Deductions Under ‘Chapter VI-A’ in respect of ‘Payments & Investments’ are Allowed from Section 80C To 80GGC

Deduction under Section 80C to 80GGC

Table of Contents

1.  [Section 80C]: Deduction in respect of Life Insurance Premium, Deferred Annuity, Contributions to Provident Fund, Subscription to certain Equity Shares or Debentures, etc.

Section 80C of the Income Tax Act allows individuals to claim deductions on certain investments and expenses, thereby reducing their taxable income. This section is one of the most popular tax-saving provisions in India as it offers various options for taxpayers to reduce their tax liability.

Eligible Investments and Expenses

Under Section 80C, individuals can claim deductions on the following investments and expenses:

Life Insurance Premium:

Premiums paid towards life insurance policies for self, spouse, and children are eligible for deduction.

Deferred Annuity:

Contributions made towards deferred annuity plans are eligible for deduction. These plans provide a regular income stream after retirement.

Contributions to Provident Fund:

Employee contributions to recognized provident funds are eligible for deduction. This includes contributions to the Employees’ Provident Fund (EPF) and Public Provident Fund (PPF).

Subscription to Certain Equity Shares or Debentures:

Investments made in specified equity shares or debentures issued by eligible companies are eligible for deduction.

Tuition Fees:

Amount paid as tuition fees for full-time education of up to two children is eligible for deduction.

Housing Loan Principal Repayment:

Repayment of the principal amount of a housing loan is eligible for deduction.

Limit and Conditions

The maximum deduction allowed under Section 80C is ₹. 1.5 lakh per financial year. However, it is important to note that the total deduction under this section cannot exceed the individual’s gross total income. Additionally, certain investments have specific conditions and lock-in periods.

Which Assesses are allowed Deduction u/s 80C:

The following assesses are allowed to claim a deduction under Section 80C from their gross total income computed as per provisions  of the Indian Income Tax Act, 1961:

 (i)        an Individual; or

(ii)        a Hindu Undivided Family (HUFs).

Deduction Allowed on account of the following Savings / Investment cannot exceed Rs.1,50,000:

The above assessees shall be entitled to a deduction of whole of the amount paid or deposited in the previous year, being the aggregate of sum referred to below as does not exceed Rs.1,50,000:

(i)         any sum paid by an individual to effect or to keep in force an insurance on the life of:

 (a)       an individual himself,

(b)        his/her spouse, and

(c)        any child of such individual.

The children may be married/unmarried, dependent/not dependent on the individual.

In the case of Hindu Undivided Family the premium should be paid on the life of any member of the family.

Premium paid on Life Insurance Policy exceeding certain percentage of the capital sum assured not eligible for deduction [Section 80C(3)]

Premium paid on insurance policy other than contract of  Deferred Annuity Amount paid eligible for
Deduction
(a) for policy issued on or before 31.3.2012 20% of the capital sum assured
(b) for policy issued on or after 1.4.2012 10% of the capital sum assured
(c) for policy issued on or after 1.4.2013 for the insurance on life of a person, who is—
(i) a person with disability or a person with severe disability as referred to in section 80U, or
(ii) suffering from disease or ailment as specified in the rules made under section 80DDB
15% of the capital sum assured

(ii)        any payment made by the individual only to effect or keep in force a contract of a non-commutable deferred annuity (other than mentioned in clause (x) below) on the life of: (a) an individual himself, (b) his/her spouse, and (c) any child of such individual;

(iii)       any sum deducted in accordance with the conditions of services from the salary payable by or on behalf of the Government to any individual for the purpose of securing to him a deferred annuity or making provision for his spouse or children. The sum deducted should not exceed 1/5th of the salary;

(iv)       any contribution by the employee towards a statutory provident fund or recognised provident fund. The deduction in this respect is allowable to an individual only;

(v)        any contribution to a public provident fund by an individual or [JUF. The contribution may be made to an account standing in the name of any person mentioned under clause (i) above;

(vi)       any contribution by an employee to an approved superannuation fund;

(vii)      any subscription, in the name of any person specified in sub-section (4), to any such security of the Central Government or any such deposit scheme as that Government may, by notification in the Official Gazette, specify in this behalf;

Following schemes have since been notified:

(a)        subscription by an individual or HUF to National Savings Scheme, 1992

(b)        sum paid or deposited in the name of a girl child under the Sukanya Samriddhi Account Scheme.

For the purpose of clause (b) above, the sum may be paid by the individual for any girl child of that individual, or any girl child for whom such person is the legal guardian;

(viii)     any subscription by an individual or HUF to National Savings Certificates (VIII or IX Issue). Any interest accrued on these certificates which is deemed to be reinvested also qualifies for deduction;

(ix)       any contribution by an individual or HUF for participation in the Unit Linked Insurance Plan of the Unit Trust of India or Unit Linked Insurance Plan of LIC Mutual Fund referred to in section 10(23D). The contribution may be made in the name of any person mentioned under clause (I) above;

(x)        payment made by an individual or HUF to effect or keep in force a contract for notified annuity plan of the Life Insurance Corporation or any other insurer. New Jeevan Dhara. New Jeevan Dhara – I and New Jeevan Akshay, New Jeevan Akshay-I and New Jeevan Akshay-II are the schcmes which have been notified;

(xi)       any subscription, by an individual or HUF to notified units of (a) any mutual fund referred to in section 10(23D), or (b) the Administrator or the specified company as referred to in section 2 of the Unit Trust of India. Equity Linked Saving Scheme (ELSS), 2005 has since been notified;

(xii)      any contribution by an individual to a notified pension fund set up by any mutual fund referred to in section 10(23D) or by the Administrator or the specified company as referred to in section 2 of the Unit Trust of India. UTI – Retirement Benefit Pension Fund has since been notified;

(xiii)     any subscription by an individual or HUF to any deposit scheme or contribution to any pension fund set up by the National Housing Bank. The Home Loan Account Scheme of the National Housing Bank has been notified;

(xiv)     a subscription by an individual or HUF to any notified deposit scheme of:

(a)        a public sector company which is 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 and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;

(xv)      any sum paid by an individual as tuition fees provided following conditions are satisfied:

(1)        Such sum should have been paid as tuition fees excluding any payment towards development fees or donation or payment of similar nature.

(2)        It should have been paid at the time of admission or thereafter.

(3)        It is paid to any university, college, school or other educational institution situated within India.

(4)        It is paid for the purpose of full-time education.

(5)        It is paid for any two children of such individual.

(xvi)     any payment by an individual or HUF for purchase or construction of a residential house property, the income from which is chargeable to tax under the head ‘Income from house property’. Such payment may be made towards:

(a)        any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or

(b)        any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or

(c)        any repayment of the amount borrowed by the assessee from

(1)        the Central Government or any State Government, or

(2)        any bank, including a Co-operative Bank, or

(3)        the Life Insurance Corporation, or

(4)        the National Housing Bank, or

(5)        any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction section 36(1)(viii), or

(6)        any company in which the public are substantially interested or any co-operative society, where such company or o-operative society is engaged in the business of financing the construction of houses, or

(7)        the 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;

(8)        the 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.

(d)        stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee.

The following payments shall not qualify for deduction:

(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 in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or

(C)        any expenditure in respect of which deduction is allowable under the provisions of section 24;

(xvii)    any subscription by an individual or HUF to equity shares or debentures forming part of any eligible issue of capital approved by the Board of wholly public company any public financial institution where such proceeds are utilized for infrastructure company:

(xviii)   any sum deposited in a term deposit—

(a)        for a fixed period of not less than 5 years with a scheduled bank; and

(b)        which is in accordance with a scheme framed and notified by the Central Government in the Official Gazette for the purposes of this clause.

(xix)     subscription to such bonds issued by the National Bank for Agriculture and Rural Development (NABARD) as the Central Government may, by notification in the Official Gazette, specify in this behalf.

(xx)      any sum deposited in an account under the Senior Citizens Saving Scheme Rules, 2004.

(xxi)     any sum deposited as five years-time deposit in an account under the Post Office Time Deposit Rules, 1981.

(xxii)    any sum contributed by an employee of the Central Government, to a specified account of the pension scheme referred to in section 80CCD—

(a) for a fixed period of not less than three years; and

(b) which is in accordance with the scheme as may be notified by the Central Government in the Official Gazette for the purposes of this clause.

IMPORTANT NOTES
1.  The deduction is allowed only when the specified amount has been actually paid during the previous year.

2.  Deduction under section 80C is not available from long-terns capital gains and short-term capital gain covered under section 111A.

3.  A person shall be treated as having acquired any shares or debentures on the date on which his name is entered in relation to those shares or debentures in the register of members or of debenture-holders, as the case may be, of the public company.

4.  Items No. (ii), (iii), (iv), (vi), (xii), (xiii), (xxiii) mentioned above shall be allowed as deduction only to an individual assessee.

EXAMPLE:

Mrs. S who is resident in India provides the following information. Compute her taxable income for the assessment year 2022-23 and tax thereon, if Mrs S:

(a)        does not opt to be taxed under section 115BAC

(b)        opts to be taxed under section 115BAC

Particulars Rs.
Gross salary 3,80,000
Rent of House Property 1,20,000
Interest on fixed deposits with bank (gross) 14,000
Deposit in PPF 80,000
Tuition fee paid for 3 children @ Rs.15,000 p.a. per child 45,000
LIP on her life taken on 1-5-20 13 (sum assured Rs.2,00,000) 25,000

SOLUTION:

Computation of total income of Mrs S for the assessment year 2022-23

    Does not opt to be taxed u/s 115BAC opt to be taxed u/s 115BAC
  Rs. Rs. Rs.
Income under the head “Salaries”      
Gross Salary 3,80,000    
Less : Deduction u/s 16 50,000 3,30,000 3,80,000
Income under the head “House Property”      
Annual Rent 1,20,000    
Less : Standard Deduction @30% 36,000 84,000 84,000
Income from Other Sources      
Interest on Fixed Deposits with Bank   14,000 14,000
Gross Total Income   4,28,000 4,78,000
Less : Deduction u/s 80C   1,30,000 NIL
Total Income   2,98,000 4,78,000
Tax on Rs.2,98,000 /  4,78,000   NIL NIL
Balance Rs.48,000 @5% / Rs.2,28,000 @5%   2,400 2,400
Less : Rebate u/s 87A   2,400 2,400
    NIL NIL

 

Note : Deduction u/s 80C : Rs.
PPF 80,000
Tuition Free for 2 Children 30,000
LIP limited to 10% of the Sum Assured 20,000
  1,30,000

2.  Section 80CCD :  Deduction in respect of Contribution to a National Pension Scheme (NPS)

1.   Introduction to Section 80CCD

Section 80CCD of the Indian Income Tax Act, 1961, provides for deductions in respect of contributions made to the National Pension Scheme (NPS). This section encourages individuals to save for their retirement by offering tax benefits on contributions to the NPS.

Here are the key details of Section 80CCD:

(1)  Eligibility:

Both individual taxpayers and employees can claim deductions under Section 80CCD for contributions made to the NPS.

(2)  Types of Contributions:

(i)    Employee’s Contribution (Section 80CCD(1) :

This sub-section allows individuals and HUFs to claim a deduction of up to Rs 1.5 lakh per year for contributions made to the NPS. This deduction is in addition to the deduction that can be claimed under Section 80C.

(ii)   Employer’s Contribution (Section 80CCD(2):

This sub-section allows employers to claim a deduction for contributions made to the NPS on behalf of their employees. The deduction is limited to 10% of the employee’s salary (basic + dearness allowance).

(iii)  Additional Self-Contribution (Section 80CCD(1B):

An additional deduction of up to Rs. 50,000 is available under Section 80CCD(1B) for contributions made by an individual taxpayer to their NPS account.

(3)  Deduction Limit:

For employee’s contribution (Section 80CCD(1)), the deduction is limited to a maximum of 10% of the individual’s salary (basic plus dearness allowance) or 20% of gross total income in the case of self-employed individuals.

For employer’s contribution (Section 80CCD(2)), there is no specific limit, but the total contribution cannot exceed 10% of the employee’s salary.

The additional self-contribution (Section 80CCD(1B)) is limited to a maximum of Rs. 50,000.

(4)  Aggregate Limit:

The aggregate of deductions under Section 80CCD(1) and Section 80CCD(1B) cannot exceed Rs. 1.5 lakh in a financial year. However, Section 80CCD(2) does not fall under this aggregate limit.

(5)  Withdrawal:

While contributions to the NPS enjoy tax benefits, it’s important to note that withdrawals from the NPS are taxable, and the tax treatment may vary based on the type of account and the timing of withdrawals.

(6)  Tier-I and Tier-II Accounts:

The NPS has two types of accounts, Tier-I and Tier-II. While contributions to the Tier-I account are eligible for deductions and offer tax benefits, the Tier-II account does not provide tax benefits and allows for more flexible withdrawals.

(7)  Lock-in Period:

Contributions to the Tier-I account have a lock-in period, and partial withdrawals are allowed under specific conditions.

(8)  Nomination:

NPS account holders should nominate beneficiaries to receive the accumulated pension wealth in case of their demise.

It’s important for taxpayers to understand the specific rules and conditions governing the NPS and the deductions under Section 80CCD to effectively plan for retirement and take advantage of the tax benefits offered by the scheme.

(2)  Deduction of an Employee‘s / Assessee’ s Contribution made towards the National Pension Scheme (NPS) [Section 80CCD(1)]:

Section 80CCD(1) of the Indian Income Tax Act, 1961, allows for the deduction of an employee’s or Assessee’ s contribution made towards the National Pension Scheme (NPS). This section encourages individuals to save for their retirement by offering tax benefits on their own contributions to the NPS. Here are the key details regarding Section 80CCD(1):

Eligibility:

This deduction is available to both salaried individuals and self-employed individuals.

Deduction Limit:

The deduction allowed under Section 80CCD(1) is limited to a maximum of 10% of the individual’s salary (basic salary plus dearness allowance) for salaried individuals or 20% of the gross total income for self-employed individuals. However, this limit is subject to a cap of Rs. 1.5 lakh under Section 80CCE, which includes various other deductions such as Section 80C, Section 80CCC, and Section 80CCD(1).

Calculation

Deduction = Minimum of the following:

* Amount of contribution made to the NPS during the financial year

* Rs 1.5 lakh

For example, if you contribute Rs 1 lakh to the NPS during the financial year, you can claim a deduction of Rs 1 lakh under Section 80CCD(1). If you contribute Rs 1.75 lakh to the NPS during the financial year, you can only claim a deduction of Rs 1.5 lakh under Section 80CCD(1).

Additional Deduction:

In addition to the limit specified in Section 80CCD(1), individuals can also claim an additional deduction of up to Rs. 50,000 under Section 80CCD(1B) for contributions made to the NPS.

Aggregate Limit:

The aggregate of deductions under Section 80C, Section 80CCC, Section 80CCD(1), and Section 80CCD(1B) cannot exceed Rs. 1.5 lakh in a financial year.

Types of NPS Accounts:

The deduction is applicable to contributions made to the Tier-I NPS account, which has certain restrictions on withdrawals and a lock-in period.

Timing of Deduction:

The deduction can be claimed in the year in which the contribution is made. For example, if you contribute to your NPS account during the financial year 2022-23, you can claim the deduction for that contribution while filing your income tax return for the assessment year 2023-24.

Form 10-CCB:

To claim the deduction under Section 80CCD(1), you need to submit Form 10-CCB to your employer, who will then consider this deduction while calculating your taxable income and withholding tax.

Nomination:

It is advisable to nominate a beneficiary who will receive the accumulated pension wealth in the event of the contributor’s demise.

In summary, Section 80CCD(1) allows individuals to claim a deduction for their own contributions to the NPS, subject to certain limits. This deduction encourages individuals to plan for their retirement and provides a tax benefit for doing so. It’s essential for taxpayers to understand the rules and conditions associated with NPS contributions and deductions to make informed financial decisions and minimize their tax liability.

(3) Deduction of Rs.50,000 under section 80CCD(1B):

Section 80CCD(1B) of the Indian Income Tax Act, 1961, provides an additional deduction of up to Rs. 50,000 for contributions made to the National Pension Scheme (NPS) by an individual taxpayer. This deduction is in addition to the deductions available under Section 80CCD(1) and is aimed at encouraging individuals to save more for their retirement. Here are the key details regarding Section 80CCD(1B):

To claim a deduction under Section 80CCD(1B), you must meet the following conditions:

  • You must be an individual or a Hindu Undivided Family (HUF).
  • You must be a citizen of India or a resident of India.
  • You must have made a contribution to the NPS during the financial year.

The deduction is calculated on the basis of the lower of the following two amounts:

  • The amount of contribution made to the NPS during the financial year.
  • Rs 50,000.

For example, if you contribute Rs 1 lakh to the NPS during the financial year, you can claim a deduction of Rs 50,000 under Section 80CCD(1B). If you contribute Rs 2 lakh to the NPS during the financial year, you can only claim a deduction of Rs 50,000 under Section 80CCD(1B).

To claim the deduction under Section 80CCD(1B), you must file your income tax return for the financial year in which you made the contribution to the NPS. You must attach a copy of your NPS statement to your income tax return.

Eligibility:

This deduction is available to both salaried and self-employed individuals who contribute to the NPS Tier-I account.

Maximum Deduction:

Taxpayers can claim a deduction of up to Rs. 50,000 per financial year under Section 80CCD(1B). This deduction is over and above the deductions available under Section 80CCD(1).

Aggregate Limit:

The total aggregate deduction under Section 80CCD(1) and Section 80CCD(1B) cannot exceed Rs. 1.5 lakh in a financial year. This limit is specified under Section 80CCE, which includes various other deductions like Section 80C, Section 80CCC, and Section 80CCD.

Contributions:

To claim this deduction, individuals need to make contributions to their NPS Tier-I account. The contributions can be made regularly or as lump-sum payments.

Timing of Deduction:

The deduction can be claimed in the year in which the contribution is made. For example, if you contribute to your NPS account during the financial year 2022-23, you can claim the deduction for that contribution while filing your income tax return for the assessment year 2023-24.

Form 10-CCB:

To claim the deduction under Section 80CCD(1B), you need to specify the contribution amount in Form 10-CCB while filing your income tax return. You do not need to submit this form to your employer.

Lock-in Period:

Contributions made under Section 80CCD(1B) are subject to the same lock-in conditions as those made under Section 80CCD(1). This means that the money saved in your NPS account is intended for retirement, and there are restrictions on withdrawing it prematurely.

Nomination:

It is advisable to nominate a beneficiary who will receive the accumulated pension wealth in the event of the contributor’s demise.

Section 80CCD(1B) provides an additional incentive for individuals to save for their retirement by offering a deduction of up to Rs. 50,000 on contributions to the NPS Tier-I account. Taxpayers should carefully consider this deduction as part of their tax planning and retirement savings strategy.

(4) Deduction of Employer’s Contribution [Section 80CCD(2)]:

Section 80CCD(2) of the Income Tax Act, 1961 allows salaried employees to claim a deduction for the employer’s contribution to the National Pension System (NPS) up to 10% of their salary (basic pay and dearness allowance). The deduction is available over and above the limit of Rs. 1.5 lakh under Section 80C and Rs. 50,000 under Section 80CCD(1B).

What is Section 80CCD(2)?

Section 80CCD(2) of the Income Tax Act allows individuals to claim a deduction on the employer’s contribution to their National Pension Scheme (NPS) account. This provision is applicable to both salaried and self-employed individuals who contribute to the NPS.

Under this section, the maximum deduction that can be claimed is 10% of the individual’s salary or gross income, whichever is lower. However, there is no upper limit on the amount that can be contributed by the employer.

Conditions for claiming deduction under Section 80CCD(2)

In order to claim the deduction under Section 80CCD(2), certain conditions need to be fulfilled:

  • The individual must be a contributor to the NPS.
  • The contribution must be made by the employer on behalf of the employee.
  • The maximum deduction allowed is 10% of the employee’s salary or gross income, whichever is lower.

Steps to Calculate the Deduction of Employer’s Contribution:

  1. Calculate your total salary, which is your basic pay and dearness allowance.
  2. Multiply your total salary by 10% to calculate the maximum deduction of employer’s contribution.
  3. Compare the maximum deduction of employer’s contribution to the actual employer’s contribution. The lower amount is the actual deduction.

Example:

Let’s say your basic salary is Rs. 100,000 and your dearness allowance is Rs. 20,000. Your total salary is Rs. 120,000.

The maximum deduction of employer’s contribution is Rs. 120,000 * 10% = Rs. 12,000.

Let’s say your employer contributes Rs. 10,000 to your NPS account. The actual deduction of employer’s contribution is Rs. 10,000, which is lower than the maximum deduction.

Note:

  • The deduction of employer’s contribution is available to both central government and state government employees.
  • The deduction is also available to private sector employees.
  • The deduction is available only if the employer contributes to the employee’s NPS account.
  • There is no monetary ceiling on the deduction of employer’s contribution.

Advantages of claiming deduction under Section 80CCD(2)

There are several advantages of claiming the deduction under Section 80CCD(2):

Tax Savings:

By claiming this deduction, individuals can effectively reduce their taxable income. This results in lower tax liability and increased savings.

Additional Retirement Savings:

The employer’s contribution to the NPS account acts as an additional retirement savings for the employee. This can help individuals build a substantial corpus for their post-retirement years.

Long-Term Wealth Creation:

NPS offers the option to invest in various asset classes such as equities, corporate bonds, and government securities. By availing the deduction under Section 80CCD(2), individuals can benefit from the potential long-term wealth creation opportunities offered by these investment options.

(5) Taxability of amount received from Pension Scheme [Section 80CCD(3)]:

Section 80CCD(3) allows individuals to claim an additional tax deduction on the amount contributed towards their pension scheme. The deduction is available to both salaried employees and self-employed individuals. However, it is important to note that the taxability of the amount received depends on the nature of the contribution and the time of withdrawal.

Contributions made by the Employee

If an employee contributes towards their pension scheme, the amount contributed is eligible for a tax deduction under Section 80CCD(1) of the Income Tax Act. This deduction is available up to a maximum of 10% of the salary (for salaried employees) or 20% of the gross total income (for self-employed individuals).

The contributions made by the employee are not taxable at the time of withdrawal. The entire amount received from the pension scheme is considered as a return of the employee’s own contribution and is therefore tax-free.

Contributions made by the Employer

Employers also contribute towards their employees’ pension scheme. These contributions are eligible for a tax deduction under Section 80CCD(2) of the Income Tax Act. The deduction is available up to 10% of the employee’s salary (for salaried employees).

However, the contributions made by the employer are taxable at the time of withdrawal. The amount received from the pension scheme is considered as income and is subject to tax as per the individual’s income tax slab rate.

Limit of Taxability of Withdrawal of the Amount

When an individual withdraws the amount from their pension scheme, the taxability depends on the nature of the contribution and the time of withdrawal.

If the employee contributes towards their pension scheme and withdraws the amount before the completion of 5 years from the date of the first contribution, the entire amount received is taxable in the year of withdrawal. The amount is added to the individual’s income and taxed as per their income tax slab rate.

On the other hand, if the employee contributes towards their pension scheme and withdraws the amount after the completion of 5 years, only 40% of the amount received is taxable in the year of withdrawal. The remaining 60% is tax-free.

It is important to note that the taxability of the amount received from a pension scheme may vary based on the individual’s specific circumstances and the provisions of the Income Tax Act. It is advisable to consult a tax professional for personalized advice.

(6) Partial withdrawal by an employee from the National Pension System Trust [Section 10(12B)]

Section 10(12B) of the Income Tax Act, 1961 provides for tax exemption on partial withdrawal by an employee from the National Pension System Trust (NPS).

Eligibility:

To be eligible for the tax exemption, the employee must meet the following conditions:

  • The employee must have made contributions to the NPS for at least 3 years.
  • The partial withdrawal must be made for any of the following reasons:
    • For the treatment of specified illnesses of the subscriber, his/her spouse or children.
    • For the education of children.
    • For the marriage of children.
    • To purchase a house.
    • To start a new business venture.

Amount of withdrawal:

The employee can withdraw up to 25% of the total contributions made by him/her, excluding the contributions made by the employer. The withdrawal can be made in one or more installments.

Tax exemption:

The amount withdrawn up to 25% of the employee’s own contributions is exempt from tax. The remaining amount, if any, is taxable as income under the head “Salaries”.

Procedure for withdrawal:

To withdraw money from the NPS account, the employee must submit a partial withdrawal request to the Point of Presence (POP). The POP will then process the request and transfer the money to the employee’s bank account.

Example:

Let’s say an employee has made contributions to the NPS for 5 years. The total amount of contributions made by the employee is Rs. 100,000. The employee wants to withdraw Rs. 25,000 for the education of his child.

The employee is eligible for tax exemption on the entire amount withdrawn, as it is within the limit of 25% of his own contributions.

Note:

  • The employee can withdraw money from the NPS account only up to 3 times during his/her entire tenure in the NPS.
  • The employee cannot withdraw money from the NPS account before the age of 60, unless he/she meets one of the eligibility conditions mentioned above.

EXAMPLE:

Gross total income of R who is self-employed is Rs.5,90,000. He has deposited Rs.1,00,000 in public provident fund and Rs.1,70,000 in pension scheme of the Central Government. Compute his taxable income if:

(a)        does not opt to be taxed under section 115BAC

(b)        opts to be taxed under section 115BAC

SOLUTIONS :

    Does not opt to be taxed u/s 115BAC opt to be taxed u/s 115BAC
  Rs. Rs. Rs.
Gross total Income   5,90,000 5,90,000
Less : Deduction      
–          Under Section 80C 1,00,000    
–          Under Section 80CCD(1) Rs.1,70,000      
–          But limited to 20% of Gross Total Income of Rs.5,90,000 1,08,000    
  2,08,000    
But limited to Rs.1,50,000 as per Section 80CCE, 1,50,000    
Additional Deduction under Section 80CCD(1B) 50,000 2,00,000 NIL
Total Income   3,90,000 5,90,000

3.  Section 80D : Deduction in respect of Medical Insurance Premia

Understanding of Section 80D

Section 80D of the Income Tax Act provides individuals with a deduction in respect of medical insurance premiums paid. This section is aimed at encouraging taxpayers to avail medical insurance coverage for themselves and their families.

Under Section 80D, taxpayers can claim deductions on the premiums paid for medical insurance policies taken for themselves, their spouses, children, and parents. The deduction limit varies depending on the age and category of the insured individuals. Also, when and to what extent available is depends upon the following conditions if satisfied –

  1. The taxpayer is an individual (maybe resident/non-resident or Indian citizen/foreign citizen) or a Hindu Undivided Family (maybe resident or non-resident).
  2. Payment should be made out of income chargeable to tax.
  3. Payment should be made by any mode other than cash. However, payment on account of preventive health check-up can be made by any mode (including cash).
  4. Deduction is allowed for the following purpose :-

(a)        In case of an individual: It is allowed for—

(i)         the amount paid to effect or to keep in force an insurance on the health of the assessee or his family or his parent or parents, or

(ii)        any contribution made to the Central Government Health Scheme or such other scheme as may be notified by the Central Government in this behalf

(iii)       any payment made on account of preventive health check up of the assessee or his family or check up of the parent or parents of the assessee.

Family means the spouse and dependent children of the assessee

(b)        In the case of an HUF:

It is allowed for the amount paid to effect or to keep in force an insurance on the health of any member of that Hindu Undivided Family.

(c) In case of senior citizen:

Deduction on account of medical expenditure incurred (instead of sum paid to effect any insurance of the health).

  1. The health insurance should be in accordance with a scheme framed in this behalf by (a) GIC and approved by the Central Government, or (b) any other insurer and approved by the Insurance Regulatory and Development Authority.
  2. The payment should be made by him by any mode of payment other than cash. However, for preventive health check up, it can be made in cash also.
  3. The amount is paid out of his income chargeable to tax.

Quantum of Deduction under Section 80D:

(1)   Where the Assessee is an Individual:

The deduction allowed shall be the aggregate of the following, namely:—

(a) (i)   the whole of the amount paid to effect or to keep in force an insurance on the health of the Assessee or his spouse and dependent children or

(ii)        any contribution made to the Central Government Health Scheme (CGHS) as does not exceed in aggregate Rs.25,000; and

(b)        the whole of the amount paid to effect or to keep in force an insurance on the health of the parent or parents (whether dependent or not) of the assessee as does not exceed in aggregate Rs.25,000.

Preventive Health Check-up

However, for preventive health check-up of assessee his family or his parent or parents, the maximum amount allowed shall be limited to Rs.5,000 and such amount subject to maximum limit of Rs.5,000 shall be within the overall ceiling of Rs.25,000 given in (a) or (b) above.

Additional Deduction of Rs.25,000:

Where the sum specified in clause (1)(a) or (h) is paid to effect or keep in force an insurance on the health of any person specified therein, and who is a senior citizen, an additional deduction of Rs.25,000 shall be allowed. In other words, the deduction shall be Rs.50,000 instead of Rs.25,000.

(2)   Where the Assessee is a Hindu Undivided Family (HUF):

The deduction allowed shall be the whole of the amount paid to effect or to keep in force an insurance on the health of any member of that Hindu undivided family as does not exceed in aggregate Rs.25,000.

Additional Deduction of 25,000:

Where the sum specified in clause (2) above is paid to effect or keep in force an insurance on the health of any person specified therein, and who is a senior citizen, an additional deduction of Rs.25,000 shall be allowed. In other words, the deduction shall be Rs.50,000 instead of Rs.25,000.

(3)   Deduction on account of medical expenditure incurred (‘instead of sum paid to effect any insurance of the health) to be allowed in case of a Senior Citizen

The individual may claim the following deduction instead of the deduction available under clause (1) above:

(i)         the whole of the amount paid on account of medical expenditure incurred on his health or any member of his family as does not exceed in the aggregate Rs.50,000; and

(ii)        the whole of the amount paid on account of medical expenditure incurred on the health of any parent of the assessee, as does not exceed in the aggregate Rs.50,000.

However, the following two conditions must be satisfied to claim deduction of the amount referred to in sub-clause (i) or sub-clause (ii) above:

(a)        The amount should be paid in respect of a senior citizen, and

(b)        no amount should have been paid to effect or to keep in force an insurance on the health of such person.

Further that the aggregate of the sum specified under clause (1)(a) and clause (3)(i) above or the aggregate of the sum specified under clause (1)(b) and clause (3)(ii) above shall not exceed Rs.50,000.

Example :

Example for claiming Deduction under Clauses (1) and (2) above:

R pays (through any mode other than cash) during the previous year medical insurance premia as under:

(i)         Rs.24,000 to keep in force an insurance policy on his health and on the health of his wife and dependent children;

(ii)        Rs.34,000 to keep in force an insurance policy on the health of his parents.

R will be allowed a deduction of Rs.49,000 (Rs.24,000 + Rs.25,000) if neither of his parents is a senior citizen. However, if any of his parents is a senior citizen, he will be allowed a deduction of Rs.58,000 (Rs.24,000 + Rs.34,000). Whether the parents are dependent or not, is not a consideration for deciding the deduction under the new section.

Further, in the above example, if cost of insurance on the health of the parents is Rs.60,000, out of which Rs.34,000 is paid (by any non-cash mode) by the son and Rs.26,000 by the father (who is a senior citizen), out of their respective taxable income, the son will get a deduction of Rs.34,000 (in addition to the deduction of Rs.24,000 for the medical insurance on self and family) and the father will get a deduction of Rs.26,000.

Example for claiming Deduction under Clauses (1) and (2) above:

Particulars Rs.
(i) For Individual and his family  
–          Health insurance premia 27,000
(ii) For parents  
–          Health insurance of Mother 22,000
–          Medical expenditure on father (senior citizen) 30,000
–          Deduction eligible u/s 80D Rs.25,000 + Rs.50,000 75,000

 

1.      The deduction is allowed when the payment is made to GIC or any other approved insurer, it is popularly known as Mediclaim Scheme.

2.      The deduction is allowed to non-resident also if the above conditions are satisfied.

3.      Senior citizen means an individual resident in india who is of the age of 60 years or more at any time during the relevant previous year. Hence in the case of an individual who is of the age of 60 years or more and is a non-resident in India, the deduction will be limited to Rs.25,000 as he will not be considered to be a senior citizen for this purpose.

4.      In the case of an individual who is of the age of 60 years or more but is a non-resident in India, the deduction will be limited to Rs.25,000 (instead of Rs.50,000) as he will not be considered to be a senior citizen for this purpose.

Important Points to be Note :

Here are some other important points to note regarding Section 80D:

  • The deductions under Section 80D are available in addition to the deductions available under Section 80C for investments in specified instruments like life insurance premium, provident fund, etc.
  • Insurance policies purchased from foreign insurers are also eligible for deductions under Section 80D.
  • If both spouses are eligible to claim deductions for health insurance premiums, they can each claim the deduction separately.
  • Any reimbursement received from the employer towards health insurance premiums will reduce the deduction available under Section 80D.

4.  [Section 80DD]: Deduction in respect of Caring & Maintenance including Medical Treatment of a Disabled Dependent

Section 80DD of the Income Tax Act in India provides a deduction for individuals or Hindu Undivided Families (HUFs) in respect of expenses incurred for the caring and maintenance, including medical treatment, of a disabled dependent. This section is aimed at providing financial relief to taxpayers who have the responsibility of supporting disabled dependents. Here are the key details about Section 80DD:

Eligibility Criteria

To claim the deduction under Section 80DD, the following conditions must be met:

  • The dependent person should be a spouse, children, parents, or siblings of the taxpayer.
  • The dependent person must have at least 40% disability.
  • The taxpayer must obtain a disability certificate from a prescribed medical authority.

Amount of Deduction:

  • The amount of deduction available under Section 80DD depends on the severity of the disability.
  • As of my last knowledge update in September 2021, for a taxpayer to claim this deduction, the disability must be at least 40%.
  • The deduction amount is fixed, regardless of the actual expenses incurred:
    • If the disability is between 40% and 80%, the deduction is Rs. 75,000 per annum.
    • If the disability is 80% or more, the deduction is Rs. 1,25,000 per annum.

Disability Certificate:

To claim this deduction, the taxpayer needs to obtain a disability certificate from a medical authority. The certificate typically indicates the percentage of disability.

No Need for Actual Expenses:

Unlike some other deductions, Section 80DD does not require the taxpayer to provide proof of actual expenses incurred on the disabled dependent. The deduction is available based on the disability percentage and the fixed deduction amounts mentioned above.

Mode of Payment:

Payments for medical treatment or maintenance of the disabled dependent can be made in any mode, including cash.

Documents required:

To claim the deduction under Section 80DD, the individual must submit the following documents along with their income tax return:

  • Proof of payment of expenses incurred on the caring and maintenance, including medical treatment, of the disabled dependent.
  • Medical certificate certifying the disability of the dependent.

Validity of Certificate:

The disability certificate is usually valid for a specific period, so it needs to be renewed as required.

Procedure to Claim Deduction

To claim the deduction under Section 80DD, follow these steps:

  • Calculate the amount of deduction based on the extent of disability.
  • Include the amount of deduction in the total income while filing the income tax return.
  • Keep all relevant documents ready to support the claim in case of any scrutiny by the income tax department.

Example:

Let’s say Mr. X has a disabled dependent, his mother, who has a disability of 80%. Mr. X has incurred expenses of Rs. 1,00,000 on the caring and maintenance, including medical treatment, of his mother.

Mr. X is eligible for a deduction of Rs. 1,25,000 under Section 80DD, as his mother has a disability of at least 80%.

Section 80DD of the Income Tax Act provides a deduction for individuals who take care of their dependents with disabilities. This deduction not only helps reduce the tax liability but also encourages individuals to provide necessary care and support to their loved ones. It is important to fulfill the eligibility criteria and keep the required documents ready to claim the deduction successfully.

Consequences if the dependant being a Person with Disability predeceases the Individual or the member of the HUF [Section 80DD(3)]:

Section 80DD(3) of the Income Tax Act, 1961 states that if the dependant being a Person with Disability predeceases the Individual or the member of the HUF, the amount deposited in such scheme shall be deemed to be the income of the assessee of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as the income of that previous year.

This means that if the dependant dies before the Individual or the member of the HUF, the Individual or the member of the HUF will have to pay tax on the amount that they have deposited in the scheme.

For example, if Mr. X has a disabled dependent, his mother, who has a disability of 80%. Mr. X has deposited Rs. 1,25,000 in the scheme under Section 80DD. If Mr. X’s mother dies before him, Mr. X will have to pay tax on the amount of Rs. 1,25,000.

The purpose of this provision is to prevent the Individual or the member of the HUF from claiming a deduction for the expenses incurred on the caring and maintenance, including medical treatment, of the disabled dependent after the dependent has died.

To avoid paying tax on the amount deposited in the scheme, the Individual or the member of the HUF can purchase an annuity plan with the amount. The income from the annuity plan will be taxable, but the deduction under Section 80DD will not be reversed.

5.  Section 80DDB : Deduction in respect of Medical Treatment, etc.- to  what extent available

Section 80DDB of the Income Tax Act in India provides a deduction for individuals and Hindu Undivided Families (HUFs) in respect of expenses incurred for the medical treatment of specified diseases for themselves or their dependents. This section aims to provide financial relief to taxpayers who have incurred substantial medical expenses for specific illnesses. Here are the key details about Section 80DDB:

Eligibility Criteria

To claim the deduction under Section 80DDB, you need to fulfill the following eligibility criteria:

  • You must be a resident individual or a Hindu Undivided Family (HUF).
  • You must have incurred medical treatment expenses for yourself or your dependents.
  • The medical treatment should be for specified diseases or ailments as prescribed by the Income Tax Act.
  • You must have obtained a prescription for such treatment from a specialist doctor.

Specified diseases or ailments:

The list of specified diseases or ailments is given in Rule 11DD of the Income Tax Rules, 1962. Some of the common specified diseases or ailments include:

  • Cancer
  • Neurological disorders
  • Heart diseases
  • Kidney diseases
  • Blood disorders
  • Mental disorders
  • Genetic disorders
  • Cancer
  • Chronic Renal Failure
  • Neurological Diseases where the disability level is 40% or more.
  • AIDS
  • Chronic Obstructive Pulmonary Disease
  • Acquired Immune Deficiency Syndrome (AIDS)

Amount of Deduction

The amount of deduction that can be claimed under Section 80DDB varies depending on the age of the individual and the actual expenses incurred. The deduction can be claimed as follows:

  • For individuals below the age of 60 years, the maximum deduction allowed is Rs. 40,000.
  • For individuals who are senior citizens (above 60 years but below 80 years), the maximum deduction allowed is Rs. 1,00,000.
  • For super senior citizens (above 80 years), the maximum deduction allowed is Rs. 1,00,000.

Documents Required

To claim the deduction under Section 80DDB, you need to submit the following documents:

  • Patient’s prescription from a specialist doctor specifying the disease or ailment.
  • Medical bills and receipts for the expenses incurred.
  • Medical certificate in Form 10-I from a specialist doctor.

Mode of Payment:

Payments for medical treatment can be made in any mode, including cash.

No Need for Actual Expenses:

Unlike some other deductions, Section 80DDB does not require the taxpayer to provide proof of actual expenses incurred for the specified diseases. The deduction is based on the prescribed authority’s certificate and the maximum deduction limits.

Claiming the Deduction

To claim the deduction under Section 80DDB, you need to file your income tax return using Form ITR-1 or Form ITR-2. You should mention the amount of deduction claimed under Section 80DDB in the relevant section of the income tax return form.

Example:

Let’s say Mr. X is a 50-year-old individual. He has incurred medical expenses of Rs. 50,000 for the treatment of cancer.

Mr. X is eligible for a deduction of Rs. 40,000 under Section 80DDB, as he is below the age of 60.

Important Points to Note

  • The deduction under Section 80DDB is available only for medical expenses incurred in India.
  • The deduction is also available for medical expenses incurred on preventive health check-ups, but the deduction limit for preventive health check-ups is Rs. 5,000.
  • If the individual has received any reimbursement from an insurance company or employer for the medical expenses, the amount of reimbursement must be deducted from the total medical expenses before claiming the deduction under Section 80DDB.

6.  Section 80E: Deduction in respect of Payment of Interest on Loan taken for Higher Education – when and to what extent available.

Education is an essential aspect of personal and professional growth. However, pursuing higher education can be financially burdensome for many individuals. To ease the financial load, the Indian government has introduced various tax benefits and deductions to encourage individuals to invest in their education. One such deduction is Section 80E, which allows individuals to claim a deduction on the interest paid on loans taken for higher education.

Understanding Section 80E

Section 80E of the Income Tax Act, 1961, provides tax benefits to individuals who have taken loans for higher education. This deduction is available only for the interest portion of the loan and not the principal amount. The loan can be taken for the individual’s own education or for the education of their spouse, children, or even a student for whom the individual is a legal guardian.

Eligibility for Section 80E Deduction

To avail the benefits of Section 80E, certain eligibility criteria must be met:

  • The loan should be taken from a financial institution or approved charitable institution.
  • The loan should be taken for pursuing higher education in India or abroad.
  • The loan should be taken for the individual, their spouse, children, or a student for whom the individual is a legal guardian.
  • The deduction can be claimed by both salaried and self-employed individuals.

Amount and Duration of Deduction

The deduction under Section 80E is available for a maximum period of 8 years or until the entire interest is repaid, whichever is earlier. There is no maximum limit on the amount that can be claimed as a deduction. However, it is important to note that the deduction can only be claimed for the interest amount and not the principal amount.

Procedure to Claim Deduction

To claim the deduction under Section 80E, individuals need to follow these steps:

  • Keep all the necessary documents, such as loan statements, interest certificates, and repayment schedules, handy.
  • File your income tax return using the appropriate form.
  • Mention the amount of interest paid under Section 80E in the relevant section of the income tax return form.
  • Submit the required documents as proof of the loan and interest paid, if requested by the income tax department.

Benefits of Section 80E Deduction

The deduction under Section 80E provides several benefits to individuals:

  • Reduces the financial burden of loan repayment by allowing a deduction on the interest amount.
  • Encourages individuals to invest in higher education by providing a tax incentive.
  • Helps individuals in planning their finances by reducing their taxable income.
  • Supports the government’s initiative to promote education and skill development.

No Deduction for Loan Principal:

Section 80E provides a deduction only for the interest paid on the loan. The principal repayment of the loan is not eligible for any tax benefit.

No Upper Limit on Loan Amount:

There is no maximum limit on the loan amount for claiming this deduction. However, the deduction is limited to the interest portion of the EMI.

No Need for Approval:

Unlike some other sections, you don’t need to obtain any special approval or certificate to claim this deduction. Simply keep records of the loan and interest payments as proof.

Higher Education Abroad:

The deduction under Section 80E is available for loans taken for higher education in India as well as abroad.

Note:

  • The deduction under Section 80E is available for a maximum of 8 years or until the interest is fully paid, whichever is earlier.
  • The deduction is available for both self-financed and government-sponsored education loans.
  • The deduction is available for the interest paid on loans taken from any recognized financial institution or charitable institution, including banks, credit unions, and non-profit organizations.

7.  Section 80EE: Deduction in respect of Interest on Loan taken for Residential House Property

Income tax laws in India provide various deductions and exemptions to taxpayers, helping them reduce their taxable income. One such deduction is available for individuals who have taken a loan to purchase a residential house property. Section 80EE of the Income Tax Act, 1961 allows for a deduction in respect of interest on such loans.

Under Section 80EE, an individual can claim an additional deduction of up to INR 50,000 on the interest paid on a loan taken for the purchase of a residential house property. This deduction is over and above the deduction of INR 2,00,000 available under Section 24(b) of the Income Tax Act. However, there are certain conditions that need to be fulfilled to claim this deduction.

Conditions to Claim Deduction under Section 80EE

To be eligible for the deduction under Section 80EE, the following conditions must be met:

  • The loan should have been sanctioned by a financial institution between 1st April 2016 and 31st March 2017.
  • The amount of the loan sanctioned should not exceed INR 35,00,000.
  • The value of the residential house property should not exceed INR 50,00,000.
  • The individual should not own any other residential house property on the date of sanction of the loan.

If all the above conditions are met, the individual can claim a deduction of up to INR 50,000 per financial year. This deduction is available for a maximum of 5 consecutive years, starting from the year in which the loan was sanctioned.

How to Claim Deduction under Section 80EE

To claim the deduction under Section 80EE, the taxpayer needs to follow these steps:

  • Compute the total interest paid on the loan during the financial year.
  • Claim the deduction of up to INR 2,00,000 under Section 24(b) of the Income Tax Act.
  • If the interest paid is more than INR 2,00,000, claim the additional deduction of up to INR 50,000 under Section 80EE.
  • Mention the details of the loan and the deduction claimed in the appropriate sections while filing the income tax return.

Example:

Let’s say Mr. X is a first-time home buyer. He has taken a loan of Rs. 40 lakh from a bank to purchase a residential house property. He is paying interest of Rs. 80,000 per year on the loan.

Mr. X is eligible to claim a deduction of Rs. 50,000 under Section 80EE for the interest paid on the loan.

Important Points to Note

  • The deduction under Section 80EE is available for a maximum of 5 years, starting from the year in which the interest repayment begins.
  • The deduction is available even if the loan is taken for a period of more than 5 years.
  • The deduction is not available if the individual has any other residential house property.

Documents required:

To claim the deduction under Section 80EE, the individual must submit the following documents along with their income tax return:

  • Proof of payment of interest on the loan.
  • Certificate from the financial institution stating the amount of interest paid during the financial year.
  • Declaration from the individual stating that he/she is a first-time home buyer.

Ownership Criteria:

  • The taxpayer claiming this deduction should be the owner or co-owner of the residential property.
  • The property should be a self-occupied house property, meaning the taxpayer or their family should reside in it.

Carry Forward of Unclaimed Deduction:

If the entire deduction amount of Rs. 50,000 is not utilized in a particular financial year, the unclaimed deduction can be carried forward to the subsequent financial year.

No Need for Certificate:

Unlike some other sections, you don’t need to obtain any special approval or certificate to claim this deduction. However, you should maintain records of the loan and interest payments as proof.

8. Section 80EEB: Deduction in respect of Purchase of Electric Vehicle

With the increasing concerns about climate change and the need to reduce pollution, there has been a growing interest in electric vehicles (EVs) as an eco-friendly alternative to traditional gasoline-powered cars. In order to incentivize the adoption of EVs in India, the Income Tax Act, 1961 introduced Section 80EEB, which provides a deduction in respect of the purchase of electric vehicles.

Section 80EEB of the Income Tax Act, 1961 allows individuals to claim a deduction of up to Rs. 1,50,000 on the interest paid on a loan taken for the purchase of an electric vehicle. This deduction is available for loans taken from financial institutions between 1st April 2019 and 31st March 2023. It is important to note that this deduction is over and above the deduction available under Section 24(b) for interest on home loans.

Eligibility Criteria

In order to avail the deduction under Section 80EEB, the following conditions must be met:

  • The loan must be taken from a financial institution, including a banking company or a non-banking financial company.
  • The loan must be sanctioned between 1st April 2019 and 31st March 2023.
  • The loan must be used for the purchase of an electric vehicle.
  • The taxpayer must be an individual.
  • The taxpayer should not own any other electric vehicle at the time of taking the loan.

Benefits of Section 80EEB

Section 80EEB offers several benefits to individuals who purchase electric vehicles. Some of the key benefits include:

Financial Incentive:

The deduction of up to Rs. 1,50,000 on the interest paid on the loan can significantly reduce the cost of purchasing an electric vehicle.

Lower Running Costs:

Electric vehicles are generally cheaper to run and maintain compared to traditional gasoline-powered cars. They require less frequent visits to the service station and have lower fuel costs.

Environmental Benefits:

By opting for an electric vehicle, individuals can contribute to reducing pollution and carbon emissions, thereby helping to combat climate change.

Deduction Amount:

  • The maximum deduction available under Section 80EEB is Rs. 1,50,000.
  • This deduction is for the interest paid on the loan taken to purchase the electric vehicle.

Loan Source:

The loan must be obtained from a financial institution or a non-banking financial company (NBFC).

Eligible Vehicles:

The deduction is available for interest on loans taken to purchase electric vehicles only. This includes electric cars, electric scooters, electric bikes, and other electric vehicles designed for personal use.

Documents required:

To claim the deduction under Section 80EEB, the individual must submit the following documents along with their income tax return:

  • Proof of payment of interest on the loan.
  • Certificate from the financial institution stating the amount of interest paid during the financial year.
  • Registration certificate of the EV.

Carry Forward of Unclaimed Deduction:

If the entire deduction amount of Rs. 1,50,000 is not utilized in a particular financial year, the unclaimed deduction cannot be carried forward to the subsequent financial years.

Example:

Let’s say Mr. X has taken a loan of Rs. 10 lakh from a bank to purchase an EV. He is paying interest of Rs. 1 lakh per year on the loan.

Mr. X is eligible to claim a deduction of Rs. 1 lakh under Section 80EEB for the interest paid on the loan.

Important Points to Note

  • The deduction under Section 80EEB is available over and above the deduction of Rs. 1.5 lakh under Section 80C.
  • The deduction is available for the purchase of both new and used EVs.
  • The deduction is not available for the purchase of EVs that are used for commercial purposes.

Section 80EEB of the Income Tax Act, 1961 provides a deduction in respect of the purchase of electric vehicles. This deduction aims to encourage individuals to switch to electric vehicles by making them more affordable. By availing this deduction, individuals not only enjoy financial benefits but also contribute towards a cleaner and greener environment. So, if you are planning to buy an electric vehicle, make sure to take advantage of this tax benefit and contribute to a sustainable future.

For the purposes of this section,—

(a) “Electric Vehicle” means a vehicle which is powered exclusively by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy;

(b) “Financial Institution” means a banking company to which the Banking Regulation Act, 1949 applies, or any bank or banking institution referred to in section 51 of that Act and includes any deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company as defined in clauses (e) and (g) of Explanation 4 to section 43B.

9. Section 80G: Deduction in respect of Donation to certain Funds, Charitable Institutions, etc.

Section 80G of the Income Tax Act, 1961 provides provisions for claiming deductions on donations made to certain funds, charitable institutions, and other specified entities. This section aims to encourage individuals and businesses to contribute towards charitable causes by providing them with tax benefits. By making eligible donations, taxpayers can reduce their taxable income and thereby lower their tax liability.

Deduction under Section 80G in respect of Donation to certain Funds, Charitable Institutions is available only with following essential conditions with steps:

Deduction under this section is available to any taxpayer (maybe resident or non-resident individual,  company, firm or any other person) and calculated under the following three steps:

Step 1 :  Gross qualifying amount

Step 2 : Net qualifying amount

Step 3 : Amount deductible

Essential Conditions for claiming Deduction under this Section:

(1)        Deduction under this section is allowed to all assessees, whether company or non-company, whether having income under the head ‘profits and gains of business or profession’ or not.

(2)        The donation should be of a sum of money. Donations in kind do not qualify for deduction.

(3)        The donation should be made only to specified funds/institutions.

(4)        No deduction shall be allowed under this section in respect of donation of any sum exceeding Rs.2,000 unless such sum is paid by any mode other than cash.

(5)        For availing deduction under this section it is obligatory on the part of the assessee to produce proper proof of payment. Where the payment is not proved by production of proper receipt, etc., the deduction under section 80G is not available.

Where a deduction is allowed in respect of any donation for any assessment year, no other deduction shall be allowed in respect of such sum for the same or any other assessment year.

Deduction u/s 80G is available on account of any donation made by the assessee to specified funds or institutions. In some cases, deduction is available after applying a qualifying limit while in others, it is allowed without applying any qualifying limit.

Again in some cases, deduction is allowed to the extent of 100% of the donation and in some cases it is allowed to the extent of 50% of the donation.

The quantum of deduction in respect of various kinds of donations is given as under:

(A) Donations made to following are eligible for 100% Deduction without any Qualifying Limit:

(1)        National Defense Fund set up by the Central Government.

(2)        Prime Minister’s National Relief Fund and PM CARES Fund;

(3)        Prime Minister’s Armenia Earthquake Relief Fund;

(4)        Africa (Public Contributions India) Fund;

(5)        National Foundation for Communal Harmony;

(6)        University/Educational Institution of National Eminence approved by the prescribed authority;

(7)        Maharashtra Chief Minister’s Earthquake Relief Fund;

(8)        Any fund set up by the State Government of Gujarat, exclusively for providing relief to the victims of earthquake in Gujarat;

(9)        Zila Saksharta Samiti constituted in any district;

(10)      The National Blood Transfusion Council or any State Blood Transfusion Council;

(11)      Any fund set up by a State Government to provide medical relief to the poor;

(12)      The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund;

(13)      The Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996;

(14)      National Illness Assistance Fund;

(15)      The Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any State or Union Territory, as the case may be;

(16)      National Sports Fund set up by the Central Government;

(17)      National Cultural Fund set up by the Central Government;

(18)      Fund for Technology Development and Application, set up by the Central Government;

(19)      National Trust for Welfare of persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities;

(20)      National Children’s Fund.

(21)      Swachh Bharat Kosh set up by the Central Government;

(22)      Clean Ganga Fund set up by the Central Government (In this case donations will be eligible for deduction only when they are made by a resident assessee);

(23)      The National Fund for Control of Drug Abuse.

(B) Donations made to the following are eligible for 50% Deduction without any Qualifying Limit:

(1)        Jawaharlal Nehru Memorial Fund;

(2)        Prime Minister’s Drought Relief Fund;

(3)        indira Gandhi Memorial Trust;

(4)        Rajiv Gandhi Foundation.

(C) Donations to the following are eligible for 100% Deduction subject to Qualifying limit:

(1)        Donation to Government or any approved local authority, institution or association to be utilised for promoting family planning.

(2)        Any sums paid by the assessee, being a company, in the previous year as donations to indian Olympic Association or to any other association or institution established in india and notified by the Central Government for—

(a)        the development of infrastructure for sports and games; or

(b)        the sponsorship of sports and games, in India.

(D) Donations to the following are eligible for 50% Deduction subject to Qualifying limit:

(1)        Donation to Government or any approved local authority, institution or association to be utilised for any charitable purpose other than promoting family planning.

(2)        Any other fund or institution which satisfies the conditions of section 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 for both.

(4)        To any corporation established by the Central or any State Government specified under section 10(26BB) for promoting interests of the members of a minority community.

(5)        Any notified temple, mosque, gurdwara, church or other place notified by the Central Government to be of historic, archaeological or artistic importance, for renovation or repair of such place.

For applying qualifying limit, all donations made to funds/institutions covered under (C) and (D) above shall be aggregated and the aggregate amount shall be limited to 10% of Adjusted Gross Total Income.

Adjusted Gross Total Income:

Adjusted Gross Total Income for this purpose means the “Gross Total Income” as reduced by—

(i)         long-term capital gains, if any, which have been included in the “Gross Total income”;

(ii)        short-term capital gains of the nature referred to in section 111A (i.e., short-term capital gain on transfer of shares through a recognised stock exchange which are taxable @ 15%);

(iii)       all deductions permissible u/s 80C to 80U excepting deduction under this section, i.e., section 80G;

(iv)       such income on which income-tax is not payable i.e., share from AOP;

(v)        income referred to in section 115A, 115AB, 115AC or 115AD. These sections relate to incomes of NRIs and foreign companies etc. which are taxable at special rate of tax.

Quantum of Deduction:

The quantum of deduction shall be the aggregate of the deductions permissible under clauses (A), (B), (C) and (D).

Requirements for Claiming Deductions

To claim deductions under Section 80G, taxpayers need to ensure that they fulfill the following requirements:

  • Donations should be made in the form of cash, cheque, or draft. Donations made in kind are not eligible for deductions.
  • Donations should be supported by valid receipts and certificates issued by the recipient entity. These receipts should contain all the necessary details, including the name and address of the entity, the PAN of the entity, and the PAN of the taxpayer.
  • The taxpayer should ensure that the entity to which the donation is made is eligible for deductions under Section 80G. It is advisable to check the list of eligible entities provided by the Income Tax Department.

Example:

Let’s say Mr. X has made a donation of Rs. 10,000 to a charitable institution that is approved by the Central Government. The charitable institution provides relief to the poor and needy.

Mr. X is eligible to claim a deduction of Rs. 10,000 under Section 80G for the donation made to the charitable institution.

Important Points to Note

  • The deduction under Section 80G is available over and above the deduction of Rs. 1.5 lakh under Section 80C.
  • The deduction is not available for donations made to political parties or electoral trusts.
  • The deduction is not available for donations made in return for any benefit, such as goods or services.

Section 80G of the Income Tax Act, 1961 is a beneficial provision that encourages individuals and businesses to contribute towards charitable causes. By availing the tax deductions available under this section, taxpayers not only support worthy initiatives but also reduce their tax liability. It is essential to be aware of the eligible entities and the specific deduction limits while making donations. By following the necessary procedures and keeping proper documentation, taxpayers can effectively claim deductions under Section 80G and contribute to the betterment of society.

10. Section 80GG: Deduction in respect of Rent Paid

Section 80GG of the Income Tax Act allows individuals to claim deductions for the rent paid when they do not receive House Rent Allowance (HRA) from their employer. This blog post explains the eligibility criteria and the amount of deduction allowed under Section 80GG.

Essential Conditions for claiming Deduction under this section:

(1)        This deduction is allowed to an individual.

(2)        The individual should pay rent for his residential accommodation, whether furnished or unfurnished.

(3)        The individual is either a self-employed person or if he is an employee, he is neither entitled to any house rent allowance nor a rent-free accommodation.

(4)        The individual, his or her spouse or minor child or an HUF of which he/she is a member, does not own any residential accommodation at the place where such an assessee ordinarily resides or at the place where he works or carries on his business or profession.

If the assessee, i.e., the individual 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 individual as self-occupied property.

(5)        Such individual should fulfill such other conditions or limitations as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. The assessee must file a declaration in Form No. 10BA along with the return of income to claim deduction under section 80GG.

Quantum of Deduction:

The deduction shall be the minimum of the following amounts:

(i)         Excess of rent paid over 10% of’ Adjusted Total Income’;

(ii)        25% of the “Adjusted Total Income”;

(iii)       Rs.5,000 per month : Rs.5,000 x12=Rs.60,000

Adjusted Total Income:

Adjusted Total Income, for this purpose, means the “Gross Total Income” as reduced by:

(i)         long-term capital gains if any, which have been included in the “Gross Total Income”;

(ii)        short-term capital gains of the nature referred to in section 111A (i.e., short-term capital gain on transfer of shares through a recognised stock exchange which are taxable @ 15%);

(iii)       all deductions permissible u/s 80C to 80U excepting deduction under this section i.e., section 80GG.

(iv)       income referred to in section 115A, 115AB, 115AC or 115AD. These sections relate to incomes of NRIs and foreign companies etc. which are taxable at special rate of tax.

Ownership Criteria:

  • The taxpayer or their spouse or minor child should not own any residential accommodation at the place where they are claiming the deduction.
  • If the taxpayer owns residential property at any other location, it will not affect their eligibility for this deduction as long as they are not claiming deductions on that property.

Declaration:

To claim this deduction, the taxpayer needs to file Form 10BA, providing details of the rent paid, the landlord’s name and PAN (if available), and other relevant information.

No Need for Receipts:

Unlike some other deductions, there is no requirement to submit rent receipts to claim the deduction under Section 80GG. However, maintaining records of rent payments and a duly filled Form 10BA is advisable for documentation purposes.

Example

Let’s understand the deduction with the help of an example. Mr. Kumar is a self-employed individual who pays a monthly rent of Rs. 15,000. His total income for the year is Rs. 6,00,000. To calculate the deduction under Section 80GG, Mr. Kumar can claim the least of the following amounts:

  • Rent paid minus 10% of total income: Rs. 15,000 – (10% of Rs. 6,00,000) = Rs. 9,000
  • 25% of total income: 25% of Rs. 6,00,000 = Rs. 1,50,000
  • 5,000 per month: Rs. 5,000 x 12 = Rs. 60,000

Therefore, Mr. Kumar can claim a deduction of Rs. 9,000 under Section 80GG.

Important Points to Note

There are a few important points to note regarding the deduction under Section 80GG:

  • The deduction is available only to individuals and not to Hindu Undivided Families (HUFs) or other entities.
  • The individual needs to file Form 10BA along with their income tax return to claim the deduction.
  • The individual needs to retain the rent receipts and other supporting documents as evidence of rent paid.
  • The deduction is not available if the individual is claiming any other housing-related deductions such as home loan interest.
  • The deduction is available on a yearly basis and needs to be claimed for each assessment year separately.

Conclusion

Section 80GG of the Income Tax Act, 1961 provides a deduction to individuals who do not receive HRA and pay rent for their accommodation. This deduction helps reduce the tax liability of individuals who do not own a house and rely on rented properties for their residential needs. It is important for individuals to understand the eligibility criteria and calculation method to effectively claim the deduction and optimize their tax savings.

See also  Section 80P: Deduction in respect of Income of Co-operative Societies
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