DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM

PROJECT TITLE: DEDUCTIONS IN COMPUTING TOTAL INCOME

SUBJECT: TAX LAW 1

NAME OF THE FACULTY: Mr. Vishnu Kumar

NAME OF THE CANDIDATE: C ANAND HITESH

ROLL NO. : 2016027
SEMESTER: VI

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 ACKNOWLEDGMENT

Firstly, I am, highly grateful to Mr. Vishnu Kumar of Damodaram Sanjivayya National Law
University, for his support and guidance throughout this project. We acknowledge with
deepest sense of gratitude and his guidance and support throughout the course of this project.

Secondly, I would also like to thank all information providers without whom this project
would have been incomplete.

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ABSTRACT

There are 3 common income tax deductions available to individuals in the Income Tax Act,
1961 and they can all be claimed simultaneously (alongside each other, in the same financial
year). They are:

Deduction for tax-saver fixed deposits: (FD), PPF, NPS, NSC, Insurance Premium,
Tuition Fees or ELSS Funds. Whatever you earn in any previous year are grossly added under
the five different heads of income as specified under section 14 of the Income-tax Act, 1961
which results the Gross Total Income (GTI) for the purposes of charge of income-tax. However,
GTI as defined u/s 80B (5) is not the income on which tax is to be paid by taxpayer in the
assessment year and therefore for computation of actual taxable income of an assessee certain
general deductions are allowed which are covered by Chapter VIA of the Income Tax Act. The
list of all deductions available to different categories of taxpayers for different categories of
incomes as per Income-tax Act, 1961 amended by the Finance Act, 2016. As per section 80A, in
computing the total income of an assessee, the deductions specified in sections 80C to 80U under
Chapter VIA shall be allowed from his gross total income.

Gross  total  income  of  the  assessee  is  not  the  income  on  which  tax  is  to  be  paid. 
From  gross  total  income  certain  general  deductions  are  allowed  which  are  covered  by 
Chapter  VIA  of the  Income  Tax  Act.  Chapter  VIA  covers  section  80  and  these 
deductions  are  covered  by  Section 80  C to 80 U 

1. 80 C  :   Life Insurance premium deferred annuity  contribution  to  provident  fund,               

subscription  to  certain  equity  shares  or  debentures  etc. 
2. 80 D  : Medical Insurance Premium.
3. 80 DD      : Medical Treatment of Handicapped  dependent.
4. 80 DDB   : Deduction  in  respect  of  medical  treatment  etc.
5. 80 E         : Interest on loan taken for  higher  education.
6. 80 U        : Deduction to physically  handicapped

The researcher will further go in detail to know the deductions in computing the total income
specified in each section.

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TABLE OF CONTENTS

S.No. CONTENT Page No.

1. Acknowledgment 2
2. Abstract 3
3. Objective of the study 5
4. Significance of the study 5
5. Scope of the study 5
6. Review of literature 5
7. Research methodology 5
8. Introduction 6
9. What is Tax Deduction and Benefits of Tax deduction 7
10. Basic rules governing deductions under sections 80C to 80U 10
11. Tax deductions under section 80C along with case laws 12
12. Tax deductions under section 80D along with case laws 16
13. A brief on Tax deductions from Section 80E to 80U 20
14. Conclusion 25

OBJECTIVES OF THE PROJECT

The main objective of the project is to know whether what all deductions have been specified
under the sections 80C to 80U and are allowed to certain categories of taxpayers.

SIGNIFICANCE OF THE PROJECT

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The significance of the project is to make the readers aware about the deductions that are
available under sections 80C to 80U and also to let them know the purpose of these
deductions.

SCOPE OF THE STUDY

The Project is limited to the sections 80C to 80U which specifically deal with deductions that
are available from gross total income. This explains the basis of allowance and calculations
of these deductions.

REVIEW OF LITERATURE

The researcher had taken the information from the articles, Websites and books, which
provided a lot of help for completion of the project. The information in the articles and
websites have been cited properly.

RESEARCH METHODOLOGY

Research methodology used was doctrinal methodology. Doctrinal methodology includes

doing research from books, articles, journal, case study, newspapers and also taking the help
of web article and pdf.

HYPOTHESIS

Deductions is income tax are a great advantage to the taxpayers as they can claim deductions
under the preferable sections and reduce the amount of tax to be paid. There are few cases
where under such deductions there are taxpayers who are not eligible for the claim,
manipulate and try to get their deductions from paying the tax. Income tax department is
efficient enough to decode the actual eligible taxpayers who can claim the deductions.

INTRODUCTION

Deductions available under sections 80C to 80U are of special nature and are allowed to
certain specified categories of tax payers. Deductions under sections 80C to 80GGC are in
relation to various investments and payments, whereas sections 80-IA to 80U cover
deduction in respect of certain income. The purpose of these deductions is to encourage

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savings, industrialisation and to assist the taxpayers in meeting their essential expenditures.
These deductions have to be made from the gross total income in order to arrive at net
income. This paper explains the basis of allowance and calculation of these deductions.
“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. Taxes are an integral component in our country, with them accounting
for a major portion of the income earned by the government, income which is utilised to
provide certain basic provisions to citizens. Individuals who earn more than a certain amount
are expected to pay taxes, as per the existing tax slabs. While these taxes can be harsh on the
bank balance of a taxpayer, the government also provides certain provisions wherein one can
save tax. Tax deductions can help one reduce the taxable income, lowering their overall tax
liability and thereby helping them save on taxes. The deduction one is eligible for depends on
a number of factors, with different limits set for different purposes.

WHAT IS TAX DEDUCTION?

Tax deduction helps in reducing your taxable income. It decreases your overall tax liabilities
and helps you save tax. However, depending on the type of tax deduction you claim, the
amount of deduction varies. You can claim tax deduction for amounts spent in tuition fees,
medical expenses and charitable contributions. Also, you can invest in various schemes such
as life insurance plans, retirement savings schemes, and national savings schemes etc. to get
tax deductions. The government of India offers tax exemptions for various expenses incurred
in different activities to encourage individuals and commercial institutions take part in
activities having social benefits.

A number of day-to-day expenditures qualify for deductions, with information about them
being crucial to help us save money. Tax deduction can be claimed on money spent for
education, medical expenses, charitable contributions, investments in insurance, retirement

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 schemes, etc. These deductions have been put in place to encourage members of the society
to participate in certain useful activities, helping everyone involved in the process.

BENEFITS OF TAX DEDUCTIONS:

There are a number of benefits associated with tax deduction which include:

 Tax deductions help you reduce an amount from your taxable income and save tax.
When you claim an income tax deduction, it reduces the amount of your income that is
subject to tax.
 Reduced taxable income helps you save and invest money in other areas.
 Tax deduction first reduces the income subject to the highest tax brackets. So, you can
claim deduction for the amounts spent in tuition fees, medical expenses, and charitable
contributions.
Income tax return is mandatory and you cannot completely avoid paying tax. But with proper
planning, you can reduce your taxable income.

Most of us are aware of the concept of deductions from gross total income available to a
taxpayer. These deductions are available under different sections of the Income Tax Act,
1961. One can claim deductions from one's gross total income by investing in avenues
specified by the government. The most popular deduction that comes to mind is section 80C.

19 Types of Tax Deductions in India

You can reduce your taxable income by increasing your deductions. There are many
investment options and forms of expenditure which can help you get reductions on your
taxable income. The Indian Income Tax Act provides many provisions for this. Mentioned
below are a number of different tax deduction options.

1. Public Provident Fund (PPF):

By contributing to your PPF account, you can get tax deduction under Section 80C, the
Indian Income Tax Act, 1961.

2. Life Insurance Premiums:

You can get income tax deduction for paying premium towards life insurance policies for
self, spouse and child under section 80C of the Indian Income Tax Act, 1961. The amount
received on maturity of the policy is free from tax. However, it is subject to the terms and
conditions mentioned in your policy.

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3. National Saving Certificate (NSC):
The amount invested in NSC is eligible for tax deduction under section 80C of the Indian
Income Tax Act, 1961. National Saving Certificates is one of the highly secured modes of
investments in India. But, the interest earned from NSC is taxable. As an NSC is a
cumulative scheme, interest is reinvested and qualifies for tax deduction.

4. Bank Fixed Deposits (FDs):

You can get tax deduction by investing in fixed deposits for a tenure of 5 years, under
section 80C of the Indian Income Tax Act, 1961. Many banks in India offer tax saving
fixed deposits. However, the interest accrued on FDs is subject to tax

5. Senior Citizen Savings Scheme (SCSS):

Senior citizens can get tax deduction by investing in Senior Citizen Savings Scheme
offered by banks. These schemes are eligible for tax deduction under Section 80C of the
same act. The interest earned from these schemes is entirely taxable.

6. Post Office Time Deposit (POTD):

Investing in a five-year POTD, you can get tax deduction under Section 80C. However,
interest accrued on the same is fully taxable.

7. Unit-linked Insurance Plans (ULIP):

Investing in ULIPs for yourself, spouse and your children, you can get tax deductions
under Section 80C.

8. Home Loan EMIs:

Equated monthly instalments paid to repay the principal amount of your home loan are
eligible for income tax deductions under section 80C of the same act.

9. Mutual Funds & ELSS:

Investing in mutual funds and equity-linked savings scheme, you are eligible for tax
deductions under section 80C, the Indian Income Tax Act, 1961.

10. Stamp Duty and Registration Charges for a Home:

Stamp duty and registration fee paid for transferring property are entitled for income tax
deduction under section 80C, the Indian Income Tax Act, 1961.

11. Retirement Savings Plan:

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 You can also get income tax deductions by investing in retirement plans offered by LIC or
other insurance providers. Contribution to the National Pension Scheme is also eligible for
tax deduction.

12. Tuition Fees:

Tuition fee paid for your children’s education qualifies for income tax deduction under
section 80C. However, the fee needs to be paid for full-time education in an Indian
university, college and school for any two children. Tuition fee does not include any
donations or development fee towards education institutions.

13. Medical Insurance Premiums:

Health insurance premium paid for self, spouse and children qualifies for income tax
deduction under section 80D of the Indian income Tax Act, 1961. The deduction allowed
under this section is Rs. 25,000 for youngsters and Rs. 30,000 for senior citizens.

14. Infrastructure Bonds:

Investing in infrastructure bonds, you become eligible for income tax deductions under
section 80CCF of the Indian Income Tax Act.

15. Charitable Contribution:

Donating for charitable tasks will help you reduce your taxable income under section 80G
of the Indian Income Tax Act, 1961. However, make sure that you declare the whole
contribution before 31st December each year.

16. Treatment of Disabled Dependents:

Under section 80DD of the Indian Income Tax Act, 1961, you can get income tax
deductions for medical expense incurred in the treatment of any disabled dependent of
yours.

17. Deduction for Preventive Health Check-ups:

An amount of Rs.5000 spent for preventive health check-ups of an individual or his/her
family members qualifies for tax deduction under section 80D of the Indian Income Tax
Act, 1961.

18. Interest Paid on Education Loan:

You can get tax deduction on the interest paid for an educational loan under section 80E of
the Indian Income Tax Act, 1961. The loan can be taken to pursue higher education by the

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 employee, or for his/her spouse, children or a student to whom the employee is a legal
guardian.

19. Deduction on House Rent Paid:

An employee can get income tax deduction for the house rent paid, if the employee or
his/her spouse does not own residential accommodation at the place of employment. This
deduction is usually applicable for salaried taxpayers under section 80GG of the Indian
Income Tax Act, 1961

BASIC RULES GOVERNING DEDUCTIONS UNDER SECTIONS 80C TO 80U

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.

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.

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.

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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.

Patel Engineering Ltd. vs. The Dy. Commissioner of Income Tax, CC-3(4) (14.02.2018 -
ITAT Mumbai)

Facts:

The assessee was a public limited company engaged in the business of executing civil
engineering projects such as dams, bridges, rail project, tunnels, water supply projects,
irrigation projects, hydel power projects, etc. The return of income was filed. The case had
been selected for scrutiny and notices was issued and duly served upon to the assessee. The
assessment was completed, determining the total income, inter alia making the additions/
disallowances. Aggrieved, by the assessment order, the assessee preferred an appeal before
the Commissioner. Before the Commissioner, the assessee had filed elaborated written
submissions in respect of additions made by the AO towards disallowance of deduction
claimed under Section 80IA(4) of Act along with various supporting evidences including
copies of agreement entered into with authorities for development of infrastructure facility.
The Commissioner confirmed disallowance of deduction claimed under Section 80IA of Act.
Hence, present appeal.

Held:

Entitled to deduction: (i) To be qualified for claiming deduction under Section 80IA of the
Act, the assessee should be a developer of infrastructure facility whether on its own or on
behalf of third party principles, but if such activity is in the nature of developing an
infrastructure facility within the meaning of Section 80IA of Act, then the assessee is eligible
for deduction towards profits and gains of undertakings which carried out development of
infrastructure facility. In this case, all the projects developed by the assessee including on-
going projects and new projects on which the development had been commenced during the
year under consideration are all related to developing an infrastructure facility for water
supply schemes and hydroelectric power generation, which were in the nature of
infrastructure facilities as defined under Section 80IA(4) of the Act. The scope and nature of
work and terms of contract clearly establishes an undisputed fact that the assessee was a

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 developer of infrastructure facility which would entails the assessee deduction under Section
80IA(4) of the Act. Hence, the AO had erred in denying deduction claimed under Section
80IA(4) of the Income Tax, 1961. The Commissioner, though in principle accepted the fact
that the nature of works undertaken by the assessee in respect of three new projects were
similar to the nature of works undertaken by the assessee in respect of projects already
considered by the Tribunal, denied the deduction claimed under Section 80IA of the Act, by
holding that the assessee was merely a works contractor executing works for development of
infrastructure facility. Hence, reverse the findings of the Commissioner in respect of three
new projects and direct the AO to allow deduction claimed under Section 80IA(4) of the Act,
in respect of all projects.

TAX DEDUCTIONS UNDER SECTION 80C:

Section 80C of the Income Tax Act provides provisions for tax deductions on a number of
payments, with both individuals and Hindu Undivided Families eligible for these deductions.
Eligible taxpayers can claim deductions to the tune of Rs 1.5 lakh per year under Section
80C, with this amount being a combination of deductions available under Sections 80 C, 80
CCC and 80 CCD.

Some of the popular investments which are eligible for this tax deduction are mentioned
below.

 Payment made towards life insurance policies (for self, spouse or children)
 Payment made towards a superannuation/provident fund
 Tuition fees paid to educate a maximum of two children
 Payments made towards construction or purchase of a residential property
 Payments issued towards a fixed deposit with a minimum tenure of 5 years
This section provides for a number of additional deductions like investment in mutual funds,
senior citizens saving schemes, purchase of NABARD bonds, etc.

Who can claim deduction under section 80C- Deduction under section 80C is available only
to an individual or a Hindu undivided family. Deduction is available on the basis of specified
qualifying investments/ contributions/ deposits/ payments made by the taxpayer during the
previous year. Such investment, deposit, etc can be made out of taxable income or otherwise.
The complete list of such investment. It is available in actual payment basis. For instance if
insurance premium becomes due on March 24, 2013 and actually paid on April 1, 2013 such
premium is qualified for deduction under section 80C for the previous year 2013-14.

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Maximum amount that can be deducted from under section 80C is Rs. 1,00,000.

Prabhat Gupta vs. ITO,  MANU/IU/0134/2018

Facts:

The assessee filed his return of income. The return was processed under Section 143(1) of the
I.T. Act. Thereafter, an information was received from DGIT(Inv.), in which it was conveyed
that the assessee has taken the accommodation entries from various parties without any actual
dealing, the assessee received the accommodation entries from the parties. The statement of
above mentioned parties were recorded by the Sales Tax Department in which they admitted
that they were providing accommodation entries to the assessee. The facts speaks that there
was an inflation of expenditure resulting in escapement of income in the case of assessee.
Thereafter, the notice under Section 148 of the Act was issued and served upon the assessee.
In pursuance of notice, the assessee filed the return of income which he had already filed
earlier. Thereafter, notices were issued and served upon the assessee. The reason of reopening
was communicated. The assessee was engaged in the business of Trading of TMT Bars, Steel
Etc. During the year under consideration, the assessee had declared the profit speculation
profit and donation. The assessee had declared income from other sources after availing
deduction under Section 80CCF and 80C of Act. The assessee showed the gross profit and
net profit. During the course of assessment proceeding the matter of controversy is in
connection with the reopening of the case and on merits and the Assessee contested the
matter by providing the documents available with him but the Assessing Officer was not
satisfied, therefore, the bogus purchase was added to the income of the assessee. The assessee
filed an appeal before the Commissioner who restricted the claim of the assessee to the extent
of the bogus purchase. Hence, present appeal.

Held:

Validity of reassessment proceedings:(i) The Assessing Officer was not having any
information at that time because the Assessing Officer received the information from
DGIT(Inv.). When the Assessing Officer was not having any information, therefore, it is
strange in which circumstances, the Assessing Officer issued the present notice on the
information received. The personal knowledge of the Assessing Officer could not be the
ground to invoke the proceeding under Section 147/148 of the I.T. Act. Therefore, in the said
circumstances the noticed doesn't seems to be legal. Since the notice was not justifiable and is
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not in accordance with law, therefore, we set aside the notice under Section 147/148 of the
Act.

Goutham Reddy vs. Income Tax Officer MANU/IN/0061/2013

Deduction under section 80C - Allowability LIC premium paid out of loan funds--Assessee
claimed deduction under section 80C of the LIC premium paid by him by taking loan from
his grandfather. AO noticed that the impugned LIC payments were shown as an asset in the
books of account of the proprietary concern of the grandfather of assessee and hence, it could
not be said that assessee had availed loan to pay the LIC premiums. Accordingly, he rejected
the claim of deduction under section 80C. CIT(A) did not accept the claim of assessee that
the LIC premiums were paid by him by taking loan from his grandfather and held that the
object of section 80C is encouragement of thrift and savings by an assessee, meaning thereby
that the contribution should be made out of funds belonging to assessee. On appeal, assessee
submitted that the provisions of section 80C, as applicable to the year under consideration, do
not specify any condition that the contribution towards LIC premiums should be made out of
income chargeable to tax. Revenue submitted that the absence of the words "out of income
chargeable to tax" in the newly introduced provisions of section 80C, which are applicable to
the year under consideration, does not do away the condition that the said payments should be
made out of income chargeable to tax.

Held: The payments relating to LIC premiums were made by assessee's grandfather to
assessee's employer meaning thereby that the grandfather of the assessee has only provided
the funds for making payment of LIC premiums. Accordingly, it could be said that the
assessee had availed loan from his grandfather for making LIC premium payments. Since the
provisions of section 80C, as applicable to the year under consideration, do not specify the
condition that the LIC premium payments should be made out of income chargeable to tax,
therefore, the payments of LIC premiums made during the previous year out of loan funds
were also eligible for deduction under section 80C

Subsections under Section 80C:

Section 80C has an exhaustive list of deductions an individual is eligible for, which have led
to the creation of suitable sub-sections to provide clarity to taxpayers.

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 Section 80 CCC: Section 80 CCC of the Income Tax Act provides scope for tax
deductions on investment in pension funds. These pension funds could be from any insurer
and a maximum deduction of Rs 1.5 lakh can be claimed under it. This deduction can be
claimed only by individual taxpayers.
 Section 80 CCD: Section 80 CCD aims to encourage the habit of savings among
individuals, providing them an incentive for investing in pension schemes which are
notified by the Central Government. Contributions made by an individual and his/her
employer, both are eligible for tax deduction, subject to the deduction being less than 10%
of the salary of the person. Only individual taxpayers are eligible for this deduction.
 Section 80 CCF: Open to both Hindu Undivided Families and Individuals, Section 80
CCF contains provisions for tax deductions on subscription of long-term infrastructure
bonds which have been notified by the government. One can claim a maximum deduction
of Rs 20,000 under this Section.
 Section 80 CCG: Section 80 CCG of the Income Tax Act permits a maximum
deduction of Rs 25,000 per year, with specified individual residents eligible for this
deduction. Investments in equity savings schemes notified by the government are permitted
for deductions, subject to the limit being 50% of the amount invested.
Deductions under 80CCC are available only to an individual. Amount should be paid or
deposited under an annuity plan of the LIC of India or any other insurer for receiving pension.
Amount should be paid or deposited out of income chargeable to tax. The maximum amount
that is deductable under this section is Rs. 1,00,000. If deduction is claimed under section
80CCC and later on pension is received by the assessee, such pension will be taxable in the
hands of recipients in the year of receipt. Likewise, where the assessee or his nominee
surrenders the annuity before maturity date of such annuity the surrender value shall be taxable
in the hands of the assessee or his nominee, as the case maybe in the year of receipt.
Deductions under 80CCD, National Pension Scheme is a retirement benefit scheme. It is
applicable in the case of an employee who joins the Central Government on or after January.
Even a self employed person can join NPS. Employer’s contribution to NPS is taxable as
salary income in the year of contribution. Contribution by the employer to NPS is deductable
in the hands of the concerned employee in the year in which contribution is made. However, no
deduction is available in respect of employer’s contribution, which is in excess of 10% of the
salary of the employee. Employee’s contribution to NPS is deductible in the year in which
contribution is made. However no deduction is available in respect of employee’s contribution,

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which is in excess of 10% of the salary of the employee. Pension out of NPS account will be
taxable in the hands of recipient. If however the amount of pension received from NPS is used
for purchasing an annuity plan in the same previous year, then it will be exempt from tax. For
calculating 10% limit of the above purpose, “salary” includes dearness allowance, if the terms
of employment so provide, but excludes all other allowances and perquisites.

TAX DEDUCTIONS UNDER SECTION 80D:

 Section 80D of the Income Tax Act permits deductions on amounts spent by an individual
towards the premium of a health insurance policy. This includes payment made on behalf of
a spouse, children, parents or self to a Central Government health plan. An amount of Rs
15,000 can be claimed as deduction when paid towards the insurance for spouse, dependent
children or self, while this amount is Rs 30,000 (Union Budget 2017) if the person is over
the age of 60 years.
 On February 1, 2018, Finance Minister Arun Jaitley presented the Union Budget 2018 with a
few changes in the tax deductions applicable for senior citizens. Under Section 80D, income
tax deduction limit for senior citizens has been increased to Rs.50,000 for medical
expenditure.

Both individuals and Hindu Undivided Families are eligible for this deduction, subject to the
payment being made in modes other than cash.

The taxpayer is an individual (maybe resident/ non-resident or Indian citizen/ foreign citizen)
or a Hindu undivided family (maybe resident or non-resident). Mediclaim insurance is paid
by the individual or Hindu undivided family. In the case of individual payment can also be
made to the Central Government Health Scheme and on account of preventive health check-
up. Payment should be made out of income chargeable to tax. Payment should be made by
any mode other than cash. However, payment on account of preventive health check-up can
be made by any mode.

Surya Prakash Bagla vs. DCIT, MANU/IK/0272/2017

Facts:

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The AO pursuant to the search conducted on the assessee and his group, proceeded to process
the search assessments, issued notice under Section 142(1) of the Act, wherein he proposed to
add the cash component of sale consideration of sale of shares. The assessee having arrived at
the conscious conclusion that the capital gains on sale of shares got crystallized pursuant to
final settlement reached between the parties and that the share certificates and share transfer
deeds were duly executed and transferred only on that date, the capital gains on the same
would arise. Admittedly, the assessee had admitted only the cheque portion of share sale
consideration in the original return of income filed. The cash component of share sale
consideration was offered by the assessee in the revised return of income filed, even though
the entire taxes due thereon were paid prior. Admittedly the assessee had offered the cash
component of share sale consideration in the revised return filed under the head income from
other sources. During the course of assessment proceedings, it was pleaded by the assessee
that the said cash component be treated as share sale consideration on sale of shares and
hence the same should only go to increase the sale consideration of shares and consequential
increase in capital gains liability. But this was rejected by the AO. The AO observed that
since the assessee had come forward to offer the cash component of share sale consideration
only in the revised return filed and that the proceedings for the search assessments had been
initiated by issuance of notice, the assessee in order to escape from the taxation at higher rate
and for the purpose of savings on interest and immunity from penalty, had come forward to
offer the cash component of share sale consideration in the revised return. Hence there was
mala fide on the part of the assessee by not offering the same in the original return filed and
accordingly initiated penalty proceedings under Section 271(1)(c) of the Act for the same. On
appeal, the Commissioner confirmed penalty levied by AO. Hence, present appeal.

Held:

Deletion of penalty: (i) The assessee had bona fide doubt and belief as to in which year the
capital gains had to be offered. This confusion gets further strengthened by the act of the AO
by trying to levy capital gains in the search assessments for which show cause notices were
issued by the Ld. AO. Even though the cash component got surfaced only pursuant to the
search, the year of taxability of capital gains was in dispute between the assessee and the
revenue. Moreover, the assessee had offered the entire cash component in the revised return
and the assessment was framed by the AO accepting the same. There was absolutely no
concealment of income or furnishing of inaccurate particulars of income by the assessee, for

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which penalty under Section 271(1)(c) of the Act had been levied by the AO. The revenue
had not made out any case for levying the penalty under Section 271(1)(c) of the Act.

Ravindra N. Sakla vs. Dy. Commissioner of Income Tax,  MANU/IP/0161/2016

Direct Taxation - Confirmation of disallowance - Section 14A of Income Tax Act, 1961 and
Rule 8D of Income Tax Rules, 1962 - Present appeal filed against order confirming
disallowance under Section 14A of Act - Whether impugned order confirming disallowance
was justified - Held, trite law that invoking of Rule 8D of Rules to compute disallowance
under Section 14A of Act was neither automatic, nor it could be invoked merely on existence
of exempt income in hands of Assessee - There has to be proximate cause for disallowance
between tax exempt income and expenditure - Burden was on Assessing Officer to prove
nexus between expenditure disallowed and non-taxable receipts under provisions of Section
14A of Act - Investments were made in partnership firms from interest income, remuneration
received from partnership firms and share of profits - Record were placed regarding details of
investment in partnership firm, capital account and loans and borrowings for all three
impugned assessment years - Perusal of same showed that Assessee was having sufficient
own interest free funds for making investments - Appeal allowed.

Facts: Present appeal filed against order of the Commissioner confirming the disallowance
under Section 14A of the Act.

Held:

Confirmation of disallowance: (i) Trite law that invoking of Rule 8D of the Rules to compute
disallowance under Section 14A of the Act was neither automatic, nor it could be invoked
merely on the existence of exempt income in the hands of the Assessee. There has to be
proximate cause for disallowance between tax exempt income and the expenditure. The
burden was on the Assessing Officer to prove the nexus between the expenditure disallowed
and non-taxable receipts under the provisions of Section 14A of the Act.

(ii) The investments were made in the partnership firms from interest income, remuneration
received from the partnership firms and share of profits. Record were placed regarding details
of investment in partnership firm, capital account and loans and borrowings for all the three
impugned assessment years. Perusal of the same showed that the Assessee was having
sufficient own interest free funds for making investments.

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The Principal, H.D. Jain College, Arrah and Ors. vs. Asstt. Commissioner of Income Tax,
MANU/IQ/0003/2016

Direct Taxation - Non deduction of tax - Deduction - Sections 80DD,80U and 201(1) of
Income Tax Act, 1961 - Commissioner treated Assessee as Assessee in default under Section
201 of Act for not deducting tax on claim of deduction by employees under Section 80DD
and 80U of Act - Hence, present appeal - Whether Assessee could be held to be Assessee in
default under Section 201(1) of Act - Held, Assessee had sought legal opinion and legal
adviser had advised Assessee to continue to grant deduction to employees on basis of medical
certificates which were obtained prior to amendment - This belief of Assessee could not be
said to be not bona fide - Thus, Assessee could not be held to be Assessee in default under
Section 201(1) of Act - Appeal allowed.

Facts: A survey was conducted under Section 133A of the Act. The AO in the case of the
assessees in order under Section 201(1)(1A) of Act held that on examination of TDS
certificate, it was found that the deduction under Section 80DD,80F AND 80U of Act were
wrongly allowed. So far as Deduction under Section 80DD and 80U of Act were concerned,
copy of Medical Certificates were not found in the prescribed form. Most of the persons
claimed such deduction were receiving it on the consultant sheet of the Doctor. On the other
hand, the claim of deduction under Section 80G of Act by employees were also not
acceptable as the donations were not made to the trust/institution as specified in Section 80G
of Act. Hence, the deduction should have not been allowed by the DDO while computing
TDS on the employees. Thus, there were short deduction of tax has been made in the case of
some employees. Thereafter the AO made the calculation and computed the amount of short
deduction and interest under Section 201(1A) of Act. On appeal, the Commissioner treated
Assessee as Assessee in default under Section 201 of Act for not deducting tax on claim of
deduction by employees under Section 80DD and 80U of Act. Hence, present appeal.

Held:

Non deduction of tax on deduction by employees: (i) It was undisputed that the assessee
hasdsought a legal opinion and the legal adviser had advised the assessee to continue to grant
deduction to the employees on the basis of existing medical certificates which were obtained
prior to the amendment. This belief of the assessee could not be said to be not bona fide. The
provisions of the Act in this regard could have been interpreted in two ways without
reflecting any mala fide.

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 (ii) Thus, the assessee could be held to be of the bona fide belief that the assessee was not
required to insist upon asking the employees to submit fresh medical certificates.
Accordingly, Assessee could not be held to be assessee in default under Section 201(1) of the
I.T. Act.

Subsections under Section 80D:

Section 80D is further subdivided into two sub-sections, offering clarity on the benefits
available to taxpayers.

 Section 80DD: Section 80DD provides provisions for tax deductions in two cases,
with the permitted deduction being Rs 75,000 for normal disability and Rs 1.25 lakh if it is
a severe disability. This deduction can be claimed in case of the following expenditures.
 On payments made towards the treatment of dependants with disability
 Amount paid as premium to purchase or maintain an insurance policy for such
dependant
The permitted deduction is Rs 75,000 for normal disability and Rs 1.25 lakh for a severe
disability. Both Hindu Undivided Families and resident individuals are eligible for this
deduction. The dependant, in this case can be either a spouse, sibling, parents or children.

 Section 80DDB: Section 80DDB can be utilised by HUFs and resident individuals
and provides provisions for deductions on the expense incurred by an individual/family
towards medical treatment of certain diseases. The permitted deduction is limited to Rs
40,000, which can be increased to Rs 60,000 (Union Budget 2015) if the treatment is for a
senior citizen.The deduction under Section 80DDB for senior citizens and very senior
citizens has been increased to Rs.1 lakh in Union Budget 2018.

Tax Deductions under Section 80E:

Under Section 80E of the Income Tax Act has been designed to ensure that educating oneself
doesn’t become an additional tax burden. Under this provision, taxpayers are eligible for tax
deductions on the interest repayment of a loan taken to pursue higher education. This loan
can be availed either by the taxpayer himself/herself or to sponsor the education of his/her
ward/child. Only individuals are eligible for this deduction, with loans taken from approved
charitable organizations and financial institutions permitted for tax benefits.

Subsections of Section 80E:

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 Section 80EE: Only individual taxpayers are eligible for deductions under Section
80EE, with the interest repayment of a loan taken by them to buy a residential property
qualifying for deductions. The maximum deduction permitted under this section is Rs 3
lakhs.

Tax Deductions under Section 80G:

Section 80G encourages taxpayers to donate to funds and charitable institutions, offering tax
benefits on monetary donations. All assessees are eligible for this deduction, subject to them
providing proof of payment, with the limit of deductions decided based on a few factors.

 100% deductions without any limit: Donations to funds like National Defence
Fund, Prime Minister’s Relief Fund, National Illness Assistance Fund, etc. qualify for
100% deduction on the amount donated.
 100% deduction with qualifying limits: Donations to local authorities, associations
or institutes to promote family planning and development of sports qualify for 100%
deduction, subject to certain qualifying limits.
 50% deduction without qualifying limits: Donations to funds like the PMs Drought
Relief fund, Rajiv Gandhi Foundation, etc. are eligible for 50% deduction.
 50% deduction with qualifying limit: Donations to religious organisations, local
authorities for purposes apart from family planning and other charitable institutes are
eligible for 50% deduction, subject to certain qualifying limits.
The qualifying limit refers to 10% of the gross total income of a taxpayer.

Subsections of Section 80G:

Under Section 80G has been further subdivided into four sections to simplify understanding.

 Section 80GG: Individual taxpayers who do not receive house rent allowance are
eligible for this deduction on the rent paid by them, subject to a maximum deduction
equivalent to 25% of their total income or Rs 2,000 a month. The lower of these options
can be claimed as deduction.
 Section 80GGA: Tax deductions under this section can be availed by all assessees,
subject to them not having any income through profit or gain from a business or profession.
Donations by such members to enhance social/scientific/statistical research or towards the
National Urban Poverty Eradication Fund are eligible for tax benefits.

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 Section 80GGB: Tax deductions under this section can be availed by Indian
Companies only, with the amount donated by them to a political party or electoral trust
qualifying for deductions.
 Section 80GGC: Under this section, funds donated/contributed by an assessee to a
political party or electoral trust are eligible for deduction. Local authorities and artificial
juridical persons are not entitled to the tax deductions available under Section 80GGC.

Tax Deductions under Section 80 IA:

Section 80 IA provides an avenue for all taxpaying assessees to claim tax deduction on the
profits generated through industrial activities. These industrial undertakings can be related to
telecommunication, power generation, industrial parks, SEZs, etc.

The following subsections are related to Section 80-IA

 Section 80 IAB: Section 80 IAB can be used by SEZ developers, who can claim tax
deductions on their profits through development of Special Economic Zones. These SEZs
need to be notified after 1/4/2005 in order for them to be eligible for tax deductions.
 Section 80-IB: Provisions of section 80-IB can be used by all assessees who have
profits from hotels, ships, multiplex theatres, cold storage plants, housing projects,
scientific research and development, convention centres, etc.
 Section 80-IC: Section 80 IC can be used by all assessees who have profits from
states categorised as special. These include Assam, Manipur, Meghalaya, Himachal
Pradesh, Uttaranchal, Arunachal Pradesh, Mizoram, Tripura and Nagaland.
 Section 80-ID: All assessees who have profits or gain from hotels and convention
centres are eligible for deduction under this section, subject to their establishments being
located in certain specified areas.
 Section 80-IE: All assessees who have undertakings in North-East India are eligible
for deductions under this Section, subject to certain conditions.

Tax Deductions under Section 80J:

Section 80J of the Income Tax Act was amended to include two subsections, 80JJA and 80
JJAA

 Section 80 JJA: Section 80 JJA relates to deductions permitted on profits and gains
from assessees who are in the business of processing/treating and collecting bio-degradable
waste to produce biological products like bio-fertilizers, bio-pesticides, bio-gas, etc. All

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 assessees who deal with this are eligible for deductions under this section. Such assessees
can claim deduction equivalent to 100% of their profits for 5 successive assessment years
since the time their business started.
 Section 80 JJAA: Deductions under Section 80 JJAA can be claimed by Indian
companies which have profits from the manufacture of goods in factories. Deductions
equivalent to 30% of the salary of new full time employees for a period of 3 assessment
years can be claimed. A chartered accountant should audit the accounts of such companies
and submit a report showing the returns. Employees who are taken on a contract basis for a
period less than 300 days in the preceding year or those who work in managerial or
administrative posts do not qualify for deductions.

Tax Deduction under Section 80LA:

Deductions under Section 80LA can be availed by Scheduled Banks which have offshore
banking units in Special Economic Zones, entities of International Financial Services Centres
and banks which have been established outside India, in accordance to the laws of a foreign
nation. These assessees are eligible for deductions equivalent to 100% of the income for the
first 5 years, and 50% of income generated through such transactions for the next 5 years,
subject to the rules of the land.

Such entities should have relevant permission, either under the SEBI Act, Banking
Regulation Act or registration under any other relevant law.

Tax Deduction under Section 80P:

Section 80P caters to cooperative societies, offering tax deductions on their income, subject
to certain conditions. 100% deduction is permitted to cooperative societies which have
incomes through cottage industries, fishing, banking, sale of agricultural harvest grown by
members and milk supplied by members to milk cooperative societies.

Cooperative societies which are involved in other forms of business are eligible
for deductions ranging between Rs 50,000 and Rs 1 lakh, depending on the type of work they
are involved in.

Deductions which can be claimed by all cooperative societies are listed below.

 Income which a cooperative society makes by renting out warehouses

 Income derived through interest on money lent to other societies
 Income earned through interest from securities or properties

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Tax Deduction under Section 80QQB:

 Section 80QQB permits tax deductions on royalty earned from sale of books. Only
resident Indian authors are eligible to claim deductions under this section, with the
maximum limit set at Rs 3 lakhs. Royalty on literary, artistic and scientific books are
tax deductible, whereas royalties from textbooks, journals, diaries, etc. do not qualify
for tax benefits. In case of an author getting royalties from abroad, the said amount
should be brought into the country within a specified time period in order to avail tax
benefits.

Tax Deduction under Section 80RRB:

 Section 80RRB offers tax incentives to patent holders, providing tax relief to resident
individuals who receive an income by means of royalty on their patent. Royalty to the
tune of Rs 3 lakhs can be claimed as deductions, subject to the patent being registered
after 31/3/2003. Individuals who receive a royalty from foreign shores need to bring
said amount to the country within a specific time period in order to be eligible for tax
deductions on such royalty.

Tax Deduction under Section 80TTA:

 Deductions under Section 80TTA can be claimed by Hindu Undivided Families and
Individual taxpayers. This section permits deductions to the tune of Rs 10,000 every
year on the interest earned on money invested in bank savings accounts in the
country.

Tax Deduction under Section 80U:

 Tax deductions under Section 80U can be claimed only by resident individual
taxpayers who have disabilities. Individuals who have been certified by relevant
medical authorities to be a Person with Disability can claim a maximum deduction of
Rs 75,000 per year. Individuals who have severe disabilities are entitled to a
maximum deduction of Rs 1.25 lakh, subject to them meeting certain criteria. Some of
the disabilities which classify for tax benefits are autism, mental retardation, cerebral
palsy, etc.

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CONCLUSION

Hence, after this research the researcher finds out that, yes its true that a few taxpayers try
manipulating the IT department and claim deductions for which they are not eligible to claim.
And IT department and the judiciary are capable and efficient enough to decode the
manipulations done by the taxpayers and make them liable. Taxpayers have huge advantages
with the deductions that are available. Especially for the people who get pension etc. and
mediclaim. Every section provides the maximum amount that can be deductable from the tax
that can be paid. Hence, it is clear for those who want to claim for deductions. There can be
several cases where taxpayers try to manipulate and deduct and evade tax payments. But
where the IT department is capable enough to control such mischief.

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