India: Budget 2012 : Highlights - Deductions

Last Updated: 15 November 2012

Depreciation in plant and machinery in Power Sector - Sec. 32(1)(iia)

The existing provision is proposed to be amended, w.e.f 1st April, 2013 to allow deduction of a further sum of 20% of actual cost of any new machinery or plant(other than ships and aircraft) acquired and installed after 31st march 2005 , as further depreciation to an Assessee engaged in the business of generation or generation and distribution of power.

Expenditure on Scientific Research -Sec.35(2AB)(5)

At present a deduction of 200% of the expenditure on scientific research incurred by a Company engaged in the business of bio-technology or in the business of manufacture or production is allowed, provided the expenditure is incurred by 31st March 2012. The last date will now be 31st March 2017.

Deduction w.r.t expenditure on specified business- Sec.35AD(1A)

New sub-clauses (af), (ag) and (ah) are proposed to be inserted which shall extend the purview of Specified business to include activities in the nature of inland container depot, CFS, bee-keeping, bees wax and warehousing facility for storage of sugar.

New subSec. (6A) proposed to be inserted clarifies that even if a two star or more hotel, which was built by the assessee, is given out on a management contract, this shall still be deemed to be a specified business for the purpose of this provision.

New sub-sec. (1A)- It is now proposed to increase the Deduction in respect of expenditure of capital nature incurred by a certain specified business, which commence after 01/04/2012 to 150% from the current 100%. The following are the specified businesses for which the deduction has been increased to 150%:

  1. Setting up and operating a cold chain facility
  2. Warehouse facility for storage of agricultural produce
  3. Building an operating a hospital with at least 100 beds
  4. Developing and building a housing project under a scheme for affordable housing
  5. Production of fertilizer in India

Deduction of expenditure - Sec.35CCC and 35CCD

New Sections proposed to be inserted by the Finance Bill 2012, which propose to allow deduction of one and a half times the expenditure on an agriculture extension project and a skill development project respectively.

Deduction allowed to assessee not deemed to be in default- Sec. 40(a)

Presently, if an assessee fails to deduct tax or pay the deducted tax, then the assessee shall not get a deduction for such payment. If however, the assessee pays such tax in a later year then the assessee shall get a deduction for the payment in such later year.

The proposed amendment is that an Assessee who is not deemed to be in default (u/s 201 as may be amended) shall be allowed a deduction in computing his Profit & Gains for the previous year in which the payee furnishes his return.

Deduction in respect of health insurance premia- Sec. 80D

Presently when an individual makes payment of premium for life insurance for himself, his spouse or children he would get a deduction of a maximum amount of Rs. 15,000/-. The individual gets an additional deduction up to Rs. 15,000 on making payment of premium for life insurance for his parents.

An amendment is being made to the said section whereby the individual would also get a deduction for preventive health check up for himself, his spouse or children subject to maximum deduction of Rs. 5000/-. However, the Rs. 5000/- is not an additional deduction but would be within the Rs. 15000/- aggregate limit that is available for life insurance premium.

A similar amendment is being made whereby an individual would get a deduction for preventive health check up for his parents subject to a maximum deduction of Rs. 5000/- within the overall ceiling of Rs. 15000/-

Furthermore, qualifying age for a senior citizen has been proposed to be reduced to 60 years from 65 years. Aggregate limit in case of a senior citizen is Rs. 20,000/- to avail benefit u/s 80D.

Deduction in respect of medical treatment

Sec. 80DDB - It is proposed to reduce the Age for availing of deduction for medical treatment for specified diseases or ailments on senior citizen under this Sec. from "sixty-five years" to "sixty years".

Deduction in respect to donation to certain funds, Charitable trusts. Etc.:

Sec. 80G A new sub-section (5D) is to be introduced whereby deduction will not be allowed for a donation exceeding Rs.10,000/- unless it is paid by any mode other than cash

Donation for scientific research:

Sec. 80 GGA A new sub-section (2A) is to be introduced whereby deduction will not be allowed for a donation exceeding Rs.10,000/- unless it is paid by any mode other than cash.

Deduction on Interest on Savings Account:

Sec. 80TTA A deduction upto Rs.10,000/- in aggregate shall be allowed to an assessee, being an individual or a HUF, in respect of any income by way of interest on deposits (not being time deposits) in a savings account with—

  • a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in Sec. 51 of that Act);
  • 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
  • a post office, as defined in Sec. 2(k) of the Indian Post Office Act, 1898 (6 of 1898).

However, where the aforesaid income is derived from any deposit in a savings account held by or on behalf of a firm, AOP,BOI, no deduction shall be allowed in respect of such income in computing the total income of any partner of the firm or any member of the association or body.

Rajiv Gandhi Equity Savings Scheme

This new scheme is proposed to encourage flow of savings in financial instruments and improve the depth of domestic capital market. It allows for income tax deduction of 50% to new retail investor, who invests up to Rs 50,000/- directly in equities and whose annual income is below Rs 10 lakhs. The scheme will have a lock-in period of three years. The details will be announced in due course.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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