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Permissible Deductions Under Chapter VI A

Permissible Deductions Under Chapter VI A. Introduction. Chapter VI A of the Income Tax Act, 1961 provides for certain deductions to be made in computing the total income. The deductions are to be made from Gross Total Income.

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Permissible Deductions Under Chapter VI A

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  1. Permissible Deductions Under Chapter VI A

  2. Introduction • Chapter VI A of the Income Tax Act, 1961 provides for certain deductions to be made in computing the total income. • The deductions are to be made from Gross Total Income. • These deductions are in respect of various payments or incomes of the assesse. • The basic purpose of the deduction is to encourage savings and increase contribution to national fund which is utilised for the national cause. • There exist a difference between Exemptions and deductions. • Income Exempt from tax does not form part of the total income whereas deductions are allowed from gross total income in order to arrive at the taxable income. • Income Exemption is normally subject to certain limits of exemption whereas deduction is normally allowed based on payment or fulfilment of certain conditions. • The aggregate amount of deductions under this chapter shall not exceed the gross total income under any circumstances.

  3. Deductions: • Deduction in respect of Life Insurance Premia, Deferred Annuity, Contribution to Provident Fund, Subscriptions to certain Equity Shares or Debentures Etc.: u/s 80C • Deduction in respect of contribution to certain Pension Funds: u/s 80CCC • Deduction in respect of contribution to a Notified Pension System (NPS): 80CCD • Limit of Deduction :u/s 80CCE • Deduction in Respect of Medical Insurance Premia: u/s 80D • Deduction in respect of interest on loan taken for higher Education: u/s 80E • Deductions in respect of Donations to certain Funds, charitable institutions: u/s 80G • Deduction in respect of Interest on Deposits in Saving Account: u/s 80TTA • Deduction in the case of Person with Disability: u/s 80U

  4. Deduction in respect of Life Insurance Premia, Deferred Annuity, Contribution to Provident Fund, Subscriptions to certain Equity Shares or Debentures Etc.: u/s 80C Deduction under this section is available to an Individual and HUF. Following are the specified savings qualifying for deduction u/s 80C: • Life Insurance Premium Paid: • Any life insurance premium paid by a person toeffect or to keep in force an insurance i.e. life policy or endowment policy. • These insurance policies can be taken on the life of an individual assesse, his/her spouse and any child of an individual, and In case of HUF on any of its members. • Payment of premium which is in excess of 20% of the actual capital sum assured, shall not be included in gross qualifying amount of deduction. • From A.Y. 2013-14 the above limit of 20% is reduced to 10% for policies issued on or after 1/4/2012 • The above limit of 10% is enhanced to 15% in case of insurance policy on life of a person who is : • A Person with disability or person with severe disability as referred to in section 80U • Suffering from a disease or ailment as specified in the rules made u/s 80DDB.

  5. 2. Non-Commutable Deferred Annuity: • Payment in respect of non-commutable deferred annuity (for individuals only) • Such deferred annuity plans may be taken in the name of the individual, the wife or husband and any child of such individual. 3. Deferred Annuity by Government: • Any sum deducted from salary payable to a govt. employee for the purpose of securing him a deferred annuity ( for individuals only) • Maximum of 20% of salary • It should be for the benefit of the individual, spouse or children.

  6. 4. Contribution to Statutory Fund: • Contribution made by an individual towards any provident Fund to which the Provident Fund Act, 1925 applies. 5. Contribution to Public Provident Fund: • Contribution made by the assesse to the Public Provident Fund in the name of the assesse himself, his/her spouse and any child of such individual and in case of HUF, any members of the family. 6. Contribution to Recognised Provident Fund: • Any contribution made by the employee to Recognised Provident Fund. 7. Contribution to Superannuation Fund: • Contribution by an employee towards approved superannuation Fund. 8. Post Office CTD: • Any sum deposited in a 10 year or 15 year account under Post Office Saving Bank (CTD) Rules, 1959 in the name of the assesse himself or in case of HUF any such member of the family.

  7. 9. NSS: • Any subscription to notified security of the central Government or any notified saving scheme (i.e. NSS, 1992). 10. NSC VIII Issue: • The interest on such National Saving Certificate is charged to tax under the head income from other sources and the same is deemed to be reinvested hence eligible for deduction u/s 80c till 5th year and on 6th year since it is paid the same does not qualify for deduction. 11. ULIP of UTI: • Any Contribution made by an individual for participating in the Unit Linked Insurance Plan of Unit Trust of India in the name of the assesse individual himself, his/her spouse and any child of such individual and in case of HUF, any members of such family. 12. ULIP of LIC (Dhanraksha): • Any Contribution made by an individual for participating in the Unit Linked Insurance Plan of LIC Mutual Fund notified u/s 10(23D) (called as Dhanraksha) in the name of the assesse individual himself, his/her spouse and any child of such individual and in case of HUF, any members of such family.

  8. 13. Annuity Plan (JeevanDhara & JeevanAkshay): • Any payment to keep in force a contract of annuity plan) i.e. JeevanDhara and JeevanAkshay) of Life Insurance Corporation or any other Insurer. 14. Equity Linked Saving Scheme of any Mutual Fund: • Any amount of subscription to any units of Mutual Fund notified u/s 10 (23D) of Unit Trust of India or under any plan or scheme formulated in accordance with Central Govt. notified in this behalf. 15. Notified Pension Fund: • Any contribution to notified Pension Fund set up by a Mutual Fund notified u/s 10 (23D) or by UTI. 16. Deposit Scheme of NHB: • Any subscription to any such deposit scheme of National Housing Bank or Pension Fund set up by National Housing Bank and notified by the Central Government in this behalf.

  9. 17. Housing Finance Deposit: • Any amount paid as subscription to any such deposit scheme of : • Public sector Companies engaged in providing long term finances for construction or purchase of house in India for residential purpose. • Any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the needs of housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or both. 18. Tuition fees of any 2 Children: • Any sum paid as tuition fee whether at the time of admission or thereafter to any university, college, school or other educational institution situated within India, for the purpose of full time education of any 2 children of an assesse shall qualify for rebate. • However the eligible amount shall not include any payments towards any development fees or donation or payment of similar nature. 19. New House: • Any payment made for the purpose of purchase or construction of a residential house property, the income from which is chargeable to tax under the head Income from House Property

  10. 20. Subscription to infrastructure Debentures and Shares: • Any subscription by the assesse to equity shares or debentures forming part of eligible issue of capital approved by the board on an application made by the public company to the board. • The proceeds of which will be utilised wholly and exclusively for developing, maintaining and operating an infrastructure or for generating and distributing or for providing telecommunication services. 21. Infrastructure Units: • Any subscription by the assesse to any units of Mutual Fund notified u/s 10 (23D) and approved by the board, on an application made by such Mutual Fund. • The proceeds of which will be utilised wholly and exclusively for developing, maintaining and operating an infrastructure or for generating and distributing or for providing telecommunication services. 22. 5year Term Deposit with Scheduled Bank: • A term deposit for a period of not less than 5 years with a scheduled bank in accordance with a scheme framed by the central Government.

  11. 23. Any subscription to Bonds issued by National Bank for Agricultural and Rural Development as the central Government may notify. 24. 5 year Term Deposit in an account under Post Office Time Deposit Rules,1981 25. Deposit in any account under the Senior Citizens Saving Scheme Rules, 2004 26. Any contribution made by the assesse for the girl child under the Sukanya Samridhi account scheme.

  12. Points to be considered for claiming deduction under section 80C • Deduction is allowed on payment basis irrespective of the fact whether the payments relate to the previous year or years preceding the previous year or ensuing year. • Minimum period of holding in some cases In case of withdrawal / transfer/ termination of the investment before the minimum period of holding, the amount of deduction allowed in the preceding years would be deemed as income for the year in which the investment is withdrawn / transferred/ terminated or discontinued.

  13. Amount of deduction: Actual amount invested/paid or Rs. 150000 whichever is less. However the total deduction an assessee can claim u/s 80C, 80CCC and 80CCD shall be restricted in aggregate of Rs. 150000.

  14. Illustration Mr.Rohit provides you the following particulars for the year ended 31.03.2018. you are required to compute the eligible deduction U/Sec.80C for Mr.Rohit for the A.Y 2018 -19. • Investment in NSC Rs.10,000 • Housing loan principal repayment Rs.72,000 to HDFC bank. • Rs. 40,000 life insurance premium paid against policy of sum assured Rs.3,00,000. • Contribution to PPF Rs.40,000 • Annual premium of Rs.10,000 paid for ULIP of UTI. • Tution fees of Rs.10,000 for the Son doing BMS, and for daughter Rs. 45,000 doing her MS in U.S.A.

  15. Computation of Deduction eligible u/s.80CAmt. of Deduction u/s. 80C Actual invested/paid or 1,50,000 ------------whichever is less1,72,000 or 1,50,000 -------whichever is less.Therefore the amt. eligible for deduction u/s. 80 C is Rs.1,72,000

  16. Following points should be considered while calculating the aggregate amount of specified savings referred to point 1 to 25: • Contribution to any fund will not include any sums in repayment of loan taken from that fund. • Payment for purchase or construction of residential house will include any instalment or part payment of the amount due under any self-financing or other scheme of any development authority or housing board of which assesee is a shareholder/member. • It will also include repayment of loan borrowed by the assesse from govt., any bank, LIC, NHB, Businesses engaged in providing long term finance, Public sector companies and Assessee’s employer where such employer is Public Sector Company. • Payment towards the cost of the house property will include stamp duty, registration fee & other expenses for the purpose of transfer of house to the assessee. • It will not include any cost of addition/alteration/renovation/repair incurred after the house is occupied/let out by the assessee or any expenditure in respect of which deduction is allowed u/s 24.

  17. c) Under sec. 80c(5), where, in any previous year, an assesse- • Terminates contract of life insurance (referred to in item 1), by notice or where the contract ceases to be in force by reason of failure to pay any premium, before premium have been paid for 2 years; or • Terminates his participation in any ULIP of UTI or LIC , (referred to in item 11 & 12)), by notice or where he ceases to participate by reason of failure to pay contribution, before contributionhave been paid for 5 years; or • Transfers the residential house property, (referred to in item 19), before the expiry of 5 years from the end of the financial year in which possession of such property is obtained by him. d) Under section 80c (6), if any equity shares or debentures, (referred to in item 20 and 21 above), with reference to the cost of deduction is allowed u/s 80c are sold or transferred by assessee to any person within a period of 3 years from the date of their acquisition, then the aggregate amount of deductions allowed shall be deemed to be the income of the assessment year relevant to such previous year.

  18. e) Under section 80c (6A) any amount (referred to in item 24 & 25) including interest accrued if any, is withdrawn by the assessee from such account before a expiry of a period of 5 years from the date of deposit, the amount so withdrawn along with the interest shall be deemed to be the income of the assesse of the previous year in which it is withdrawn. However, if such amount is received by the nominee or legal heir of the assessee, on the death of such assesse, the amount so received shall not be liable to tax.

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