Understanding Form 16 Chapter VI-A Deductions

Understanding Form 16 Chapter VI-A Deductions

Understanding Form 16 Chapter VI-A Deductions: In the article Understanding Form 16 Chapter VI-A Deductions, we have presented the structure of salary paid and how the gross salary is calculated. In this part of the article, we have elucidated the first part of Form-16- Chapter VI A Deductions regarding deductions that fall under the Chapter VI-A of the Income-tax Act. It also presents how they appear in Form 16. Through this article, you will acquire more about the Income Tax Act of 1961 and chapter VI-A, various subsections.

Income Tax Act 1961 and Chapter VI-A

The Income Tax Act, 196, became effective on April 1, 1962, and this Act applies to the whole of India, including Jammu and Kashmir. The Income Tax Act is a comprehensive piece of legislation and comprises 23 Chapters, 298 Sections, 14 schedules, and various subsections about the subject.

Since 1962, The Act has been subjected to numerous amendments undertaken by the Finance Act each year. This change leads to coping with the changing scenario of the country and its growing economy.

In its Income Tax Act, 1961, the Government of India has presented a provision where individuals can save the income tax through investment in certain products inclusive of expenditures like an educational loan,  medical premiums, etc. This enactment encourages certain savings types, mostly long terms, expenses like education loans, medical premiums, and more.

The Tax deductions detailed in chapter VI-A of the Income Tax Act remain eminent from the exemptions provided in Section 10 of the Income Tax Act, 1961. The reductions that fall under the Section 10 of the Act are reduced from the overall gross income total. Chapter VI-A deductions do not lower as a part of the income. Chapter VI-A deductions are to encourage the long-term savings and specific expenditure undertaken by individuals.

Chapter VI-A of the Income Tax Act, 1961, deals with the deductions that are to be made in computing the total income acquired. The chapter specifies the sections starting from 80A to 80U under which the required reductions are allowed. These deductions are made from the assessee’s gross total income. Multiple segments apply to different kinds of assesses, and if you look at ITR -1 or Sahaj form, you will see thirteen deductions, while the ITR-2 form encompasses fourteen abatements.

Income Tax Act Deductions in Detail

A few sections tabulated below talks about the Income Tax Act Deductions in Detail:

Code Maximum Limit Schemes
80C 1.5 lakh
  • Principal repayment of housing loans
  • Public Provident Fund provides 8.6 percent return compounded annually, life insurance premium payments, and investment in pension plans.
  • Equity Linked Savings schemes of mutual funds
  • Post office investments
  • National Savings Certificates
  • Tuition fees for up to two children
  • Tax saving Fixed Deposits provided by banks. This is for a tenure of five years and with an interest that is also taxable.

The Finance Act, 2005, introduced the 80C section of the Act.

80CCC 1.5 lakh The premium for annuity plan of LIC payment or any other insurer. The Finance Act, 2006, has also enhanced the deduction limitation under Section 80CCC of the Act from Rs.10,000 to Rs.1,00,000.
80CCD 10% of his salary. Deposit that is made by an employee in his or her respective pension account
80CCF Rs. 20,000. Long-term subscription to infrastructure bonds for the financial year 2010 to 2011 and 2011 to 2012. However, this exemption does no longer falls under the financial year 2012 to 2013.
80D Rs 35,000.00 classified as follows-15,000.00 inclusive of premium payments towards policies for spouse, self, and children.

15,000 is divided for non-senior citizen dependent parents.

20,000.00 towards senior citizen dependent

Premium in health insurance to the individual, spouse, children or dependent parents
80G A 100 percent donation amount for special funds

About 50 percent of the donation amount comes inclusive of all other donations.

Donation to specific funds, charitable institutions etc

Deductions that are Based on Declarations Given by the Employee

The deductions that fall under Form 16 are based on the employee declaration submitted to the Finance department of the employee’s organisation. Employees are allowed to make the statement twice at the beginning of the financial year and the end of the year, usually in February.

Declarations made at the beginning of the Financial year:

The declaration is made at the beginning of the financial year, where the salaried need to fill up the respective declaration form and present them to their respective companies. The declaration form for the first financial year submits the print of all the necessary investments. It proposes all the undertakings a salaried person should take during that period.

Based on this statement, the company calculates the tax liability for the first term of the financial year and deducts the appropriate amount every month from the employee’s salary. You must note that the Provident Fund remains a part of deductions available under Section 80C of the Income Tax Act, 1972. Supposedly, a person’s Provident Fund contribution each year amounts to Rs 30,000. The employee will only need to make other investments worth Rs 70,000 only to exhaust the 80C section of the Act available.

Declaration made at the end of the Financial year:

The declaration that is made towards the end of the financial year, usually in February, is undertaken by the company’s finance department. The department sends an Actual Investment Declaration Form to all its employees to fill in the actual investment details and supportive documents for their investments.

Any difference between the declarations made at the beginning of the year and the end of the year will be calculated by the Finance department, where the employee’s tax liability is based on the “Actual investment Declaration form”. Upon this, the employee’s tax is deducted accordingly.

The employees are asked to submit the actual declarations at the beginning of February and not in March. This provides enough time for the employees to make investments if not made and for the company to make calculations and adjust tax liability. Companies tend to deduct more tax from the employee’s salary in both February and March.

An employee may or may not have reported all deductions to the employer, which creates no problem as they can still claim them while filing for the Income Tax Return(ITR). In general, it remains a reasonable idea to report tax deductions to the employer such that the TDS remains minimised.

It is to be noted that irrespective of the investments made for an amount that falls to be greater than the maximum allowable limit, only a maximum limit is deducted.

Upon the deductions allowed under Chapter VI-A from Gross Salary, the taxable salary arrives on which the tax is calculated.

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