Deductions Under Chapter Via: Relevance 3 % Devotion 3 Hours

Deductions under Chapter VIA
413
RELEVANCE 3 % DEVOTION 3 HOURS
11
DEDUCTIONS UNDER CHAPTER VIA
HISTORICAL RELEVANCE
8 7 6 5 4 3 2 1
0 May 07 Nov 07 May 08 Nov 08 May 09 Nov 09 May 10 Nov 10 May 11 Nov 11 May 12
Marks
414
DIRECT TAX

Sectionwise Overview: Section
Basics Sec 80A General Rules for deductions to be made in computing total income 417 417 418
Particulars
Page Nos.
Sec 80AB Deductions per taining to specified incomes Sec 80AC Deduction not to be allowed unless return if income is furnished. Deductions pertaining to investments 80C 80CCC 80CCD 80CCE 80CCF Investment in Provident fund, life insurance, equity shares Contribution to pension funds Contribution to a notified pension scheme Limit on deduction Subscription to long term infrastructure bonds
420 426 427 428 428
Deductions pertaining to medical treatment and expenses 80D 80DD 80DDB 80U Health insurance and contribution to Central Government Health Scheme Maintenance of a dependant person with disability Medical treatment Individual with disability 429 430 431 434
Deductions pertaining to certain contributions 80G 80GGA 80GGB 80GGC Donations to cer tain funds, Charitable Institutions, etc Donations for Scientific Research or Rural Development Contributions to Political Par ties by Companies Contributions to Political Par ties 435 438 439 439
Deductions pertaining to expenditure 80E 80GG Payment towards Interest on Education Loan Payment towards Rent 440 441
415
Deductions pertaining to Industrial Undertakings 80IA 80IAB 80IB 80IC 80ID 80IE Deductions in respect of profit and gains by under taking or enterprises engaged in infrastructure development etc Deductions in respect of profit and gains by under taking or enterprises engaged in development of Special Economic Zone Deductions in respect of profit and gains by under takings other than Infrastructural Development Under taking Deductions in respect of cer tain under takings or enterprises in cer tain Special Economic Zone Deductions in respect of profits and gains from business of Hotels and Convention Centres in Specified Areas Deductions in respect of under taking in Nor th Eastern States 442 446 446 453 454 456
Deductions pertaining to Specified Businesses 80JJA 80JJAA 80LA 80P Deductions in respect of profits and gains from business of collecting and processing of bio-degradable waste Deduction in respect of Employment of New Workmen Deduction in respect of cer tain Income of Offshore Banking Units and International Financial Centre Deduction in respect of income of Co-Operative Societies 457 458 459 460
Deductions pertaining to certain Incomes 80QQB 80RRB Deduction in respect of Royalty Income etc., of authors of cer tain books other than text books Deduction in respect of Royalty on Patents 461 463
416
DIRECT TAX
DEDUCTIONS for the purpose of this chapter refers to deductions available from Gross total income. A set of specific deductions considering various socio economic factors have been provided under this chapter. As a learner of the subject, try to understand the logical reasoning behind each and every deduction, this would help you to appreciate the provisions. India has a savings to GDP ratio of over 35% which is significant and was one of the prime factors to protect the economy from the recent global economic recession. One of the main reasons for such high savings ratio, apart from the conservative nature of the Indian population, is the tax incentives which are made available to promote long term savings. This and many more incentives are being offered for various classes of persons to promote social and economic causes. The total set of deductions available can be broadly categorised as: S/No Category 1 Basics 2 Sections 80A, 80AB, 80AC Classification as per Act Deductions pertaining to certain payments Deductions pertaining to certain payments. 80U is classified under other deductions
Deductions pertaining to 80C, 80CCC, 80CCD, investments 80CCE, 80CCF 3 Deductions pertaining to medical 80D, 80DD, 80DDB, treatment and expenses 80U 4 Deductions pertaining to certain 80G, 80GGA, 80GGB, contributions 80GGC 5 Deductions pertaining to 80E, 80GG expenditure 6 Deductions pertaining to Industrial 80IA, 80IAB, 80IB, Undertakings 80IC, 80ID, 80IE 7 Deductions pertaining to Specified 80JJA, 80JJAA, 80LA, Businesses 80P 8 Deductions pertaining to certain 80QQB, 80RRB Incomes Let us now look into each of these deductions in some detail.
Deductions pertaining to certain incomes.
Classification as per Act is given for students to understand as to how the sections are grouped. Also references are made in this chapter based on classifications under the Act. Category based split is given only for easier understanding.
11.1 Basics
Prior to claiming deductions, we need to understand the fundamental provisions for the purpose of allowing deductions. These are discussed as under: - Sec 80A : General rules for deductions to be made in computing total income - Sec 80AB : Deductions pertaining to specified incomes u/s 80IA to 80RRB, to be made with respect to income included in the gross total income - 80AC : Deduction not to be allowed unless return of income is furnished.
417
11.1.1 General rules for deductions to be made in computing total income - Sec 80A
Deduction cannot exceed gross total income: Deduction u/s 80C to 80U shall be allowed against the gross total income of an assessee. Aggregate of deductions under this chapter cannot exceed the gross total income of an assessee No deduction in the case of members of AoP and BoI if allowed to an AoP/BoI: Where a deduction has been allowed under this chapter for an AoP or BoI, no deduction for the same payment / income shall be made in computing the total income of a member of the AoP or BoI in relation to the share of such member in the income of the AoP or BoI. Specific provisions for assessees claiming deduction u/s 10A, 10AA, 10B, 10BA or u/s 80IA to 80RRB (Deductions pertaining to certain incomes) sec 80IA(7) to (11) Audit of Accounts : Accounts of such undertaking has to be mandatorily audited
Inter unit Transfer of goods and services at market value between an eligible and non eligible undertaking: Where an assessee claiming deduction under the above mentioned sections (considered as eligible business) transfers goods and services to non eligible businesses or vice versa, such transfer has to be made at market value. Where the transfers have not been made at market value, profits or gains shall be recomputed valuing the transfers at market values and deductions shall be computed on such recomputed profits and gains.
Where in case the aforesaid arrangement involves a specified domestic transaction referred to in Sec 92BA, the amount of profits from such transaction shall be determined having regard to arm's length price as defined u/s 92F
Double deduction not allowed: No deduction shall be allowed against such profits and gains under any other provisions of this Act for the relevant assessment year. Deduction not to exceed relevant profits and gains: The amount of deduction shall not exceed the profit and gains of such undertaking or eligible business. Power of Central Government to notify: The Central Government has power to notify certain undertakings to which the provisions of the relevant section shall not apply. Deduction has to be claimed by the assessee: Where an assessee fails to make a claim in his return of income, no deduction shall be allowed.
Specific provision for avoidance of double deduction u/s 35AD: Where an assessee has claimed deduction under this chapter u/s 80IA to 80RRB (Deductions pertaining to certain incomes), such assessee shall not be eligible for claiming deduction u/s 35AD even if the assessee is carrying on a specified business u/s 35AD.
Chapter VIA deduction is not available against the following incomes: Long term capital gains Shor t term capital gains u/s 111A Casual income- winnings from lotteries, card games etc Incomes covered under the following sections: 115A : Dividends, royalty and fees for technical services of a non resident or foreign company.
418
DIRECT TAX 115AB : Income from units purchased in foreign currency or capital gains arising on their transfer.
419
115AC : Income from bonds or Global Depository Receipts (GDR) purchased in foreign currency or capital gains arising on their transfer, where the assessee is a non resident . 115ACA : Income from bonds or Global Depository Receipts (GDR) purchased in foreign currency or capital gains arising on their transfer, where the assessee is a resident Indian working with a specified employer 115AD : Income of Foreign Institutional Investors from securities or capital gains arising from their transfer. 115BBA : Income of non resident spor tsmen or spor ts associations 115D : Income of non resident Indian under specific circumstances.
The term market value shall mean: In relation to any goods or services sold or supplied The price such goods or services would fetch if these were sold by the under taking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions if any. The price such goods or services would cost if these were acquired by the under taking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any. Arms length price as defined u/s 92F In relation to any goods or services sold, supplied or acquired which are considered as Specified Domestic Transactions referred u/s 92BA
In relation to any goods or services acquired
11.1.2 Deductions pertaining to specified incomes u/s 80IA to 80RRB, to be made with respect to income included in the gross total income Sec 80AB:
Where the assessee is eligible for deduction u/s 80IA to 80RRB, Deduction shall be allowed on such income computed in accordance with the provisions of the Act prior to claiming any deduction under Chapter VIA.
Therefore income for the purpose of claiming deduction u/s 80IA to 80RRB shall be income computed after providing for set off and carry forward of losses, clubbing of incomes etc but prior to any deduction u/s 80C to 80U.
If income of an assessee is increased consequent to computation of ar ms length price u/s 92C(4), such increase is not to be considered for the purpose of deduction u/s 80C to 80UIGate Global Solutions Ltd vs CIT (2008) 24 SOT 3 (Bangalore).
11.1.3 Deduction not to be allowed unless return of income is furnished within due dateSec 80AC
Where an assessee is claiming deduction u/s 80IA, 80IAB, 80IB, 80IC, 80ID or 80IE No deduction shall be allowed unless, The assessee files his return of income within the due date u/s 139(1)
420
DIRECT TAX
Due date for filing return of income u/s 139(1): Assessee Company Non corporate assessees whose accounts are required to be audited under Income tax Act or any other law Working par tner of a firm whose accounts are required to be audited Company assessee which is required to furnish a report u/s 92E (transfer pricing cases) Any other assessee Due date 30th September of the assessment year
30th November of the assessment year 31st July of the assessment year
Can the provision of Section 14A be applied for disallowing expenditure relating to income for which deduction is available under Chapter VIA, or the Section can be invoked only in respect of expenditure relating to income exempt under the provision of Section 10? Section 14A will apply only in respect of expenditure relating to income which is exempt under Section 10. Section 14A does not have any role to play in those cases where income is chargeable to tax but it is wholly or par tly deductable under Section 80C to 80U. Examine the correctness of statement that there exists no difference in treatment of income under Section 10 with those claimed under Chapter VIA. The statement is incorrect. One apparent difference is, income eligible for exemption under Section 10 is not included in the total income of the Assessee and is excluded at the beginning itself. Whereas incomes for which deduction is claimed under Chapter VIA form par t of total income and the deduction is limited to the total income of the Assessee by the means of provision contained in Section 80A and Section 80AB.
11.2 Deductions pertaining to investments

This set of sections consists of tax incentives available for making certain specified investments. The benefits of investment incentives are however restricted only to individual or HUF assessees. Deduction for investments is contained in the following sections: Section 80C 80CCC 80CCD 80CCE 80CCF Eligible assessee Individual or HUF Individual Individual NA Individual or HUF Description Investment in provident fund, life insurance, equity shares etc Contribution to pension funds Contribution to a notified pension scheme Limit on deduction u/s 80C, 80CCC and 80CCD Subscription to long term infrastructure bonds
Let us now look into each of these sections in some detail
421
11.2.1 Investment in provident fund, life insurance, equity shares etc Sec 80C
Section Investment Eligible assessee Individual and HUF Remarks/ Conditions
80C(2)(i) Life insurance premium
80C(2) (ii)
80C(2) (iii)
80C(2) (iv)
80C(2) (v)
In case of individual: Insurance can be taken on the life of: Individual Spouse Any child In case of HUF: Insurance can be taken on the life of any member of HUF Deduction restricted to 20% of Capital Sum Assured Contract of annuity other Individual The contract for annuity should not than an annuity plan of contain an option for the insured to LIC or any other notified receive a cash payment in lieu of the insurer payment of annuity (i.e it should be a non commutable deferred annuity plan). Investment shall be for the benefit of : Individual Spouse Any child Contribution to deferred Individual Contribution should be made as a annuity being a deduction from salary sum deducted shall Government not exceed 1/5th of the salary employee Contribution shall be for the benefit of: Individual Spouse Children Contribution to a provident Individual NA fund to which Provident Funds Act 1925 applies (statutory provident fund) Contribution to a notified Individual In case of individual: Investment shall be provident fund set up by and HUF in the name of : Central Government (15 Individual year public provident Spouse fund) Any child In case of HUF: Investment shall be made in the name of any member of HUF Maximum investment ceiling as per Public Provident Scheme is Rs 1,00,000. However there is no ceiling under the Income Tax Act.
422
DIRECT TAX
80C(2) (vi) 80C(2) (vii) 80C(2) (viii)
Contribution to recogn- Individual ised provident fund being an employee Contribution to an ap- Individual proved superannuation being an fund employee Subscription to a notified Individual security or deposit and HUF scheme.
NA
NA
80C(2) (ix)
Subscription to a noti- Individual fied savings certificates and HUF National Savings Certificates (VIII Issue)
80C(2) (x)
Contribution to a specified unit liked plan (ULIP) of UTI
Individual and HUF
80C(2) (xi)
Contribution to a Individual specified unit liked and HUF plan (ULIP) of LIC Mutual Fund referred u/s 10(23D)
80C(2) (xii)
Contribution to a contract Individual for annuity plan of LIC and HUF or any other insurer
Scheme of deposit or security must be notified by the Central Government in the Official Gazette National Savings Scheme has since been notified Savings certificates must be notified by the Central Government in the Official Gazette Interest accrued on these certificates is deemed to be reinvested and also qualify for deduction under this section. In case of individual: Investment shall be in the name of : Individual Spouse Any child In case of HUF: Investment shall be made in the name of any member of HUF Insurance plan shall be notified by the Central Government in the Official Gazette In case of individual: Investment shall be in the name of : Individual Spouse Any child In case of HUF: Investment shall be made in the name of any member of HUF Annuity plan shall be notified by the Central Government in the Official Gazette
423
80C(2) (xiii)
80C(2) (xiv)
80C(2) (xv)
80C(2) (xvi)
Subscription to units of any Mutual Fund referred u/s 10(23D) or from the Administrator or the specified company under any notified plan Contribution to pension fund set up by any Mutual Fund referred u/s 10(23D) or from the Administrator or the specified company under any notified scheme Subscription to any deposit scheme or contribution to a pension fund set up by National Housing Bank Subscription to any such deposit scheme of: (a) a public sector company engaged in providing long-term finance for construction or purchase of houses in India for residential purposes; or (b) any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both
Individual and HUF
Scheme shall be notified by the Central Government in the Official Gazette
Individual
Pension scheme shall be notified by the Central Government in the Official Gazette
Individual and HUF
Scheme of deposit or pension fund shall be notified by the Central Government in the Official Gazette
Individual and HUF
Scheme of deposit shall be notified by the Central Government in the Official Gazette
424
DIRECT TAX
80C(2) (xvii)
Payment of tuition fees Individual whether at the time of admission or thereafter: (a) to any university, college, school or other educational institution situated within India (b) for the purpose of full-time education Principal repayment of Individual housing loan taken for and HUF the purpose of acquisition or construction of house property.
Tuition fees exclude any payment towards any development fees or donation or payment of similar nature. Deduction shall be restricted to any two children of an individual.
80C(2) (xviii)
Repayment of the amount borrowed by the assessee from: Central or State Government Any bank including a cooperative bank LIC National Housing Bank Any Indian public company specified u/s 36(1)(viii) Any company in which the public are substantially interested or any cooperative society engaged in financing the construction of houses Assessees employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act, or Assessees employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society.
425
80C(2) (xviii)
Stamp duty, registration Individual fee and other expenses and HUF for the purpose of transfer of such house property to the assessee
Deduction shall not be available for payment towards: (A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member; or (B) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out: after the issue of the completion certificate or - after the house property or any part thereof has been occupied. (C) any expenditure eligible for deduction u/s 24 Eligible issue of capital means an issue by a public company formed and registered in India or a public financial institution and the entire proceeds of such issue are utilized wholly and exclusively for the purpose of business referred u/s 80IA(4).
80C(2) (xix)
Subscription to equity Individual shares or debentures and HUF forming part of an eligible issue of an approved public company or subscription to an eligible issue of capital by public financial institution. Subscription to units of Individual any mutual funds referred and HUF u/s 10(23D)
80C(2) (xx)
80C(2) (xxi)
Investment in term Individual deposit with a scheduled and HUF bank Subscription to specified Individual bonds issued by National and HUF Bank for Agriculture and Rural Development (NABARD)
80C(2) (xxii)
The amount of subscription to such units is subscribed only in the eligible issue of capital of any company. Eligible issue of capital shall have the same meaning as given u/s 80C(2)(xix) Term deposit shall be for a period of not less than 5 years Scheme of deposit shall be notified by the Central Government in the Official Gazette Bonds shall be notified by the Central Government in the Official Gazette
426
DIRECT TAX
80C(2) (xxiii) 80C(2) (xxiv)
Contribution under the Senior Citizens Savings Scheme Rules, 2004 Contribution to five year term deposit in an account under the Post Office Term Deposit Rules, 1981.
Individual and HUF Individual and HUF
NA
NA
Deduction u/s 80C is allowed only on payment basis Benefit of deduction under this section is available to a non resident individual Deduction u/s 80C towards life insurance premiums shall be restricted to the extent of least of the following: Actual amount of premium paid
10% of actual capital sum assured (Amendment by Finance Act 2012) Actual capital sum assured has been defined in relation to a life insurance policy shall mean the minimum amount assured under the policy on happening of the insured event at any time during the term of the policy, not taking into account (i) the value of any premium agreed to be returned; or (ii) any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person.'. Withdrawal of deduction u/s 80C Section 80C(5)(i) Deduction Withdrawal / Violation event Consequences of withdrawal
Payment of life In the case of single premiuminsurance premium u/s withdrawal within two years of 80C(2)(i) commencement In any other case before premiums No deduction shall be allowed have been paid for two years in the year of withdrawal.
80C(5)(ii) Contribution to ULIP Terminates his par ticipation to the Aggregate deductions allowed u/s 80C(2)(x)/(xi) plan within five years from the date in the preceding years shall be of commencement. deemed to be income of the 80C(5)(iii) Principal repayment Where the house proper ty is year of violation/ of housing loan and transferred within five years from withdrawal and charged to taxation. payment of stamp duty the end of the financial year in etc u/s 80C(2)(xviii) which possession of such property was obtained or Where there is a refund or otherwise of any sum specified u/s 80C(2)(xviii) 80C(6) Investment in eligible Where such shares or debentures are equity shares or transferred within a period of three debentures u/s 80C(2) years from the date of acquisition. (xix) Aggregate deductions allowed in the preceding years shall be deemed to be income of the year of violation/ withdrawal and charged to taxation.
427
80C(6A)
Contribution under the Senior Citizens Savings Scheme Rules, 2004 u/s 80C(2)(xxiii) Contribution to five year term deposit in an account under the Post Office Term Deposit Rules, 1981 u/s 80C(2) (xxiv)
Where the amount is withdrawn by the assessee from his account within period of five years from the date of deposit.
Aggregate deductions allowed in the preceding years shall be deemed to be income of the year of violation/ withdrawal and charged to taxation.
The following amounts shall not to be charged to taxation u/s 80C(6A): Interest on deposits u/s 80C(2)(xxiii)/(xxiv) which have been included in the total income for the previous year or any prior year. Any amount received by the nominee or legal heir of the assessee, on the death of such assessee, other than interest, if any, accrued thereon, which was not included in the total income of the assessee for the previous year or years preceding such previous year.
Full-time education includes any educational course offered by any university, college, school or other educational institution to a student who is enrolled full-time for the said course. It is also clarified that full-time education includes play-school activities, prenursery and nursery classes. The amount allowable as tuition fees shall include any payment of fee to any university, college, school or other educational institution in India except the amount representing payment in the nature of development fees or donation or capitation fees or payment of similar nature Circular No 1/2010 dated 11-01-2010.
11.2.2 Contribution to pension funds Sec 80CCC

Particulars Eligible assessee Eligible investment Provisions Individual assessees only Contribution to a contract of any annuity plan of LIC or any other approved insurer for receiving pension from a fund set up by LIC or any other insurer referred u/s 10(23AAB) Quantum of deduction Amount invested or Rs 1 lakh whichever is lower Consideration on The following amounts received from the fund shall be chargeable to maturity/ closure Sec taxation in the year of receipt as income of the assessee / nominee: 80CCC(2) Any amount on surrender of the annuity plan either whether in whole or in part Pension received from the annuity plan Conditions Investment has to be made out of income chargeable to tax Deduction is available only on payment basis Where a deduction has been allowed under this section, no deduction shall be allowed u/s 80C for the same contribution.
428
DIRECT TAX
Amount invested does not include interest or bonus accrued on existing fund balance Benefit of deduction under this section is available to a non resident individual also
11.2.3 Contribution to a notified pension scheme Sec 80CCD

Particulars Eligible assessee Eligible investment Quantum of deduction Provisions All Individual assessees Contribution to a pension scheme notified by the Central Government In case of employee assessees: In case any other individual assessees: A: Contribution by employee: Lower of actual contribution or 10% Lower of actual contribution or 10% of gross total income for of salary for the previous year. the previous year B: Contribution by employer: Lower of actual contribution or 10% of salary for the previous year. Consideration on The following amounts received from the fund shall be chargeable to maturity/ closure Sec taxation in the year of receipt as income of the assessee / nominee: 80CCD(3) Any amount on closure or opting out of pension scheme Pension received from the annuity plan No income shall however arise u/s 80CCD(3) if the amount received is used for purchasing an annuity plan in the same previous year. Conditions Deduction is available only on payment basis
Salary = Basic + DA taken for retirement benefits. Salary excludes all other allowances and perquisites. Benefit of deduction under this section is available to a non resident individual also Answer the following sub divisions, with reference to the provision of the Income-tax act, 1961 for the Assessment year 2013-14: Deduction under section 80CCD is available only to individuals employed by Central Government. Discuss the correctness of this statement. Solution: The statement is incorrect as deduction under section 80CCD is available to an individual employed by the Central Government or any other employer.
429
11.2.4 Limit on deduction u/s 80C, 80CCC and 80CCD 80CCE

Aggregate deduction u/s 80C, 80CCC and 80CCD cannot exceed Rs 1 lakh. For the purpose of limits u/s 80CCE (i.e Rs 1,00,000), employers contribution to notified pension u/s 80CCD shall not to be included.In other words, the total limit for deduction u/s 80C, 80CCC and 80CCD shall be Rs 1,00,000 plus employers contribution u/s 80CCD.
Deduction in respect of investment made under an equity savings scheme- Sec 80CCG Inserted by Finance Act 2012 Eligible assessee: Resident individual considered as a new retail investor as per notification issued by the Central Government for the purpose of this section. The gross total income of the assessee for the relevant previous year shall not exceed Rs 10 lakhs. Eligible investment: Investment in listed shares in accordance with the scheme notified. Deduction: 50% of the amount invested or Rs 25,000 whichever is les s Minimum lock-in period: The investment is locked-in for a period of three years from the date of acquisition in accordance with the scheme Restriction: Where an assessee has claimed and allowed a deduction under this section for any assessment year in respect of any amount, he shall not be allowed any deduction under this section for any subsequent assessment year. Consequences in the event of violation: If the assessee, in any previous year, fails to comply with any condition specified, deduction originally allowed shall be deemed to be the income of the assessee of such year of violation.
11.3 Deductions pertaining to medical treatment and expenses

Here, we shall look at deductions which are available for various expenses pertaining to medical treatment, insurance and maintenance. These deductions can be broadly classified as: Section 80D 80DD 80DDB 80U Eligible assessee Individual or HUF Resident Individual and HUF Resident Individual and HUF Resident Individual Description Health insurance and contribution to Central Government Health Scheme Maintenance of a dependant person with disability Medical treatment etc Individual with disability
Let us now look into each of these sections in some detail.
430
DIRECT TAX
11.3.1 Health insurance and contribution to Central Government Health Scheme Sec 80D
Particulars Eligible assessee Eligible expenditure Quantum of deduction Provisions Individual and HUF Medical insurance premium, contribution to Central Government Health and payment for preventive health check up In the case of an individual For family : Rs 15,000 For parents : Rs 15,000 In the case of HUF : Rs 15,000 Additional deduction of Rs 5, 000 is available where the payment is made for the benefit of a senior citizen Payment shall be made by any mode other than cash. Payment shall be made out of income chargeable to tax. Family means Spouse and Dependent Children In case of HUF policy can be taken on any member of the HUF
Conditions
Preventive health checkup included within Sec 80D: Any payment made on account of preventive health check-up of the assessee or his family shall be eligible for deduction u/s 80D. Payment for preventive health checkup would fall within the overall limit of Rs 15,000 or Rs 20,000 as the case may be. However maximum deduction towards preventive health check up for the assessee, his family and parents cannot exceed Rs 5,000. Payments for preventive health checkup can be made in cash however all other mediclaim insurance payments shall be eligible for deduction only if the payment is made by any mode other than cash. Age-limit for the purpose of senior citizen for this section has been reduced from 65 years to 60 years
431
Illustration 1 Mr Sundara Rajan aged 28 years, made the following payments during the previous year. Discuss the tax implications: Particulars Mediclaim insurance premium for self Mediclaim insurance for mother aged 65 years Medclaim insurance for father aged 72 years Master health check up for mother Master health check up for father Comprehensive Master health check up for self Amount Rs 7,000 Rs 11,000 Rs 12,000 Rs 2,500 Rs 3,500 Rs 6,500
Would your answer change if the assessee had spent a sum of Rs 2,500 towards comprehensive master health checkup for self instead of Rs 6,500. Solution: Particulars Mediclaim insurance premium for self Mediclaim insurance for mother aged 65 years Medclaim insurance for father aged 72 years Total deduction for mediclaim insurance Master health check up for mother Master health check up for father Comprehensive Master health check up for self Total preventive expenditure Maximum preventive Remarks / Computation Allowed subject to an overall limit of Rs 15,000
Allowed subject to an overall limit of Rs 20,000 Allowed subject to an overall limit of Rs 20,000
Amount Rs 7,000 Rs 11,000
Rs 12,000
Restricted to Rs 7,000 for the assessee and Rs 20,000 for the parents Rs 2,500 Rs 3,500 Rs 6,500 Rs 12,500
Rs 27,000
Rs 5,000 (this is the aggregate Rs 5,000
432 expenditure allowed as a deduction u/s 80D
limit for the assessee, family and parents)
DIRECT TAX
Total deduction u/s 80D
Rs 32,000
Case 2: Particulars Mediclaim insurance for mother aged 65 years Medclaim insurance for father aged 72 years Master health check up for mother Master health check up for father Total deduction for mediclaim insurance for parents Remarks / Computation Amount Rs 11,000
Allowed subject to an overall limit of Rs 20,000
Rs 12,000 Rs 2,500 Rs 3,500 Rs 20,000
Allowed subject to the overall limit of Rs 20,000 and sublimit of Rs 5,000
Restricted to Rs 20,000 for the parents
Since the mediclaim insurance premium paid for parents exceeds Rs 20,000, there seems to be no surplus limits available for claiming preventive health check up expenditure incurred for parents of the assessee. Mediclaim insurance premium for self Comprehensive Master health check up for self Total deduction for mediclaim insurance for self (assessee) Total deduction u/s 80D Allowed subject to an overall limit of Rs 15,000 Allowed subject to the overall limit of Rs 15,000 and sublimit of Rs 5,000 Restricted to Rs 15,000 Rs 7,000 Rs 2,500
Rs 9,500
Rs 29,500
433
Mr. Abhik, an individual made payment of health insurance premium to GIC in an approved scheme. Premium paid on his health Rs.10000 and his spouse Rs.15000 during the year 2012-13. He also paid health insurance premium of Rs.25000 on his father s health who is a senior citizen and not dependent on him. The payments have not been made by cash. Compute the amount of deduction under chapter VI-A of the Act, available to Mr. Abhik from his total income for the assessment year 2013-14. Solution: Amount deductible under section 80DTaxpayer, spouse and dependent children (*maximum) Parents of taxpayer whether dependent or not (*maximum in case of a senior citizen) Amount deductible under section 80D Rs. 15,000 20,000 35,000
11.3.2 Maintenance of a dependant person with disability Sec 80DD

Particulars Provisions Eligible assessee Resident Individual and Resident HUF Eligible Medical treatment, training and rehabilitation of a dependant suffering expenditure from permanent physical disability OR Amount deposited in an approved scheme of LIC/ UTI for the benefit of the dependant relative. Quantum of Fixed Deduction of Rs 50,000 irrespective of actual expenditure incurred / deduction amount deposited In case of severe disability (80% or more) deduction enhanced to Rs 1,00,000 Conditions Disability to be certified by a medical authority and a copy of the same to be furnished with ITR Relative is not dependant on any other person and does not claim deduction u/s 80U Where the dependant relative pre deceases the assessee, any amount received from the scheme shall be treated as income of the assessee in the year of such receipt.
434
DIRECT TAX
Where condition of disability is temporary and requires reassessment after a specified period, the certificate shall be valid for the period starting from the assessment year relevant to the previous year during which the certificate was issued and ending with the assessment year relevant to the previous year during which the validity of the certificate expires
11.3.3 Medical treatment etc 80DDB

Particulars Provisions Eligible assessee Resident Individual and Resident HUF Eligible In case of an individual, amount paid for medical Treatment of expenditure specified diseases for self or dependent. In case of HUF amount paid for medical treatment of specified diseases for any member of HUF Quantum of Rs 40,000 or actual expenditure whichever is less deduction Rs 60,000 or actuals whichever is less for senior citizens Conditions Certificate by a specified medical authority to be filed with the ITR Any reimbursement from employer or insurance company should be reduced from the amount of deduction Specified diseases include neurological / Cancer/ AIDS/ Renal failure/ Haemophilia/ Thalassaemia Dependent means spouse, children, parents, brothers and sisters of the individual or any of them.
Specified Diseases means Neurological Diseases i.e. (a) Dementia (b) Dystonia Musculorum Deformans, (c) Motor Neuron Disease, (d) Ataxia, (e) Chorea, (f) Hemiballismus, (g) Aphasia (h) Parkinsons Disease Where it is cer tified to be 40% and above. Malignant Cancer Full Blown Acquired Immuno Deficiency Syndrome (AIDS) Chronic Renal Failure Haemophilia Thalassaemia
Illustration 2
Compute the eligible deduction allowed under Chapter VIA in the hands of Mr. Varun from the following information submitted by him for the assessment year 2013-14.
Sl. No. Particulars Rs. 1 Life insurance premium(LIP) on his own life(sum assured-35,000) 8,000 2 LIP on the life of his wife 5,000
435
3 4 5 6 7 8 ABC9 10 11 12
13
LIP on the life of dependent brother Repayment of housing loan taken from LIC (principal amount Rs.20,000 and interest Rs.25,000) Five year time deposit with post office Contribution to PPF Contribution to approved superannuation fund Tution fees for 3 children 55,000 (Development fees Rs.30,000) 10,000 5,000 Subscription to units of ELSS Mutual fund scheme Amount paid towards insurance policy on the health of self by credit card Amount paid towards insurance policy on the health of his wife and dependent children by cheque Amount paid towards medical treatment under a scheme framed by the UTI for such a purpose of his dependent father in law who is suffering from HIV. Amount paid towards medical treatment for dependent sister who is suffering from tuberculosis
4,000 45,000 20,000 15,000 5,000
70,000 10,000 12,000 13,000 40,000
45,000
Solution: Computation of eligible deduction under Chapter VIA in the hands of Mr. Varun for Assessment year 2013-14. Deduction available u/s 80C Particulars LIP on his own life (restricted to 20% of sum assured) LIP on the life of his wife LIP on the life of dependent brother Repayment of Housing Loan Five year time deposit with post office Computation/Remarks 35,000*20% Rs. 7,000
Not eligible Only Principal amount eligible Eligible
5,000 20,000 20,000
436
DIRECT TAX
Contribution to PPF Contribution to approved superannuation fund Tution fees
Eligible Eligible Development fees is not allowed as a deduction and deduction can be claimed on tution fees for maximum 2 children. So deduction claimed as follows: A - Rs.25,000 (Rs.55,000-Rs.30,000). B - Rs.10,000 Eligible Total Restricted to
15,000 5,000 35,000
Subscription to units of ELSS Mutual fund scheme
10,000 1,17,000 1,00,000
Deduction u/s 80D/80DD/80DDB Particulars Section Ref. Amount paid towards insurance 80D policy on the health of self by credit card Amount paid towards insurance 80D policy on the health of his wife and dependent children by cheque Amount paid towards medical 80DD treatment under a scheme framed by the UTI for such a purpose of his dependent father in law who is suffering from severe disability Amount paid towards medical 80DDB treatment for dependent sister who is suffering from specified disease and ailments prescribed under section 80DDB Total u/s 80D,80DD,80DDB Total Chapter VI A Deduction Computation/Remarks Eligible Rs. 12,000
Eligible but restricted to 3,000 Rs.3,000 since deduction is restricted to a maximum of Rs.15,000 in case of his family. Eligible amount is Rs. 1,00,000 1,00,000 because of severe disability irrespective of the amount spent and the person dependent can be anyone. Amount actually paid or 40,000 Rs. 40,000 whichever is lower
1,55,000 2,55,000
437
11.3.4 Individual with disability Sec 80U

Particulars Eligible assessee Eligible expenditure Quantum of deduction Conditions Provisions Resident Individual with Disability Deduction available irrespective of whether expenditure is incurred or not. Fixed Deduction of Rs 50,000 in case of a person with disability Fixed Deduction of Rs 1,00,000 in case of a person with severe disability Certificate by a specified medical authority to be filed with the income tax returns.
The assessee should be cer tified to be a person with disability at any time of the previous year Disability means Blindness Low Vision Leprosy-Cured Hearing Impairment Loco motor Disability Mental Retardation Mental Illness In accordance with Circular 5/2007, dated 26-07-07 Taxpayers should not enclose with the return forms any statement showing the computation of income or tax, copies of balance-sheet, profit and loss account, TDS/ TCS cer tificates, proof of payment of advance tax or self-assessment tax, and other cer tificates or repor ts as required under the Act. However, these documents shall have to be acquired and retained by the assessee and produced before the Assessing Officer on demand by him
11.4 Deductions pertaining to certain contributions

The deductions discussed under this classification relate to incentives given to the assessee in respect of contributing towards specified causes and institutions. The provisions are aimed to provide an incentive to persons to make active contributions for social and welfare causes. These deductions are provided under the following sections Section Eligible assessee 80G All Assessees 80GGA Assessee without business income 80GGB Indian Company 80GGC Any Assessee except Local Authority Description Donations to Certain Funds, Charitable Institutions, etc. Donations for Scientific Research or Rural Development Contributions to Political Parties by Companies Contributions to Political Parties
438
DIRECT TAX
11.4.1 Donations to Certain Funds, Charitable Institutions, etc. Sec 80G

Particulars Eligible assessee Eligible Contributions Quantum of deduction Provisions All Assessees Donations in money made to specified institutions / funds. List of donations are discussed later Deductions are generally available on the following basis based on the type of donation made. 1. Eligible for 100% deductions without qualifying limits 2. Eligible for 50% deduction without qualifying limits 3. Eligible for 100% deduction with qualifying limits 4. Eligible for 50% deduction with qualifying limits Maximum Deduction in respect of the Aggregate Donations made where qualifying limit is applicable is restricted to 10% of Adjusted Gross Total Income. Other Donations are allowed to the extent paid. Determination of Adjusted Gross Total Income is discussed below Donation in kind is not considered for this section Approval once granted u/s. 80G(5)(vi) shall continue to be valid to perpetuity
Conditions
80G(5D)- Mode of payment of donations No deduction shall be allowed under this section in respect of donation of any sum exceeding ten thousand rupees unless such sum is paid by any mode other than cash.
However the section does not use the term aggregate sum exceeding Rs 10,000. Hence it is possible to consider a case where an assessee has made multiple donations to the same institution or different donations of sums not exceeding Rs 10,000 during the previous year and the entire donation paid shall be eligible for deduction u/s 80G.
11.4.1a Determination of Adjusted Gross Total Income

Adjusted Gross Total Income: Gross Total Income Less: Long Term Capital Gains Short Term Capital Gains under section 111A Deductions u/s 80C to 80U excluding 80G Income on which tax is not payable Income u/s 115A/115AB/115AC/115ACA/115AD Adjusted Gross Total Income: **** **** **** **** **** **** ****
439
11.4.1b Donations eligible for 100% deduction without qualifying limits

1. National Defence Fund set up by Central Government 2. Prime Ministers National Relief Fund 3. Prime Ministers Armenia Earthquake Relief Fund 4. Africa (Public Contributions India) Fund 5. National Foundation for Communal Harmony 6. Approved University/ Educational Institution of National Eminence 7. Maharashtra CMs Earthquake Relief Fund 8. Any fund set up by State Govt of Gujarat, exclusively for providing relief to victims of earthquake in Gujarat
9. Zila Saksharita Samiti 10. National/ State Blood Transfusion Council 11. Fund set up by State Govt to provide medical relief to the poor 12. Army Central Welfare Fund / Indian Naval Benevolent Fund/ Air Force Central Welfare Fund 13. Andhra Pradesh CMs Cyclone Relief Fund, 1996 14. National Illness Assistance Fund 15. Chief Ministers Relief Fund or Lt Governors Relief Fund 16. National Sports Fund set up by Central Govt 17. National Cultural Fund set up by the Central Govt 18. Fund for Technology Development and Application, set up by the Central Govt 19. National Trust for Welfare of persons with Autism, Cerebral Palsy, Mental retardation and Multiple Disabilities
11.4.1c Donations eligible for 50% deduction without qualifying limits

1. Jawaharlal Nehru Memorial Fund 2. PMs Drought Relief Fund 3. National Childrens Fund 4. Indira Gandhi Memorial Trust 5. Rajiv Gandhi Foundation
11.4.1d Donations eligible for 100% deduction WITH qualifying limits

1. Donation to Govt or any approved local authority or institution or association for promoting Family Planning 2. Donation by a company assessee, to Indian Olympic Association or to any such other similar association notified by Central Govt for the development infrastructure for sports and games or the sponsorship of sports and games in India.
440
DIRECT TAX
11.4.1e Donations eligible for 50% deduction WITH qualifying limits

1. Govt or any approved local authority/ institution or association to be utilized for any charitable purpose other than family planning 2. Any other fund fulfilling the conditions of 80G(5) 3. To any authority constituted in India by or under any law for satisfying the need for housing accommodation or for the purpose of planning development or improvement of cities, towns and villages or both 4. Corporation promoting the interests of minority community 5. Notified mosque, temple, church, gurudwara or other place notified by the Central Govt to be of historic, archaeological or artistic importance
Illustration 3 The following information is extracted in relation to the finances of Mr S, for the
assessment year 2013-14 Particulars Gross Total Income Long Term Capital Gains, in above Short Term Capital Gains, in above Contributions towards PPF Mediclaim Premium paid for Self Mediclaim Premium paid for Son not Dependant on him Donations Made - PMs National Relief Fund - National Sports Fund - National Childrens Fund - Delhi University (declared as an institution of national eminence) - National Blood Transfusion Council - SKS Charitable Institution (approved) - Local Authority for promoting Family Planning - Daughter s old Clothing donated to Banyan cost - Jawaharlal Nehru Memorial Fund Compute Income Chargeable to Taxation Solution: Particulars Gross Total Income Less : Deduction under Chapter VIA 1. 80C 2. 80D Self 3. 80D Son (Not Dependent) 4. 80G Amount 3,00,000 25,000 2,000 3,000 5,000 Amount Amount 3,00,000 50,000 25,000 25,000 2,000 3,000
2,500 4,500 4,000 10,000 5,000 12,500 15,000 5,000 12,000
441
A. 100% Without Qualifying Limit PMs National Relief Fund National Sports Fund Delhi University National Blood Transfusion Council B. 50% Without Qualifying Limit National Childrens Fund (4,000) Jawaharlal Nehru Memorial Fund (12,000) Sub-Total C. Actual Donation Made with Qualifying Limit Local Authority - Family Planning SKS Charitable Institution (approved) Total Paid 10% of Adjusted Gross Total Income (note 2) Maximum Deduction Allowed as follows First - adjusted against 100% deduction (15000) Second Adjusted against 50% deduction (7,000) Total Taxable Income Note 1 : Donation in Kind is not deductable Note 2 : Adjusted Gross Total Income Gross Total Income Less: Long Term Capital Gains Less: Deduction under Chapter VI A except 80G
2,500 4,500 10,000 5,000 22,000 2,000 6,000
8,000
(60,000) 2,40,000
15,000 12,500 27,000 22,000 22,000 15,000 3,500 18,500
18,500 2,21,500
3,00,000 50,000 30,000 2,20,000
11.4.2 Donations for Scientific Research or Rural Development Sec 80GGA

Particulars Eligible assessee Eligible Contributions Provisions Assessee not having any Business or Professional Income Contribution to an approved research association / University, College or Other Institution which has as its object, the undertaking of scientific research or research in social science or statistical research Contribution to an Association engaged in Rural development or eradication of poverty100% of Sum Paid NA
Quantum of deduction Conditions
442
DIRECT TAX
Sec 80GGA Amendment by Finance Act 2012 No deduction shall be allowed under this section in respect of donation of any sum exceeding ten thousand rupees unless such sum is paid by any mode other than cash.
Deduction for assessees engaged in business or profession in respect of expenditure on Scientific Research is allowed under section 35. Scientific Research may be carried on By the assessee relating to his business By making payment to outside agencies engaged in scientific research work.
Deduction for assessees engaged in business or profession in respect of expenditure by way of payments to associations and institutions for carrying out Rural Development Programmes or to the National Urban Pover ty Eradication Fund is allowed under section 35CCA. Hence deduction u/s 80GGA is categorically restricted only to assessees not having business or professional income.
11.4.3 Contributions to Political Parties by Companies Sec 80GGB

Particulars Eligible assessee Eligible Contributions Quantum of deduction Conditions Provisions Indian Company Contribution to a political party or an electoral trust 100% of Sum Paid Political Party means a political party registered under section 29A of the Representation of the People Act, 1951
Illustration 4
Palistan India Cements Ltd, an Indian company contributed Rs. 1,50,000/- to AIADMK, a political party towards advertisement in brochure published by the political party. The company wishes to know the tax implication under the Income tax act, 1961.
Solution:
The expenditure is not eligible for deduction u/s 37(2B) of the Act however the company can claim deduction u/s 80 GGB of any sum contributed to any political party or an electoral trust. Therefore Rs.1,50,000/- may be claimed as a deduction u/s 80 GGB of the act.
11.4.4 Contributions to Political Parties Sec 80GGC

Particulars Eligible assessee Provisions Any person other than a company except local authority or every other artificial juridical person wholly or partly funded by the Government. Eligible Contributions Contribution to a political party or an electoral trust Quantum of deduction 100% of Sum Paid Conditions Political Party means a political party registered under section 29A of the Representation of the People Act, 1951
443
While Sec 80GGB allows deduction in respect of Indian Companies, Sec 80GGC allows deduction in respect of any person - which can be interpreted to include a foreign company. However the concern in the interpretation is the fact that headind of Sec 80GGB states "Deduction in respect of contributions given by companies to political parties". Therefore an alternate view could be that since foreign companies are outside the ambit of Sec 80GGB, they are not eligible for deduction.
11.5 Deductions pertaining to expenditure

The taxation laws have also provided incentives in respect of certain expenditure incurred by the assessee. The basis behind these incentives is that the individual should not be burdened in respect of expenditure for necessities like education and housing. The deductions under this classification are as follows. Section 80E 80GG Eligible assessee Individuals Individuals Description Payment towards Interest on Education Loan Payments towards Rent
11.5.1 Payment towards Interest on Education Loan Sec 80E

Particulars Eligible assessee Eligible expenditure Provisions Individual Assessees Any sum paid by the individual in the previous year by way of interest on educational loan. Quantum of deduction 100% of Sum Paid Conditions Loan should have been taken from any financial institution or any approved charitable institution Loan must have been taken for pursuing higher education of self or relatives Deduction shall be allowed for 8 assessment years starting from the assessment year in which the assessee starts paying the interest on loan or until the interest thereon is paid in full, whichever is earlier
Higher education means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or Local Authority Relative means the spouse and children of the individual or the student for whom the individual is the legal guardian Principal component of education loan repaid shall not qualify for any deduction.
444
DIRECT TAX
11.5.2 Payments towards Rent Sec 80GG

Particulars Eligible assessee Eligible expenditure Quantum of deduction Provisions Individual Assessees Rent Paid for residential accommodation, whether furnished or unfurnished. Lower of the following will be allowed as a deduction Excess of rent paid over 10% of Adjusted Total Income 25% of Adjusted Total Income Rs 2000 per month Adjusted total income = Gross total income ()Long Term Capital Gains () All other deductions under Chap VI A except 80GG (-) Income u/s 115A to 115D The individual is either a self employed person or he is an employee who is neither entitled to any house rent allowance or rent free accommodation The individual, spouse or minor child or a HUF of which the individual is a member does not own any residential accommodation at the place where the assessee ordinarily resides or works or carries on his business or profession Where the assessee owns any residential accommodation at any place other than the place of residence or work of the assessee, then such property should not be assessed in the hands of the assessee as Self Occupied Property. Declaration in Form 10BA to be filed along with returns.
Conditions
11.6 Deductions pertaining to Industrial Undertakings

In order to promote industrial undertakings of specific nature the Income Tax Act provides for certain deductions in respect of incomes arising to such undertakings. The provisions relating to the same are discussed under the following sections Section Eligible assessee Description 80IA Undertaking or enterprise engaged in Deductions in respect of profit and gains infrastructure development etc. by undertakings or enterprises engaged in infrastructure development etc. 80IAB Undertaking or enterprise engaged Deductions in respect of profit and gains in development of Special Economic by undertakings or enterprises engaged in development of Special Economic Zone Zone 80IB Industrial Undertakings other Deductions in respect of profit and gains by industrial undertakings other than than Infrastructural Development Infrastructural Development Undertakings Undertakings
445
80IC
80ID
80IE
Industrial Undertakings / Enterprises Deductions in respect of Certain in Certain Special Category States Undertakings or Enterprises in certain Special Category States Hotels and Convention Centres in Deductions in respect of profits and gains Specified Areas from business of Hotels and Convention Centres in Specified Areas Undertakings in North Eastern States Deductions in respect of Undertakings in North Eastern States
11.6.1 Deductions in respect of profit and gains by undertakings or enterprises engaged in infrastructure development etc Sec 80IA
Particulars Provisions Eligible Undertaking or enterprise engaged in infrastructure development etc. as follows Undertaking / enterprise engaged in the business of Developing any assessee infrastructure facility, Operating and maintaining any infrastructure facility, or Developing, operating and maintaining any infrastructure facility Undertaking which is engaged in the business of providing telecommunication service etc. Undertaking which develops, maintains etc. an industrial park Undertaking which is engaged in generation, transmission, distribution of power etc. An undertaking owned by an Indian Company and set up for reconstruction or revival of a power generating plant Eligible Profits and Gains derived by above undertakings or enterprises Income Quantum of For Undertaking engaged in the business of providing telecommunication services deduction etc., : For the first five consecutive assessment years 100% Subsequent five consecutive assessment years 30% Out of 15 years beginning with the year in which enterprise starts providing telecommunication services. For Undertakings engaged in developing etc of infrastructure facility other than port, airport, inland waterway, inland port or navigational channel in the sea, 100% of Profits for 10 consecutive assessment years out of 20 years beginning with the year in which it commences operations For Other Undertakings 100% of Profits for 10 consecutive assessment years out of 15 years beginning with the year in which it commences operations
446
DIRECT TAX
Conditions
Profits and Gains of eligible business for the purposes of section 80IA shall be computed as if such eligible business were the only source of income of the assessee during the previous year Accounts to be mandatorily audited. Refer Para 11.1 for further conditions under section 80IA Other conditions specific to each type of undertaking mentioned above is discussed in detail below.
11.6.1.1 Essential Conditions for enterprises carrying on the business of infrastructure facility Sec 80IA(4)(i)
The enterprise should carry on Developing any infrastructure facility Operating and maintaining any infrastructure facility Developing, operating and maintaining any infrastructure facility Enterprise should be owned by Indian Company Consortium of Indian companies Board or Corporation or authority or any other body established or constituted under any State or Central Act The Enterprise should have entered into an agreement with the Central/State Govt or a local authority or any other statutory body for the purpose The term Infrastructure Facilities includes Road including toll road, bridge or rail system Widening of Existing Road by Constructing Lanes as a part of highway project (inserted by Circular No 2010, dt 18.05.2010) Port, airport, inland water ways, inland port or navigational channel in sea Water supply project, irrigation project, water treatment system, sanitation and sewerage system or solid waste management system Highway project including housing or other activities being an integral part of the highway project. The enterprise has commenced its operations on or after 01.04.1995
Assessee carrying on the business of container handling cranes at Jawaharlal Nehru Por t Trust can be considered as developing, maintaining and operating an infrastructural facility and is entitled to deduction under section 80IA CIT vs. ABG Heavy Industries Ltd (2010) 189 Taxman 54 (Bom) In order to be eligible for deduction u/s 80-IA, development should be that of infrastructure facility as a whole and not a par ticular par t of it Taher Ali Industries & Projects Pvt Ltd v ACIT (2011) 10 taxmann. com 243 (HYD)
447
Deduction under section 80-IA is not allowable on amount of duty drawback. CIT vs. Orchev Pharma (P.) Ltd. [2012] 25 taxmann.com 518 (SC) Texturing and twisting of polyester yarn amount to manufacture for purpose of deduction under section 80IA . CIT vs. Yashasvi Yarn Ltd. [2012] 25 taxmann.com 266 (SC) Assessee was engaged in building and developing industrial parks. It availed deduction u/s 80-IA. During relevant assessment year assessee was denied said deduction on ground that industrial park developed by it was not notified by CBDT till end of relevant year and, therefore, deduction under section 80-IA(4)(iii) was wrongly claimed. It was found that assessee had developed industrial park as per approval granted by Ministry of commerce under rule 18C of Income-tax Rules. It was held that once approval was granted by Ministry of Commerce, CBDT was required to notify industrial park for benefit under section 80-IA and assessee will be eligible for impugned deduction. DCIT vs. Ganesh Housing Corporation Ltd [2012] 25 taxmann.com 305 (SC)
11.6.1.2 Essential Conditions for an undertaking engaged in providing telecommunication services etc. Sec 80IA(4)(ii)
The undertaking should carry on the business of providing telecommunication services whether basic or cellular, including radio paging, domestic satellite services or network of trunking, broadband network and internet services Entity should not be formed by splitting or reconstruction of an existing business Should not be formed by transfer to a new business plant and machinery previously used for any purpose. However used plant and machinery can be transferred upto 20% of the total value of new plant and machinery in the new undertaking The undertaking should have commenced services on or after 01.04.1995 but before 31.03.2005
11.6.1.3 Essential Conditions for undertaking which develops, maintains etc. any industrial park or Special Economic Zone Sec 80IA(4)(iii)
Undertaking should be engaged in Developing an Industrial Park Developing and Operating an Industrial Park Maintaining and Operating an industrial park Such industrial park should be notified by the Central Government in accordance with a scheme framed for such purpose The industrial park should begin to operate, develop etc at any time on or after 01.04.1997 but before 01.04.2011
11.6.1.4 Essential Conditions for undertaking engaged in generation of power etc Sec 80IA(4)(iv)
Undertakings set up in any part of India engaged in Generation of Power Generation and Distribution of Power Transmission or Distribution through transmission or distribution line (In such cases only income from laying of such network of new lines is covered) Substantial Renovation and Modernisation of Existing Transmission or Distribution Lines The benefit under this section is available to all categories of assessees
448The entity should not be formed by splitting or reconstruction of an existing business. DIRECT TAX
However this condition shall not apply in the case of revival or rehabilitation an undertaking under circumstances u/s 33B The enterprise should not be formed by transfer to a new business, plant and machinery previously used for any purpose. However used plant and machinery can be transferred up to 20% of the total value of new plant and machinery in the new undertaking The term used plant and machinery does not include plant and machinery used outside India by any other person (other than the assessee) provided Such plant and machinery was not, at any time, used within India Such machinery was imported from any country outside India No depreciation has been allowed under this Act for any person at any time in the past on such plant and machinery
Students please note, there is a lot of similarity between the above conditions and the conditions prescribed for claiming additional depreciation u/s 32(iia)
The enterprise should begin to generate power on or after 01.04.1993 but before 31.03.2012 The enterprise should begin transmission and distribution of power on or after 01.04.1999 but before 31.03.2012
11.6.1.5 Essential Conditions for undertaking set up for reconstruction or revival of a power generating plant Sec 80IA(4)(v)
Such undertaking must be owned by an Indian Company Such company is formed before 31.11.2005 and the Company is notified before 31.12.05 for the purposes of this clause The enterprise should begin to generate or transmit or distribute power before 31.03.2011
11.6.1.6 Special Conditions in respect of Profits of housing or other activities which are an integral part of the Highway Project Sec 80IA(6)
Notwithstanding any provision as discussed above Where housing or other activities which are an integral part of the Highway Project are carried on by the assessee Income from such source shall be computed in accordance with Rule 18BBE as prescribed Profits arising from such business shall not be liable to tax if The profits had been transferred to a special reserve account Amount from such reserve account is utilized for the highway project The amount shall be utilized for the purpose within three years from the year end of the year in which the amount was transferred to reserve account Amount remaining un utilized shall be taxable as income of the year in which such transfer to reserve took place.
449
X Engineering (P) Ltd is running an industrial under taking whose profit are eligible for deduction under Section 80-IA. During the year ending March 31, 2011, the under taking of the Assessee is engaged in eligible business referred to in Section -80IA (4). However it consists of solely of executing works contract awarded by the state govt. Is the Assessee eligible to claim deduction under Section -80IA (4) in respect of the profit derived from this under taking? Persons executing works contract is not eligible to claim deduction under Section 80-IA [Expln. to Sec. 80-IA].
11.6.2 Deductions in respect of profit and gains by undertakings or enterprises engaged in development of Special Economic Zone Sec 80IAB
Particulars Eligible assessee Provisions Undertaking or enterprise engaged in development of Special Economic Zone notified on or after 01.04.2005 under the Special Economic Zones Act, 2005 Profits and Gains derived by above undertakings or enterprises 100% of profits and gains derived by such business for any 10 consecutive assessment years out of 15 years beginning with the year in which the Special Economic Zone has been notified by the government. Profits and Gains of eligible business for the purposes of section 80IAB shall be computed as if such eligible business were the only source of income of the assessee during the previous year Accounts to be mandatorily audited. Refer Para 11.1 for further conditions under section 80IA Existing Developers of Special Economic Zones will get deduction only for the un-expired period of 10 consecutive assessment years Where a Developer who develops SEZ on or after 01.04.2005 transfers the operation and maintenance of SEZ to another Developer, the deduction shall be allowed to such transferee Developer for the remaining period in the 10 consecutive assessment years as if no transfer had taken place.
Eligible Income Quantum of deduction Conditions
11.6.3 Deductions in respect of profit and gains by industrial undertakings other than Infrastructural Development Undertakings Sec 80IB
Particulars Provisions Eligible Undertaking engaged in the business of assessee - An Industrial Undertaking including cold storage and cold chain facility - A ship - A hotel
450
DIRECT TAX
Eligible Income Quantum of 1. Industrial Undertaking deduction (i) Set up in J&K (ii) In Category A districts (iii) Operating a Cold Chain Facility a. Owned by a Company First 5 yrs 100% Next 5 yrs 30% b. Owned by a Co-op Society First 5 yrs 100% Next 7 yrs 20% c. Owned by Others First 5 yrs 100% Next 5 yrs 25% 2. Industrial Undertaking in Industrially backward Category B District a. Owned by a Company First 3 yrs 100% Next 5 yrs 30% b. Owned by a Co-op Society First 3 yrs 100% Next 9 yrs 25% c. Owned by Others First 3 yrs 100% Next 5 yrs 25% Deduction is available from the year in which the undertaking commences operations. Company Assessee engaged in Scientific Research and Development are eligible for a 100% deduction of profits for 10 consecutive assessment years beginning from initial assessment year if such company was approved at any time after 31.03.2000 but before 01.04.2007 Conditions The entity should not be formed by splitting or reconstruction of an existing business. However this condition shall not apply in the case of revival or rehabilitation an undertaking under circumstances u/s 33B The enterprise should not be formed by transfer to a new business, plant and machinery previously used for any purpose. However used plant and machinery can be transferred up to 20% of the total value of new plant and machinery in the new undertaking
Multiplex Theatres Convention Centres Scientific and Industrial Research and Development Commercial Production and Refining of Mineral Oil Developing and Building Housing Projects Processing, Preservation and packaging of Fruits or Vegetables Integrated business of Handling, Storage and Transportation of Food Grains Operating and Maintaining a Hospital in Rural Area Operating and Maintaining a Hospital located anywhere in India other than the excluded area Profits and Gains derived by above undertakings or enterprises
451
It manufactures or produces any article or thing, other than any article or thing specified in the Eleventh Schedule, or it operates one or more cold storage plants or operates cold chain facility in any part of India In case the industrial undertaking manufactures or produces any article or thing, it should employ 10 or more workers in a manufacturing process carried on with the aid of power or 20 or more workers in a manufacturing process carried on without the aid of power Profits and Gains of eligible business for the purposes of section 80IAB shall be computed as if such eligible business were the only source of income of the assessee during the previous year Accounts to be mandatorily audited. Refer Para 11.1 for further conditions under section 80IA Other conditions specific to each type of undertaking mentioned above is discussed in detail below
State with reasons, whether the following statements are true or false, with regard to the provisions of the Income-tax Act, 1961: For grant of deduction under section 80-IB, filing of audit report in prescribed form is must for a corporate assessee; filing of return within the due date laid down in section 139(1) is not required Solution: False. Return has to be submitted within the due date laid down in section 139(1) to avail deduction under section 80-IB.
Illustration 5
Determine whether Mr. A is eligible for deduction u/s 80IB 1. Mr. A carries on his proprietary business with three industrial undertakings. a) First undertaking is into integrated business of handling, storage and transportation of food grains and is formed by transfer of machinery or plant previously used for by Mr. X. The total value of plant & machinery in the books of this undertaking is Rs. 100 Lakhs and the value of the used plant and machinery transferred is Rs. 25 Lakhs. Profit from the undertaking is Rs. 150 Lakhs b) Second undertaking is into developing and building housing projects and is formed by splitting up of an existing undertaking Royal housing projects india limited.Profit from the undertaking is Rs. 120 Lakhs c) Third undertaking is into processing, preservation and packaging of fruits or vegetables and is newly formed and the machinery and plant is newly acquired. Profit from the undertaking is Rs.150 Lakhs.
Solution:
1(a) As per Section 80IB, the enterprise should not be formed by transfer to a new business, plant and machinery previously used for any purpose. However used plant and machinery
452
DIRECT TAX
1(b)
1(c)
can be transferred upto 20% of the total value of new plant & machinery in the new undertaking. In the present case, even though Mr.A is eligible assessee in respect of this undertaking, since the total value of used plant & machinery exceeds 20% of total value of plant & machinery therefore this undertaking is not eligible for deduction u/s 80IB. As per Section 80IB, one of the conditions for claiming deduction is that the entity should not be formed by splitting or reconstruction of an existing business. In the present case, since the undertaking is formed by splitting or reconstruction of an existing business it is not eligible for deduction u/s 80IB even though Mr.A is eligible assessee in respect of this undertaking. Mr. A is an eligible assessee in respect of this undertaking and other conditions are also complied with for the purpose of claiming deduction u/s 80IB of the act, therefore deduction is available to an extent of 100% of profits for the first 5 years and 25% for the next 5 years.
The assessee who was engaged in manufacture and selling of additives on commission basis,was not entitled to deduction under section 80-IB in respect of service income and commission because those incomes were not derived from activity of industrial undertaking. Indian Additives Ltd. vs. DCIT [2012] 25 taxmann.com 412 (SC) Blending and bottling of Indian Manufactured Foreign Liquor (IMFL) would amount to 'manufacture' for purpose of claiming deduction under section 80-IB. CIT vs. Vinbros & Co.[2012] 25 taxmann.com 367 (SC)
11.6.3.1 Undertaking producing or refining mineral oil in the North Eastern Region or in any part of India Sec 80IB(9)
The undertaking should be located in the North Eastern Region Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura If the undertaking is located in any other part of India it should have begun commercial production of mineral oil on or after 01.04.1997
The provisions of this clause shall not apply to blocks licensed under a contract awarded after the 31st day of March, 2011 under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated the 10th February, 1999 or in pursuance of any law for the time being in force or by the Central or a State Government in any other manner
It is engaged in the business of refining mineral oil on or after 01.10.1998 but not later than 31.03.2012 It is engaged in the commercial production of natural gas on or after 01.04.2009 100% deduction of profits is available for 7 assessment years beginning from the assessment year in which the undertaking commences operations
11.6.3.2 Undertaking engaged in developing and building housing projects Sec 80IB(10)
Deduction allowed to all assessees on account of housing project approved by a local authority before 31.03.2008 Project is on a plot of land which is minimum one acre in size Built up area of residential units should be within the limits specified below: 1. Project in Delhi, Mumbai or within 25 kms from their municipal limits : Max 1000 sqft
Deductions under Chapter VIA 2. Other places
: Max 1500 sqft 453
454
DIRECT TAX
Built up area of shops and commercial establishments within the housing project should be the Higher of the following 1. 3% of aggregate BUA 2. 5000 sqft
Where the project approval is obtained more than once, the date of first approval shall be considered
The under taking shall commence the development and construction of the housing project on or after 01.10.98 and the project is completed: Where the project has been approved before 01.04.2004 but not later than 31.03.2005: Before 31.03.2008 Where the project has been approved after 01.04.2004 but before 31.03.2005: within 4 years from the end of the year of approval In any other case : Within 5 years from the end of the year of approval.
Date of completion certificate of the local authority shall be deemed to be the completion date Deduction: 100% of the profits from the project With effect from 01/04/2010, where the undertaking which develops and builds the housing projects allots a residential unit to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely: (i) the individual or the spouse or the minor children of such individual, (ii) the Hindu undivided family in which such individual is the karta, (iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.
The deduction can be claimed on a year to year basis where the assessee is showing profit from par tial completion of the project in every year In case it is later found that the condition of completing the project within specified time limit has not been satisfied, the deduction granted in earlier years shall be withdrawn
11.6.3.3 Undertaking engaged in the business of processing, preservation, and packaging of fruits or vegetables, meat products etc. or integrated business of handling, storage and transportation of food grains Sec 80IB(11A)
Operations must commence on or after 01.04.2001 but before 01.04.2009 Deductions are allowed as follows beginning from the year in which the undertaking commences operations
455
Owned by a Company Owned by Others
First 5 yrs Next 5 yrs First 5 yrs Next 5 yrs
100% 30% 100% 25%
11.6.3.4 Undertaking operating and maintaining a hospital in Rural Area Sec 80IB(11B)
The hospital is constructed at any time after 01.10.2004 but before 31.03.2008 The hospital has at least 100 beds for its patients The construction of the hospital is in accordance with the regulations, for the time being in force, of the local authority. Certificate from auditor to be furnished along with returns Deduction : 100% of profits for 5 consecutive years beginning from the year in which the undertaking commences operations A hospital shall be deemed to have been constructed on the date on which a completion certificate in respect of such construction, is issued by the concerned local authority.
11.6.3.5 Undertaking Operating and Maintaining a Hospital located anywhere in India other than excluded areas Sec 80IB(11C)
The hospital is constructed at any time after 01.04.2008 but before 31.03.2013 The hospital has at least 100 beds for its patients The construction of the hospital is in accordance with the regulations, for the time being in force, of the local authority. Certificate from auditor to be furnished along with returns Deduction : 100% of profits for 5 consecutive years beginning from the year in which the undertaking commences operations A hospital shall be deemed to have been constructed on the date on which a completion certificate in respect of such construction, is issued by the concerned local authority.
Excluded Area means area comprising of - Greater Mumbai urban agglomeration - Delhi urban agglomeration - Kolkatta urban agglomeration Chennai urban agglomeration Hyderabad urban agglomeration Bangalore urban agglomeration Ahmedabad urban agglomeration District of Faridabad District of Gurgaon District of Gautam Budh Nagar
456
DIRECT TAX
District of Ghaziabad District of Gandhinagar City of Secunderabad
The finance Act, 2008 inserted a provision effected from April 1, 2009 for granting deduction for 100 percent of profit derived by an undertaking from the business of operating and maintaining a hospital located any where in India, other than excluded area, subject to certain conditions. State briefly those conditions. The conditions are 1. The Assessee owns an under taking deriving profits from the business of operating and maintaining a hospital in rural area. 2. Such hospital is constructed at any time during October 1, 2004 and ending on March 31, 2008. For this purpose a hospital shall be deemed to have been constructed on the date on which a completion cer tificate in respect of such construction is issued by the local authority. 3. The hospital has at least 100 beds for the patients. 4. The construction of the hospital is in accordance with the regulations, for the time being in force, of the local authority. 5. The Assessee furnishes audit repor t along with the return of income. 6. Deduction should be claimed in the return of income and the return of income should be submitted on or before the due date of submission of return of income. X Ltd is engaged in the business of conversation of jumbo roles of films into salable packets/ rolls of standard size. Is the company entitled to deduction under section 80-IB? The activity of conversion of jumbo rolls of photographic films into small flats and rolls in desired size is manufacture or production. India Cine Agencies v. CIT [2008] 175 Taxman 361 (SC) There is a view that the aforesaid ruling of the Supreme Court is not applicable now after the insertion of the definition of the expression manufacture in section 2(29AB) by the Finance (No.2) Act,2009. However Section 80-IB is applicable in the case of manufacture or production of articles. Even if the activity of conversation of jumbo photographic films into small roles may not be manufacture, certainly it would be covered by the four corners of the expression production. The word production has a wider connotation than the word manufacture. While every manufacture can be characterized as production, every production need amount to manufacture. The word production or produce when used in juxtaposition with the word manufacture takes in bringing into existence of new goods by a process which may or may not amount to manufacture see Mothi Laminates (P) Ltd v. CCE, Ahmadabad [1953] 3 SCC 23, CIT V. N.C.Budharaja & co. [1993] 204 ITR 412(SC). X oil refineries Ltd has star ted commercial production of mineral oil from June 1, 2009 of three walls in a licensed block. The company for the purpose of claiming deduction under Section- 80IB (9), contends that each well is a separate industrial under taking entitled to deduction. Examine critically in the context of provisions, the correctness of contention. It shall be taken as single under taking. An explanation has been inser ted so as to clarify (with retrospective effect from the AY 2000-01),that for this purpose, all blocks licensed under a single contract, which has been awarded under the new exploration licensing policy announced by the government of India vide resolution no: O-19018/22/95-ONG.DO.VL, dated Feb 10, 1999 or has been awarded by a central or a state government in any other manner, shall be treated as a single under taking
457
Following issues have been raised by X Ltd in connection with its eligibility for claiming deduction under Section 80-IB for the AY 11-12 1. It operates 2 separate industrial units. One unit is eligible for deduction under 80-IB, while other unit is not eligible for such deduction. If the eligible unit has profit and other unit has loss, should it claim deduction after setting off the loss of the other unit against profit of the eligible unit? 2. Its profit from one unit includes sale of import entitlements, duty drawback and interest from customers for delayed payment. Is it permissible to claim deduction in these items of income? Point wise answer1. Adjustment of loss Suppose unit A is eligible for deduction under section 80-IB and unit B is not eligible to claim such deduction. Loss incurred by unit B should not be reduced from the profit of unit A to find the amount deductible section 80-IB, However , the aggregate deduction under chapter VI A i.e. (from 80C to 80 U) cannot exceed the gross total income(gross total income is calculated after adjusting losses under Section 71 to 80) . 2. Profit from sale of impor t entailment etc. These are not qualified for deduction under Section 80-IB Liberty India v. CIT [2009] 183 Taxman 349 (SC). However, interest from customers for delayed payments is eligible for claiming deduction under Section 80-IB.
11.6.4 Deductions in Respect of Certain Undertakings or Enterprises in certain Special Category States Sec 80IC
Particulars Provisions Eligible assessee Undertaking or enterprise engaged in business of Manufacturing or producing any article or thing (except those mentioned in Schedule XIII) in any notified specified area in the States of Sikkim, Himachal Pradesh, Uttaranchal, or the North Eastern States Manufacturing or producing any article or thing or an operation mentioned in Schedule XIV in any area other than a Notified Specified Area in the said States Eligible Income Profits and Gains derived by above undertakings or enterprises Quantum of In case of Sikkim or North Easter Region : deduction - 100% of profits and gains for ten assessment years In case of Himachal Pradesh or Uttaranchal : - For First 5 years 100% - For Next 5 years if company 30% if others 25% Conditions The entity should not be formed by splitting or reconstruction of an existing business. However this condition shall not apply in the case of revival or rehabilitation an undertaking under circumstances u/s 33B The enterprise should not be formed by transfer to a new business, plant and machinery previously used for any purpose. However used plant and machinery can be transferred up to 20% of the total value of new plant and
458
DIRECT TAX
machinery in the new undertaking It has commenced activities or undertakes substantial expansion during - 23.12.2002 to 01.04.2007 in the State of Sikkim - 07.01.2003 to 01.04.2012 in the State of Himachal Pradesh, or Uttaranchal - 24.12.1997 to 01.04.2007 in any of the North Eastern States
Specified Area means, any Export Processing Zone or Integrated Infrastructure Development Centre, or Industrial Growth Centre, or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park as notified by the board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Sikkim, Himachal Pradesh, Uttaranchal, or in any of the Nor th-eastern States Substantial Expansion means increase in the investment in plant and machinery by at least 50% of the book value of plant and machinery (before taking depreciation in any year) as on the first day of the previous year in which the substantial expansion is under taken.
11.6.5 Deductions in Respect of profits and gains from business of Hotels and Convention Centres in Specified Areas Sec 80ID
Particulars Provisions Eligible Undertaking or enterprise engaged in business of assessee Hotel located in Delhi and districts of Faridabad, Gurgaon, Gautam budh Nagar, and Ghaziabad Building, owning and Operating a Convention Centre located in Delhi and districts of Faridabad, Gurgaon, Gautam budh Nagar, and Ghaziabad Hotel located in the specified district having a World Heritage Site Eligible Profits and Gains derived by above undertakings or enterprises Income Quantum of 100% of profits and gains derived by such business for 5 consecutive assessment deduction years beginning with the year in which the business starts functioning Conditions The entity should not be formed by splitting or reconstruction of an existing business. However this condition shall not apply in the case of revival or rehabilitation an undertaking under circumstances u/s 33B The enterprise should not be formed by transfer to a new business, building, plant and machinery previously used as a hotel or convention centre. However used plant and machinery can be transferred up to 20% of the total value of new plant and machinery in the new undertaking Hotel in District of World Heritage Site should start functioning after 01.04.2008 but before 31.03.2013
459
Other business should start functioning after 01.04.2007 but before 31.07.2010 Certificate from auditor in Form 10CCBBA to be furnished along with returns
Specified district having a World Heritage Site means
S.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.
Name of district Agra Jalgaon Aurangabad Kancheepuram Puri Bharatpur Chhatarpur Thanjavur Bellary South 24 Parganas (excluding areas falling within the Kolkata urban agglomeration on the basis of the 2001 census) Chamoli Raisen Gaya Bhopal Panchmahal Kamrup Goalpara Nagaon North Goa South Goa Darjeeling Nilgiri
Name of State Uttar Pradesh Maharashtra Maharashtra Tamil Nadu Orissa Rajasthan Madhya Pradesh Tamil Nadu Karnataka West Bengal
Uttarakhand Madhya Pradesh Bihar Madhya Pradesh Gujarat Assam Assam Assam Goa Goa West Bengal Tamil Nadu.
Convention centre means a building of a prescribed area comprising of convention halls to be used for the purpose of holding conferences and seminars, being of such size and number and having such other facilities and amenities as may be prescribed Hotel means a hotel of two-star, three-star, or four-star category as classified by the Central Government
460
DIRECT TAX
11.6.6 Deductions in respect of Undertakings in North Eastern States Sec 80IE

Particulars Eligible assessee Provisions Any assessee who begins or begun in any of the North Eastern States: To manufacture or production of an eligible article or thing To undertake substantial expansion to manufacture or production of an eligible article or thing
Carrying on an eligible business Eligible Income Profits and Gains derived by above undertakings or enterprises Quantum of 100% of profits and gains derived by such business for 10 consecutive deduction assessment years beginning with the year in which the business starts functioning Conditions The entity should not be formed by splitting or reconstruction of an existing business. However this condition shall not apply in the case of revival or rehabilitation an undertaking under circumstances u/s 33B The enterprise should not be formed by transfer to a new business, plant and machinery previously used as a hotel or convention centre. However us ed plant and machinery can be transferred up to 20% of the total value of new plant and machinery in the new undertaking The undertaking has commenced operations after 01.04.2007 but before 01.04.2017 Accounts to be mandatorily audited. Refer Para 11.1 for further conditions under section 80IA
Eligible Ar ticle or Thing means ar ticle or things other than the following Goods falling under Chapter 24 of the First Schedule to the Central Excise Tariff Act, 1985 which per tains to tobacco and manufactured tobacco substitutes Pan Masala as covered under Chapter 21 of the First Schedule to the Central Excise Tariff Act 1985 Plastic Carry Bags of less than 20 microns as specified by the Ministry of Environment and Forest vide notification number SO 705(E), dated 02.09.1999 and SO 698(E) dated 17.06.2003 Goods falling under Chapter 27 of the First Schedule to the Central Excise Tariff Act 1985 relating to products produced by petroleum oil or gas refineries Eligible Business means the business of Hotel (two-star and above) Adventure and Leisure Spor ts including Ropeways Providing medical and health services in the nature of nursing home with a minimum capacity of twenty five beds Running an Old age home Operating Vocational Training Institute for hotel management, catering and food craft entrepreneurship development, nursing and para medical, civil aviation related training, fashion designing and industrial training
461
Running Information Technology related training centre Manufacturing of Information Technology Hardware Bio Technology Explain the meaning of eligible business referred to in Section 80IE granting tax holiday in respect of profits and gains of cer tain under takings in Nor th-eastern states. Eligible business for this purpose are hotel (2 star or above), adventure and leisure spor ts (including ropeways), nursing homes (25 beds or more), old age homes, vocational training institutes (such as hotel management, catering, entrepreneurship development, nursing and paramedical, civil aviation related training, fashion designing and industrial training), IT related training centers, IT hardware units and bio-technology.
11.7 Deductions pertaining to Specified Businesses

This set of deductions consists of tax incentives available to certain business units. These deductions have been given in order to promote certain types of business keeping the larger interest of the nation.. Deduction against income of such business is contained in the following sections: Section 80JJA Eligible assessee All Assessees in business of conversion of bio degradable waste into productive resources Indian Company Offshore Banking Units and International Financial Centre Co Operative Societies Description Deduction in respect of profits and gains from business of collecting and processing of biodegradable waste Deduction in respect of Employment of New Workmen Deduction in respect of Certain Income of Offshore Banking Units and International Financial Centre Deduction in respect of income of Co-Operative Societies
80JJAA 80LA
80P
11.7.1 Deduction in respect of profits and gains from business of collecting and processing of bio-degradable waste Sec 80JJA
Particulars Eligible assessee Provisions Assessee is in business of collecting and processing or treating of biodegradable waste for - Generating power - Producing, bio-fertilizers, bio-pesticides, or other biological agents - Producing Bio Gas - Making Pellets or Briquettes for Fuel - Organic Manure Profits and Gains derived by above undertakings or enterprises
Eligible Income
462
DIRECT TAX
Quantum of deduction
100% of profits and gains derived by such business for 5 consecutive assessment years beginning with the year in which the business starts functioning
11.7.2 Deduction in respect of Employment of New Workmen Sec 80JJAA

Particulars Provisions Eligible assessee Indian Company Eligible Income Profits and Gains derived by undertakings or enterprises engaged in manufacture or production of article or thing Quantum of 30% of additional wages paid to new regular workmen employed by the deduction assessee in the previous year Deduction allowed for 3 years including the year in which employment is provided Conditions The entity should not be formed by splitting or reconstruction of an existing industrial undertaking or amalgamation with another undertaking Company employs new regular workmen in the previous year Auditors report in Form 10 DA should be filed with the return of income.
Regular Workmen does not include Casual labour Contract Labour Any other workman employed for less than 300 days during the previous year
Additional Wages means wages paid to new regular workmen in excess of 100 workers additionally employed during the previous year In case of existing under takings additional wages will be nil if the increase in the number of regular workmen during the year is less than 10% of existing number of workmen employed as on the last day of the preceding year.
Illustration 6
As on 31.03.2013 the number of regular workmen employed by an industrial undertaking was 130. The following recruitments were made during the previous year 1. Casual Workmen w.e.f. 14.04.2012 2. Contract Labour w.e.f. 01.06.2012 3. Workmen employed by company a. W.e.f. 01.05.2012 b. W.e.f. 15.06.2012 c. W.e.f. 01.08.2012 d. W.e.f. 15.10.2012 8 22 15 10 5 2
Determine the amount of deduction allowable under section 80JJAA for the company during the assessment year 2013-14, if the salary paid to each new employee is Rs 2,500 p.m.
463
Solution: Number of New Regular Workmen in respect of whom deduction is allowed 1. Casual Workmen 2. Contract Labour 3. Workmen Employed a. W.e.f. 01.05.2012 b. W.e.f. 05.06.2012 c. W.e.f. 01.08.2012 d. W.e.f. 15.10.2012 Total Wages paid to the workmen 1. Those employed in May 2. Those employed in June 3. Total (15*11months*Rs 2500) = (10*10months*Rs 2500) = 4,12,500 2,50,000 6,62,500 Nil (No deduction as not regular workmen) Nil (No deduction as not regular workmen) 15 10 Nil (employed less than 300 days) Nil (employed less than 300 days) 25
Note: It is assumed that full month wages are paid to people employed on 05.06.2010 Number of New Workmen employed is greater than 10% of the existing strength Therefore, Deduction allowed under section 80JJAA = Rs 6,62,500*30% = Rs 1,98,750.
11.7.3 Deduction in respect of Certain Income of Offshore Banking Units and International Financial Centre Sec 80LA
Particulars Eligible assessee Eligible Income Provisions Scheduled Bank having an Off shore unit in an SEZ Foreign Bank having an Off shore unit in an SEZ Unit of International Financial Services Centre Income from Offshore Banking Unit in SEZ Income from business referred to in Sec 6(1) of Banking Regulation Act, 1949 Income from any Unit of International Financial Services Centre from business for which it has been approved for setting up such a Centre in SEZ
Quantum of deduction
Conditions
First 5 years 100% of income Next 5 years 50% of income Beginning from the year in which permission was obtained from the relevant authority Auditors report in Form 10CCF should be filed with the return of income. A copy of permission under Banking Regulation Act in respect of Offshore Unit to be furnished along with returns. In accordance with Circular 5/2007,
464
DIRECT TAX
Taxpayers should not enclose with the return forms any statement showing the computation of income or tax, copies of balance-sheet, profit and loss account, TDS/ TCS certificates, proof of payment of advance tax or self-assessment tax, and other certificates or reports as required under the Act. However, these documents shall have to be acquired and retained by the assessee and produced before the Assessing Officer on demand by him
11.7.4 Deduction in respect of income of Co-Operative Societies Sec 80P

Particulars Provisions Eligible Co-operative Societies assessee Eligible Income from the following activities of any society are eligible Income - Carrying on business of banking and providing credit facilities to its members - Cottage Industry - Marketing of Agricultural Produce Grown by its members - Processing agricultural produce of members without aid of power - Collective disposal of labour of its members - Purchase of agricultural implements, seeds, livestock etc for the purpose of supplying them to members - Fishing and allied activities - Supply of milk, oilseeds, fruits or vegetables grown or raised by members by Primary Co-Operative Societies - Investment with other Co-Operative Societies resulting in income by way of interest or dividend - Letting of Godowns or Warehouses for storage, processing or facilitating the marketing of commodities Quantum In respect of Co-operative Societies engaged in above activities : 100% of income of In respect of Co-Operative Societies deriving income from other activities : deduction Income is deductible up to limits as follows - In case of Consumer Co-Operative Society 1,00,000 - In case of other Cooperative Societies 50,000 In respect of Co-Operative Societies whose Gross Total Income does not exceed Rs 20,000 : 100% of Income by way of interest on securities or income from house property Conditions Deduction in respect of Income from business of banking shall not be available to co-operative banks other than a Primary Agricultural Credit Society or a Primary Co-Operative Agricultural and Rural Development Bank. Fishing or Allied activities shall include Catching, Curing, Processing, Preserving, Storing or Marketing of Fish or the purchase of material and equipment in connection therewith for the purpose of supplying them to its members. Deduction in case of fishing and allied activities and collective disposal of labour is available only where the society, by its rules and bye-laws, restricts its voting rights to the following class of members only
465
- The individuals who contribute their labour or who carry out fishing and allied activities - The co-operative credit societies which provide financial assistance to the society - The State Government Deduction in case of Primary Co-Operative Societies as stated above is available only if they supply to - A Federal Co-Operative Society being a society engaged in the business of supplying milk, oilseeds, fruits or vegetables - The Government or a Local Authority - A Government Company as defined in section 617 of the Companies Act, 1956 or a statutory corporation engaged in the business of supplying milk, oilseeds, fruits or vegetables
Regional Rural Banks are not eligible for deduction under section 80P of the Income-tax Act, 1961 from the assessment year 2007-08 onwards. Fur ther more, the Circular No. 319 dated 11-1-1982 deeming any Regional Rural Bank to be cooperative society stands withdrawn for application with effect from assessment year 2007-08. - CIRCULAR NO. 6/2010 DATED 20-9-2010
11.8 Deductions pertaining to certain Incomes

Deductions under this category have been offered to persons in receipt of Royalty. The provisions relating to the same are discussed in the following sections Section 80QQB 80RRB Eligible assessee Resident Individual Resident Individual Description Deduction in respect of Royalty Income etc., of authors of certain books other than text books Deduction in respect of Royalty on Patents
11.8.1 Deduction in respect of Royalty Income etc., of authors of certain books other than text books - Sec 80QQB
Particulars Provisions Eligible assessee Resident Individual Assessees Eligible Income Royalty income of an Author in the nature of - Lumpsum Consideration for the assignment or grant of any interest in Copyright of the book - Royalty or Copyright Fees (whether receivable in lumpsum or otherwise) Quantum of 100% of such income subject to a maximum of Rs 3,00,000 deduction If consideration is not received in lumpsum, gross income exceeding 15% of the value of the books sold during the year is not eligible.
466
DIRECT TAX
Conditions
Assessee must be an author. Author includes Joint Author Book should be a work of literary, artistic or scientific nature Income must be from the exercise of his profession Where income is earned outside India, only so much of the amount that is brought into India in convertible forex within 6 months from the end of the previous year or such other extended time period as the competent authority may allow, shall be considered for the purposes of this section Auditors report in Form 10 CCD must be furnished with return of income. The certificates must be obtained from the person responsible for making payment as well as from RBI for repatriation of funds.
Illustration 7
Mr. Arun is a well-known author and has recently authored a book on Mechanics useful for students in physics and has received Rs. 4,00,000 as lump-sum consideration for the assignment of his interest in the copyright of such book. Apart from this book work, he is a visiting faculty for various schools and his income from such services is Rs.15,00,000 and interest on Bank deposit is Rs. 50,000/-. He pays a rent of Rs. 15,000 per month is respect of furnished accommodation. He pays Rs. 20,000 as life insurance premium for self. He had taken a loan of Rs.15,00,000/- in the month of April 2012 from a Bank for pursuing the MBA course by his daughter from ISB, Hyderabad. During the previous year 2012-13, he repaid the 1st instalment of loan of Rs. 1,50,000 and interest of Rs. 2,00,000. Compute the Total Income for assessment year 2013-14.
Solution:
Computation of Total income of Mr. Arun for AY 2013-14 Particulars Income from Other sources -Visiting received faculty fees 50,000 4,00,000 19,50,000 Computation/Ref Rs. 15,00,000
-Interest on Bank Deposit -Lumpsum consideration received from books. Gross Total Income Less: Deduction under Chapter VIA - Section 80C
20,000
467
- Section 80E - Section 80 QQB Section 80 GG
Only interest on educational loan taken for 2,00,000 higher studies for self/relative is allowed 100% of such income or Rs. 3,00,000 3,00,000 whichever is less is allowed as a deduction. Least of the following i. Excess of rent paid over 10% of total income (refer note) Rent paid (15,000 x 12) 1,80,000 Less: 10% of total income 1,43,000 37,000 ii. 25% of total income (14,30,000 x 25%) 3,57,500 iii. Ceiling limit Rs.2,000 p.m. 24,000 24,000
Total Income 14,06,000 Note: The total income for the purpose of deduction u/s 80GG is Gross Total income as reduced by deductions under chapter VI-A except 80GG. Gross Total Income Less Deductions under Chapter VIA other than Sec 80GG Adjusted Gross Total Income 19,50,000 5,20,000 14,30,000
11.8.2 Deduction in respect of Royalty on Patents Sec 80RRB

Particulars Eligible assessee Eligible Income Quantum of deduction Conditions Provisions Resident Individual Assessees Royalty income of a Patentee 100% of such income subject to a maximum of Rs 3,00,000 Assessee must be the patentee, co patentee or the true and first inventor of an invention whose name is registered under the Patents Act 1970 Patent should be registered under the Patents Act 1970 on or after 01.04.2003 Where income is earned outside India, only so much of the amount that is brought into India in convertible forex within 6 months from the end of the previous year or such other extended time period as the competent authority may allow, shall be considered for the purposes of this section Auditors report in Form 10 CCE must be furnished with return of income. The certificates must be obtained from the person responsible for making payment as well as from RBI for repatriation of funds.
468
DIRECT TAX
Where the name of assessee has been removed from the patents register or the patent is revoked, by the order of High Cour t, the deduction under this section shall be deemed to have been wrongly allowed for the period for which such exclusion was made. Rectification return u/s 154(7) read with Sec 155(17) shall be made by the assessee considering the exemption as income of the respective previous year
Illustration 8
Mr. Ram is a scientist and has recently invented a medicine that can cure cancer and has registered the patent under the Patents Act 1970. Fortis hospital wanted to take the patent rights and agreed to pay Rs.10,00,000/- as Royalty to Mr. Ram. Mr.Ram wants to know the tax implications of the said transaction.
Solution:
As per section 80RRB, the assessee can claim deduction of the Royalty income at 100% of such income subject to a maximum of Rs.3,00,000. In the present case, the eligible deduction u/s 80RRB is Rs.3,00,000/-.
Deduction in respect of interest on deposits in savings account - 80TTA- Inserted by Finance Act 2012 Eligible assessee: Individual or HUF Eligible income: Interest on deposits (not being time deposits) in a savings account with (a) a banking company (b) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank) or (c) a Post Office Deduction: Actual interest earned or Rs 10,000 whichever is less Restriction: Where income is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section to any partner of the firm or any member of the association or any individual of the body.
Time deposits" means the deposits repayable on expiry of fixed periods

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