BLOG on Income Tax Management for - AY 2022-23 & 2023-24

Basic Rules of Deductions under Section 80C to 80U [Sections 80A/80AB/80AC]

1. Deductions cannot exceed Gross Total Income [Section 80A(2)]:

According to Section 80A(2) of the Indian Income Tax Act, deductions under various sections, including Sections 80C to 80U, cannot exceed your Gross Total Income (GTI). This means that the total deductions claimed by a taxpayer in a financial year cannot result in a negative income. In other words, you cannot use deductions to reduce your taxable income below zero.

Here's how it works:

Calculate your Gross Total Income (GTI), which includes income from all sources before considering any deductions.
Calculate the total deductions you are eligible for under various sections of the Income Tax Act, such as Sections 80C, 80D, 80G, etc.
The total deductions claimed cannot exceed your GTI. If your deductions exceed your GTI, you will not be allowed to reduce your taxable income below zero.

For example, if your GTI is Rs. 5 lakh, and you have eligible deductions totaling Rs. 6 lakh, you can only claim deductions up to the extent of your GTI, which is Rs. 5 lakh. Your taxable income will then be zero, but you cannot claim the remaining Rs. 1 lakh in deductions in that financial year.

It's essential for taxpayers to be aware of this rule to ensure that they are not inadvertently claiming deductions that exceed their Gross Total Income.

Here are some tips for avoiding the deduction limit:

Start planning your taxes early in the financial year. This will give you enough time to assess your income and expenses and plan your deductions accordingly.
Be aware of the different types of deductions available to you. There are many different deductions available under Section 80C and other sections in Chapter VIA. Choose the deductions that are most relevant to your financial situation.
Keep track of your investments and expenses throughout the year. This will help you to calculate your deductions accurately and avoid any surprises at the time of filing your income tax return.

2. Deduction not allowed to members if allowed to AOP/BOI [Section 80A(3)]:

Section 80A(3) of the Income Tax Act, 1961 states that where any deduction is admissible under Section 80G, 80GGA, 80GGC, 80HH, 80HHA, 80HHB, 80HHC, 80HHD, 80-I, 80-IA, 80-IB, 80-IC, 80-ID, 80-IE, 80J, or 80JJ in computing the total income of an association of persons (AOP) or a body of individuals (BOI), no deduction under the same section shall be made in computing the total income of a member of the AOP or BOI in relation to the share of such member in the income of the AOP or BOI.

This means that if a member of an AOP or BOI claims a deduction under any of the above-mentioned sections in their individual income tax return, they will not be allowed to claim a deduction for the same item in their share of the income of the AOP or BOI.

Here's an example to illustrate this:

Let's say there is an AOP consisting of five individuals, and the AOP claims a deduction of Rs. 1,00,000 under a particular section of the Income Tax Act.

If the AOP claims the deduction, no individual member of the AOP can separately claim a deduction for the same Rs. 1,00,000 in their individual tax returns.
However, if an individual member has other eligible deductions unrelated to the AOP's claim, they can still claim those deductions separately in their tax return.

This rule is in place to prevent double counting of deductions. If members of an AOP or BOI were allowed to claim deductions for the same items in their individual income tax returns and in their share of the income of the AOP or BOI, it would result in a reduction of the government's tax revenue.

If you are a member of an AOP or BOI, it is important to be aware of this rule and to ensure that you do not claim deductions for the same items in your individual income tax return and in your share of the income of the AOP or BOI.

3. Double Deduction Not Allowed and Deduction cannot exceed the Profit of the particular Undertaking or Unit or Enterprise, etc. [Section 80A(4)]:

Section 80A(4) of the Indian Income Tax Act, 1961, addresses two important aspects related to deductions under the Act:

(1). Double Deduction Not Allowed:

This subsection of the law stipulates that the same amount or expenditure cannot be claimed as a deduction more than once under different provisions of the Income Tax Act. In other words, you cannot claim double deductions for the same expense by applying multiple sections of the Act. This provision prevents taxpayers from getting excessive tax benefits by using multiple sections for the same expense.

(2). Deduction Cannot Exceed the Profit of the Particular Undertaking or Unit or Enterprise, etc.:

This part of Section 80A(4) limits the deduction available to a taxpayer to the extent of the profit earned from a particular undertaking or unit or enterprise for which the deduction is being claimed. In essence, you cannot use deductions to create a tax loss for a specific undertaking or unit if it has not generated any profit.

Here's an example to illustrate these principles:

Suppose a business has two separate units - Unit A and Unit B. Unit A generates a profit of Rs. 1,00,000, and Unit B incurs a loss of Rs. 50,000. Now, if the business is eligible for certain deductions under the Income Tax Act, the following rules apply:

Deductions claimed for Unit A cannot exceed the profit of Unit A, which is Rs. 1,00,000. So, the maximum deduction that can be claimed for Unit A is Rs. 1,00,000.

For Unit B, since it has incurred a loss, no deductions can be claimed because the deductions cannot exceed the profit generated by that unit. In this case, deductions for Unit B are restricted to Rs. 0.

Additionally, if a taxpayer has already claimed a deduction under one section of the Income Tax Act for a specific expense, they cannot claim the same expense as a deduction under another section, as this would constitute double dipping and is not allowed.

Section 80A(4) ensures that deductions are applied in a manner that aligns with the actual profit or income generated by the specific undertaking or unit, and it prevents any potential misuse or duplication of deductions.

4. Deduction allowed only when it is claimed by the Assessee [Section 80A(5)]:

Section 80A(5) of the Indian Income Tax Act, 1961 states that no deduction shall be allowed under this section unless it is claimed by the Assessee in his return of income for the previous year in which the sum is paid or incurred.

This means that you cannot claim a deduction under Section 80A unless you specifically claim it in your income tax return for the previous year in which the sum is paid or incurred.

For example, if you make a donation of Rs 10,000 to charity in the financial year 2023-24, but you do not claim a deduction for it in your income tax return for the financial year 2023-24, you will not be able to claim a deduction for it in any subsequent financial year.

It is important to note that the Section 80A deduction is a personal deduction. This means that it can only be claimed by the individual who actually made the donation or incurred the expense. You cannot claim a deduction under Section 80A for a donation or expense that was made or incurred by someone else.

Here are some tips for claiming the Section 80A deduction:

Keep track of all your donations and expenses throughout the financial year. This will help you to ensure that you claim all of the deductions that you are entitled to.
When filing your income tax return, be sure to claim the Section 80A deduction for all of the eligible donations and expenses that you made or incurred during the financial year.
Attach all of the relevant supporting documentation to your income tax return, such as receipts and certificates. This will help to support your claim for the Section 80A deduction.

Deductions under Section 80A(5) of the Income Tax Act, 1961 can help you reduce your tax liability. However, it is crucial to remember that these deductions are allowed only when they are claimed by the Assessee. So, make sure to claim all the eligible deductions while filing your income tax return to maximize your tax savings.

5. Profit or Gain to be Recomputed if inter unit or inter business transfer is not at market value [Section 80A(6)]

Section 80A(6) of the Indian Income Tax Act, 1961 states that if any sum is paid by an assessee in connection with the establishment or operation of an undertaking or unit or enterprise in India, to another undertaking or unit or enterprise in India, and such sum is not at market value, the profits and gains of the assessee shall be recomputed as if such sum had been paid at market value.

This means that if you transfer goods or services between two units of your business, or between your business and another business, at a price that is not at market value, the profits and gains of your business will be recomputed as if the transfer had been made at market value.

This rule is in place to prevent businesses from manipulating their profits and gains by making transfers between units or businesses at prices that are below or above market value.

For example, if you transfer goods from one unit of your business to another unit of your business at a price that is below market value, the profits and gains of the unit that sold the goods will be reduced, and the profits and gains of the unit that purchased the goods will be increased. This would result in a reduction of your overall tax liability.

However, if the income tax authorities discover that the transfer was not made at market value, they will recompute your profits and gains as if the transfer had been made at market value. This could result in an increase in your tax liability.

To avoid this, it is important to ensure that all transfers between units or businesses are made at market value. If you are unsure about the market value of a good or service, you can consult with a valuer. By conducting transactions at market value, businesses and individuals can maintain transparency and comply with the provisions of the Income Tax Act.

6. Assessee’s duty to place relevant material:

It is the duty of the assessee to place all relevant material before the assessing officer (AO) for obtaining a concession under the taxing statute. This means that the assessee must provide the AO with all of the information and documentation that is necessary to support their claim for the concession.

The AO is not required to search for or gather information on behalf of the assessee. It is the assessee's responsibility to provide the AO with all of the necessary information and documentation in order to obtain the concession.

The assessee must also be prepared to explain and support their claim for the concession. This may involve providing the AO with additional information or documentation, or answering questions about their claim.

If the assessee fails to provide the AO with all of the relevant material, or if they are unable to explain and support their claim, the AO may disallow the concession.

Here are some examples of relevant material that the assessee may need to place before the AO:

Receipts and invoices for any expenses that the assessee is claiming a deduction for
Certificates from authorized bodies for any deductions or exemptions that the assessee is claiming
Financial statements and other business records
Any other information or documentation that is relevant to the assessee's claim

It is important to note that the assessee has a duty to be truthful and accurate in their dealings with the AO. If the assessee provides false or misleading information, they may be subject to penalties.

7. Deduction to be allowed in respect of Net Income included in Gross Total Income [Section 80-AB]:

Section 80-AB of the Income Tax Act, 1961 states that any deduction that is required to be made or allowed under any section included in Chapter VIA (which includes Sections 80C to 80U) in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, shall be allowed only in respect of the net income of that nature.

This means that you can only claim a deduction under any section in Chapter VIA in respect of the net income of the nature specified in that section. For example, if you claim a deduction of Rs 1 lakh under Section 80C for contributions made to a public provident fund (PPF), you can only claim the deduction in respect of the net income that you deposited into the PPF account. If you withdrew any money from the PPF account during the financial year, you will need to reduce the deduction by the amount of the withdrawals.

The net income of any nature is calculated by deducting any expenses or losses incurred in relation to that income. For example, if you earn interest income from a bank deposit, you can deduct the bank charges from the interest income to calculate the net income.

It is important to note that the Section 80-AB deduction is applicable to all deductions under Chapter VIA, including deductions for investments, expenses, and donations.

Here are some examples of how Section 80-AB applies:

If you claim a deduction of Rs 1 lakh under Section 80C for contributions made to a life insurance policy, you can only claim the deduction in respect of the net income that you paid to the insurance company. If you received any surrender benefits from the life insurance policy during the financial year, you will need to reduce the deduction by the amount of the surrender benefits.
If you claim a deduction of Rs 50,000 under Section 80D for medical expenses incurred, you can only claim the deduction in respect of the net medical expenses. This means that you will need to deduct any reimbursements that you received from your insurance company from the total medical expenses before claiming the deduction.
If you claim a deduction of Rs 10,000 under Section 80G for donations made to a charitable trust, you can only claim the deduction in respect of the net donations. This means that you will need to deduct any gifts or benefits that you received from the charitable trust from the total donations before claiming the deduction.

In summary, Section 80-AB of the Indian Income Tax Act ensures that deductions specified as a percentage of income in various sections of the Act are allowed on the net income after considering specified expenses or deductions. This helps in accurately calculating the deductions and aligning them with the actual income included in the Gross Total Income.

8. Benefits of certain Deductions not to be allowed in cases where Return is not Filed within the Specified Time Limit [Section 80AC]:

Section 80AC of the Indian Income Tax Act, 1961 states that the benefits of certain deductions under Chapter VIA (which includes Sections 80C to 80U) will not be allowed in cases where the return of income is not filed within the specified time limit.

The specified time limit for filing a return of income is generally July 31st of the following financial year. However, there are some exceptions to this rule, such as for taxpayers who are employed or who have a business income that is below a certain threshold.

If you file your return of income after the specified time limit, you will not be able to claim the benefits of the following deductions:

Deduction for contributions made to certain pension plans, such as the National Pension System (NPS) and the Employees' Provident Fund (EPF)
Deduction for medical expenses incurred
Deduction for donations made to charitable institutions
Deduction for interest paid on housing loans
Deduction for education expenses incurred for children
Deduction for leave travel allowance (LTA)

It is important to note that Section 80AC does not apply to all deductions. It specifically applies to deductions under Sections 80IA, 80IAB, 80IAC, 80IB, 80IC, 80ID, 80IE, 80JJA, and 80JJAA. These sections pertain to deductions for certain industries, businesses, and employment generation activities.

It is important to note that the above list is not exhaustive, and there may be other deductions that are also not allowed if the return of income is not filed within the specified time limit.

If you are unable to file your return of income within the specified time limit, you can file a belated return. However, you will need to pay a penalty for filing a belated return. The amount of the penalty will depend on the number of days that the return is delayed.

It is also important to note that if you file a belated return, you may not be able to claim certain deductions, such as the deduction for interest paid on housing loans. This is because some deductions can only be claimed in the financial year in which they are incurred.

If you have any questions about Section 80AC or the consequences of not filing your return of income within the specified time limit, please consult a tax professional.

Benefits of filing your return of income within the specified time limit:

You can claim all of the deductions that you are entitled to.
You will not have to pay a penalty for filing a belated return.
You will not have to worry about the possibility of certain deductions being disallowed.

If you are unable to file your return of income within the specified time limit, you should file a belated return as soon as possible. However, you should be aware that you may not be able to claim all of the deductions that you are entitled to, and you may have to pay a penalty.