Income Tax Insight- All the Deductions allowed from Gross Total Income
Updated: Feb 12, 2022
After computing the income under each head separately, to assess the income tax, the incomes of the various heads are added together. The total income of the various heads is known as Gross Total Income (GTI).
From the gross total income, certain permissible deductions under various sections (80C to 80U) i.e. Chapter VI-A of the Income Tax Act are made. The resulting Balance is the taxable income of the assessee.
Section 80 of the income tax act is designed to encourage citizens to save for the future and invest in insurance and retirement plan. It is a way to help you withstand the vagaries of time. The advantage of Section 80 is not just that you will have to pay a lower income tax, but also that you would make some long-term investment that would prove valuable in your hour.
Basic rules of deductions [sections 80A/80AB]:-
1. The deduction should be claimed by the assessee:
As per Section 80A(1) of the Income Tax Act, The deductions under any of the sections of Chapter VI-A are to be allowed if the assessee claims any of them and establishes the circumstances requiring such a deduction.
2. Deductions shall not exceed Gross Total Income:
The aggregate amount of deductions under Section 80C to 80U i.e., under Chapter VI-A of the Income Tax Act shall not, exceed the “Gross Total Income” of the assessee. Thus, the total income after deductions either will be positive or nil. And, if the “Gross Total Income” is negative or nil(after set-off), no deductions can be permitted under this chapter [Section 80A(2)].
3. Deduction not allowed to members if allowed to an association of persons/ body of individuals (AOP/BOI):
As per Section 80A(3) of the Act, if a deduction is allowed to an association of persons/ body of individuals (AOP/BOI) under the Act, no deduction will be allowed to the individual members of AOP/BOI.
4. Assessee’s duty to place relevant material:
If an assessee approaches a statutory authority for obtaining a concession under the taxing statute, he should in fairness place all the material before the said authority and also be in opposition to satisfy the said authority that he was entitled to obtain the concession under the provisions of the taxing statute and also under the common law.
5. Deduction to be allowed in respect of net income included in Gross Total Income [Section 80(AB)]:
Where any deduction is required to be allowed in respect of any income under any section of the Income Tax Act, then to compute the deductions under that section, the net income computed following the provisions of the Income Tax Act shall only be regarded as the income received by the assessee and which is included in his Gross Total Income.
6. Benefits of certain deductions not to be allowed in a case where the return is not filed within the specified time limit [Section 80A]:
No Deduction shall be allowed under Section 80-IA or IAB or Section 80-IB or Section 80-IC or 80-ID or 80IE unless the assessee furnishes a return of his income on or before the due date specified u\s. 139(1).
The entire procedure of deduction from gross total income can be divided into two parts which are as follows :
1) Deductions with an overall ceiling of Rs. 1,50,000;
Following are the deductions in respect of payment/saving/investment for which there is an overall ceiling of Rs. 1,50,000 i.e. if the total of payment/saving/investments is more than Rs. 1,50,000, the deduction will be restricted to Rs. 1,50,000:
Deduction on specified investment/payments and savings (Section 80C):
Section 80C of the Income Tax Act, 1961 allows a deduction for various types of investments, payments, and savings which are as follows:
An investment made in public provident funds
Contribution/deposit in employee provident fund.
Payment for life insurance premium.
An investment made in an equity-linked saving scheme.
Contribution to Unit-Linked Insurance Plan.
Amount Deposited in notified units of Mutual Fund.
Payment towards a home loan, stamp duty.
Investment in National Saving Certificates (NSC) VIII issue.
Deposits in Senior Citizens Savings Scheme, 2004.
Deposits in Sukanya Samriddhi Scheme.
Deposits in National Pension Fund Scheme (NPS).
Term deposit in a Bank.
#Note- The individuals and HUF can avail of the benefits of such deductions, but partnership firms, LLP’s, or any company cannot avail the benefit of such deductions.
2) ADDITIONAL DEDUCTIONS:
Apart from the deduction’s specified above, the following deductions, over and above the deductions allowed as above, are also allowed for certain expenses and payments subject to the heads limitations as to the amount:
(a) Deduction in respect of Medical Insurance Premia, Health Checkup and Medical Treatment [Section. 80D] :
Under Section 80D of the Income Tax Act, 1961, the deduction is allowed to an individual and HUF, for any medical insurance premium under an approved scheme of any insurance company, any contribution made to central government Health scheme, any payment for a preventive health checkup, any payment on the medical expenditure of a senior citizen not covered with medical insurance.
Amount of deductions :
In the case of an individual assessee :
Under Section 80D of the Income Tax Act, An individual can claim a deduction of up to Rs. 25,000 for medical insurance premium or preventive health checkup or medical treatment expenditure of; self, spouse, and dependent children or contribution to CGHS (Rs. 30,000 in case any person insured is a resident senior citizen 60 years or above).
An additional deduction of Rs. 25,000 is allowed for medical insurance premiums or preventive health check-ups of any parents. (Rs. 30,000 in case any person insured is a resident senior citizen aged 60 years or above).
Deduction of Maximum of Rs. 30,000 is allowed for medical treatment expenditure of any parents(being a very senior citizen, aged 80 years or above not having medical insurance cover).
In case of an H.U.F :
Under this Section, an H.U.F can claim a deduction of up to a maximum of Rs. 25,000 for medical insurance premium of any member of the family. ( Rs. 30,000 in case any person insured is a resident senior citizen 60 years or above).
An additional deduction of a maximum of Rs. 30,000 is allowed for the medical expenditure of any member of the family (being a very senior citizen not having any medical insurance cover).
(b) Deduction in respect of medical treatment etc. and a deposit made for the maintenance of handicapped dependents. (Section 80DD):
Under Section 80DD, Deduction is allowed to a residential individual or an HUF, where an assessee has:
Incurred expenditure for the medical treatment (including nursing), training or rehabilitation of a disabled dependent, or
Paid or deposited any amount under the specified scheme for maintenance of handicapped dependent relative:
-> Where the disability of such dependent person is 40% or more but less than 80% - fixed deduction of Rs. 75,000 is allowed.
-> Where the disability pf such dependent person is 80% or more – deduction of Rs. 1,25,000 is allowed.
#Note- A certificate of disability is required from the prescribed medical authority to claim such deduction under this section.
(c) Deduction in respect of expenses on Medical Treatment, etc. (Section 80DDB) :
This deduction is allowable to an individual or Hindu undivided family, being a resident in India. Such deduction is allowed in respect of the amount paid for the medical treatment of specified disease or ailment for himself or a dependent or a member of a Hindu Undivided Family.
The deduction allowed under this section shall be lesser than the amount paid or Rs. 40,000 (Rs. 60,000 in case the patient is a resident senior citizen 60 years or more).
(d) Deduction in respect of Interest on loan taken for pursuing higher education (Section 80E):
An individual assessee who has taken a loan from any financial institution or any approved charitable institution to pursue higher education or for his relative’s higher education will be allowed a deduction of the amount of interest paid by him.
The deduction is allowed for a maximum period of eight assessment years.
There is no maximum limit of deduction in respect of any amount paid out of his taxable income, by way of interest on such loan.
(e) Deduction in case of a person with a disability ( Section 80U):
Under Section 80U of the Income Tax Act, 1961, the deduction of Rs. 75,000 is allowed to a resident individual who suffers from severe physical disability
#Note- A certificate of disability is required from the prescribed medical authority to claim such deduction under this section.
Where an assessee is a person with severe disability (disability of 80% or above), the deduction is raised to Rs. 1, 25,000/-.
(f) Deduction in respect of donation to certain funds, charitable institutions [ Section 80G] :
Deductions under Section 80G of the act are available in respect of any donation made by the assessee to specified funds or institutions. In some cases, a deduction is allowed to the extent of 100% of the donation and in some cases, it is allowed to the extent of 50% of the donation. The quantum of deduction in respect of various kinds of donations is given as below:
1. Donations made as following are eligible for 100% Deduction without any qualifying limit :
National Defences Funds set up by the Central Government
Donation to Prime Minister’s National Relief Fund.
National Foundation for Communal Harmony
University/educational institution of National eminence approved by the prescribed authority
Any Donation towards Zila Saksharta Samiti established in any district under the chairmanship of the Collector of that district
Any Fund set up by State Government for medical relief to the poor.
National Illness Assistance Fund
Donations to National Blood Transfusions Council or any State Blood Transfusion Council
National Trust for Welfare of Persons with Autism, Mental Retardation, cerebral palsy and Multiple Disabilities
National Sports Fund
National Cultural Fund
Fund for Technology Development and Application
National Children’s Fund
Chief Minister’s Relief Fund/ Lieutenant Governor’s Relief Fund within any State or Union Territory
The Army Central Welfare Fund/Indian Naval Benevolent Fund/Air Force Central Welfare Fund established by the armed forces,
Donation towards Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996
Any fund set up by the State Government of Gujarat for providing relief to the victims of the earthquake in Gujarat
Any trust or fund set up by the government of Gujrat for providing relief to the victims of the earthquake in Gujarat
Prime Minister’s Armenia Earthquake Relief Fund
Africa (Public Contributions — India) Fund.
Donation towards Swachh Bharat Kosh (applicable from the financial year 2014-15)
Donation towards Clean Ganga Funds (applicable from the financial year 2014-15)
Donation towards the National Fund for Control of Drug Abuse (applicable from the financial year 2015-16).
2. Donations made to the following are eligible for a 50% deduction without any qualifying limit:
Jawaharlal Nehru Memorial Fund,
Prime Minister’s Drought Relief Fund,
National Children’s Fund,
Indira Gandhi Memorial Trust, and
Rajiv Gandhi Foundation.
3. Donation to the following are eligible for 100% deduction subject to the qualifying limit :
Donation to the government or any approved local authority, institution, and association to be utilized for promoting Family planning,
Any amount paid by any company as donations to the Indian Olympic association or any institution established in India.
4. Donation to the following are eligible for a 50% deduction subject to the qualifying limit :
Donation to the government or any approved local authority, institution or Association to be utilized for any charitable purpose other than promoting family planning.
Any other fund or institution which satisfies the condition of Section 80G(5),
To any authority constituted in India by or under any Law for satisfying the need for House Accommodation or to plan development or improvement of cities, towns & villages or for both,
Donation to any corporation established and run by the central or state government for promoting the interest of the members of a minority community,
Donation to any notified temple, Mosque, Gurudwara, Church, or other place notified by the central government to be historic, archaeological, or Artistic importance, for renovation or repair of such place.
(g) Deduction in respect of rents paid [ Section 80GG]:
Where a taxpayer does not receive any house rant allowance and resides in a rented accommodation in the area as may be specified and he or his spouse or minor child or his HUF does not own any house at the place of his occupation and even if he has a house elsewhere and the same is not claimed as a self-occupied property, he is entitled to a deduction which will be the least of:
i) Rent paid less than 10% of adjusted total income
ii) Rs. 5,000/- per month
iii) 25% of adjusted total income*
(h) Deduction in respect of certain donations for scientific research or rural development [Section 80GGA] :
According to Section 80GGA (1) in computing the total income of an assessee, the following sums shall be deducted.
a) Any sum (amount) paid by the assessee in the previous year to a scientific research association which has the object of undertaking scientific research or to a university, college, or Any other institutions to be used for scientific research.
(i) Deduction in respect of contributions given by any person to political parties[ Section 80GGC]:
While computing the total income of an assessee, if any amount of contribution is made by any person to a political party or an electoral trust approved by the board on this behalf is deductible.
(j) Deduction in respect of the interest of deposits in savings accounts [Section 80TTA] :
Section 80TTA provides for deduction of up to Rs. 10,000 in the aggregate to an assessee ( being an individual or HUF) in respect of any income by way of interest on savings bank deposits account with a banking company, or a co-operative society engaged in the business of banking; or post office.
(k) Deduction in respect of royalty on patents [Section 80RRB] :
Under section 80RRB, Deduction of an amount up to Rs 3,00,000 is allowed to a resident individual, on any income by the way of royalty for patent rights registered under the Patent Act, 1970. And Such taxpayer has to furnish a certificate in the prescribed form, duly signed by the prescribed authority.
Important terms used in the above article:
The assessee – under the Income Tax act ,an assessee is a person who has been assessed for his income to calculate Taxable income.
Previous year- As per Section 3 of the Income Tax act, “previous year” means the financial year immediately preceding the assessment year.
Resident: As per Section 6(1) of the Income Tax Act, an individual is said to be resident in India in any previous year if he is in India in the previous year for 182 days or more; or That he is in India for 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.
Heads of income: for charging of income tax and computation of total income of an ‘assessee’, ‘income’ has been classified under the following heads :
Salaries- -[ Section 15 to 17]
Income from House Property --[Section 22 to 27]
Profits and Gains on Business or Profession--[Section 28 to 44D]
Capital Gains --[Section 45 to 55A]
Income from other Sources-- [Section 56 to 59].
Hope this helps clarify some of it :)
Having knowledge of tax deductible schemes helps you opt for deductions from your Gross Total Income thereby meaning you have to pay a lesser amount of tax on your income.
Here's an illustration by Paisa bazaar along the same lines:
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