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Deduction in Computing Total Income

STUDY NOTE - 12
DEDUCTION IN COMPUTING TOTAL INCOME

This Study Note includes


• Deductions (available under the Income Tax Act ) from gross total income in order
to arrive at taxable income.

INTRODUCTION
In order to further the government policy of attracting investment and activity in the desired direction
and to provide stimulus to growth or to meet social objectives, concession in the form of ‘deduction’ from
taxable income is allowed. Chapter VI-A of the Income-tax Act, 1961 contains such deduction provi-
sions.
with the advent of new philosophy of giving direct assistance to the desired goal and avoiding indirect
route of tax concessions, the number of deductions are being omitted. this is also with a view to avoid
complexity of tax law.
In computing total income of an assessee deductions under sections 80CCC to 80U are permis-
sible from “Gross total Income”. [80A(1)]
Deduction not to be allowed unless return furnished [Sec. 80AC]
Where in computing the total income of an assessee of the previous year relevant to
the assessment year commencing on the 1st day of April, 2006 or any subsequent assessment
year, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or
section 80-IC or section 80-ID or section 80-IE, no such deduction shall be allowed to him unless
he furnishes a return of his income for such assessment year on or before the due date specified
under sub-section (1) of section 139.

“Gross total Income” means the aggregate of income computed under each head as per provi-
sions of the Act, after giving effect to the provisions for clubbing of incomes (Sections 60 to 64)
and set off of losses and but before making any deductions under this chapter. [Section 80B(5)]
The deductions under chapter VIA are not available from the following incomes though these
are included in the “Gross total Income”:
(i) long term Capital gains;
(ii) winnings from lotteries, cross word puzzles etc.;
(iii) incomes referred to in sections 115A to AD, 115BBA and 115D.

The aggregate amount of deductions under chapter VIA [Sections 80CCC to 80U] shall not
exceed the “Gross total Income” of the assessee. [Section 80A(2)]

172 Applied Direct taxation


Deductions under Chapter VIA available for
I II III
In respect of expenditure or In respect of certain income Other deduction
investment made by assessee [Sec. 80HH to 80RRB] [Section 80U]
[Sec. 80C to 80GGA]
Deduction : Sec 80C : Deduction in respect of LIP, contributions to PF, etc:

1 Eligible Assessee Individual and HUF


2 Condition Investment or application of funds during the previous year
3 Maximum Cap Rs. 1,00,000 in a previous year
4 Special Provisions Withdrawal of deductions for certain premature exit from
certain investments or application of funds

It is applicable to Individual and HUF and if the assessee has invested, contributed or ex-
pended in any one or more of listed items during the previous year. The deduction is available
to the maximum extent of Rs 1,00,000.

12.1 DEDUCTIONS FROM GROSS TOTAL INCOME


(a) Deduction in respect of certain investments, contributions, subscriptions etc.
Insertion of deduction under section 80C replacing rebates u/s 88, 88B, 88C, 88D deductions
u/s 80CCC and u/s 80CCD
With effect from the 1st day of April, 2006, a new deduction u/s 80C has been introduced .
Rate of deduction [Section 80C(1)]
This deduction shall be admissible only to an assessee, being an individual or a Hindu undi-
vided family. The amount of deduction shall be actual amount paid or deposited during the
previous year in prescribed saving schemes [ to be calculated as qualifying amount for deduc-
tion u/s 80c or Rs 1,00,000 which ever is less.
Qualifying Amount For Deduction u/s 80C
(i) to effect or to keep in force an insurance on the life of persons specified in sub-section (4);
(ii) to effect or to keep in force a contract for a deferred annuity, not being an annuity plan
referred to in clause (xii), on the life of persons specified in sub-section (4):
Provided that such contract does not contain a provision for the exercise by the insured of an
option to receive a cash payment in lieu of the payment of the annuity;
(iii) by way of deduction from the salary payable by or on behalf of the Government to any
individual being a sum deducted in accordance with the conditions of his service, for the
purpose of securing to him a deferred annuity or making provision for his spouse or chil-
dren, in so far as the sum so deducted does not exceed one-fifth of the salary;
(iv) as a contribution by an individual to any provident fund to which the Provident Funds
Act, 1925 (19 of 1925) applies;

Applied Direct taxation 173


Deduction in Computing Total Income

(v) as a contribution to any provident fund set up by the Central Government and notified by
it in this behalf in the Official Gazette, where such contribution is to an account standing
in the name of any person specified in sub-section (4);
(vi) as a contribution by an employee to a recognised provident fund;
(vii) as a contribution by an employee to an approved superannuation fund;
(viii) as subscription to any such security of the Central Government or any such deposit scheme
as that Government may, by notification in the Official Gazette, specify in this behalf;
(ix) as subscription to any such savings certificate as defined in clause (c) of section 2 of the
Government Savings Certificates Act, 1959 (46 of 1959), as the Central Government may,
by notification in the Official Gazette, specify in this behalf;
(x) as a contribution, in the name of any person specified in sub-section (4), for participation
in the Unit-linked Insurance Plan, 1971 (hereafter in this section referred to as the Unit-
linked Insurance Plan) specified in Schedule II of the Unit Trust of India (Transfer of Un-
dertaking and Repeal) Act, 2002 (58 of 2002);
(xi) as a contribution in the name of any person specified in sub-section (4) for participation in
any such unit-linked insurance plan of the LIC Mutual Fund [referred to in] clause (23D) of
section 10, as the Central Government may, by notification in the Official Gazette, specify
in this behalf;
(xii) to effect or to keep in force a contract for such annuity plan of the Life Insurance Corpora-
tion or any other insurer as the Central Government may, by notification in the Official
Gazette, specify;
(xiii) as subscription to any units of any Mutual Fund [referred to in] clause (23D) of section 10
or from the Administrator or the specified company under any plan formulated in accor-
dance with such scheme as the Central Government may, by notification in the Official
Gazette, specify in this behalf;
(xiv) as a contribution by an individual to any pension fund set up by any Mutual Fund [re-
ferred to in] clause (23D) of section 10 or by the Administrator or the specified company, as
the Central Government may, by notification in the Official Gazette, specify in this behalf;
(xv) as subscription to any such deposit scheme of, or as a contribution to any such pension
fund set up by, the National Housing Bank established under section 3 of the National
Housing Bank Act, 1987 (53 of 1987) (hereafter in this section referred to as the National
Housing Bank), as the Central Government may, by notification in the Official Gazette,
specify in this behalf;
(xvi) as subscription to any such deposit scheme of—
(a) a public sector company which is engaged in providing long-term finance for con-
struction or purchase of houses in India for residential purposes; or
(b) any authority constituted in India by or under any law enacted either for the purpose
of dealing with and satisfying the need for housing accommodation or for the pur-

174 Applied Direct taxation


pose of planning, development or improvement of cities, towns and villages, or for
both,
as the Central Government may, by notification in the Official Gazette, specify in this behalf;
(xvii) as tuition fees (excluding any payment towards any development fees or donation or
payment of similar nature), whether at the time of admission or thereafter,—
(a) to any university, college, school or other educational institution situated within In-
dia;
(b) for the purpose of full-time education of any of the persons specified in sub-section
(4);
(xviii) for the purposes of purchase or construction of a residential house property the income
from which is chargeable to tax under the head “Income from house property” (or which
would, if it had not been used for the assessee’s own residence, have been chargeable to
tax under that head), where such payments are made towards or by way of—
(a) any instalment or part payment of the amount due under any self-financing or other
scheme of any development authority, housing board or other authority engaged in
the construction and sale of house property on ownership basis; or
(b) any instalment or part payment of the amount due to any company or co-operative
society of which the assessee is a shareholder or member towards the cost of the
house property allotted to him; or
(c) repayment of the amount borrowed by the assessee from—
(1) the Central Government or any State Government, or
(2) any bank, including a co-operative bank, or
(3) the Life Insurance Corporation, or
(4) the National Housing Bank, or
(5) 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 purchase of houses
in India for residential purposes which is eligible for deduction under clause (viii) of
sub-section (1) of section 36 or
(6) any company in which the public are substantially interested or any co-operative
society, where such company or co-operative society is engaged in the business of
financing the construction of houses, or
(7) the assessee’s employer where such employer is an authority or a board or a corpora-
tion or any other body established or constituted under a Central or State Act, or
(8) 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 university
or a local authority or a co-operative society; or
(d) stamp duty, registration fee and other expenses for the purpose of transfer of such
house property to the assessee,

Applied Direct taxation 175


Deduction in Computing Total Income

but shall not include any payment towards or by way of—

(A) the admission fee, cost of share and initial deposit which a shareholder of a company
or a member of a co-operative society has to pay for becoming such shareholder or
member; or
(B) the cost of any addition or alteration to, or renovation or repair of, the house property
which is carried out after the issue of the completion certificate in respect of the house
property by the authority competent to issue such certificate or after the house prop-
erty or any part thereof has either been occupied by the assessee or any other person
on his behalf or been let out; or
(C) any expenditure in respect of which deduction is allowable under the provisions of
section 24;
(xix)as subscription to equity shares or debentures forming part of any eligible issue of capital
approved by the Board on an application made by a public company or as subscription to
any eligible issue of capital by any public financial institution in the prescribed form
Explanation.—For the purposes of this clause,—
(i) “eligible issue of capital” means an issue made by a public company formed and
registered in India or a public financial institution and the entire proceeds of the issue
are utilised wholly and exclusively for the purposes of any business referred to in
sub-section (4) of section 80-IA
(ii) “public company” shall have the meaning assigned to it in section 3 of the Compa-
nies Act, 1956 (1 of 1956);
(iii) “public financial institution” shall have the meaning assigned to it in section 4A of
the Companies Act, 1956 (1 of 1956);
(xx) as subscription to any units of any mutual fund referred to in clause (23D) of section 10
and approved by the Board on an application made by such mutual fund in the prescribed
form
(xxi)as term deposit—
(a) for a fixed period of not less than five years with a scheduled bank; and
(b) which is in accordance with a scheme27a framed and notified, by the Central Government, in
the Official Gazette for the purposes of this clause.
(xxii) as subscription to such bonds issued by the National Bank for Agriculture and Rural
Development, as the Central Government may, by notification in the Official Gazette,
specify in this behalf.

Taxability of Amount Received

1. In following cases the assessee shall have to pay tax on any amount received on:
(i) Termination of his contract of insurance referred to at point I above by notice to that

176 Applied Direct taxation


effect or where the contract ceases to be in force by reason of failure to pay any pre-
mium , by not reviving contract of insurance :
(a) in case of any single premium policy , within two years after the date of com-
mencement of insurance ; or
(b) in any other case , before premiums have been paid for two years; or
(ii) termination of his participation in any unit-linked insurance plan referred to above in
point 10 and 11 by notice to that effect or where he ceases to participate by reason of
failure to pay any contribution , by not reviving his participation , before contribu-
tions in respect of such participation have been paid for five years ; or
(iii) transfer of the house property before the expiry of five years from the end of financial
years in which possession of such property is obtained by him ,or receives back ,
whether by way of refund or otherwise , any sum specified in that clause , then :
(a) no deduction shall be allowed to the assessee under 80C(I) with reference to any
of the sums referred to in point 1, 10, 11 and 18, paid in such previous year; and
(b) the aggregate amount of the deductions of income so allowed in respect of the
previous year or years shall be deemed to be the income of the assessee of such
previous year and shall be liable to tax in the assessment year relevant to such
previous year .

1 EligibleDEDUCTION
Assessee Individual
IN RESPECT OF CONTRIBUTION TO PENSION FUND OF LIC OR ANY
2 Condition
OTHER PENSION FUND or
Investment application
[Sec. 80CCC] of funds during the previous year
3 Maximum Cap Rs. 1,00,000 in a previous year
4 Special Provisions Withdrawal of deductions for certain premature exit from
certain investments or application of funds

Deduction of a maximum amount of Rs. 100,000 is allowed to an individual assessee for the
amount paid or deposited by the assessee during previous year (out of his taxable income upto
assessment year 2002-03) to effect or keep in force a contract for annuity plan of LIC or any
other insurer for receiving pension from the fund referred to in s. 10(23AAB). The whole of the
amount received by an assessee or his nominee shall be taxable in the year in which the amount
is so received. It may be mentioned that where deduction is claimed in respect of any amount
paid or deposited, under this section, no rebate u/s.88 shall be allowed with reference to the
same amount. However, any payment in commutation of pension received from the fund re-
ferred to in section 10(23AAB) is exempt [u/s.10(10A)(iii)].

Deduction u/s 80CCC for investment in pension funds.

Where any amount paid or deposited by the assessee has been taken into account for the pur-
poses of this section :

Applied Direct taxation 177


Deduction in Computing Total Income

(a) a rebate with reference to such amount shall not be allowed under sec 88 for any assess-
ment year ending before the 1st day of April , 2006;
(b) a deduction with reference to such amount shall not be allowed under section 80C for any
assessment year beginning on or after the 1st day of April, 2006.

Deduction u/s 80CCD for contribution to pension scheme of Central Government

Where any amount paid or deposited by the assessee has been allowed as a deduction under
this section:

(a) No rebate with reference to such amount shall be allowed under section 88 for any assess-
ment year ending before the 1st day of April ,2006;
(b) No deduction with reference to such amount shall be allowed under section 80C for any
assessment year beginning on or after the 1st day of April ,2006.
1
Insertion of new section 80CCE
2
3
The aggregate amount of deductions under sec 80C, SECTION 80CCC and section 80CCD 34
shall not, in any case, exceed one lakh rupees.

DEDUCTION IN RESPECT OF MEDICAL INSURANCE PREMIA [Sec.80D]

Deduction is allowed for any medical insurance premium paid by any mode of payment other
than cash out of assessee’s taxable income to GICI or any other approved insurer during the
previous year, upto a maximum amount of Rs. 15,000. The deduction is allowed in respect of
the following :-

(a) In case of an individual – insurance on the health of the assessee or wife or husband,
dependent parents or dependent children.
(b) In case of a HUF – insurance on the health of any member of the family.

178 Applied Direct taxation


However, where the assessee or his wife or her husband or dependent parents or any member
of his family of HUF is a senior citizen, the limit of deduction is raised from Rs. 15,000 to Rs.
20,000

DEDUCTION IN RESPECT OF MEDICAL TREATMENT OF HANDICAPPED DEPEN-


DENT [Sec. 80DD]

Deduction is available to resident individual or HUF:


(i) For any expenditure incurred by an assessee during the previous year, for the medical
treatment (including nursing) training and rehabilitation of handicapped dependent.
(ii) amount paid or deposited under any scheme framed by LICI and which is approved by
CBDT and out of Income chargeable to tax for the maintenance of handicapped depen-
dent. From the assessment year 2000-01 a straight deduction of Rs. 40,000 is allowed irre-
spective of actual expenditure incurred/amount deposited. If the handicapped depen-
dent predeceases the individual or the member of HUF in whose name money has been
deposited, an amount equal to the amount paid or deposited under the scheme shall be
1 Eligible Assessee
deemed to Individual and HUF
be the income of the assessee of the previous year in which sum amount is
2 Condition received byExpenditure
The
the amount for
assesseeshould
and medical treatment
be actually
chargeable taxduring
topaid for thethe
in that previous
medical
previous year of
treatment
year.
3 Maximum Cap specified
Rs.50,000,disease.
but where dependent is a person with severe
3 Maximum Cappurpose disability,
For the Rs.40,000 maximum
but
of this section deduction
ifdependent
the amount is aRs.
paid
means is 75,000.
for
person senior citizen
who is then the for the suspect
not dependent
ceiling limit is Rs. 60,000
or main term on any person other than the assessee.
4 Special Provisions The assessee is required to furnish with the return of income, a
DEDUCTION IN certificate
RESPECT in prescribed
OF MEDICAL form No. 10 -I.
TREATMENT, ETC. [Sec 80DDB]

Deduction is allowed to a resident individual or Hindu undivided family in respect of


expenditure actually during the P.Y. incurred for the medical treatment of specified disease or
ailment as specified in the Rules 11DD for himself or a dependent relative or a member of a
HUF.

Applied Direct taxation 179


Deduction in Computing Total Income

Conditions :
(i) The assessee has to furnish a certificate in form 10 – I from any doctor registered with
Indian
Medical Association with postgraduate qualifications.
(ii) “Dependent” means a person who is dependent for his support or maintenance on the
assessee an on no other person.
a deduction of Rs. 40,000 is allowed irrespective of actual amount of expenditure as reduced by
the amount received if any, from an insurer for the medical treatment of such person.
Specified diseases and ailments under section 80DDB and Rule 11DD –
(i) Neurological Diseases i.e.
a) Dementia;
b) Dystonia Musculorum Deformans
c) Motor Neuron Disease;
d) Atanxia;
e) Chorea;
f) Hemiballismus
g) Aphasia
h) Parkinsons Desease 1
2
(ii) Cancer
(iii) AIDS 3
(iv) Chronic Renal Failure
4
(v) Hemophilia
(vi) Thalassalmia

DEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FOR HIGHER EDUCA-


TION [Section80E]

In computing the total income of an assessee, being an individual, there shall be deducted, in
accordance with and subject to the provisions of this section, any amount paid by him in the
previous year, out of his income chargeable to tax, by way of interest on loan taken by him

180 Applied Direct taxation


from any financial institution or any approved charitable institution for the purpose of higher
education of his relative [Section 80E(1)]

The deduction specified above shall be allowed in computing the total income in respect of the
initial assessment –year and seven assessment years immediately succeeding the initial assess-
ment year or until the interest referred above is paid by the assessee in full, whichever is earlier
[80E(2)]

DEDUCTION IN RESPECT OF DONATIONS TO CERTAIN FUNDS, CHARITABLE IN-


STITUTIONS, ETC. [Sec. 80G]

Deduction under this section is available to all assessees.


1 EligibleConditions
Assessee for claiming
Any person deduction
2 (i)
Condition the donation should be of amust
The donations sum of
be money andapproved
to those not in kind
funds, charitable
(ii) the donation should be to
institutions, etc.specified funds/institutions.
3 Maximum Cap Eligible Donation
Specified in the table given below. Qualifying Permissible
4 Special Provisions amount
The approval to be granted by the Commissioner to the deduction
1. PM’s National institutions/funds
Relief Fund; shall have From the effect for 1a toperiod
item Nos. not
23 Quantum of
exceeding five assessment years, as
2. PM’s Armenia Earthquake Relief Fund; there is no maximummay be specified in the
deduction for item
approval.
3. The Africa (Public Contributions India) limit (i.e. 100% of the Nos. 1 to 18, 24 & 30
Fund; amount will qualify for = 100% of the
deduction) qualifying
4. The national foundation for communal amount.
Harmony For other items,
quantum of
5. A university or any educational institution of deductions = 50% of
national eminence as may be approved; the qualifying
6. The National Illness Assistance Fund; amount.
7. Any Zila Saksharta Samiti for improvement of
primary education in villages and towns and for
literacy activities;
8. National Blood Transfusion Council or to any
State Blood Transfusion Council;
9. Any fund set up by the State Government for

Applied Direct taxation 181


Deduction in Computing Total Income

medical relief to the poor;


10. The Army Central Welfare Fund or the
Indian Naval Benevolent Fund or the
Airforce Central Welfare Fund established
by the armed forces of the Union for the
welfare of the past and present members
of the such forces or their dependants;
11. The Chief Minister’s Relief Fund or the
Lieutenant Governor’s Relief Fund in
respect of any State or Union Territory,
as the case may be;
12. The National sports Fund to be set up
by the Central Government;
13. The National Cultural Fund set up by
the Central Government;
14. The Fund for Technology Department
and Application setup by the
Central Government;
15. The National Defence Fund;
16. Any fund setup by the State Government
of Gujarat exclusively for providing relief
to the victims of earthquake in Gujarat;
17. Any sum paid during the period beginning
with 26.1.2001 and ending on 30.9.2001 to
any trust, institutions or fund recognised
under section 80G for providing relief to the
victims of earthquake in Gujarat;
18. National Trust for Welfare of Persons with
Autism, Cerebral Palsy, Mental Retardation
and Multiple disabilities constituted under
the relevant Act of 1999;
19. PM’s Drought Relief Fund;
20. The National Children’s fund;
21. Jawaharlal Nehru Memorial fund;
22. Indira Gandhi Memorial Trust;
23. Rajiv Gandhi foundation;
24. Contribution by a company as donations to From Sl. Nos. 24 to 30
the Indian Olympic Association or to any qualifying amount shall
other Association notified by the Central be restricted to 10% of
Government u/s. 10(23); adjusted total income
25. Any approved fund or institution established (i.e. G.T.I. as reduced by
for charitable purposes; deductions u/s. 80CCC

182 Applied Direct taxation


26. Government or local authority to be used for to 80U other than 80G and
charitable purpose; other income on which no
27. Any authority set up for providing housing tax is payable and other
accommodation or town planning; incomes on which deductions
28. Any corporation established by government under chapter VIA are not allowed)
for promoting interest of schedules
caste/scheduled tribe/backward class;
29. Renovation of notified temple mosque, church,
or gurudwara or any other notified place of
national importance;
30. Government or local authority or approved
institution/association for promotion of
family planning;

Case Law:
Section 80G does not require ascertainment of whether the whole or substantially whole of
institution or fund’s charitable purpose is of religious nature; even if one of these objects of
institution/fund is wholly or substantially of a religious character, institution or fund would
fall outside scope of section 80G - Upper Ganges Sugar Mills Ltd. v. CIT 93 Taxman 645/227
ITR 578 .

1 EligibleDEDUCTION
Assessee Individual
IN RESPECT OF RENTS PAID [SEC. 80GG]
2 Condition The condition for deduction in respect of rents paid is given
below.
3 Maximum Cap Amount of deduction is also given below.

The deduction in respect of rent paid is available to Individual with effect from assessment
year 1998-99.
Conditions :
(i) The assessee is not being in receipt of any house rent allowance following under clause
(13A) of section 10 from his employer.
(ii) The expenditure incurred (for the purpose of his own residence) by way of rent for any
furnished or unfurnished accommodation is in excess of 10% of his total Income after
allowing all deductions except deduction under this section.
(iii) The assessee or his spouse or minor child or an HUF of which he a is a member does not
own any accommodation at the place where he ordinarily resides or performs duties of his
office or employment or carries on his business/profession.
(iv) If the assessee owns any accommodation at any place other than the place of employment
or business and such accommodation is not in the occupation of the assessee and shall not
be assessed in his hands as self occupied property.

Applied Direct taxation 183


Deduction in Computing Total Income

Deduction : Least of the following :–


(i) Rent paid minus 10% of adjusted total income
(ii) 25% of adjusted total income
(iii) Rs. 2,000 p.m.
Adjusted Total income : Gross total income as reduced by :
(a) Long term Capital gain, if any, included in the Gross Total Income
(b) all deduction under chapter VIA (Section 80CCC to 80U) other than the deduction under
this section.
(c) any income referred to in sections 115A to D included in the Gross Total Income.

DEDUCTION IN RESPECT OF CERTAIN DONATIONS FOR SCIENTIFIC RESEARCH


OR RURAL DEVELOPMENT [Sec. 80GGA]

In computing the total income of an assessee whose gross total income does not include in-
come from “Profits and gains of business or profession”, deduction shall be allowed of an
amount paid by him to—
(a) an approved scientific research association or University or College or other institution to
be used for scientific research, research in social science or statistical research.
(b) an approved association or institution to be used for carrying out any approved programme
or rural development, an approved institution, association or which has the object of train-
ing of persons for implementing programmes of rural development 35CCA
(c) public sector company or local authority or an approved association or institution for
carrying out any eligible project or scheme 35AC.
(d) association/institution/fund which has the object of carrying out any programme of con-
servation of natural resources or sec. 35CCB afforestation.
(e) National Urban Poverty Eradication Fund (NUPEF).
DEDUCTIONS BY COMPANIES TO POLITICAL PARTIES [Sec 80GGB]
Allowable to : An Indian Company

Amount of Deduction : 100% of sum contributed during a previous year to any political party,
registered u/s 29A of Representation of the People Act, 1951.

DONATIONS TO POLITICAL PARTIES [Sec. 80GGC]

Allowable to : Any person except local authority and an artificial juridical person wholly or
partly funded by the Government.

Amount of Deduction: 100% of sum contributed during a previous year to any political party,
registered u/s 29A of Representation of the People Act, 1951.

184 Applied Direct taxation


DEDUCTIONS IN RESPECT OF PROFITS & GAINS FROM INDUSTRIAL UNDERTAK-
INGS OR ENTERPRISES ENGAGED IN INFRASTRUCTURE DEVELOPMENT [Sec. 80IA]

The deduction under this section is applicable to all assessees whose Gross Total Income in-
cludes any profits and gains derived from any business of an industrial undertaking or an
enterprise as below :

Sl.No Classification of Industries Period of Deduction


commencement
(i) Any enterprise carrying on the business of On or after 1.4.1995 100% for 10
developing or maintaining and operating or consecutive
developing,maintaining and operation any Assessment
infrastructure facility Yrs.
(ii) Any undertaking providing telecommunication 1.4.95 and 31.3.2003 100% for first 5
yrs & 30% for
services whether basic or cellular including radio companies&
paging, domestic satellite service or network of 25% for others
trunking and electronic data interchange for the
services. next 5 yrs.
(iii) Any undertaking which develops, develops and 1.4.97 and 31.3.2002 100% for 10
operates or maintains and operates an industrial consecutive
park notified by the Central Government. assessment
years.
iv) An Industrial undertaking set up in any part of 1.4.93 and 31.3.2003 100% for 10
India for the generation or generation and consecutive
distribution of power. assessment
years.
(v) An industrial undertaking which starts 1.4.99 and 100% for 10
transmission31.3.2003 consecutive
or distribution of power by laying a network of assessment
new transmission or lays and begins to operate years.
a cross-country natural gas distribution network.

The deduction under this section is available at the option of the assessee for any 10 consecu-
tive assessment years out of 15 years beginning from the year in which the undertaking or
enterprise develops and begins to operate any infrastructure facility or starts providing tele-
communication services or develops an industrial part or generates power or commences trans-
mission or distribution of power. However, in case of an infrastructure facility being a high
way project including housing or other activities being an integral part of a high way project,
the assessee can claim deduction for any 10 consecutive assessment years out of 20 years begin-
ning from the year of operation.

Applied Direct taxation 185


Deduction in Computing Total Income

Other Conditions

(i) For the purpose of completing deduction under this section, the profits and gains of the
eligible business shall be computed as if such eligible business were the only source of
income during the relevant previous year.
(ii) Where housing or other activities are an integral part of the high way project and the
profits and gains of which have been calculated in accordance of the provision of the
section, the profits have not been liable to tax if the following conditions are not fulfilled :–
a) The profits have been transferred to a special reserve account
b) The same is actually utilised for the high way project excluding housing and other
activities before the expiry of 3 years following the year of transfer to the reserve
account.
c) The amount remaining unutilised shall be chargeable to tax as income of the year in
which such transfer to reserve account took place
(iii) Where the assessee is a person other than a company or a cooperative society, the deduc-
tion shall not be admissible unless the accounts of the industrial undertaking for the pre-
vious year relevant to the assessment year for which the deduction is claimed have been
audited by an accountant and his report in form No. 10CCB (Rule 18BBB) is furnished
alongwith the return of income.
(iv) Where any goods or services held for purposes of the eligible business are transferred to
any other business carried on by the assessee or vice versa and if the consideration for
such transfer does not correspond to the market value of such goods of services as on the
date of transfer, the profits and gains of the eligible business shall be computed as if the
transfer had been made at the market value of such goods or services as on that date
however if the computation of profits and gains presents any difficulty in the opinion of
the assessing officer, he may compute such profits and gains on such reasonable basis as
he may deem feed. Similarly, Where due to close connection between the assessee and
other person for any other reason it appears to the assessing officer that the profits of the
eligible business is increased to more than the ordinary profit the assessing officer shall
compute the profit on a reasonable basis for allowing the deduction.
(v) If the profits and gains are allowed as deduction under this section for any assessment
year, no deduction under sections 80HH to 80RRA to the extent of such profits and gains
shall be allowed.
(vi) Where any undertaking of an Indian company which is entitled the deduction under this
section is transferred before expiry of the period of deduction to another Indian company
in a scheme of amalgamation or demerger, no deduction has been admissible to the amal-
gamating or demerged company for the previous year in which amalgamation or demerger
expressed and the amalgamated or the resulting company shall be entitled to the deduc-
tion as if the amalgamation or demerger had not taken place.

186 Applied Direct taxation


Section 80IA(4) : Extension of tax benefits for developing, operating, maintaining an infra-
structure facility to authorities constituted under a Central or State Act.

The Act has amended section 80-IA(4) so as to enable an authority or a board or a corporation
or any other body established or constituted under a Central or State Act which is not incorpo-
rated under the Companies Act, 1956 also to take advantage of the benefits provided under the
said section.

The ordinance has extended the tax benefits under section 80-IA to an undertaking owned by
an Individual company set up for re-construction or revival of a power generating plant if the
following conditions are satisfied :

O Such undertaking must be owned be an Indian company.


O Such Indian company is formed before 30-11-2005 with majority equity participation by
public sector companies for the purposes of enforcing the security interest of the lenders
to the company owning the power generating plant.
O Such Indian company is notified before 31-12-2005 by the Central Government for the
purposes of this clause.
O Such undertaking begins to generate or transmit or distribute power before 31-03-2007.

Case Laws:

Where assessee-electricity distributing company had to deposit contingency reserve as stipu-


lated in the Electricity (Supply) Act in securities authorised under the Indian Trusts Act, asses-
see was entitled to deduction in respect of interest earned from investment in securities there
being direct and proximate connection between carrying on business as licensee under the
Electricity (Supply) Act and income derived by way of interest from investment in securities -
Vellore Electric Corpn. Ltd. v. CIT 93 Taxman 401/227 ITR 557.

Where assessee-company, which was engaged in manufacture of trucks in collaboration with


foreign company, imported spare parts as spare parts manufactured by it were not sufficient to
meet purchasers’ demand, profits and gains arising from import and sale of spare parts could
be attributed to industry (priority industry) carried on by assessee and, therefore assessee would
be entitled to relief under sections 80E and 80-I on such profits - Ashok Leyland Ltd. v. CIT 90
Taxman 223/224 ITR 122 .

Deductions in respect of profits and gains by an undertaking or enterprise engaged in de-


velopment of Special Economic Zone [Sec. 80IAB]

(1) Where the gross total income of an assessee, being a Developer, includes any profits and
gains derived by an undertaking or an enterprise from any business of developing a Spe-
cial Economic Zone, notified on or after the 1st day of April, 2005 under the Special Eco-

Applied Direct taxation 187


Deduction in Computing Total Income

nomic Zones Act, 2005, there shall, in accordance with and subject to the provisions of this
section, be allowed, in computing the total income of the assessee, a deduction of an amount
equal to one hundred per cent of the profits and gains derived from such business for ten
consecutive assessment years.
(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by
him for any ten consecutive assessment years out of fifteen years beginning from the year
in which a Special Economic Zone has been notified by the Central Government :

Provided that where in computing the total income of any undertaking, being a Developer for
any assessment year, its profits and gains had not been included by application of the provi-
sions of sub-section (13) of section 80-IA, the undertaking being the Developer shall be entitled
to deduction referred to in this section only for the unexpired period of ten consecutive assess-
ment years and thereafter it shall be eligible for deduction from income as provided in sub-
section (1) or sub-section (2), as the case may be :

Provided further that in a case where an undertaking, being a Developer who develops a
Special Economic Zone on or after the 1st day of April, 2005 and transfers the operation and
maintenance of such Special Economic Zone to another Developer (hereafter in this section
referred to as the transferee Developer), the deduction under sub-section (1) shall be allowed to
such transferee Developer for the remaining period in the ten consecutive assessment years as
if the operation and maintenance were not so transferred to the transferee Developer.

(3) The provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA shall apply to
the Special Economic Zones for the purpose of allowing deductions under sub-section (1).

DEDUCTION IN RESPECT OF PROFITS AND GAINS FOR CERTAIN INDUSTRIAL


UNDERTAKING OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAK-
INGS [Sec. 80IB]
The deduction is available to the following undertaking or enterprises etc.

Sl. Undertaking % of Profit Period of


No. deductible deduction

A. Ship- brought into use between 1.4.91 & 31.3.95 30 10 years


B. Hotel-commenced between 1.4.97 and 31.3.2001 approved 50 10 years
hotel in hilly are or rural area or a place of pilgrimage or in
a notified area
C. Any other approved hotel (Hotels in the cities of Calcutta, 50 10 years
Chennai, Delhi and Mumbai are not eligible).

188 Applied Direct taxation


Sl Classification of Industries Period of Deduction
No. Commencement of profits
between dividend
1 Industrial undertaking located in an 1.4.93 and 100%. for initial
industrially backward state specified in the 5 yrs.
31.3.2002
Eighth schedule; (see note No. 3 below the Thereafter 30%
table) for 5 years. In
case of
company
otherwise 25%.
For cooperative
society
deduction is
100% of initial 5
years and
thereafter 25%
of 7 years.
2 Industrial undertaking located in 1.4.94 and 31.3.2002 100% for 5 yrs
industrially backward district notified by and 30% for
the Central Government next 5 yrs. 100%
for 3 years and
-Category A
30% for next 5
-Category B yrs in case of
company (25%
for others).
Applied Direct taxation For cooperative 189
society 25% for
7 yrs.
in both the
category after
initial 5 years.
Deduction in Computing Total Income

5
E

190 Applied Direct taxation


Section 80-IB (4) :

Extension of time limit for setting up of industries in the State of Jammu and Kashmir for the
purpose of tax holiday : With a view to promote the industrial development of the State of
Jammu and Kashmir the Finance Act, 2005 has extended the terminal date for setting up of
industrial undertakings and commencement of eligible business in the State by two more years,
from 31-03-2005 to 31-03-2007.

Section 80-IB(8A) :

Extension of the time limit for the purpose of tax holiday to any company carrying on scientific
research and development : The Finance Act, 2005 has amended section 80-IB(8A) so as to
allow the deduction to companies carrying on scientific research and development, which are
approved by the prescribed authority before 1- 4-2007.

Case Laws:

Where there is no material on record to support the conclusion that, either in common parlance
or in commercial parlance, raw diamonds are not the same thing as polished and cut diamonds
and that they are different entities in the commercial world, the process of cutting and polish-
ing raw diamonds cannot be said to be the result of manufacture or production - CIT v. Gem
India Mfg. Co. 249 ITR 307

Derivation of interest or profits on deposit with Electricity Board is not entitled to deduction -
Derivation of interest or profits on deposit with the Electricity Board could not be said to be
flowing directly from the industrial undertaking and, therefore, deduction under section 80HH
could not be allowed in respect thereof - Pandian Chemicals Ltd. v. CIT 129 Taxman 539/262
ITR 278.

Special provisions in respect of certain undertakings or enterprises in certain special cat-


egory States [Sec. 80-IC]

(1) Where the gross total income of an assessee includes any profits and gains derived by an
undertaking or an enterprise from any business referred to in sub-section (2), there shall,
in accordance with and subject to the provisions of this section, be allowed, in computing
the total income of the assessee, a deduction from such profits and gains, as specified in
sub-section (3).
(2) This section applies to any undertaking or enterprise,—
(a) which has begun or begins to manufacture or produce any article or thing, not being
any article or thing specified in the Thirteenth Schedule, or which manufactures or
produces any article or thing, not being any article or thing specified in the Thirteenth
Schedule and undertakes substantial expansion during the period beginning—

Applied Direct taxation 191


Deduction in Computing Total Income

(i) on the 23rd day of December, 2002 and ending before the 1st day of April, 2012, in
any Export Processing Zone or Integrated Infrastructure Development Centre or In-
dustrial Growth Centre or Industrial Estate or Industrial Park or Software Technology
Park or Industrial Area or Theme Park, as notified by the Board in accordance with
the scheme framed and notified by the Central Government in this regard, in the
State of Sikkim; or
(ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any
Export Processing Zone or Integrated Infrastructure Development Centre or Indus-
trial Growth Centre or Industrial Estate or Industrial Park or Software Technology
Park or Industrial Area or Theme Park, as notified by the Board in accordance with
the scheme framed and notified by the Central Government in this regard, in the
State of Himachal Pradesh or the State of Uttaranchal; or
(iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2012, in any
Export Processing Zone or Integrated Infrastructure Development Centre or Indus-
trial Growth Centre or Industrial Estate or Industrial Park or Software Technology
Park or Industrial Area or Theme Park, as notified by the Board in accordance with
the scheme framed and notified by the Central Government in this regard, in any of
the North-Eastern States;
(b) which has begun or begins to manufacture or produce any article or thing, specified
in the Fourteenth Schedule or commences any operation specified in that Schedule,
or which manufactures or produces any article or thing, specified in the Fourteenth
Schedule or commences any operation specified in that Schedule and undertakes sub-
stantial expansion during the period beginning—
(i) on the 23rd day of December, 2002 and ending before the 1st day of April, 2012, in the
State of Sikkim; or
(ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the
State of Himachal Pradesh or the State of Uttaranchal; or
(iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2012, in any
of the North-Eastern States.
(3) The deduction referred to in sub-section (1) shall be—
(i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of
clause (a) or sub-clauses (i) and (iii) of clause (b), of sub-section (2), one hundred per
cent of such profits and gains for ten assessment years commencing with the initial
assessment year;
(ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a)
or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits
and gains for five assessment years commencing with the initial assessment year and
thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of
the profits and gains.
(4) This section applies to any undertaking or enterprise which fulfils all the following condi-
tions, namely:—

192 Applied Direct taxation


(i) it is not formed by splitting up, or the reconstruction, of a business already in existence :

Provided that this condition shall not apply in respect of an undertaking which is formed as a
result of the re-establishment, reconstruction or revival by the assessee of the business of any
such undertaking as is referred to in section 33B, in the circumstances and within the period
specified in that section;

(ii) it is not formed by the transfer to a new business of machinery or plant previously
used for any purpose.

Explanation.—The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall


apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause
(ii) of that sub-section.

(5) Notwithstanding anything contained in any other provision of this Act, in computing the
total income of the assessee, no deduction shall be allowed under any other section con-
tained in Chapter VIA or in section 10A or section 10B, in relation to the profits and gains
of the undertaking or enterprise.
(6) Notwithstanding anything contained in this Act, no deduction shall be allowed to any
undertaking or enterprise under this section, where the total period of deduction inclu-
sive of the period of deduction under this section, or under the second proviso to sub-
section (4) of section 80-IB or under section 10C, as the case may be, exceeds ten assess-
ment years.
(7) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA
shall, so far as may be, apply to the eligible undertaking or enterprise under this section.
(8) For the purposes of this section,—
(i) “Industrial Area” means such areas, which the Board, may, by notification in the
Official Gazette, specify in accordance with the scheme framed and notified by the
Central Government;
(ii) “Industrial Estate” means such estates, which the Board, may, by notification in the
Official Gazette, specify in accordance with the scheme framed and notified by the
Central Government;
(iii) “Industrial Growth Centre” means such centres, which the Board, may, by notifica-
tion in the Official Gazette, specify in accordance with the scheme framed and noti-
fied by the Central Government;
(iv) “Industrial Park” means such parks, which the Board, may, by notification in the
Official Gazette, specify in accordance with the scheme framed and notified by the
Central Government;
(v) “Initial assessment year” means the assessment year relevant to the previous year in
which the undertaking or the enterprise begins to manufacture or produce articles or
things, or commences operation or completes substantial expansion;

Applied Direct taxation 193


Deduction in Computing Total Income

(vi) “Integrated Infrastructure Development Centre” means such centres, which the Board,
may, by notification in the Official Gazette, specify in accordance with the scheme
framed and notified by the Central Government;
(vii) “North-Eastern States” means the States of Arunachal Pradesh, Assam, Manipur,
Meghalaya, Mizoram, Nagaland and Tripura;
(viii) “Software Technology Park” means any park set up in accordance with the Software
Technology Park Scheme notified by the Government of India in the Ministry of Com-
merce and Industry;
(ix) “substantial expansion” means increase in the investment in the plant and machinery
by at least fifty per cent of the book value of plant and machinery (before taking
depreciation in any year), as on the first day of the previous year in which the sub-
stantial expansion is undertaken;
(x) “Theme Park” means such parks, which the Board, may, by notification in the Offi-
cial Gazette, specify in accordance with the scheme framed and notified by the Cen-
tral Government.

Deduction in respect of profits and gains from business of hotels and convention centres in
specified area [Sec. 80ID]

(1) Where the gross total income of an assessee includes any profits and gains derived by an
undertaking from any business referred to in sub-section (2) (such business being herein-
after referred to as the eligible business), there shall, in accordance with and subject to the
provisions of this section, be allowed, in computing the total income of the assessee, a
deduction of an amount equal to hundred per cent of the profits and gains derived from
such business for five consecutive assessment years beginning from the initial assessment
year.
(2) This section applies to any undertaking,—
(i) engaged in the business of hotel located in the specified area, if such hotel is con-
structed and has started or starts functioning at any time during the period beginning
on the 1st day of April, 2007 and ending on the 31st day of March, 2010; or
(ii) engaged in the business of building, owning and operating a convention centre, lo-
cated in the specified area, if such convention centre is constructed at any time during
the period beginning on the 1st day of April, 2007 and ending on the 31st day of
March, 2010.
(3) The deduction under sub-section (1) shall be available only if —
(i) the eligible business is not formed by the splitting up, or the reconstruction, of a
business already in existence;
(ii) the eligible business is not formed by the transfer to a new business of a building
previously used as a hotel or a convention centre, as the case may be;

194 Applied Direct taxation


(iii) the eligible business is not formed by the transfer to a new business of machinery or
plant previously used for any purpose.
(iv) the assessee furnishes along with the return of income, the report of an audit in such
form and containing such particulars as may be prescribed, and duly signed and
verified by an accountant, as defined in the Explanation below sub-section (2) of sec-
tion 288, certifying that the deduction has been correctly claimed.
(4) Notwithstanding anything contained in any other provision of this Act, in computing the
total income of the assessee, no deduction shall be allowed under any other section
contained in Chapter VIA or section 10AA, in relation to the profits and gains of the
undertaking.
(5) The provisions contained in sub-section (5) and sub-sections (8) to (11) of section 80-IA
shall, so far as may be, apply to the eligible business under this section.

Special provisions in respect of certain undertakings in North- Eastern States[Sec. 80IE]

(1) Where the gross total income of an assessee includes any profits and gains derived by an
undertaking, to which this section applies, from any business referred to in sub-section
(2), there shall be allowed, in computing the total income of the assessee, a deduction of an
amount equal to hundred per cent of the profits and gains derived from such business for
ten consecutive assessment years commencing with the initial assessment year.
(2) This section applies to any undertaking which has, during the period beginning on the 1st
day of April, 2007 and ending before the 1st day of April, 2017, begun or begins, in any of
the North-Eastern States,—
(i) to manufacture or produce any eligible article or thing;
(ii) to undertake substantial expansion to manufacture or produce any eligible article or
thing;
(iii) to carry on any eligible business.
(3) This section applies to any undertaking which fulfils all the following conditions, namely:—
(i) it is not formed by splitting up, or the reconstruction, of a business already in
existence :
Provided that this condition shall not apply in respect of an undertaking which is
formed as a result of the re-establishment, reconstruction or revival by the assessee of
the business of any such undertaking as referred to in section 33B, in the circum-
stances and within the period specified in the said section;
(ii) it is not formed by the transfer to a new business of machinery or plant previously
used for any purpose.

Explanation.—The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall


apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause
(ii) of that sub-section.

Applied Direct taxation 195


Deduction in Computing Total Income

(4) Notwithstanding anything contained in any other provision of this Act, in computing the
total income of the assessee, no deduction shall be allowed under any other section con-
tained in Chapter VIA or in section 10A or section 10AA or section 10B or section 10BA, in
relation to the profits and gains of the undertaking.
(5) Notwithstanding anything contained in this Act, no deduction shall be allowed to any
undertaking under this section, where the total period of deduction inclusive of the pe-
riod of deduction under this section, or under section 80-IC or under the second proviso to
sub-section (4) of section 80-IB or under section 10C, as the case may be, exceeds ten as-
sessment years.
(6) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA
shall, so far as may be, apply to the eligible undertaking under this section.

DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM BUSINESS OF


COLLECTING AND PROCESSING OF BIO- DEGRADABLE WASTE. [Sec. 80JJA]

With effect from assessment year 1999-2000, where the gross total income of an assessee in-
clude profits and gains derived from the business of collecting and processing or treatment of
bio-degradable waste for generating power, or producing bio-fertilizers, bio-pesticides or other
biological agents or for producing bio-gas or making patents these shall be allowed in comput-
ing the total income of the assessee, a deduction of an amount equal to the whole of such
profits and gains for a period of five consecutive assessment years beginning with the assess-
ment year relevant to the previous year in which such business commences.

DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW WORKMEN [Sec 80JJAA]

With effect from assessment year 1999-2000, an Indian company is alongwith for deduction
provided the following conditions are satisfied :

(i) The gross total income of the assessee includes profits and gains derived from any indus-
trial undertaking
(ii) Such industrial undertaking is engaged in the manufacture or production of article or
thing.
(iii) Such industrial undertaking is not forwarded by (a) splitting up of an existing undertak-
ing, or (b) reconstruction of an existing undertaking or (c) amalgamation with another
Industrial undertaking.
(iv) The assessee employs new regular workmen in the previous year
(v) The assessee furnishes the report of a chartered accountant in Form No. 10DA [Rule 19AB]
Deduction is available for 3 previous years commencing from the previous year in which such
employment is provided.

196 Applied Direct taxation


Amount of deduction

(i) New Industrial undertaking : 30% of the wages paid to regular workmen in excess of 100
regular workmen employed during the year.
(ii) Existing undertaking : 30% of the wages paid to new regular workmen provided these is
at least 10% increase in number of regular workmen over the existing member of work-
men employed in such undertaking, as on the last day of the preceding year.

Regular workmen

It does not include :–


(a) a casual workmen or
(b) a workmen employed through contract labour; or
(c) any other workman employed for a period of less than 300 days during the previous year.

Deductions in respect of certain incomes of Offshore Banking Units and International Fi-
nancial Services Centre [ Sec. 80LA]

(1) Where the gross total income of an assessee,—


(i) being a scheduled bank, or, any bank incorporated by or under the laws of a country
outside India; and having an Offshore Banking Unit in a Special Economic Zone; or
(ii) being a Unit of an International Financial Services Centre, includes any income re-
ferred to in sub-section (2), there shall be allowed, in accordance with and subject to
the provisions of this section, a deduction from such income, of an amount equal to—
(a) one hundred per cent of such income for five consecutive assessment years beginning
with the assessment year relevant to the previous year in which the permission, un-
der clause (a) of sub-section (1) of section 23 of the Banking Regulation Act, 1949 (10
of 1949) or permission or registration under the Securities and Exchange Board of
India Act, 1992 (15 of 1992) or any other relevant law was obtained, and thereafter;
(b) fifty per cent of such income for five consecutive assessment years.
(2) The income referred to in sub-section (1) shall be the income—
(a) from an Offshore Banking Unit in a Special Economic Zone; or
(b) from the business referred to in sub-section (1) of section 6 of the Banking Regulation
Act, 1949 (10 of 1949) with an undertaking located in a Special Economic Zone or any
other undertaking which develops, develops and operates or develops, operates and
maintains a Special Economic Zone; or
(c) from any Unit of the International Financial Services Centre from its business for
which it has been approved for setting up in such a Centre in a Special Economic
Zone.

Applied Direct taxation 197


Deduction in Computing Total Income

(3) No deduction under this section shall be allowed unless the assessee furnishes along with
the return of income,—
(i) the report, in the form specified by the Central Board of Direct Taxes under clause (i)
of sub-section (2) of section 80LA, as it stood immediately before its substitution by
this section, of an accountant as defined in the Explanation below sub-section (2) of
section 288, certifying that the deduction has been correctly claimed in accordance
with the provisions of this section; and
(ii) a copy of the permission obtained under clause (a) of sub-section (1) of section 23 of
the Banking Regulation Act, 1949 (10 of 1949).

Explanation.—For the purposes of this section,—

(a) “International Financial Services Centre” shall have the same meaning as assigned to it in
clause (q) of section 2 of the Special Economic Zones Act, 2005;
(b) “scheduled bank” shall have the same meaning as assigned to it in clause (e) of section 2 of
the Reserve Bank of India Act, 1934 (2 of 1934);
(c) “Special Economic Zone” shall have the same meaning as assigned to it in clause (za) of
section 2 of the Special Economic Zones Act, 2005;
(d) “Unit” shall have the same meaning as assigned to it in clause (zc) of section 2 of the
Special Economic Zones Act, 2005.

DEDUCTION IN RESPECT OF CO-OPERATIVE SOCIETIES [Sec. 80P]

The following amounts are allowed as deduction under this section –


(i) 100% of the profits attributable to any or more of the following activities in the case of a
cooperative society engaged in –
a) carrying on business of banking or providing credit facilities to its members; or
b) a cottage industry; or
c) the marketing of the agricultural produce of its members; or
d) the purchase of agricultural implements, seeds, live stock or other articles intended
for agriculture for the purpose of supplying them to its members;
e) processing without aid of power of the agricultural produce of its members; or
f) the collective disposal of the labour of its members; or
g) fishing or allied activities; or
h) primary cooperative society engaged in supplying milk raised by its member to a
Federal Milk Coop. Society or to the Government or a local authority or a Govt. Com-
pany or Corporation established under Central/State or Provincial, Act. Similar ben-
efit is also extended to a primary Cooperative Society engaged in supplying oilseeds,
fruits and vegetables raised or grown by its members.

198 Applied Direct taxation


(ii) The whole of interest and dividend income derived by a Cooperative Society from its
investments in any other Cooperative Society;
(iii) The whole of interest income from securities and property income in the case of a Coop-
erative Society other than housing society or an urban Consumer Society or a Society car-
rying on transport business where gross total income does not exceed Rs. 20,000.

Urban Consumer Cooperative Society means a society for the benefit of consumers within the
limits of municipal corporation, municipality, municipal committee, notified area committee,
town are or cantonment.

(iv) In respect of other activities carried on either independently or in addition to above activi-
ties upto a sum of Rs. 50,000 (Rs. 1,00,000 in case of consumer corporation society) – U/s.
80 P (2)(c).

Case Laws:

Where the assessee-society was engaged in the business of purchasing autorickshaws and re-
selling them to its members on hire-purchase terms, the said activity could not be treated as
providing ‘credit facilities’ to its members, under section 80P(2)(a)(i) of the Act - Madras Auto
Rickshaw Drivers’ Co-op. Society v. CIT 117 Taxman 370.

The income derived from the investment in Government securities placed with the SBI/RBI
could not be regarded as an essential part of its banking activity inasmuch as the same did not
form part of its stock-in-trade or working/circulating capital. Therefore, interest earned by the
assessee from such securities did not qualify for exemption under section 81 - Madhya Pradesh
Co-operative Bank v. Addl. CIT 84 Taxman 640/218 ITR 438.

DEDUCTION IN RESPECT OF ROYALTY OF AUTHORS [Sec. 80QQB]

Allowable to : Any resident individual, being an author/joint author, in respect of any in-
come by way of Lump sum consideration or royalty or copyright fees for assignment or grant
of any of his Interests in the copyright of any book.

Amount of Deduction: 100% of the royalty income etc. subject to a maximum of Rs. 3,00,000
In case of royalty or copyright fees, not in lump sum consideration, deduction shall be re-
stricted to 15% of the value of books sold during the previous year.

Conditions:

(1) The assessee shall furnish a certificate in form 10CCD .


(2) In case of income received from a source outside India, the assessee shall furnish a certifi-
cate in form 10H

Applied Direct taxation 199


Deduction in Computing Total Income

DEDUCTION IN RESPECT OF ROYALTY ON PATENTS [Sec. 80RRB]

Allowable to : Any resident individual, being a patentee, registered under the Patents Act,
1970 on or after 1.4.2003, as the true and first inventor in respect of an invention, including a co-
owner of the patent. The deduction is not available to assignees or mortgagees in respect of all
or any rights the patent. 1
2
Amount of Deduction: 100% of such income subject to a maximum Rs. 3,00,000.

Conditions: The assessee shall furnish along with his return.


(a) a certificate in form 10CCE duly signed by the Controller under Patents Act.
3
(b) a certificate in form 10H , in case of income received from abroad, certifying that the de- 4
duction has been correctly claimed in accordance with this section.

DEDUCTION IN RESPECT OF TOTALLY BLIND OR MENTALLY RETARDED OR PHYSI-


CALLY HANDICAPPED PERSON [Sec. 80U]

A resident individual suffering from permanent physical disability or total blindness or partial
blindness or mental retardation reducing his capacity substantially for gainful employment is
allowed a deduction of Rs. 50,000 or Rs. 75,000 in case of severe disability. The extent of blind-
ness or other physical disability has to be certified by a Registered Medical Practitioner of the
concerned discipline.

Such certificate has to be obtained from a physician, surgeon, etc. working in a Govt. Hospital.
For the purpose of Sec. 80U of the Income Tax Act, 1961 any of the following disabilities shall
be regarded as a permanent physical disability [Rule 11DD] e.g.–

200 Applied Direct taxation


(i) permanent physical disability of more than 50% in one limb; or
(ii) permanent physical disability of more than 60% in two or more limbs; or
(iii) permanent deafness with hearing impairment of 71 decibels and above; or
(iv) permanent and total loss of voice.

A person shall be regarded as suffering from mental retardation if his intelligence quotient is
less than 50 on a test with a mean of 100 and a standard deviation of 15, such as the Wechsle scale

Summery:

SEC CRITERION ELIGIBLE MAJOR CONDITIONS


ASSESSEE
80C Investments and Individual, i) Only Specified savings qualify for deduction
Application of HUF from gross total income u/s 80C(2).
Funds ii) Contribution to any fund will not include any
sums in repayment of loan taken from that fund.
80CCC Investments and Individual i) The assessee has in the previous year paid or
Application of deposited any amount out of his income chargeable
Funds to tax.
80CCD Investments and Individual i) The assessee should be employed by the Central
Application of Government.
Funds ii) The assessee has in the previous year paid or
deposited any amount in his account under a
pension scheme notified or as may be notified by
the Central Government.
80D Investment or Individual or i) Medical Insurance premia should be paid by the
application of HUF cheque.
funds during the ii) Such insurance is in accordance with a scheme
previous year by framed in this behalf by GICI or any other insurer
cheque. & framed by Insurance Regulatory & Development
Authority.
80DD Expenditure for Individual or i) The assessee must have incurred the expenditure
medical HUF in respect of medical treatment.
treatment ii) the assessee is required to nominate either the
during the dependent being the person with disability or any
previous year other person or trust to receive the payment in this
Applied Direct taxation behalf, for the benefit of the dependent. 201
80DDB The amount Individual or i) The assessee has actually paid the amount during
should be HUF the previous year.
actually paid for ii) The assessee is required to furnish a certificate in
the medical prescribed Form No. 1 with the return of income.
treatment of
specified
Deduction in Computing Total Income

80

80

80

202 Applied Direct taxation


REBATES & RELIEF
Rebate of income-tax

REBATE TO BE ALLOWED IN COMPUTING INCOME-TAX [Sec. 87]


(1) In computing the amount of income-tax on the total income of an assessee with which he
is chargeable for any assessment year, there shall be allowed from the amount of income-
tax (as computed before allowing the deductions under this Chapter), in accordance with
and subject to the provisions of [sections 88, 88A, 88B, 88C, 88D and 88E], the deductions
specified in those sections.
(2) The aggregate amount of the deductions under section 88 or section 88A [or section 88B]
[or section 88C] [or section 88D or section 88E] shall not, in any case, exceed the amount of
income-tax (as computed before allowing the deductions under this Chapter) on the total
income of the assessee with which he is chargeable for any assessment year.

Rebate in respect of securities transaction tax [Sec. 88]


(1) Where the total income of an assessee in a previous year includes any income, chargeable
under the head “Profits and gains of business or profession”, arising from taxable securi-
ties transactions, he shall be entitled to a deduction, from the amount of income-tax on
such income arising from such transactions, computed in the manner provided in sub-
section (2), of an amount equal to the securities transaction tax paid by him in respect of
the taxable securities transactions entered into in the course of his business during that
previous year:
Provided that no deduction under this sub-section shall be allowed unless the assessee
furnishes along with the return of income, evidence of payment of securities transaction
tax in the prescribed form
Provided further that the amount of deduction under this sub-section shall not exceed
the amount of income-tax on such income computed in the manner provided in sub-
section (2).
(2) For the purposes of sub-section (1), the amount of income-tax on the income arising from
the taxable securities transactions, referred to in that sub-section, shall be equal to the
amount calculated by applying the average rate of income-tax on such income.

Relief for income-tax

Relief when salary, etc., is paid in arrears or in advance [Sec. 89]


Where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in
advance or is in receipt, in any one financial year, of salary for more than twelve months or a
payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, or is
in receipt of a sum in the nature of family pension as defined in the Explanation to clause (iia) of
section 57, being paid in arrears, due to which his total income is assessed at a rate higher than
that at which it would otherwise have been assessed, the Assessing Officer shall, on an applica-
tion made to him in this behalf, grant such relief as may be prescribed.

Applied Direct taxation 203