NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Taxation- Direct and Indirect
Internal Assignment Applicable for June 2020 Examination

Answer to Ques 1

Tax deduction helps in reducing your taxable income. It decreases your overall tax liabilities and
helps you save tax. However, looking on the sort of write-down you claim, the number of
deduction varies. You can claim write-down for amounts spent in tuition fees, medical expenses
and charitable contributions. Also, you'll invest in varied schemes like insurance plans,
retirement savings schemes, and national savings schemes etc. to get tax deductions. The
government of Asian nation offers tax exemptions for varied expenses incurred in numerous
activities to encourage people and industrial establishments participate in activities having social
edges.

A number of regular expenditures qualify for deductions, with info regarding them being crucial
to assist us to save cash. Tax deduction will be claimed on cash spent for education, medical
expenses, charitable contributions, investments in insurance, retirement schemes, etc. These
deductions are place in situ to encourage members of the society to participate in bound helpful
activities, serving to everybody concerned within the method.

Tax Deductions under Section 80C:

Section 80C of the tax Act provides provisions for tax deductions on variety of payments, with
each people and Hindu Undivided Families eligible for these deductions. Eligible taxpayers will
claim deductions to the tune of Rs one.5 100000 each year underneath Section 80C, with this
quantity being a mix of deductions out there underneath Sections eighty C, 80 CCC and 80 CCD.

Some of the popular investments which are eligible for deduction under 80C are mentioned
below:

 Payment created towards insurance policies (for self, spouse or children)

 Payment made towards a superannuation/provident fund

 Tuition fees paid to school at most of 2 kids

 Payments created towards construction or purchase of a residential property

 Payments issued towards a hard and fast deposit with a minimum tenure of five years
This section provides for variety of extra deductions like investment in mutual funds, senior
citizens saving schemes, purchase of NABARD bonds, etc.
Section 80D – Medical Insurance
Deduction for the premium paid for Medical Insurance
You (as a private or HUF) can claim a deduction of Rs.25,000 under section 80D on insurance
for self, spouse and dependent children. An additional deduction for insurance of oldsters is out
there up to Rs 25,000, if they're but 60 years aged. If the oldsters are aged above 60, the
deduction amount is Rs 50,000, which has been increased in Budget 2018 from Rs 30,000.
In case, both taxpayer and parent(s) are 60 years or above, the utmost deduction available under
this section is up to Rs.1 lakh.
Section 80DD – Disabled Dependent
Deduction for Rehabilitation of Handicapped Dependent Relative
Section 80DD deduction is out there to a resident individual or a HUF and is out there on:
a. Expenditure incurred on medical treatment (including nursing), training and rehabilitation of
handicapped dependent relative
b. Payment or deposit to specified scheme for maintenance of handicapped dependent relative.
i. Where disability is 40% or more but but 80% – fixed deduction of Rs 75,000.
ii. Where there's severe disability (disability is 80% or more) – fixed deduction of Rs 1,25,000.

To claim this deduction a certificate of disability is required from prescribed medical authority.
From FY 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs 75,000 and Rs
1,00,000 has been raised to Rs 1,25,000.
Section 80DDB – Medical Expenditure
Deduction for Medical Expenditure on Self or Dependent Relative
a. For individuals and HUFs below age 60
A deduction up to Rs.40,000 is out there to a resident individual or a HUF. It is available with
reference to any expense incurred towards treatment of specified medical diseases or ailments for
himself or any of his dependents. For an HUF, such a deduction is out there with reference to
medical expenses incurred towards these prescribed ailments for any of the HUF members.

b. For senior citizens and super senior citizens

In case the individual on behalf of whom such expenses are incurred may be a oldster, the
individual or HUF taxpayer can claim a deduction up to Rs 1 lakh. Until FY 2017-18, the
deduction that would be claimed for a oldster and an excellent oldster was Rs 60,000 and Rs
80,000 respectively. This has now become a standard deduction available upto Rs 1 lakh for all
senior citizens (including super senior citizens) unlike earlier.
c. For reimbursement claims
Any reimbursement of medical expenses by an insurer or employer shall be reduced from the
quantum of deduction the taxpayer can claim under this section.
Also remember that you simply got to get a prescription for such medical treatment from the
concerned specialist so as to say such deduction. Read our detailed article on Section 80DDB.
Given Information
She joined an enterprise as an Accounts Manager at a CTC of Rs 650000. She invested Rs
150000 in PPF and paid mediclaim for herself Rs 15000 using cash as a mode of payment.
Discuss and compute her tax liability assuming she is residential individual for the Assessment
year 2019-20.

Calculation of Tax Liability

Rs.
Salary 650000
(-) Standard Deduction 40000
Income from Salary 610000
(-) Deduction Under Section 80C 150000
(-)Deduction Under Section 80D 15000
Taxable Income 4,45,000

Tax Liability
Up to 2.5 lakhs – 0
2.5 lakhs – 4.45 lakhs – 9750
(+) cess @4% - 390
Therefore, tax liability will be Rs. 10,140
Answer to Ques 2

Deduction and Allowances Available under Income Tax Act 1961 against Expenses Incurred by
Assesses
There are many and very common expenses which are allowed to the Assesses to claim as
deduction under Income Tax which ultimately reduces the net taxable income and Income Tax,
but the assesses are not aware about the expenses which they incurred in their daily life and not
take care of the proof expenses. If they maintain the proper file of expense proof they will get
ample benefits under Income Tax.
So here are some assesses wise list of expenses for your quick reference who can claim the
deduction and allowances under Income Tax of such expenses:
All Assesses having income from House Property:
Tax imposed by the local authority and paid by the owner-
While assessing or calculating the income from house property under section 22 of the Income
Tax Act, any municipal taxes imposed by the local authority (including service taxes) shall be
deducted from the income of the house property. There are only two conditions to claim
deduction is (i) Taxes are borne by the owner and (ii) the taxes are actually paid by him in
previous year.
Interest on borrowed Capital ( Like Interest on Home Loan)-Section 24(b)
If money is borrowed for acquisition or construction of the house property, then deduction can be
claimed upto Rs. 2, 00,000 subject to conditions that (i) Loan has been taken on or after April,
1999; (ii) acquisition or construction has been completed within 5 years etc.
If above mentioned conditions is not satisfied then Maximum deduction available is Rs. 30, 000.
All Assesses having income from business and profession:
Rent, rates, taxes, repairs and insurance for owned buildings as well as buildings taken on rent
(Section 30)
It is to be noted that the above mentioned expenditure shall not be the Capital Expenditure.
Repairs and insurance of machinery, plant and furniture (Section 31)
It is to be noted that the above mentioned expenditure shall not be the Capital Expenditure.
Depreciation on capital assets (Section 32):
All assessee can claim the depreciation on capital assets as deduction under this section. The
condition to claim the deduction is (i) Asset must be owned by the assessee or if asset is on lease
then assessee can claim the depreciation on cost incurred upon the improvement or renovation
etc. (ii) Asset must be used for business purpose, if asset is used partly for residential purpose
and partly for business purpose, then deduction available of depreciation on asset use for
business purpose.
Expenditure on Scientific Research (Section 35)
Amortisation of preliminary Expenses (Section 35D):
If an Indian company or resident non-corporate assessee have incurred some expenses before the
commencement of the business is eligible to take deduction after the commencement of the
business by amortised the amount in each year.
Premium paid in respect of insurance against risk of damage or destruction of stocks / stores used
for business or profession [Section 36(1)(i)]
Medical Insurance paid by the employers [Section 36(1)(ib)]
Bonus or commission paid to employees [Section 36(1)(ii)]
Interest on borrowed Capital [Section 36(1)(iii)]:
If an assessee has taken the business or profession loan, then he is eligible to take the deduction
of interest amount paid on such borrowing under this section.
Contributions to recognized provident fund and superannuation fund [Section 36(1)(iv)]
Contributions to approved gratuity fund [Section 36(1)(v)]
Employees contributions to staff welfare schemes [Section 36(1)(va)]
Bad Debts [Section 36(1)(vii)]
Banking Cash Transaction Tax [Section 36(1)(xiii)]
Securities Transaction Tax [Section 36(1)(xv)]
Commodities Transaction Tax [Section 36(1)(xvi)]
Any Other Expenses not being personal or capital expenditure mentioned under section 30 to 36
of Income Tax Act, incurred wholly and exclusively for business (Section 37(1))
Expenditure on Advertisement (Section 37(2B)):
If any expenditure is incurred in respect of advertisement of any political party is not allowed as
deduction under income tax. Any other expenses related to advertisement can be claimed as
deduction.

Donation made by the person to certain funds and charitable institutions. (Section 80G):
Donation can be claimed up to 50%-100% of the amount of donation depends upon the category
of fund or institutions where the assessee had donated the amount.
Deduction available to individuals or HUFs:
Life Insurance Premium and Provident Fund Contribution ( Section 80C).
Pension Fund ( Section 80CCC).
Contribution made the individual towards National Pension System
Please note that in all the above three category(Section 80C, Section 80CCC, Section 80CCD(1),
the assessee is allowed to claimed the expenses upto Rs. 1, 50,000 only.

Medical Insurance Premium paid the assessee for himself, the spouse, parents and the dependent
children (Section 80D)
All Maintenance including medical treatment expenses of a handicapped dependent who is a
person with disability (Section 80DD)
Medical Treatment Expenses (Section 80DDB)
Maximum deduction can be claimed by the assessee in Assessment Year 2018-19 is Rs. 40,000;
for Senior Citizen Rs. 60,000; for Super Senior Citizen Rs. 80,000.

Interest on deposits in savings account (Section 80TTA)

Income of a person with disability (Section 80U)
Income on deposits with bank/ cooperative bank/ post office (Section 80TTB).
Answer to Ques 3 (a)

TDS stands for tax deducted at source. As per the tax Act, any company or person making a
payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS
has got to be deducted at the rates prescribed by the tax department.

The company or person who makes the payment after deducting TDS is named a deductor and
therefore the company or person receiving the payment is named the deductee. It is the
deductor’s responsibility to deduct TDS before making the payment and deposit an equivalent
with the govt . TDS is deducted regardless of the mode of payment–cash, cheque or credit–and is
linked to the PAN of the deductor and deducted.

TDS is deducted on the subsequent sorts of payments:

 Salaries
 Interest payments by banks
 Commission payments
 Rent payments
 Consultation fees
 Professional fees

The TDS on salary is calculated by reducing the exemptions available under various sections
from total annual earning as specified by the tax department. The employer is required to get a
declaration and proof from individuals to approve tax exemption. The following categories are
considered for exemption:

The following process is involved within the deduction of TDS:

Calculating total earning - The employer is required to calculate the entire earning of the
worker .Calculating total amount eligible for the exemption - The employer is in charge of
calculating the entire amount that's considered for tax exemption. The employee must declare the
investments that are eligible for exemption.

Obtaining declaration and investment proof - The employer is required to gather investment and
proofs from employees
Depositing TDS deductions - The employer would require depositing the collected TDS to the
central government.

Section 80C

An employee can declare for a maximum of Rs.1,50,000 for tax exemption. The following
investments schemes are considering for exemption under Section 80C:

Investment in mutual funds and equity shares, like ULIP, Linked Saving Scheme of a Mutual
Fund/UTI

Life insurance Premium paid

Contribution to statutory PF, 15 years PPF, and superannuation funds

Payments towards subscription for National Saving Certificates and residential Loan Account
Scheme

Interest earned through few of the National Savings Certificates is eligible for a particular
amount of tax

Fixed deposit scheme for a period of minimum 5 years

Answer to Ques 3 (b)

TDS stands for tax deducted at source. As per the tax Act, any company or person making a
payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS
has got to be deducted at the rates prescribed by the tax department.

The company or person who makes the payment after deducting TDS is named a deductor and
therefore the company or person receiving the payment is named the deductee. It is the
deductor’s responsibility to deduct TDS before making the payment and deposit an equivalent
with the government.

Rs.
Annual Salary 750000
(-) Standard deduction 40000
Income From Salary (A) 710000
Loss from House Property (B) 200000
Income from Other Source (C) 150000
Total Taxable Income (A + C – B) 660000

Calculation of Tax Liability

Up to 3 lakh – 0

3 lakh – 5lakh – 10000

5 lakh – 6.6 lakh – 16000

Tax liability = 26000

(+) Cess = 1040

Total tax liability = 27040

Monthly TDS = 27040/12 = Rs. 2253