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Critical analysis of deductions under Chapter VIA

www.pwc.com/in. Critical analysis of deductions under Chapter VIA . General provisions. Chapter VIA deductions – Deductions from gross total income - Sections 80C to 80U.

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Critical analysis of deductions under Chapter VIA

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  1. www.pwc.com/in Critical analysis of deductions under Chapter VIA

  2. General provisions • Chapter VIA deductions – Deductions from gross total income - Sections 80C to 80U. • Gross total income to be computed before allowing deduction under Chapter VIA and after setting off brought forward unabsorbed losses / depreciation. •  Aggregate amount of deductions to be restricted to the amount of gross total income. •  Where deduction is available in respect of certain incomes, such deduction is with reference to the amount of net income.

  3. Section 80C - Deduction in respect of life insurance premium etc. Qualifying amount • Rs.1,00,000 (aggregate deduction available u/s 80C, 80CCC & 80CCD) Qualifying investments • Life insurance premium for policy • Deferred annuity plan • Contract should not contain an option to receive cash payment in lieu of annuity • Sum deducted from salary payable to Government servant for securing deferred annuity or making provision for his wife/children [qualifying amount limited to 20% of salary]

  4. …Section 80C - Deduction in respect of life insurance premium etc. • Contributions by an individual made under Employees' Provident Fund • Contribution to Public Provident Fund • Contribution by an employee to a recognised provident fund • Contribution by an employee to an approved superannuation fund • Subscription to any notified security or notified deposit scheme of the Central Government • Subscription to NSC VIII & NSC IX • Contribution for participation in ULIP

  5. …Section 80C - Deduction in respect of life insurance premium etc. • Contribution for participation in Dhanraksha 1989 Plan of LIC Mutual Fund • Payment made to effect or keep in force a notified deferred annuity plan of – • LIC – New JeevanDhara, New JeevanDhara I, New JeevanAkshay, New JeevanAkshay I and II, JeevanAkshay III & VI • Any other insurer – Immediate Annuity Plan of ICICI Prudential Life Insurance Co., Tata AIG Retire Annuity Plan • Contribution to Equity Linked Savings Schemes • Contribution by an individual to UTI Retirement Benefit Pension Fund

  6. …Section 80C - Deduction in respect of life insurance premium etc. • Subscription to Home Loan Account Scheme or National Housing Bank (Tax Saving) Term Deposit Scheme, 2008 of National Housing Bank • Subscription to Public Deposit Scheme of HUDCO • Tuition fees (excluding development fees, donation or similar payment) at the time of admission or thereafter to any university, college, school or other educational institution in India for full time education of any two children • Payment for the purchase or construction of a residential house property • Subscription to equity shares or debentures forming part of any eligible issue of capital approved by the Board in the case of a public company / public financial institution

  7. …Section 80C - Deduction in respect of life insurance premium etc. • Subscription to any units of mutual fund referred to in Section 10(23D) and approved by the Board • Bank Term Deposit Scheme, 2006 for a fixed period of not less than 5 years with a scheduled bank • Subscription to NABARD Rural Bonds • Deposit under Senior Citizens Savings Scheme Rules, 2004 • Deposit as 5 year time deposit in an account under Post Office Time Deposit Rules, 1981

  8. …Section 80C - Deduction in respect of life insurance premium etc. Points to be noted •  Amount may be paid or deposited any time during the previous year. •  Deduction shall be restricted to the total income chargeable to tax during the previous year. •  Payment of life insurance premium which is in excess of 20 per cent (10 per cent in case of policies issued on or after 1-4-2012) of the capital sum assured, shall not be included in gross qualifying amount. • Capital sum assured does not include the value of any premiums agreed to be returned or of any benefit by way of bonus or otherwise, over and above the sum actually assured.

  9. …Section 80C - Deduction in respect of life insurance premium etc. ...Points to be noted • No deduction allowed to the assessee with reference to sums paid in the previous year and the aggregate amount of deductions allowed in preceding years shall be taxed, if – • single premium policy terminated within two years after the date of commencement or • any other insurance policy terminated before premiums have been paid for two years or • unit-linked insurance plan (ULIP) terminated before contributions have been paid for five years or • house property transferred 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 that clause.

  10. …Section 80C - Deduction in respect of life insurance premium etc. ...Points to benoted • Equity shares or debentures, with reference to the cost of which a deduction is allowed, to be held for a period of three years from the date of their acquisition. If not so held, deductions allowed in the preceding years shall be taxed in the year of sale / transfer. • Date of acquisition of shares / debentures of public company is the date on which name is entered in the register of members or debenture-holders. • Any amount, including interest accrued thereon, withdrawn from (a) Senior Citizen Saving Scheme or ( b) Post Office Time Deposit Rules, before the expiry of the period of five years from the date of its deposit, shall be deemed to be the income of the assessee of the previous year in which the amount is withdrawn, unless such interest has been taxed in an earlier previous year.

  11. …Section 80C - Deduction in respect of life insurance premium etc. • Case laws • CIT v/s Chelliah [1984] 147 ITR 590 (Mad) • The category of payments which are deducted from the gross total income under Section 80C comprise items of expenditure laid out by an assessee or the wife of a person whose income is included in his total income under Section 64. • ITO v/s Yogi H. Aggarwal [2005] 278 ITR 116 (Mum) • Where the deduction is after arriving at gross total income, which includes the clubbed income, the deduction as for Section 80C, will be allowed only once on the income after clubbing. • CIT v/s Abraham George [2000] 242 ITR 171 (Ker) • CIT v/s Ram Mohan Rawat [2002] 255 ITR 555 (Raj) • CIT v/s Ramesh Chandra Khandelwal [2005] 273 ITR 363 (All) The sums paid or deposited need not be out of income chargeable to tax of the previous year.

  12. Section 80CCC – Contribution to certain pension funds of LIC or any other insurer Qualifying amount • Rs.1,00,000 (aggregate deduction available u/s 80C, 80CCC & 80CCD) Qualifying investments • Payment made to effect or to keep in force a contract for any annuity plan of LIC or any other insurer for receiving pension from the fund Points to be noted • Amount received on full / partial surrender of annuity plan or pension received from the plan, deemed to be the income of the assessee / nominee of the year in which amount is withdrawn or pension is received • Where deduction is claimed under this section, deduction in relation to same amount cannot be claimed under section 80C

  13. Section 80CCD – Deduction re. contribution to pension scheme of Central Government Eligible assessee • Individual employed by the Central Government or any other employer • Any other assessee being an individual Conditions • In case (1) above, the Central Government or any other employer makes any contribution to employee’s account. • In case (2) above, the assessee has, in the previous year paid or deposited any amount in his account under a notified pension scheme.

  14. …Section 80CCD – Deduction re. contribution to pension scheme of Central Government Amount of deduction • The whole of the amount so paid or deposited as does not exceed – • in the case of an employee, 10% of his salary in the previous year • in any other case, 10% of gross total income • Section 80CCE provides that the aggregate amount of deductions under section 80C, section 80CCC and section 80CCD shall not, in any case, exceed Rs. 1,00,000. • With effect from the assessment year 2012-13, contribution made by the Central Government or any other employer to a pension scheme shall not be included in the limit of deduction of Rs.1,00,000 provided under section 80CCE.

  15. …Section 80CCD – Deduction re. contribution to pension scheme of Central Government Points to be noted • Amount received on closure / opting out of the pension scheme or pension received from the annuity plan purchased or taken on such closure or opting out, is taxable in the year of receipt in the hands of the assessee / nominee. • If amount received is used for purchasing an annuity plan in the same previous year, the assessee shall be deemed not to have received any amount in the previous year. • Where deduction has been allowed u/s 80CCD, no deduction with reference to such amount shall be allowed u/s 80C.

  16. Section 80CCF – Deduction re. subscription to long term infrastructure bonds • Applicable for AY 2011-12 and AY 2012-13 • Individuals and HUF entitled to deduction u/s 80CCF • Deduction available for subscription to notified long term infrastructure bonds issued by – • IFCI • LIC • IDFC • NBFC classified as an infrastructure finance company by RBI • India Infrastructure Finance Co. Ltd. • Eligible amount Rs.20,000

  17. Section 80CCG – Deduction re. of investment made under an equity savings scheme Eligible assessee • Resident individual Conditions • Applicable w.e.f. 1-4-2013  • Gross total income does not exceed Rs.10,00,000 • Assessee is a new retail investor as specified in the notified scheme • Acquisition of listed equity shares as per notified scheme • Lock in period of 3 years • Any other condition as may be prescribed Amount of deduction • 50% of the amount invested subject to a maximum of Rs.25,000.

  18. …Section 80CCG – Deduction re. of investment made under an equity savings scheme Points to be noted • One time deduction – no deduction under this section for any subsequent assessment year. • If assessee fails to comply with any specified condition in any previous year, deduction originally allowed, shall be deemed to be the income of such year.

  19. Section 80D – Deduction in respect of health insurance premium Eligible assessee • Individuals • HUF Conditions  • Medical insurance premia paid to GIC or any other insurer approved by Insurance Regulatory and Development Authority Amount of deduction • In case of individuals, premia paid – • for self, spouse and dependent children : Rs. 15,000 (Rs.20,000 if person insured is a senior citizen) • for parents of the assessee : additional Rs.15,000 (Rs.20,000 if person insured is a senior citizen) • In case of HUF, premia paid upto Rs.15,000 (Rs.20,000 if person insured is a senior citizen to insure any member of the family

  20. …Section 80D – Deduction in respect of health insurance premium Points to be noted • Premium to be paid by any mode other than cash •  With effect from 1-4-2013 – • deduction is available in respect of any payment made by an assessee on account of preventive health check-up of self, spouse, dependent children or parent during the previous year up to a limit of Rs.5,000 within the existing limits prescribed above; • the age for defining a senior citizen is reduced from sixty five years to sixty; • cash may be paid on account of preventive health checkup.

  21. Section 80DD – Deduction re. maintenance / medical treatment of a dependant who is a person with disability Eligible assessee • Individual • HUF Conditions  • Expenditure incurred for the medical treatment (including nursing), training and rehabilitation of a dependant (spouse, children, parents, brothers and sisters) being a person with disability. •  Any amount paid or deposited under an approved scheme framed by LIC or any other insurer or the Administrator or the specified company for the maintenance of a dependent, being a person with disability. •  The approved schemes provide for payment of annuity or lump sum amount for the benefit of a disabled dependent, on the death of the individual or member of HUF in whose name subscription to the scheme has been made. •  The subscriber is required to nominate the disabled dependent or any other person or a trust to receive the payment on his behalf for the benefit of the disabled dependent.

  22. …Section 80DD – Deduction re. maintenance / medical treatment of a dependant who is a person with disability Amount of deduction • Rs.50,000 • Rs.1,00,000 in case of severe disability Points to be noted • Medical certificate in the prescribed form (Rule 11A) to be furnished along with the Return of Income. •  Amount received by the individual / member of HUF, in case disabled dependent predeceases such individual / member of HUF, is taxable in the year of receipt.

  23. Section 80DDB – Deduction in respect of medical treatment etc. Eligible assessee • Individual • HUF Conditions • The assessee has actually paid any amount for the medical treatment of specified diseases and ailments (Rule 11DD). • Payment in the case of individual, for self or dependent (spouse, children, parents, brothers and sisters). • Payment in the case of HUF, for any member of the HUF.

  24. …Section 80DDB – Deduction in respect of medical treatment etc. Amount of deduction • Amount actually paid upto a maximum of Rs.40,000 • Amount actually paid upto a maximum of Rs.60,000 in case of senior citizen • Amount actually paid means the amount paid as reduced by insurance claim received / amount reimbursed by employer. Points to be noted • Medical certificate in the prescribed form (Rule 11DD) to be furnished along with the Return of Income. • With effect from 1-4-2013 the age for defining a senior citizen is reduced from sixty five years to sixty.

  25. Section 80E – Deduction in respect of loan taken for higher education Eligible assessee • Individual Conditions  • Deduction available for payment of interest on loan, out of income chargeable to tax. • Loan taken from any financial institution including a bank or any other approved charitable institution. • Loan taken for pursuing higher education for self or relative (spouse, children or student for whom the individual is the legal guardian. Amount of deduction • 100% of the interest paid

  26. ...Section 80E – Deduction in respect of loan taken for higher education Points to be noted •  Amount paid for repayment of loan does not qualify for deduction. •  Deduction available until the interest on loan is paid in full, subject to a maximum of 8 years.

  27. Section 80G - Donations Eligible assessee • Any assessee Conditions  • Donations to specified funds, charitable institutions etc. Amount of deduction • Donations made to National Defence Fund and other specified Funds e.g. Prime Minister’s National Relief Fund, Prime Minister’s Armenia Earthquake Relief Fund, National Sports Fund, National Cultural Fund etc. • 100% of qualifying donations • In any other case • 50% of qualifying donations

  28. ...Section 80G - Donations • Qualifying amount of following aggregate donations should not exceed 10% of the gross total income as reduced by deductions permissible under other provisions of Chapter VIA • By a company to the Indian Olympic Association or to any other notified association / institution established in India for development of infrastructure for sports and games in India or sponsorship of sports and games in India • To a Government or to any such local authority, institution or association as may be approved by the Central Government for the purpose of promoting family planning • To approved charitable institutions / funds established in India fulfilling prescribed conditions • To a corporation established by the Central government / State government for promoting the interests of the members of a minority community

  29. ...Section 80G - Donations Points to be noted • Only donations in form of money and not in kind will qualify for deduction. • W.e.f. 1-4-2013, deduction in respect of donations in cash will be allowed only upto Rs.10,000. • Where deduction allowed u/s 80G for any assessment year, deduction in relation to such sum shall not be allowed under any other provision of the Act for the same or any other assessment year. • Any approval u/s 80G(5)(vi) on or after 1-10-2009 would be a one-time approval which would be valid till it is withdrawn. • Wholly / substantially whole religious purpose is not a charitable purpose.

  30. ...Section 80G - Donations Case laws • CIT v/s General Textiles [1978] 111 ITR 727 (Cal) Where deduction allowed u/s 80G to a firm, such relief cannot again be allowed to its partners. • Upper Ganges Sugar Mills Ltd. v/s CIT [1997] 227 ITR 578 (SC) Even if one of the objects of the institution or fund is wholly or substantially of a religious character, institution or fund would fall outside scope of Section 80G. • Reliance Motor Co. Pvt. Ltd. v/s CIT [1995] 213 ITR 733 (Mad) It is not the actual use of funds by the trust but the likelihood of its being used for the benefit of any particular religious community or caste and the capacity of the trust to do so, which is important.

  31. ...Section 80G - Donations • …Case laws • Sri Karpagambal Mills Ltd. v/s CIT [1999] 238 ITR 842 (Mad) For the purpose of Section 80G(4), first the limit of 10% of gross total income should be applied and then 50% of that amount should be allowed as deduction u/s 80G. • Golecha Properties (P) Ltd. v/s CIT [1988] 171 ITR 47 (Raj) Proof of donation essential. • ParivarSevaSanstha v/s DIT (Exemptions) [2002] 255 ITR 132 (Del) • Pendency of demand cannot be a ground for refusal of recognition u/s 80G. • Orpat Charitable Trust v/s CIT [2002] 173 ITR 534 (Guj) • Contravention of Sec. 11(5) will have a bearing at the time of assessment and cannot be a ground for refusal of recognition u/s 80G(5).

  32. Section 80GG – Deduction in respect of rents paid Eligible assessee • Any assessee Conditions  • Rent paid is in excess of 10% of total income before allowing any deduction under this section. • Rent paid is in respect of accommodation occupied for the purposes of own residence. •  Declaration to be filed in Form 10BA. •  No other residential accommodation is owned by the assessee or by his spouse or minor child or by HUF of which he is a member.

  33. …Section 80GG – Deduction in respect of rents paid ...Conditions • Deduction will not be denied if – • some other residential accommodation is owned at places other than the place where the assessee ordinarily performs his duties of employment or carries on business or profession and • the assessee does not claim concession in respect of self-occupied house property in respect of such accomodation. Amount of deduction • The least of the following 3 limits – • excess of rent paid over 10% of total income before allowing deduction under this section • 25% of total income • Rs.2,000 per month

  34. …Section 80GG – Deduction in respect of rents paid Point to be noted • An employee who is entitled to house rent allowance from his employer, is eligible for exemption u/s 10(13A) and not for deduction u/s 80GG.

  35. Section 80GGA – Deduction re. donations for scientific research or rural development Eligible assessee • All assessees not having any income chargeable under the head “Profits and gains of business or profession”. Conditions • Donations to a research association, University, college or other institution for scientific, social or statistical research or rural development programme or for carrying out an eligible project or scheme or National Urban Poverty Eradication Fund Amount of deduction • 100% of the amount paid

  36. ...Section 80GGA – Deduction re. donations for scientific research or rural development Points to be noted • Where deduction allowed u/s 80GGA for any assessment year, deduction in relation to such sum shall not be allowed under any other provision of the Act for the same or any other assessment year. • W.e.f. 1-4-2013, deduction in respect of cash donations u/s 80GGA will be allowed only upto Rs.10,000.

  37. Section 80GGB – Deduction re. contributions given by companies to political parties Eligible assessee • Indian Company Conditions  • Contribution to – • Political party • Electoral trust Amount of deduction • 100% of amount donated Points to be noted • Donations to political parties governed by Section 293A of Companies Act

  38. Section 80GGC – Deduction re. contributions given by any person to political parties Eligible assessee • All assesses, other than local authority and artificial juridical person wholly or partly funded by Government Conditions • Contribution to – • Political party • Electoral trust Amount of deduction • 100% of amount donated

  39. Section 80IA – Deduction re. profits and gains from industrial undertakings etc.

  40. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc.

  41. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc.

  42. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc.

  43. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc.

  44. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc.

  45. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc. Points to be noted • The eligible undertaking must fulfil the following conditions – • not formed by splitting up or reconstruction of a business already in existence • not formed by transfer to a new business of machinery or plant previously used for any purpose. Exemption from this provision if value of old plant and machinery transferred to new business does not exceed 20% of the total value of plant and machinery used in the business. • For determining the quantum of deduction, profits and gains of business is to be computed as if such business were the only source of income. • Audit report to be furnished in Form 10CCB alongwith the Return of Income.

  46. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc. … Points to be noted • If deduction allowed u/s 80IA, no other deduction under Chapter VIA with reference to the same profits and gains will be allowed. • Section 80IA not applicable in relation to a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise. • Transfer of goods or services from / to an eligible business to / from any other business carried on by the assessee, shall be at market value of such goods / services.

  47. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc. … Points to be noted • AO has the power to recompute the profits attributable to an eligible undertaking. Domestic transfer pricing regulations to be applied. Emanates from the decision in the case of CIT v/s GlaxoSmithkline Asia (P) Ltd. [2010] 195 Taxman 35 (SC) • Depreciation compulsory for computation of relief • Deduction u/s 80IA shall be granted only if the Return of income is filed within the prescribed time. [Section 80AC] • For failure to claim deduction u/s 80IA in the Return of Income, deduction will not be allowed.

  48. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc. Case laws • Bajaj Tempo Ltd. v/s CIT [1992] 62 Taxman 480 (SC) Provision in the taxing statute granting incentives for promoting growth and development should be construed liberally. • Deduction u/s 80IA is available qua undertaking and not qua assessee • Madras Machine Tools Manufacturers Ltd. v/s CIT 98 ITR 119 (Mad) • CIT v/s Premier Cotton Mills Ltd. 240 ITR 434 (Mad) • CIT v/s Chanda Diesels 216 ITR 639 (Bom)

  49. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc. …Case laws • Textile Machinery Corpn. Ltd. v/s CIT [1977] 107 ITR 195 (SC) Guidelines to determine whether an undertaking has not been formed by splitting up or reconstruction of a business already in existence – • Separate and distinct identity of the industrial unit set up • Investment of substantial fresh capital • Employment of additional employees • Manufacture or production of articles in the said undertaking • Rangamma Steels & Malleables v Asst. CIT (2010) 43 DTR 137 (Chennai) (Trib) Co-generation plant (windmill) installed in different years has to be considered as a separate undertaking and the profit/loss cannot be clubbed in order to compute the deduction under s. 80-IA.

  50. …Section 80IA – Deduction re. profits and gains from industrial undertakings etc. …Case laws • Jt CIT v/s Associated Capsules P. Ltd. 304 ITR 85 Mum Assessee established new plant and machinery at same premises, producing same product as existing business. AO held new units to be part of existing business. It was held that certain post-manufacturing activities centrally carried out or drawing certain facilities from a common source was not relevant . New units have separate & distinct identity of their own & profits and gains derived from them. Assessee treated each unit as separate and independent in its accounts. Assessee entitled to deduction. • Tata Communication Internet Services Ltd. v. ITO ITA No. 4214/Del/2010 Bar provided in section 80-IA(3) is to be considered only for first year of claim of deduction u/s 80-IA

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