

(1)   Co-operative Society Engaged in Other Activities [Section 80P(2)(c)]:

in the case of a cooperative society engaged in activities, other than those specified in (1) and (2) of (A) above, either independently of or in addition to, all or any of the activities so specified, the profits and gains attributable to such other activities upto the maximum limits indicated below are deductible.

1. Consumer co-operative means a society for the benefit of consumers.

2. Where the assessee co-operative society, supplied coal and diesel to its members for use in production of bricks and tiles, the society was not a ‘consumer’ co-operative society as the purchase by the members was not for their own consumption.

(2)   Entire income by way of interest on securities or income from house property if gross total income of a co-operative society (other than specified co-operative society) does not exceed Rs.20,000 [Section 80P(2)(f)]:

100% of the income from interest on securities or income from house property shall be allowed as deduction in case of a co-operative society not being

  • a housing society or
  • an urban consumer society, or
  • a society carrying on transport business, or
  • a society engaged in the performance of any manufacturing operation with the aid of power, provided its gross total income does not exceed Rs.20,000.

Urban Consumer Co-operative Society means a society for the benefit of the consumers within the limits of municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.

Where an assessee is also entitled to deduction u/s 80-IA, deduction uls 80P shall be allowed with reference to such profits and gains as reduced by the deduction allowed under those sections. [Section 80P(3)]

Note.—

If a resident co-operative society opts to be taxed under section 115BAD, it shall not be allowed any deduction under Chapter VIA (including section 80P) other than the deduction available under section 80JJAA.

5. [Section 80QQB]: Deduction in respect of Royalty Income of Authors – to what extent available !

Section 80QQB of the Income Tax Act provides a deduction in respect of royalty income earned by authors. This section aims to encourage and support the creative pursuits of authors in India by providing them with tax benefits. In this blog post, we will explore the provisions of Section 80QQB and understand how authors can claim this deduction.

Eligibility Criteria

The following Conditions should be Satisfied in order to claim Deduction under Section 80QQB in respect of Royalty income of Authors.

Essential conditions for claiming deduction under this section 80QQB :

(1)        The deduction is available to an individual who is resident in India and is an author of a book.

(2)        The book should be a work of literary, artistic or scientific nature.

(3)        The income must be derived by him in the exercise of his profession.

(4)        The income must be either:

(a)        on account of any lump sum consideration for the assignment or grant of any of his interests in the copyright of such book, or

(b) of royalty or copyright fees (whether receivable in lump sum or otherwise).

(5)      Here are some examples of books that are eligible for the deduction under Section 80QQB:

  • Novels
  • Short story collections
  • Poetry collections
  • Non-fiction books on a variety of topics, such as history, science, and philosophy
  • Textbooks for schools and colleges
  • Children’s books

(6)    The deduction is not available for the following types of books:

  • Newspapers
  • Magazines
  • Journals
  • Pamphlets
  • Brochures
  • Commentaries
  • Guides

Quantum of Deduction U/s 80QQB :

The deduction allowed under Section 80QQB is equal to the lower of the following:

  • Income received as royalty or any consideration in the form of royalty.
  • ₹3,00,000

This means that if an author has earned royalty income of ₹2,50,000, the deduction allowed under Section 80QQB will be ₹2,50,000. However, if the author has earned royalty income of ₹4,00,000, the deduction allowed will be limited to ₹3,00,000.

However, where the income by way of such royalty or the copyright fee is not a lump sum consideration in lieu of all rights of the assessee in the book, then such royalty, etc., before allowing expenses, in excess of 15% of the value of such books sold during the previous year, shall be ignored.

Further, where any income is earned from any source outside India, only so much of the income shall be taken into account for the purpose of this section as is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months from the end of the previous year in which such income is earned or within such further period as the competent authority may allow in this behalf.

Certificates to be Furnished:

(1)        No deduction under this section shall be allowed unless the assessee furnishes a certificate in the prescribed form (Form No. 10CCD) arid in the prescribed manner, duly verified by any person responsible for making such payment to the assessee, along with the return of income, setting forth such particulars as may be prescribed.

(2)        No deduction under this section shall be allowed in respect of any income earned from any source outside India, unless the assessee furnishes a certificate, in the prescribed form (Form No. 10H) from the prescribed authority, along with the return of income in the prescribed manner.

No Double Deduction:

Where a deduction for any previous year has been claimed and allowed in respect of any income referred to in this section, no deduction in respect of such income shall be allowed under any other provision of the Act in any assessment year.

(1)        “Author” includes a joint author;

(2)        “Books” shall not include brochures, commentaries, diaries, guides, magazines, journals, newspapers, pamphlets, text books for schools, tracts and other publications of similar nature, by whatever name called;

(3)        “Lump sum”, in regard to royalties or copyright fees, includes an advance payment on account of such royalties or copyright fees which is not returnable.

(4)        Prescribed authority shall be the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

Example :

Here is an example of how to calculate the deduction under Section 80QQB:

An author earns a royalty income of Rs. 4 lakhs from the sale of his book. The author’s expenses related to the book are Rs. 50,000.

–           The author’s net royalty income is Rs. 3.5 lakhs (Rs. 4 lakhs – Rs. 50,000).

–           The author is eligible for a deduction of Rs. 3 lakhs under Section 80QQB.

–           The author’s taxable income is Rs. 50,000 (Rs. 3.5 lakhs – Rs. 3 lakhs).

–           The author will have to pay tax on Rs. 50,000.

Important Points to be Note :

Here are some additional points to note about the deduction under Section 80QQB:

  • The deduction is available only to individual resident authors. Non-resident authors are not eligible for the deduction.
  • The deduction is available only for royalty income earned from the sale, distribution or subscription of books. Royalty income earned from other sources, such as movies, TV shows, or music, is not eligible for the deduction.
  • The deduction is available only for royalty income earned from books that are works of literary, artistic or scientific nature. Textbooks are also eligible for the deduction.
  • The deduction is equal to the amount of royalty income earned in the relevant financial year or Rs. 3 lakhs, whichever is lower.
  • To claim the deduction, the author must file a return of income with the Income Tax Department and submit the required documents.

Section 80QQB provides a beneficial deduction for authors who earn royalty income from their original work. It recognizes the importance of creativity and encourages authors to continue their pursuit of literary, artistic, or scientific endeavors. Authors who meet the eligibility criteria should make use of this deduction to reduce their tax liability and promote their creative endeavors.

6. [Section 80RRB]: Deduction in respect of Royalty on Patents

Section 80RRB of the Income Tax Act, 1961, provides for a deduction in respect of royalty income received by an individual or a Hindu Undivided Family (HUF) for a patent registered on or after April 1, 2003 under the Patents Act, 1970. This section is aimed at encouraging research and development in the field of patents by providing tax benefits to individuals and HUFs.

To be eligible for the deduction, the individual must be the registered owner of the patent and should have derived income from it. The deduction is limited to the amount actually received or accrued in the previous year. If the individual has received an advance payment, the deduction can be claimed in the year in which the income is actually received.

The following are some examples of patents that are eligible for the deduction under Section 80RRB:

  • Inventions
  • Designs
  • Processes
  • New methods of manufacturing
  • New applications of known methods or processes

Eligibility Conditions

The following Conditions should be Satisfied in order to claim Deduction under Section 80RRB in respect of any income by way of Royalty on Patents.

Essential conditions for claiming Deduction under this Section 80RRB :

(1)        The deduction is available to an individual who is resident in India and is a patentee or co-patentee.

(2)        The patent should be registered on or after April 1, 2003 under the Patents Act, 1970.

(3)        His gross total income of the previous year includes royalty in respect of such patent.

(4)        The individual must furnish a certificate in the prescribed form, issued by the prescribed authority, along with the tax return. The certificate should certify that the patent is registered under the Patents Act, 1970 and that the individual is the registered owner of the patent.

(5)        It is also important to maintain proper documentation and records related to the patent and the royalty income. This includes keeping track of the income received, any advance payments, and any expenses incurred in relation to the patent.

(6)        The amount of deduction that can be claimed under section 80RRB is limited to the royalty income received or accrued in the previous year. If the individual has received income from multiple patents, the deduction can be claimed separately for each patent.

Quantum of Deduction U/s 80RRB :

Maximum Deduction Allowable under this section is limited to the Lower of the following:

  1. The income received as royalty in the previous year for the patent.
  2. Rs. 3,00,000 (three lakh rupees).

Taxpayers can claim the lower of these two amounts as a deduction when calculating their taxable income.

However, where a compulsory licence is granted in respect of any patent under the Patents Act, 1970, the income by way of royalty for the purpose of allowing deduction under this section shall not exceed the amount of royalty under the terms and conditions of a licence settled by the Controller under that Act.

Further, where any income is earned from any source outside India, only so much of the income shall be taken into account for the purpose of this section as is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of 6 months from the end of the previous year in which such income is earned or within such further period as the competent authority may allow in this behalf.

(1)        No deduction under this section shall be allowed unless the assessee furnishes a certificate in the prescribed form (Form No. 10CCD) duly signed by the prescribed authority, along with the return of income, setting forth such particulars as may be prescribed.

(2)        No deduction under this section shall be allowed in respect of any income earned from any source outside India, unless the assessee furnishes a certificate, in the prescribed form (Form No. 10H) from the prescribed authority, along with the return of income in the prescribed manner.

No Double Deduction:

Where a deduction for any previous year has been claimed and allowed in respect of any income referred to in this section, no deduction in respect of such income shall be allowed under any other provision of the Act in any assessment year.

Example :

Here is an example of how to calculate the deduction under Section 80RRB:

An individual receives a royalty income of Rs. 4 lakhs from a patent that he has developed. The individual’s expenses related to the patent are Rs. 50,000.

The individual’s net royalty income is Rs. 3.5 lakhs (Rs. 4 lakhs – Rs. 50,000).

The individual is eligible for a deduction of Rs. 3 lakhs under Section 80RRB.

The individual’s taxable income is Rs. 50,000 (Rs. 3.5 lakhs – Rs. 3 lakhs).

The individual will have to pay tax on Rs. 50,000.

7. [Section 80TTA]: Deduction in respect of interest on Deposits in Savings Account to the Maximum extent of Rs.10,000

Section 80TTA of the Income Tax Act, 1961 provides for a deduction in respect of interest on deposits in savings account. This deduction is available to individuals and Hindu Undivided Families (HUFs). However, senior citizens are not eligible for this deduction as they have a separate deduction under Section 80TTB for interest on deposits in savings account.

Eligibility Criteria

To avail the benefits of Section 80TTA, individuals and HUFs must meet the following criteria:

  • The deduction is only applicable to individuals and HUFs and not to any other category of taxpayers.
  • The taxpayer must have a savings account with a bank, co-operative society, or post office.
  • To claim the deduction under Section 80TTA, you must file a return of income with the Income Tax Department. The return must include the details of your interest income from savings accounts. You must also submit Form 16A from the bank or post office where you have your savings account.

Maximum Deduction Limit

The Maximum Deduction allowed under Section 80TTA is Rs. 10,000.

This means that if the total interest earned from all savings accounts is less than or equal to Rs. 10,000, the entire amount can be claimed as a deduction. However, if the interest exceeds Rs. 10,000, only Rs. 10,000 can be claimed as a deduction.

Taxability of Interest

The interest earned from savings accounts is taxable under the head ‘Income from Other Sources’. However, with the introduction of Section 80TTA, individuals and HUFs can now reduce their tax liability by claiming a deduction on the interest earned.

Procedure to Claim Deduction

To claim the deduction under Section 80TTA, individuals and HUFs need to follow these steps:

  • Calculate the total interest earned from all savings accounts.
  • Include the interest amount in the ‘Income from Other Sources’ while filing the income tax return.
  • Claim the deduction by mentioning the interest amount under Section 80TTA.

Example :

Here is an example of how to calculate the deduction under Section 80TTA:

–           An individual earns a total of Rs. 12,000 in interest from his savings accounts in a financial year.

–           The individual is eligible for a deduction of Rs. 10,000 under Section 80TTA.

–           The individual’s taxable income is Rs. 2,000 (Rs. 12,000 – Rs. 10,000).

–           The individual will have to pay tax on Rs. 2,000.

Points to be Note :

  • Please note that the deduction under Section 80TTA is only available for interest income earned from savings accounts. Interest income earned from fixed deposits or other time deposits is not eligible for the deduction.
  • The deduction under Section 80TTA is not available to senior citizens, as they are entitled to a higher deduction under Section 80TTB.

8. [Section 80TTB]: Deduction in respect of Interest on Deposits in case of Senior Citizens

Section 80TTB of the Income Tax Act, 1961 provides a special deduction to senior citizens in respect of the interest income earned from their deposits. This deduction is applicable only to individuals who are 60 years or above in age.

Eligibility Criteria

  • Section 80TTB is applicable to individual taxpayers who are senior citizens. In the context of this section, a senior citizen is defined as an individual who is 60 years of age or older during the relevant financial year.
  • This deduction is not available to other categories of taxpayers, such as non-senior individuals, HUFs, companies, or partnerships.
  • The deduction is available on interest income from the following sources:
    • Interest on deposits held with a banking institution
    • Interest on deposits held with a co-operative society engaged in the business of banking
    • Interest on deposits held with a post office
  • To claim the deduction under Section 80TTB, the senior citizen must file a return of income with the Income Tax Department. The return must include the details of the interest income earned from the above sources.
  • Senior citizens who have opted for the new tax regime introduced in Budget 2020 can also claim this deduction. The new tax regime offers lower tax rates but does not allow certain deductions and exemptions. However, Section 80TTB is one of the deductions that can still be claimed under the new tax regime.
  • It is worth noting that this deduction is in addition to the existing deduction of Rs. 10,000 available under Section 80TTA for interest earned on savings accounts. Senior citizens can claim both these deductions if they meet the eligibility criteria.

Deduction Amount

The Maximum Deduction allowable under this section is limited to Rs. 50,000 per financial year.

This means that if a senior citizen’s interest income from these sources is less than or equal to Rs. 50,000, the entire interest income is eligible for the deduction. If the interest income exceeds Rs. 50,000, only Rs. 50,000 can be claimed as a deduction.

Example:

Here is an example of how to calculate the deduction under Section 80TTB:

A senior citizen earns an interest income of Rs. 60,000 from the following sources:

  • 30,000 from a savings account in a bank
  • 20,000 from a fixed deposit in a co-operative society
  • 10,000 from a post office deposit.

The senior citizen is eligible for a deduction of Rs. 50,000 under Section 80TTB.

The senior citizen’s taxable income is Rs. 10,000 (Rs. 60,000 – Rs. 50,000).

The senior citizen will have to pay tax on Rs. 10,000.

Points to be Note:

  • This deduction is applicable only to individuals who are 60 years or above in age.
  • The deposits can be in the form of fixed deposits, savings accounts, recurring deposits, or any other deposit scheme.
  • This deduction is applicable to both resident and non-resident senior citizens.
  • Deduction can be claimed only on the interest income and not on the principal amount.
  • It is important to mention the interest income from deposits while filing the income tax return.
  • It is worth noting that this deduction is in addition to the existing deduction of Rs. 10,000 available under Section 80TTA for interest earned on savings accounts. Senior citizens can claim both these deductions if they meet the eligibility criteria.
  • Senior citizens who have opted for the new tax regime introduced in Budget 2020 can also claim this deduction.

9. [Section 80U]: Deduction in case of a Person with Disability

Section 80U of the Income Tax Act provides relief to individuals with disabilities by allowing them to claim deductions on their taxable income. This section applies to both resident and non-resident individuals with disabilities. It aims to reduce the financial burden on persons with disabilities and promote their overall well-being. The section outlines the conditions and provisions for claiming deductions based on the disability of the taxpayer.

Eligibility Criteria

To be eligible for deductions under Section 80U, the individual must fulfill the following conditions:

  • The person should have a disability recognized under the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995.
  • The disability should be at least 40% as certified by a medical authority.
  • In this context, a “person with disability” is defined as someone who satisfies both of the following conditions:
    • He or she has a disability, which is a condition recognized under the Rights of Persons with Disabilities Act, 2016.
    • The disability is certified by a medical authority, as specified by the government.
  • The following are the different types of disabilities that are eligible for the deduction under Section 80U:
    • Blindness
    • Low vision
    • Leprosy-cured
    • Hearing impairment
    • Loco motor disability
    • Mental retardation
    • Mental illness

Deduction Amount

The amount of deduction available under Section 80U is as follows:

·         For persons with 40% or more disability : Rs. 75,000

·         For persons with severe disability (80% or more disability) : Rs. 1,25,000

Conditions for Claiming Deduction

There are certain conditions that need to be met to claim deductions under Section 80U:

  • The person with disabilities should be a resident of India for the relevant assessment year.
  • The individual needs to furnish a certificate from a medical authority certifying the disability.
  • The deduction can be claimed by the person with disabilities or their parent/guardian if they are unable to do so themselves.
  • The person with disability must be a dependent of the taxpayer.
  • The expenses must be incurred for the maintenance and treatment of the person with disability.
  • The following are some examples of expenses that are eligible for the deduction under Section 80U:
    • Medical expenses, such as doctor’s fees, hospital charges, and the cost of medicines
    • Educational expenses, such as school fees and the cost of special education equipment
    • Vocational training expenses
    • Transportation expenses
    • Expenses incurred for the purchase of artificial limbs and other appliances

Other Important Points

Here are some additional points to consider regarding deductions under Section 80U:

  • The deduction is available on the individual’s gross total income.
  • The disability must exist during the relevant assessment year to claim the deduction.
  • If the person with disabilities is also claiming deductions under Section 80DD (for maintenance of a disabled dependent) or Section 10(14) (for transport allowance), the deduction under Section 80U will be reduced by the amount claimed under these sections.
  • The deduction under Section 80U is not available to non-resident individuals.

Example:

Here is an example of how to calculate the deduction under Section 80U:

–           An individual is certified as a person with 40% disability. The individual earns a salary of Rs. 5 lakhs in a financial year.

–           The individual is eligible for a deduction of Rs. 75,000 under Section 80U.

–           The individual’s taxable income is Rs. 4.25 lakhs (Rs. 5 lakhs – Rs. 75,000).

–           The individual will have to pay tax on Rs. 4.25 lakhs.

See also  [Section 80U]: Deduction in case of a Person with Disability
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