Income tax deductions within heads of income

tax deductions


Income tax deductions within heads of income

While preparing income tax returns we have income under different heads like salary, house property, capital gain, business or some other sources. Then we have deductions under chapter VI- A. Over and above this we also have some deductions within heads. To elaborate:

  1. Under the head income from salary

Entertainment Allowance

While calculating gross salary, entertainment allowance is first included. Then a standard deduction is allowed under Section 16(ii). However, entertainment allowance can be claimed only by Government employee upto a maximum of Rs.5000.

Professional Tax Paid

Under Section 16(iii), a deduction from salary can be claimed by the taxpayer on account of professional tax paid. The deduction for professional tax will be allowed in the year in which the tax is actually paid by the employee. Professional tax due but not paid cannot be taken as a deduction from salary.

  1. Under the head House Property

There are 2 deductions available under section 24 in income under house property.

Standard Deduction – Standard Deduction is 30% of the Net Annual Value calculated above. This 30% deduction is allowed even when your actual expenditure on the property is higher or lower. Therefore this deduction is irrespective of the actual expenditure you may have incurred on insurance, repairs, electricity, water supply etc. For a self occupied house property, since the Annual Value is Nil, the standard deduction is also zero on such a property.

Deduction of Interest on Home Loan for the property – In case you take a home loan for purchase, construction, repair, renewal or reconstruction of your house property – the interest is allowed as a deduction from the Net Annual Value. Deduction for interest on money borrowed is allowed on accrual basis (allowed even though interest may not actually have been paid), so keep claiming your interest deductions each year basis interest that is due (instead of interest that is paid). Do remember that no deduction is allowed for any brokerage or commission for arranging the loan. In case of a self occupied house property, this deduction is allowed to be claimed and therefore, you may in such a case have a loss under the head House Property.

The total amount allowed towards this deduction is Rs 2,00,000 beginning assessment year 2015-16. In case of a let out or a deemed to be let out property, the entire interest is allowed as deduction under section 24 till Financial Year 2016-17. From Financial Year 2017-18 deduction for interest on let out property is allowed uptoRs 2 Lakhs. You can start claiming this interest when the construction of your property is complete.

  1. Under the head Capital Gain

Expenses from sale proceeds from a capital asset, that wholly and directly relate to the sale or transfer of the capital asset are allowed to be deducted. These are the expenses which are necessary for the transfer to take place.

In the case of sale of house property, these expenses are deductible from the total sale price:

  • Brokerage or commission paid for securing a purchaser
  • Cost of stamp papers
  • Travelling expenses in connection with transfer – these may be incurred after the transfer has been affected.
  • Where property has been inherited, expenditure incurred with respect to procedures associated with the will and inheritance, obtaining succession certificate, costs of the executor, may also be allowed in some cases.

In the case of sale of shares, you may be allowed to deduct these expenses:

  • Broker’s commission related to the shares sold
  • STT or securities transaction tax is not allowed as a deductible expense

Even there are various exemptions available in this head u/s 54.

  1. Under the head Profits and gains from business and profession
Section 30:  Rent, Rates, Taxes, Repairs & Insurance Of Buildings Used For The Purpose Of The Business
Section 31:  Repairs & Insurance Of Plant, Machinery & Furniture
Section 32:  Depreciation
Section 36(1)(i):      Insurance Of Stock
Section 36(1)(Ib):    Insurance Premium On The Health Of Employees
Section 36(1)(Ii):      Bonus Or  Commission Paid To Employees
Section 36(1)(Iii):    Interest Paid On Borrowed Capital For The Purpose Of Business Or Profession
Section 36(1)(Iv):    Employer’s Contribution Towards Recognized Provident Fund Or An Approved Super Annuation Fund.
Section 36(1)(V):      Employer’s Contribution Paid Towards An Approved Gratuity Fund
Section 36(1)(Va):    Employee’s Contribution Towards Staff Welfare Scheme.
Section 36(1) (Vii):  Bad Debts
Section 36(1)(Ix):     Family Planning Expenditure Incurred By Company
Section 36(1)(Xii):   Banking Cash Transaction Tax (Bctt)
Section 37: General Deduction
  1. Under the head Income from other sources.

Although we have some deductions that can be claimed in different, there is no deduction i.e expressively allowed in this head as deduction. What is mentioned is that we can claim general deduction i.e we can claim the expenses made to earn the corresponding income.

For example: Interest on term loans paid can be claimed as deduction in respect of fixed deposit interest received. The reason being we have taken loans for our requirement alternatively we could have surrendered our FDs and we would have not made any income nor had to pay any expenditure.

To conclude I would say different heads have different incomes and different expenses that can be offered as income or claimed as deductions, it is we who decides what to claim and offer in our given situation.

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