Changes in Deductions under Chapter VI-A
On February 1, 2018, the Finance Minister, Mr. Arun Jaitley, presented the Union Budget for the year 2018. It is his last full budget presented by him before the general elections, to be held in 2019. List of all proposals related to deductions under chapter VI-A in the Budget 2018 are explained below.
1. Deduction under Section 80D is enhanced for health insurance premium and medical treatment.
Currently, an individual taxpayer can claim deduction of up to Rs. 30,000 in respect of payment made by him for the medical insurance for himself, his spouse or children. He is allowed to claim additional deduction of Rs. 30,000 for the payment made for the medical insurance policy for his parents. The deduction of Rs. 30,000 is reduced to Rs. 25,000 each if the insured persons are less than 60 years of age. In other words, if none of the family member is a senior citizen (i.e. less than 60 years of age), the deduction is limited to Rs. 50,000. If either parents or any of his family member is a senior citizen (i.e. above 60 years of age), the deduction shall be up to Rs. 55,000. If parents and any of family member is a senior citizen, the deduction up to Rs. 60,000 can be claimed under Section 80D.
This limit is proposed to be increased to Rs. 50,000 from Rs. 30,000. In nutshell, an individual taxpayer can claim deduction of up to Rs. 1 lakh under Section 80D if he or his family members and his parents are 60 years or above.
A summary of deduction allowable under Section 80D is explained in below table:
| Nature of amount spent |
Family Member |
Parents |
| Age below 60 years |
Age above 60 years |
Age below 60 years |
| A. Medical Insurance |
25,000 |
50,000 |
25,000 |
| B. CGHS |
25,000 |
50,000 |
– |
| C. Health Check-up* |
5,000 |
5,000 |
5,000 |
| D. Medical Expenditure |
– |
50,000 |
– |
| Maximum deduction |
25,000 |
50,000 |
25,000 |
Further, the Finance Bill also proposes that in case of single premium health insurance policies which covers more than one year, deduction shall be allowed on proportionate basis for all those years for which health insurance cover is provided, subject to the specified monetary limit.
2. Deduction limit under section 80DDB is enhanced
This deduction is allowed when an individual or HUF taxpayer pays for the medical treatment of critical illness for himself or family members. Currently, this deduction is allowed upto Rs. 60,000 for senior citizen, up to Rs. 80000 for very senior citizen and Rs. 40,000 in any other case.
The differentiation between senior and super senior citizen is removed and the deduction limit in both the case is proposed to be increased to Rs. 1,00,000. There is no change in amount of deduction for expenditure incurred in any other case i.e., for person who is below 60 years of age.
3. Deductions under Section 80JJAA is extended to footwear and leather industry
Section 80JJAA allows deductions to the manufacturers who employ new employees for a minimum period of 240 days during the year. This deduction is calculated at the rate of 30% of the additional employee cost incurred by the assessee during the year.
The eligibility of a manufacturer to claim this deduction is determined only if he gives employment for a minimum period of 240 days during the year. However, for apparel industry the minimum period of employment is relaxed to 150 days. The concession of minimum employment period for 150 days has been extended to footwear and leather industry.
Manufacturers are often denied the deduction if an employee is employed in year 1 for a period of less than 240 days or 150 days, but continues to remain employed for more than 240 days or 150 days in year 2. To overcome some difficulties, the employment conditions has been proposed to be relaxed. Now in this situation the deduction shall be allowed to the manufacturer if an employee hired in last year continues to remain in employment in current year for more than 240 or 150 days, as the case may be.
4. New deduction introduced for Farm Producer Companies
To promote agricultural activities a new section 80PA is proposed to be inserted. This new provision proposes 100% deductions of profits for a period of 5 years to farm producer companies.
This deduction is allowed to farm producer companies who have total turnover of less than Rs. 100 crores during the financial year. For claiming this deduction, companies’ gross total income should include income from:
a. Marketing of agricultural produce grown by its members
b. Purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members
c. Processing of agricultural produce of its members.
5. New deduction for senior citizens in respect of bank interest
Keeping in view the fixed and restricted sources of income for senior citizens, a new section 80TTB is proposed to be inserted. This provision allows deduction of up to Rs. 50,000 to the senior citizen who has earned interest income from deposits with banks or post office or co-operative banks. Interest earned on saving deposits and fixed deposits both shall be eligible for deduction under this provision.
After introducing this new deduction, the existing deduction of up to Rs. 10,000 under Section 80TTA shall not be allowed to the senior citizens.
6. Certain Deductions not to be allowed if return is not filed on time
As per existing provisions of Section 80AC of the Act, no deduction would be admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, unless the return of income by the assessee is furnished on or before the due date specified under Section 139(1). This burden of filing of return on time is not casted on other assesses who are claiming deductions under other similar provisions.
Therefore, to bring uniformity in all income-based deduction, it is now proposed that the scope of section 80AC shall be extended to all similar deductions which are covered in heading “C.—Deductions in respect of certain incomes” in Chapter VIA (sections 80 H to 80RRB). The impact of such amendment shall be that no deduction would be allowed to a taxpayer under these provisions if income-tax return is not filled on or before the due date.
7. Amendment in section 80-IAC to promote new start-ups
Deductions under Section 80-IAC is available to an eligible start-up for 3 consecutive assessment years out of 7 years at the option of such start-up.
These deductions are allowed subject to certain conditions as given below:
a. It is incorporated between 01/04/2016 and 31/03/2019
b. The total turnover of its business does not exceed Rs. 25 crores in any of the previous year 2016-17 to 2020-21; and
c. It is engaged in the eligible business which involves innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
In order to improve the effectiveness of the scheme for promoting start-ups in India, it is proposed to make following changes in the taxation regime for the start -ups:
a. The benefit would also be available to start up cos incorporated between 01/04/2019 and 31/03/2021;
b. The requirement of turnover not exceeding Rs. 25 Crore would apply to 7 previous years commencing from the date of incorporation;
c. The definition of eligible business has been expanded to provide that the benefit would be available if it is engaged in innovation, development or improvement of products or processes or services, or a scalable business model with a high potential of employment generation or wealth creation.
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