Deductions from Gross Total Income and Tax Rebates

Under the scheme of computation of total income under the Income Tax Act, the income falling under each head is to be computed as per the relevant provisions of the Act relating to computation of income under that head (Refer Chapter IV). The aggregate of income under each head is known as 'Gross Total Income^' out of which certain deductions are permitted to arrive at the Total  Income'. These deductions are explained in this Chapter.

5.2 Deductions in respect of certain payments

5.2.1 Medical Insurance premia (Sec. 80D)

Premium paid upto the maximum amount of Rs. 10,000/-in a year, in respect of medical insurance on the health of the individual or the wife/husband or dependent parents or depend­ent children of such individual is allowed as a deduction provided the insurance is in accordance with the approved scheme of the General Insurance corporation and the premium is paid by cheque. If, however, any of the insured persons is a senior citizen, deduction can be of an amount upto Rs. 15000.

5.2.2  Payments for medical treatment of handicapped dependents (Sec. 80DD and 80DDA)

Where an assessee being an individual or a Hindu Undivided family resident in India incurs any expenditure for the medical treatment, nursing, training and rehabilitation of a handicapped dependent, deduction of Rs. 40,0007- is allowed from gross total income. The deduction includes payment or deposit under an approved scheme of the L.I.C. or the U.T.I. providing for payment of annuity or lump sum amount for the benefit of the handicapped dependent in the event of assessee's death.

5.2.3 Where an Indian resident incurs any expenditure for the medical treatment

Where an Indian resident incurs any expenditure for the medical treatment of specified disease or ailment for himself or a dependent relative, he is allowed a deduction of an amount actually incurred subject to maximum of Rs. 40,000/-. If he or any dependent relative is senior citizen, the deduction can go upto Rs. 60,000. The amount of deduction is to be determined after reducing the amount received under medical insurance (Sec. 80DDB).

5.2.4   Repayment of loan taken as a  student for pursuing higher studies (Sec. 80E)

Any repayment of the principal amount of loan taken from a financial institution or a recognised charitable organisation for higher studies and interest thereon is allowed as a deduction upto a maximum amount of Rs. 40,000/- in a year. The relief is available to persons who have undertaken graduate or post graduate courses in any branch of engineering, medicine or management or post-graduate courses in any university in pure sciences, applied sciences, mathematics or statistics. This deduction is allowed for a maximum period of 8 years beginning with the year in which repayment starts.

5.2.5   Donations to certain Funds, Charitable Institutions etc. (Sec. 80G)

Donations/contributions made to recognised charitable trusts/institutions and certain specified Funds are allowed as deduction. Full deducation is allowed in respect of certain donations like contributions towards the Prime Minister's National Relief Funds, Prime Minister's Armenia Earthquake Relief Fund, Chief Minister's Relief Fund, Africa Fund, National Foundation for Communial Harmony, Zita Saksharta, Samitis for Primary and Adult Education, National Sports Fund, National Cultural Fund. Fund for Technology Development and Application, Indian  Olympic Association (by companies only) and to the government, local authority or approved institution/organisation for promotion of family planning. Full deduction is also admissible in respect of any sum paid to a University or any approved educational institution of national eminence. Donations/contributions to other recognised charitable trusts and specified funds qualify for deduction of 50% of the amount donated or contributed. Deductions in respect of certain donations, such as donations to National Minorities Development and Finance Corporation are subject to overall qualifying limit of 10% of the 'Gross Total Income^'.

5.2.6  Rent payment (Sec. 80GG)

Expenditure in excess of 10% of total income incurred by an assessee (not in receipt of house rent allowance) on payment of rent in respect of residential accomodation occupied by him for his own residence is allowed deduction upto Rs. 2,0007- per month or 25% of total income, whichever is less.

5.2.7  Contributions for scientific research etc. (Sec. 80GGA)

Complete deduction is allowed in respect of contribution to-

1. Approved scientific research associations, University,College or other institution for scientific research;
2. Approved University, college or institution for research in social science or statistical research;
3. Approved association/institution having as its object the undertaking of any program of conservation of natural resources or of afforestation;
4. Rural Development Fund set up, and notified by the Central Government;
5. Fund for afforestation notified by the Central Government;
6. Public sector company, local authority or association or institution approved by the National Committee for carrying out any eligible project for social and economic welfare.
7. National Urban Poverty Eradication Fund.

These deductions are not allowed to those whose gross total income includes income chargeable under the head 'Profits and Gains of business or profession'. It is because they are entitled to claim such payments as allowable deductions in computation of income from business or profession.

5.2.8  Expenditure on employment of new workmen (Sec. 80JJAA)

Deduction of amount equal to 30% of additional wages paid to the new regular workmen by an Indian Company deriving profit from any industrial undertaking is allowed. Additional wages for this purpose means wages paid to new regular workmen in excess of one hundred workmen employed during the year and in case of an existing undertaking in excess of 10% of existing workmen.

5.3     Deduction in respect of certain income included in gross total income

5.3.1   Profit or gain derived from export or work done abroad.

Profit or gains derived from certain business activities qualify for deduction-fully or partly-subject to fulfilment of following conditions:-

1. The enterprise is run by resident of India;
2. Consideration for sale or work done is received in foreign currency;
3. Consideration is brought to India-fully or in the case mentioned at 1 below of amount equal to admissible deduction-in convertible foreign exchange;
4. Such amount is brought within six months or such extended time as may be permitted by R.B.I, or any other competent authority regulating payment and dealing in foreign exchange;
5. In cases mentioned at 1,2 and 3, a specified percentage of profit is carried to reserve account to be utilised for business purposes (not distribution of dividend or profit) for five years.

The business activities and admissible deduction are-

1	Execution of projects outside India (Sec. 80HHB)	upto  2000-1	-50%
		For    2001-2	-40%
		For    2002-3	-30%
		For    2003-4	-20%
		For    2004-5	-10%
		From 2005-6	class="table2"Nil
2	Execution of World-bank aided housing projects (Sec. 80 HHBA)	--Do--
3	Services provided to foreign tourists by hotels or tour operators (sec. 80 HHD)	--Do--
4	Export of goods or mercandise (Sec. 80HHC)	upto  2000-1	-100%
		For    2001-2	-80%
		For    2002-3	-60%
		For    2003-4	-40%
		For    2004-5	-20%
		For    2005-6	Nil
5	Export or transmission of computer software or rendering of technical services outside India for development or production thereof (Sec. 80HHE)	--Do--
6	Export or transmission of computer software or rendering of technical services outside India for development or production thereof (Sec. 80HHE)	--Do--

5.3.2. Profits and gains from industrial undertaking (sec. 80-1A and sec. 80-1B)

Deduction is allowed from profits and gains from -

(i)   Enterprise carrying on business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating infrastructure facility (such as road, highway, bridges, airports, rail systems, water treatment, solid waste management systems, etc. on BOT, BOOT or similar basis) which is owned by a company under agreement with the government or any statutory authority and which makes such facility operational after 1.4.95. The deduction also applies to housing or other activities which are integral part of the highway project.	100% of profit for initial five years and 30% thereafter so that the deduction will be available for ten conse­cutive assessment years falling within a period of fifteen assessment years. (The period will be twenty years in respect of water supply, irrigation, sanitation and sewerage project).
(ii) Undertaking which starts providing telecommunication services between 1.4.1995 and 31.3.2000.	100% of profit for initial five years and thereafter 30% of profit in the case of companies and 25% in the case of others for five years so that the deduction will be available for 10 consecutive years falling within fifteen initials assessment years
iii) Undertaking which begins to operate a notified industrial park for the period beginning 1.4.1997 and ending 31.3.2002.	--Do--
(iv) Industrial undertaking for generation or generation and distribution of power set up in any part of India which begins to generate power between 1.4.1993 and 31.3.2003 or engaged in laying a net work of new transmission or distribution lines between 1.4.1999 and 31.3.2003.	--Do--
(v) Undertakings not being small scale undertakings beginning production (other than of low priority items of eleventh schedule) between 1.4.91 and 31.3.95	30% of profit for compa­nies and 25% for others. The deduction is for 12 years in the case of cooperative societies and 10 years for others.
(vi) Small scale industrial undertakings set up anywhere which begin production of articles or operation of Cold Storage between 1.4.95 and 31.3.2002.	30% of profit for compa­nies and 25% for others for 12 years in the case of Cooperative Societies and 10 years in the case of others.
(vii) Industrial undertaking for producing articles or operating cold storage located in industrially backward state specified in the Eighth Scheduled which begins production or operation between 1.4.1993 and 31.3.2002.	100% of profit for initial five years and thereafter 30% for companies and 25% for other assesses, so that total number of years for which deduction is admissible will be 12 for Co-operative Societies and ten for others. In case of notified Industries in North-Eastern Region 100% deduction is admi­ssible for ten assessment years.
(viii) Industrial undertaking for producing articles or operating Cold Storage in notified backward districts of category A which begins production or operation between 1.10.94 and 31.3.2002.	--Do--
(ix) Industrial undertaking for producing articles or operating Cold Storage in notified backward districts of category B which begins production or operation between 1.10.94 and 31.3.2002.	100% deduction for initial three years and thereafter 30% for companies and 25% for others for further five years so that the total period for which deduction is allowable will be 8 years. (12 years for cooperative societies).
(x) Ships brought into use between 1.4.1990 and 31.3.95	30% of profit for ten years
(xi) The business of hotel (other 50% of profit for ten than those located in Calcutta,   years. Chennai, Delhi and Mumbai) located in a hilly area or a rural area or a place of pilgrimage or any other place specified by the Central Government and which starts functioning between 1.4.97 and 31.3.2001.
(xi) The business of hotel (other     than those located in Calcutta,   . Chennai, Delhi and Mumbai) located in a hilly area or a rural area or a place of pilgrimage or any other place specified by the Central Government and which starts functioning between 1.4.97 and 31.3.2001.	50% of profit for ten years
(xii)The business of approved hotel (except those located   in Calcutta, Chennai, Delhi and Mumbai) which are located in places other than those mentioned at (xi) above and which starts functioning between 1.4.97 and 31.3.2001.	30% of profit for ten years
(xiii)Company registered in India     carrying on scientific and industrial research and development which is approved by the prescribed authority at any time before 1.4.1999.	100% of profits for five    years
(xiv)Undertaking which begins  for initials commercial production or   refining of mineral oil in North Eastern Region before 1.4.1997 and in any part of India on or after 1.4.1997 (in case of refining on or after 1.10.1998)	100% of profit   seven years
(xv) Undertaking engaged in developing and building housing projects approved before 31.3.2001 by a local authority, subject to certain conditions, commencing activities on or after 1.10.1998 and completing the same by 31.3.2003	100% of profit derived from such business
(xvi) Undertakings engaged in setting up and operating a Cold chain facility for agricultural produce commen­cing operation between 1.4.1999 and 31.3.2003	100% for initials five years and thereafter 30% for companies and 25% for others so that thetotal period does not exceed 10 years (12 years for cooperative societies).

5.3.3   Profit from business of collecting and processing of biodegradable waste (Sec. 80JJA)

Whole of such income is allowed as deduction for five consecutive assessment years where such collection, processing or treating is for generating power, producing bio-gas, bio-fertilizers, bio-pesticide and for making pellets of briquettes or fuel or organic manure.

5.3.4   Interest on certain deposits, saving instruments, dividend, income from units etc. (Sec. 8OL)

Deduction is allowed upto an amount of Rs. 12,000/- in respect of income from long term saving instruments, deposits etc. Some of such instruments/schemes etc. are :-

1. Security of Central or State Government
2. National Saving Certificates (VI, VII or VIII issue)
3. Notified debentures
4. National Deposits Scheme
5. Post Office  (Time deposit)  Scheme,  Post Office (Recurring Deposit) National Saving Scheme 1992.
6. Deposits with Banking company or Industrial Devel­opment Bank of India or a Cooperative Society
7. Deposits with certain Financial Corporations providing long term finance for industrial development
8. Deposits with housing authorities
9. Interest on deposits from Co-operative Society
10. Deposits with housing finance companies

Where, however, full deduction in respect of items at (i) cannot be given because of the limit of Rs.12,000/-, an additional deduction upto Rs. 3,000/- can be allowed to cover these items.

5.3.5  Certain income of co-operative societies (Sec. 8OP)

Complete deduction is allowed in respect of income of cooperative societies engaged in the business of banking, cottage industry, marketing of agricultural produce, purchase of agricultural implements etc. intended for agriculture, processing of agricultural products without the aid of power, collective disposal of the labour of its members of fishing or allied activities. Complete deduction is also allowed to the primary societies engaged in supplying milk, oil seeds, fruits or vegetables raised or grown by its members to the Federal Co-operative Society, Government, local authority or a Government company. For societies engaged in activities other than those mentioned earlier, a separate deduction upto Rs. 1,00,0007- is available with respect to profit from such other activities to a consumers' cooperative society and upto Rs. 50,0007- to any other cooperative society. Apart from this general deduction, the whole of certain types of income is allowed as deduction. Income by way of dividend or interest from investments with other cooperative society and income from letting godowns for specific purposes are allowed as deduction in full. Cooperative societies, not engaged in transport and manufacturing business and having gross total income of upto Rs. 20,0007- are entitled to deduction of whole of interest on securities and income from house property.

5.3.6  Income of totally blind or physically handicapped resident persons or their parent (Sec. 80U)

A deduction of Rs. 40,0007- is allowed out of the income of an individual who at the end of the year was totally or partially blind or who suffered from a permanent physical disability or mental retardation of the order which had the effect of reducing substantially his capacity to engage in a gainful employment.

This deduction is available only to a resident individual.

5.4     Deduction in respect of income received in foreign currency

5.4.1   Income from services for use Outside India

Income from certain services rendered abroad or for use outside  India qualify for deduction subject to the following conditions:-

1. Services are rendered by persons resident in India or in case of income referred to at 2 & 4 (Sec. 80R hi, h rand 80RRA) by a person who is citizen of India.
2. Consideration is received in foreign currency.
3. The same is brought in India in convertible foreign exchange within six months from the end of the previous year or within such extended time as may be permitted by the Reserve Bank or any competent authority regulating payment of or dealing in foreign exchange.
4. The deduction is equal to the specified percentage of the income so brought in India.

Income qualifying for deduction and admissible deductions

1. Royalties, commission, fees or or any similar payment received from foreign government or a foreign enterprise for use outside India of any patent invention, design or registered trade mark-(Sec. 80-O)	Upto 2000-1	50%
	For 2001-2	40%
	For 2002-3	30%
	For 2003-4	20%
	For 2004-5	10%
	For 2005-6	Nil
2. Remuneration of a professor, teacher or research worker for service rendered in these capacities during stay outside India (Sec. 80-R)	Upto 2000-1	75%
	For 2001-2	60%
	For 2002-3	45%
	For 2003-4	30%
	For 2004-5	15%
	For 2005-6	Nil
3.Income of author, playwright,artist, musician, actor or sportsman (including an athlete) received from a foreign government or a person not resident in India (Sec. 80-RR)	--Do--
4.Remuneration from an employer for services rendered outside India received by a serving of former government employee if such services are sponsored by the Central government or any other individual as a technician if the terms and conditions of service outside India is approved by the Central Government or the prescribed authority. (Sec. 80-RRA)	--Do--

5.5     Tax Rebates (Sec 88 and 88B)

5.5.1 A tax rebate @25% for authors, artists and sportsman and ©20% for others of the amount saved and invested in specified areas is allowable subject to the maximum of Rs. 17,500/- for authors, artists and sportsman and Rs. 12,000/- for others. Certain payments which qualify for such tax rebate are:-

1. Life Insurance premium or payment for a contract of deferred annuity.
2. Contribution to a statutory or recognised provident fund, approved superannuation fund or public provi­dent fund.
3. Payment in a ten year or fifteen year account under the Post Office (Cumulative Time Deposit) Scheme.
4. Subscription to the National Savings Certificate (VIII issue).
5. Contribution to unit Linked Insurance Plan of the Unit Trust of India or Dhanaraksha-1989 plan of the LIC Mutual Fund.
6. Contribution to "Jeevan Dhara" and "Jeevan Akshay", annuity plans of the Life Insurance Corporation of India.
7. Subscription to the notified schemes of the Unit Trust of India or other notified mutual Funds (rebate allowable on amount upto Rs. 10,000/-)
8. Subscription to the notified Pension Funds of the notified Mutual Funds or the Unit Trust of India.
9. Subscription to home loan account scheme of National Housing Bank.
10. Subscription to the National Savings Scheme of the Government.
11. Money spent on acquisition or construction of residential house or repayment of loan taken for the purpose from specified sources, Rebate is admissible in respect of such expenditure upto Rs. 20,000/-
12. Subscription to equity shares or debentures or to units of any mutual fund approved by the Board or to any eligible issue of capital by any public financial institution provided no benefit has been taken under section 54EA and 54EB (Para 4.5.7).

5.5.2 A tax rebate equal to  100% of tax or Rs.  15000/- whichever is less is allowed to a resident senior citizen who is aged 65 years or more at any time during the previous years.

5.5.3 A woman resident of India who is below the age of 65 years at any time during the previous year is entitled to a tax rebate of an amount upto Rs. 5000/-

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