Deduction for life insurance premia, deferred annuity, contributions to provident fund, etc.

B.—Deductions in respect of certain payments

123.

An individual or a Hindu undivided family, shall be allowed a deduction of the whole of the amount paid or deposited in the tax year, being the aggregate of the sums enumerated in Schedule XV, but not exceeding one lakh fifty thousand rupees, while computing the total income for that year, subject to the conditions specified in that Schedule

Explanation

Section Summary:

This section allows individuals and Hindu Undivided Families (HUFs) to claim a deduction for certain payments made during the tax year, such as life insurance premiums, contributions to provident funds, and deferred annuity payments. The total deduction is capped at ₹1,50,000 and is subject to conditions outlined in Schedule XV of the Income Tax Act.

Key Changes:

• Cumulative Deduction Cap: The total deduction for all eligible payments (life insurance, provident fund contributions, etc.) is now limited to ₹1,50,000. Previously, there were separate limits for different types of payments.
• Schedule XV Reference: The specific conditions and eligible payments are detailed in Schedule XV, which taxpayers must refer to for compliance.

Practical Implications:

• Taxpayers: Individuals and HUFs can reduce their taxable income by up to ₹1,50,000 by making eligible payments. This encourages savings and investment in financial security products.
• Documentation: Taxpayers must maintain proof of payments (e.g., receipts for insurance premiums, provident fund contribution statements) to claim the deduction.
• Planning: Taxpayers need to plan their payments to maximize the deduction without exceeding the ₹1,50,000 limit.

Critical Concepts:

• Schedule XV: This schedule lists the specific payments eligible for deduction, such as life insurance premiums, contributions to recognized provident funds, and deferred annuity payments. It also outlines conditions, such as the policyholder being the taxpayer or their family.
• Aggregate Limit: The ₹1,50,000 cap applies to the total of all eligible payments, not per payment type.

Compliance Steps:

1. Identify Eligible Payments: Refer to Schedule XV to determine which payments qualify for the deduction.
2. Maintain Records: Keep proof of all payments made, such as premium receipts or provident fund contribution statements.
3. Calculate Total Deduction: Ensure the total of all eligible payments does not exceed ₹1,50,000.
4. Report in ITR: Include the deduction amount in the relevant section of the Income Tax Return (ITR).

Examples:

• Scenario 1: An individual pays ₹50,000 in life insurance premiums, ₹60,000 towards a provident fund, and ₹40,000 for a deferred annuity. The total eligible payment is ₹1,50,000, so they can claim the full amount as a deduction.
• Scenario 2: Another individual pays ₹1,00,000 in life insurance premiums and ₹70,000 towards a provident fund. Since the total exceeds ₹1,50,000, they can only claim ₹1,50,000 as a deduction.

This section simplifies the deduction process by consolidating multiple payment types under a single cap, making it easier for taxpayers to plan and claim deductions.