Lecture Notes - Study Module 7 - Deductions
Lecture Notes - Study Module 7 - Deductions
1. General Provisions:
Section 10 exempts certain incomes. Such income are excluded from total income and do not enter into
the computation process at all. On the other hand, Chapter VI-A contains deductions from gross total
income. The important point is that if there is no gross total income, then no deductions will be
permissible. This Chapter contains deductions in respect of certain payments, deductions in respect of
certain incomes and other deductions.
Section 80A:
(i) Section 80A(1) provides that in computing the total income of an assessee, there shall be allowed
from his gross total income, the deductions specified in sections 80C to 80U.
(ii) According to section 80A (2), the aggregate amount of the deductions under this chapter shall not,
in any case, exceed the gross total income of the assessee. Thus, an assessee cannot have a loss as
a result of the deduction under Chapter VI-A and claim to carry forward the same for the purpose
of set-off against his income in the subsequent year.
(iii) Section 80A (3) provides that in the case of AOP/BOI, if any deduction is admissible under section
80G/80GGA/80GGC/80-IA/80-IB/80-IC/80-ID/80-IE, no deduction under the same section shall be
made in computing the total income of a member of the AOP or BOI in relation to the share of
such member in the income of the AOP or BOI.
(iv) The profits and gains allowed as deduction under section 10AA (i.e. SEZ) or under any provision of
Chapter VIA under the heading "C.-Deductions in respect of certain incomes" in any assessment
year, shall not be allowed as deduction under any other provision of the Act for such assessment
year [Sub-section (4)];
(v) The deduction, referred to in (iv) above, shall not exceed the profits and gains of the undertaking
or unit or enterprise or eligible business, as the case may be [Sub-section (4)];
(vi) No deduction under any of the provisions referred to in (iv) above, shall be allowed if the
deduction has not been claimed in the return of income [Sub-section (5)];
(vii) The transfer price of goods and services between such undertaking or unit or enterprise or eligible
business and any other business of the assessee shall be determined at the market value of such
goods or services as on the date of transfer [Sub-section (6)].
(viii) For this purpose, the expression "market value" has been defined to mean,-
a. in relation to any goods or services sold or supplied, the price that such goods or services
would fetch if these were sold by the undertaking or unit or enterprise or eligible business in
open market, subject to statutory or regulatory restrictions, if any;
b. in relation to any goods or services acquired, the price that such goods or services would cost
if these were acquired by the undertaking or unit or enterprise or eligible business from the
open market, subject to statutory or regulatory restrictions, if any;
(ix) Where a deduction under any provision of this Chapter under the heading “C – Deductions in
respect of certain incomes” is claimed and allowed in respect of the profits of such specified
business for any assessment year, no deduction under section 35AD (Investment linked tax
incentives for specified business) is permissible in relation to such specified business for the same
or any other assessment year.
(x) In short, once the assessee has claimed the benefit of deduction under section 35AD for a
particular year in respect of a specified business, he cannot claim benefit under Chapter VI-A
under the heading “C.-Deductions in respect of certain incomes” for the same or any other year
and vice versa.
Section 80AB: This section provides that for calculation of deductions in Chapter VI-A under the heading
“C - Deductions in respect of certain incomes”, the net income computed in accordance with the
provisions of the Act (before making any deduction under Chapter VI-A) shall alone be regarded as
income received by the assessee and which is included in his GTI. Accordingly, deductions specified in
the aforesaid sections will be calculated with reference to this net income and not with reference to GTI.
This is notwithstanding anything contained in the respective sections of Chapter VI-A.
Section 80AC: Furnishing return of income on or before due date mandatory for claiming exemption
under sections 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID and 80-IE
(i) Section 80AC stipulates compulsory filing of return of income on or before the due date specified
under section 139(1), as a pre-condition for availing benefit under the following sections –
a. Section 80-IA applicable to undertakings or enterprises engaged in infrastructure
development, etc.
b. Section 80-IAB applicable to undertakings or enterprises engaged in any business of
developing a special economic zone.
c. Section 80-IB applicable to certain industrial undertakings other than infrastructure
development undertakings.
d. Section 80-IC applicable to certain undertakings or enterprises in certain special category
States.
e. Section 80-ID applicable to undertakings engaged in the business of hotels and convention
centers in specified area.
f. Section 80-IE applicable to certain undertakings in North-Eastern States.
(ii) The effect of this provision is that in case of failure to file return of income on or before the
stipulated due date, the undertakings would lose the benefit of deduction under these sections.
Section 80B (5): “Gross total income” means the total income computed in accordance with the
provisions of the Act without making any deduction under Chapter VI-A. “Computed in accordance with
the provisions of the Act” implies—
(i) That deductions under appropriate computation section have already been given effect to;
(ii) That income of other persons, if includible under sections 60 to 64, has been included;
(iii) The intra head and/or inter head losses have been adjusted; and
(iv) That unabsorbed business losses, unabsorbed depreciation etc., have been set-off.
(iii) All the eligible donations Sl.No. 27 to 33 should be aggregated and sum total should be limited
to 10% of the adjusted gross total income. This would be the maximum permissible deduction.
The donations qualifying for 100% deduction would be first adjusted from the maximum
permissible deduction and thereafter 50% deduction of the balance would be allowed.
Adjusted gross total income means the gross total income as reduced by the following:
(1) Amount of deductions under sections 80C to 80U (but not including section 80G),
(2) Any income on which income-tax is not payable,
(3) Long term capital gains taxable under section 112 and short term capital gains taxable
under section 111A.
(iv) The conditions mentioned in item No. 27 above are as follows:
1) The institution or fund is:
a) constituted as a public charitable trust, or
b) registered under the Societies Registration Act, 1960 or under any corresponding law
or under section 25 of the Companies Act, 1956, or
c) a University established by law or
d) any other educational institution recognized by the Government or
e) An institution financed wholly or in part by the Government or a local authority.
2) Where such Institution or Fund derives any income, such income should not be liable to
inclusion in its total income under section 10(23AA), 10(23C) or 11 or 12.
The Institution, referred to in the above clauses of section 10 is as follows:
(i) Regimental fund or Non-public Fund established by the armed forces of the Union
for the welfare of its members and their dependants [Section 10(23AA)]
(ii) The Prime Minister Fund (Promotion of Folk Art) [Section 10(23C)]
(iii) The Prime Minister Aid to Students Fund [Section 10(23C)]
(iv) National Foundation for communal harmony [Section 10(23C)]
(v) Charitable Trusts and Institutions [Sections 11 and 12].
However, it may be noted that the assessee will not lose the benefit of deduction if:
a) Subsequent to donation, any part of income of Institution has become chargeable to
tax due to non-compliance with any of provisions of section 11 or 12 or 12A.
b) As a result of the operation of section 11(1) (c), exemption under section 11 or
section 12 is denied to the institution.
3) No part of income or assets of the Institution or Fund is transferable or applicable at any
time for any purposes other than charitable purpose. Such charitable purpose however
does not include any purpose the whole or substantially the whole of which is of a
religious nature. For this section, an association or institution having as its object the
control, supervision, regulation or encouragement in India of such games or sports as the
Central Government may, by notification in the Official Gazette, specify in this behalf, shall
be deemed to be an institution established in India for a charitable purpose.
4) The Institution or Fund is not expressed to be for the benefit of any particular religious
community or caste. An institution or fund established for the benefit of women and
children or of Scheduled Castes, Backward classes or Scheduled Tribes is not however to
be treated as an institution or fund for the benefit of a religious community or caste.
5) The Institution or Fund maintains regular accounts of its receipt and expenditure.
(v) Where an assessee has claimed and has been allowed any deduction under this section in
respect of any amount of donation, the same amount will not qualify for deduction under any
other provision of the Act for the same or any other assessment year [Sub-section (5A)].
(vi) Where an institution or fund incurs expenditure of a religious nature for an amount not
exceeding 5% of its total income in that previous year, such institution or fund shall be deemed
to be a fund or institution to which the provisions of this section apply.
(vii) Donations in kind shall not qualify for deduction.
(viii) No deduction shall be allowed in respect of donation of any sum exceeding 10,000 unless such
sum is paid by any mode other than cash.
(ix) The deduction under section 80G can be claimed whether it has any nexus with the business of
the assessee or not.
(x) In respect of donations made after 31.3.1992 to any institution or fund, such institution or fund
must be approved by the Commissioner in accordance with the rules made in this behalf.
(xi) As per Circular No.2/2005 dated 12.1.2005, in cases where employees make donations to the
Prime Minister’s National Relief Fund, the Chief Minister’s Relief Fund or the Lieutenant
Governor’s Relief Fund through their respective employers, it is not possible for such funds to
issue separate certificate to every such employee in respect of donations made to such funds as
contributions made to these funds are in the form of a consolidated cheque. An employee who
makes donations towards these funds is eligible to claim deduction under section 80G. It is,
hereby, clarified that the claim in respect of such donations as indicated above will be
admissible under section 80G of the Income-tax Act, 1961 on the basis of the certificate issued
by the Drawing and Disbursing Officer (DDO)/Employer in this behalf.
2.11 Deduction in respect of rent paid [Section 80GG]
(i) This section provides for deduction in respect of rent paid.
(ii) The following conditions have to be satisfied for claiming deduction under section 80GG –
(1) The assessee should not be receiving any HRA exempt under section 10(13A).
(2) Expenditure incurred by him on rent of any furnished or unfurnished accommodation should
exceed 10% of his total income arrived at after all deductions under Chapter VI A except
section 80GG.
(3) The accommodation should be occupied by assessee for his own residence.
(4) The assessee should fulfill such other conditions or limitations as may be prescribed, having
regard to the area or place in which such accommodation is situated and other relevant
considerations.
(5) The assessee or his spouse or his minor child or an HUF of which he is a member should not
own any accommodation at the place where he ordinarily resides or perform duties of his
office or employment or carries on his business or profession; or
(6) If the assessee owns any accommodation at any place other than that referred to above, such
accommodation should not be in the occupation of the assessee and its annual value is not
required to be determined under section 23(2)(a) or section 23(4)(a).
(7) The assessee should file a declaration in the prescribed form, confirming the details of rent
paid and fulfillment of other conditions, with the return of income.
(iii) The deduction admissible will be the least of the following:
(1) Actual rent paid minus 10% of total income of assessee before allowing deduction, or
(2) 25% of such total income (arrived at after making all deductions under Chapter VI A but before
making any deduction under this section), or
(3) Amount calculated at 2,000 p.m.
2.12 Deduction in respect of donations for scientific research and rural development [Section 80GGA]
(i) Section 80GGA grants deduction in respect of donations made for scientific research or rural
development by any assessee not having income chargeable under business or profession.
(ii) The following donations would qualify for deduction under this section -
(1) Any sum paid by the assessee in the previous year to a research association which has, as
its object, the undertaking of scientific research or to a University, college or other
institution to be used for scientific research; and
(2) Any sum paid by the assessee in the previous year to an association or institution which
has as its object the undertaking of any programme of rural development to be used for
carrying out any programme of rural development approved by the prescribed authority
for section 35CCA or to an institution or association which has as its object the training of
persons for implementing programmes of rural development. It is, however, essential that
in case of donation for scientific research, the donation must be to institution approved
under section 35(1)(ii) whereas in case of donation for rural development the institution
or association must be approved by the prescribed authority under section 35CCA(2).
(3) Any sum paid to a Research Association which has as its object the undertaking of
research in social science or statistical research, University, College or other institution to
be used for research in social science or statistical research. Such Research Association,
University, College or institution must be approved under section 35(1)(iii).
(4) Any sum paid to a public sector company or a local authority or to an association or
institution approved by the National Committee for carrying out any eligible project or
scheme. However, the assessee must furnish a certificate referred to in section 35AC from
such Public Sector Company or local authority or association or institution.
Note – It has been clarified that the deduction to which an assessee is entitled in respect
of any sum paid to a Research association, university, college or other institution or to an
association or institution for carrying out programme of rural development, or to a public
sector company, or to a local authority or to an association or institution for carrying out
eligible project or scheme referred to in section 35AC, respectively, shall not be denied
merely on the ground that subsequent to the payment of such sum by the assessee the
approval granted or, as the case may be, the notification has been withdrawn.
(5) Any sum paid to a rural development fund set up and notified under section 35CCA.
(6) Any sum paid by assessee to National Urban Poverty Eradication Fund (NUPEF).
(iii) Restrictions on deduction:
(1) No deduction under this section would be allowed in the case of an assessee whose
gross total income includes income which is chargeable under the head “Profits and
gains of business or profession.”
(2) Where a deduction under this section is claimed and allowed for any assessment year,
deduction shall not be allowed in respect of such payment under any provision of this
Act for the same or any other assessment year.
(3) No deduction shall be allowed in respect of donation of any sum exceeding 10,000
unless such sum is paid by any mode other than cash.
2.13 Deduction in respect of contributions given by companies to political parties [Section 80GGB]
(i) This section provides for deduction of any sum contributed in the previous year by an Indian
company to any political party or an electoral trust. However, no deduction shall be allowed in
respect of any sum contributed by way of cash.
(ii) For this section, the word “contribute” has the same meaning assigned to it under section 293A of
the Companies Act, 1956, which provides that -
(a) a donation or subscription or payment given by a company to a person for carrying on any
activity which is likely to affect public support for a political party shall also be deemed to be
contribution for a political purpose;
(b) the expenditure incurred, directly or indirectly, by a company on advertisement in any
publication (in the nature of a souvenir, brochure, tract, pamphlet or the like) by or on
behalf of a political party or for its advantage shall also be deemed to be a contribution to
such political party or a contribution for a political purpose to the person publishing it.
(iii) “Political party” means political party regd. under sec. 29A of Representation of People Act, 1951.
2.14 Deduction in respect of contributions given by any person to political parties [Section 80GGC]
(i) This section provides for deduction of any sum contributed in the previous year by any person to a
political party or an electoral trust, otherwise than in cash.
(ii) However, the deduction will not be available to a local authority and an artificial juridical person,
wholly or partly funded by the Government.
(iii) “Political party” means a political party registered under section 29A of the Representation of the
People Act, 1951.
4 Other Deductions
Deduction in the case of a person with disability [Section 80U]
(i) Section 80U harmonizes the criteria for defining disability as existing under the Income tax Rules
with the criteria prescribed under the Persons with Disability (Equal Opportunities, Protection of
Rights and Full Participation) Act, 1995.
(ii) This section is applicable to a resident individual, who, at any time during the previous year, is
certified by the medical authority to be a person with disability. A deduction of 75,000 in respect
of a person with disability and 1,25,000 in respect of a person with severe disability (having
disability over 80%) is allowable under this section.
(iii) The benefit of deduction under this section has also been extended to persons suffering from
autism, cerebral palsy and multiple disabilities.
(iv) The assessee claiming a deduction under this section shall furnish a copy of the certificate issued
by the medical authority in the form and manner, as may be prescribed, along with the return of
income under section 139, in respect of the assessment year for which the deduction is claimed.
(v) Where the condition of disability requires reassessment, a fresh certificate from the medical
authority shall have to be obtained after the expiry of the period mentioned on the original
certificate in order to continue to claim the deduction.