Details on Deductions from Gross Total Income: UGC NET Commerce Notes

Income tax calculation is an essential part of financial planning. Knowing how much one owes to the government can help in tax-exempt investments. They can also have time to research and understand how they can save money. Also, knowledge of taxes can allow one to file returns easily. It will help avoid delays or fines for income tax returns. So, taxable income and deduction from gross total income are important terms in the financial world.

The general deduction from gross total income is also present in the UGC NET Commerce Exam. It is often in the exam pattern in different question forms. If you're preparing for the exam, understand the deduction from gross total income in Hindi or English.

This article covers the following:

• What are the Deductions from Gross Total Income?
• Deduction from Gross Total Income Under Section 80c to 80u
• Basic Rules of Deductions 
• Allowable Deductions from Gross Total Income for Individual
• Deduction from Gross Total Income Problems

What are the Deductions from Gross Total Income?

Deductions on Gross Total Income minimize the taxable income. The government permits individuals to deduct a few expenses so that they have lower taxable income. In return, they will have to pay less tax, which is beneficial in saving money.

Section 80C Deductions

Section 80C enables individuals to save money when they invest in a few things such as life insurance or a retirement account. Individuals may also invest in National Savings Certificates (NSC) or Public Provident Fund (PPF) to claim a deduction. The limit of deduction in this section is ₹1.5 lakh. Through these investments, you save money for the future and reduce your income, which is taxable. It motivates individuals to save money for future needs such as education of their children or their retirement. This is a section that has a lot of various investments that can be claimed as deductions. It's an opportunity for individuals to save and plan for the future at the same time.

Section 80D Deductions

Section 80D permits individuals to claim the premium paid on insurance from their taxable income. This is applicable for health insurance for themselves and their dependents. If you purchase insurance for your parents, you can also claim a deduction. The deduction amount varies based on your age and the insurance amount you pay. This allows individuals to maintain their health and reduce their tax burden. It also motivates individuals to invest in health insurance to prevent huge medical expenses. With proper insurance, individuals can be ready for any future health issues.

Section 24(b) Deductions (Home Loan Interest)

If you own a home loan, you can claim a deduction on the interest paid. This is provided for under Section 24(b) and lowers your taxable income. The limit of deduction is ₹2 lakh on the interest paid on your home loan. This motivates individuals to purchase homes and repay their loans. It lowers the cost of paying for a house. Purchasing a house is a significant financial outlay, and this deduction allows individuals to do so more easily. It also encourages homeownership in the nation.

Section 10(14) Deductions (House Rent Allowance)

If you reside in a rented residence and get house rent allowance (HRA) from your employer, you are eligible for a deduction under Section 10(14). This implies that some of the rent you pay can be deducted from your taxable income. How much you can deduct is determined by the rent you pay and your income. This assists individuals who do not own a home and pay rent to survive. It also enables employees to cover their living costs. The amount of deduction also differs based on where you stay, such as in a city or a village. It makes renting cheaper and reduces the amount of tax that you have to pay.

Section 80E Deductions (Education Loan)

When you take a loan for studying, you are eligible for a deduction under Section 80E. The deduction is for interest paid on an education loan. There is no maximum amount you can deduct for this deduction, but only interest can be claimed for it, not the loan itself. This motivates individuals to invest in education and pursue higher studies. This deduction reduces the expense of education by taxing you less. Education loans cover the cost of costly courses for students, and this deduction facilitates repayment. With this advantage, more students are able to study and attain their professional objectives.

Deduction from Gross Total Income Under Section 80c to 80u

Deductions from Gross Total Income reduce the taxable amount of income. The government permits individuals to claim some deductions so that they can pay less tax. The deductions are provided under various sections, ranging from Section 80C to Section 80U. When individuals invest in something or spend on essential requirements, they can lower their taxable income. They pay less tax and retain more money. Section 80C is to save and invest funds in such as life insurance and retirement plans. Section 80D is health insurance, and it helps people save on their taxes when they pay for health care. Section 24(b) provides relief for paying home loan interest. Section 10(14) helps individuals save on taxes when they pay rent. Section 80E provides relief when individuals pay for educational loans. Lastly, Section 80U benefits individuals with disabilities by reducing their tax amount.

Basic Rules of Deductions 

Sections 80A and 80B cover the rules for various deductions from gross total income. They help understand what steps and guidelines to follow for availing of deductions. These guidelines are present in the Income Tax Act.

The Assessee Must Claim The Deductions

Only the assessee should claim the deductions. Assessee is the person whose tax obligations are being evaluated. Section 80A (1) lays this rule for the assessee. Also, they have to submit the proofs and establish the deduction details.

Deductions Cannot Be More Than The Total Gross Income

Section 80A(2) clarifies that the total gross income has to be a positive or zero amount after claiming all the deductions from gross total income. The total income must contain all sources like basic salary, rental income, interest or dividend income, etc. If the balance after the deduction from gross total income is negative, one won't receive any deductions. It is essential to understand this obligation and accurately manage the deductions.

Deductions For Members of Associations of Persons or Bodies of Individuals 

Several bodies and associations of people may act as separate entities. If these associations claim deductions, the individual members cannot claim them. They cannot avail of deduction from gross total income. The reason is they would've already received the benefits from their association. Section 80A(3) specifies these rules.

Duty To Place Relevant Materials

An assessee must place all the relevant documents and materials before the governing authorities for deduction from gross total income. They must convince the authority about their eligibility for the concession. He must rest his documents and prepare to convince them of his legitimate claim for tax concession.

Deduction For Net Income (Section 80(AB))

The deduction from total gross income will only be applied to the net income derived by the income tax rules. The net income is included in the gross income, and that assessee must receive it.

Benefits Are Not Allowed After The Due Date

If the assessee misses the due date for tax returns, they cannot avail of some deductions. These deductions are under sections 80 IA, IB, IC, ID, or IAB, IE.

Allowable Deductions from Gross Total Income for Individual

In India, individual taxpayers can reduce their gross total income by claiming various deductions, which ultimately lower their taxable income and, consequently, their tax liability. The following are some of the most common deductions allowable from gross total income for individuals under the Income Tax Act, 1961, as of the latest available data:

Section 80C: Deductions on Investments and Payments

Limit: Up to ₹1,50,000 per fiscal year.

Eligible investments/payments:

• Life Insurance Premiums
• Contributions to Employee Provident Fund (EPF) and Public Provident Fund (PPF)
• National Savings Certificates (NSC)
• 5-year fixed deposits with banks and Post Office
• Senior Citizens Savings Scheme (SCSS)
• Sukanya Samriddhi Account
• Tuition fees for children’s education (up to two children)
• Repayment of principal on home loan
• Equity Linked Savings Scheme (ELSS)
• Investments in National Pension System (NPS) (also covered under Section 80CCD)

Section 80CCC: Pension Funds

Limit: Contributions to certain pension funds qualify, with a combined limit of ₹1,50,000 under Section 80C.

Section 80CCD: National Pension System (NPS)

Limit:

• Employee’s contribution: Up to 10% of salary (Basic + DA).
• Self-Employed: Up to 20% of Gross Income.
• Section 80CCD(1B): Additional deduction up to ₹50,000 for contributions to NPS.

Section 80D: Health Insurance Premiums

Limit:

• Self, Spouse, and Children: Up to ₹25,000.
• For senior citizens (Self, Spouse, Parents): Additional ₹50,000.
• Preventive health check-ups: Up to ₹5,000 within the above limits.

Section 80DD: Maintenance and Medical Treatment of a Disabled Dependent

Limit:

• ₹75,000 for disability (40%-80%).
• ₹1,25,000 for severe disability (more than 80%).

Section 80DDB: Medical Treatment for Specified Diseases

Limit: Up to ₹40,000 for medical treatment expenses (₹1,00,000 for senior citizens).

Section 80E: Interest on Education Loan

Limit: No upper limit but applicable for the interest paid on the loan taken for higher education for a period of up to 8 years from the start of repayment.

Section 80EE: Interest on Home Loan for First-Time Homeowners

Limit: Up to ₹50,000 per year, subject to certain conditions, such as the loan amount and property value caps.

Section 80G: Donations to Certain Funds and Charitable Institutions

Limit: 50% or 100% of the donation amount, subject to certain caps based on the type of institution and other qualifying criteria.

Section 80GG: House Rent Paid

Limit:

Deduction for rent paid by individuals not receiving HRA. The least of the following:

• ₹5000 per month
• 25% of total income
• Rent paid minus 10% of total income

Section 80GGB and 80GGC: Donations to Political Parties

Limit: Entire contribution made by an individual (80GGC) or companies (80GGB) to political parties is deductible.

Section 80TTA: Interest on Savings Account

Limit: Up to ₹10,000 for interest earned on savings accounts with banks, post offices, or co-operative societies.

Section 80TTB: Interest Income for Senior Citizens

Limit: Up to ₹50,000 for interest earned by senior citizens on deposits with banks, post offices, or co-operative banks.

Section 80U: Self-Disability

Limit:

• ₹75,000 for persons with disability.
• ₹1,25,000 for persons with severe disability (80% or more).

Deduction from Gross Total Income Problems

Understanding the deductions from gross total income is essential for optimizing tax liability, but there are several common issues that taxpayers face when attempting to apply these deductions. Here are five detailed problems associated with claiming deductions from gross total income:

Documentation and Proof of Investment

Problem: Taxpayers often face challenges in maintaining and providing adequate documentation to substantiate their claims for deductions.

Details:

• Missing Receipts: Many deductions, such as those under Section 80C (e.g., Life Insurance Premiums, Tuition Fees), require receipts or proof of payment. Missing these documents can lead to disallowed claims.
• Inadequate Documentation: Improper or incomplete documentation for medical expenses under Section 80D or Section 80DDB can result in rejection of these deductions.
• Timely Submission: Investment proofs need to be submitted to employers (for salaried individuals) or at the time of filing returns. Any delay can disallow the benefit for that financial year.

Solution: Ensure all receipts, certificates, and proofs are collected and organized promptly. Maintain a physical or digital folder for tax-related documents throughout the year.

Misinterpretation of Deduction Limits

Problem: Misunderstanding or misinterpreting the prescribed limits and conditions for various deductions can lead to incorrect claims or missed benefits.

Details:

• Section 80C: Taxpayers might incorrectly assume that any contribution to eligible instruments can be claimed under Section 80C without observing the Rs. 1,50,000 upper limit.
• Section 80D: Health insurance premiums for parents who are not senior citizens might be mistakenly claimed above the Rs. 25,000 limit.
• Education Loans: Claims under Section 80E might continue beyond the permissible 8-year period from the start of repayment.

Solution: Stay informed about the specific limits and conditions for each deduction. Regularly review updates from the Income Tax Department or consult a tax professional to avoid misinterpretation.

Errors in Calculation of Eligible Deductions

Problem: Incorrect calculation of deductible amounts can lead to either under-claiming or over-claiming deductions.

Details:

• HRA under Section 80GG: Incorrect calculation involving least of three conditions can lead to wrong deductions.
• Preventive Health Check-Up Costs: Misapplication of the Rs. 5,000 limit within the overall limit of Section 80D could lead to incorrect claims.
• Home Loan Interest under Section 80EE: Calculating and applying the additional Rs. 50,000 deduction can be complex and often miscalculated.

Solution: Utilize reliable tax planning software or consult a tax advisor to ensure accurate calculation of eligible deductions. Regularly double-check calculations and understand how limits are applied in practice.

Eligibility Criteria and Fine Print

Problem: Overlooking eligibility criteria and associated fine print can result in invalid claims.

Details:

• Senior Citizen Benefits: Misunderstanding the age criteria for higher deduction limits under Section 80D.
• Specific Disabilities: Claims under Section 80U or 80DD need a specific percentage of disability certification, which people often overlook.
• Education Loans: Deduction under Section 80E is only for interest paid on loans for higher education. Loans taken for primary or secondary education do not qualify.

Solution: Thoroughly understand eligibility criteria by referencing the Income Tax Act, 1961, and official guidelines. Stay updated on any changes and consult with experts for clarification on complex criteria.

Overlapping Claims on Same Investments

Problem: Mistakenly claiming deductions under multiple sections for the same expense or investment can lead to disallowed claims during tax assessments.

Details:

• Home Loan Principal and Interest: Claiming principal repayment under Section 80C and interest under both Section 24 (for self-occupied property) and Section 80EE (first-time buyers).
• Medical Expenses: Mixing up claims between Section 80DDB (specific diseases) and Section 80D (general health insurance and check-ups).
• NPS Contributions: Claiming contributions under Section 80C for employer contributions, which should be claimed under Section 80CCD(2).

Solution: Develop a clear understanding of where each type of expenditure or investment qualifies for deduction. Keep detailed records and ensure that each item is claimed under the correct section. Use a structured approach to manage overlapping claims, referencing the latest finance and tax guides.

Conclusion 

Deduction from gross total income notes is essential for understanding taxation and making smart investment decisions. One should understand these deductions and make the same during the financial year to reduce their obligations. Deductions from Gross Total Income play a crucial role in determining an individual's taxable income and, consequently, their tax liability. These deductions are provided under various sections of the tax code in many countries, and they serve several purposes, including encouraging certain behaviors, providing relief to specific groups, and promoting investments in key sectors of the economy.

Deduction from gross total income is a critical topic as per several competitive exams. It would help if you learned other similar topics with the Testbook App.

Major Takeaways for UGC NET Aspirants What are the Deductions from Gross Total Income: Deductions on Gross Total Income minimize the taxable income. The government permits individuals to deduct a few expenses so that they have lower taxable income. In return, they will have to pay less tax, which is beneficial in saving money. Section 80C Deductions: Section 80C enables individuals to save money when they invest in a few things such as life insurance or a retirement account.  Section 80D Deductions: Section 80D permits individuals to claim the premium paid on insurance from their taxable income.  Section 24(b) Deductions (Home Loan Interest): If you own a home loan, you can claim a deduction on the interest paid. This is provided for under Section 24(b) and lowers your taxable income. Section 10(14) Deductions (House Rent Allowance): If you reside in a rented residence and get house rent allowance (HRA) from your employer, you are eligible for a deduction under Section 10(14). Section 80E Deductions (Education Loan): When you take a loan for studying, you are eligible for a deduction under Section 80E. The deduction is for interest paid on an education loan.  Deduction from Gross Total Income Under Section 80c to 80u: Deductions from Gross Total Income reduce the taxable amount of income. The government permits individuals to claim some deductions so that they can pay less tax. The deductions are provided under various sections, ranging from Section 80C to Section 80U.  Basic Rules of Deductions  The Assessee Must Claim The Deductions: Only the assessee should claim the deductions. Assessee is the person whose tax obligations are being evaluated. Section 80A (1) lays this rule for the assessee.  Deductions Cannot Be More Than The Total Gross Income: Section 80A(2) clarifies that the total gross income has to be a positive or zero amount after claiming all the deductions from gross total income. Deductions For Members of Associations of Persons or Bodies of Individuals: Several bodies and associations of people may act as separate entities. If these associations claim deductions, the individual members cannot claim them. Duty To Place Relevant Materials: An assessee must place all the relevant documents and materials before the governing authorities for deduction from gross total income.  Deduction For Net Income (Section 80(AB)): The deduction from total gross income will only be applied to the net income derived by the income tax rules.  Benefits Are Not Allowed After The Due Date: If the assessee misses the due date for tax returns, they cannot avail of some deductions.

Deduction from Gross Total Income Previous Year Question

350000. X is an individual of 55 years of age having gross total income Rs. 350000. What is the tax liability for assessment year 2018-19?

Ans. 2580