Exemption u/s 80C - deduction allowed from taxable income or combined income - clarification - Income Tax - 538/CBDT

INSTRUCTION NO. 538/CBDT Dated : March 4, 1973 Section(s) Referred: 80C Statute: Income - Tax Act, 1961 In paragraph 34 of the Board's instructions on Finance Act, 1965, it was clarified that "where the payments are directly or indirectly attributable to the assessee's income chargeable to tax he will be entitled to the benefits of the provisions of Section 87 or, as the case may be, Section 80A of the Income-tax Act". 2. On a reference received, the matter was again examined by the Board in consultation with the Ministry of Law. The Board are advised that the position explained in paragraph 34 of the Instructions on Finance Act, 1965 referred to above is not strictly in conformity with the law. It has, therefore, been decided that deduction under Section 80C should be restricted only to cases where the payments were made out of income chargeable to tax. In other words, if the payments could not be correlated to the income chargeable in that particular year, then the deductions under Section 80C would not be available to the assessee. It may, however, be clarified that if the insurance premium is paid out of a mixed account e.g. agricultural income and taxable income, it will have to be allowed provided, of course, the taxable income exceeds the premium. If, however, the premium is paid from an account where only non-taxable income is credited or by a withdrawal from a Provident Fund or by taking a loan no rebate will be admissible. 3. The above instructions may please be brought to the notice of all the assessing officers under each charge. Assessments which have been completed prior to the receipt of this circular need not be re-opened and the instructions in para 2 above should be applied to all pending and future assessments.