NEW DEDUCTIONS individual and huf FROM AY 2013-14

[CA DEV KUMAR KOTHARI]

Some new deductions from assessment year 2013-14

Sections 80CCG, 80D, 80TTA

http://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=1981

Some new deduction :

The provisions to allow some new deductions were inserted by the Finance Act 2012 w.e.f. 01.04.2013. These will apply from Assessment Year 2013-14 for which first previous year will end very soon on 31.03.2013). From discussions with some tax payers and also draft projected computations for assessment year 2013-14 received for review, it is felt that these deductions are not very well known to many and have yet to get popular understanding. Therefore, author thought it proper to write on some of such new provisions for benefit of readers- tax payers and tax consultants.

New deductions covered in this write-up are for investment as per equity saving scheme called Rajiv Gandhi Equity Saving Scheme, for resident individuals only, deduction for preventive health check-up in case of individuals and deduction for interest on certain saving accounts in name of individual and HUF.

In past it has been experienced that in initial years of any provision, mistakes of omission took place by tax payers and also tax practioners because the new provisions were not well circulated and popular. Particularly when relief allowed is of small sum , there is lack of popularity of such provisions in initial years and many may not claim relief or may not be able to compute income properly.

For example, disallowance under section 40(a)(ia), provided shock to many, because care was not taken in depositing small sums of TDS, disallowance was not made in return. In many cases huge disallowances were made when a scrutiny assessment was made and on same issue penalty proceedings were also initiated.

From assessment year 2013-14 claim for following new deductions need to be considered in addition to other deductions:
Deduction u/s 80CCG for making investment as per Rajiv Gandhi Equity Savings Scheme, 2012

S.80CCG- Equity saving scheme - specified  equity shares - total investment can be 50K deduction can be 25K- however, this is  useful only for new  retail investor who is resident individual.  However, this may not be available to many investors who had started investing in equity in earlier years. In this regard readers may read article webhosted at http://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=1981 and titled Deduction under new section 80CCG w.e.f. 1st April,2013 in terms of the Rajiv Gandhi Equity Savings Scheme, 2012- a complex deduction with lot of conditions and contingencies- apparently an avoidable deduction by new small investors.

Eligible assessee can avail deduction by making investment as per the scheme.

S.80D - preventive health check up (up to Rs.5000/-)

Besides popularly known as mediclaim insurance premium, payment for preventive health check up (up to Rs.5000/-) is also now covered within the overall limits for deduction for self and family and for parent or parents in case of individual.

Preventive check-up expenses:

There is no separate limit for expense on preventive check-up for parents. Thus in case of individual, preventive check-up expenses is restricted to Rs.5000/- for self, family and parents. - (vide S. 80D(2A).

However, one can take care to spend preventive check-up expenses from each assessable individual so that each one can claim Rs.5000/- for self , family and parents. Example husband, wife, father, mother and any major children can spent preventive health check-up expenses and claim deduction.

In case any eligible person covered in medi-claim policy is a senior citizen the overall  limit u/s 80D is Rs.20000/- as against Rs.15000/-. The age for senior citizen has been reduced to sixty years from sixty-five years.

Preventive health check up expenses are not allowable in case of HUF. HUF can only take medi-claim policy for any member of HUF.

Preventive health check-up can be planned because such check-up is not in an emergency. Therefore, one can plan expenditure on preventive health check-up in March 2013 and after March 2013 so as to be eligible in two years.

Interest on some saving accounts:

Deduction u/s 80TTA up to Rs.10,000/- for interest on saving  account with banking company, Post Office Saving Bank A/c and co-operative society will be allowed from assessment year 2013-14.

Only interest on saving accounts is covered. Recurring deposits, fixed deposits are not covered because they are time deposit and are not saving account.

The deduction is allowed to individuals and HUF.

In case any saving deposit is made on behalf of firm, AOP or BOI, then deduction shall not be allowed to partner or member, as the case may be.

Relook into past we find in old section 80L, that under section 80L deduction was allowed on several type of earnings by way of interest on deposits (saving, recurring, and fixed deposits), various securities, and dividend. The limit was Rs.12000/- in l assessment year 2005-06. That section was omitted w.e.f. 01.04.2006.

Therefore, we find that new section is very much limited in scope and the amount of deduction allowed is also low at Rs.10000/- as against Rs.12000/- allowed in assessment year 2005-06 u/s 80L.  

Analysis of Sections 80CCG, 80D, 80TTA:

For section 80CCG kindly refer to article webhosted at http://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=1981 wherein the section and relevant scheme both have been analyzed.

Section 80D is reproduced below with highlights and catch words marked in red colour for easy analysis and understanding.

[Deduction in respect of health insurance

80D. (1) In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted such sum, as specified in sub-section (2) or sub-section (3), payment of which is made by any mode, ¹⁵[as specified in sub-section (2B)], in the previous year out of his income chargeable to tax.

(2) Where the assessee is an individual, the sum referred to in sub-section (1) shall be the aggregate of the following, namely:—

(a) the whole of the amount paid to effect or to keep in force an insurance on the health of the assessee or his family ¹⁴[or any contribution made to the Central Government Health Scheme, ¹⁶[or any payment made on account of preventive health check-up of the assessee or his family]] as does not exceed in the aggregate fifteen thousand rupees; and

(b) the whole of the amount paid to effect or to keep in force an insurance on the health of the parent or parents of the assessee ¹⁷[or any payment made on account of preventive health check-up of the parent or parents of the assessee] as does not exceed in the aggregate fifteen thousand rupees.

Explanation.—For the purposes of clause (a), "family" means the spouse and dependant children of the assessee.

 ¹⁷[(2A) Where the amounts referred to in clauses (a) and (b) of sub-section (2) are paid on account of preventive health check-up, the deduction for such amounts shall be allowed to the extent it does not exceed in the aggregate five thousand rupees.

(2B) For the purposes of deduction under sub-section (1), payment shall be made by—

           (i)  any mode, including cash, in respect of any sum paid on account of preventive health check-up;

           (ii)  any mode other than cash in all other cases not falling under clause (i).]

(3) Where the assessee is a Hindu undivided family, the sum referred to in subsection (1) shall be the whole of the amount paid to effect or to keep in force an insurance on the health of any member of that Hindu undivided family as does not exceed in the aggregate fifteen thousand rupees.

 (4) Where the sum specified in clause (a) or clause (b) of sub-section (2) or in sub-section (3) is paid to effect or keep in force an insurance on the health of any person specified therein, and who is a senior citizen, the provisions of this section shall have effect as if for the words "fifteen thousand rupees", the words "twenty thousand rupees" had been substituted.

Explanation.— For the purposes of this sub-section, "senior citizen" means an individual resident in India who is of the age of ¹⁸[sixty years] or more at any time during the relevant previous year.

(5) The insurance referred to in this section shall be in accordance with a scheme made in this behalf by—

(a) the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 and approved by the Central Government in this behalf; or

(b) any other insurer and approved by the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999.] 

 Notes :

14. In sub-section (2), in clause (a), after the words "his family", the words "or any contribution made to the Central Government Health Scheme" has been inserted vide Finance Act, 2010 w.e.f. the 1st day of April, 2011.

15. Substituted vide Finance Act, 2012, w.e.f. 01-04-2013, before it was read as:-“other than cash”

16. Inserted vide Finance Act, 2012, w.e.f. 01-04-2013,

17. Inserted vide Finance Act, 2012, w.e.f. 01-04-2013,

18. Substituted vide Finance Act, 2012, w.e.f. 01-04-2013, before it was read as:- "sixty-five years"

Section 80TTA is reproduced below with highlights and catch words marked in red colour for easy analysis and understanding.

CA.— Deductions in respect of other incomes

80TTA. Deduction in respect of interest on deposits in savings account.—(1) Where the gross total income of an assessee, being an individual or a Hindu undivided family, includes any income by way of interest on deposits (not being time deposits) in a savings account with—

           (a) a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);

           (b)  a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

           (c)  a Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898),

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 as specified hereunder, namely:—

                (i)  in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the whole of such amount; and

                (ii)  in any other case, ten thousand rupees.

(2) Where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.

     Explanation.—For the purposes of this section, "time deposits" means the deposits repayable on expiry of fixed periods. 

Notes:-

1. Inserted vide Finance Act, 2012, w.e.f. 01-04-2013