Deductions: formula sheet

Key formulas

Total income

Total income = Gross total income − Deductions allowed

Deductions are applied after the five heads, clubbing and set off of losses.

Overall ceiling

Aggregate of deductions ≤ Gross total income

Deductions cannot create a negative total income. Some special-rate incomes are excluded from the base against which deductions are claimed, so read the Act for those exclusions.

Family pension deduction, section 93(1)(d)

Lower of (1/3 × family pension) and ₹25,000 where tax is computed under section 202(1); lower of (1/3 × family pension) and ₹15,000 in any other case

Family pension is a regular monthly amount paid by the employer to a family member after the employee's death.

Dividend and specified fund units, section 93(2)

Deduction allowed = Nil

Applies to dividend income and to income from units of a Mutual Fund specified in Schedule VII (Sl. No. 20 or 21) or of the specified company under the UTI repeal Act, from 1-4-2026.

Interest on securities, section 93(1)(a)

Deduction = Reasonable commission or remuneration paid to realise the interest

After the 2026 amendment, this clause no longer covers dividends.

Residuary deduction, section 93(1)(e)

Revenue expenditure laid out wholly and exclusively to earn the income

Capital expenditure is excluded.

Life insurance premium cap, policy issued on or before 31 March 2012

Qualifying premium = lower of (premium paid, 20% × actual capital sum assured)

Schedule XV, paragraph 2(1)(a). Applies to the premium on policies other than deferred annuity contracts.

Life insurance premium cap, policy issued on or after 1 April 2012

Qualifying premium = lower of (premium paid, 10% × actual capital sum assured)

Paragraph 2(1)(b). This is the general cap for newer policies.

Cap for disability or specified disease policy issued on or after 1 April 2013

Qualifying premium = lower of (premium paid, 15% × actual capital sum assured)

Paragraph 2(1)(c). Applies where the policy covers a person with disability or severe disability, or a person with a specified disease or ailment.

Actual capital sum assured

Minimum amount assured on the insured event during the term, ignoring premiums agreed to be returned and bonus

Paragraph 2(2). Do not add bonus or returnable premium to the sum assured.

Pension scheme contribution by an individual

Employee: up to 10% of salary (including dearness allowance, if terms of employment so provide, but excluding other allowances and perquisites). Any other individual: up to 20% of gross total income

Paragraph 1(y). The scheme must be notified by the Central Government.

Tuition fees

Tuition fees only, for full-time education of any two children, in India

Paragraph 1(q). Exclude development fees, donations and similar payments.

Life insurance recovery trigger

Deductions allowed so far become income if the policy ends before premiums are paid for 2 years (single premium policy: within 2 years of commencement)

Paragraph 4, Table item 1. Applies on termination by notice or on lapse that is not revived.

ULIP recovery trigger

Deductions allowed so far become income if participation ends before contributions are paid for 5 years

Paragraph 4, Table item 2.

House property recovery trigger

Deductions become income if the property is transferred before 5 years from the end of the tax year in which possession is obtained, or if the sum is received back

Paragraph 4, Table item 3.

Equity or debenture recovery trigger

Deductions become income if the shares or debentures are sold or transferred within 3 years of acquisition

Paragraph 4, Table item 4. Acquisition date is the date the name is entered in the register.

Early withdrawal from SCSS or 5-year Post Office Time Deposit

Amount withdrawn before 5 years from the date of deposit is income of the year of withdrawal

Paragraph 5, Table item 1. Interest already taxed earlier and amounts received by a nominee or legal heir on death (other than untaxed accrued interest) are excluded.

Own disability deduction (Section 154)

Disability: ₹75,000 | Severe disability: ₹1,25,000

Flat amount for a resident individual certified by a medical authority. No proof of spending is required.

Dependant with disability (Section 127)

Disability: ₹75,000 | Severe disability: ₹1,25,000

Available to a resident individual or HUF. Either expenditure on treatment, training and rehabilitation, or payment under a Board-approved scheme. Fixed amount.

Specified disease treatment (Section 128)

Step 1: Deduction = lower of (actual amount paid, ₹40,000); where the person treated is a senior citizen, lower of (actual amount paid, ₹1,00,000). Step 2: Final deduction = Step 1 deduction − insurance received or employer reimbursement

The higher limit depends on the age of the person treated: the assessee, the dependant or the HUF member. Under Section 128(3), the deduction itself is reduced by any amount received from an insurer or reimbursed by an employer. So apply the cap first, then subtract the receipt. A specialist prescription is needed.

Person with disability

Person with disability = at least 40% of a disability, as certified by a medical authority

Below 40%, no deduction under Section 154 or 127. At 40% or more but below 80%, the lower amount of ₹75,000 applies.

Severe disability

Severe disability = 80% or more of one or more disabilities

Also includes severe disability under the National Trust Act, 1999.

Scheme payout condition (Section 127(2))

Payout on death of subscriber, or on subscriber reaching 60 years with payments stopped

The assessee must also nominate the dependant or another person or trust to receive the payments.

Death of dependant (Section 127(4))

Amount paid or deposited is deemed income of the assessee in the tax year it is received

Applies if the dependant dies before the subscriber. It does not apply to amounts the dependant already received as annuity or lump sum under the 60-year condition.

Rent deduction (no HRA)

Deduction = least of (a) ₹5,000 × number of months; (b) 25% of adjusted total income; (c) rent paid − 10% of adjusted total income

Individual must not receive HRA and must not own residential accommodation at the place of residence or work. Adjusted total income is total income before this deduction, excluding certain items such as long-term capital gains and the specified deductions. Section number for the rent deduction is not given in the supplied text, so cite the rule by name.

Section 130 - housing loan interest

Deduction = interest payable, maximum ₹50,000

Loan sanctioned 1 April 2016 to 31 March 2017; loan ≤ ₹35 lakh; house value ≤ ₹50 lakh; no residential house owned on the sanction date; lender is a bank, banking institution or housing finance company.

Section 131 - housing loan interest

Deduction = interest payable, maximum ₹1,50,000 per tax year

Only for an individual not eligible under section 130. Loan sanctioned 1 April 2019 to 31 March 2022; stamp duty value ≤ ₹45 lakh; no residential house owned on the sanction date.

Section 132 - electric vehicle loan interest

Deduction = interest payable, maximum ₹1,50,000

Individual; loan from a financial institution (bank, banking institution or NBFC) sanctioned 1 April 2019 to 31 March 2023.

No double deduction

Interest allowed under sections 130, 131 or 132 cannot be claimed under any other provision, in the same or any other tax year

Applies to each of the three sections separately.

Section 203: resident co-operative society

Tax = 22% × total income computed without Chapter VIII deductions (except section 146 or 150) and without section 205(1)(a) to (g) deductions

Optional. Option is exercised in the prescribed manner by the due date under section 263(1). Once exercised, it applies to later years and cannot be withdrawn.

Section 203(7) dividend exception

Deduction under section 149(2)(d)(ii) allowed up to the dividend distributed to members at least one month before the due date under section 263(1)

Inserted w.e.f. 1-4-2026. Not a full deduction. It is capped at the dividend paid in time.

Section 204: new manufacturing co-operative society

15% on total income other than clauses (b), (c), (d); 22% on income not derived from or incidental to manufacture and with no separate rate (no expense deduction); 22% on short-term capital gains on non-depreciable assets; 30% on income deemed under section 205(4)

Conditions: set up and registered on or after 1 April 2023, manufacturing commenced on or before 31 March 2024, option exercised, income computed under sub-section (3), and section 205(2) conditions met.

Section 204(2) option rules

Option by first return due date; applies to later years; no withdrawal; invalid for that and later years if conditions fail

If invalid, other provisions of the Act apply as if no option had been exercised.

Section 202 default slab rates

Up to ₹4,00,000: Nil; ₹4,00,001 to ₹8,00,000: 5%; ₹8,00,001 to ₹12,00,000: 10%; ₹12,00,001 to ₹16,00,000: 15%; ₹16,00,001 to ₹20,00,000: 20%; ₹20,00,001 to ₹24,00,000: 25%; above ₹24,00,000: 30%

Applies to individuals, HUFs, AOPs (other than co-operative societies), BOIs and certain artificial juridical persons, unless they exercise the option under section 202(4).

Section 202(4) option timing

With business income: by the section 263(1) due date; once exercised it continues; may be withdrawn only once. Without business income: along with the return under section 263(1)

After a withdrawal, a person with business income can never opt again, unless business or profession income ceases. Then the non-business route is available.

Total income

Total income = Gross total income − Deductions under the Chapter

Section 122(1). Gross total income is computed before Chapter deductions (section 122(10)).

Aggregate cap

Total deductions ≤ Gross total income

Section 122(2). Deductions can reduce total income to nil but not below.

Part C return condition

Part C deduction allowed only if return is filed by the section 263(1) due date AND the deduction is claimed in that return

Section 122(5). Failing either limb denies the deduction.

No double deduction

Profits claimed under Part C: no other deduction on the same profits; deduction ≤ profits of the undertaking/unit/enterprise/eligible business

Section 122(4)(a) and (b).

Transfer at market value

If transfer price ≠ market value, profits are computed at market value on the date of transfer

Section 122(6). Market value is defined in section 122(7); arm's length price applies to specified domestic transactions.

Rebate cap

Rebate ≤ Income-tax on total income before the rebate

Section 155(2). A rebate reduces tax, not income.

Concessional rate societies

Co-operative society opting under section 203: rate 22%, income computed without Chapter VIII deductions (except those named) and without set-off of related brought-forward loss or depreciation

Section 203(1). Exceptions are sections 146 or 150, and section 149(2)(d)(ii) up to dividend distributed at least one month before the return due date, per section 203(7).

Quick revision

• Deductions are subtracted from gross total income to arrive at total income.
• Always check who is eligible: individual, HUF, resident or any assessee.
• Dependant disability deduction: ₹75,000 under section 127, and ₹1,25,000 if the dependant has severe disability.
• Section 127 is open to a resident individual or HUF only.
• Severe disability means 80% or more of one or more disabilities, or severe disability under the National Trust Act.
• A copy of the medical certificate must be filed with the return of income.
• If the certificate needs reassessment, a new one is needed after it expires to keep claiming.
• Under section 127, a dependant who has claimed a deduction under section 154 cannot be counted.
• If the disabled dependant dies before the subscriber, amounts paid under the insurer scheme are treated as income of the assessee in the year received.
• Section 142 allows a deduction for housing project profits as computed under old section 80-IBA, for the years it would have applied.
• Check each deduction's limit before you deduct, and never deduct more than the amount actually paid.
• Finish each answer with a clear conclusion on the amount allowed.

Common mistakes

• Treating section 93 as the section for deductions from gross total income. Fix: Remember that section 93 works inside the head Income from other sources, before GTI is reached.
• Deducting interest or other expenses against dividend income. Fix: From 1 April 2026 section 93(2) allows no deduction against dividend or the specified fund units.
• Adding bonus or returnable premium to the sum assured before applying the percentage cap. Fix: Use only the minimum amount assured on the insured event. The definition of actual capital sum assured excludes bonus and premiums agreed to be returned.
• Using the 10% cap for every policy. Fix: Check the issue date. On or before 31 March 2012 it is 20%. From 1 April 2013 for a person with disability or a specified disease it is 15%.
• Claiming the actual expenditure under Section 127 or 154 instead of the fixed amount. Fix: Remember that Sections 154 and 127 give flat amounts. Only Section 128 uses the lower of actual payment and the cap.
• Allowing a Section 127 deduction for a dependant who claims Section 154 himself. Fix: Check whether the dependant has claimed deduction under Section 154 for the same tax year. If yes, Section 127 is not available for him.
• Claiming section 131 for a loan sanctioned in 2016-17 that also qualifies under section 130. Fix: Test section 130 first. Use section 131 only when section 130 fails.
• Using market value instead of stamp duty value for section 131. Fix: Use the exact test: section 130 value ≤ ₹50 lakh; section 131 stamp duty value ≤ ₹45 lakh.
• Claiming Chapter VIII deductions while using the 22% rate under section 203 Fix: Remember the trade-off. The lower rate needs income computed without those deductions, except section 146 or 150, an IFSC unit's section 147 and the capped dividend deduction.
• Applying 15% to all income of a new manufacturing co-operative society Fix: Split income. Non-manufacturing income with no specific rate is taxed at 22% without expense deduction. Short-term gains on non-depreciable assets are at 22%. Deemed income under section 205(4) is at 30%.

Exam tips

• Begin your answer by stating that total income is GTI less deductions, then name the stage each item belongs to. This shows structure and earns marks.
• When a question cites section 93, check whether it is about other sources. Quote the clause number, such as section 93(1)(d) for family pension.
• Learn the 2026 changes to section 93 well. Dividend deductions are removed, and examiners like questions that test current law.
• Always end with a conclusion line giving the figure of total income or the amount allowed, and the reason for any disallowance.
• Show the cap comparison as lower of two figures. Marks are often given for the working, not only the answer.
• Write the provision first: Schedule XV read with section 123, then the paragraph. Then apply facts and end with a one-line conclusion.
• In premium problems, always state the policy date and the percentage you chose. Marks are given for choosing the right cap.
• Read the facts for a hidden trigger such as a sale of house, early withdrawal or lapse. Many questions test the reverse rules.