Comprehensive Section-Wise Income Tax Deductions for AY 2026-27
The Income Tax Act, 1961, as amended by the Finance Act, 2026, provides a wide array of deductions that reduce the taxable income of an assessee across various heads of income. Understanding these deductions is critical for accurate tax computation and efficient compliance. This guide presents a structured, head-wise compilation of all major deductions available for Assessment Year 2026-27, along with eligibility conditions, monetary ceilings, and relevant restrictions.
Deductions Against Salary Income
The following deductions are available to salaried assessees while computing income under the head 'Salaries':
Section 16(ia) — Standard Deduction
A flat standard deduction is available to salaried individuals and pensioners:
- Normal Tax Regime: Rs. 50,000 or actual salary, whichever is lower
- **New Tax Regime under
Section 115BAC(1A)(ii)😗* Up to Rs. 75,000 or actual salary, whichever is lower
Who can claim: Individual salaried employees and pensioners
Section 16(ii) — Entertainment Allowance
Deduction is restricted to the least of the following:
- Actual entertainment allowance received
- 1/5th of salary
- Rs. 5,000
Who can claim: Government employees only
Section 16(iii) — Professional Tax / Employment Tax
The full amount of employment tax or professional tax paid during the year is deductible.
Who can claim: All salaried assessees
Deductions Against Income from House Property
Section 23(1), First Proviso — Municipal Taxes
Taxes levied by a local authority on the property, if borne by the owner and actually paid during the relevant previous year, are deductible from the annual value.
Who can claim: All assessees
Section 24(a) — Standard Deduction on House Property
A standard deduction of 30% of the annual value (i.e., gross annual value minus municipal taxes paid) is allowed without requiring the assessee to prove actual expenditure.
Who can claim: All assessees
Section 24(b) — Interest on Borrowed Capital
Interest paid on capital borrowed for purchase, construction, repair, or reconstruction of house property is deductible, subject to the following ceilings:
- Rs. 30,000 or Rs. 2,00,000, depending on specified conditions applicable to the case
Who can claim: All assessees
Section 25A(2) — Standard Deduction on Arrears / Unrealised Rent
Where an assessee receives arrears of rent or previously unrealised rent, a standard deduction of 30% of such receipt is allowed.
Who can claim: All assessees
Deductions Against Profits and Gains of Business or Profession
A. Allowable Deductions
Section 30 — Premises-Related Expenses
Deduction is allowed for rent, rates, taxes, repairs (excluding capital expenditure), and insurance premium in respect of premises used for business or profession.
Who can claim: All assessees
Section 31 — Plant, Machinery and Furniture Repairs
Expenditure on repairs (excluding capital expenditure) and insurance of machinery, plant, and furniture used in the business is deductible.
Who can claim: All assessees
Section 32(1)(i) — Straight Line Depreciation
Depreciation on the following assets is allowed at prescribed rates on actual cost (Straight Line Method):
- Tangible assets: Buildings, machinery, plant, furniture
- Intangible assets: Know-how, patents, copyrights, trademarks, licences, franchises, or other business/commercial rights of a similar nature (excluding goodwill)
Note: If any asset is acquired and put to use for less than 180 days during the previous year, only 50% of the computed depreciation is deductible.
Who can claim: Assessees engaged in generation or generation and distribution of power (who also have the option to claim WDV depreciation)
Section 32(1)(ii) — Written Down Value (WDV) Depreciation
Depreciation on written down value of each block of assets is allowed at prescribed rates for:
- Tangible assets (buildings, machinery, plant, furniture)
- Intangible assets (excluding goodwill)
The 50% restriction applies equally here where the asset is used for fewer than 180 days during the year.
Who can claim: All assessees engaged in business or profession
Section 32(1)(iia) — Additional Depreciation
An additional depreciation of 20% of the actual cost of new plant and machinery is allowed (ships, aircraft, office appliances, and second-hand assets are excluded), subject to specified conditions.
- Where the new asset is used for less than 180 days, 50% of the additional depreciation is allowed in the year of acquisition, and the remaining 50% is carried forward to the next year.
Who can claim: Assessees engaged in:
- Manufacture or production of any article or thing
- Generation, transmission or distribution of power (where WDV depreciation is not claimed)
Section 33AB — Tea, Coffee, and Rubber Development Account
Deduction of the lower of:
- Amount deposited with a National Bank (Special Account) or with the Tea Board, Coffee Board, or Rubber Board under an approved scheme
- 40% of profits from the said business
Who can claim: Assessees engaged in growing and manufacturing tea, coffee, or rubber in India
Section 33ABA — Site Restoration Fund (Petroleum/Natural Gas)
Deduction of the lower of:
- Amount deposited in a Special Account with SBI or a Site Restoration Account
- 20% of business profits
Who can claim: Assessees engaged in prospecting, extraction, or production of petroleum or natural gas in India
Scientific Research Deductions
Section 35(1)(i) — Revenue Expenditure on In-House Research
Revenue expenditure on scientific research related to the assessee's business is fully deductible. Expenditure incurred within 3 years before commencement of business (on purchase of materials and employee salaries, excluding perquisites) is deductible in the year of commencement to the extent certified by the prescribed authority.
Who can claim: All assessees
Section 35(1)(ii) — Contribution to Approved Research Associations
100% of contributions made to approved research associations, universities, colleges, or other institutions for the purpose of scientific research are deductible, subject to conditions.
Who can claim: All assessees
Section 35(1)(iia) — Contribution to Approved Scientific Research Companies
100% deduction is available for contributions made to approved Indian-registered companies undertaking scientific research.
Who can claim: All assessees
Section 35(1)(iii) — Statistical and Social Science Research
100% deduction for contributions made to approved associations, universities, or institutions engaged in statistical research or social science research.
Who can claim: All assessees
Section 35(1)(iv) read with Section 35(2) — Capital Expenditure on Scientific Research
Capital expenditure (excluding land acquisition or any interest in land) on scientific research related to the business is fully deductible. Capital expenditure incurred within 3 years before commencement of business is deductible in the year business commences.
No depreciation is separately allowable on assets acquired using such capital expenditure.
Who can claim: All assessees
Section 35(2AA) — Payments to National Laboratories / IITs
100% deduction for payments made to National Laboratories, universities, Indian Institutes of Technology, or specified persons, where such payments are directed towards an approved scientific research programme.
Who can claim: All assessees
Section 35(2AB) — In-House R&D by Companies
100% deduction (including capital expenditure, excluding land and building) for expenditure on in-house scientific research and development, subject to approval by the prescribed authority and maintenance of accounts as directed.
Who can claim: Companies engaged in biotechnology or manufacturing/production of eligible articles or things
Telecom, Spectrum, and Specified Business Deductions
Section 35ABA — Spectrum Charges
Capital expenditure actually paid for acquiring the right to use spectrum for telecommunication services is deductible in equal instalments over the useful life of the spectrum.
Who can claim: Assessees engaged in telecommunication services
Section 35ABB — Telecom Licence Fee
Expenditure incurred for obtaining a licence to operate telecommunication services (whether before or after commencement of business) is deductible over the period of the licence.
Who can claim: All assessees
Section 35AD — Capital Expenditure for Specified Businesses
Capital expenditure incurred wholly and exclusively for any of the following specified businesses is fully deductible:
- Cold chain facility (setting up and operating)
- Warehousing facility for agricultural produce
- Cross-country natural gas/crude/petroleum oil pipeline network
- Hotels of two-star category or above (anywhere in India)
- Hospitals with at least 100 patient beds
- Slum redevelopment/rehabilitation housing projects
- Affordable housing projects under Government schemes
- Fertiliser production in India
- Inland container depot or container freight station (approved under
Customs Act, 1962) - Bee-keeping and production of honey and beeswax
- Sugar warehousing facility
- Slurry pipeline for transportation of iron ore
- Semi-conductor wafer fabrication manufacturing unit (notified)
- New infrastructure facility (developing, maintaining, or operating)
Important: No deduction shall be allowed for capital expenditure exceeding Rs. 10,000 if made otherwise than by account payee cheque, account payee bank draft, ECS, or other prescribed electronic mode.
Who can claim: All assessees (with Indian company restriction applicable to pipeline and infrastructure businesses)
Section 35CCA — Rural Development Programmes
Payments made to associations or institutions for rural development programmes are deductible, subject to conditions.
Who can claim: All assessees
Section 35CCC — Agricultural Extension Projects
100% deduction for expenditure on notified agricultural extension projects.
Who can claim: All assessees
Section 35CCD — Skill Development Projects
100% deduction for expenditure incurred on notified skill development projects.
Who can claim: Companies only