Deduction and Allowances Available under Income Tax Act 1961 against Expenses Incurred by Assesses

There are many and very common expenses which are allowed to the Assesses to claim as deduction under Income Tax which ultimately reduces the net taxable income and Income Tax, but the assesses are not aware about the expenses which they incurred in their daily life and not take care of the proof expenses. If they maintain the proper file of expense proof they will get ample benefits under Income Tax.

So here are some assesses wise list of expenses for your quick reference who can claim the deduction and allowances under Income Tax of such expenses:

♠ All Assesses having income from House Property:

  • Tax imposed by the local authority and paid by the owner-

While assessing or calculating the income from house property under section 22 of the Income Tax Act, any municipal taxes imposed by the local authority (including service taxes) shall be deducted from the income of the house property. There are only two conditions to claim deduction is (i) Taxes are borne by the owner and (ii) the taxes are actually paid by him in previous year.

  • Interest on borrowed Capital( Like Interest on Home Loan)-Section 24(b)

If money is borrowed for acquisition or construction of the house property, then deduction can be claimed upto Rs. 2, 00,000 subject to conditions that (i) Loan has been taken on or after April, 1999; (ii) acquisition or construction has been completed within 5 years etc.

If above mentioned conditions is not satisfied then Maximum deduction available is Rs. 30, 000.

♠ All Assesses having income from business and profession:

  • Rent, rates, taxes, repairs and insurance for owned buildings as well as buildings taken on rent (Section 30)

It is to be noted that the above mentioned expenditure shall not be the Capital Expenditure.

  • Repairs and insurance of machinery, plant and furniture (Section 31)

It is to be noted that the above mentioned expenditure shall not be the Capital Expenditure.

  • Depreciation on capital assets(Section 32):

All assessee can claim the depreciation on capital assets as deduction under this section. The condition to claim the deduction is (i) Asset must be owned by the assessee or if asset is on lease then assessee can claim the depreciation on cost incurred upon the improvement or renovation etc. (ii) Asset must be used for business purpose, if asset is used partly for residential purpose and partly for business purpose, then deduction available of depreciation on asset use for business purpose.

  • Expenditure on Scientific Research(Section 35)
  • Amortisation of preliminary Expenses(Section 35D):

If an Indian company or resident non-corporate assessee have incurred some expenses before the commencement of the business is eligible to take deduction after the commencement of the business by amortised the amount in each year.

  • Premium paid in respect of insurance against risk of damage or destruction of stocks / stores used for business or profession[Section 36(1)(i)]
  • Medical Insurance paid by the employers[Section 36(1)(ib)]
  • Bonus or commission paid to employees[Section 36(1)(ii)]
  • Interest on borrowed Capital[Section 36(1)(iii)]:

If an assessee has taken the business or profession loan, then he is eligible to take the deduction of interest amount paid on such borrowing under this section.

  • Contributions to recognized provident fund and superannuation fund[Section 36(1)(iv)]
  • Contributions to approved gratuity fund[Section 36(1)(v)]
  • Employees contributions to staff welfare schemes[Section 36(1)(va)]
  • Bad Debts[Section 36(1)(vii)]
  • Banking Cash Transaction Tax[Section 36(1)(xiii)]
  • Securities Transaction Tax[Section 36(1)(xv)]
  • Commodities Transaction Tax[Section 36(1)(xvi)]
  • Any Other Expenses not being personal or capital expenditure mentioned under section 30 to 36 of Income Tax Act, incurred wholly and exclusively for business(Section 37(1))
  • Expenditure on Advertisement(Section 37(2B)):

If any expenditure is incurred in respect of advertisement of any political party is not allowed as deduction under income tax. Any other expenses related to advertisement can be claimed as deduction.

  • Donation made by the person to certain funds and charitable institutions. (Section 80G):

Donation can be claimed upto 50%-100% of the amount of donation depends upon the category of fund or institutions where the assessee had donated the amount.

  Deduction available to individuals or HUFs:

  • Life Insurance Premium and Provident Fund Contribution( Section 80C).
  • Pension Fund( Section 80CCC).
  • Contribution made the individual towards National Pension System(NPS)[Section 80CCD(1)]

Please note that in all the above three category(Section 80C, Section 80CCC, Section 80CCD(1), the assessee is allowed to claimed the expenses upto Rs. 1, 50,000 only.

  • Medical Insurance Premium paid the assessee for himself, the spouse, parents and the dependent children (Section 80D)
  • All Maintenance including medical treatment expenses of a handicapped dependent who is a person with disability(Section 80DD)
  • Medical Treatment Expenses(Section 80DDB)

Maximum deduction can be claimed by the assessee in Assessment Year 2018-19 is Rs. 40,000; for Senior Citizen Rs. 60,000; for Super Senior Citizen Rs. 80,000.

  • Interest on deposits in savings account(Section 80TTA)
  • Income of a person with disability(Section 80U)
  • Income on deposits with bank/ cooperative bank/ post office(Section 80TTB).

Rahul Grover – info@raagconsultants.com

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