What is an 'Income Tax'

An income tax is a tax that governments impose on financial income generated by all entities
within their jurisdiction. By law, businesses and individuals must file an income tax return every
year to determine whether they owe any taxes or are eligible for a tax refund. Income tax is a key
source of funds that the government uses to fund its activities and serve the public.

Definition of Income under Income Tax

as per S.2(24) of the Income Tax Act, 1961, unless the context otherwise requires, the
term income includes(i) profits and gains;
(ii) dividend;
(iia) voluntary contributions received by a trust created wholly or partly for charitable or
religious purposes or by an institution established wholly or partly for such purposes or by an
association or institution referred to in clause (21) or clause (23), or by a fund or trust or
institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other
educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or
other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10
or by an electoral trust.
Explanation: For the purposes of this sub-clause, trust includes any other legal obligation.
(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of
section 17;
(iiia) any special allowance or benefit, other than perquisite included under sub-clause (iii),
specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the
performance of the duties of an office or employment of profit;

(iiib) any allowance granted to the assessee either to meet his personal expenses at the place
where the duties of his office or employment of profit are ordinarily performed by him or at a
place where he ordinarily resides or to compensate him for the increased cost of living;
(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from
a company either by a director or by a person who has a substantial interest in the company, or
by a relative of the director or such person, and any sum paid by any such company in respect of
any obligation which, but for such payment, would have been payable by the director or other
person aforesaid;
(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by
any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section
160 or by any person on whose behalf or for whose benefit any income is receivable by the
representative assessee (such person being hereafter in this sub-clause referred to as the
beneficiary) and any sum paid by the representative assessee in respect of any obligation
which, but for such payment, would have been payable by the beneficiary;
(v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or
section 59;
(va) any sum chargeable to income-tax under clause (iiia) of section 28;
(vb) any sum chargeable to income-tax under clause (iiib) of section 28;
(vc) any sum chargeable to income-tax under clause (iiic) of section 28;
(vd) the value of any benefit or perquisite taxable under clause (iv) of section 28;
(ve) any sum chargeable to income-tax under clause (v) of section 28;
(vi) any capital gains chargeable under section 45;

(vii) the profits and gains of any business of insurance carried on by a mutual insurance company
or by a co-operative society, computed in accordance with section 44 or any surplus taken to be
such profits and gains by virtue of provisions contained in the First Schedule;
(viia) the profits and gains of any business of banking (including providing credit facilities)
carried on by a co-operative society with its members;
(viii) [Omitted]
(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and
other games of any sort or from gambling or betting of any form or nature whatsoever.
Explanation: For the purposes of this sub-clause(i) lottery includes winnings from prizes awarded to any person by draw of lots or by chance
or in any other manner whatsoever, under any scheme or arrangement by whatever name called;
(ii) card game and other game of any sort includes any game show, an entertainment
programme on television or electronic mode, in which people compete to win prizes or any other
similar game;
(x) any sum received by the assessee from his employees as contributions to any provident fund
or superannuation fund or any fund set up under the provisions of the Employees State
Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees;
(xi) any sum received under a Keyman insurance policy including the sum allocated by way of
bonus on such policy.
Explanation: For the purposes of this clause, the expression Keyman insurance policy shall
have the meaning assigned to it in the Explanation to clause (10D) of section 10.
(xii) any sum referred to in clause (va) of section 28;
(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;

(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;
(xv) any sum of money or value of property referred to in clause (vii) or clause (viia) of subsection (2) of section 56;
(xvi) any consideration received for issue of shares as exceeds the fair market value of the shares
referred to in clause (viib) of sub-section (2) of section 56;
(xvii) any sum of money referred to in clause (ix) of sub-section (2) of section 56;
Sub-clause (xviii) inserted by the Finance Act, 2015, w.e.f. 1-4-2016:
(xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver
or concession or reimbursement (by whatever name called) by the Central Government or a State
Government or any authority or body or agency in cash or kind to the assessee other than the
subsidy or grant or reimbursement which is taken into account for determination of the actual
cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43.

Different Types of Taxes

Prevalence of various kinds of taxes is found in India. Taxes in India can be either direct or
indirect. However, the types of taxes even depend on whether a particular tax is being levied by
the central or the state government or any other municipalities. Following are some of the major
Indian taxes:

Direct Taxes
It is names so because it is directly paid to the Union Government of India. As per a survey, the
Republic of India has witnessed a consistent rise in the collection of such taxes over a period of
past years. The visible growth in these tax collections as well as the rate of taxes reflects a
healthy economical growth of India. Besides that, it even portrays the compliance of high tax
along with better administration of taxation. To name a few of the direct taxes, which are
imposed by the Indian Government are:

Banking Cash Transaction Tax

Corporate Tax

Capital Gains Tax

Double Tax Avoidance Treaty

Fringe Benefit Tax

Securities Transaction Tax

Personal Income Tax

Tax Incentives

Indirect Taxes
As opposed to the direct taxes, such a tax in the nation is generally levied on some specified
services or some particular goods. An indirect tax is not levied on any particular organisation or
an individual. Almost all the activities, which fall within the periphery of the indirect taxation,
are included in the range starting from manufacturing goods and delivery of services to those that
are meant for consumption. Apart from these, the varied activities and services, which are related
to import, trading etc. are even included within this range. This wide range results in the
involvement as well as implementation of some or other indirect tax in all lines of business.
Usually, the indirect taxation in the Indian Republic is a complex procedure that involves laws
and regulations, which are interconnected to each other. These taxation regulations even include
some laws that are specific to some of the states of the country. The regime of indirect taxation
encompasses different kinds of taxes. The organizations offer services in all or most of the
related fields, some of which are as follows:

Anti Dumping Duty

Custom Duty

Excise Duty

Sales Tax

Service Tax

Value Added Tax or V. A. T.

INCOME UNDER THE HEAD HOUSE PROPERTY

AND ITS COMPUTATION
1.BASIS FOR CHARGE: There must be a property consisting of building or land appurtenant thereto
The Assessee should be owner of that property
Such property should not be used for Business or profession of assessee the profits of which are
chargeable to tax
2.SOME IMPORATANT NOTES:It must be noted that the word property or part thereof means part or unit of that property
If there is any income from vacant piece of land such income would be charged under Profits and
gains from business and profession or under income from other sources depending upon nature
of the case.
Property not owned by assessee should not be charged under house property, stating and example
we mention that income from subletting is charged under income from other sources.
3.OWNERSHIP: -It includes legal owner as well as deemed owner.
The term ownership includes ownership of any kind and includes:Freehold Property
Leasehold property
Deemed ownership
4.DEEMED OWNERSHIP: - Section 27 of the act provides for deemed ownership of property.
The various cases in which owner would be counted as deemed owner of property are as
follows:Transfer to spouse:- Where an individual transfers his/her house property to his/her spouse
without any adequate consideration (except in an agreement to live apart) , the transferor would

be deemed to be owner of such house property. It is to be noted that only house property is
transferred and not any cash through which House property is purchased, in such a case,
clubbing provisions will apply.
Transfer to minor child: - Where property is transferred to minor child (except married minor
daughter), Transferor would be deemed to be owner of that house property.
Holder of an impartible estate:- such holder would be deemed to be owner of that property.
Member of co-operative estate:- person holding property under a co-operative estate as leasehold
or freehold property would be deemed to be owner of that property.
Person holding some rights of property under section 53A of transfer of property act:- conditions
are:There is an agreement in writing
Purchaser has paid consideration or agreed to pay the same
Purchase has taken possession of the property
Person holding lease of a property for not less than 12 years:- such a person would be deemed to
be owner of that property provided that lease is renewed after a minimum period of 12 months.
Disputed property:- A person who holds the possession of a disputed property or enjoys income
from that property is deemed to be owner of that property.
5.USE OF HOUSE PROPERTY AND ITS IMPACT ON TXATION:House property may be used for either commercial or residential purposes. Some cases of taxation
are as follows:Where property is held as Stock in trade then also taxed under house property
When it is business to give property on rent, then also it is taxed under this head of house property
When hotel or P.G. accommodation building is given on rent then also taxed under house property
but where separate rooms are given on rent then it is taxed either business or profession or under
income from other sources.
Some exceptions to general rule of taxation under house property are: Where property is used for business of assessee

Where P.G. or hostel accommodation is run by assessee

Where property is given on rent for efficient conduct of business
Where H.P. is given on rent to Govt. agency for locating branch, etc. for conducting business
efficiently, it is taxed under income from business and profession.
Where it is a case of composite rent.
6.INCOME FROM HOUSE PROPERTY NOT CHARGED TO TAX: H.P. use for Business of Assessee
Building held for charitable purposes
Self occupied property
Property of registered trade union
Palace of ex ruler
Income from Farm house:- conditions are: Farm house in India
In immediate vicinity of agricultural land
Used as a dwelling or store house
7.CASES OF COMPOSITE RENT: - Composite rent can be on account of
Provision of facilities with H.P.
Provision of assets with H.P.
a)Rent On account of H.P. and Other facilities like gas, etc. should be separated and rent on account
of H.P. would be taxed under income from H.P. and rest would be taxable under either P.G.B.P.
or income from other sources.
b)Rent on account Of H.P. and hire charges of assets is treated as follows:
If assets form an integral part of lending, whole of the rent should be taxed under either Income
under the head profits and gains from Business and Profession (P.G.B.P.) or income under the
head income from other sources as the case may be.

If asset do not form an integral part of lending, rent should be separated into :-

Rent for H.P. and should be taxed under H.P.

Rent for assets must be taxed under P.G.B.P. or income from other sources
8.ANNUAL VALUE: - This provision is contained in section 23 of income tax act.
The provision is elaborated as follows:-Gross annual value is computed as follows:STEP1 :-Take higher of
a)Expected rent ( which is computed by taking higher of municipal value or fair rent whichever is
higher but limited to standard rent) or,
b)Actual rent received or receivable
c)But in this clause c, we compute actual rent which would have been there if there would have been
no vacancy, if such rent is higher than expected rent, then rent computed under this clause (c)
would be used otherwise rent computed in clause (a) that is the expected rent would be used.
STEP2:- From This Calculate GAV by taking rent as per above provisions and subtracting
vacancy allowance on the basis of actual rent from the same.
STEP3:- This Is our GAV
STEP4: -From GAV deduct municipal taxes actually paid and borne by the owner during the
previous year.
STEP5:-Finally we have computed Our Net Annual Value or annual value.
9.UNREALISED RENT:- Sometimes owner is not able to recover some portion of rent from the
tenant such a rent is called as unrealized rent, Unrealized rent is allowed as a deduction only
when following 4
conditions given in Rule 4 are satisfied:
Tenancy is bonafide
Every step has been taken to get the property vacated
Every step has been taken to recover unrealized rent

Tenant is not in occupation of any other property of Owner

There are a number of conflicting views regarding treatment of unrealized rent due to difference
of opinion created by income tax law and income tax return form, However Taking in to account
the provisions of law; the appropriate provisions are written below:Just deduct amount of unrealized rent from Step 1 Clause (b) and clause
(c) of Para 8 i.e. While Computing figures for actual rent, these are allowed as a deduction. The
Rest of Steps Follow in the same manner as
written above.
10.VACANCY CLAUSE: - In Para 8, every thing regarding vacancy clause has been discussed in
the 5 steps for computation of annual value, so we are not discussing the same separately.
It is to be noted that there is a difference of opinion among authors regarding vacancy allowance,
rest necessary and commonly accepted provisions have been discussed in Para 8.
11.HOUSE PROPERTY LET OUT DURING PART OF YEAR AND PART OF YEAR SELF
OCCUPIED: The Income from such property is calculated as if let out for whole of the year. In This case,
expected rent would be taken for whole year but actual rent would be taken for let out period
only and no special allowance for this purpose is allowed.
However where property is acquired During the year itself, expected rent would be taken for
only that portion for which property has been owned by assessee and rest provisions remains the
same.
12.TREATMENT OF VACANCY + UNREALISED RENT:- If the problem is such that
adjustment is required both for Vacancy and unrealized rent then following treatment follows
which is a combination of provisions written in Para 9 and 10 above.
The amount of unrealized rent would be deducted from Step 1 Clause (b) and clause (c) Para 8
Next, the treatment of unrealized rent is same as per provisions written in Para 8 in the next steps.
13.INCOME FROM HOUSE PROPERTY SELF OCCUPIED FOR RESIDENCE: When property is: Self occupied for residence or

Cannot be self occupied for residence owing to reason of employment and he has to reside at
some other place not belonging to him
Then, Annual Value Of such property would be taken to be NIL.
ANNUAL VALUE NOT NIL: H.P. Actually let out during the year
Any other benefit is derived from property.
CASE WHERE MORE THAN ONE HOUSE IS FOR SELF-OCCUPATION: Then the assesse has option to take any of the above houses as self occupied and the other one
would be treated as deemed let out property.
NOTES: Annual value here denotes value after municipal taxes.
This option is available only to individuals and Hindu undivided families.
Where An assessee lets out his house to the employer and the employer in return allots the same
to assessee only then, then tax treatment would be as follows:Tax on income of house property and
Tax on the matter of rent free or concessional accommodation provided by employer taxable under
income under the head salaries.
14.DEDUCTIONS FROM HOUSE PROPERTY INCOME UNDER SECTION 24:a)STANDARD DEUCTION:- A Standard Deduction of 30% of Net Annual Value Would Be allowed
as a deduction from net Annual Value , irrespective Of expenditure incurred. No other deduction
on account of any expenditure is allowed. However such deduction would not be allowed when
annual value is negative.
b)DEDUCTION ON ACCOUNT OF INTEREST: - Any Kind of interest on borrowed capital
would be allowed as adeduction from H.P. income on accrual basis. Interest includes pre
construction period interest installment.

However Interest would not be allowed as a deduction if such interest is paid out of India and No
TDS has been deducted from it and there is no person in India who can be assessed in respect
of person to whom interest is paid.
NOTES:Loan can be for any purpose like repairs, construction or any kind of extension to house property
but should be connected with H.P.
Fresh loan to merely repay original loan would be counted as if like original loan and interest would
be allowed as a deduction.
PRE CONSTRUCTION PERIOD: - Period starting from date on which capital is borrowed and
ending on
31 march immediately preceding the date on which construction of property is completed or
Date on which borrowed capital is repaid, whichever is earlier.
Pre construction period interest is allowed as deduction in 5 equal installments commencing from
year in which construction is completed.
EXAMPLE: - If capital is borrowed on June 30, 2008 and construction of property is completed
on 30 July 2010, then interest from period June 30, 2008 to 31 March 2010 would be counted as
pre construction interest and would be allowed a deduction in 5 equal installments and interest
from 1April 2010 would be counted as interest for the current period.

15.DEDUCTIONS IN CASE OF SELF OCCUPIED PROPERTY: Deductions as written in Para 14 are not fully applicable in case of a self occupied property. The
changes in Para 14 in case of self occupied property are as follows: a)No standard deduction of 30% would be allowed
b)Deduction in case of money borrowed:- Here also deduction is allowed subject to certain
terms and conditions:These conditions are as follows:Money is borrowed after 1-4-1999

Money is borrowed for construction or acquisition of property

Construction or acquisition of property is completed within 3 years from end of financial year
in which money is borrowed
Creditor gives a certificate that amount was borrowed for construction or acquisition of
property.
In Case above 4 provisions are satisfied the amount of deduction is Actual interest (inclusive of
pre construction period interest) or Rs. 150000 otherwise the amount of interest deduction would
be Rs.30000. However Interest would not be allowed as a deduction if such interest
is paid out of India and No TDS has been deducted from it and there is
no person in India who can be assessed in respect of person to whom
interest is paid.
16. RECOVERY OF UNREALISED RENT AND ARREARS OF RENT : -Unrealized Rent
Recovered: This provision is applicable only if unrealized rent is allowed as a deduction earlier.
Any amount recovered on account of unrealized rent should be directly added to house property
income.
No standard Deduction or any Kind of deduction is allowed.
No other deduction is allowed on account of any expenditure.
This Provision is applicable whether property exists or not.
Arrears Of rent Recovered: This income is chargeable to tax under house property income.
Standard Deduction of 30% is allowed to the assessee.
No other deduction is allowed on account of any expenditure.
This Provision is applicable whether property exists or not.
17.CO-OWNERS OF PROPERTY: If shares of co-owners are definite, then such property would be assessed in hands of individual
persons.

If shares of individual owners are not definite then such property would be assessed as body of
individuals/association of persons.
In case property is self-occupied than each co-owner would be allowed a deduction of
150,000/30,000.
In case property is let out, we will ignore co-ownership and compute income and in the next step
we will distribute the income among co-owners in ratio of co-ownership.
18.CAN ANNUAL VALUE BE NEGATIVE? Yes annual value can be negative.
In Case of self-occupied property: - Yes, annual value of a property can be negative but only to
the extent of Rs.150, 000/30,000
In Case of Let-out property: - The annual Value can be negative Because of deduction on account
of municipal taxes and interest.
There is no limit to which such income can be negative.

How to Calculate Taxable Income from Salary

Every year people submit their Income Declarations form and submit the documents that are
required. But, not so many know how income tax is calculated. A persons income that exceeds
the maximum amount, is charged income tax at the rate set by the Income Tax department. It is
also based on the residential status of the taxpayer.
The Income Tax Department brings in revenue to the Government. Indian income is always
taxable in India. Foreign income is not taxable for a non-resident but is taxable for the resident.
Income tax is the tax you pay on your income. Income Tax is levied on a person who was in
India for 182 days during the previous tax year or the person who was in India for at least 60
days during the previous tax year and for at least 365 days during the preceding 4 years will be
taxed.
A persons total income is divided into 5 heads of income. They are:

Income from salaries

Income from house property

Profit and gains of business or profession

Capital gains

Income from other sources

Salary includes wages, pension, gratuity, fees, commission, perquisites, provident fund
contribution, leave encashment, Central Governments contribution to pension and compensation
received for a service.
What is Salary Income?
Salary is the remuneration paid by the employer to the employee for the services rendered for a
certain period of time. It is paid in fixed intervals i.e. monthly one-twelfth of the annual salary.
Salary includes:

Basic Salary or the fixed component of salary as per the terms of employment.

Fees, Commission and Bonus that the employee gets from the employer

Allowances that the employer pays the employee to meet his personal expenses.
Allowances are taxed either fully, partially or are exempt.

Fully taxable allowances are:

Dearness allowance paid to the employees to meet expenses due to

inflation.

City Compensatory allowance paid to those who move to big metros like
Mumbai, Delhi, Chennai, where the standard of living is higher.

Overtime allowance paid to the employee who works over the prescribed
hours.

Deputation allowance and servant allowance.

Partly taxable allowances are:

House Rent Allowance: If the employee stays in his own house then the
allowance is fully taxable. The allowance exemption is the least of

The actual house rent allowance

If he pays additional rent above 10% of his salary

If the rent is equal to 50% of his salary (metros) or 40% (other

areas).

Entertainment allowance (except for Central and State Government

employees).

Special allowances like uniform, travel, research allowance etc.

Special allowance to meet personal expenses like childrens education

allowance, children hostel allowance etc.

Fully exempt allowances are:

Foreign allowance given to employees posted abroad.

Allowances of High Court and Supreme Court Judges.

United Nations Organisation employees allowances.

2Perquisites are payments received by employees over their salaries. They are not reimbursement
of expenses. Some perquisites are taxable for all employees, they are:

Rent free accommodation

Concession in accommodation rent

Interest free loans

Movable assets

Club fee payments

Educational expenses

Insurance premium paid on behalf of employees

Some are taxable only to specific employees like directors or those who have substantial
interest in the organisation, they are taxed for:

Free gas, electricity etc. for domestic purpose

Concessional educational expenses

Concessional transport facility

Payment made to gardener, sweeper and attendant.

Some perquisites are exempt from tax. The fringe benefits that are exempt from tax are:

Medical benefits

Leave travel concession

Health Insurance Premium

Car, laptop etc. for personal use.

Staff Welfare Scheme

3Retirement benefits are given to employees during their period of service or during retirement.

Pension is given either on a monthly basis or in a lump sum. The tax is treated
depending on the category of the employee.

Gratuity is given as appreciation of past performance which is received at the

time of retirement and is exempt to a certain limit.

Leave salaries tax depends on the category of the employee. The employee may
make use of the leave or encash it.

Provident fund is contributed by both employee and employer on a monthly

basis. At the retirement, employee gets the amount along with interest. Tax treatment is
based on the type of provident fund maintained by the employer.

Deductions on Income from Salary:

The following deductions are available on the income from salary:

Entertainment tax is allowed as deductions for the State and Central Government
employees. The amount is the least of either Rs.5,000, entertainment allowance received by
the employee or 20% of the basic salary.

Professional tax is the tax on employment which is deducted from the income every
month. It is imposed at the state level for every salaried individual.
Please note that the standard deduction is not available for salary income from Assessment Year
2006-2007.
Computation of the Net Salary of an Employee:
Here is how the Net salary of an employee is computed:

Particulars

Amount (In Rs.)

Add:

1.Basic Salary

2.Fees, Commission and Bonus

3.Allowances

4.Perquisites

5.Retirement Benefits

-------------------

Gross Salary

Less: Deductions from Salary

1.Entertainment Allowance

2.Professional Tax

-------------------

-------------------

Net Salary

-------------------

For computing Total income from various sources, the incomes are classified into:
1. Salaries
2. Income or loss from property
3. Profit and gain from business
4. Income from capital gains
5. Income from other sources
This gives you an aggregate income. All the eligible deductions, allowance and reliefs are
calculated on each heads.
Gross Total Income= A+B+C+D+E
Total Taxable Income= Gross Total Income- Deductions allowed from income
Total Tax Payable= Tax on Total Income- Rebates and relief allowed under Income Tax Act
The tax rate is based on the salary slab that the person falls under. The entire taxable income is
then divided into the following 4 parts. These are the rates at which tax will be calculated for the
year 2015- 2016:
1.

For an individual who is less than 60 years of age; total taxable income:
o

Up to Rs.2.5 Lakhs: No Tax is charged.

Rs.2.5- Rs.5 Lakhs: 10% of the amount exceeding Rs.2.5 Lakhs is charged.

Rs.5 Rs.10 Lakhs: Rs.25,000 + 20% of the amount exceeding Rs.5 Lakhs is

o
charged.

Above Rs.10 Lakhs: Rs.1,25,000 + 30% of the amount exceeding Rs.10 Lakhs is

o
charged.
2.

For an individual above 60 years but less than 80 years; total taxable income:
o

Up to Rs.3 Lakhs: Tax is not levied.

Rs.3 Rs.5 Lakhs: 10% of the amount exceeding Rs.3 Lakhs is charged.

Rs.5 Rs.10 Lakhs: Rs.20,000 + 20% of the amount exceeding Rs.5 Lakhs is
charged.
Above Rs.10 Lakhs: Rs.1,20,000 + 30% of the amount exceeding Rs.10 Lakhs is

o
charged.
3.

For individual above 80 years of age; the taxable income:

o

No tax is charged for taxable income up to Rs.5 Lakhs.

Rs.5 Rs.10 Lakhs: 20% of the amount exceeding Rs.5 Lakhs is charged.

Above Rs.10 Lakhs: Rs.1,00,000 + 30% of the amount exceeding Rs.10 Lakhs is
charged.

In addition to these tax rates, you are also charged a surcharge. Also, a 2% education cess is
charged on the total tax and surcharge amount.

Section

80DD

Deduction

Deductions

on

Medical

Expenditure on Self or Dependent Relative

Medical treatment, in the past few years has been on the rise, which has made medical treatment
a difficult service to avail for the lower and middle startas of the Indian society. The Indian
Government with the intention to allow some sort of relief to these groups of people especially
people dependent with disability or on severe disability may now be provided some help through
the Income tax under Section 80DD of the Income Tax Act, 1961. Before one goes into further
details, it is important to understand that the income tax has changes in rates and minor
amendments but the legal or relief aspect had to be based on the the 1961, as of now.
Eligibility of Claim Deduction under Section 80DD:
To be eligible for the claim deduction under the section 80DD, one must:
1.

Be an Individual or be a part of a Hindu undivided family, who is a resident in India.

2.

This deduction is not available to non-resident Indian (NRI), since a lot of countries such
as Canada, largely help their residents when it comes to medical treatment.

Expenses that are Deducted for Income Tax Calculation:

The following are the expenses that are exempted for income tax under section 80DD:

1.

Any expenses incurred for medical treatment which includes nursing, training as well as
rehabilitation of dependent that is disabled.

2.

The amount paid towards Life Insurance Corporation (LIC), Unit Trust of India or any of
the other insurers for the sole purpose of buying specified schemes or insurance policies to
help in the maintenance of a dependant with disabilities.

Who is Defined as Disabled Dependant According to Income Tax laws?

If a person, falls under the following circumstances, he or she is eligible to be called a disabled
dependent under section 80DD and hence the persons caretaker can avail the income
deductions:

Individuals, or a spouse, son or daughter (or any child), parents as well as brother or
sister i.e. any siblings can be considered as your disabled dependant.

This is applicable for any hindu undivided Family which means that any member of the
HUF can be a disabled dependant.

It is essential that the disabled individual be wholly or mostly dependant on the taxed for
their support as well as maintenance.

He or she should also not claim the deduction under section 80U.
What kind of Disability or Severe Disability is considered under the Section 80DD?
Disability for Section DD is defined under clause (i) of section 2 by the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 as well
as disabilities includes in clauses (a), (c) and (h) of section 2 of National Trust for welfare of
Person with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999.
Hence this includes the following disabilities:

1.

Cognitive or severe mental disabilities

2.

Low vision

3.

Blindness

4.

Leprosy-cured

5.

Hearing impairment

6.

Locomotor disability

7.

Mental illness

8.

Autism

9.

Cerebral palsy

10.

Or Multiple disabilities

It is essential to note that person must not suffer less than 40% of any of the above disabilities.
When it comes to sever disability 80% or above of one or more of the mentioned illnesses or
disabilities is considered.
Other Things To Note For Claim Deduction:
1.

A medical certificate is mandatory when one wishes to claim the deduction with respect
to the mentioned disabilities from any Government Hospital. The document should certify the
disability of the dependant and the person they are dependant on. The certificate needs to be
renewed periodically.

2.

Individuals suffering from Autism, Cerebral Palsy or any multiple disabilities, would
require form number 10-IA to be filled and submitted for them.

3.

There are also 2 formats other than the one mentioned earlier, for an individual who is
suffering from any sort of severe mental illnesses and the rest of the disabilities.

4.

Individuals also have to submit a self declaration, signed and certifying the expenses
incurred pertaining to the medical treatment which includes nursing, rehabilitation as well as
training of the disabled dependant.

5.

It is not required to preserve the actual receipts for the disabled dependants expenses. But
the actual receipts need to be submitted in case the claim deduction with respect of payment
made to any insurer such as LIC, UTI and others for getting insurance plans or schemes for the
maintenance of the disabled dependant.

Where can you avail a Medical Certificate for the Disabled Dependant?
According to the income tax laws the following people can help you get a medical certificate to
claim ta deductions under section 80DD:

A neurologist with a Doctor of Medicine (MD) degree in Neurology or a Pediatric

Neurologist with a similar degree for children.

A Civil Surgeon or a Chief Medical Officer (CMO) of any government hospital.

Tax Deduction Under Section 80DD For Disabled Dependants
Before going forward it is essential to understand that in the case that a disabled dependant dies
before the taxed individual he or she will be taxed for the premium amount paid in that year,
since this would be treated as the survivors income for that year and hence be completely
taxable.

The income tax deduction which is allowed, under section 80DD is Rs. 50,000 for what is
defined earlier as disabled dependant (40% and over disability) This limit went upto Rs.
75,000 since 2016.

The income tax deduction which is allowed, under section 80DD is Rs. 50,000 for what is
defined earlier as severely disabled dependant (80% and over disability) This limit went upto
Rs. 1,25,000 since 2016.

Deduction is not dependant on the amount of expenses incurred regardless the real
expenses disabled dependent relative is lesser than amount mentioned above, the tax assessed
will be eligible for the full deduction.
Conditions for Tax Deduction under 80DD:

People need to produce a hard copy of the medical certificate stating disability as issued
by the central or state government medical board to make the deduction claim.

The insurance plan should be in the tax assessor's name and also must be a life insurance
policy and not a health insurance policy. It could also pay annuity or simple lump sum amount
as death benefit for the disabled dependant in the case of your untimely death.

Incase the disabled dependent dies earlier than the taxed, the policy amount is returned to
him or her and hence would be treated as income and hence taxed for income.

Section 80U

The Section 80U deals with tax deductions meant for residents of India who are categorized as
disabled according to government rules. Under the Income Tax Act, 1961, any individual who
has been a resident of India for the assessment year and suffers from at least 40% disability as
specified by the law are eligible for deductions.
Definition of Disability:
Disability is defined as at least 40% disability in a person as certified by relevant medical
authorities. Persons with disability are defined according to the Persons with Disability (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995 passed by the government.
Disability is primarily divided into 7 categories:

Low Vision: Low vision applies to people with visual function impairment that cant be
corrected by a surgery but who are still capable of using their vision through assists from other
devices.

Blindness: Blindness is defined as complete absence of sight or field of vision limitation

by an angle of 20 degrees or worse, or visual acuity less than 6160 after corrective lenses.

Hearing Impairment: Hearing power loss of at least 60 decibels.

Leprosy Cured: People cured of leprosy but who have lost sensation in feet or hands and
paresis in eyelid and eye. Also senior people or people with extreme deformities that obstruct
them from performing any beneficial occupation.

Mental Retardation: People who have incomplete or arrested development of mental

capacities resulting in subnormal intelligence levels.

Loco Motor Disability: People with severely limited movements of limbs due to
disability of joint muscles or bones.

Mental Illness: Other mental disorders not relating to mental retardation.

The law also defines severe disability apart from disability. Severe disability refers to the
condition where a person suffers from 80% or more disabilities in the aforementioned categories.
Severe disability has also come to include multiple disabilities, cerebral palsy and autism.

Deductions under Section 80U:

The deductions under Section 80U are available for Rs.1.25 lakhs in case of severe disability and
Rs.75,000 for people with disabilities. These limits have been enhanced from the previous limits
of Rs.1 lakh for severe disability and Rs.50,000 for disability. The changes have come into effect
from the assessment year 2015-16.
How do I Claim Section 80U Benefits?
There are no documentation requirements apart from a certificate from a recognized medical
authority certifying the disability. There is no need to produce bills or other items incurred as
cost of treatment or any other expenses. You are required to fill different forms in case of mental
illnesses and some more disabilities. Similarly, for cerebral palsy and autism form 10-IA has to
be filled.
To file the claim, you need to submit the medical certificate denoting the disability as well as
return of income certificate as per Section 139 for the relevant assessment year. If the disability
assessment certificate has expired, you will still be able to claim deductions in the year of expiry
of the certificate. However, a fresh certificate will be required from the next year onwards to
claim benefits under Section 80U. Certificates can be obtained from medical authorities as
authorized by the government which can include a MD in Neurology, paediatric neurologist
Chief Medical Officer (CMO) or Civil Surgeon at a government hospital.
What is the Difference between Sections 80U and 80DD?
Section 80U provides tax deductions to persons of disability while Section 80DD provides
deductions to the family members of a disabled person. Section 80DD is also applicable if the
person has deposited some amount as insurance premium for caring for a dependent disabled
person. The deduction limits are same as Section 80U. Dependent implies any member of a
Hindu Unified Family (HUF) or an individuals siblings, parents, spouse or children.

House property means any building of which the assessee is the owner. Ownership of the
building is must in case of calculation of income from house property.

Bibliogrpaphy
http://commercehub.webs.com/documents/INCOME%20UNDER%20THE%20HEAD
%20HOUSE%20PROPERTY.pdf
http://www.icaiknowledgegateway.org/littledms/folder1/chapter-5-income-from-houseproperty.pdf

https://www.bankbazaar.com/tax/how-calculate-taxable-income-from-salary.html
https://www.bankbazaar.com/tax/under-section-80dd.html
http://incometaxmanagement.com/Pages/Gross-Total-Income/Salaries/Chat-ShowingComputation-of-Salary-Income.html
http://www.icaiknowledgegateway.org/littledms/folder1/chapter-4-income-from-salaries.pdf
http://www.incometaxindia.gov.in/Documents/Left%20Menu/Income-from-salary.htm