Deductions from Gross Total Income Detailed Notes for Competitive Examination | Taxation for CA Intermediate PDF Download

What are the Deductions from Gross Total Income?

Deductions from gross total income refer to amounts subtracted from overall income or revenue. These deductions help lower taxable income, resulting in a reduced tax liability for individuals.

India's Income Tax Act, specifically Section 80, outlines deductions from gross total income applicable to taxpayers and businesses. Sections 80C to 80U cover various permissible deductions, encouraging investment and savings. These deductions include tax-exempt investments that ease financial burdens and promote retirement planning.

Being aware of these deductions is crucial for minimizing tax payments. Investments must be made within the financial year, adhering to specified deadlines to qualify for deductions from gross total income.

Basic Rules of Deductions

Sections 80A and 80B delineate the fundamental principles governing deductions from gross total income. These sections elucidate the steps and criteria necessary for claiming deductions, as stipulated in the Income Tax Act.

The Obligation of the Assessee to Claim Deductions

• Only the assessee, referring to the individual whose tax liabilities are being assessed, is entitled to claim deductions. Section 80A(1) enunciates this principle, emphasizing the need for the assessee to provide evidence and substantiate the details of deductions claimed.

Limitation on Deductions Relative to Gross Income

• Section 80A(2) specifies that deductions from gross total income cannot exceed the total gross income, which must be a non-negative value after all deductions are applied. The total income encompasses various sources such as basic salary, rental income, interest, or dividend income. Failure to maintain a non-negative balance post-deductions precludes further deductions, highlighting the importance of managing deductions judiciously.

Deductions for Members of Associations or Groups

• Certain associations or groups may function as distinct entities and claim deductions independently. In such cases, individual members cannot concurrently claim the same deductions from gross total income, as they would have already benefited through their association. Section 80A(3) delineates these regulations.

Obligation to Provide Substantiating Documentation

• An assessee must furnish all relevant documentation and evidence to tax authorities to substantiate their eligibility for deductions from gross total income. This entails presenting a compelling case demonstrating legitimate entitlement to tax concessions.

Deductions Applicable to Net Income (Section 80(AB))

• Deductions from total gross income are contingent upon the net income as per income tax regulations. The net income, integral to the gross income, forms the basis for determining eligible deductions.

Exclusion of Benefits Post Due Date

• Failure to adhere to tax return deadlines precludes certain deductions under sections 80 IA, IB, IC, ID, or IAB, IE, emphasizing the importance of timely compliance for availing deductions.

Parts Of The Deduction Process

• The process of deducting from the gross total income consists of two main parts. These parts outline the regulations for the deduction process and the procedure to claim them. The primary segments are Deductions capped at ₹1,50,000 and Additional Deductions.

Deductions With A ₹1,50,000 Overall Ceiling

• The types of deductions from gross total income have a limit of ₹1,50,000 concerning investments, payments, or savings. Should the amount surpass this threshold, only benefits up to ₹1,50,000 are applicable.
• Within this category, the following deductions from gross total income are relevant. These deductions are solely accessible to individuals and Hindu Undivided Families.

Retirement Investment Options

• Public Provident Fund: This scheme offers a long-term savings avenue with added interest benefits. Individuals can contribute a specified amount annually to build a substantial corpus over time.
• Employee Provident Fund: Both employees and employers contribute to this fund, which serves as a deduction from the total income. It acts as a reliable savings mechanism for retirement.
• Life Insurance Premiums: Regular premiums paid towards life insurance policies can be deducted from the gross total income. This provides financial security to beneficiaries in case of unforeseen events.
• Equity-Linked Saving Scheme (ELSS): ELSS represents a type of mutual fund that not only facilitates tax savings but also offers the potential for wealth creation through investments in equities.
• Unit-Linked Insurance Plans (ULIPs): These plans offer a dual benefit of investment growth and life insurance coverage. Investors can avail tax deductions while securing their future and that of their dependents.
• Notified Mutual Funds: Specific mutual fund units prescribed by the government allow investors to reduce their taxable income. This encourages participation in the capital markets for long-term wealth creation.
• Home Loan Benefits: Deductions are available on stamp duty and home loan repayments, incentivizing individuals to invest in real estate and secure their housing needs.
• National Savings Certificate (NSC) Issue 8: This government-backed scheme serves as a tax-saving investment, aiming to lower the tax burden on investors while promoting disciplined savings habits.
• Senior Citizens Saving Scheme of 2004: Tailored for senior citizens, this scheme provides a secure investment avenue with tax benefits, ensuring financial stability during retirement years.
• Sukanya Samridhi Scheme Deposits: Designed for the girl child's future, this scheme encourages long-term savings for education and marriage expenses, offering tax benefits to guardians.
• Deposit for National Pension Fund: Contributions made towards this fund help individuals build a retirement corpus, ensuring a steady income post-retirement to maintain financial independence.
• Bank Term Deposit: Placing funds in term deposits with banks offers a secure investment option with fixed returns, contributing to overall financial planning and stability.

Pension and Annuity Funds (Section 80CCC)

• Investing in annuity pension funds can provide regular post-retirement payments. The maturity or surrender payments from pension funds are deductible from gross total income. Additionally, the interest and bonuses earned are tax-exempt.

National Pension Scheme Contributions (Section 80 CCD)

Contributions to national employee pension schemes are also deductible from gross total income. The following limits are crucial for this deduction:

• Employees can deduct up to 10% of their salary plus dearness allowance.
• Other individuals, such as self-employed individuals, can deduct up to 10% of their gross income.
• An additional deduction of up to ₹50,000 is allowed under Section 80CCD (1b).
• Section 80CCD (2) benefits apply to salaried employees, allowing a maximum deduction of 10% of their salary and dearness allowance.

Additional Deductions

Taxpayers can avail themselves of deductions from gross total income through various avenues:

Medical Insurance and Health Expenses (Section 80D)

• Individuals can claim up to ₹25,000 for medical insurance premiums, checkups, and treatments.
• An additional ₹25,000 deduction is available for parents' medical expenses, which increases to ₹30,000 for senior citizen parents.
• Hindu Undivided Families (HUFs) can claim deductions for medical expenses and premiums.

Medical Treatment for Handicapped Dependents (Section 80DD)

• Deductions for treatment, maintenance, or rehabilitation of handicapped dependents are available based on the level of disability.

Treatment of Specified Diseases (Section 80DDB)

• Deductions are allowed for the treatment of specified diseases, with varying limits based on age and disability.

Higher Education Loan Interest (Section 80E)

• Deductions can be claimed for interest paid on higher education loans for a maximum of eight years.

Persons with Disabilities (Section 80U)

• Deductions are available based on the degree of disability.

Donations to Charitable Institutions (Section 80G)

• Donations to approved charitable institutions provide deductions ranging from 50% to 100%.

Rent Paid (Section 80GG)

• Individuals residing in rented accommodation without a house rent allowance can claim deductions based on specified criteria.

Donations for Scientific Research or Rural Development (Section 80GGA)

• Deductions are available for donations made to scientific research organizations or rural development initiatives.

Contribution to Political Parties (Section 80GGC)

• Approved contributions to political parties are deductible from gross total income.

Interest on Bank Savings (Section 80TTA)

• A deduction of up to ₹10,000 is allowed for interest received on bank savings deposits.

Royalty on Patents (Section 80RRB)

• Residents can claim deductions for royalty received on patents, subject to specified limits.

Conclusion

It is crucial to grasp the significance of deductions from gross total income in taxation and strategic investment planning. Familiarizing oneself with these deductions and utilizing them effectively during the fiscal year can significantly reduce tax obligations. Deductions from gross total income are pivotal in shaping an individual's taxable income and thereby affecting their tax responsibilities. These deductions are outlined in different sections of tax laws across many nations, serving multiple objectives such as incentivizing desired actions, offering relief to particular demographics, and fostering investments in vital economic sectors.