Tuesday, December 20, 2011

Deductions under Income Tax India Act 1961

 Section 80 C
Section 80C replaced the existing Section 88 with more or less the same investment mix available in Section 88.  The new section 80C has become effective w.e.f. 1st April, 2006.  Even the section 80CCC on pension scheme contributions was merged with the above 80C.  However, this new section has allowed a major change in the method of providing the tax benefit.  Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt.  One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall.
The total limit under this section is Rs 1 lakh. Included under this heading are many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C

Schemes eligible for Section 80C benefits

  • PPF
  • ELSS - Mutual Funds
  • NSC
  • KVP
  • Life Insurance
  • Senior Citizen Saving Scheme 2004
  • Post Office Time Deposit Account

Section 80CCC
Any individual who makes a contribution for any annuity plan of the Life Insurance Corporation of India or any other insurer is eligible for a deduction of the amount paid or Rs. 10,000, whichever is less. When an individual or his nominee receives any amount under the following circumstances it will be taxed as the income of the individual or his nominee, in the year of withdrawal or the year in which the pension is received:

  • On the surrender of the annuity plan or
  • As pension received from the annuity plan. 

Section 80CCD
The deduction for contributions to a pension scheme of the Central Government is available only to those individual who have been employed by the central government on or after 1st January 2004, and will be allowed for any amount deposited in such a pension scheme. But, in this case, deduction of more than 10 per cent of the employee's salary shall not be allowed.

The contributions to the fund are also made by the Central Government. Deduction will be available for any contribution which is made by the Central Government or 10 per cent of the employee's salary, whichever is less.

When the individual or his nominee receives any amount out of the scheme which meets the following descriptions, it shall be taxed in the hands of the recipient.
  • On closure/ opting out of the pension scheme; or
  • As pension received from the annuity plan.
The term 'salary' here includes Dearness Allowance (if considered for retirement benefits), but it excludes other allowances and perquisites.

The aggregate deduction under the Sections 80C, 80CCC and 80CCD cannot exceed Rs 1 lakh as whole

Section 80D
Any Premium which is paid for medical insurance that has been taken on the health of the assessee, his spouse, dependent parents or dependent children, is allowed as a deduction, subject to a ceiling of Rs 10,000.

Where any premium is paid for medical insurance for a senior citizen, an enhanced deduction of Rs 15,000 is allowed. The deduction is available only if the premium is paid by cheque.

Section 80DD
Deduction under this section is available to an individual who:
  • Incurs any expenditure for the medical treatment, training and rehabilitation of a disabled dependant; or
  • Deposits any amount in schemes like Life Insurance Corporation for the maintenance of a disabled dependant. An annuity or a lump sum amount is paid to the dependant or to a nominee for the benefit of the dependant in the event of the death of the individual depositing the money, from the said scheme,
A deduction of Rs 50,000 is available. Where the depandant is with a severe disability, a deduction of Rs 1,00,000 is allowed. (As per AY 2009-10)

If the death of the dependant occurs before that of the assessee, the amount in the scheme is returned to the individual and is taxable in his hands in the year that it is received.

An individual should furnish a copy of the issued certificate by the medical board constituted either by the Central government or a state government in the prescribed form, along with the return of income of the year for which the deduction is claimed.

The term 'dependent' here refers to the spouse, children, parents and siblings of the assessee who are dependant on him for maintenance and who themselves haven't claimed a deduction for the disability in computing their total incomes.

This deduction is also available to Hindu Undivided Families (HUF).

Section 80DDB
An individual, resident in India spending any amount for the medical treatment of specified diseases affecting him or his spouse, children, parents, brothers and sisters and who are dependant on him, will be eligible for a deduction of the amount actually spent or Rs 40,000, whichever is less.

Note:- For the complete list of disease specified, refer to Rule 11DD of the Income Tax Rules.

For any amount spent on the treatment of a dependent senior citizen an individual is eligible for a deduction of the amount spent or Rs 60,000, whichever is less is available.

The individual should furnish a certificate in Form 10-I with the return of income issued by a specialist working in a government hospital.

If any amount of medical expenditure is borne by the employer or is reimbursed under an insurance scheme, the eligibility of the deduction is the reduction to that extent. This deduction is also available to Hindu Undivided Families (HUF).

Section 80E
Under this section, deduction is available for payment of interest on a loan taken for higher education from any financial institution or an approved charitable institution. The loan should be taken for either pursuing a full-time graduate or post-graduate course in engineering, medicine or management, or a post-graduate course in applied science or pure science.

The deduction is available for the first year when the interest is paid and for the subsequent seven years. Up to March 2005, deduction was available for the repayment of principal and interest aggregating to Rs 40,000 a year.

Section 80U
It is deduction in the case of a person with a disability. An individual who is suffering from a permanent disability or mental retardation as specified in the persons with disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 or the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999, shall be allowed a deduction of Rs 50,000. In case of severe disability it is Rs. 75,000.

The assessee should furnish a certificate from a medical board constituted by either the Central or the State Government, along with the return of income for the year for which the deduction is claimed. 

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