Learn all about provisions in the Income Tax Act, 1961 and the rules under which are relevant for claiming deduction under Section 80TTB.
Section 80TTB: What is Section 80TTB
Section 80TTB provides that any person who has made a payment or incurred liability with respect to property acquired by him on account of his being an employee shall be entitled to a deduction from income tax at source, subject to certain conditions, of the amount so paid or incurred.
What are the Conditions for Deduction of Payment or Liability Under Section 80TTB?
As per Section 80TTB, no deduction is allowed unless the payment or incurrence of liability is made or incurred within three years after the end of the year in which he ceases to be an employee. However, if the payment or liability is made or incurred before the expiry of three years but more than six months after the date of termination of employment, then the deduction will be allowed only if the payment or liability was made or incurred within six months after the date of cessation of employment.
How to Claim Deductions Under Section 80TTB?
Claiming deductions under Section 80TTB involves two steps:
- Identifying the assets resulting from employment
- Identifying the nature of the asset acquired on account of employment.
Employment and Section 80TTB
After determining whether the asset was acquired for employment reasons, the next step is to determine whether the asset was acquired for employment reasons.
- By examining the nature of the asset itself,
- Analyzing the circumstances of the asset’s acquisition
- Analyzing how and why the asset was created
- The person who owned the asset can be determined by looking.
If the asset was acquired on account of employment, then the deduction is allowable.
For example, Mr Raj has been employed by a firm for ten years. During his last three years of service, he received a monthly salary of 15,000. His employer also provided him with housing accommodation at a rent of 12,000 per annum. Mr S does not have any savings apart from his salary. His goal is to take out a loan of 25,000 from his bank. He would like to deduct 7,500 (25% of the amount borrowed) as a monthly deduction.
Is he entitled to do so?
Answer: Yes. Since the asset was acquired on account of employment, the deduction is allowed.
It is necessary to note that if the employee has already availed of any benefit under section 80C, such as medical benefits or provident fund, then the deduction will be limited to the extent of such benefits.
Section 80 TTB Claims
A deduction is only permitted if the payment is made or the liability is incurred either:
(a) in order to acquire property; or
(b) in connection with a property purchase.
In the case of payment for services rendered, the deduction is allowed only if the services were rendered in pursuance of an agreement entered into prior to the date of commencement of services and the payment was made or liability was incurred in accordance with the terms of the agreement.
In the case of payment for goods or materials supplied, the deduction is allowed if the payment is made in accordance with the terms and conditions of the sale or purchase of the goods or materials.
Income Tax Deduction Under Section 80TTB
Suppose a person buys a car for ₹30,000. He pays ₹20,000 as a down payment and takes a loan of ₹10,000 from a bank. There are no interest payments made by him. He is not required to pay income tax on interest earned by the bank. If he sells the car after two years, he gets back ₹35,000 and pays tax on ₹30,000 only.
Is he Eligible for a Deduction under Section 80TTB?
Because the asset was not obtained through employment, it cannot be deducted.
Income Tax Deductions Under Section 80TTB
A person borrows 50,000 from a bank and pays interest at 9%. She sells her house for 60,000 and receives 40,000 as proceeds.
Is she eligible for a deduction under section 80TTB?
Answer: Yes. The property being sold by her is an asset acquired on account of employment. Therefore, she is entitled to a deduction equal to 25% of the sale price.
How to Claim a Deduction for Senior Citizens
In order to avail the benefit of this section for senior citizens, you need to file your ITR with the help of Form 16. If you do not want to file your own return, you can use Form 17. In order to file this form, you must do so within 30 days of the end of the fiscal year. Once you complete the process of filing your returns, you can get back all the money that you paid towards the expenses mentioned in the list below:
- Medical Treatment: If you pay ₹10,000 per annum for medical treatment, then you can claim up to ₹5,00,000 as a deduction.
- Education Fees: For every year, you can claim up to 25% of the total amount spent on tuition fees as a deduction.
- House Rent: If you live in rented accommodation, then you can claim 50% of the total rent as a deduction.
- Travel Expenses: If you spend more than ₹20,000 per year on travel, you can deduct 100% of your expenses.
- Other Expenses: Other expenses like housekeeping, telephone bills, insurance premiums, etc., can also be claimed as a deduction.
Limitations of Section 80TTB
There are some limitations associated with this section. The same is probably applicable to senior citizens. The expenses cannot exceed 50,000 per annum. The deduction cannot exceed the taxable income. Finally, the expenses must be incurred during the period between April 1 and March 31.
In this article, we discussed how to claim deductions under Section 80TTB. We hope that this information helps you better understand the concept.