Income Tax Insight- All the Deductions allowed from Gross Total Income

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).

Income Tax Service on a white board

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]:-

rules written with blue ink sketchpen

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:

  1. An investment made in public provident funds

  2. Contribution/deposit in employee provident fund.

  3. Payment for life insurance premium.

  4. An investment made in an equity-linked saving scheme.

  5. Contribution to Unit-Linked Insurance Plan.

  6. Amount Deposited in notified units of Mutual Fund.