UNIT 11 DEDUCTIONS FROM GROSS TOTAL INCOME

Structure
11.0 11.1 11.2 11.3 ~bjectiv'&:.' ., ~ntroduction Deductions from Gross 'Total Income Deductions to Encourage Savings
11.3.1 Based on Gross Amount of Si~vings I. In respect of Life Insurance Premium ctc. (Sec. 80-C) 11. In respect oflnvestment in Certain New Sharcs (Sec. 80-CC) 11.3.2 Based on Net Savings I . In respect of Dcposit in National Saving Scheme ctc. (Sec. 80-CCA) 11. In Respect of Investment in Equity Linlicd Savings Sclicrnc (Scc. SO-CCU) 11.3.3 Based on Income from Specified Investment (Sec. 80-L)

11.4

Deductions for Certain Personal Expenditure

11.4.1 Medical Treatment (Sw. 80-D) 11.4.2 Maintenance of Handicapped Dependents (Sec. 80-DD) 11.4.3 For Payment of House Rent (Scc. 80-GG)

11.5

Deductions for Encouraging Voluntary Participation in Charitable and Socially Desirable Activities
11.5.1 Contribution to Charitable TrustslAssocintions Societies (Sec. 80-G) 11.5.2. Contribution to Certain Approved Associations (Scc. 80-GGA)

11.6

~ e d u c t i o n s Economic Growth : for

11.6.1 11.6.2 11i6.3 11.6.4 For Setting up New Industrial Units Anywheref (Sec. 80-1) For Setting up New Industrial Units in Backward Areas (Sec. 80-HH) For Setting up Small Scalc Units in Ruiral Arcas (See. 80-HHA) . For Encouragement to Poultry Farming (Sec. 80-JJ) In In In In In In Respect of Respect of Respect of Respect of Respect of Respect of Income from Project Export (Sec. 80-HHB). Income from Export of Goods and Mercandise (Sec. 80-HIW) lncome of Tour Operators and Hotels (See. 80-HHD) Remuneration of Teachers, Professors etc. (Sec. 80-R), Income Earned by Artists, .Authors and Playwrites (Sec. 8a-RR) Income of Certain Technicians Rendering Services Abroad (Sec. 80-RRA)

11.7

Deductions in Respect,of Earnings in Foreign Exchange

11.7.1 11.7.2 11.7.3 11.7.4 11.7.5 11.7.6

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11.8 11.9 11.10 11.11 11.12

Deduction in case of Totally Blind or Physically Handicapped Resident Persons Let Us Sum Up Keys Words Answers to Check Your Progress Terminal QuestionsIExercises

1 1 . OBJECTIVES
After studying this Unit you should be able to : list the deductions available from gross total income; @ calculate the amount of each deduction; and compute the taxable income of an assessee after allowing such deductions.

1 1 INTRODUCTION

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Indian tax laws contain ~ e r t a i c ~ r o v i s i o which,are intended to act as an incentive ns for achieving certain desirable socio-economjc objectives. These proyisions ate contained in Chapter VIA and are in the form of deductions from the Gross Incorne. , By reducing the chargeable income, the$e provisions reduce the taxable liability, increase the post-tax income and thus induce the tax-payers tp act in the desired manner. This Unit is intended to give a broad idea of such deductions.
I .

\~5rssment of Individual

1 2 DEDUCTIONS FROM GROSS TOTAL INCOME

The first step in the computation of income is to work nut the income under the individual heads of income. Computatiorl under each head takes into account the expenditure incidental to earning such income. The aggregate of income under each head is known as "Gross Total Income". Certain deductions which are not necessarily referable to any particular head are allowed out of Gross Total Income to arrive at the Total Income liable to tax. Total income is accordingly computed as under : 1) Income from Salaries 2) Income from House Proporty 3) Profit and Gains of Business and Profession 4) Income from Capital Gains 5) Income from other sources Gross Total Income. Less deduction under Chapter VI-A Total Income
,

(-)

These deductions are discussed in 11.2 to 11.7 below.

11.3 DEDUCTIONS TO ENCOURAGE SAVINGS

These deductions are allowed if the tax-payer makes savings and invests it in specified areas. Some of these are based on gross amount of savings, which means that benefit allowed is not withdrawn when the saved amount is disinvested aftel- the specified period. There are others which give tax benefit only on net savings. Dectuction is allowed when the'saving is depositedlinvested but any withdrawalldisinvestment is treated as income in the year of withdrawal. Thus only the net saving gets tax benefit. Deductioq is also allowed in respect of income from certain investments.

11.3.1 Based on Gross Amount of Savings

I. In respect of Life Insurance Premium etc. (Sec. 80-C)

This section provides for'deduction in respect of the undermentioned payments and contributions : a) Payments in respect of life insurance.premia; b) Payments made to effect or keep in force a contract for deferred annuity; c) Contribution to a Recognized Provident 'Fund; d) Subscriptions to the Public Provident Fund Scheme; . e) Deposits under Post Office Savings Bank (Cumulative Time Deposits) Rules !959; f) Contributions to an Approved Superannuation Fund; ' g) Contributions for participating in the Unit-linked Insurance Plan; h) Subscriptions to National Saving Certificate; i) Deposits with the National Housing Bank; j j Payments in respect of purchase c;r contruction of a residential house. The deduction, however, is admissible subject to the limits of the amount qualifying for the same and certain conditions laid down tin the sections, In case of authers, playwrights, artists, mucian;, actors or sportmcn including athelectes, the limit of amount qualifying for the deduction is Rs. Rs. 60,000 or sums actually paid, whichever is least. In case of other individuals and Hindu Undivided, families this limit is Rs. 40,000.
C

Quantum of deduction : The quantum of deduction in respect of the qualifying amount is :

I

at 100% on the first 6,000

at 50% on the next 6,000 and at 40% on the balance of the qualifying amount.
Switch over to system of Granting Tax Rebate The above mentioned system of granting deduction, on a slab basis is ap'plicable upto the assessment year 1990-91. For Assessment year 1991-92 and onwards there is a switch over to a system of granting tax rebates. Thus under the new provisions the tax liability of the assessee will be computed and a tax rebate of 20 per cent of Lhe qualifying savings would be allowed.

Dntudions lron~Cross Folnl Income

n The maximum tax rebate admissible is Rs. 10,000 generally. However, E case of authors, playwrights, artists, mucians, actors or sportmen the limit is Rs. 14,OC)O.
Conditions for deduction As stated earlier these deductions are available subject to certain conditions. 'These are discussed below : a) For Life Insurance Prernlum: Payments m5de on account of Life Insurance Premium would be eligible for deductiotilrebate if:

i)

the insurance premium is paid in order to effect or keep in force an insurance on the life s f the assessce, hislher Bpouse or child.

ii) the premium paid in excess to 10% of the capital sum assured does not qualify for dcduction. iiij where the tax payer terminates a policy of Life Insurake before paying premium for 2 years, no deduction will be allowed in respect of premium paid in the year in which ttic policy is terminated. Further the arnount of deduction allowed in respect of premium paid in the preceding year will be deemed L o be income of the year in which the policy is terminable. b) Payments for deferred annuities: Any sum paid in order to effect or keep in force, a contract for deferred annuity provided such contract does not contain a provision for an option to be the insured to receive a cash payment in lieu of the payment.of annuity. i) in case of an,individual on his own life or the life of his spouse or child, It is important to note that the restruction in respect of sums paid in excess of 1O0/0 of capital sum assured does not apply to deferred annuity policies. c) Contribution to recognised provided fund: Where the assessee is an employee participating in a rccognised provided fund, his own contribution to the fund shall be deductible upto one-fifth of his salary. 'Salary' for this purpose includes dearness allowance if the terms of employment so provide but it does not Inc1ul;ie' any other allowance or 'Perquisites'. d) SuUscription to the Public Provident Fund Scheme: This scheme was introduced by the Government for the benefit of self-employed persons such as doctors, lawyers ktc. in particular. Under it an individual may subscribe to the fund on his own behalf and also on behalf of a minor ward. The salicnt features of the sclicme are i) An account can be opened at any branch of State Bank of India and its subordiante or at any head Post Office or at some related branches of other nationalised banks. Subscription rngy be of any amount not less than Rs. 100 and not more than Rs. 60,000 in every financial year. Loans from the funds are permitted in or after the third year of opening the account; of an amount up to 25% of the balance to the credit of the assessee iit theend of the 2nd preceding financial year. Interest is charged at 13% and the loan is repayable in 24 months. Withdrawals are also permitted 'every year between the 6th arid 15th year of an amount not'exceeding 50'Y0 of the balance to the credit of the assessce at the end of the 4th year immediately proceding the yegr of bithdrawal or at the end of the preceding year whichever is lower. A-person can continue his account after 15 years with or without fresh subscription for a block p e r i d of 5 years.

ii) iii)

iv)

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v)

Assessment of Individual

e) Deposits in 10 years 07 15 years account under the Post Ofice Savings Bank (Cumulative Time Deposits) Rules 1959: The minimum deposit under this scheme is Rs. I() with multiples of Rs, 5 and the maximum limit is Rs. 1,000 pcr month. A loan up to 50% of,the balance is permitted twice in a period of 10 years. An .inGvidual can make deposit in more than one account e.g. in the name of the wife, children, etc. f) Contribution to an approved superannuation fund by an employee qualifies for deduction. g) Contribution for participating in the Unit linked insurance plan: Any sum paid by an individual as contribution for participation in the Unit Linked Insurance Plan, 1971 of the Unit Trust of India qualifies for deduction. It is important to note, however, that if a member terminates his participation before making contribution for a period of 5 years, no deduction will be alIowed in respect of contribution made in such year. Besides, an aggregate of deduction allowed in respect of contribution to the plan in past years will be included in the total income of the previous year in which he terminates his participation in the plan.
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h) Subscription to National Savings Certificates: This deduction is available to individuals and H.U. Funds subscriptions to NSCs VIII issues carry an interest of 12% per a p u m . i) Deposits with National Housing Bank with effect from the A.Y. 1990-91, any sum paid as subscription to any deposit scheme of the National Housing Bank is also deductable. j) Payments in respect of purchase or construction of a residential houie: This provision has been introduced w.e.f. the assessment year 1988-89 onwards. Any sum paid (up to a maximkm of Rs. 10,000) by an individual or a H U F for the residential house property the construction of which is completed after 31.3.1987, are eligible for deduction, provided such payments are made towards or by way. of : i) any instalment of amount due under any self-financing or other scheme of any development authority or housing board engaged in the construction and sale of house property on ownership basis, or ii) any instalment or part payment of the amount due to any company or cooperative society of which the assessee is a shareholder or member towards the.cost of the house property allotted to him, or iii) re-payment of the amount borrowed by the assessee from a) the Central Government or any State Government, or b) any bank, including a cooperative bank, or c) the Life Insurance Corporation, or d) the National House Bank, or e) any public company formed and 'registered in India with the main object of carrying on the business of providing long-term finance for construction ' or p u ~ h a s e houses in India for residential purpose and approved in this of regard, or f) any, compgny in which the public are substantially interested or any cooperative society, where such company or cooperative society is engaged in the business of financing the construction of houses, or g) the assessee's employer where such employer is a public company or a public sector; company or a University established by law or a college 'affiliated to.such a University or a local authority. iv) Stamp duty,. registration fees and other expenses for the purpgse of transfer of such house property to the assessee.

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There are however, rertai" pajrnents which are not eligible for dedaction. They hclud,e : admission fees, cost of share or initial deposit paid by a shareholder of company or a member of a cooperative society t o become such shareholder o r member, or ii) Cost of the land, except where the consJruction for the purchase of the house property is a composite amount and the cost of land cannot be ascertained separately, or iii) &st of any addition or alteration to or renovation or repair of the house property i)

which is carried out after the house property o r any part thereof has cithcr been occupied by the assessee, o r iv) any expenditure in respect of which deduction is allowablc while computing income from house property uls 24. The house property for which deduction is so claimed must not be transferred by the assessee before a period of 5 years from the possession of the same. I f he docs s o the deduction allowed will be added back as incomc from other sources in the previous year in which the transler takes placc. Look at Illustration 1 and see how amount for deduction uls 80-C is calculated :

Dtductions from Gross Total Income

An individual who has a gross total income of Rs. 1,00,000 makes following payments: 4.000 prcmiuni on a policy of Rs. 30.000 i ) Life Insuri~ncc 24,000 ii) Contribution to Statutory Provident Fund iii) Repaid loan in rcspcct o f residential house constructed in 1988. 15,000 10,000 National Savings Ccrtificntcs VIII Issuc iv) Purclii~~cd Solution i) Thc qualifying amount is restricted i o lO'% of the policy amount ii) ContributiontoP.F. iii) Qualifying amount in respect of such payment is restricted to 10,000 iv) Purchase of N.S.C. VIII Issue 3,000 24,000 10,000 10,000 47,000 -The overall qualifying amount is restricted to 40,000. Hence, only 40.000 will qualify for deduction at thc following rate:
. First 6000 Next 6000 Balance 28,000

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1 OO'YO 50% 40%

6,000
3,000 1 1,200 20,200

The total incomc will be Gross Total income Less deduction uls 80-C

1 .OO,OOO 20,200
79,800

N.B.-The abovc position is upplicahlc to asscssnients u p to the assessment ycar 19Y0-91. With effect from. assessment year 1991-92, there will be ,no deduction .in respect tif suchpayments nncl thctax will bc worked out on the totdi income (without iiny dcdu,ction for such payments). T h e lax so workcd out will be reduced y 20% of thc overall qualifying amount which has bcen raised to Rs. 50,000 and the balance iimount will be thc net tax puynblc. In thc abovc example, tax will be worked out on 1,OO.OOO which for 1091-02 will be Rs. 27.hOO. ,Out of this. 20'%, of Rs. 47,000, i.e. 11s. 0,400 will be dcductcd Icaving 13s. IS.20() (plus,surcliargc) as tux-payable.
11. In Respect of Investment in Certain New Eligible Shares (Sec. 80-CC)

1)

~ e d u c t i o equal t o SO0/0 of the total invcs~riicntis nllowcd in respect of~i i) equity shares forming part of any eligible issue of capital and ii) Units o f Unit Trust of India o r any bthcr Mutual Fund Issued under a Scheme in which thc amount of subscription is used for subscribing only thc equity shares of the type referred in (i) above.

2) 'Eligible issue of Capital mcniis o n issuc wllicll satisfies I'ollowing conditions i) It is made by a company formed and registered in India which is engaged in construction o r m2nufacturing of articles (not being non-priority articles in eleventh schedule) o r providing long-term finance for residential houses o r a hospital or a hotel o r operation of ships. ii) T h e issue is made by the company for the first time. his condition does not apply in the case of issues made by shipping companies.)
I

hswssmcnt of Individual

ii'i) The issue is offered for subscripiion hetore 1.4.IY90. The qualifying ilmourlt for such dcduction is restricted to Rs. 20,0OO'i1nd the 3) ariyount of deduction at the rate of .SO'%,is thus restricted to Rs. Io;O()o.
up N.B.--The above position is i~pplicable to assessment year 1990-91 only. With effect from the assessment year 1991-92, the system of deduction from Gross Total Income will bc rcplaccd hy dcduction from the tax chargcahlc (in incomc computed before aliowitlg such deduction, The qualifying amount of deduction will he Rs. 25,000 and the dcduction from tax will bc allowed of an amount calculated at 20% thereof. This n~ciuls that the credit in tax on this account will be restricted to Rs. 50,000.

For assessment year 1991-92, thc issuc will hc considcrcd ils an cligihlc issuc if 1'3'30 offered for subscription before 1.4.1941 (in place of 1 .-I. for earlier assessment years-Please rcfcr to condition in para 7-(iii\\
Check Your ProgsesS A a) An individual purchased a life insurance policy for Rs. 1.00,OOO maturing after 5 years. Annual premium peyahlc is Rs. 20.000.

i) What will be the qualifying amourrt of deduction available for the assessment year 1990-91 ? Rs. ii) What will be relief for assessment ycar 1991-92. prcsunling hc hiis not made any other saving'? ' Rs.
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b) An individual paid a premium of Rs. 3,000 on a life policy of Ms. 1 ,(K),l)OO and contributed Rs. 24,000 towards a Recognised Provident Fund. Hc purchased Natio'nal sdvings Certjficates VlII issue of Rs. 10,000 and subscribed Rs. 12,000 to the Home Loan Scheme of National Housing Bank* What will he the Rs. deduction adlnissible for the asscssmcnt',cnr 1900-9I ?

c) An individual, a government employee completed construction of a residential. property in. April, 1988. I-Ie had taken a housc building advance of Rs. 2,50,000 for from the Governrtle~lt which a deduction of Ks. 2000 per munth is being maclc from his salary. What will the total income for the assessment year iYY0-91 if the Rs. gross total income from all sources is Rs. Oi).000. ,
d) An individual whosc gross total income is Rs. 7X.000 purchnscd 'Can XOCC UNITS (Units of Canara Bank, the proceeds of which is required to bc invcsted in new eligible issues only) pf the value of Rs. 25,000, Hc contributed Rs. 200 per month.to the Public Provident Fund.

'Find o-uThis total income for tbc year 1990-91.

11.3.2 qased on Npt Savbgs I. In Respect of Deposits in National Saving Scheme etc. (See. 80-C'C'A).
Deduction is allowed in full in respect of the following depositslpayments in the ycar of such deposits/payment: i) deposit in accordance with the notified National avings'~chcmc. ii) payment towards a notified annuity plan of the, Life Insurance Corporation of India. (So far the 'Jiwan Dhara' and 'Jiwan Akshy' plan of the LIC has been notified .) The qualifying amount for such deduction is For assessment year 1988-89 actual or Rs. 20.000 whichcvcr is lcss For assessment year 1989-90 For assessment year.'1990-91 For assessment year 1991-92 and subsequent years -do-do-doRs. 30,0()0 Rs. 30,000
-do-do-do-

Rs. 40.000

The interest accrued on the deposits shall not be chargeable to tax from year to year.
Whenever any amount in respcct of which hcduction was allowed in thc vcar of deposit is withdrawn, the amounts together with interest withdrawn by tlze is is treated as the income of the tax-payer of the year in which Gifhdrawi~l mildc ilnd , charged to tnx along with othcr incomc at thc normal rate i~pplicahlctr) I ~ i m .If, however, the tax-payer dies without making ttie withdrawal and the withdrawal id

10
i

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made by his legal representatives, the withdrawal having not been made by the tax-payer himself will not be charged to tax. With effect from the assessment year 1991-92 if the deposit was made by the HUF and the HUF is partitioned, the individual member who makes the withdrawal will be taxed in respect of the amount withdrawn by him. The same rules are applicable when the amount'of annuity is received frorn the LIC under a policy in respect of which deduction was allowed when payment was made by the tax-paycr.
11. In Respect of Investment in Equity Linked Savings Scheme (Sec. 80-CCB)

[kductiorrp from C C M ~T O I ~

Where an individual or a tdUF acquires Units of Unit Trust of India or any other recognised mutual fund under any plan which is fornlulated under the notified equity linked saving scheme. he shall be entitied to full deduction in respect of such investment subject to the maximum of Ms. 10,000. As in the case of deposit under National Savings Scheme, whenever any such investment is returned to the assessee in whole or in part either by way of repurchase of the unit or on termination of thc plan in any previous ycar, the entire amount (including the accretion) received back will be charged to tax as the income of the previous ycar in which it is received. . If in the meantime, a partition is made in the HUF or dissol.ution takes place in the. AOP (Association of Persons) which initially made the investment, the return of investment will be taxable in the hnncls of the. person who takes it.

11.3.3 Based on Income from Specified Investments (Sec. SO-L)

Deductions, subject to the monetary limit specified in para 2 below is allowed in respect of following investment income Interest on any security of Central Government or State Government. i) 1ntercst.on notified debentures issuctl by certain authorities. Interest on National Savings Certificate Vl and VII Issues. of Iv) Intercst on deposits under any notified Sche~nc the Central Ciovernemnt. v) Interest on deposits under Post Office ( Monthly Income Account) Rules, 1987, vi) Interest on deposits with Banking companics including co-operative banks. vii) Interest on deposits with financial institutions providing long-term finance for industrial developrnent approved for the purpose of Section 36(l)(viii). viii) Interest on deposits with authority constituted for satisfying the housing needs etc.
ii) iii)
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ix)
x)

Interest on deposits with co-operative societies. Dividend on shares of co-operative scjcietics.

Interest on deposits with or dividend from shares of a public company providing long-term financc for construction or purchase of residential housw and which is approved for the purposes of Section 36(1 )(viii). xii) lnco~nc from Units of rccogniscrl Mului~lFunrls. xiii) Income from Units of Unit Trust of India. xiv) Interest on deposits under National Deposits Scheme framed and notified by '; .the Central C;ovcrnmcnt. . xv) Dividend on shares of Indian companics. The deduction is limited in the aggregate to Rs. 7,000. However, if the Gross Total Income includes Items (xi), (xii) and (xiv) an additional deduction can be allowed in respect of these amounts to the extent deduction in respect of such inconie is not fully allowcd within the limit of Rs. 7000. Such additional deduction will not exceed Rs. 3000. Further if deduction in respect b f income from interest on deposits under NatiorYal Deposit Scheine and dividend from shares of Indian companies is not fully allnwed f within the abovc limits o Rs. 7000 and Rs. 3000 a further additional deduction can hc allowed to the dxtcnt ol'uni\llowcd position. This further additional deduction wilr not exceed Rs. 3000.

xi)

A.s.wsmeni of Individual

l'lle net cf.t'cctis of Rs. 13.000.

lllnl

ly \\it11 p ~ . ~ p c rplannccl invcslmcnt, one can gct

total deduction

Illustration 2 1 ) lntercst on N;~licjnal Savings Ccrtific;rtc V1 Issuc with I3a11k\ 2 ) lritercst on clcposir~ 3 ) Interest on deposit with Housing Socicty [Item (xi)] 4) Income from Mutual Fund i sho~,csj f Inilia11compilnic\ 5) Dividcnd fro111

...

... ...

. .. ...

Rs. Rs. Rs. Rs. Rh.

4.000 2.000 2.000

500

4.000

Rs. 12.500

Solution Following deduction will hc allowccl : i) Overall general deduction ii) Additional deduction for 3 &)3to the extent not met (2500-1000)* iii) Further additional deduction for S i.c. dividend to the cxtcnt not met or Rs. 3,000 whichevcr is less
I
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...

Rs. 7,000
Rh.

...

1.500

...

Rs. 3,000 Rs. 1 1 .SO0

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, in Note: Deduction of Rs. 1,000 in respect of' 3 & 4 hns';llrcacly hcen'incluc~c~l Rs. 7,000.

Check Your Progress B a) A Professor having Gross Total Income of Rs. 80,001) has kept his saving made out of this income in following: 1) .Paid Life Insurance Premium . .. Rs. 5,000 2) Repaid loan for construction of property ... Rs. 15,000 (completed in Junk 1987) 3) Contributed to Recognised Provident Fund 10% of ... Rs. 6,000 salary . . . Its. [),OOO 4) Deposited under the National Saving Scheme Find out the total income for 1990-91. Schcmc b) A person deposited Rs. 20.(M)O on 30.3.1988 under thc Nationill S ~ ~ v i n g and got deduction in thc y'ear 1988-89. WhaI will he the' Iilx tycntmcnt il'
i) he withdraws Rs. 10,000 in June 1992 when the balance in the account including interest and further deposit is Rs. 32.000.

ii) he dies in Septcmhcr 1990 unrl the h;~l;~ncc 11iceccount i s williclraii~nhy his in son in June, 1992,; c) An individual's gross tbtal inconic of Rs. 50.000 includcs .. . Rs. 3,000 with Hank i) Interest from fixed dcposi~ ... Rs. 3,000 ii) Interest from National Saving Certificates VI issuc . .. Rs. 2,000 iii) Interest from Tata Chemicals . . . Rs. 3,000 v) Dividcnd from Indian C<)rnpanics ... Rs. 5,000 v) I y o m e from UTI Is any deduction admissihlrlo him? Wliat will he his total illcomc I ' c r ~ I()')()-91 :'
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11.4 DEDUCTIONS FOR CERTAIN PERSONAL EXPENDITURE

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.I2
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Under Section 80-D, 86-DD and 80-GG'of IT Act 1961 some deductions are allowed in respect of personal expenditure. Let us now discuss these three ' sections one by one. ,

11.4.1 For Medical Tkeatment (Sec. 80-D)

beduction is allowed in respect of any sum paid out of chargeable income by cheque towards an insurance policy taken on the health of the assessee or his wifelhusband o r dependent parents or dependent children. The deduction is subject to a maximum amount of Rs. 3,000, provided the scheme for insurance is framed by GIC and approved by Central government under Section 80-D the .Income Tax Act 1961.

Dcductiocrc from Gross Told Income

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11.4.2 Maintenance of Handicapped Dependents (Sec. 80-DD)

Deduction is allowed to a resident individual in rcspcct of expenditure incurred for 11lcdical trcat~iicnt(including nursing), training and rchahilitntion of a lianclic;~ppcd relative who is dependent upon him and is not dependent on any other person for support or maintenance. A handicapped rclativc means n relative who is suffering from pcrmnncnt physical' elisability (inclucling l>lintlncss)or who is subject t(\ rncntal retardation. They should he of the nature specified in I.T. Rules and should be certified as such hy a p1iysici;rn. a surgeon. an oculist o;a psychiatrist working in a gc;vcrn~iic~it hospital. Further. i t SIIOLIICI II~IVL'. tllc effect of reducing considcrablysuch persons capacity for normal work or engaging i n gainful employment or occupation. The dccluciion will he allowccl of a fixccl su~ii Ks. 0,000. This deduction is of irrespective of actual expenditure. it applies from tlic asscssnicnt year I99 1-93. Deduction is not admissible in cases where thc total income before ticduction under this section cxcccds Ks. I lakh.

11.4.3 For Payment of House Rent (Sec. 80-GG)

Deduction is allowccl to an asscsscc in rcspcct of paymcnt of rent of the premises occupiccl hy him for his own rcsiclcncc. This clccluction is permissible of an amount by which the rent paid exceeds IO'X of the total income. deduction Thus, if total incomc is Rs. 50,000 and rcnl paid is Rs. 7,000, pcr~nissiblc will be 7.000- 10'%,of 50.000. i.c. Rs. 2.000. But eve11 the amount c;rlculatcd as ahovc is restricted to i ) Rs. IOM) per month or ii) 25'%, of total inconic wliichcvcr is less.

Thus, in the above case if the rent paid was Rs. 20,000, the excess over 10% of iota1 incomc.would have bee11 Rs. 15,000 which would have been furthir restricted to Rs. 1,000 per montli. i .c. Rs. 12.000. This dcducliop is not allowable to an employee getting house rent allowance from his qnploycr. the exemption in rcspcct o f which is governed by the provisions of Section lO(l3A). Total income for this purpose means thc gross total'incomc reduced by all the deductions under this Scction,
Check Your Progress C
IS Indicatc whether any dcduct~on admissihlc. Also quantify thc amount of deduction : , a) 1) An expenditure to mcet cost of children's education

2) An cxpenditi~rcto mcbt cost of mcdicql trcatnicnt 3) Premium paid for life insurance on the life of i) Self ii) WifcIHusband iii)' Minor Son iv) Dependent Mother

3) Premium in respect of Acdical insurance on the. hc;~lthof i) , Self ii) WifeIHusband iii) Dcpendent Son

Akses$menl ot Individual

iv) Independent Son v) Deperident Fathcr vi) Dependent Sister 5) Sum spent on treatment of i) handicapped dependent sistcr . ii) handicappetl dcpc~idc~it sister-in-law 6) Sum spent for purchase of books required for employment 7) i) Rent paid for a house belonging to wife ii) Rs. (j,()OI) pilid 2s rent by one wllosc total income is Rs. 75,000 iii) Rent paid for house in respect of which house rent allowance is abmissi;lble.

b) An individual whose gross total inco~nc Rs. 50.000 and who is cntitlctl to is

deduction of Rs. 10.000 under Section 80-C. 80-CC incurred an expenditure of . Rs. 1.500 per month on house-rent. Is he entitled to any deduction. If yes, how much? c) An individual who has a permanently physically handicapped brother tarally dependent upon him incurs an expenditure of Rs. 3,000 on his treatment. i) Is he entitled to any deductiona?If so, what is the amount of ~Icdi~ction? ii) How much deduction he would have got if he had another handieappcd dependent relative and incurred expenditure on the trcat~ncntof both.
-

11.5 DEDUCTIONS F O ENCOURAGING VOLUNTARY ~ PARTICIPATION IN CHARITABLE AND SOCIALLY DESIRABLE ACTIVITIES
The Income Tax Act, 1961 also allows certain deduction for the contribution made,' in the charitable and socially desirable activities. These arc explained in Scction HO-G and 80-GGA.

11.5.1 Contribution to Charitable TrustslAssociations/Societies (Sec. 80-6)

1) Contribution made to following trusts, associations or societies qualify for , deduction i) National Defence Fund ii) Jawaharlal Nehru Memorial Fund iii) Prime Minister's Drought Relief Fund iv) Prime Minister's National Relief Fund v) Prime Minister's Armenia Earthquake Relief Fund vi) National Children's Fund vii) Indira Gandhi Memorial Trust viii) Any other fund or institution to which Section 8 0 : ~ applies ix) Government or any local authority to be utilised for charitable purpose other than promotion of family planning x) Housing authorities mentioned in Section lO(20A) xi) Government or such local authority, institution o r association as arc approved if the payment is for promoting1f;lmily planning xii) For renovation or repairs of such temple, mosque, guardwara, church etc. ' :as are notified to be of historic, archaeological or artistic importancc. 2) The deduction will be 100% of the quhl:fying amount in rcspcct to payments mentioned,in (iv)', (v) and (xi) and 50% of the qualifying amount in respect of the rest.

. 14

3) The qualifying amount will be detc-rmincd as under : i ) If the aggregate of the amount paid is less than Rs. 250, no deduction will be allowed. ii) If.the aggregate of items refcrrcd in items (viii), (ix), (x), (xi) and (xii) exceeds 10% of the Gross Total Income (as reduced by all deductions except this one) the aggregate qualifying amount for these items will be rcstricted to lo%.. . '

4)

Regarding iten1 mentioned in (viii),'i.e., contribution to any other fund or institution to which this section applies, it is necessary that the fund etc. should comply with fbllowing conditions : i) the income o i such fund, institution etc, should be exempt by reason of its charitable other provisions exempting income viz, educational institutions [10(22)], hospitals ctc., [10(22A)], sports associations [10(23)], Kcgimcntal Fund established by Armed Forces [10(23AA)]or other funds mentioned in Section lO(23C); ii) the rules should no$t permit application on transfer of any part of income or asset for any purpose other than charitable purposes; iii) the institution ctc. should not be for the benefit of any pnrticularcomrnunity; iv) the institution etc. should maintain regular accounts of income and expenditure; v) the institution ctc. should be constitictcd either as a public charitable trust or registered under Societies Registration Act or under Section 25 of Indian Companies Act or should be a University established by law or should be any other cducational institution recogniscd by or affiliated to any University or an institution appproved for the purpose of Section 10(23C) or an institution finyiccd by the Government or local authority.

DeduclioN from Crms Total Income

Look at Illustration 3 and see how the amount of deduction u/s 8 0 6 is regulated.
Illustration 3 A person with gross total income of Rs. 80,000 for the assessment'.yenr 1990-91 is entitled to deduction of Rs. 10,000 (under Section 80-C) for life insurance premium following clonations: etc. Further he n ~ a d e i) to National Defence Fund 1,000 ii) to Prime Minister's National Relief Fund 2,000 iii) to a charitable hospital wllosc income isnot to be taxed under Section 1 1 5,000 5,000 iv) to an educational institution whose income isexempt u/s lO(22)

Solution Qualifying Amwnt i) National Defence Fund ii) Prime Minister's National Relief Fund iii) charitable hospital and iv) educational institution 10% of (80,000-10,000)

1,000 2,000 7,000 70,000

Dedbction

10,000 500 2.000 3,500

i) 50% or 1,000 ii) 100% or 2,000 . iii) & iv) 50% of 7,000

6,000 80,000 10,000 70,OO 6,000

Total Income

Gross Total Income Less deduction u/s 80-C

Less deduction u/s 80-G

64,000

Assessment of Individual

11.5.2 Contribution to Certain Approved Institutions (Sec. -80-GGA)

1) Dcduction is allowcd in rcspcct ofa) Contribution to an approved scientific research association or to an approved University, College or other Institution to be used for scientific research. b) Contribution to an association or institution having the object of undertaking an approved programme of rural development. c) Contribution to an approved association or institution having the object of undertaking an approved programme of conservation of natural resources or afforestation. d) Contribution to notified fund for afforestation. e) Contribution to notified Rural Development Fund. f) Contribution to an association or institution which has as its object the training of persons for implementing programmes of rural development. 2) These deductions are not to be allowed to an assessee deriving income from business or profession. I n his case, these contributions are allowed in thc computation of the business income.

Check Your Progress D a) How much deduction is admissible uls 80-G in each case to a salaried employee presuming that no other donation is made and the total income before such deduction is Rs. 50,000. Deduction i) Rs. 10,000 to National Defence Fund ii) Rs. 10,000 to Prime Minister's National Relief Fund. iii) Rs. 7,000 to the institution for promotion of family planning iv) Rs. 6,000 for renovation of mosque'notified as of historic importance v) Rs. 200 for Adarsh Vidyalaya whose income is not taxable under Section lO(22) o a) Rs. 2,500 for Cancer Society of India L which Section 80-G applies
b) How much deduction is admissible in resped of the following: i) Rs. 1,000 to an approved University for scientific research ii) Rs. 2,000 to an institution set up'for rural development for carrying out an approved rural development programme approved having been granted in 1982 iii) Rs. 3,000 to Rural Development Fund

...

...
...

Rs. Rs. Rs. Ra. . Rs.

...
...

...

,
Rs.

...

Rs.

...
...

'

Rs. Rs.

What will be the position if theskpayments were made by a doctor having independent private practice?, c) Work out the taxable income for the assessment year 1990-% from ttkc following: 1) Income under the head 'Salary' Rs. 43,000 2) Income under the head 'Other Sources' Rs. 8,000 3) Income under the head 'Other Sources' includes Rs. 3,000 interest from the Bank, Rs. 3,000 income from UTI and Rs., 2,000 interest from Reliance Industries Savings Scheme 4) He deposited Rs. 5,000 under the ~ a t i o n d 5) He contributed Rs. 7W per month to a Statutory Provident Fund 6 ) Donated Rs. 700 to Blind Relief Society to which provisions of Section 80-G , apply.

11.6 DEDUCTIONS FOR ECONOMIC GROWTH

' order to encourage the new industrial units for the overall balanced economic T I growth of the country, the IT Act 1961 allows certain deductions. These deductions are as follows:

Deduclian.: from C:ass

Total Income

11.6.1 For Setting up New Industrial Uniits Anywhere (Sec. 80-1)

1) Deduction is allowed out of income from a new industrial undertaking at the following ratks: i) If the industrial undertaking begins to manufacture or produce articles or operate cold storage prior to 1.4.1990 . . . 2 0 % of the profit ii) If these operations start on o r after 1.4..1990

... 25%

2) These deductions are allowed in the initial year in which the industrial undertaking begins production and the following seven years. In effect, therefore, the deduction is allowed in 8 assessment years. If, however, these operations commence on or after 1.4.1990, the deduction will be allowable for initial years and the following nine years. This means that deduction will be allowed for 10 assessment years. 3) Deduction is allowed only to those undertakings which fulfil all the following conditions: a) the new undertaking is not formed by the splitting up or reconstruction of already existing business; b) it is not formed by transfer to a new business of machinery or plant previously used for any purpose. This condition will not apply in the case of sccond-hand imported machinery which at no time was used in India and in respect of which no depreciation was allowed o r allowable in India. This condition will also not apply if the total value of transferred machinery or plant does not exceed 20% of the total value of machinery or plant used in that business; c) the new undertaking begins operating at any time within a period of fourteen years next following the 31st day of March, 1981; d) the new undertaking, if it is not a small scale industrial undertaking, produces any article other than those mentioned in Eleventh Schedule (Eleventh Schedule consists of non-priority items such as cigarettes, liquor, cosmetics etc.). e) the new undertaking employs ten or more workers if the rnanufiicturing process is carried on with the aid of power and twenty or more workers if the process is carried on without the aid of power.

11.6.2 For Setting up New Industrial Units in Backward Areas (Sec. 80-WW)
1) Deduction is allowed out of profit from an industrial undertaking or hotel set up in any backward area at the rate of 20% of such profit for a period of ten years , beginning with the year in which the industrial undertaking begins manufacture or hotel starts functioning. Backward area means such area which has been notified by the Central Government as backward area having regard to its stage of developmen-t. 2) This deduction applies only to those undertakings which fulfil the following conditions: i) it begins to manufacture or the hotel begins to function after 31st December, 1970;

ii) it is not formed by splitting up o r the reconstruction of a business already in existence in any backward area; iii) it is not formed by the transfer to'a new business of machinery or plant previously; This condition will not apply if the total value of transferred machinery or plant does not exceed 20% of the total value of machinery or plant used in the business;

iv) it employs at least ten workers if the manufacture is with the aid of power and at least twenty workers if the manufacture is without the aid of power:

y) in the case of hotels, they should be approved for the purpose by the Central Government. If the industrial undertaking is also a small scale undertaking set up jn a rural 3) area and has claimed deductiorl under Section 80-HI-IA (to he discussed later in 11.5.3), this deduction will not be allowed.
4) This deduction will not be allowed in respect of undertakings 01. Hotels beginning manufacture (in the case of hotels starting to function) on or after 1st April, 1990. This means that the deduction has been discontinued in respect of undertakingslhotels coming into existence now.
,

11.6.3 For Setting up Small Scale Units in Rural Areas (Sec. 80-HH.4)
1) This deduction is allowed out of profits and gains of new small scale industrial undertaking set up in rural areas. The undertaking should be one which begins to manufacture after 30th September 1977 and which complies with all other conditions which are laid down for the undertakings qualifying for deduction under Section 80-HH (Refer 11.5.2-Para 2).

2) This deduction is also admissible for a period of ten previous years beginning
with fhe previous year in which the industrial undertakings begin to manufacture or produce articles. The amount of deduction is 20%)of the profits or gairis derived from such undertaking. 3) If, however, an undertaking qualifies for deduction under Section 80-HH (applicable to undertakings in backward areas) also and claims deduction under that Section, no deduction will be allowed under this Section. 4) This deduction will not be allowed if the undertaking begins to mhnufacture articles on or after 1st April, 1990.

11.6.4 FO; Encouragement to Poultry Farming (Sec. 80-JJ)

Deduction is allowable out of profit and gains of thc busincss.of poultry farming at the rate of 33'11% thereof. This deduction is allowable for and from the assessment year 1990-91.

11.7 DEDUCTIONS IN RESPECT OF EARNINGS IN FOREIGN EXCHANGE

There are certain deductions which are allowed in order to boost exports and earn foreign exchange. These are explained 111s80-HHB, 80-HHC, SO-HHD, 80-HR, 80-HRR, 80-HRRA.

11.7.1 In Respect of Income from Project Exports (Sec. 80-HHB)

1) This deduction is allowable only to an individual who is resident in India. 2) The deduction is allowable obt of the profits and gains derived from the business ofa) execution of foreign project, or b) execution of any work forming part of a foreign project undertaken by any other person.

In both the cases, the contract should.be with the foreign government or any foreign authority or agency or a foreign enterprise. 3) The aaount'of allowable deduction is 50% of the profits and gains from-the execukton-~f such projectslwork. 4) The de8uction is allowable only if the consideration for execution of,suc@ projectlwork is payable in convertible .foreign exchange.

5) The deduction is allowable subject to the fulfilment of following conditions: a) Separate accounts for,such projectslworks should be maintained and got audited by a Chartered Accountant. b) A reserve of an amount equal to 50% of the profit from such projectlwork should be created by credit to 'Foreign Projects Reserve Account' This reserve shol~ld utilised in the next five years for the purposes of the be business but not for distribution by way of profit. If the amount is utilised within five years for any other purpose o r for distribution as profit, the deduction shall be considered to be wrongly allowed and the assessment shall be rectified to withdraw such deduction. c) At least 5O0/0 of the profits o r gains from such projectlwork should be actually brought in India in convertible foreign exchange within six months of the end of the previous year. If, for unavoidable reasons, it is not.possible to do so, the Commissioner/,Chief Commissioner can extend this time. Where the amount credited to Foreign Project Reserve Account--or the amount actually remitted to India is less than 50% of such profits the deduction is restricted to the amount credited or actually brought into India whichever is less.

11.7.2 In Respect of Income from Export of Goods or ~ekenndise (Sec. 80-HNC)

'

1) This deduction is allowable only to an individual who is resident in India. 2) The deduction is allowable out of profit derived from the export of goods or mercandise. It, however, does rlot apply to profit derived from export of (i) mineral oil, and (ii) minerals and ore. 3) Up to the assessment year 1990-91 the deduction allowable is of the entire profit derived from export. For this purpose, the profit derived from export is to be computed as under: a) If the assessee's turnover is from export only, the entire profit computed under the head "Profits and gains of business or profession" will be the profit derived from export. b) If only part of the total turnover is from export thc pa.oportionnte amount of and profit computed under the head "Profit and gains of tjusi~~e.;s profession" will be the profit derived from export. 10,00,000 i) Domestic Sales ii) Export Sales 20,00,000

30,00,000

and the total profit under the business head is Rs. 3,00,000, the profit derived from export will be

4) With effect from the assessment year 1991-92, the amount of deduction depend upon the sale consideration brought in India. If the entire consideration for export turnover is brought into India in convertible foreign exchange within six months of the end of previous year o r within such extended time as many be permitted by the CommissionerIChief Commissioner, the entire profit computed in the manner described in Para 3 will be allowed as deduction.
If, however, only a part of the total consideration is brought in India, only the proportionate amount will be allowed as deduction. Total Turnover shall not include: i) any sums receivable by an exporter by way of profit on sale of a license granted under ttie Imports (Control) Order 1955. ii) Cash received oi. receivable against export under any scheme of the governments assistance.

Assessment or Individual

iii) Repayment of any duty of customs for example: Profit derived from export 2,00,000 (computed in the manner mentioned in para 3) 20,OO,000 Export turnover 15,00,000 Convertible foreign exchange brought in India The deduction will be limited to

2~oo10*

15,00*000 = Rs. 1,50.000 20,00,OW

5) This deduction is also available to a supporting manufacturer who, instead of making a direct export himself, exports through an Export House or Trading House. In this case the Export House or Trading House should issue a certificate of disclaimer that they have in respect of such export turnover not claimed the benefit of Section 80-HHC. The benefit available to the Export HouseITrading House will in such cases be proportionately reduced. Illustration 4 will help you to clearly understand the provisions Section $0-HHC. Illustration 4 'A' supporting manufacturer exports through B, a Trading House, goods of Rs. 2,00,000. The total turnover of 'A' is Rs. 10,00,000 and the business profit is Rs. 1,00,000. The total export turnover of the Trading House 'B' is Rs. 20,00,000 and business profit is Rs. 3,00,000. The entire sale proceed is brought into India in convertible foreign exchange. 'B' issues a certificate disclaiming the turnover of Rs. 2,00,000 of goods manufactured by 'A'. Solution Benefit available to 'A' Business Profit Profit attributable to export 1,00,000 x 2,00,000 10,00,000 20,000 20,000 3,00,000

Deduction uls 80-HHC Benefit available to 'B' Business Profit Less on account of disclaimer i.e., , 2,00,000 (disclaimed Tio) 390090m 20,00,WO (Total export Tio) Deduction uis 80-HHC

Rs. 2,70,000

11.7.3 In Respect of Earnings of Tour Operators and Hotels (See. 80-HHD)

1) The following deduction is allowable to resident person engaged in the business of approved hotels, tour operators or travel agents in respect of profit derived from services provided to foreign tourists : a) 50% of profit derived from services provided to foreign tourists, plus b) so much of the remaining 50% a s has been debited to Profit and Loss Accaunt and credited to a reserve account. 2) The amount transferred to reserve account has necessarily to be utilised within next five years for following purposes: a)-.construction of new approved hotels or expansion of facilities in existing approved hotels b) purchase of new cars and new coaches c) purchase of sports equipments for mountaineering etc. d) construction of conference or convention centres e) provision of such new facilities for growth of Indian tourism as may be notified by the Central Government.

For AY 1991-92 and onwards the amount brought in or received in Convertible Foreign Exchange (CFE) within 6 months from the end of PY will qualify for such deduction. It is Further provided that the deduction will be restricted in the proportion as the receipt in CFE received in or brought in, if the reservek utilised for any other purpose, it shall be deemed to be the profit of the year in which the amount was so utilised and shall be charged to tax. If the same remains unutilized in the next five years, the unutilized amount shall be deemed to be the profit of the sixth year and shall be charged to tax. 3) Profits derived from serviccs provided to foreign tourists will be computed as. under: a) In cases where the business consists exclusively of services to foreign tourists resulting in receipts in convertible foreign exchange, the entire profit computed under the head 'Profit and gains of business or profession'. b) Where only part of the total activities consist of services to foreign tourists resulting in receipt of convertible foreign exchange, onljl that part of the business profit which is in proportion to such receipts and total receipts. For example: The total receipt of hotel . Receipts in convertible foreign exchange Profit from business The amount would be calculated as follows: The profit derived from services to foreign tourists will be

Deductions from Crms Totnl lncurnc

20,00,000 x 25 ,OO,OO 100,00,0.00

Presuming that no reserve is created. the deduction will be 50% of 5,00,000 i.e., 2,50,000. For AY 1991-92 and onwards the amounts brought or received in convertible foreign exchange (CFE) within 6 month.frorn end of PY will qualify for such deduction, It is further provided that the deduction is restricted in the proportion in which the receipts in CFE received or.brought in India bears to the total receipt of the tourist carried on by the assessec.

11.7.4 In Respect of Remuneration of Teachers, Professors etc. (Sec. 80-R)

An Indian citizen deriving remuneration for services rendered outside India in the capacity as a professor, teacher or research worke; in any University or.other educational institution established outside India is entitled to following deductions: Up to assessment year 1990-91 For and from assessment year 1991-92

...
...

50% of such remuneration for a maximum period of 36 months. 50% of iemuneration or 75% of such remuneration as is actually brought into India, whichever is higher. The condition of 36 months is no longer applicable.

11.7.5 In Respect of Income Earned by Artists, Authors and Playwriters (Sec. 8 0 - R R )

An Indian resident deriving income from outside India in exercise profession df an author, playwright, artist, musician,. actor or sportsman (including an athelete) is entitled to deduction as under: Up to assessment year 1990-91 For and from assessment year 1991-92

:.. 25% of such remuneration if the same was

...

brought into India ' 50% of remuneration or 75% of such remuneration as is brought into India, whichever is higher.

11.7.6 in Respect of Income of Certain Technicians Rendering Services Abroad (Sec. 80-RRA)

I), An Indian citizen being a sponsored Central or State Government employee or a technician having specialised knowledge and experieneeqn specified fields is . entitled to deduction in respect of any remuncrntion fr0m foreign sources.
2) The deduction will be of an amount equal to 50% of the gross remuneration or

75% of such remuneration as is brought into India, whichever is higher. Earlier such deduction is allowed for a mnximu~n period of 36 months if the services were continuous but with effect from 1.4.9 1 this condition has been removed. 3) The deduction to persons other than the sponsored Central or State Government employees is allowed only if the terms and conditions of his services outside India are approved by the Central Government

11.8 DEDVCTIONS IN THE CASE OF TOTALLY BLIND OR PHYSICALLY HANDICAPPED RESIDENT

PERSONS (SECTION SO-LO

A deduction of Rs. 15,000 is allowed to a resident individual who.isa) totally blind, or b) suffers from permanent physical disability specified in the rules which has the effect of substantially reducing his capacity to engage in gainful employment or occupation. or
c) subject to mental retardation to the extent specified in rules and which substantially reduces his capacity to engage in gainful employment or occupation.

11.9 LET US SUM UP

The scheme of computing taxable income under the Income Tax Act is to first compute income under each head. The aggregate of income under each head is known as 'Gross Total Income'. Out of gross total income certain deductions are allowed which are not for expenses incidental to earning the income but are of the nature of incentives aimed at achieving certain socio-econornic goals through the instrumentality of taxation or provisions to mitigate hardships to tax-payerqwho have ,necessarily to incur certain personal expenditure. Such deductions are laid down in Chapter VIA. The income after such deductions is called 'Total Income' which forms the basis for income tax. These deductions are either income-based or expenditure-based. Income-based deductions are dependent upon and are in relation to income of specified nature. such as, deduction in respect of income from investments (80-L), income of poultry farming (80-jj), profit af newly established industrial undertakings (80-HH, 80-HHA and 80-I), profit from export of goods or mercandise (80-HHC), profit from services to foreign tourists (80-HHD), income earned for services rendered outside India (80-R, 80-RR and 80 RRA) and income of a totally blind or physically handicapped ' person (see 80-U). Expenditure-based deductions are based on and computed with reference to the expenditurelinvestment of specified nature, viz., long-term savings (80-C), investment in new eligible equity issues (80-CC), deposit under National Savings Scheme (80-CCA), deposit under equity linked saving scheme (80-C.B), payment for medical insurance premia (80-D), paymcnt as donation or contribution towards charity or purposes like scientific research, rural devel~pmentand' ,I conservation of natural resources ( 8 6 - ~80-GGA), payment for rent (80-GG) and , expenditure on treatment of handicapped dependents (80-DD). One impoitant,point to remember is that the total of all dedhctions under Chapter VIA cannot exceed the Grbss Total Income. In other words, these deductions cannot result in 'Total incbme' being a negative figure, i.e., loss.

22

1 1 . 1 KEY WORDS
Deductions: Permissible amount under Chapter VIA by which the gross total income is reduced to arrive at the total income liable to tax. Gross Total Income: Aggregate of income computed under each head of income Total Income: Amount of income computed in the manner laid down in the Income Tax Act on which tax is charged.

Drdudiuns from Crws Tolal lncume

18.111 ANSWERS TO CHECK YOUR PROGRESS

A) a) i) Rs. 10.000 (lirnited to 1O0/0)

ii) Rebate in tax-Rs. 2,000 (20'Yo of Rs. 10,000) 3,000 b) i) L.I.P. 24,000 R.P.F. 10,000 N.S.C. Home Loan Scheme 1 2,000
-

Deduction for 1990-91 will be limited to the qualifying amnunt of Rs. 40,000 and will be calculated as under: Next Balancc
c)

6000 . . . 6000 ... 2 O O ... XO

100% = 50%) = 40'%, =

Rs. 6,000 Rs. 3,000 Rs. 11,200

The qualifying amount of deductior~ be Rs. 10,000 and deduction will will be computed as under: ... 1 OO'Yu = 6000 First 6000 50% 2000 ... Balance 4000 =

'The taxable income will bc 90,000 - 8,000, i.e. Rs. 82,000. d) Gross Total Income Less deductions UIS 80-C ( 100% of 2400) UIS 80-cc (50% of 20000) Rs. 78,000 2400 I WOO Total Income B) a) i) Gross Total Income Less Deductions : UIS 80-C L.I.P. Loan repaid (limited to)

RS.

12,400

Ks. 65,600

Rs. 80,000 5000 10000 6000

R.P.F.

... 6000 100% ... 6000 50%) 9000 40 % ... U/S80-CCA (100Yo of 9000)

GOO0

3000 3600 12600 9000

Rs.21,600

Total Income for 1990-91 Rs. 58,400 b) i) Rs. .lO,OOO will be included in the tcltal hcomc in the tlsst'ssnlent for the year 1993-94. ii) Thcrc will bc no tax-liability on the sum in respect of the amount withdrawn.

A.tces$ment o Individual f

c) Gross Toal Income. Less deductions :

Rs. 50,000

U/s80-C- Int. on N.S.C. deemed to be reirlvestcd 3000 U/s 80-L i) 3000 ii ) 3000 iii) 500() 12000 iv) limited to 1000 Total Income

Rs. 15.0011 Rs, 35,000

C) a) 1 No 2 No 3 i) Yes ii) Yes iii) Yes iv) No 4 i) Yes-Upto Rs. 3000 in the aggregate -doii) Yesiii) Yes-doiv) No Up v) Yes- to Rs. 3000 in the aggregate vi) NO 5 i) Yes-Rs. 6000 irrespective of actual expenditure ii) No 6 No 7 i) No ii) No iii) No b) Rent paid in excess of 10% of Rs. 40,000 is Rs. 14,(i00. Deduction will be 'limited to Rs. 10,00Q being 25% of the total income allowing such deduction. c) i) Yes-Rs.6,000 ii) The deduction will remain Rs. 6000 only for both. D) a) i) Rs. 5,000 ii) Rs. 10,000' iii) Rs. 5,000 (qualifying amount restricted to 10% [if Rs. 50,000) iv) Rs. 2,500 -dov) No deduction as the amount is less than Rs. 250 vi) Rs. 1,250

b)

c)

i) Rs. 1,000 ii) Rs. 2,000 iii) Rs. 3,000 No deduction will be allowed if incdrne is derived from 'business or profession'. It will be allowed while computing income under that head. Salary Rs. 43,000 Other sources Rs. 8,000 Rs. 5 1 ,000 Gross total income Less deduction U/S 80-C-RPF 6000 a 100% 2400 a 50% . U/S 80-CCA Uls 80-G U/S 80-L 8,400 6,000 1,200

7,200 5,000 350 6,000 Total Income 18,550 -32,450

1 1 . 2 TERMINAL QUESTIONSIEXERCISES
Questions 1) What is gross total income? How do you compute it?

2) Distinguish bctwecn a) allowable expenses and deductions b) deductions and rcbatc. Exercises

Deductions lrom Gross Total Income

I)

'X' a senior executive in Government has an income of Rs. 70,000 under the head 'Income from Salary'. He contributed Rs. 2000 per month to the statutory provident fund and purchased National Saving Certificates of Rs. 20,000. He has a son who is permanently handicappcd. Hc contributed Rs. 2000 to the National Defence Fund. How would you complete his assessment for the year 1990-91. (Answer : Rs. 48,800)

2) :X' is a Doctor whg has an income of Rs. 1,20,000 from practise. During the previous year 1990-91 he deposited Rs. 30,000 under the National Savings Scheme and contributcd Rs. 12,000 to the Public Provident Fund. He is living in i~ rented house for which he pays rent of Rs. 3000 per month. Work out his total income for the assessment year 1990-91, (Answer : Rs. 69,800)

3) 'X' i) ii) iii) iv) v) vi)

has following income from his investment: Incomc from Units of Unit Trust of India Income from Units of State Bank Mutual Fund Interest from bank? lntcrcst from National Savings Certificate Divider 1 from Indian companies Intcrcst on dcben~urcs DCM Ltd. of

300() 2000 3500 4500 2000 1000

Find out the total income for 1990-91 if his income from business is Rs. 80,000 including Rs. 10,000 profit derived from export. (Answer : Rs. 58,000) 4) 'X' i) ii) rii) has several business profit from which is as under: Retail cloth business Poultr'y farming New industrial unit which began to manufacture'articles in June 1990 15,000 45,000 60,000

He made a donation of Rs. 20,000 to a hospital income of which is exempt under Section lO(22A). Work out his total income for the assessment year 1990-91. (Answer : Rs. 84,750)

5) 'X' who suffers from a permanent physical disability (which has the effect-of reducing substantially his capacity to engage in a gainful employment) derives following income: 36,000 ... Pension Intercst from Bank 14,000 ...
He contributed Rs. 6000 to Public Provident Fund. Find out his total income for 1990-91. (Answer : Rs. 23,000)
6) 'X' who is a citizen of India is employed as a professor in an ~niversitv USA in and draw a remuneration in US $ which is equivalent to Rs. 4,00,000 in Ivdian rupee. He remitted an amount equivalent to Rs. 3,00,000 to India during the previous year 1990-91.

Find out his total income for the assessment year 1990-91. (Answer : Rs. 2,08,000)
Note : These questions will help you to understand the unit better. Try to write answers for them, But d o not submit your answers to the University. These are for your practice only.