INCOME TAX DEDUCTIONS
Deductions allowed from Income as per Income tax Act
Income Tax Deduction decreases a person's liability to pay tax by lowering his Taxable Income.
For example: Let suppose a person earns Rs.50000 and makes a donation to a charity of Rs.1000, then he can claim a deduction for the donation this reduces your Taxable Income.
Income Tax Deduction is available to taxpayers from various sources of Income
1.Deduction against Salaries
Section 16(ia): Standard Deduction can be claimed when a person earns Rs.50000 or the amount of salary, whichever is less. This Deduction can be claimed by an Individual- salaried person and pensioners.
Section 16(ii): Under this section Entertainment allowance -actual or at the rate of 1/5th of salary, whichever is less, limited to Rs.5000 can be deducted. This deduction can be claimed by Government Employees.
Section 16(iii): Employment tax can be deducted under this section and this can be claimed by Salaried assesses.
2.Deduction against House Property
Section 23(1): All assessees whose taxes are levied by local Authority and borne by the owner in the previous year can claim a deduction.
Section 24(a): All assessees can claim Standard Deduction of 30% of the actual value i.e. Gross Annual value less Municipal Tax.
Section 24(b): All assessees can claim deduction on Interest borrowed capital (Rs.30000/Rs.2,00,000 subject to certain conditions).
Section 25A(2): All assessees can claim a standard deduction of 30% on arrears of rent or rent realized.
3.Deduction against Profit and Gains of Business and Profession:
Section 30: All assessees can claim deduction on rent, rates, taxes, repairs, and insurance for premises.
Section 31: Assessees can claim deduction on repairs excluding capital expenditure and on the insurance of plant, machinery, and furniture.
Section 32(1)(i): All taxpayers engaged in the business of generation or generation and distribution of power can claim deduction on Depreciation (Straight line method) of an asset at a prescribed percentage on the actual cost of an asset. if an asset is acquired and put to use for less than 180 days during the previous year, then deduction shall be restricted to 50% of depreciation. They can also claim deduction on Written down Value method.
Section 32(1)(ii): All assessees engaged in business or profession can claim deduction on Depreciation on written Down Value method on each block of an asset. if an asset is acquired and put to use for less than 180 days during the previous year, then deduction shall be restricted to 50% of depreciation.
Section 35(1)(iv) read with 35(2): All assessees can claim deduction on Capital expenditure incurred during the year on the scientific research relating to the business. Capital expenditure excludes land and any interest related to it. Depreciation shall be charged on such assets.
Section 35(2AA)26: All assessees can claim deduction on 200% of the payment made to a National Laboratory or University or an Indian Institute of Technology or a specified person .150% of payment is allowed as deduction (applicable from AY 2018-19).
Section 35(2AB)26: Company engaged in the business of biotechnology or in any business of manufacturing or production 200% of any expenditure incurred by a company on scientific research (including capital expenditure other than on land and building) on in-house scientific research and development facilities as approved by the prescribed authority’s 150% of expenditure so incurred shall be allowed as deduction (applicable from AY 2018-19).
Section 35A: All assessees can claim deduction on Expenditure incurred before 1-4-1998 on an acquisition of patent rights or copyrights [equal to appropriate fraction of expenditure on acquisition to be deducted in fourteen equal annual installments beginning with the previous year in which such expenditure has been incurred] (subject to certain conditions).
Section 35AB: All assessees can claim deduction on Lump-sum payment made in any previous year relevant to the assessment year commencing on or before 1-4-1998, for the acquisition of technical know-how [consideration for acquisition to be deducted in six equal annual installments 3 equal annual installments where know-how is developed in certain laboratories, universities.
Section 35ABA: All assessees engaged in telecommunication activities can claim deduction on Capital expenditure incurred and actually paid for acquiring any right to use spectrum for telecommunication services shall be allowed as deduction over the useful life of the spectrum in equal installments.
Section 35ABB: All Assessees can claim deduction on Expenditure incurred for obtaining a license to operate telecommunication services either before the commencement of such business or thereafter at any time during any previous year.
Section 35AC: All Assessees can claim deduction on Expenditure by way of payment of any sum to a public sector company/local authority/approved association or institution for carrying out any eligible scheme or project (subject to certain conditions).Deduction under this section is available only A.Y. 2017-2018.
Section 35CCA: All assesses can claim deduction on Payment to associations/institutions for carrying out rural development programs.
Section 35CCB: All assessees can claim deduction Expenditure incurred before 1-4-2002 by way of payment to approved associations/institutions for carrying out approved programs of conservation of natural resources or afforestation.
Section 35CCC: All asseesees can claim deduction One and a half times of expenditure on the notified agricultural extension project.
Section 35CCD: A Company can claim deduction on One and a half times of expenditure on notified skill development project (subject to certain conditions).
Section 35D: Indian companies and non-resident corporate assessees can claim deduction on Amortization of certain preliminary expenses [deductible in 5 equal annual installments]
Section 35DD: Any Indian Company can claim deduction on Amortization of expenditure incurred after 31-3-1999 in case of amalgamation or demerger in the hands of an Indian company one-fifth of such expenditure for 5 successive previous years subject to certain conditions.
Section 35DDA: All assesses can claim deduction Amortization of expenditure incurred under the voluntary retirement scheme in 5 equal annual installments starting with the year when the expenditure is incurred.
Section 35E: Indian companies and Non-resident corporate assessees prospecting for minerals can claim deduction on Expenditure on prospecting, etc., for certain minerals deductible in ten equal annual installments subject to certain conditions.
Section 361(i): All assessees can claim deduction on Insurance premium covering the risk of damage or destruction of stocks/stores.
Section 36(1)(ia): Federal milk co-operative societies can claim deduction on Insurance premium covering the risk of damage or destruction of stocks/stores.
Section 36(1)(ib): All assesses as employees can claim deduction on Medical insurance premium paid by any mode other than cash, to ensure employee’s health under (a) scheme framed by GIC of India and approved by Central Government; or (b) scheme framed by any other insurer and approved by IRDA.
Section 36(1)(ii): All assesses can claim deduction on Bonus or commission paid to employees.
Section 36(1)(iii): Al assessees can claim deduction on interest on borrowed capital.
Section 36(1)(iiia): All assessees can claim deduction on Pro-rata amount of discount on a zero-coupon bond based on the life of such bond and calculated in a prescribed manner.
Section 36(1)(iv): All Assessees as employees can claim deduction on Contributions to recognized provident fund and approved superannuation fund subject to certain limits and conditions.
Section 36(1)(iva): All assessees as employees can claim deduction on any sum paid by assessee-employer by way of contribution towards a pension scheme, as referred to in section 80CCD, on account of an employee to the extent it does not exceed 10 percent of the employee’s salary in the previous year.
Section 36(1)(v): All assessees can claim deduction on Contributions to approved gratuity fund [subject to certain limits and conditions].
Section 36(1)(va): All assessees as employees can claim deduction on Contributions to any provident fund or any fund set up under Employees State Insurance Act, 1948 or any other fund for the welfare of such employees, received from employees if they are credited to the employee’s account in relevant fund or funds before the due date.
Section 36(1)(vi): All assessees can claim deduction on Allowance in respect of animals which have died or become permanently useless [subject to certain conditions].
Section 36(1)(vii): All assessees can claim deduction on Bad debts which have been written off as irrecoverable which is subject to the limitation in the case of banks and financial institutions.
Section 36(1)(viii): Specified entities, namely, financial corporations/financial corporation which is a public sector company/banking company/co-operative bank can claim deduction on Amounts transferred to special reserve [subject to certain conditions and maxi-mum of 20 percent of profits derived from eligible business]
Section 37(1): All assesses can claim deduction on Any other expenditure [not being personal or capital expenditure and expenditure mentioned in sections 30 to 36] laid out wholly and exclusively for purposes of business or profession.
Section 37(2B): All assessee can claim deduction on Advertisement in souvenir, brochure, tract, pamphlet, etc., of political party.
Section 40(ai): All assessees can claim deduction on Interest, royalty, fees for technical services or other chargeable sums payable outside India, a foreign company, on which tax has not been deducted or after deduction which has not been paid on or before the due date of filing of return under section 139(1). Where in respect of any such sum, the tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. However, where deductor has failed to deduct the tax and he is not deemed to be an assessee in default under the first provison to section 201(1), then it shall be deemed that the deductor has deducted and paid the tax on the date on which the payee has furnished his return of Income.
Section 40(a)(ib): All assessees can claim deduction on Any sum paid or payable to a non-resident which is subject to a deduction of Equalization levy would attract disallowance if such sum was paid without deduction of such levy or if it was deducted but not deposited with the Central Government till the due date of filing of return.
Section 40(a)(ii): All assessees can claim deduction on Rate or tax levied on the profits or gains of any business or profession.
Section 40(a)(ia): All assessees can claim deduction on the wealth tax paid.
Section 40(a)(ib): All government undertakings can claim deduction on Amount paid by way of royalty, license fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on, or any amount which is appropriated, whether directly or indirectly, from a State Government undertaking by the State Government.
Section 40(a)(iii): All assesses as employees can claim deduction on Salaries payable outside India, or in India to a non-resident, on which tax has not been paid/deducted at source.
Section 40(a)(iv): All assesses can claim deduction on 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 made from such funds which are chargeable to tax as ‘salaries’.
Section 40(a)(v): All assessees cam claim deduction on Tax actually paid by an employer referred to in section 10(10CC).
Section 40(b): Firms can claim on Interest, salary, bonus, commission or remuneration paid to partners (subject to certain conditions and limits)
Section 40 (ba): Association of persons or body of individuals except for a company or a co-operative society, society registered under Societies Registration Act can claim on Interest, salary, bonus, commission or remuneration paid to members.
Section 40A(2): All assessees can claim on Expenditure involving payment to relative, director, partner, interested person, etc., wherein the opinion of the Assessing Officer, is excessive or unreasonable.
Section 40A(3): All assessees can claim on 100% of payments exceeding Rs.10,000 (Rs.35,000 in case of payment made for plying, hiring or leasing goods carriages) made to a person in a day otherwise than by account payee cheque or bank draft or use of electronic clearing system through a bank account or through such other electric mode as may be prescribed.
Section 40A(7): all assessees as employees can claim on Any provision for payment of gratuity to employees, other than a provision made for purposes of contribution to approved gratuity fund or for payment of gratuity that has become payable during the year.
Section 40A(9): All assessees as employees can claim deduction on Any sum paid for setting up or formation of, or a contribution to, any fund, trust, company, AOP, BOI, Society or other institution, other than recognized provident fund/approved superannuation fund/pension scheme referred to in section 80CCD/approved gratuity fund.
Section 40A(13): No deduction shall be allowed in respect of marked to market loss or other unexpected loss except as allowable under section 36(1)(xviii).
(C).OTHER DEDUCTABLE ITEMS:
Section 42(1): Assessees engaged in prospecting for or extraction or production of mineral oils n case of mineral oil concerns allowances specified in the agreement entered into by Central Government with any person.
Section 42(2): Assessees whose business consists of prospecting for or extraction or production of petroleum and natural gas and who transfers any interest in such business In case of mineral oil concerns expenditure incurred remaining unallowed as reduced by proceeds of transfer can be claimed under this deduction.
Section 43: All Assesses Any sum which is actually paid, relating to (i) tax/duty/cess/fee levied under any law, (ii) contribution to provident fund/superannuation fund/gratuity fund/any fund for employees’ welfare, (iii) bonus/commission to employees, (iv) interest on loan/borrowing from any public financial institution, State Financial Corporation or State Industrial Investment Corporation (v)interest payments to scheduled banks/Co-operative banks (other than a primary agricultural and development bank)/primary co-operative agricultural and rural development bank on loans or advances, (vi) interest on loan or borrowings from a deposit-taking a non-banking financial company or systemically important non-deposit taking the non-banking financial company and (vii) sum payable by employers by way of leave encashment to employees. (viii) the sum payable to the Indian Railways for the use of railway assets. A deduction will not be allowed in a year in which liability to pay is incurred unless actual payment is made in that year or before the due date of furnishing of return of income for that year.
Section 44A: Trade, professional, or similar association can claim deduction on Expenditure in excess of subscription, etc., received from members.
Section 44C: Non- Resident can claim deduction on Expenditure in excess of subscription, etc., received from members.
4.Deduction against Capital gains:
Section 48(i): All assessees can claim deduction on Expenditure incurred wholly and exclusively in connection with the transfer of capital asset.
Section 48(ii): All assessees can claim deduction on Cost of acquisition of a capital asset and of any improvement thereto (indexed cost of acquisition and indexed cost of improvement, in case of long-term capital assets).
Section 54: Any individual or HUF can claim deduction on Long-term capital gains on the sale of residential house and land appurtenant thereto invested in purchase/construction of another residential house8 (subject to certain conditions and limits).
Section 54B: Capital gains on transfer of land used for agricultural purposes, by an individual or his parents or a HUF, invested in other land for agricultural purposes (subject to certain conditions and limits) can be claimed by any individual or HUF.
Section 54D: All assessees can claim deduction on Capital gains on compulsory acquisition of land or building forming part of an industrial undertaking invested in purchase/construction of other land/building for shifting/re-establishing said undertaking or setting up new industrial undertaking.
Section 54EEE: Long-term capital gain invested in long-term specified assets being units of such funds as may be notified by the Central Government to finance start-ups.
Section 54F: Any individual or HUF can claim deduction on Net consideration on transfer of long-term capital assets other than residential house invested in a residential house.
Section 54G: Any Assessee can claim deduction on a Capital gain on transfer of machinery, plant, land, or building used for the purposes of the business of an industrial undertaking situated in an urban area.
Section 54GA: Deduction can be claimed on the Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from an urban area to any Special Economic Zone.
Section 54GB: Exemption in respect of capital gain arising from the transfer of a long-term capital asset, being a residential property owned by the eligible assessee, and such assessee before the due date of furnishing of return of income under sub-section (1) of section 139 utilizes the net consideration for subscription in the equity shares of an eligible company and such company has, within one year from the date of subscription in equity shares by the assessee, utilized this amount for purchase of specified new assessee.
5.Deduction against Income from other Sources:
(A) Deductable Items:
Section 57(i): All assessees can claim deduction on Any reasonable sum paid by way of commission or remuneration for the purpose of realizing dividend
Section 57 (ia): All assessees can claim deduction on Contributions to any provident fund or superannuation fund or any fund set up under Employees’ State Insurance Act, 1948 or any other fund for the welfare of employees if the same is credited to employees’ accounts in relevant funds before the due date
Section 57(ii): Assessees engaged in the business of letting out of machinery, plant and furniture and buildings on hire can claim deduction on Repairs, insurance, and depreciation of building, plant and machinery and furniture
Section 57(iia): Assessees in receipt of family pension on death of employee being a member of assessee’s family can claim deduction on in case of family pension, thirty-three and one-third percent of such pension or Rs. 15,000, whichever is less.
Section 57(iii): All assessees can claim deduction on Any other expenditure (not being capital expenditure) expended wholly and exclusively for earning such income.
Section 57(iv): All assesses can claim deduction on In case of interest received on compensation or on enhanced compensation referred to in section 145A(2), a deduction of 50 percent of such income
Section 57(1)(a)(i): All assessees can claim deduction on personal expenses.
Section 57(1)(a)(ii): All assessees can claim deduction on Interest chargeable to tax which is payable outside India on which tax has not been paid or deducted at source.
Section 57(1)(a)(iii): All assessees can claim deduction on Salaries’ payable outside India on which no tax is paid or deducted at source.
Section 58(iA): Salaries payable outside India on which no tax is paid or deducted at source can be claimed by all assessee.
Section 58(2): All assessees can claim deduction on Expenditure of the nature specified in section 40A.
Section 58(4): all assesses can claim deduction on Expenditure in connection with winnings from lotteries, crossword puzzles, races, games, gambling or betting
Section 80C: Any individual or HUF can claim deduction on
Contribution by an employee to a recognized provident fund
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