Various Deductions under the Income-tax Act

Various Deductions under the Income-tax Act

The Income Tax Act, 1961 (the Act) offers several deductions that help taxpayers reduce their total taxable income. Broadly contained within Chapter VI-A (Sections 80C to 80U) and supplemented by other provisions across the Act, these deductions recognise legitimate outflows such as life insurance premiums, home loan interest, charitable donations, or medical expenses, and allow taxpayers to reduce them from their gross total income.

This document will give us a broad understanding of various deductions available under the Income Tax Act.

Deductions Against 'Salaries'

· For individual salaried employees and pensioners, a Standard Deduction under Section 16(ia) is available. In the normal tax regime, this deduction is Rs. 50,000 or the amount of salary, whichever is lower. Under the new tax regime [Section 115BAC(1A)(ii)], the deduction is up to Rs. 75,000 or the amount of salary, whichever is lower.

· Government employees can claim a deduction for entertainment allowance under Section 16(ii). This is limited to the actual allowance received or 1/5th of salary, whichever is less, with a maximum cap of Rs. 5,000.

· Salaried employees are also eligible for a deduction on employment tax under Section 16(iii).

Deductions Against 'Income from House Properties'

All assessees can claim a deduction for taxes levied by a local authority and borne by the owner if paid in the relevant previous year, as per Section 23(1), first proviso.

A standard deduction of 30% of the annual value (gross annual value less municipal taxes) is available to all assessees under Section 24(a).

Interest on borrowed capital can be claimed as a deduction by all assessees under Section 24(b), subject to specified conditions, with limits of Rs. 30,000 or Rs. 2,00,000. If interest is borrowed for acquiring a capital asset, interest pertaining to the period before the asset is first put to use shall not be allowed as a deduction.

All assessees can also claim a standard deduction of 30% of arrears of rent or unrealised rent received, under Section 25A(2).

Deductions Against 'Profits and Gains of Business or Profession'

A. Deductible Items

All assessees can claim deductions for rent, rates, taxes, repairs (excluding capital expenditure), and insurance for premises under Section 30. Similarly, repairs (excluding capital expenditure) and insurance of machinery, plant, and furniture are deductible under Section 31 for all assessees.

Under Section 32(1)(i), taxpayers engaged in the business of generation or generation and distribution of power can claim depreciation at the prescribed percentage on the actual cost (Straight Line Method) for tangible assets like buildings, machinery, plant, or furniture, and intangible assets such as know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of a similar nature,¹excluding goodwill. If an asset is acquired and put to use for less than 180 days during the previous year, the depreciation deduction is restricted to 50%. These taxpayers also have the option to claim depreciation on a written-down value basis. It's noteworthy that the provisions of Section 32 apply whether or not the assessee has claimed depreciation.

All assessees engaged in business or profession can claim depreciation under Section 32(1)(ii) at the prescribed percentage on the written-down value of each block of assets (WDV method) for tangible assets (buildings, machinery, plant, or furniture) and intangible assets (know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature, not being goodwill). If an asset is acquired and put to use for less than 180 days during the previous year, the deduction is restricted to 50% of the computed depreciation.

Additional depreciation at 20% of the actual cost of new plant and machinery (excluding ships, aircraft, office appliances, second-hand plant or machinery, etc.) is allowed under Section 32(1)(iia), subject to certain conditions. This is available to all taxpayers engaged in the manufacture or production of any article or thing, or the generation, transmission, or distribution of power (unless the taxpayer is claiming depreciation on a straight-line basis). If an asset is acquired and put to use for less than 180 days, 50% of additional depreciation is allowed in the year of acquisition, and the balance 50% in the next year.

Investment allowance at 15% of the actual cost of a new asset acquired and installed by a company engaged in the business of manufacturing or production of any article or thing is allowed under Section 32AC, subject to certain conditions. This deduction is available if the actual cost of new plant and machinery acquired and installed by the company during the previous year exceeds Rs. 25/100 Crores, as applicable.

Assessees engaged in the business of growing and manufacturing tea, coffee, or rubber in India can claim a deduction under Section 33AB. This involves the amount deposited in an account with the National Bank (Special Account) or in a Deposit Account of the Tea Board, Coffee Board, or Rubber Board in accordance with an approved scheme, or 40% of the profits of the business, whichever is less, subject to certain conditions.

Under Section 33ABA, an assessee carrying on the business of prospecting for, or extraction or production of, petroleum or natural gas or both in² India can claim a deduction. This is for the amount deposited in a Special Account with SBI/Site Restoration Account or 20% of profits, whichever is less, subject to certain conditions.

Revenue expenditure on scientific research pertaining to the business of an assessee is allowed as a deduction under Section 35(1)(i) for all assessees, subject to certain conditions. Expenditure on scientific research incurred within 3 years before the commencement of business (for materials and employee salaries, excluding perquisites) is allowed as a deduction in the year of business commencement, to the extent certified by the prescribed authority.

All assessees can claim 100% of contributions made to an approved research association, university, college, or other institution to be used for scientific research as a deduction under Section 35(1)(ii), subject to certain conditions. From the Assessment Year beginning on or after April 1, 2021, a 100% deduction is allowed.

Similarly, 100% of contributions made to an approved company registered in India to be used for scientific research is allowed as a deduction for all assessees under Section 35(1)(iia), subject to certain conditions.

Under Section 35(1)(iii), all assessees can claim 100% of contributions made to an approved research association, university, college, or other institution with objects of undertaking statistical research or research in social sciences, subject to certain conditions.

Capital expenditure incurred during the year on scientific research relating to the business carried on by the assessee is allowed as a deduction for all assessees under Section 35(1)(iv) read with Section 35(2), subject to certain conditions. Capital expenditure incurred within 3 years before the commencement of business is allowed as a deduction in the year of commencement. However, this excludes the acquisition of land or any interest in land, and no depreciation is allowed on assets for which this deduction is claimed.

A 100% deduction of payment made to a National Laboratory, University, an Indian Institute of Technology, or a specified person is allowed to all assessees under Section 35(2AA), subject to certain conditions. The payment should be made with the specified direction that the sum shall be used in scientific research undertaken under an approved programme. From the Assessment Year beginning on or after April 1, 2021, a 100% deduction is allowed.

Companies engaged in the business of bio-technology or in any business of manufacturing or production of eligible articles or things can claim 100% of any expenditure incurred on in-house scientific research and development facilities (including capital expenditure other than on land and building) as approved by the prescribed authorities, under Section 35(2AB), subject to certain conditions. The company must enter into an agreement with the prescribed authority for co-operation in such research and development and fulfill conditions regarding maintenance of accounts, audit, and furnishing of reports. From the Assessment Year beginning on or after April 1, 2021, a 100% deduction is allowed.

Capital expenditure incurred and actually paid for acquiring any right to use spectrum for telecommunication services shall be allowed as a deduction over the useful life of the spectrum in equal installments for all assessees engaged in telecommunication services under Section 35ABA.

All assessees can claim a deduction for expenditure incurred for obtaining a license to operate telecommunication services, either before the commencement of such business or thereafter at any time during any previous3 year, under Section 35ABB.

Under Section 35AD, all assessees can claim a deduction for capital expenditure incurred, wholly and exclusively, for the purpose of any specified business, subject to certain conditions. These specified businesses include setting up and operating a cold chain facility; warehousing for agricultural produce; laying and operating a cross-country natural gas or crude or petroleum oil pipeline network (including integral storage facilities); building and operating a hotel (two-star or above); building and operating a hospital (at least 100 beds); developing and building a notified housing project under a slum redevelopment or affordable housing scheme; production of fertilizer in India; setting up and operating an inland container depot or container freight station; bee-keeping and production of honey and beeswax;⁴ warehousing for sugar; laying and operating a slurry pipeline for iron ore transportation; setting-up and operating a notified semi-conductor wafer fabrication manufacturing unit; and developing or maintaining and operating a new infrastructure facility. With effect from assessment year 2018-19, the business of developing or maintaining and operating or developing, maintaining, and operating a new infrastructure facility has been included. For Indian companies, this deduction is available for the business of laying and operating a cross-country natural gas or crude or petroleum oil pipeline network, and for developing or maintaining and operating a new infrastructure facility. No deduction for capital expenditure above Rs. 10,000 is allowed if incurred otherwise than by specified payment modes. Section 35AD was amended by Finance (No. 2) Act, 2014, effective from assessment year 2015-16, to ensure that any asset for which a deduction is claimed is used only for the specified business for 8 years from acquisition or construction. If used for other purposes, the deduction (less allowable depreciation under Section 32) is deemed income. This does not apply to a company that becomes a sick industrial company under Section 17(1) of the Sick Industrial Companies (Special Provisions) Act within the 8-year period. If a deduction under Section 35AD is availed, no deduction under Section 10AA is available for the same specified business.

All assessees can claim a deduction for payments to associations/institutions for carrying out rural development programmes under Section 35CCA, subject to certain conditions.

Under Section 35CCC, all assessees can claim 100% of expenditure on a notified agricultural extension project, subject to certain conditions.

A company can claim 100% of expenditure on a notified skill development project under Section 35CCD, subject to certain conditions.

Indian companies and resident non-corporate assessees can claim amortization of certain preliminary expenses under Section 35D, deductible in 5 equal annual installments, subject to certain conditions.

An Indian company can claim amortization of expenditure incurred after 31-3-1999 in case of amalgamation or demerger, with one-fifth of such expenditure allowed for 5 successive previous years, under Section 35DD, subject to certain conditions.

All assessees can claim amortization of expenditure incurred under a voluntary retirement scheme in 5 equal annual installments, starting with the year the expenditure is incurred, under Section 35DDA.

Indian companies and resident non-corporate assessees engaged in prospecting, etc., for minerals can claim a deduction for expenditure on such activities in ten equal annual installments under Section 35E, subject to certain conditions.

Insurance premium covering the risk of damage or destruction of stocks/stores is deductible for all assessees under Section 36(1)(i).

Federal milk co-operative societies can claim a deduction for insurance premium covering the life of cattle owned by a member of a co-operative society engaged in supplying milk to them, under Section 36(1)(ia).

All assessees as employers can claim a deduction for medical insurance premium paid by any mode other than cash to insure an employee's health under a scheme framed by GIC of India and approved by the Central Government, or a scheme by any other insurer approved by IRDA, under Section 36(1)(ib).

Bonus or commission paid to employees is deductible for all assessees under Section 36(1)(ii).

Interest on borrowed capital is deductible for all assessees under Section 36(1)(iii).

The pro rata amount of discount on a zero coupon bond, based on its tenure and calculated in the prescribed manner, is deductible for all assessees under Section 36(1)(iiia).

Contributions to a recognized provident fund and approved superannuation fund are deductible for all assessees as employers, subject to certain limits and conditions, under Section 36(1)(iv).

Any sum paid by an assessee-employer as a contribution towards a pension scheme, as referred to in Section 80CCD, on account of an employee, is deductible to the extent it does not exceed 14% of the employee's salary in the previous year, under Section 36(1)(iva).

Contributions to an approved gratuity fund are deductible for all assessees as employers, subject to certain limits and conditions, under Section 36(1)(v).

Contributions received from employees to any provident fund, superannuation fund, any fund set up under the Employees' State Insurance Act, 1948, or any other fund for employee welfare are deductible for all assessees as employers if credited to the employee's account in the relevant fund before the due date, under Section 36(1)(va).

An allowance in respect of animals which have died or become permanently useless is deductible for all assessees under Section 36(1)(vi), subject to certain conditions.

Bad debts written off as irrecoverable are deductible for all assessees under Section 36(1)(vii), subject to limitations for banks and financial institutions. Effective from assessment year 2016-17, bad debts are allowed as a deduction even if not written off from books of accounts, provided the debt has been taken into account in computing income based on Income Computation and Disclosure Standards under Section 145(2) without recording it in the accounts.

Under Section 36(1)(viia), certain banks (scheduled, non-scheduled other than foreign) and co-operative banks (other than primary agricultural credit society or primary co-operative agricultural and rural development bank) can claim a deduction for provision for bad and doubtful debts up to 8.5% of total income (before this deduction and Chapter VI-A deductions) and up to 10% of aggregate average advances made by its rural branches. Foreign banks, Public Financial Institutions, State Financial Corporations, and State Industrial Investment Corporations can claim up to 5% (10% for Public Financial Institutions, State Financial Corporations, and State Industrial Investment Corporations in any two consecutive assessment years 2003-04 and 2004-05 subject to conditions) of total income (before this deduction and Chapter VI-A deductions). Non-Banking Financial Companies can also claim this deduction.

Specified entities like financial corporations, public sector banking companies, co-operative banks (other than primary agricultural credit society or primary co-operative agricultural and rural development bank), housing finance companies, or any other financial corporation including a public company, can claim a deduction for amounts transferred to a special reserve under Section 36(1)(viii), subject to certain conditions and a maximum of 20% of profits from eligible business.

Companies can claim a deduction for expenditure promoting family planning amongst employees under Section 36(1)(ix); capital expenditure is deductible in 5 equal annual installments.

Any expenditure (not capital in nature) incurred by a notified corporation or body corporate constituted by a Central, State, or Provincial Act, for objects authorized by that Act, is deductible under Section 36(1)(xii).

Public financial institutions can claim a deduction for contributions to a notified credit guarantee trust fund for small industries under Section 36(1)(xiv).

Securities Transaction Tax paid is deductible for all assessees under Section 36(1)(xv) if the corresponding income is included under 'Profits and gains of business or profession'.

Commodities transaction tax paid by an assessee on taxable commodities transactions entered into during business is deductible under Section 36(1)(xvi), if income from such transactions is included under 'Profits and gains of business or profession'.

A co-operative society engaged in manufacturing sugar can claim a deduction under Section 36(1)(xvii) for expenditure on sugarcane purchase, limited to the actual purchase price or the price fixed/approved by the Government, whichever is lower.

Marked to market loss or other expected loss computed according to ICDS notified under Section 145(2) is deductible for all assessees under Section 36(1)(xviii).

Any other expenditure (not personal or capital, and not mentioned in Sections 30 to 36) laid out wholly and exclusively for business or profession is deductible for all assessees under Section 37(1). Effective from assessment year 2015-16, an Explanation 2 to Section 37(1) clarifies that CSR expenditure under Section 135 of the Companies Act, 2013 is not considered business expenditure. From assessment year 2022-23, Explanation 3 clarifies that expenditure for perquisites violating any rule, law, or regulation governing the recipient is not deductible. Furthermore, expenditure constituting an offense or prohibited by law in India or outside India is not eligible for deduction under Section 37(1).

B. Non-deductible items

Advertisement in a souvenir, brochure, tract, pamphlet, etc., of a political party is not deductible for all assessees under Section 37(2B).

Under Sections 40(a)(i), 40(a)(ia), and 40(a)(ib), for all assessees, interest, royalty, fees for technical services or other chargeable sums payable outside India, or in India to a non-resident or foreign company, on which tax has not been deducted or, after deduction, has not been paid on or before the due date of filing the return under Section 139(1)5 are not deductible. However, if tax is deducted in a subsequent year or paid after the due date, the sum is allowed as a deduction in the year the tax is paid. If the deductor failed to deduct tax but is not deemed an assessee in default under the first proviso to Section 201(1), it's deemed the deductor has deducted and paid tax on the date the payee furnished their return of income. Similarly, 30% of any interest, commission or brokerage, rent, royalty, fees for professional services, or fees for technical services payable to a resident, or amounts payable to a resident contractor/sub-contractor for work, on which tax is deductible under Chapter XVII-B but not deducted or paid by the due date, is disallowed. The allowance upon subsequent payment or if the deductor is not in default follows the same principle. Any sum paid or payable to a non-resident subject to Equalisation levy will be disallowed if the levy was not deducted or, if deducted, not deposited by the return filing due date; allowance is made in the year of subsequent deduction/deposit.

Rates or taxes (including surcharge or cess) levied on the profits or gains of any business or profession are not deductible for all assessees under Section 40(a)(ii).

For State Government undertakings, amounts paid as royalty, license fee, service fee, privilege fee, service charge, or any other fee or charge levied exclusively on, or appropriated from, a State Government undertaking by the State Government are not deductible under Section 40(a)(iib).

Salaries payable outside India, or in India to a non-resident, on which tax has not been paid/deducted at source are not deductible for all assessees as employers under Section 40(a)(iii).

Payments to provident fund/other funds for employees' benefit for which no effective arrangements are made to secure that tax is deducted at source on payments from such funds chargeable as 'salaries' are not deductible for all assessees as employers under Section 40(a)(iv).

Tax actually paid by an employer referred to in Section 10(10CC) is not deductible for all assessees as employers under Section 40(a)(v).

For firms, interest, salary, bonus, commission, or remuneration paid to partners is not deductible under Section 40(b), subject to certain conditions and limits.

For Associations of Persons (AOP) or Bodies of Individuals (BOI) (except companies, co-operative societies, societies registered under the Societies Registration Act, etc.), interest, salary, bonus, commission, or remuneration paid to members is not deductible under Section 40(ba), subject to certain conditions and limits.

Expenditure involving payment to a relative/director/partner/substantially interested person, etc., which the Assessing Officer deems excessive or unreasonable, is not deductible for all assessees under Section 40A(2).

Under Section 40A(3), 100% of payments exceeding Rs. 10,000 (Rs. 35,000 for plying, hiring, or leasing goods carriages) made to a person in a day otherwise than by account payee cheque/bank draft or use of electronic clearing system through a bank account or other prescribed electronic mode is not deductible, subject to certain conditions.

Any provision for payment of gratuity to employees, other than for contribution to an approved gratuity fund or for gratuity that has become payable during the year, is not deductible for all assessees as employers under Section 40A(7), subject to specified conditions.

Any sum paid for setting up or formation of, or as contribution to, any fund, trust, company, AOP, BOI, Society, or other institution, other than a recognized provident fund/approved superannuation fund/pension scheme (Section 80CCD)/approved gratuity fund, is not deductible for all assessees as employers under Section 40A(9).

No deduction is allowed for marked to market loss or other unexpected loss except as allowable under Section 36(1)(xviii), as per Section 40(A)(13) for all assessees.

C. Other deductible items

Allowances specified in an agreement entered into by the Central Government with any person are deductible under Section 42(1) for assessees engaged in prospecting for or extraction or production of mineral oils, subject to certain conditions and terms of the agreement.

For an assessee whose business consists of prospecting for or extraction or production of petroleum and natural gas and who transfers any interest in such business, expenditure remaining unclaimed as reduced by proceeds of transfer is deductible under Section 42(2).

Under Section 43B, for all assessees, any sum actually paid relating to (i) tax/duty/cess/fee under any law, (ii) contribution to provident/superannuation/gratuity/employee welfare funds, (iii) bonus/commission to employees, (iv) interest on loan/borrowing from public financial institutions, State Financial Corporations, or State Industrial Investment Corporations, (v) interest payments to scheduled/Co-operative banks (excluding primary agricultural and development banks/primary co-operative agricultural and rural development banks) on loans or advances, (vi) interest on loan or borrowings from NBFCs, (vii) leave encashment payable by employers, (viii) sums payable to Indian Railways for railway asset use, and (ix) sums payable to a micro or small enterprise beyond the time limit in Section 15 of the MSME Act, will not be deducted in the year of liability incurrence unless actually paid in that year or before the income tax return filing due date for that year. However, payment made to a micro or small enterprise beyond the time limit is deductible only on actual payment.

Trade, professional, or similar associations can claim a deduction for expenditure in excess of subscription, etc., received from members under Section 44A, subject to certain conditions and limits.

Non-residents can claim a deduction for head office expenditure under Section 44C, subject to certain conditions and limits.

Deductions Against 'Capital Gains'

All assessees can deduct expenditure incurred wholly and exclusively in connection with the transfer of a capital asset under Section 48(i).

The cost of acquisition of a capital asset and any improvement thereto (indexed cost for long-term capital assets) is deductible for all assessees under Section 48(ii). The cost of acquisition/improvement shall not include deductions claimed for interest under Section 24(b) or Chapter VIA, subject to exceptions in Explanation 1 and 2 to Section 48(iii). The benefit of indexed cost is available if the long-term capital gain arises from a transfer before July 23, 2024.

Firms, AOPs, or BOIs can claim a deduction in respect of capital gains charged under Section 45(4), attributable to a capital asset remaining with the firm, under Section 48(iii).

An Individual/HUF can claim a deduction under Section 54 for long-term capital gains on the sale of a residential house and appurtenant land if invested in the purchase/construction of another residential house, subject to conditions and limits. Effective from Assessment Year 2020-21, a taxpayer can opt to invest in two residential houses in India, exercisable once in a lifetime if the long-term capital gain doesn't exceed Rs. 2 crores. From Assessment Year 2023-24, this exemption is limited to Rs. 10 crores. (Note refers to one residential house in India w.e.f AY 2015-16 ).

Under Section 54B, an Individual/HUF can claim deduction for capital gains on the transfer of land used for agricultural purposes (by an individual, their parents, or a HUF) if invested in other land for agricultural purposes, subject to conditions and limits.

Any assessee can claim a deduction under Section 54D for capital gains on compulsory acquisition of land or building part of an industrial undertaking, if invested in purchasing/constructing other land/building for shifting/re-establishing the undertaking or setting up a new one, subject to conditions and limits.

Any assessee can claim deduction under Section 54EC for long-term capital gains from the transfer of land or building if the capital gains amount is invested in bonds of NHAI, REC, or other notified bonds.

All assessees can claim a deduction under Section 54EE for long-term capital gain invested in long-term specified assets, being units of a fund notified by the Central Government to finance start-ups.

An Individual/HUF can claim a deduction under Section 54F for the net consideration on transfer of a long-term capital asset (other than a residential house) if invested in a residential house, subject to conditions and limits. (Note refers to one residential house in India w.e.f AY 2015-16 ). From Assessment Year 2023-24, the aggregate amount invested in a new house property and deposited in the capital gain account scheme is eligible up to Rs. 10 crores.

Any assessee can claim a deduction under Section 54G for capital gain on transfer of machinery, plant, land, or building used for an industrial undertaking in an urban area (for shifting to a non-urban area), if invested in new machinery, plant, building, or land in the non-urban area, expenses on shifting, etc., subject to conditions and limits.

All assessees can claim an exemption under Section 54GA for capital gains on the transfer of assets in cases of shifting an industrial undertaking from an urban area to any Special Economic Zone, subject to conditions and limits.

An Individual/HUF (eligible assessee) can claim an exemption under Section 54GB for capital gain from the transfer of a long-term capital asset (residential property - house or plot), if the net consideration is utilized before the return filing due date for subscription in equity shares of an eligible company. This company must, within one year from the subscription date, utilize this amount to purchase specified new assets, subject to conditions and limits. W.e.f. April 1, 2017, an eligible start-up is also included in the definition of an eligible company.

Deductions Against 'Income from Other Sources'

A. Deductible items

All assessees can claim a deduction from dividend income for interest expense, not exceeding 20% of the dividend income, under Section 57(i).

Under the same Section 57(i), all assessees can deduct any reasonable sum paid as commission or remuneration for realizing interest on securities.

Contributions to any provident fund, superannuation fund, any fund under the Employees’ State Insurance Act, 1948, or any other fund for employee welfare are deductible for all assessees under Section 57(ia) if credited to employees' accounts before the due date.

Assessees engaged in the business of letting out machinery, plant, furniture, and buildings on hire can deduct repairs, insurance, and depreciation for these assets under Section 57(ii).

For assessees receiving family pension on the death of an employee who was a member of the assessee's family, a deduction of 3331​% of such pension or Rs. 15,000, whichever is less, is allowed under Section 57(iia). An enhanced threshold of Rs. 25,000 applies if income tax is computed under Section 115BAC(1A)(ii).

Any other expenditure (not capital) expended wholly and exclusively for earning such income is deductible for all assessees under Section 57(iii).

In the case of interest received on compensation or enhanced compensation (Section 145A(2)), a deduction of 50% of such income is allowed for all assessees under Section 57(iv), subject to certain conditions.

B. Non-deductible items

Personal expenses are not deductible for all assessees under Section 58(1)(a)(i).

Interest chargeable to tax which is payable outside India on which tax has not been paid or deducted at source is not deductible for all assessees under Section 58(1)(a)(ii).

'Salaries' payable outside India on which no tax is paid or deducted at source are not deductible for all assessees under Section 58(1)(a)(iii).

Disallowance due to TDS default, as covered by Section 40(a)(ia) and 40(a)(iia), applies to all assessees under Section 58(1A).

Expenditure of the nature specified in Section 40A is not deductible for all assessees under Section 58(2).

Expenditure in connection with winnings from lotteries, crossword puzzles, races, games, gambling, or betting is not deductible for all assessees under Section 58(4).

Deductions for Certain Payments (Chapter VI-A Deductions)

Section 80C allows individuals and HUFs a deduction for various payments and investments. These include life insurance premiums (for self, spouse, children in case of an individual; any member for HUF); sums paid under a contract for a deferred annuity (for self, spouse, children for an individual, ensuring no cash payment option in lieu of annuity; any member for HUF); sums deducted from salary payable to a Government servant for securing a deferred annuity or for their wife/children (qualifying amount limited to 20% of salary); contributions by an individual under the Employees' Provident Fund Scheme; contribution to Public Provident Fund Account (in the name of self, spouse, or child for an individual; any member for HUF); contribution by an employee to a recognized provident fund or an approved superannuation fund; subscription to notified securities or deposit schemes of the Central Government, including the Sukanya Samriddhi Account Scheme (deposited by an individual, or in the name of their girl child or a girl child for whom they are legal guardian); subscription to National Savings Certificates (VIII Issue); contribution for participation in unit-linked Insurance Plan of UTI (in the name of self, spouse, or child for an individual; any member for HUF); contribution to notified unit-linked insurance plan of LIC Mutual Fund (Dhanaraksha 1989) (similarly for individual/HUF); subscription to notified deposit schemes or pension funds by National Housing Bank (Home Loan Account Scheme/National Housing Banks (Tax Saving) Term Deposit Scheme, 2008); tuition fees (excluding development fees, donations, etc.) paid by an individual to any educational institution in India for full-time education of any two children; certain payments for purchase/construction of residential house property; subscription to notified schemes of public sector companies providing long-term finance for housing or authorities for housing needs/urban development; sum paid towards notified annuity plans of LIC (New Jeevan Dhara/New Jeevan Dhara-I/New Jeevan Akshay/New Jeevan Akshay-I/New Jeevan Akshay-II/Jeewan Akshay-III) or other insurers; subscription to units of notified Mutual Funds [u/s 10(23D)] or UTI (Equity Linked Saving Scheme, 2005); contribution by an individual to any pension fund by a mutual fund [Section 10(23D)] or UTI (UTI Retirement Benefit Pension Fund); subscription to equity shares or debentures of an approved eligible issue by a public company or public financial institutions; subscription to units of an approved mutual fund [Section 10(23D)] if subscribed only in 'eligible issue of capital'; term deposits for at least 5 years with a scheduled bank under a notified scheme (e.g., Bank Term Deposits Scheme, 2006 ); subscription to notified bonds by NABARD; deposit in an account under the Senior Citizen Savings Scheme Rules, 2004 (subject to conditions); 5-year term deposit under Post Office Time Deposit Rules, 1981 (subject to conditions); and contribution by a central government employee to a specified account of the pension scheme under Section 80CCD.

The deduction under Section 80C is limited to the whole amount paid or deposited, subject to a maximum of Rs. 1,50,000 (effective from AY 2015-16). This limit is an aggregate for deductions under Sections 80C, 80CCC, and 80CCD(1). The sums paid or deposited need not be from the income chargeable to tax of the previous year and can be paid anytime during the year, but the deduction is capped at the total income chargeable to tax for that year. Life insurance premium is part of the gross qualifying amount. Premium in excess of 10% of the actual capital sum assured (15% for policies issued on or after 1-4-2013 for persons with disability under 80U or specified diseases under 80DDB/rule 11DD) is not included. Benefits like returned premiums or bonuses are not counted in the actual capital sum assured. For policies issued before 1-4-2012, the limit is 20%. From 1-4-2013, 'actual capital sum assured' means the minimum amount assured on the insured event, excluding returned premiums or bonuses.

If an assessee terminates a single premium policy within two years of commencement, or any other policy before two years of premiums are paid, or terminates participation in a ULIP before five years of contributions are paid, or transfers a house property (for which deduction was claimed) within five years from the end of the financial year of possession, then no deduction is allowed for such sums in that previous year, and the aggregate deductions allowed in preceding years are deemed income of the assessee for that previous year. If equity shares or debentures (for which deduction was claimed) are sold/transferred within three years of acquisition, the aggregate deductions allowed are deemed income of the year of sale/transfer. Acquisition date is when the name is entered in the register. If amounts (including interest) are withdrawn from Senior Citizen Saving Scheme or Post Office Time Deposit Rules accounts before five years, the withdrawn amount is deemed income of the withdrawal year, excluding interest already taxed and amounts received by nominee/legal heir on assessee's death (other than untaxed accrued interest).

Under Section 80CCC, an individual can claim a deduction for contributions to certain pension funds of LIC or any other insurer, up to Rs. 1,50,000, subject to certain conditions[cite:⁶ 63]. If a deduction is claimed here, it cannot be claimed for the same amount under Section 80C. The aggregate deduction under Sections 80C, 80CCC, and 80CCD(1) shall not exceed Rs. 1,50,000.

Section 80CCD provides a deduction to individuals for contributions to a pension scheme notified by the Central Government, up to 10% of salary (subject to conditions and limits). Employer contributions are also allowed as a deduction under Section 80CCD(2) in computing the employee's total income, limited to 14% of salary for central/state government contributions and 10%* of salary for other employers (*14% if income is under Section 115BAC(1A) new tax regime). From AY 2015-16, non-government employees can claim this deduction even if their joining date is before January 1, 2004. From AY 2012-13, employer contributions under Section 80CCD(2) are not included in the Rs. 1,50,000 limit under Section 80CCE. From AY 2016-17, Section 80CCD(1A) (which had a Rs. 1,00,000 limit under sub-section (1)) was deleted. A new sub-section (1B) allows an additional deduction up to Rs. 50,000, not subject to the Rs. 1,50,000 limit of Section 80CCE. This additional Rs. 50,000 is not for contributions already considered under Section 80CCD(1) (i.e., within the 10% of salary/gross total income limit). Any payment from NPS to an employee due to closure or opting out is taxable. However, from AY 2017-18, the whole amount received by a nominee from NPS on the assessee's death is exempt.

Under Section 80CCH, an individual assessee can claim a deduction for amounts paid/deposited in the Agniveer Corpus Fund, and also for contributions made by the Central Government to such a fund.

Section 80D allows an individual or HUF to claim a deduction for amounts paid (other than cash) to LIC or other insurers for health insurance of specified persons, or to the Central Government health scheme, and/or for preventive health check-ups (subject to limits). Specified persons for an individual are self, spouse, dependent children, or parents; for HUF, any member. Preventive health check-up deduction cannot exceed Rs. 5,000 in aggregate and can be paid in cash.

The limits for Section 80D are: For an individual (self, spouse, dependent children), Rs. 25,000 (Rs. 50,000 if the insured is a senior citizen). For parents of the assessee (additional), Rs. 25,000 (Rs. 50,000 if the insured parent is a senior citizen). Medical expenditure up to Rs. 50,000 is allowed if no health insurance is paid (only for senior citizens). The aggregate deduction for an individual cannot exceed Rs. 1,00,000. For an HUF, premium up to Rs. 25,000 (Rs. 50,000 if the member is a senior citizen) to insure any member is allowed. Medical expenditure up to Rs. 50,000 for a senior citizen member is allowed if no health insurance is paid. The aggregate deduction for an HUF cannot exceed Rs. 50,000. A senior citizen is a resident individual aged 60 years or more during the relevant previous year.

Section 80DD allows a resident individual/HUF a deduction of Rs. 75,000 (Rs. 1,25,000 for severe disability) if expenditure is incurred for medical treatment (including nursing), training, and rehabilitation of a dependent with disability (as defined under relevant Acts, including autism, cerebral palsy, and multiple disabilities), or if an amount is paid/deposited under an approved scheme by LIC or other insurer, Administrator, or specified company for the maintenance of such a dependent, subject to conditions.

Section 80DDB permits a resident individual/HUF to deduct expenses actually paid for medical treatment of specified diseases and ailments, subject to certain conditions. The maximum deduction is Rs. 40,000 (Rs. 1,00,000 if expenditure is for a senior citizen, w.e.f. AY 2019-20). From AY 2016-17, a prescription from a specialist doctor is required.

Under Section 80E, an individual can claim a deduction for the amount paid out of income chargeable to tax as interest on a loan taken from a financial institution/approved charitable institution for pursuing higher education, for a maximum period of 8 years, subject to certain conditions. 'Higher education' (w.e.f. AY 2010-11) covers any course after Senior Secondary Examination or equivalent from a recognized school, Board, or university. From 1-4-2010, 'relative' includes a student for whom the taxpayer is the legal guardian.

Section 80EE allows an individual a deduction for interest payable on a loan from any financial institution for acquiring a residential house property, with a maximum deduction of Rs. 50,000, subject to certain conditions.

Section 80EEA provides a deduction to an individual not eligible under 80EE for interest payable on a loan from any financial institution for acquiring a residential house property, with a maximum deduction of Rs. 1,50,000, subject to certain conditions.

Under Section 80EEB, an individual can claim a deduction for interest payable on a loan from any financial institution for purchasing an electric vehicle, with a maximum deduction of Rs. 1,50,000, subject to certain conditions.

Section 80G allows all assessees a deduction for donations to certain approved funds, trusts, charitable institutions, or for renovation/repairs of notified temples, etc. (deduction is 50% of net qualifying amount). 100% deduction is available for donations to National Defence Fund, PM's National Relief Fund, PM CARES FUND, PM's Armenia Earthquake Relief Fund, Africa (Public Contributions - India) Fund, National Children's Fund (from 1-4-2014), Government or approved association for promoting family planning, universities and approved educational institutions of national eminence, National Foundation for Communal Harmony, Chief Minister's Earthquake Relief Fund (Maharashtra), Zila Saksharta Samitis, National or State Blood Transfusion Council, Fund by State Government for medical relief to the poor, Army Central Welfare Fund, Indian Naval Benevolent Fund, Air Force Central Welfare Fund, Andhra Pradesh Chief Minister's Cyclone Relief Fund, National Illness Assistance Fund, Chief Minister's Relief Fund or Lt. Governor's Relief Fund for any State/UT, National Sports Fund, National Cultural Fund, Fund for Technology Development and Application, Indian Olympic Association, etc., fund by Gujarat State Government for earthquake victims relief, National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities, sums paid between 26-1-2001 and 30-9-2001 to eligible entities for Gujarat earthquake relief, Swachh Bharat Kosh and Clean Ganga Fund (from AY 2015-16), and National Fund for Control of Drug Abuse (from AY 2016-17), subject to conditions and limits. Company donations to the Indian Olympic Association or other notified institutions for sports infrastructure development or sponsorship in India are eligible (due to omission of Section 10(23)). Donations to an authority for housing needs or urban/rural planning (from AY 2003-04, due to omission of Section 10(20A)) are also eligible. From 1-4-2013, no deduction for donations over Rs. 2,000 is allowed unless paid by a mode other than cash.

Section 80GG allows individuals not receiving any house rent allowance to deduct rent paid in excess of 10% of total income for furnished/unfurnished residential accommodation, limited to Rs. 5,000 p.m. or 25% of total income, whichever is less, subject to certain conditions.

Under Section 80GGA, all assessees not having income under 'Profits and gains of business or profession' can deduct certain donations for scientific, social, or statistical research, rural development programmes, eligible projects/schemes, or National Urban Poverty Eradication Fund, subject to conditions. From 1-4-2013, no deduction for sums over Rs. 10,000 is allowed unless paid by a mode other than cash.

Section 80GGB allows an Indian company to deduct sums contributed to any political party/electoral trust. From 1-4-2014, deduction is not allowed if contributed in cash.

Section 80GGC allows all assessees (other than local authority and artificial juridical person wholly or partly government-funded) to deduct sums contributed to any political party/electoral trust. From 1-4-2014, deduction is not allowed if contributed in cash.

For certain incomes:

Section 80-IA allows all assessees a deduction for profits and gains from industrial undertakings in telecommunication services, infrastructure facility, industrial park, SEZ development, power undertakings, etc., subject to conditions and limits. No deduction is available to an enterprise starting development or operation/maintenance of infrastructure facility on or after April 1, 2017. Time limits under Section 80-IA(4)(iv) were extended from 31-3-2014 to 31-3-2017.

Section 80-IAB provides a deduction to an assessee being a Developer of SEZ for profits and gains from the business of developing a Special Economic Zone notified on or after 1-4-2005, subject to conditions and limits. No deduction is available if SEZ development begins on or after April 1, 2017.

Section 80-IAC allows a Company and LLP a deduction for profit and gains from an eligible start-up's specified business, subject to certain conditions. 'Eligible business' (w.e.f. AY 2018-19) is by an eligible start-up engaged in innovation, development, or improvement of products/processes/services or a scalable business model with high employment/wealth creation potential. An 'eligible start-up' (w.e.f. AY 2018-19) is a company or LLP incorporated on or after April 1, 2016, but before April 1, 2030 (as amended by Finance Act, 2025), with turnover not exceeding Rs. 100 crore in the deduction year, and holding an Inter-Ministerial Board of Certification certificate.

Section 80-IB allows all assessees deductions for profits and gains from industrial undertakings, cold storage plants, hotels, scientific research & development, mineral oil concerns, housing projects, cold chain facilities, multiplex theatres, convention centres, ships, etc., subject to conditions and limits. No deduction is available to an enterprise commencing business activity on or after 1-4-2017.

Section 80-IBA provides a deduction to all assessees for profits and gains from the business of developing and building affordable housing projects, subject to certain conditions.

Section 80-IC allows all assessees deductions for profits and gains by an undertaking or enterprise in special category States (Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura), subject to limits, time limits, and conditions, for manufacturing/producing articles not in Thirteenth Schedule (or undertaking substantial expansion), or manufacturing/producing articles in Fourteenth Schedule or commencing operations in that Schedule (or undertaking substantial expansion).

Section 80-ID provides a deduction to all assessees for profits and gains from the business of hotels and convention centres in specified areas, subject to certain conditions.

Section 80-IE allows all assessees deductions in respect of certain undertakings in North Eastern States.

Section 80JJA provides all assessees a deduction for the entire income from the business of collecting and processing or treating bio-degradable waste for generating power, or producing bio-fertilizers, bio-pesticides,⁷other biological agents, or for producing bio-gas, pellets or briquettes for fuel, or organic manure (for 5 consecutive assessment years).

Section 80JJAA allows an assessee to whom Section 44AB applies a deduction of 30% of additional employee cost for new employees. Additional employee cost is total emoluments paid/payable to additional employees employed during the previous year. This deduction is for the first three Assessment Years, including the AY relevant to the previous year of such employment, subject to other conditions.

Section 80LA provides a deduction for certain incomes of Scheduled banks/banks incorporated outside India having Offshore Banking Units in an SEZ/Units of International Financial Services Centre, subject to conditions and limits.

Section 80M allows a Domestic Company to reduce inter-corporate dividends from its total income if the same is further distributed to shareholders within the prescribed period.

Section 80P provides specified incomes of Co-operative societies varying deductions subject to sub-section (2) limits.

Section 80PA allows a Producer Company a deduction for profit derived from processing or marketing of agricultural produce.

Section 80QQB grants a resident individual author a deduction for royalty income from certain specified categories of books (up to Rs. 3,00,000), subject to certain conditions.

Section 80RRB provides a deduction for royalty on patents up to Rs. 3,00,000 to a resident individual patentee receiving income from a patent registered on or after 1-4-2003, subject to certain conditions.

Section 80TTA allows Individuals/HUFs (except Senior Citizens) a deduction for interest on deposits in savings bank accounts (up to Rs. 10,000 per year).

Section 80TTB grants a Senior citizen a deduction for interest on deposits in savings accounts or fixed deposits (up to Rs. 50,000 per year).

Section 80U allows a deduction of Rs. 75,000 to a resident individual certified by a medical authority as a person with disability (as defined under relevant Acts, including autism, cerebral palsy, and multiple disabilities w.e.f. AY 2005-06). For severe disability, the deduction is Rs. 1,25,000, subject to certain conditions.

Rebates

• Section 87A provides a tax rebate to a resident individual in India whose total income does not exceed Rs. 5,00,000. The rebate is 100% of such income tax or Rs. 12,500, whichever is less.
• A maximum rebate of Rs. 25,000 is allowed under 87A from income tax on total income chargeable under Section 115BAC(1A) if the total income under this section is up to Rs. 7,00,000. [Applicable for AY 2024-25 & AY 2025-26]
• A maximum rebate of Rs. 60,000 is allowed under 87A from income tax on total income chargeable under Section 115BAC(1A) if the total income under this section is up to Rs. 12,00,000. [Applicable from AY 2026-27]