7.Deductions Under Sec 80C to 80U - Reference

Prof. Mayur Malviya Page 1

PERMISSIBLE DEDUCTIONS FROM GROSS TOTAL INCOME

Financial Year 2011-12 (Assessment Year 2012-13)

There are certain investments or savings or expenditures which are deducted from gross total income of

certain specified tax payers. Mostly, these payments relate to future savings of income tax payers. The

Government of India permits these payments as deductions from gross total income because of following

reasons:-

1. India is a developing country and basic aim of any democratic country is to make sure that every

citizen of the country is financially sound. It is also a method for developing the habits of saving

among the tax payers. The country also will be solid from finance point of view, automatically.

2. Normally, these savings are for long terms and investments are made in government institutions,

infrastructure companies etc. Therefore, these institutions need not to go for loan from outside

country.

3. Taxpayers get interest on their investment, tax benefits, risk cover of life and good amount in future

to meet their social obligations.

Chapter VI-A of Indian Income Tax Act deals with these deductions. For financial year 2011-12

(Assessment Year 2012-13), following are few important deductions which are allowed from gross total

income:-

U/S 80-C (For Individuals and HUF)

1. Life Insurance Premium paid for self/wife/husband/child. In case of HUF, life insurance premium

paid for any member of HUF.

2. Premium paid on deferred annuity plan.

3. Contribution to Provident Fund by income tax payers (Only employees’ contribution).

4. Deposit with Public Provident Fund up to Rs.70000/=. (With effect from 13.05.2005 HUFs are not

permitted to open PPF Account. However, accounts already open shall continue till maturity. No

extension shall be allowed)

5. Investment in National Saving Certificates.

6. Interest accrued on NSC is deemed to be reinvested. Therefore, accrued interest amount is allowed

as deduction under section80-C

7. Contribution In Unit Link Insurance Plan Of UTI/LIC Mutual Fund

8. Contribution to a specified pension fund.


9. Tuition fees whether at the time of admission or thereafter (maximum for two children.

10. Repayment of loan installment for residential house but any deduction made u/s 24 out of income

from house property cannot be allowed.

11. Subscription of equity shares of any Indian public company in infrastructure business.

12. Fix Deposit with scheduled banks at least for 5 years.

13. Five year post office time deposit account.

Note: Maximum amount of deduction under above heads will be Rupees one lac only.

U/S 80-CCC (Allowed for individual tax-payers)

If any amount is contributed to Pension Fund of Life Insurance Corporation of India (Jeevan Suraksha) or

of other insurance companies, shall be allowed as deduction.

Note:

� Maximum amount of deduction of Rs.100000/= is allowed.

� Any amount received under this plan shall be taxable at the time of receipt.

U/S 80-CCD (Allowed for individual tax-payers)

Deduction in respect of any amount contributed to Pension Scheme of Central Government.

Note:

� In case of employee the amount should not exceed 10% of his salary.

� In case of other individuals the amount should not exceed 10% of his gross total income.

� Any amount received under this plan shall be taxable at the time of receipt.

Note: The aggregate amount of deduction u/s 80-C, 80-CCC & 80-CCD is Rs.100000/=

(80-CCF) (Allowed for individuals and HUF tax-payers)

If any amount is invested in Long Term Infrastructure Bonds, maximum deduction up to Rs.20000/= will

be allowed.


U/S 80-D Mediclaim (Allowed for individuals and HUF tax-payers)

� Medical Insurance of assessee/wife/ or dependent children Rs.15000/=. (Rs.20000/= if any one is

senior citizen 65 years or more).

� For parents Rs.15000/= (Rs.20000/= if any one is senior citizen 65 years or more).

U/S 80-E (For Individuals) Education Loan: Interest on loan taken for Higher education for

himself/spouse/children and for children for whom the assessee is a legal guardian.

Notes: Any amount of interest paid by the assessee, will be allowed as deduction from taxable income for

a maximum of 8 years beginning from the year in which payment of interest on the loan begins or till the

interest is paid in full, whichever is earlier.

Higher Education means any course or study, pursued after passing senior secondary examination or

equivalent.

U/S 80-G (For All tax-payers) Donation: 100% or 50% as the case may be, from the taxable income.

Section 80G offers a tax deduction for donations to certain prescribed funds and charitable institutions. Here

are the details of the section.

New change in Budget 2012-Any payment exceeding Rs 10,000/- shall only be allowed as deduction under

section 80G and 80GGA if such amount is paid by any other mode than cash . This change is appplicable from

financial year 2012-2013.

Eligible Assesses

This section is applicable to all assessees, who make an eligible donation, whether an individual, HUF, NRI or

a company.

Deduction Limit

The extent of deduction is either 50% or 100% of the contribution, depending on the charitable institution

donated to.

For certain funds, the aggregate deduction is limited to 10% of the “Adjusted Gross Total Income”. So, in such

cases, even if you do make a donation larger than 10% of your Adjusted Gross Total Income, the donation

amount eligible for claiming a deduction would be capped at 10% of the Adjusted Gross Total Income.


The Adjusted Gross Total in this case, is the gross total income minus long-term capital gain, short term capital

gain and all deductions u/s 80CCC to 80U except any deduction under this section.

Scope of Deduction

• The donation may be paid either out of taxable or exempted income.

• Only donations made in cash or cheque are eligible for deductions. Donations made in kind, in the form of

food, clothing, medicines etc are not eligible.

• Donations to foreign charitable trusts or to political parties are not eligible for any deduction.

• For donations made to Indian Olympic Association, any association notified u/s 10(23) for development of

infrastructure for sports or games, or for sponsorship of sports or games, only a company is eligible for

deduction.

• Donations made to not all charitable institutions qualify for a deduction. Here is a list of approved

charitable institutions and funds that qualify for a deduction.

Donations with 100% deduction without any qualifying limit:

• Prime Minister’s National Relief Fund

• National Defense Fund set up by Central govt.

• Prime Minister’s Armenia Earthquake Relief Fund

• The Africa (Public Contribution – India) Fund

• The National Foundation for Communal Harmony

• Approved university or educational institution of national eminence

• The Chief Minister’s Earthquake Relief Fund, Maharashtra

• Donations made to Zila Saksharta Samitis.

• The National Blood Transfusion Council or a State Blood Transfusion Council.

• The Army Central Welfare Fund or the Indian Naval Benevolent Fund or The Air Force Central Welfare

Fund.

• Maharashtra Chief Minister’s Earthquake relief fund.

• Any fund set up by the state govt. of Gujarat for providing relief for Earth quake relief to the victims of

earthquake in Gujarat.

• The National blood transfusion council or any state blood transfusion council

• Any fund set up by the state government to provide medical relief to the poor.

• The Andhra Pradesh Chief Minister’s Cyclone relief fund, 1996

• National Illness assistance fund.

• The Chief Minister’s relief fund or the lieutenant Governor’s relief fund in respect of any state or union

territory.

• National sports fund set up by Central Government.

• National Cultural fund set up by the central Government.

• Fund for technology development and application, set by the central govt.

• National trust for Welfare of persons with autism, cerebral palsy, mental retardation and multiple

disabilities.

Donations with 50% deduction without any qualifying limit.

• Jawaharlal Nehru Memorial Fund

• Prime Minister’s Drought Relief Fund


• National Children’s Fund

• Indira Gandhi Memorial Trust

• The Rajiv Gandhi Foundation

Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross total income

• Donations to the Government or a local authority for the purpose of promoting family planning.

• Sums paid by a company to Indian Olympic Association or any other association/ institution established in

India and notified in by the central govt. for the development for infrastructure for sports and games or

sponsorship of sports and games in India.

Donations to the following are eligible for 50% deduction subject to 10% of adjusted gross total income

• Donation to the Government or any local authority to be utilized by them for any charitable purposes other

than the purpose of promoting family planning.

Note: If the aggregate of donations made by the assessee in certain cases exceeds 10% of his gross total

income, such excess shall not qualify for deduction.

Gross total income for this purpose shall be reduced by following amounts:-

� deductions allowable u/s 80-C to 80-U (except 80-G)

� Income on which tax is not payable

� Long term capital gains

� Short term capital gains taxable at special rate u/s 111-A

Review of Deduction under section 80G

INSPITE of all the contributions made to social causes, there is a huge gap between the demand

of money from the needy and the amount donated by philanthropists. This probably, is the reason

why the Government has given tax benefits on donations. The amount donated towards charity

attracts deduction under section 80G of the Income Tax Act, 1961. Section 80G has been in the

law book since financial year 1967-68 and it seems it’s here to stay. Several deductions have

been swept away but the tax sop for donations appears to have survived the axe. The main

features of tax benefit with respect to charity are as follows:

Allowable to all kind of Assessee:- Any person or ‘assessee’ who makes an eligible donation is

entitled to get tax deductions subject to conditions. This section does not restrict the deduction to

individuals, companies or any specific category of taxpayer.

Donation to Foreign Trust:- Donations made to foreign trusts do not qualify for deduction

under this section.


Donation to Political Parties:- You cannot claim deduction for donations made to political

parties for any reason, including paying for brochures, souvenirs or pamphlets brought out by

such parties.

Only donation made to made to prescribed funds and institutions qualify for deduction: - All donations are not eligible for tax benefits. Tax benefits can be claimed only on specific

donations i.e. those made to prescribed funds and institutions.

Maximum allowable deduction:- If aggregate of the sums donated exceed 10% of the adjusted

gross total income, the amount in excess of 10% ceases to be entitled for tax benefit.

Documentation Required for Claiming deduction U/s. 80G

• Stamped receipt: For claiming deduction under Section 80G, a receipt issued by the recipient

trust is a must. The receipt must contain the name , address & PAN of the Trust, the name of the

donor, the amount donated (please ensure that the amount written in words and figures tally). In

case of donation which are eligible for 100% deduction recipient should also insist on form 58

from trust. Form 58 contains the details of project cost (for which the donation is received),

amount authorised under this project and the actual amount collected. Without form 58, the claim

for 100% deduction could be rejected even if the receipt mentions 100% deduction.

• Mention of Registration No. of the Trust Under 80G on receipt:- The most important

requirement is the Registration number issued by the Income Tax Department under Section 80G.

This number must be printed on the receipt. Generally, the Income Tax Department issues the

registration for a limited period (of 2 years) only. Thereafter, the registration has to be renewed.

The receipt must not only mention the Registration number but also the validity period of the

registration.

• Validity of Registration U/s. 80G on the date of Donation:- The donor must ensure that the

registration is valid on the date on which the donation is given. For example, the registration of a

trust may be valid from April 1, 2007 to March 31, 2009. Now, if the trust does not get its

registration renewed on or after April 1, 2009 then even if donation receipt is issued by the trust

to the donor for donations received on or after April 1, 2009, the donor would not get any tax

benefit.

With Effect from 1st October 2009 it is not required for a trust to apply for renewal of 80G

certificate, if the same is valid on 01.10.2010 or valid upto a date thereafter unless

department specifically ask Trust to apply for renewal. So Old 80G certificate will remain

valid if the same is valid

• Photocopy of the 80G certificate :- Check the validity period of the 80G certificate. Always

insist on a photocopy of the 80G certificate in addition to the receipt.

Only donations in cash/cheque are eligible for the tax deduction:-Donations in kind do not

entitle for any tax benefits. For example, during natural disasters such as floods, earthquake, and

many organisations start campaigns for collecting clothes, blankets, food etc. Such donations

will not fetch you any tax benefits.

Donation made by NRI: - NRIs are also entitled to claim tax benefits against donations, subject

to the donations being made to eligible institutions and funds.


Deduction if donation deducted from Salary and donation receipt certificate is on the name

of employer:- Employees can claim deduction u/s 80G provided a certificate from the Employer

is received in which employer states the fact that The Contribution was made out from

employee’s salary account.

Limit on donation amount: -There is no upper limit on the amount of donation. However in

some cases there is a cap on the eligible amount i.e. a maximum of 10% of the gross total

income.

Deduction amount U/s. 80G:- Donations paid to specified institutions qualify for tax deduction

under section 80G but is subject to certain ceiling limits. Based on limits, we can broadly divide

all eligible donations under section 80G into four categories:

a) 100% deduction without any qualifying limit (e.g., Prime Minister’s National Relief Fund).

b) 50% deduction without any qualifying limit (e.g., Indira Gandhi Memorial Trust).

c) 100% deduction subject to qualifying limit (e.g., an approved institution for promoting family

planning).

d) 50% deduction subject to qualifying limit (e.g., an approved institution for charitable purpose

other than promoting family planning).

For list of Institution donation to whom is eligible to 100% deduction without any

qualifying limit, eligible to 50% deduction without any qualifying limit, 100% & Subject to

qualifying limit and of those eligible for 50% deduction subject to qualifying limit please check

the link given below:-

http://www.incometaxindia.gov.in/Acts/INCOME%20TAX%20Act/80g.asp

Qualifying Limit:- The qualifying limits u/s 80G is 10% of the adjusted gross total income. The

limit is to be applied to the adjusted gross total income. The ‘adjusted gross total income’ for this

purpose is the gross total income (i.e. the sub total of income under various heads) reduced by

the following:

• Amount deductible under Sections 80CCC to 80U (but not Section 80G)

• Exempt income

• Long-term capital gains

• Income referred to in Sections 115A, 115AB, 115AC, 115AD and 115D, relating to non-residents

and foreign companies.

Eligible Donation:- There are thousands of trusts registered in India that claim to be engaged in

charitable activities. Many of them are genuine but some are untrue. In order that only genuine

trusts get the tax benefits, the Government has made it compulsory for all charitable trusts to

register themselves with the Income Tax Department. And for this purpose the Government has

made two types of registrations necessary u/s. 12A & U/s. 80G. Only if the trust follows the

registration U/s. 12A, they will get the tax exemption certificate, which is popularly known as


80G certificate. The government periodically releases a list of approved charitable institutions

and funds that are eligible to receive donations that qualify for deduction. The list includes trusts,

societies and corporate bodies incorporated under Section 25 of the Companies Act 1956 as non-

profit companies.

Tax benefit depends on rate of Tax applicable to the Assessee:- Let us take an illustration.

Mr. X an individual and M/s. Y Pvt. Ltd., a Company both give donation of Rs. 1,00,000/- to a

NGO called Satyakaam. The total income for the A.Y. year 2011-2012 of both Mr. X and Ms. Y

Pvt. Ltd. is Rs. 3,00,000/-. The tax benefit would be as shown in the table:

Mr. X MS. Y Pvt. Ltd.

i) Total Income for the year 2011-12 3,00,000.00 3,00,000.00

ii) Tax payable before Donation 14,000.00 90,000.00

iii) Donation made to charitable organisations 1,00,000.00 1,00,000.00

iv) Qualifying amount for deduction (50% of donation

made) 50,000.00 50,000.00

v) Amount of deduction u/s 80G (Gross Qualifying

Amount subject to a maximum limit 10% of the Gross

Total Income)

30,000.00 30,000.00

iv) Taxable Income after deduction 2,70,000.00 2,70,000.00

v) Tax payable after Donation 11,000.00 81,000.00

vi) Tax Benefit U/S 80G (ii)-(v) 3,000.00 9,000.00

Note :

• Education Cess & Sec. & Higher Educ. Cess has not been included in working of tax benefit.

IILUSTRATION OF BENEFITS UNDER SECTION 80G

1. Donations to private trusts

Step 1: Find out the qualifying amount

The qualifying amount under this category will be lower of the following two amounts:

a) The amount of donation


b) 10 per cent of the gross total income as reduced by all other deductions under Chapter VI-A of

the Income Tax Act such as 80C (PPF, LIC etc.), 80D (mediclaim), 80CCC (pension schemes

etc.).

For example, a taxpayer named Laxmi Arcelor as taxable salary of Rs 500,000. He has deposited

Rs 70,000 in Public Provident Fund and Rs 60,000 in his company provident fund. He donates

Rs 45,000 to CRY (Child Relief & You) trust. Presuming he has no other income & presuming

that Donation is eligible for 50% deduction, his taxable income will be computed as under:

Gross salary Rs 500,000

Less: Deduction under section 80C

restricted to Rs 100,000

Gross total income (before 80G) Rs 400,000

After making donation to CRY, his qualifying amount for 80G will be:

Actual amount of donation Rs 45,000

10% of Gross total income as computed

above

Rs 40,000 whichever is

lower

Since 40,000 is lower, the qualifying amount will be Rs 40,000

Step 2: Find out actual deduction

The next question that arises is how much would be the actual deduction? In the case of

donations to private trusts, the actual amount of donation would be 50 per cent of the qualifying

amount.

Therefore, in the example given above, since the donation is made to a private trust, the

deduction will be 50 per cent of the qualifying amount ie 50 per cent of Rs 40,000 = Rs 20,000.

So,

Gross total income (Before 80G) Rs 400,000

Less: deduction under section 80G Rs 20,000

Total income (taxable income) Rs 380,000

Step 3: Check upper limit

Finally, the deduction under section 80G cannot exceed your taxable income. For example, if


your income before deduction is Rs 3 lakh and if you have given donation of Rs 5 lakh to the

Prime Minister’s National Relief Fund, please do not expect to claim a loss of Rs 2 lakhs. Your

income will be NIL (Rs 3 lakh – Rs 3 lakh). The deduction will be restricted to the amount of

your income.

ii) Donations to trusts/funds set up by the Government In this category, the entire amount donated i.e. 100 per cent of the donation amount is eligible for

deduction. There is a long list of 21 funds/institutions/purposes for which donations given would

qualify for 100 per cent eligibility. Notable among this list are:

- The National Defence Fund

- The Prime Minister’s National Relief Fund

- Any fund set up by the State Government of Gujarat for earthquake relief

The funds that figure in this long list are all set up by the Government. Private Trusts do not

figure in this list.

Thus, in this category of donations, the ceiling of 10 per cent of the gross total income as reduced

by all other deductions under Chapter VI-A of the Income Tax Act does not apply.

In the above example, if instead of donating to CRY, had the donation been given to say, The

Prime Minister’s National Relief Fund, then the calculations would have different as shown

below:

Gross Total Income (Before 80G) Rs 400,000

Less: Deduction under section 80G Rs 45,000

Total Income (Taxable Income) Rs 355,000

U/S 80-GG (DEDUCTION IN RESPECT OF RENT PAID

(Allowed for Individuals only)

This deduction is allowed to all individual whether employed or otherwise, for rent paid for residential

accommodation subject to following conditions:-


1. He/she, spouse, or minor child does not own any residential house at the place of employment or

business or profession.

2. The assessee does not any residential house at any other place which is valued under self-occupied

property.

Least of the following amount will be allowed as deduction:-

1. Rent paid minus 10% of his/her total income or

2. Rs.2000/= per month or

3. 25% of total income

Note: Total income here means that income after deducting all the deductions from section 80-C to 80-U

except u/s 80-GG and also will be reduced by short term capital gain and long term capital gains.

U/S 80-GGB AND 80-GGC (DONATION TO POLITICAL PARTIES)

(Allowed to all tax-payers)

Any donation paid to any political party who is registered under section 29-A of Representation of the

People Act,1951 or an electoral trust. 100% deduction is allowed for any amount paid as donation to such

political parties.

U/S 80-QQB (DEDUCTION IN RESPECT OF ROYALTY INCOME OF AUTHORS

(Allowed for individual being an author or joint author)

100% Deduction will be allowed in respect of royalty received subject to maximum of Rs.300000/=

U/S 80-RRB (DEDUCTION IN RESPECT OF ROYALTY INCOME ON PATENT

(Allowed for individual being registered patentee)

100% Deduction will be allowed in respect of royalty received subject to maximum of Rs.300000/=

U/S 80-U (DEDUCTION IN RESPECT OF DISABLED PERSON)


(Allowed to individual suffering from any disability)

Deduction of Rs.50000/= is allowed for disabled assessee but in case of severe disability a deduction of

Rs.100000/= will be allowed.

Illustration:

Calculate taxable income for financial year 2011-12 (assessment year 2012-13) of Mr.X who is 66 years

old, from the following details:-

Net Income from Business Rs.600000/=

Bank interest received Rs.40000/=

Dividend received mutual funds Rs.20000/=

Invested in Public Provident Fund Rs.70000/=

NSC purchased for Rs.20000/=

Life Insurance Premium paid for self Rs.40000/=

Mediclaim Insurance premium paid Rs.25000/=

Invested in long term Infrastructure bonds Rs.30000/=

Accrued interest on NSC Rs.6000/=

Solution:

COMPUTATION OF TAXABLE INCOME OF MR. X

INCOME FROM BUSINESS & PROFESSION


INCOME FROM BUSINESS 600000

INCOME FROM OTHER SOURCES

BANK INTEREST 40000

ACCRUED INTEREST ON NSC 6000

DIVIDEND FROM MUTUAL FUNDS

(EXEMPT FROM TAX) 20000 0

46000

GROSS TOTAL INCOME 646000

LESS: DEDUCTION CHAPTER VI-A

U/S 80-C

DEPOSIT WITH PPF 70000

NSC PURCHASED 20000

LIFE INSURANCE PREMIUM 40000

ACCRUED INTEREST ON NSC

(RE-INVESTMENT) 6000

TOTAL INVESTMENT U/S 80-C 136000

DEDUCTION RESTRICTED TO 100000


U/S 8080-CCF

INVESTMENT IN INFRASTRUCTURE BONDS 30000

DEDUCTION RESTRICTED TO 20000

U/S 80-D

MEDICLAIM INSURANCE 25000

DEDUCTION RESTRICTED TO 20000 140000

NET TAXABLE INCOME 506000

(B)

Financial Year 2012-13 (Assessment Year 2013-14)

During financial year 2012-13 (Assessment Year 2013-14) few changes have been made. According to

Financial Budget’2012 following changes have been made:-

Deduction u/s 80CCF:- In respect of investment in infrastructure bonds has been discontinued with

effect from 01.04.2012.

Deduction u/s 80-D:- Age limit of senior citizen is reduced to 60 years from 65 years, to avail the

deduction of medical insurance premium up to Rs.20000/=.

Deduction u/s 80-TTA:- A new section has been added under Chapter – VI-A in respect of deduction of

interest from saving bank accounts. This deduction is available to Individuals or Hindu Undivided Family

only. The maximum amount of deduction under this section is Rs.10000/=. This deduction is allowed in

case of saving bank accounts only not in respect of interest from fix deposits with banks.

Illustration:


Calculate taxable income of Mr. X for financial year 2012-13 (assessment year 2013-14) who is 68 years

old, from the following details:-

PARTICULARS AMOUNT

(In Rupees)

Net Income from Business (Proprietorship Firm) 500000

Bank interest received on fixed deposits 40000

Interest received from Saving Bank Accounts 15000

Dividend received mutual funds 22000

NSC purchased 15000

Deposited in Public Provident Fund Account 100000

Invested in long term Infrastructure bonds 20000

Mediclaim Insurance premium paid 26000

Accrued interest on NSC 6000

Solution:

COMPUTATION OF TAXABLE INCOME OF MR. X

PARTICULARS AMOUNT AMOUNT AMOUNT


(In Rupees) (In Rupees) (In Rupees)

INCOME FROM BUSINESS

Profit from proprietorship firm 500000

INCOME FROM OTHER SOURCES

Bank interest received on fix deposits 40000

Interest received from Saving Bank Accounts 15000

Dividend received from Mutual Funds 22000 0

Accrued Interest on NSC 6000 61000

GROSS TOTAL INCOME 561000

LESS: DEDUCTIONS UNDER CHAPTER VI-A

U/S 80-C

Investment in NSC 15000

Deposited in Public Provident Fund 100000

Accrued Interest on NSC 6000

Total investment u/s 80-C 121000

Deduction u/s 80-C restricted to 100000


U/S 80-D

Medical Insurance Premium paid 26000

Deduction u/s 80-D restricted to 20000

U/S 80-TTA

Interest from Saving Bank Accounts 10000

Gross Deductions Allowed u/s Chapter VI-A 130000 130000

NET TAXABLE INCOME 431000

Note:

1. Mr X is Senior Citizen. Therefore, mediclaim insurance premium paid by him shall be allowed for

Rs.20000/=

2. Investment in Infrastructure Bonds is not allowed as deduction under Chapter VI-A with effect from

financial year 2012-13 (Assessment Year 2013-14)

3. Dividend from Mutual Funds is fully exempted.

Interest from saving bank account is allowed as deduction up to Rs.10000/= under Chapter VI-A from

financial year 2012-13 (Assessment Year 2013-14)

Documents

7.Deductions Under Sec 80C to 80U - Reference