Deductions under Section 80: A Pathway to Tax Savings for Individuals and Businesses

Introduction:

The majority of taxpayers in the nation are salaried workers, and they also contribute significantly to tax income. There are multiple ways for salaried people to save money using income tax deductions. These exemptions and deductions allow one to lower their taxable income drastically. India’s tax system has several provisions designed to lessen the burden on taxpayers. The Income Tax Act’s Section 80, which gives taxpayers several deductions to lower their taxable income, is one of its most important parts. Since its enactment, Section 80 has undergone multiple amendments and additions. These changes have included the addition of new provisions to address changing financial circumstances, promote certain behaviors such as retirement savings (NPS under 80CCD) and affordable housing (deductions under 80EEA), and support other social and economic goals. This development is a reflection of the government’s intention to continuously improve the tax code to make it more in line with modern financial goals and needs while promoting economic growth. Let’s examine the major deductions that fall under each of Section 80’s subsections in more detail.

Section 80 of the Income Tax Act:

Section 80A of the Income Tax Act deals with the deductions that can be claimed by an assessee while computing their total income.

1. Deductions under Sections 80C to 80U can be claimed from the gross total income of an assessee while computing their total income.

2. 2. The aggregate number of deductions under this chapter cannot exceed the gross total income of the assessee.

3. In the case of an association of persons or a body of individuals, if any deduction is claimed under Sections 80G, 80GGA, 80GGC, 80HH, 80HHA, 80HHB, 80HHC, 80HHD, 80-I, 80-IA, 80-IB, 80-IC, 80-ID, or 80-IE, then no deduction under the same section shall be allowed to the members of the association or body about their share of income.

4. If any amount of profits and gains of an undertaking, unit, enterprise, or eligible business is claimed and allowed as a deduction under Sections 10A, 10AA, 10B, 10BA, or any provision under the heading “C.-Deductions in respect of certain incomes,” then no other deduction shall be allowed for such profits and gains under any other provision of the Act.

5. If the assessee fails to claim any deduction under Sections 10A, 10AA, 10B, or 10BA, or any provision under the heading “C.-Deductions in respect of certain incomes” in their return of income, then no deduction shall be allowed to them under those provisions.

6. If any goods or services held for an undertaking, unit, enterprise, or eligible business are transferred to any other business carried on by the assessee, or vice versa,. If the consideration for such a transfer does not correspond to the market value, then the profits and gains of such undertaking, unit, enterprise, or eligible business shall be computed as if the transfer had been made at the market value.

7. If a deduction is claimed and allowed under any provision under the heading “C.-Deductions in respect of certain incomes” for profits of any specified business referred to in Section 35D(8)(c), then no deduction under Section 35AD shall be allowed about such specified business for the same or any other assessment year.

Deductions under the Taxation Law:

Section 80C of the Income Tax Act 

Section 80C of the Income Tax Act provides for various deductions that an individual or a Hindu Undivided Family (HUF) can claim while computing their total income.

a) Deduction Limit: The maximum deduction allowed under this section is Rs. 1,50,000 for the aggregate of the eligible investments/payments made during the previous year.

b) Eligible Investments/Payments: 

• Life insurance premiums paid for self, spouse, and children: This refers to the premiums paid towards life insurance policies taken for the assessee (i.e., the individual or HUF), their spouse, and their children.

• Contributions to Provident Funds (PF), Superannuation Funds, and Approved Pension Funds:
  • Provident Funds (PF): Contributions made by an employee towards a recognized provident fund set up by their employer.
  • Superannuation Funds: Contributions made by an employee towards an approved superannuation fund set up by their employer.
  • Approved Pension Funds: Contributions made towards any pension fund set up by a mutual fund or

other specified entity, as notified by the Central Government.

• Investments in the Public Provident Fund (PPF), National Savings Certificates, etc.:
  • Public Provident Fund (PPF): Investments made in the PPF scheme administered by the Central Government.
  • National Savings Certificates: Investments made in various savings certificate schemes, such as the National Savings Certificate (NSC), as notified by the Central Government.

• Subscription to equity shares/debentures of eligible domestic companies: This refers to the subscription to equity shares or debentures forming part of an eligible issue of capital by a public company or public financial institution, as approved by the Board (Central Board of Direct Taxes).

• Tuition fees paid for full-time education of self, spouse, and children: This includes tuition fees (excluding any payment towards development fees, donations, or similar payments) paid for the full-time education of the assessee, their spouse, or their children, at any educational institution situated in India.

• Principal repayment for the purchase/construction of a residential house property: This covers various payments made towards the purchase or construction of a residential house property, including installments or part payments towards housing schemes, repayment of housing loans from specified entities, and certain expenses related to the transfer of the house property.

• Stamp duty, registration fees, and other expenses for house property transfer: This includes stamp duty, registration fees, and other expenses incurred for the transfer of a residential house property to the assessee.

• Contributions to certain notified deposit schemes and pension funds: This refers to contributions made towards specific deposit schemes or pension funds set up by entities like the National Housing Bank, public sector companies, housing authorities, or other notified entities.

• Subscription to units of eligible mutual funds: This covers subscriptions to units of mutual funds referred to in Section 10(23D) of the Income Tax Act and approved by the Board, provided the proceeds are utilized for specified business purposes.

• Term deposits with scheduled banks for a fixed period of not less than 5 years under a notified scheme: This includes term deposits with scheduled banks for a fixed period of not less than 5 years, made by a scheme framed and notified by the Central Government for Section 80C.

c) Conditions and Exclusions: The deduction is subject to various conditions and restrictions specified for each eligible investment or payment. Certain payments, such as the cost of additions/alterations to a house property, are excluded from the deduction.

Hence, individual taxpayers and Hindu undivided families fall under the eligibility criteria of Section 80C. Section 80C tax deductions are not available to corporations, partnership firms, or other types of businesses.

Section 80CCC of the Income Tax Act

Section 80CCC provides a deduction for contributions made by an individual to certain pension funds.

a) Eligibility: An individual assessee who has paid or deposited any amount out of their taxable income towards a pension annuity plan approved by LIC or any additional insurer who receives pension payments from a fund mentioned in Section 10(23AAB).

The Hindu Undivided Family (HUF) is not eligible to collect the tax benefit under Section 80CCC.

What is Section 10(23AAB)?

According to Section 10 (23AAB) of the Income Tax Act, 1961, an individual’s contributions to an annuity plan offered by the Life Insurance Corporation (LIC) of India or to maintain the status of a pension plan offered by any other recognized insurer in India are deductible from taxes if they are made on or after August 1, 1996. This benefit is only available if the Insurance and Development Authority of India (IRDAI) has approved the insurer offering the subscriber a pension plan.

b). Deduction Amount: The deduction is allowed for the whole amount paid or deposited during the previous year, excluding any interest or bonus credited, up to a maximum of Rs. 1,50,000.

c) Taxability of Withdrawal: If any amount standing to the credit of the assessee in the pension fund, along with interest/bonus, is withdrawn on account of:

a) Surrender of the annuity plan (fully or partially) in any previous year, or

b) Receipt of pension from the annuity plan,

then the entire withdrawn amount shall be deemed as the assessee’s (or nominee’s) income for that previous year and taxed accordingly.

Interaction with Other Deductions: This provision prevents double benefits for the same investment amount.

• For assessment years ending before April 1, 2006, if the assessee has claimed a deduction under Section 80CCC for contributions made towards an eligible pension fund, they cannot claim a rebate under Section 88 concerning the same amount.
• For assessment years beginning on or after April 1, 2006, if the assessee has claimed a deduction under Section 80CCC for contributions made towards an eligible pension fund, they cannot claim a deduction under Section 80C regarding the same amount.

 Section 80CCD of the Income Tax Act

It deals with deductions concerning contributions to the pension scheme of the Central Government.

1. Deduction for Individuals:

 a) For Central Government employees employed on or after January 1, 2004, and other employed individuals: This allows a deduction for the entire amount paid or deposited by such individuals in a pension scheme notified by the Central Government, up to a maximum of 10% of their salary for the previous year.

b) For other individuals: This provision allows a deduction for other individuals (not covered in (a) above) up to a maximum of 20% of their gross total income for the previous year, for the amount paid or deposited in a notified pension scheme.

2. Additional Deduction: Over and above the deduction allowed in point 1, this provision allows an additional deduction of up to Rs. 50,000 for the amount paid or deposited in a notified pension scheme by any assessee (individual) referred to in point 1. However, this additional deduction cannot be claimed for the same amount for which a deduction has already been claimed under point 1

3. Deduction for Employer’s Contribution: This allows a deduction for the assessee (individual) for the amount contributed by their employer (the Central Government or any other employer) to their account under the notified pension scheme, up to a maximum of 10% of the assessee’s salary for the previous year.

4. Taxability of Withdrawals: If the assessee (or their nominee) receives any amount standing to their credit in the pension account, including accruals, either due to closure or opting out of the pension scheme, or as pension received from an annuity plan purchased upon such closure/opting out, the entire amount received is deemed to be the income of the assessee (or nominee) in the year of receipt and is taxable accordingly. However, amounts received by a nominee upon the death of the assessee are exempt from taxation.

5. Interaction with Other Deductions:

a) No rebate under Section 88 shall be allowed for any assessment year ending before April 1, 2006, for the amount for which a deduction has been claimed under this section.

b) No deduction under Section 80C shall be allowed for any assessment year beginning on or after April 1, 2006, for the amount for which a deduction has been claimed under this section.

This ensures that the assessee cannot claim multiple deductions or rebates for the same investment amount under different sections.

6. Annuity Plan Purchase: If the assessee uses the amount withdrawn from the pension account to purchase an annuity plan in the same previous year, they are deemed not to have received that amount in that year. This defers the taxation of the withdrawn amount until it is received as annuity income.

Section 80D of the Income Tax Act

This section allows a deduction for health insurance premiums and medical expenditures incurred by an individual or a Hindu Undivided Family (HUF).

1. For Individuals:

a) Deduction for premium paid to insure self, spouse, and dependent children, including contributions to the Central Government Health Scheme or other notified schemes, as well as preventive health check-up expenses – up to Rs. 25,000.

b) Deduction for premium paid to insure parents, including preventive health check-up expenses up to Rs. 25,000.

c) Deduction for medical expenditure incurred on self, spouse, and dependent children – up to Rs. 50,000.

d) Deduction for medical expenditure incurred on parents – up to Rs. 50,000.

e) The total deduction under (a) & (c) or (b) & (d) cannot exceed Rs. 50,000.

f) For senior citizens, the deduction limits under (a) and (b) are increased to Rs. 50,000 each.

2. For HUFs:

a) Deduction for a premium paid to insure any member of the HUF – up to Rs. 25,000.

b) Deduction for medical expenditure incurred on any member of the HUF – up to Rs. 50,000.

c) The total deduction under (a) and (b) cannot exceed Rs. 50,000.

3. If the premium is paid in a lump sum for more than one year, the deduction is allowed proportionately for each relevant previous year.

4. The health insurance scheme should be approved by:

a) The General Insurance Corporation of India, or

b) Any other insurer approved by the Insurance Regulatory and Development Authority of India (IRDAI).

5. Sub-section (2B) specifies that the payment for preventive health check-ups can be made by any mode, including cash, while for other payments, cash is not allowed.

Section 80E of the Income Tax Act

Section 80E provides tax relief to individuals by allowing them to claim a deduction for interest paid on educational loans taken for higher studies

1) This section allows a deduction for interest paid on an educational loan taken by an individual:

-For pursuing their own higher education

-For higher education of their relative (spouse, children, or student for whom they are the legal guardian)

2) The deduction is allowed for the initial assessment year in which the interest payment starts, and the next 7 assessment years immediately following that. or, whichever comes first, until the interest is settled in full.

Section 80G of the Income Tax Act

Section 80G deals with deductions allowed for donations made to certain specified funds, charitable institutions, etc.

1. Deduction Amounts: 100% deduction for donations to certain specified funds like National Defense Fund, Prime Minister’s National Relief Fund, Prime Minister’s Armenia Earthquake Relief Fund, National Children’s Fund, Indira Gandhi Memorial Trust, National Foundation for Community Harmony, approved educational institutions, Chief Minister’s Relief Funds, etc. This means the entire amount donated to these funds is allowed as a deduction.

For other donations, a deduction of 50% of the donated amount is allowed. However, if the donation includes any amount towards the funds/purposes mentioned above, then 100% of that amount plus 50% of the remaining amount is allowed as a deduction.

2. Eligible Donations: Donations to various national/state funds set up for relief, welfare, and development purposes, like the National Defense Fund, PM’s Drought Relief Fund, National Children’s Fund, etc.

Donations to charitable institutions, trusts, or funds approved by the prescribed authority. Donations for the renovation or repair of temples, mosques, churches, or other historically/archaeologically important places are notified by the government. Donations to the Indian Olympic Association or other approved institutions for the development of sports infrastructure or sponsorship of sports in India. Donations were made during a specific period (26th Jan 2001 to 30th Sept 2001) to approved trusts/institutions for providing relief to victims of the Gujarat earthquake.

3. Conditions for Charitable Institutions: The income of the institution/fund should not be liable for inclusion in its total income under sections 11, 12, or 10(23AA)/(23C), except for business income if certain conditions are met.

• The institution/fund ought not to serve the interests of any certain caste or religious group.
• The institution/fund should maintain regular accounts of its receipts and expenditures.
• It should be registered as a public charitable trust, society, or company under specific laws, or be a recognized educational institution.
• It should be approved by the Commissioner of Income Tax in accordance with the prescribed rules.

4. Limits: If the aggregate of certain donations (specified in sub-clauses (iv), (v), (vi), (via), and (vii) of clause (a) and clauses (b) and (c) of sub-section (2)) exceeds 10% of the gross total income, the excess amount is ignored for deduction purposes. Cash donations above Rs. 2,000 are not eligible for deduction.

5. Other Provisions: No double deduction is allowed for the same donation under any other provision of the Income Tax Act. If an institution/fund incurs expenditures of a religious nature for up to 5% of its total income in a previous year, it is still considered eligible for the deduction under this section. For donations made towards Gujarat earthquake relief, there are additional conditions like separate account maintenance, time limits for utilization of funds, and reporting requirements.

Section 80GG of the Income Tax Act

This section deals with the deduction allowed for rent paid towards residential accommodation by an assessee (taxpayer) who does not have income falling under Section 10(13A) of the Income Tax Act. This section provides tax relief to individuals by allowing a deduction for rent paid towards residential accommodation, subject to certain conditions and limitations.

1. The assessee can claim a deduction for rent paid more than 10% of their total income.

2. The maximum deduction allowed is the lower of:

 a) The excess rent paid over 10% of total income, or

b) 5,000 per month, or

c) 25% of the total income for the year.

3. There are certain conditions and limitations prescribed, considering factors like the area or place where the accommodation is situated.

4. The deduction is not available if:

a) The assessee, spouse, minor child, or Hindu undivided family owns residential accommodation at the place of residence, employment, business, or profession.

b) The assessee owns accommodation at any other place, the value of which is taxable under Section 23(2)(a) or 23(4)(a).

5. The expressions “10% of total income” and “25% of total income” refer to the total income before allowing the deduction under this section.

Section 80QQB of the Income Tax Act

Section 80QQB of the Income Tax Act provides a deduction for authors of certain books (other than textbooks) in respect of their royalty income or income from the assignment or grant of copyright interests. Here’s an in-depth summary of this section:

1. Eligibility: This deduction is available to individuals who are residents of India and are authors who derive income from their profession through royalties, copyright fees, or lump sum consideration for the assignment or grant of interests in the copyright of any book being a work of literary, artistic, or scientific nature (excluding textbooks).

2. Deduction Amount:

a. The deduction is equal to the whole of such income referred to in (1) above, or Rs. 3 lakh, whichever is less.

b. If the royalty or copyright fee is not a lump sum consideration for all rights, then the income over 15% of the value of books sold during the previous year (before allowing expenses) shall be ignored for the deduction.

3. Income from Foreign Sources: For income earned from sources outside India, only the amount brought into India by or on behalf of the assessee in convertible foreign exchange within 6 months from the end of the previous year (or any further period allowed by the competent authority) shall be considered for deduction.

4. Mandatory Certificates:

a. The assessee must furnish a certificate in the prescribed form and manner, duly verified by the person responsible for making the payment, along with the return of income, providing prescribed particulars.

b. For income from foreign sources, the assessee must furnish a certificate in the prescribed form from the prescribed authority, along with the return of income in the prescribed manner.

5. Exclusivity of Deduction: If a deduction has been claimed and allowed under this section for any previous year, no deduction for such income shall be allowed under any other provision of the Income Tax Act in any assessment year.

Section 80U of the Income Tax Act

Section 80U of the Income Tax Act provides for a deduction for resident individuals who are certified as persons with disabilities.

1. Eligibility: The deduction is available to resident individuals who are certified by the medical authority as persons with disabilities at any time during the previous year.

2. Deduction Amount:

a. For persons with disabilities: Rs. 75,000.

b. For persons with severe disabilities: Rs. 1,25,000.

3. Certificate Requirement:

a. The individual must furnish a copy of the certificate issued by the medical authority in the prescribed form and manner, along with the return of income.

b. If the certificate has an expiry period and requires reassessment, a new certificate must be obtained from the medical authority and furnished along with the return of income for the assessment year after the expiry of the previous certificate.

4. Definitions:

a. “Disability” has the meaning assigned in the Persons with Disabilities Act, 1995, and includes autism, cerebral palsy, and multiple disabilities as per the National Trust Act, 1999.

b. “Medical authority” means the authority specified under the Persons with Disabilities Act, 1995, or any other authority notified by the Central Government for certifying various disabilities under the National Trust Act, 1999.

c. “Person with a disability” is as defined under the Persons with Disabilities Act, 1995, or the National Trust Act, 1999.

d. “Person with severe disability” means:

i. A person with 80% or more of one or more disabilities as per the Persons with Disabilities Act, 1995, or

ii. A person with severe disability as per the National Trust Act, 1999.

Conclusion:

To conclude, Section 80 of the Income Tax Act provides a comprehensive set of deductions that taxpayers can claim to reduce their taxable income. These deductions cover a wide range of areas, including investments in specific savings schemes, contributions towards retirement funds, expenditures on education and health care, and donations to charitable institutions and relief funds. The various sub-sections under Section 80 cater to different segments of taxpayers, such as salaried individuals, authors, persons with disabilities, and others. These deductions incentivize taxpayers to save and invest for their future, promote education and health care, and encourage philanthropic activities. The provisions under Section 80 have undergone periodic revisions and amendments to align with changing economic scenarios and societal needs. This flexibility allows the government to introduce new deductions or modify existing ones to encourage specific behaviors or support specific sectors.

Overall, Section 80 of the Income Tax Act plays a crucial role in providing tax relief to taxpayers while simultaneously promoting savings, investments, and socially responsible activities. By offering deductions for a wide range of expenditures and investments, the government aims to strike a balance between revenue collection and fostering economic growth and societal welfare.

Reference:

1. Deductions Under Section 80 Of Income Tax Act 1961: https://www.legalserviceindia.com/legal/article-14465-deductions-under-section-80-of-income-tax-act-1961.html.
2. https://cleartax.in/s/80c-80-deductions.
3. https://www.indiacode.nic.in/bitstream/123456789/2435/1/a1961-43.pdf.