Income Tax Deductions Chapter 6 PDF

CHAPTER a 6 DEDUCTIONS FROM GROSS TOTAL INCOME LEARNING OUTCOMES After studying this chapter, you would be able to –  appreciate the types of deductions allowable from gross total inco...

CHAPTER a 6 DEDUCTIONS FROM GROSS TOTAL INCOME LEARNING OUTCOMES After studying this chapter, you would be able to –  appreciate the types of deductions allowable from gross total income under the default tax regime under section 115BAC;  appreciate the types of deductions allowable from gross total income, if the assessee has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A) and is paying tax under the optional tax regime as per the normal provisions of the Act;  identify the assessees eligible for deduction under various sections;  compute deductions in respect of payments, applying the provisions under the relevant sections;  compute deductions in respect of certain income, applying the provisions under the relevant sections;  compute the deduction allowable in the case of a person with disability;  compute the deduction available under section 10AA for units established in SEZs considering the conditions specified thereunder. ©The Institute of Chartered Accountants of India  a Deductions from Gross Total Income under the CHAPTER OVERVIEW optional tax regime (i.e., normal provisions of the Act) Deductions under Chapter VI -A Deduction under section 10AA 6.2 Deductions in respect of certain Deductions in respect of certain Deductions in respect of other Other payments incomes income Deductions Section 80C– In respect of LIP, PPF, PF etc. Section 80JJAA – In respect of employment of new employees Section 80CCC– In respect of contribution to certain pension funds Section 80RRB – In respect of royalty on patents ©The Institute of Chartered Accountants of India Section 80CCD – In respect of contribution to pension scheme of Section 80QQB – In respect of royalty income etc. of authors of Central Government of certain books other than text books Section 80CCH – In respect of contribution to Agnipath scheme Section 80D – In respect of medical insurance premium Section 80DD – In repect of maintenance including medical treatment of a dependent disabled Section 80DDB – In respect of amount paid for medical treatment etc. of specified disease or ailment Section 80E – In respect of interest on loan taken for higher education INCOME TAX LAW Section 80EE/80EEA – In respect of interest payable on loan borrowed for acquisition of house property by an individual Section 80EEB – In respect of interest payable on loan taken for purchase of electric vehicle Section 80G – In respect of donations to certain funds, charitable instutions etc. Section 80TTA – In respect of interest on deposits in savings account Section 80GG – In respect of rent paid Section 80TTB – In respect of interest on deposits in case of senior citizens Section 80GGA – In respect of donations for scientific research and rural development Section 80GGB – In respect of contributions given by companies to political parties Section 80U – Deduction in case of a person with disability Section 80GGC –In respect of contributions given by any person to political parties Note – Only deductions u/s 80CCD(2) [Employer’s contribution to pension scheme of Central Government], 80CCH(2) [Central Government’s contribution to assessee’s account in Agniveer Corpus Fund] and section 80JJAA would be available if the eligible assessee pays tax at concessional rates of tax u/s 115BAC under the default tax regime.  DEDUCTIONS FROM GROSS TOTAL INCOME 6.3 a 1. GENERAL PROVISIONS The various items of income referred to in the different clauses of section 10 are excluded from the total income of an assessee. These incomes are known as exempted incomes. “Exemption” means exclusion. A particular income exempt from tax under section 10 shall not enter into the computation of taxable income. However, there are certain items of income referred to in section 10 which are not exempted if the assessee pays concessional rates of tax under the default tax regime u/s 115BAC, namely, 10(5) Leave travel concession 10(13A) House Rent Allowance 10(14) Special Allowances except - (a) Travelling allowance (b) Daily allowance (c) Conveyance allowance (d) Transport allowance to blind/deaf and dumb/orthopedically handicapped employee 10(17) Daily allowance/Constituency allowance received by any Member of Parliament or of State Legislatures 10(32) Exemption in respect of income of minor child included in assessee’s total income “Deduction” in relation to Chapter VI-A and section 10AA refers to the amount that is reduced from gross total income to arrive at the total income. There are incomes which are included in gross total income but are wholly or partly allowed as deduction under Chapter VI-A in computation of total income, if the assessee has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A) and pays tax as per the optional tax regime under the normal provisions of the Act. Deduction is allowed on specific investments or expenses incurred by the taxpayer to promote the culture of savings and investments. This could include medical expenditure, donations made to charities, investments made in specific avenues such as Public Provident Fund (PPF), National Pension Scheme (NPS) etc. ©The Institute of Chartered Accountants of India  a 6.4 INCOME TAX LAW However, if the assessee pays concessional rates of tax under default tax regime u/s 115BAC, only deduction in respect of employer’s contribution to NPS u/s 80CCD(2), Central Government’s contribution to Agnipath Scheme u/s 80CCH(2) and deduction in respect of employment of new employees u/s 80JJAA would be allowed to the assessee. He cannot claim deduction under any other provision in Chapter VI-A under the default tax regime. Section 10AA also provides for a deduction in respect of units established in SEZ from the total income of the assessee. It is available only if the assessee has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A). This deduction is not available if the assessee pays concessional rates of tax under the default tax regime u/s 115BAC. The tax liability is calculated on the “total income” which is arrived after reducing permissible deductions from gross total income. Students should note this very important difference between exemption under section 10 and the deduction under Chapter VI-A/10AA. Difference between Deduction under Chapter VI-A & section 10AA and Exemption under section 10 Particulars Deduction Exemption (in relation to Chapter VI-A and (contained in section 10) section 10AA) Meaning Investments/ contributions in The incomes which are certain instruments (as prescribed exempt under section 10 will under the Income-tax Act). not be included in Payments made for certain computing gross total purposes. income. Relevant Sections 80C to 80U in Chapter VI-A Section 10 of the Income- Sections and section 10AA of the Income-tax tax Act. Act. Manner of First included in the Gross Total Not included in the Gross treatment Income and then deductions will be Total Income. allowed from Gross Total Income. The important point to be noted here is that if there is no gross total income, then no deductions will be permissible. This Chapter contains deduction under Chapter VI-A which includes deductions in respect of certain payments, deductions in ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.5 a respect of certain incomes, deductions in respect of other income and other deductions. It also includes deduction under section 10AA. 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 if the assessee has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A). (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. Therefore, the total income after deductions will either be positive or nil. It cannot be negative due to deductions. 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 exercising the option of shifting out of the default tax regime provided under section 115BAC(1A), if any deduction is admissible under section 80G/80GGA/80GGC 1, 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 or under any provision of Chapter VI-A 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 [Section 80A(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 [Section 80A(4)]. 1 80-IA/80-IB/80-IE (these sections will be dealt with at the Final level) ©The Institute of Chartered Accountants of India  a 6.6 INCOME TAX LAW (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 [Section 80A(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 [Section 80A(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 the 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 to an assessee exercising the option of shifting out of the default tax regime provided under section 115BAC(1A), in respect of the profits of such specified business for any assessment year, no deduction under section 35AD is permissible in relation to such specified business for the same or any other assessment year. 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. Further, if the assessee pays tax under default tax regime under section 115BAC, neither deduction under section 35AD nor deductions under Chapter VI-A under the heading “C.-Deductions in respect of certain incomes” would be available to him. ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.7 a Section 80AB Deductions specified in Chapter VI-A under the heading “C.-Deductions in respect of certain incomes”, shall be allowed only to the extent such income computed in accordance with the provisions of the Income-tax Act, 1961 is included in the gross total income of the assessee. Section 80AC: Furnishing return of income on or before due date mandatory for claiming deduction under Chapter VI-A under the heading “C. – Deductions in respect of certain incomes" (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 of deductions under any provision of Chapter VI-A under the heading “C. – Deductions in respect of certain incomes”. Table showing the deductions contained in Chapter VI-A under the heading “C. – Deductions in respect of certain income” Section Deduction 80-IA Deductions in respect of profits and gains from undertakings or enterprises engaged in infrastructure development/ operation/ maintenance, generation/ transmission/ distribution of power etc. 80-IAB Deduction in respect of profits and gains derived by an undertaking or enterprise engaged in development of SEZ 80-IAC Deduction in respect of profits and gains derived by an eligible start-up from an eligible business 80-IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings 80-IBA Deduction in respect of profits and gains from housing projects/rental housing projects 80-IE Deduction in respect of profits and gains from manufacture or production of eligible article or thing, substantial expansion to manufacture or produce any eligible article or thing or carrying on of eligible business in North-Eastern States ©The Institute of Chartered Accountants of India  a 6.8 INCOME TAX LAW 80JJA Deduction in respect of profits and gains from business of collecting and processing of bio-degradable waste 80JJAA Deduction in respect of employment of new employees 80LA Deduction in respect of certain income of Offshore Banking Units and International Financial Services Centre 80M Deduction in respect of certain inter-corporate dividends 80P Deduction in respect of income of co-operative societies 80PA Deduction in respect of certain income of Producer Companies 80QQB Deduction in respect of royalty income, etc., of authors of certain books other than text books 80RRB Deduction in respect of royalty on patents (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. Note: The deductions under section 80-IA to 80-IE, 80JJA, 80LA, 80M, 80P and 80PA in respect of certain incomes will be dealt with in detail at the Final Level. ILLUSTRATION 1 Examine the following statements with regard to the provisions of the Income -tax Act, 1961: (a) For grant of deduction under section 80JJAA, filing of audit report in prescribed form is must for a corporate assessee; filing of return within the due date laid down in section 139(1) is not required. (b) Filing of belated return under section 139(4) of the Income-tax Act, 1961 will debar an assessee from claiming deduction under section 80QQB if the assessee exercises the option of shifting out of the default tax regime provided under section 115BAC(1A) (i.e., he pays tax under the optional tax regime). SOLUTION (a) The statement is not correct. 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 the benefit of deduction, inter alia, under section 80JJAA. ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.9 a (b) The statement is correct. As per section 80AC, the assessee has to furnish his return of income on or before the due date specified under section 139(1), to be eligible to claim deduction under, inter alia, section 80QQB. 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 brought forward business losses, unabsorbed depreciation etc., have been set-off. Two types of deductions are allowable from Gross Total Income - Deductions under Chapter VI-A and deduction under section 10AA which are discussed in this chapter. Deductions from Gross Total Income Deductions under Chapter VI-A 2. Deductions in 5. Other 6. Deduction 3. Deductions in 4. Deductions respect of certain Deductions under respect of in respect of payments section 10AA certain incomes other incomes ©The Institute of Chartered Accountants of India  a 6.10 INCOME TAX LAW 2. DEDUCTIONS IN RESPECT OF CERTAIN PAYMENTS 2.1 Deduction in respect of investment in specified assets [Section 80C] [Available only if the individual/HUF exercises the option of shifting out of the default tax regime provided under section 115BAC(1A)] (i) Deduction in respect of investment/ contributions Section 80C provides for a deduction from the Gross Total Income of savings in specified modes of investments. The deduction under section 80C is available only to an individual or HUF exercising the option of shifting out of the default tax regime provided under section 115BAC(1A). It is not allowable under the default tax regime under section 115BAC. The maximum permissible deduction under section 80C is ` 1,50,000. The following are the investments/ contributions eligible for deduction – (1) Contribution in Unit-linked Insurance Plan 1971 Contributions in the name of the individual, his or her spouse or any child of the individual for participation in the Unit-linked Insurance Plan 1971. In case of a HUF, the contribution can be in the name of any member. (2) Contribution in Unit-linked Insurance Plan of LIC Mutual Fund Contributions in the name of the individual, his or her spouse or any child of the individual for participation in any Unit linked Insurance Plan of the LIC Mutual Fund. In case of a HUF, the contribution can be in the name of any member. (3) Premium paid in respect of Life Insurance policy Premium paid on insurance on the life of the individual, spouse or any child (minor or major) and in the case of HUF, any member thereof. This will include a life policy and an endowment policy. The following is a tabular summary of the deduction allowable under section 80C vis-à-vis the date of issue of such policies – ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.11 a Deduction u/s 80C In respect of Premium paid to the extent of 20% of “actual capital policies issued sum assured”. before 31.3.2012 In respect of Premium paid to the extent of 10% of “actual capital policies issued on sum assured” i.e., minimum amount assured under the or after 1.4.2012 policy on happening of the insured event at any time but before during the term of the policy, not taking into account 1.4.2013 – (i) the value of any premium agreed to be returned; or (ii) any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person. In respect of (a) Where the insurance is on the life of a policies issued on person with disability or severe disability as or after 1.4.2013 referred to in section 80U or a person suffering from disease or ailment as specified under section 80DDB. Premium paid to the extent of 15% of “actual capital sum assured” [has the same meaning as described above]. (b) Where the insurance is on the life of any person, other than mentioned in (a) above Premium paid to the extent of 10% of “actual capital sum assured” [has the same meaning as described above]. ILLUSTRATION 2 Compute the eligible deduction under section 80C for A.Y.2025-26 in respect of life insurance premium paid by Mr. Ganesh during the P.Y.2024-25, the details of which are given hereunder, if Mr. Ganesh has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A) – ©The Institute of Chartered Accountants of India  a 6.12 INCOME TAX LAW Date of Person insured Actual Insurance issue of capital sum premium paid policy assured (`) during 2024-25 (`) (i) 30/3/2012 Self 9,00,000 48,000 (ii) 1/5/2018 Spouse 1,50,000 20,000 (iii) 1/6/2021 Handicapped son 4,00,000 80,000 (section 80U disability) SOLUTION Date of Person Actual Insurance Deduct- Remark issue of insured capital premium ion u/s (restricted policy sum paid during 80C for to % of assured 2024-25 A.Y.2025- sum (`) (`) 26 assured) (`) (`) (i) 30/3/2012 Self 9,00,000 48,000 48,000 20% (ii) 1/5/2018 Spouse 1,50,000 20,000 15,000 10% (iii) 1/6/2021 Handicapped 4,00,000 80,000 60,000 15% son (section 80U disability) Total 1,23,000 ILLUSTRATION 3 What would your answer if Mr. Ganesh pays tax under default tax regime under section 115BAC? SOLUTION If Mr. Ganesh pays tax under default tax regime under section 115BAC, he would not be eligible for deduction under section 80C. (4) Premium paid in respect of a contract for deferred annuity Premium paid to effect and keep in force a contract for a deferred annuity on the life of the individual and/or his or her spouse or any child, provided such contract does not contain any provision for the exercise by the insured of an option to receive cash payments in lieu of the payment of the annuity. ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.13 a It is pertinent to note here that a contract for a deferred annuity need not necessarily be with an insurance company. It follows therefore that such a contract can be entered into with any person. (5) Any sum deducted from the salary payable of a Government employee for securing a deferred annuity Amount deducted by or on behalf of the Government from the salary of a Government employee in accordance with the conditions of his service for securing a deferred annuity or making provision for his spouse or children. The excess, if any, over one-fifth of the salary is to be ignored. (6) Contribution to SPF/PPF/RPF Contributions to any provident fund to which the Provident Funds Act, 1925 applies and recognized provident fund qualifies for deduction under section 80C. Contribution made to any Provident Fund set up by the Central Government and notified in his behalf (i.e., the Public Provident Fund established under the Public Provident Fund Scheme, 1968) also qualifies for deduction under section 80C. Such contribution can be made in the name of the individual, his spouse and any child of the individual; and any member of the family, in case of a HUF. The maximum limit for deposit in PPF is ` 1,50,000 in a year. ILLUSTRATION 4 An individual assessee, resident in India, has made the following deposit/payment during the previous year 2024-25: Particulars ` Contribution to the public provident fund 1,50,000 Insurance premium paid on the life of the spouse (policy taken 25,000 on 1.4.2018) (Assured value ` 2,20,000) What is the deduction allowable under section 80C for A.Y.2025-26 if the assessee has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A)? ©The Institute of Chartered Accountants of India  a 6.14 INCOME TAX LAW SOLUTION Computation of deduction under section 80C for A.Y.2025-26 Particulars ` Deposit in public provident fund 1,50,000 Insurance premium paid on the life of the spouse (Maximum 10% of the assured value ` 2,20,000, as the policy is taken after 31.3.2012) 22,000 Total 1,72,000 However, the maximum permissible deduction u/s 80C is 1,50,000 restricted to (7) Contribution to approved superannuation Fund Contribution by an employee to an approved superannuation fund qualifies for deduction under section 80C. (8) Any sum paid or deposited in Sukanya Samriddhi Account Subscription to any such security of the Central Government or any such deposit scheme as the Central Government as may notify in the Official Gazette. Accordingly, Sukanya Samriddhi Scheme has been notified to provide that any sum paid or deposited during the previous year in the said Scheme, by an individual in the name of – (a) any girl child of the individual; or (b) any girl child for whom such individual is the legal guardian would be eligible for deduction under section 80C. Exemption on payment from Sukanya Samriddhi Account [Section 10(11A)] Section 10(11A) provides that any payment from an account opened in accordance with the Sukanya Samriddhi Account Rules, 2014, made under the Government Savings Bank Act, 1873, shall not be included in the total income of the assessee. Accordingly, the interest accruing on deposits in, and withdrawals from any account under the said scheme would be exempt. ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.15 a (9) Subscription to National Savings Certificates VIII Subscription to any Savings Certificates under the Government Savings Certificates Act, 1959 notified by the Central Government in the Official Gazette (i.e. National Savings Certificate (VIII Issue) issued under the Government Savings Certificates Act, 1959). (10) Contribution to approved annuity plan of LIC Contributions to approved annuity plans of LIC (New Jeevan Dhara and New Jeevan Akshay, New Jeevan Dhara I and New Jeevan Akshay I, II and III) or any other insurer as the Central Government may, by notification in the Official Gazette, specify in this behalf. (11) Subscription towards notified units of mutual fund or UTI Subscription to any units of any mutual fund or from the Administrator or the specified company under any plan formulated in accordance with such scheme notified by the Central Government; (12) Contribution to notified pension fund set up by mutual fund or UTI Contribution by an individual to a pension fund set up by any Mutual Fund or by the Administrator or the specified company as the Central Government may specify (i.e., UTI-Retirement Benefit Pension Fund set up by the specified company referred to in section 2(h) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 as a pension fund). (13) Contribution to National Housing Bank (Tax Saving) Term Deposit Scheme, 2008 Subscription to any deposit scheme or contribution to any pension fund set up by the National Housing Bank i.e., National Housing Bank (Tax Saving) Term Deposit Scheme, 2008. (14) Subscription to notified deposit scheme Subscription to any such deposit scheme of a public sector company which is engaged in providing long-term finance for construction, or purchase of houses in India for residential purposes; or ©The Institute of Chartered Accountants of India  a 6.16 INCOME TAX LAW any such deposit scheme of any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both. The deposit scheme should be notified by the Central Government, for example, public deposit scheme of HUDCO. (15) Payment of tuition fees to any university, college, school or other educational institution within India for full-time education for maximum 2 children Payment of tuition fees by an individual assessee at the time of admission or thereafter to any university, college, school or other educational institutions within India for the purpose of full-time education of any two children of the individual. This benefit is only for the amount of tuition fees for full-time education and shall not include any payment towards development fees or donation or payment of similar nature and payment made for education to any institution situated outside India. (16) Repayment of housing loan including stamp duty, registration fee and other expenses Any payment made towards the cost of purchase or construction of a new residential house property. The income from such property – (i) should be chargeable to tax under the head “Income from house property”; (ii) would have been chargeable to tax under the head “Income from house property” had it not been used for the assessee’s own residence. The approved types of payments are as follows: (a) Any instalment or part payment of the amount due under any self- financing or other schemes of any development authority, Housing Board or other authority engaged in the construction and sale of house property on ownership basis; or ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.17 a (b) Any instalment or part payment of the amount due to any company or a cooperative society of which the assessee is a shareholder or member towards the cost of house allotted to him; or (c) Repayment of amount borrowed by the assessee from: I The Central Government or any State Government; II Any bank including a co-operative bank; III The Life Insurance Corporation; IV The National Housing Bank; V Any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction under section 36(1)(viii); VI Any company in which the public are substantially interested or any cooperative society engaged in the business of financing the construction of houses; VII The assessee’s employer, where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act; VIII the assessee’s employer where such employer is a public company or public sector company or a university established by law or a college affiliated to such university or a local authority or a co- operative society. (d) Stamp duty, registration fee and other expenses for the purposes of transfer of such house property to the assessee. Inadmissible payments: However, the following amounts do not qualify for rebate: (A) admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming a shareholder or member; or (B) the cost of any addition or alteration or renovation or repair of the house property after the issue of the completion certificate in respect of the house property or after the house has been occupied by the assessee or any person on his behalf or after it has been let out; or ©The Institute of Chartered Accountants of India  a 6.18 INCOME TAX LAW (C) any expenditure in respect of which deduction is allowable under section 24. (17) Subscription to certain equity shares or debentures Subscription to equity shares or debentures forming part of any eligible issue of capital approved by the Board on an application made by a public company or as subscription to any eligible issue of capital by any public financial institution in the prescribed form. A lock-in period of three years is provided in respect of such equity shares or debentures. In case of any sale or transfer of shares or debentures within three years of the date of acquisition, the aggregate amount of deductions allowed in respect of such equity shares or debentures in the previous year or years preceding the previous year in which such sale or transfer has taken place shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year. A person shall be treated as having acquired any shares or debentures on the date on which his name is entered in relation to those shares or debentures in the register of members or of debenture-holders, as the case may be, of the public company. (18) Subscription to certain units of mutual fund Subscription to any units of any mutual fund and approved by the Board on an application made by such mutual fund in the prescribed form. It is necessary that such units should be subscribed only in the eligible issue of capital of any company. (19) Investment in five year term deposit Investment in term deposit (i) for a period of not less than five years with a scheduled bank; and (ii) which is in accordance with a scheme framed and notified by the Central Government in the Official Gazette qualifies as an eligible investment for availing deduction under section 80C. The maximum limit for investment in term deposit is ` 1,50,000. ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.19 a Scheduled bank means - (1) the State Bank of India (SBI) (2) a subsidiary bank of SBI, or (3) a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act (4) any other bank, being a bank included in the Second Schedule to the Reserve Bank of India (RBI) Act, 1934. (20) Subscription to notified bonds issued by NABARD Subscription to such bonds issued by NABARD (as the Central Government may notify in the Official Gazette) qualifies for deduction under section 80C. (21) Investment in five year Post Office time deposit Investment in five year time deposit in an account under Post Office Time Deposit Rules, 1981 qualifies for deduction under section 80C. (22) Deposit in Senior Citizens Savings Scheme Rules, 2004 Deposit in an account under the Senior Citizens Savings Scheme Rules, 2004 qualifies for deduction under section 80C. (23) Contribution to additional account under NPS Contribution by a Central Government employee to additional account under NPS (specified account) referred to in section 80CCD for a fixed period of not less than 3 years and which is in accordance with the scheme notified by the Central Government for this purpose qualifies for deduction under section 80C. It may be noted that only the contribution to the additional account under NPS will qualify for deduction under section 80C. There are two types of NPS account i.e., Tier I and Tier II, to which an individual can contribute. Section 80CCD provides deduction in respect of contribution to individual pension account [Tier I account] under the NPS [referred to in section 20(2)(a) of the Pension Fund Regulatory and Development Authority Act, 2013 (PFRDA)] whereas deduction under section 80C is allowable in respect of contribution by Central Government employee to additional account [Tier II account] of NPS [referred to in section 20(3) of the PFRDA], which does not qualify for deduction under section 80CCD. Thus, Tier II ©The Institute of Chartered Accountants of India  a 6.20 INCOME TAX LAW account is the additional account under NPS, contribution to which would qualify for deduction under section 80C only in the hands of a Central Government employee. (ii) Termination of Insurance Policy or Unit Linked Insurance Plan or transfer of House Property or withdrawal of deposit: Where, in any previous year, an assessee: (i) terminates his contract of insurance referred to in (3) above, by notice to that effect or where the contract ceases to be in force by reason of not paying the premium, by not reviving the contract of insurance, - (a) in case of any single premium policy, within two years after the date of commencement of insurance; or (b) in any other case, before premiums have been paid for two years; or (ii) terminates his participation in any Unit Linked Insurance Plan referred to in (1) or (2) above, by notice to that effect or where he ceases to participate by reason of failure to pay any contribution, by not reviving his participation, before contributions in respect of such participation have been paid for five years, or (iii) transfers the house property referred to in (16) above, before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, or receives back, whether by way of refund or otherwise, any sum specified in (16) above, then, no deduction will be allowed to the assessee in respect of sums paid during such previous year and the total amount of deductions of income allowed in respect of the previous year or years preceding such previous year, shall be deemed to be income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year. Further, where any amount is withdrawn by the assessee from his account under the Senior Citizens Savings Scheme or under the Post Office Time Deposit Rules before the expiry of a period of 5 years from the date of its deposit, the amount so withdrawn shall be deemed to be the income of the assessee of the previous year in which the amount is withdrawn. Accordingly, the amount so withdrawn would be chargeable to tax in the assessment year ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.21 a relevant to such previous year. The amount chargeable to tax would also include that part of the amount withdrawn which represents interest accrued on the deposit. However, if any part of the amount relating to interest so received or withdrawn has been subject to tax in any of the earlier years, such amount shall not be taxed again. If any amount has been received by the nominee or legal heir of the assessee, on the death of such assessee, the amount would not be chargeable to tax. However, if the amount relating to interest on deposit was not included in the total income of the assessee in any of any earlier years, then, such interest would be chargeable to tax. Summary of investment/ contributions eligible for deduction u/s 80C S. Investment/ contributions No. (i) Contribution in Unit-linked Insurance Plan 1971 In case of individual – in the name of individual, his or her spouse or any child of the individual In case of HUF – in the name of any member of HUF (ii) Contribution in Unit-linked Insurance Plan of LIC Mutual Fund In case of individual – In the name of individual, his or her spouse or any child of the individual In case of HUF – In the name of any member of HUF (iii) Premium paid in respect of Life Insurance policy In case of individual – on the life of individual, his or her spouse or any child of the individual In case of HUF – on the life of any member of HUF (iv) Premium paid in respect of a contract for deferred annuity In case of individual – on the life of individual, his or her spouse or any child of the individual (v) Any sum deducted from the salary payable of a Government employee for securing a deferred annuity [excess over 1/5th of the salary to be ignored] ©The Institute of Chartered Accountants of India  a 6.22 INCOME TAX LAW (vi) Contribution to PPF In case of individual – in the name of Individual, his or her spouse or any child of the individual In case of HUF – In the name of any member of HUF (vii) Contribution to SPF/RPF (viii) Contribution to approved superannuation Fund (ix) Paid or deposited in Sukanya Samriddhi Account (a) for any girl child of the individual; or (b) for any girl child for whom such individual is the legal guardian (x) Subscription to National Savings Certificates VIII (xi) Contribution to approved annuity plan of LIC or any other notified insurer (xii) Subscription towards notified units of mutual fund or UTI [ELSS] (xiii) Contribution to notified pension fund set up by mutual fund or UTI (xiv) Contribution to National Housing Bank (Tax Saving) Term Deposit Scheme, 2008 (xv) Subscription to notified deposit scheme of public sector co. or authority constituted in India in relation to housing. For example, public deposit scheme of HUDCO. (xvi) Tuition fees to by an individual to any university, college, school or other educational institution within India for full-time education for maximum 2 children of the individual. (xvii) Repayment of housing loan for purchase/ construction of house property including stamp duty, registration fee and other expenses for transfer (xviii) Subscription to certain equity shares or debentures forming part of any approved eligible issue of capital by a public company or by any public financial institution (xix) Units of mutual fund subscribed only in eligible issue of capital of any company (xx) Investment in five year term deposit with a scheduled bank ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.23 a (xxi) Subscription to notified bonds issued by NABARD (xxii) Investment in five year Post Office time deposit (xxiii) Deposit in Senior Citizens Savings Scheme Rules, 2004 (xxiv) Contribution to additional account under NPS (Tier II account), in case of Central Government employee 2.2 Deduction in respect of contribution to certain pension funds [Section 80CCC] [Available only if the individual exercises the option of shifting out of the default tax regime provided under section 115BAC(1A)] (i) Eligible assessee: Where an assessee, being an individual, has in the previous year paid or deposited any amount out of his income chargeable to tax to effect or keep in force a contract for any annuity plan of LIC of India or any other insurer for receiving pension from the fund set up by LIC or such other insurer, he shall be allowed a deduction in the computation of his total income. For this purpose, the interest or bonus accrued or credited to the assessee’s account shall not be reckoned as contribution. Note: Where any amount paid or deposited by the assessee has been taken into account for the purposes of this section, a deduction under section 80C shall not be allowed with reference to such amount. (ii) Maximum Deduction: The maximum permissible deduction is ` 1,50,000 (Further, the overall limit of ` 1,50,000 prescribed in section 80CCE will continue to be applicable i.e. the maximum permissible deduction under sections 80C, 80CCC and 80CCD(1) put together is ` 1,50,000). (iii) Deemed Income: Where any amount standing to the credit of the assessee in the fund in respect of which a deduction has been allowed, together with interest or bonus accrued or credited to the assessee’s account is received by the assessee or his nominee on account of the surrender of the annuity plan in any previous year or as pension received from the annuity plan, such amount will be deemed to be the income of the assessee or the nominee in ©The Institute of Chartered Accountants of India  a 6.24 INCOME TAX LAW that previous year in which such withdrawal is made or pension is received. It will be chargeable to tax as income of that previous year. 2.3 Deduction in respect of contribution to pension scheme notified by the Central Government [Section 80CCD] (i) Pension Scheme of Central Government: It is mandatory for persons entering the service of the Central Government on or after 1st January, 2004, to contribute 10% of their salary every month towards their pension account. A matching contribution is required to be made by the Government to the said account. The benefit of this scheme is also available to individuals employed by any other employer as well as to self-employed individuals. (ii) Deduction: Section 80CCD provides deduction in respect of contribution made to the pension scheme notified by the Central Government. Accordingly, the Central Government has notified the ‘Atal Pension Yojana (APY)’ as a pension scheme, contribution to which would qualify for deduction under section 80CCD in the hands of the individual. (iii) Quantum of deduction: (a) Section 80CCD(1) provides a deduction for the amount paid or deposited by an employee in his pension account subject to a maximum of 10% of his salary. The deduction in the case of a self-employed individual would be restricted to 20% of his gross total income in the previous year. Deduction u/s 80CCD(1) would be available to an assessee only if he exercises the option of shifting out of the default tax regime u/s 115BAC(1A) (i.e., if he pays tax under the optional tax regime – the normal provisions of the Act). ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.25 a Deduction under section 80CCD(1) An individual employed by CG on or after 10% of 01.01.2004 salary Eligible An Individual Assessee employed by any other employer Any other 20% of GTI individual (b) Section 80CCD(1B) provides for an additional deduction of up to ` 50,000 in respect of the whole of the amount paid or deposited by an individual assessee under NPS in the previous year, whether or not any deduction is allowed u/s 80CCD(1). Deduction u/s 80CCD(1B) would be available to an assessee only if he exercises the option of shifting out of the default tax regime provided u/s 115BAC(1A) (i.e., it is available only if the assessee pays tax under the optional tax regime – normal provisions of the Act) (c) Whereas the deduction under section 80CCD(1) is subject to the overall limit of ` 1.50 lakh under section 80CCE (i.e., the maximum permissible deduction under sections 80C, 80CCC and 80CCD(1) put together), the deduction of upto ` 50,000 under section 80CCD(1B) is in addition to the overall limit of ` 1.50 lakh provided under section 80CCE. (d) Under section 80CCD(2), contribution made by the Central Government or State Government or any other employer in the previous year to the said account of an employee, is allowed as a deduction in computation of the total income of the assessee. ©The Institute of Chartered Accountants of India  a 6.26 INCOME TAX LAW (e) The entire employer’s contribution would be included in the salary of the employee. However, deduction under section 80CCD(2) would be restricted to, - In case of contribution made by the Central Government or State Government - 14% of salary and - In case of contribution made by any other employer – 10% of salary (14% of salary in case assessee is paying tax as per default tax regime under section 115BAC). Deduction u/s 80CCD(2) would be available to an assessee irrespective of the regime under which he pays tax. 1. The limit of ` 1,50,000 under section 80CCE does not apply to employer’s contribution to pension scheme of Central Government which is allowable as deduction under section 80CCD(2). 2. No deduction will be allowed under section 80C in respect of amounts paid or deposited by the assessee, for which deduction has been allowed under section 80CCD(1) or under section 80CCD(1B). (iv) Deemed Income: The amount standing to the credit of the assessee in the pension account (for which deduction has already been claimed by him under this section) and accretions to such account, shall be taxed as income in the year in which such amounts are received by the assessee or his nominee on - (a) closure of the account or (b) his opting out of the said scheme or (c) receipt of pension from the annuity plan purchased or taken on such closure or opting out. However, the amount received by the nominee on the death of the assessee under the circumstances referred to in (a) and (b) above, shall not be deemed to be the income of the nominee. Further, the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year. ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.27 a 1. Exemption on payment from NPS Trust to an assessee on closure of his account or on his opting out of the pension scheme [Section 10(12A)] (i) As per section 80CCD, any payment from National Pension System Trust to an assessee on account of closure or his opting out of the pension scheme is chargeable to tax. (ii) Section 10(12A) provides that any payment from National Pension System Trust to an assessee on account of closure or his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed 60% of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax. 2. Exemption on payment from NPS Trust to an employee on partial withdrawal [Section 10(12B)] To provide relief to an employee subscriber of NPS, section 10(12B) provides that any payment from National Pension System Trust to an employee under the pension scheme referred to in section 80CCD, on partial withdrawn made out of his account in accordance with the terms and conditions specified under the Pension Fund Regulatory and Development Authority Act, 2013 and the regulations made there under, shall be exempt from tax to the extent it does not exceed 25% of amount of contributions made by him. 2.4 Limit on deductions under sections 80C, 80CCC & 80CCD(1) [Section 80CCE] This section restricts the aggregate amount of deduction under section 80C, 80CCC and 80CCD(1) to ` 1,50,000. It may be noted that the deduction of upto ` 50,000 under section 80CCD(1B) and employer’s contribution to pension scheme, allowable as deduction under section 80CCD(2) in the hands of the employee, would be outside the overall limit of ` 1,50,000 stipulated under section 80CCE. The following table summarizes the ceiling limit under these sections – Section Particulars Ceiling limit (`) 80C Investment in LIP, Deposit in PPF/SPF/RPF etc. 1,50,000 ©The Institute of Chartered Accountants of India  a 6.28 INCOME TAX LAW 80CCC Contribution to certain pension funds 1,50,000 80CCD(1) Contribution to NPS of Government 10% of salary Or 20% of GTI, as the case may be. 80CCE Aggregate deduction under sections 80C, 1,50,000 80CCC & 80CCD(1) 80CCD(1B) Contribution to NPS notified by the Central 50,000 Government (outside the limit of ` 1,50,000 under section 80CCE) 80CCD(2) Contribution by the Central Government or 14% of salary State Government to NPS A/c of its employees (outside the limit of ` 1,50,000 under section 80CCE) Contribution by any other employer to NPS A/c of its employees (outside the limit of ` 1,50,000 under section 80CCE) - Where assessee is paying tax as per 10% of salary optional tax regime - where assessee is paying tax as per 14% of salary default tax regime u/s 115BAC(1A) For computation of limit under section 80CCD(1) and 80CCD(2), salary includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites. ILLUSTRATION 5 The basic salary of Mr. A is ` 1,00,000 p.m. He is entitled to dearness allowance, which is 40% of basic salary. 50% of dearness allowance forms part of pay for retirement benefits. Both Mr. A and his employer, ABC Ltd., contribute 15% of basic salary to the pension scheme referred to in section 80CCD. Explain the tax treatment in respect of such contribution in the hands of Mr. A if he has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A). What would be your answer if Mr. A pays tax under the default tax regime under section 115BAC? ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.29 a SOLUTION (i) Tax treatment in the hands of Mr. A in respect of employer’s and own contribution to pension scheme referred to in section 80CCD, where Mr. A has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A) [i.e., where Mr. A pays tax under the normal provisions of the Act] (a) Employer’s contribution to such pension scheme would be treated as salary since it is specifically included in the definition of “salary” under section 17(1)(viii). Therefore, ` 1,80,000, being 15% of basic salary of ` 12,00,000, will be included in Mr. A’s salary. (b) Mr. A’s contribution to pension scheme is allowable as deduction under section 80CCD(1). However, the deduction is restricted to 10% of salary. Salary, for this purpose, means basic pay plus dearness allowance, if it forms part of pay. Therefore, “salary” for the purpose of deduction under section 80CCD for Mr. A would be – Particulars ` Basic salary = ` 1,00,000 × 12 = 12,00,000 Dearness allowance = 40% of ` 12,00,000 = ` 4,80,000 50% of Dearness Allowance forms part of pay = 50% of 2,40,000 ` 4,80,000 Salary for the purpose of deduction under section 14,40,000 80CCD Deduction under section 80CCD(1) is restricted to 10% 1,44,000 of ` 14,40,000 (as against actual contribution of ` 1,80,000, being 15% of basic salary of ` 12,00,000) As per section 80CCD(1B), a further deduction of upto 36,000 ` 50,000 is allowable. Therefore, deduction under section 80CCD(1B) is ` 36,000 (` 1,80,000 - ` 1,44,000). ` 1,44,000 is allowable as deduction under section 80CCD(1). This would be taken into consideration and be subject to the overall limit of ` 1,50,000 under section 80CCE. ` 36,000 allowable as deduction under section 80CCD(1B) is outside the overall limit of ` 1,50,000 under section 80CCE. ©The Institute of Chartered Accountants of India  6.30 INCOME TAX LAW In the alternative, ` 50,000 can be claimed as deduction under section 80CCD(1B). The balance ` 1,30,000 (` 1,80,000- ` 50,000) can be claimed as deduction under section 80CCD(1). (c) Employer’s contribution to pension scheme would be allowable as deduction under section 80CCD(2), subject to a maximum of 10% of salary. Therefore, deduction under section 80CCD(2), would also be restricted to ` 1,44,000, even though the entire employer’s contribution of ` 1,80,000 is included in salary under section 17(1)(viii). However, this deduction of employer’s contribution of ` 1,44,000 to pension scheme would be outside the overall limit of ` 1,50,000 under section 80CCE i.e., this deduction would be over and above the other deductions which are subject to the limit of ` 1,50,000. (ii) Where Mr. A pays tax under the default tax regime under section 115BAC Mr. A would not be eligible for deduction under section 80CCD(1)/(1B) in respect of his contribution to pension scheme under the default tax regime under section 115BAC. However, he would be allowed deduction of upto ` 2,01,600, being 14% of salary [` 14,40,000, computed in (i) above] under section 80CCD(2) in respect of employer’s contribution to pension scheme. Accordingly, entire employer's contribution of ` 1,80,000 would be allowed as deduction under section 80CCD(2). ILLUSTRATION 6 The gross total income of Mr. X for the A.Y.2025-26 is ` 8,00,000. He has made the following investments/payments during the F.Y.2024-25 – Particulars ` (1) Contribution to PPF 1,10,000 (2) Payment of tuition fees to Apeejay School, New Delhi, for 45,000 education of his son studying in Class XI (3) Repayment of housing loan taken from Standard Chartered Bank 25,000 (4) Contribution to approved pension fund of LIC 1,05,000 Compute the eligible deduction under Chapter VI-A for the A.Y.2025-26 if Mr. X exercises the option of shifting out of the default tax regime provided under section 115BAC(1A). ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.31 a SOLUTION Computation of deduction under Chapter VI-A for the A.Y.2025-26 Particulars ` Deduction under section 80C - Contribution to PPF 1,10,000 - Payment of tuition fees to Apeejay School, New Delhi, for education of his son studying in Class XI 45,000 - Repayment of housing loan 25,000 1,80,000 Restricted to ` 1,50,000, being the maximum permissible deduction 1,50,000 u/s 80C Deduction under section 80CCC - Contribution to approved pension fund of LIC 1,05,000 2,55,000 As per section 80CCE, the aggregate deduction under section 80C, 80CCC and 80CCD(1) has to be restricted to ` 1,50,000 Deduction allowable under Chapter VIA for the A.Y. 2025-26 1,50,000 2.5 Deduction in respect of contribution to Agnipath Scheme [Section 80CCH] (i) Meaning of Agnipath scheme: Agnipath scheme is a Central Government scheme launched in 2022 for enrolment of Indian youth in the Indian Armed Forces. (ii) Meaning of Agniveer Corpus Fund: The Agniveer Corpus Fund means a fund in which consolidated contributions of all the Agniveers and matching contributions of the Central Government along with interest on both these contributions are held. (iii) Features of the Agnipath Scheme: Each Agniveer is to contribute 30% of his monthly customized Agniveer Package to the individual’s Agniveer Corpus Fund. Further, the Government will also contribute a matching amount to the ‘Agniveer Corpus Fund’. The Government will also pay to the subscriber ©The Institute of Chartered Accountants of India  a 6.32 INCOME TAX LAW interest as approved from time to time on the contributions standing in his account. (iv) Deduction: Section 80CCH provides deduction in respect of contribution made in the Agniveer Corpus Fund by the individual enrolled in the Agnipath Scheme and the Central Government. (v) Quantum of deduction: (a) Section 80CCH(1) provides a deduction for the amount paid or deposited by an assessee, being an individual enrolled in the Agnipath Scheme and subscribing to the Agniveer Corpus Fund on or after 1.11.2022, in his account in the Agniveer Corpus Fund. Deduction u/s 80CCH(1) would be available to an individual only if he has exercised the option of shifting out of the default tax regime provided u/s 115BAC(1A). (b) Under section 80CCH(2), the whole amount of contribution made by the Central Government to the said account of an assessee in the Agniveer Corpus Fund, is allowed as a deduction in computation of the total income of the assessee. (e) The entire Central Government’s contribution to the Agniveer Corpus Fund would be included in the salary of the assessee. However, deduction under section 80CCH(2) would be available for the same. Deduction u/s 80CCH(2) would be available to an individual irrespective of the regime under which he pays tax. Exemption on payment from Agnipath Corpus Fund to a person enrolled under the Agnipath Scheme or to his nominee [Section 10(12C)] Any payment from the Agnipath Corpus Fund to a person enrolled under the Agnipath Scheme or to his nominee would be exempt from tax. ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.33 a 2.6 Deduction in respect of medical insurance premium [Section 80D] [Available only if the individual/HUF exercises the option of shifting out of the default tax regime provided under section 115BAC(1A)] 1. In case of an Individual (i) Deduction in respect of insurance premium paid for family: A deduction to the extent of ` 25,000 is allowed in respect of the following payments – (1) premium paid to effect or to keep in force an insurance on the health of self, spouse and dependent children or (2) any contribution made to the Central Government Health Scheme or (3) such other health scheme as may be notified by the Central Government. Contributory Health Service Scheme of the Department of Space has been notified by the Central Government. (ii) Deduction in respect of insurance premium for parents: A further deduction up to ` 25,000 is allowable to effect or to keep in force an insurance on the health of parents of the assessee. Quantum of deduction in case of senior citizen: An increased deduction of ` 50,000 (instead of ` 25,000) shall be allowed in case any of the persons mentioned above is a senior citizen i.e., an individual resident in India of the age of 60 years or more at any time during the relevant previous year. (iii) Deduction in respect of payment towards preventive health check-up: Section 80D provides that deduction to the extent of ` 5,000 shall be allowed in respect payment made on account of preventive health check-up of self, spouse, dependent children or parents during the previous year. However, the said deduction of ` 5,000 is within the overall limit of ` 25,000 or ` 50,000, specified in (i) and (ii) above. (iv) Mode of payment: For claiming deduction under section 80D, the payment can be made: ©The Institute of Chartered Accountants of India  a 6.34 INCOME TAX LAW (1) by any mode, including cash, in respect of any sum paid on account of preventive health check-up; (2) by any mode other than cash, in all other cases. (v) Deduction for medical expenditure incurred on senior citizens: As a welfare measure towards senior citizens i.e., person of the age of 60 years or more and resident in India, who are unable to get health insurance coverage, deduction of upto ` 50,000 would be allowed in respect of any payment made on account of medical expenditure in respect of a such person(s), if no payment has been made to keep in force an insurance on the health of such person(s). 2. In case of a HUF Deduction under section 80D is allowable in respect of premium paid to insure the health of any member of the family. The maximum deduction available to a HUF would be ` 25,000 and in case any member is a senior citizen, ` 50,000. Further, the amount paid on account of medical expenditure incurred on the health of any member(s) of a family who is a resident senior citizen would qualify for deduction subject to a maximum of ` 50,000 provided no amount has been paid to effect or keep in force any insurance on the health of such person(s). 3. Other conditions The other conditions to be fulfilled are that such premium should be paid by any mode, other than cash, in the previous year out of his income chargeable to tax. Further, the medical insurance should be in accordance with a scheme made in this behalf by - (a) the General Insurance Corporation of India and approved by the Central Government in this behalf; or (b) any other insurer and approved by the Insurance Regulatory and Development Authority. ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.35 a The following table summarizes the provisions of section 80D – S. Nature of payment/ Expenditure on behalf of Deduction No. expenditure I (i) Any premium paid, otherwise than by In case of Self, spouse and ` 25,000 way of cash, to keep individual dependent in force an insurance children on the health In case of Family member (ii) Contribution to HUF Central Government Health Scheme (CGHS) In case any of the above persons (iii) Preventive health is of the age of 60 years or more ` 50,000 check up + resident in India expenditure II (i) Any premium paid, Parents ` 25,000 otherwise than by way of cash, to keep in In case either or both the parents force an insurance on is of the age of 60 years or more + the health Resident in India ` 50,000 (ii) Preventive health check up Maximum ` 5,000 allowed as deduction for aggregate of preventive health check-up expenditure, by any mode including cash, mentioned in I and II (Subject to overall limit of ` 25,000 or ` 50,000, as the case may be) III Amount paid on account For self/spouse/parents + who is of medical expenditure of the age of 60 years or more + ` 50,000 Resident in India + no payment has been made to keep in force an insurance on the health of such person ©The Institute of Chartered Accountants of India  a 6.36 INCOME TAX LAW Note: In case the individual or any of his family members is a senior citizen, the aggregate of deduction, in respect of payment of premium, contribution to CGHS and medical expenditure incurred, as specified in (I) & (III) above, cannot exceed ` 50,000. In case one of the parents is a senior citizen who is covered under mediclaim policy and another is also a senior citizen but not covered under mediclaim policy, the aggregate of deduction, in respect of payment of medical insurance premium and medical expenditure incurred, as specified in (II) & (III) above, cannot exceed ` 50,000. 4. Deduction where premium for health insurance is paid in lump sum [Section 80D(4A)] (i) Appropriate fraction of lump sum premium allowable as deduction: In a case where mediclaim premium is paid in lumpsum for more than one year by: (a) an individual, to effect or keep in force an insurance on his health or health of his spouse, dependent children or parents; or (b) a HUF, to effect or keep in force an insurance on the health of any member of the family, then, the deduction allowable under this section for each of the relevant previous year would be equal to the appropriate fraction of such lump sum payment. (ii) Meaning of certain terms Term Meaning Appropriate 1 ÷ Total number of relevant previous years fraction Relevant The previous year in which such lump sum amount previous year is paid; and the subsequent previous year(s) during which the insurance would be in force. ILLUSTRATION 7 Mr. A, aged 40 years, paid medical insurance premium of ` 20,000 during the P.Y. 2024-25 to insure his health as well as the health of his spouse. He also paid medical insurance premium of ` 47,000 during the year to insure the health of his father, aged 63 years, who is not dependent on him. He contributed ` 3,600 to Central Government Health Scheme during the year. He has incurred ` 3,000 in cash on ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.37 a preventive health check-up of himself and his spouse and ` 4,000 by cheque on preventive health check-up of his father. Compute the deduction allowable under section 80D for the A.Y. 2025-26 if Mr. A has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A). SOLUTION Deduction allowable under section 80D for the A.Y.2025-26 Particulars Actual Maximum Payment deduction ` allowable ` A. Premium paid and medical expenditure incurred for self and spouse (i) Medical insurance premium paid for self and 20,000 20,000 spouse (ii) Contribution to CGHS 3,600 3,600 (iii) Exp. on preventive health check-up of self & spouse 3,000 1,400 26,600 25,000 B. Premium paid or medical expenditure incurred for father, who is a senior citizen (i) Mediclaim premium paid for father, who is over 47,000 47,000 60 years of age (ii) Expenditure on preventive health check-up of 4,000 3,000 father 51,000 50,000 Total deduction under section 80D (` 25,000 + 75,000 ` 50,000) Notes: (1) The total deduction under A. (i), (ii) and (iii) above should not exceed ` 25,000. Therefore, the expenditure on preventive health check-up for self and spouse would be restricted to ` 1,400, being (` 25,000 – ` 20,000 – ` 3,600). (2) The total deduction under B. (i) and (ii) above should not exceed ` 50,000. Therefore, the expenditure on preventive health check-up for father would be restricted to ` 3,000, being (` 50,000 – ` 47,000). ©The Institute of Chartered Accountants of India  a 6.38 INCOME TAX LAW (3) In this case, the total deduction allowed on account of expenditure on preventive health check-up of self, spouse and father is ` 4,400 (i.e., ` 1,400 + ` 3,000), which is within the maximum permissible limit of ` 5,000. ILLUSTRATION 8 Mr. Y, aged 40 years, paid medical insurance premium of ` 22,000 during the P.Y. 2024-25 to insure his health as well as the health of his spouse and dependent children. He also paid medical insurance premium of ` 33,000 during the year to insure the health of his mother, aged 67 years, who is not dependent on him. He incurred medical expenditure of ` 20,000 on his father, aged 71 years, who is not covered under mediclaim policy. His father is also not dependent upon him. He contributed ` 6,000 to Central Government Health Scheme during the year. Compute the deduction allowable under section 80D for the A.Y. 2025-26 if Mr. Y has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A). SOLUTION Deduction allowable under section 80D for the A.Y.2025-26 Particulars ` ` (i) Medical insurance premium paid for self, spouse and dependent children 22,000 (ii) Contribution to CGHS 6,000 28,000 restricted to 25,000 (iii) Mediclaim premium paid for mother, who is over 60 years of age 33,000 (iv) Medical expenditure incurred for father, who is over 60 years of age and not covered by any insurance 20,000 53,000 restricted to 50,000 75,000 ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.39 a 2.7 Deduction in respect of maintenance including medical treatment of a dependant disabled [Section 80DD] [Available only if the individual/HUF exercises the option of shifting out of the default tax regime provided under section 115BAC(1A)] (i) Eligible assessee: Section 80DD provides deduction to an assessee, who is a resident in India, being an individual or Hindu undivided family. (ii) Payments qualifying for deduction: (a) Any amount – - incurred for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability, or - paid or deposited under a scheme framed in this behalf by the Life Insurance Corporation or any other insurer or the Administrator or the Specified Company 2 for the maintenance of a dependant, being a person with disability qualifies for deduction. (b) The benefit of deduction under this section is also available to assessees incurring expenditure on maintenance including medical treatment of persons suffering from autism, cerebral palsy and multiple disabilities. (iii) Quantum of deduction: The quantum of deduction is ` 75,000 and in case of severe disability (i.e., person with 80% or more disability) the deduction shall be ` 1,25,000. (iv) Conditions: (a) The scheme should provide for payment of annuity or a lump sum amount for the benefit of a dependant, being a person with disability, I in the event of the death of the individual or member of the HUF, in whose name subscription was made; or 2 as referred to in section 2(h) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002, ©The Institute of Chartered Accountants of India  a 6.40 INCOME TAX LAW II on attaining the age of 60 years or more by such individual or the member of the HUF, and the payment or deposit to such scheme has been discontinued and the assessee must nominate either the dependant, being a person with disability or any other person or a trust to receive the payment on his behalf, for the benefit of the dependant, being a person with disability. (b) For claiming the deduction, the assessee have to furnish a copy of the certificate issued by the medical authority under the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 along with the return of income under section 139. (c) 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 in the original certificate in order to continue to claim the deduction. (v) Deemed income: If the dependent, being a person with disability, predeceases the individual or the member of HUF, in whose name subscription was made, then, the amount paid or deposited under the said scheme would be the deemed income and chargeable to tax in the hands of the assessee (individual or member of HUF) in the previous year in which such amount is received by him. However, such deeming provisions would not apply, to the amount received by the dependent, being a person with disability, before his death, by way of annuity or lump sum under the scheme mentioned in II of (a) above i.e., when the individual or member of HUF attains the age of 60 years or more, and the payment or deposit to such scheme has been discontinued. ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.41 a (vi) Meaning of “Dependent”: Assessee Dependant (1) Individual the spouse, children, parents, brother or sister of the individual who is wholly or mainly dependant on such individual and not claimed deduction under section 80U in the computation of his income (2) HUF a member of the HUF, wholly or mainly dependant on such HUF and not claimed deduction under section 80U in the computation of his income ILLUSTRATION 9 Mr. X is a resident individual. He deposits a sum of ` 50,000 with Life Insurance Corporation every year for the maintenance of his disabled grandfather who is wholly dependent upon him. The disability is one which comes under the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. A copy of the certificate from the medical authority is submitted. Compute the amount of deduction available under section 80DD for the A.Y. 2025-26, if Mr. X has exercised the option of shifting out of the default tax regime provided under section 115BAC(1A). SOLUTION Since the amount deposited by Mr. X was for his grandfather, he will not be allowed any deduction under section 80DD. The deduction is available if the individual assessee incurs any expense for a “dependant” disabled person. Grandfather does not come within the meaning of “dependant” as defined under section 80DD. ILLUSTRATION 10 What will be the deduction if Mr. X had made this deposit for his dependant father? SOLUTION Since the expense was incurred for a dependant disabled person, Mr. X will be entitled to claim a deduction of ` 75,000 under section 80DD, irrespective of the amount deposited. In case his father has severe disability, the deduction would be ` 1,25,000. ©The Institute of Chartered Accountants of India  a 6.42 INCOME TAX LAW 2.8 Deduction in respect of medical treatment etc. [Section 80DDB] [Available only if the individual/HUF exercises the option of shifting out of the default tax regime provided under section 115BAC(1A)] (i) Eligible assessee: This section provides deduction to an assessee, who is resident in India, being an individual and Hindu undivided family. The deduction is available to an individual for medical expenditure incurred on himself or a dependant. It is also available to a Hindu undivided family (HUF) for such expenditure incurred on any of its members. (ii) Meaning of “Dependent”: Assessee Dependent (1) Individual the spouse, children, parents, brother or sister of the individual or any of them, wholly or mainly dependant on such individual for his support and maintenance. (2) HUF a member of the HUF, wholly or mainly dependant on such HUF for his support and maintenance. (iii) Payment qualifying for deduction: Any amount actually paid for the medical treatment of such disease or ailment as may be specified by the Board for himself or a dependant, in case the assessee is an individual, or for any member of a HUF, in case the assessee is a HUF, will qualify for deduction. (iv) Quantum of deduction: The amount of deduction under this section shall be equal to the amount actually paid or ` 40,000, whichever is less, in respect of that previous year in which such amount was actually paid. In case the amount is paid in respect of a senior citizen, i.e., a resident individual of the age of 60 years or more at any time during the relevant previous year, then the deduction would be the amount actually paid or ` 1,00,000, whichever is less. The deduction under this section shall be reduced by the amount received, if any, under an insurance from an insurer, or reimbursed by an employer, for the medical treatment of the assessee or the dependant. (v) Maximum deduction: The maximum limit of deduction under section 80DDB for these two categories of dependant are summarized hereunder: ©The Institute of Chartered Accountants of India  DEDUCTIONS FROM GROSS TOTAL INCOME 6.43 a Dependent Maximum limit (`) (1) A senior citizen, being a resident individual 1,00,000 (2) Other than a senior citizen 40,000 (vi) Condition: No such deduction shall be allowed unless the assessee obtains the prescription for such medical treatment from a neurologist, an oncologist, a urologist, a hematologist, an immunologist or such other specialist, as may be prescribed. 2.9 Deduction in respect of interest on loan taken for higher education [Section 80E] [Available only if the individual exercises the option of shifting out of the default tax regime provided under section 115BAC(1A)] (i) Eligible assessee: Section 80E provides deduction to an individual-assessee in respect of any interest on loan paid by him in the previous year out of his income chargeable to tax. (ii) Conditions: The loan must ha