INCOME FROM OTHER SOURCES

 Section 56: Income from Other Sources

1. General Provision (Sub-section 1)
 Any income of any kind that is not excluded from the total income under the provisions of this Act shall be chargeable to
income tax under the head “Income from Other Sources” if:
o It is not chargeable to income tax under any of the other heads of income listed in Section 14 (Salary, House
Property, Business or Profession, and Capital Gains).

2. Specific Incomes Chargeable under this Head (Sub-section 2)

 The following incomes shall be specifically chargeable under the head “Income from Other Sources” unless they are
chargeable under the head “Profits and Gains of Business or Profession”:
(i) Dividends (Clause i):
 All dividends are taxable under this head unless specifically exempt or covered elsewhere under the Act.
(ia) Income as referred to in Section 2(24)(viii):
 This refers to winnings from lotteries, crossword puzzles, races, card games, gambling, or betting of any form or nature.
(ib) Income as referred to in Section 2(24)(ix):
 This includes income by way of voluntary contributions received by a charitable or religious trust or institution or by a
political party.
(ic) Income as referred to in Section 2(24)(x):
 This pertains to the value of any perquisite or profit derived from a business or the exercise of a profession, but only if
not chargeable under the head “Profits and Gains of Business or Profession.”
(id) Interest on securities:
 Interest on securities is taxable if it is not already chargeable under “Profits and Gains of Business or Profession.”
(ii) Letting of Machinery, Plant, or Furniture:
 Income from letting machinery, plant, or furniture on hire is taxable under this head if it is not already chargeable under
“Profits and Gains of Business or Profession.”
(iii) Combined Letting of Machinery, Plant, Furniture, and Buildings:
 When machinery, plant, furniture, and buildings are let on hire and their letting is inseparable from each other, the entire
income shall be chargeable under this head unless taxable under “Profits and Gains of Business or Profession.”
(iv) Income as referred to in Section 2(24)(xi):
 This includes income from the value of any perquisite or allowance taxable in the hands of an employee unless covered
under “Salaries.”

3. Taxability of Gifts, Property, and Other Receipts (Clauses v to x) (Individual or HUF)

Clause v: Gifts of Money Without Consideration (1st September 2004 to 31st March 2006):
 Any sum of money exceeding ₹25,000 received without consideration by an individual or HUF is taxable, except in the
following cases:
1. Received from a relative (defined below).
2. Received on the occasion of marriage of the individual.
3. Received under a will or inheritance.
4. Received in contemplation of the death of the payer or donor.
5. Received from local authorities (as defined under Section 10(20)).
6. Received from institutions specified in Section 10(23C).
7. Received from trusts or institutions registered under Section 12AA.
 Explanation on Relatives:
o Includes spouse, siblings of the individual or spouse, siblings of parents, lineal ascendants or descendants of self
or spouse, and their spouses.
Clause vi: Gifts of Money (1st April 2006 to 30th September 2009):
 Any sum of money exceeding ₹50,000 received without consideration is taxable unless it is received from exempt
sources as defined in Clause v above.
Clause vii: Gifts of Money and Property (1st October 2009 to 31st March 2017):
 Monetary Gifts: If the aggregate value of money received without consideration exceeds ₹50,000 in a financial year, the
entire amount is taxable.
 Immovable Property:
o Without consideration: Taxable if the stamp duty value exceeds ₹50,000.
o For inadequate consideration: If the difference between stamp duty value and consideration exceeds ₹50,000,
the difference is taxable.
 Other Property (Movable Assets):
o Without consideration: Taxable if the fair market value (FMV) exceeds ₹50,000.
o For inadequate consideration: If FMV exceeds the consideration paid by more than ₹50,000, the difference is
taxable.
 Exemptions: Same as Clause v above.
 Definition of Property:
o Includes immovable property, shares/securities, jewellery, archaeological collections, drawings, paintings,
sculptures, work of art, and bullion.
Clause viia: Shares Received by Firms/Companies (in which the public are substantially interested)(1st June 2010 to 31st
March 2017):
 Applies to firms and closely held companies receiving shares of another closely held company.
 Taxable if:
1. Shares are received without consideration and FMV exceeds ₹50,000.
2. Shares are received for inadequate consideration and FMV exceeds consideration by more than ₹50,000.
 Exemptions: Transactions under Section 47(via), (vic), (vicb), (vid), or (vii).
{A closely held company is a company with a limited number of shareholders, usually five or fewer. The shareholders are often
affiliated with the company, its management, or family members.}
Clause viib: Premium on Shares by Closely Held Companies (From 1st April 2013):
 Applicability: If a closely held company issues shares to a resident at a premium exceeding the FMV of the shares, the
excess amount is taxable.
 Exemptions: Transactions with venture capital undertakings or notified categories of persons.
Clause viii: Interest on Compensation or Enhanced Compensation:
 Scope: Interest received on compensation or enhanced compensation as defined in Section 145A(b).
Clause ix: Forfeited Advance for Capital Asset Transfer:
 If an advance is forfeited due to the failure of a negotiation for the transfer of a capital asset, the forfeited amount is
taxable as income.
Clause x: Gifts of Money and Property (From 1st April 2017):
 Similar provisions to Clause vii, with updated thresholds and definitions.

 Section 57: Deductions under the Head "Income from Other Sources"

1. Deduction for Dividends and Interest on Securities (Clause i):

 In the case of:
o Dividends (other than those referred to in Section 115-O).
o Interest on securities.
 Deduction Allowed:
o A reasonable sum paid as commission or remuneration to a banker or any other person for realizing such
dividend or interest on behalf of the assessee.

2. Deduction for Income Under Section 2(24)(x) (Clause ia):

 For income of the nature referred to in sub-clause (x) of clause (24) of Section 2:
o This pertains to contributions made by employees (e.g., provident fund, superannuation fund) collected by the
employer.
 Deduction Allowed:
o Deductions are allowed as per Section 36(1)(va) (which permits deductions for amounts contributed to specified
funds if paid within the prescribed time).

3. Deductions for Letting of Machinery, Plant, Furniture, or Building (Clause ii):

 Applicable for income arising under Section 56(2)(ii) and 56(2)(iii):
o Income from letting out machinery, plant, furniture, or combined letting with buildings.
 Deductions Allowed:
o Deductions are granted as per:
 Section 30: Expenditure for rent, repairs, and insurance of buildings.
 Section 31: Expenditure for repairs and insurance of machinery, plant, or furniture.
 Section 32: Depreciation for machinery, plant, furniture, and buildings.
o Subject to provisions of Section 38, which restricts deductions for assets used partially for business/profession.

4. Deduction for Family Pension (Clause iia):

 Applicability: Income in the nature of family pension.
 Deduction Allowed:
o 33.33% of such income or ₹15,000, whichever is less.
 Definition of Family Pension:
o A regular monthly amount payable by the employer to a family member of a deceased employee.

5. Deduction for Expenditure (Clause iii):

 Any other expenditure that:
o Is not capital in nature.
o Is laid out or expended wholly and exclusively for the purpose of earning such income.
 Examples:
o Legal fees for earning income from other sources.
o Collection charges for recovering debts.
6. Deduction for Interest on Compensation or Enhanced Compensation (Clause iv):
 Applicability: Income of the nature referred to in Section 56(2)(viii):
o Interest on compensation or enhanced compensation received (e.g., in land acquisition cases).
 Deduction Allowed:
o 50% of such income.
o No further deduction shall be allowed under any other clause of this section.

 Section 58: Amounts Not Deductible Under "Income from Other Sources"

Subsection (1): General Disallowances

Regardless of Section 57, the following amounts are not deductible:
1. Personal Expenses of the Assessee (Clause a(i)):
o No deduction is allowed for expenses that are personal in nature.
2. Expenditure Under Section 40A(12) (Clause a(ia)):
o Expenditure of the nature specified in Section 40A(12) (e.g., excessive or unreasonable payments to relatives,
associates, etc.) cannot be deducted.
3. Interest Payable Outside India (Clause a(ii)):
o Interest chargeable under this Act, which is payable outside India, is not deductible unless:
 The tax on such interest has been paid or deducted under Chapter XVII-B.
o Exception: Interest on loans issued for public subscription before April 1, 1938, is deductible even if tax is not
paid or deducted.
4. Salary Payable Outside India (Clause a(iii)):
o Any salary payment chargeable under "Salaries" and payable outside India is not deductible unless:
 Tax has been paid on it or deducted at source under Chapter XVII-B.

Subsection (1A): Applicability of Section 40 Provisions

 The following provisions of Section 40 apply to income under "Income from Other Sources," as they do to "Profits and
Gains of Business or Profession":
o Section 40(a)(ia): Disallowance for non-deduction of tax at source on specified payments.
o Section 40(a)(iia): Disallowance of certain taxes levied outside India.

Subsection (2): Applicability of Section 40A Provisions

 Section 40A (dealing with disallowances such as excessive payments, payments in cash beyond prescribed limits, etc.)
applies to "Income from Other Sources" just as it applies to "Profits and Gains of Business or Profession."

Subsection (3): Applicability of Section 44D for Foreign Companies

 For foreign companies, the provisions of Section 44D (dealing with taxation of fees for technical services and royalties)
apply to "Income from Other Sources" as they do to "Profits and Gains of Business or Profession."

Subsection (4): Disallowance of Expenditure on Specified Incomes

 No deduction is allowed for any expenditure or allowance relating to income derived from:
o Winnings from lotteries.
o Crossword puzzles.
o Horse races.
o Card games or other games of any sort.
o Gambling or betting of any form or nature.
 Exception:
o Owners of horses maintained for running in races are allowed deductions related to maintaining such horses.

Explanation:
 The term "horse race" refers to races where wagering or betting is lawfully allowed.

SET OFF OR CARRY FORWARD AND SET OFF OF LOSSES [SECTIONS 70-79]

 Section 70: Set-off of Loss from One Source Against Income from Another Source Under the Same Head of
Income

Subsection (1): General Rule (Excluding "Capital Gains")

 Applicability:
 o Losses from one source under any head of income (except Capital Gains) can be set off against income from
another source under the same head of income.
 Example:
o Loss from a house property can be set off against rental income from another property under the same head
("Income from House Property").

Subsection (2): Set-off for Losses in Short-term Capital Assets

 Applicability:
o If the computation of income under Sections 48 to 55 for short-term capital assets results in a loss:
 The loss can be set off against income from any other short-term or long-term capital asset in the
same assessment year.

Subsection (3): Set-off for Losses in Long-term Capital Assets

 Applicability:
o If the computation of income under Sections 48 to 55 for a long-term capital asset results in a loss:
 The loss can be set off only against income from another long-term capital asset in the same
assessment year.
 Key Points:
o Long-term capital loss cannot be set off against short-term capital gains.

Summary Table for Set-off of Losses

Type of Loss Can be Set Off Against Restriction
Loss from a source (not "Capital Income from another source under the same
Does not apply to "Capital Gains."
Gains") head
Short-term Capital Loss Short-term or long-term capital gains None
Cannot be set off against short-term
Long-term Capital Loss Long-term capital gains only
gains.

 Section 71: Set-off of Loss from One Head Against Income from Another
Section 71 provides provisions for setting off losses from one head of income against income under another head, subject to
certain conditions and limitations. Here's a detailed breakdown:

Subsection (1): General Rule

 Applicability:
o If the net result of computation under any head of income (except Capital Gains) for an assessment year is a
loss, and there is no income under the head "Capital Gains," the assessee can set off the loss against income
under any other head of income.
 Example:
o Loss under "Income from House Property" can be set off against "Salaries" or "Profits and Gains of Business or
Profession."

Subsection (2): Loss and Income Including Capital Gains

 Applicability:
o If the net result of computation under any head of income (except Capital Gains) is a loss, and there is income
under the head "Capital Gains," the loss can be set off against income under any head, including Capital Gains
(short-term or long-term).
 Key Point:
o Allows flexibility to adjust losses even when the assessee has capital gains income.

Subsection (2A): Restriction on Set-off Against "Salaries"

 Applicability:
o If the net result of computation under the head "Profits and Gains of Business or Profession" is a loss, the
assessee cannot set off such loss against income under the head "Salaries."
 Key Restriction:
o Business losses are restricted from being adjusted against salary income.

Subsection (3): Loss from "Capital Gains" Cannot Be Set Off Against Other Heads
 Applicability:
o If the net result of computation under the head "Capital Gains" (short-term or long-term) is a loss, it cannot be
set off against income under any other head.
 Key Point:
o Capital loss can only be adjusted within the capital gains category as per Section 70.
Subsection (3A): Limitation on Loss from "Income from House Property"
 Applicability:
o If the net result under the head "Income from House Property" is a loss, the loss can only be set off against
income under other heads to the extent of ₹2,00,000.
 Excess Loss:
o Loss exceeding ₹2,00,000 can be carried forward to subsequent assessment years for set-off.

Subsection (4): Specific Provisions for AY 1995-96 and 1996-97

 Applicability:
o For assessment years commencing on April 1, 1995, and April 1, 1996, house property loss is:
 First set off under subsections (1) and (2).
 Then, the loss referred to in Section 71A is set off in accordance with its provisions.

Summary of Set-off Rules Under Section 71

Type of Loss Set-Off Allowed Against Restriction/Condition
Loss (excluding "Capital Gains") Income under any other head No income under "Capital Gains."
Loss (excluding "Capital Gains") Income under any head, including
None
+ Gains "Capital Gains"
Business Loss Any head, except "Salaries" Business loss cannot offset salary income.
Adjusted only within the head of "Capital Gains" (as
Loss from "Capital Gains" Cannot be set off against other heads
per Sec. 70).
House Property Loss Other heads, up to ₹2,00,000 Excess loss carried forward.

 Section 71A: Transitional Provisions for Set-Off of Loss Under the Head "Income from House Property"
Section 71A was introduced to provide transitional provisions for carrying forward and setting off losses from the head "Income
from House Property" for specific assessment years. Here’s the detailed explanation:

Key Provisions
1. Applicable Assessment Years:
o Losses computed for the assessment years commencing on April 1, 1993, or April 1, 1994.
2. Nature of Loss:
o The loss should relate to interest on borrowed capital as specified in Section 24(1)(vi).
3. Set-Off Mechanism:
o Such loss, to the extent not already set off, shall be:
 Carried forward to the assessment year commencing on April 1, 1995, and set off against income
under any head.
 Any remaining loss shall be carried forward to the assessment year commencing on April 1, 1996, for
set-off.
4. Final Adjustment:
o The loss is fully adjusted by the assessment year commencing on April 1, 1996, either in part or in entirety.

Objective
This section aimed to provide a smooth transition for taxpayers with house property losses during the early 1990s, ensuring the
benefit of interest deduction on borrowed capital was not lost during this period.

 Section 71B: Carry Forward and Set-Off of Loss from House Property
Section 71B governs the carry-forward mechanism for losses under the head "Income from House Property" after the
transitional period addressed in Section 71A. Here's an overview:

Key Provisions
1. Carry-Forward Rule:
o If, for any assessment year, the net result under the head "Income from House Property" is a loss, and:
 It cannot be wholly set off against income from other heads as per Section 71, or
 There is no income under other heads to allow a set-off,
 The unabsorbed loss shall be carried forward to subsequent assessment years.
2. Set-Off in Future Years:
o The carried-forward loss can only be set off against income from house property in subsequent years.
3. Time Limit:
o The loss can be carried forward for a maximum of 8 assessment years immediately following the year in which
the loss was first computed.
4. Priority:
o Losses from earlier years are set off first before applying current year's losses.
Example
 Assessment Year 2023-24:
o Income from House Property = ₹(-1,50,000) (loss).
o Income from Salary = ₹1,00,000.
o Loss set off against Salary = ₹1,00,000.
o Remaining Loss = ₹50,000 (carried forward).
 Assessment Year 2024-25:
o Income from House Property = ₹40,000.
o Loss set off = ₹40,000.
o Balance Loss = ₹10,000 (carried forward).

Comparison Between Section 71A and 71B

Aspect Section 71A Section 71B
Scope Transitional provisions for AYs 1993-94 and 1994-95. General provisions for all assessment years.
Loss related to interest on borrowed capital (Section 24(1) Any loss from "Income from House
Nature of Loss
(vi)). Property."
Set-Off Against income under any head. Only against income from house property.
Carry-Forward
Up to AY 1996-97. Maximum of 8 years.
Period

 Section 72: Carry Forward and Set-Off of Business Losses

Section 72 provides for the carry forward and set-off of business losses under the head "Profits and Gains of Business or
Profession". This section aims to ensure continuity in accounting for business losses that cannot be set off in the year of
computation.

Key Provisions
1. General Rule for Carry Forward and Set-Off (Sub-section 1)
 Eligibility:
Losses under the head "Profits and Gains of Business or Profession", other than losses from speculation business,
qualify for carry forward.
 Conditions for Set-Off:
o If the loss cannot be wholly set off against income under any other head of income (as per Section 71), or
o If the assessee has no income under any other head,
o The unabsorbed business loss is carried forward to the next assessment year.
 Set-Off in Subsequent Years:
o Carried-forward losses are set off only against profits and gains of any business or profession carried on by
the assessee in the subsequent assessment years.
 Unabsorbed Loss:
o If the carried-forward loss cannot be fully set off in a year, the balance is carried forward to the following
assessment year, and so on.

2. Special Provisions for Certain Discontinued Businesses (Proviso to Sub-section 1)

 Applicability:
o If the business is discontinued due to circumstances specified in Section 33B (e.g., calamities, temporary
closure) but is subsequently re-established, reconstructed, or revived by the assessee within 3 years.
 Treatment of Loss:
o Losses attributable to such a business can be carried forward to the assessment year in which the business is
revived or re-established.
o The set-off is allowed against:
 Profits from the revived business, or
 Profits from any other business carried on by the assessee.
 Carry-Forward Period:
o Losses not fully set off in that year can be carried forward for a maximum of 7 years, provided the business
continues.

3. Priority of Allowances (Sub-section 2)

 Adjustments Before Set-Off:
o Before giving effect to the carry-forward provisions of business losses, any unabsorbed depreciation
allowance (Section 32(2)) or scientific research expenditure (Section 35(4)) must first be adjusted.

4. Time Limit for Carry Forward (Sub-section 3)

 General Rule:
 Business losses (other than those covered under the special provisions for discontinued businesses in the proviso to Sub-
section 1) can be carried forward for a maximum of 8 assessment years immediately succeeding the assessment year in
which the loss was first computed.

Key Points to Note

1. Business Continuity:
o To carry forward losses, the business should continue to exist and should not be entirely discontinued (except
for Section 33B cases).
2. No Speculative Losses:
o Losses from speculation business are governed separately under Section 73 and cannot be carried forward
under this section.
3. Priority Adjustments:
o Carried-forward depreciation and allowances (e.g., scientific research) are given precedence over business
losses during set-off.
4. Carry-Forward Limitations:
o While regular business losses can be carried forward for 8 years, special provisions allow losses in certain cases
to be carried forward for 7 years.

Illustration
Example 1: General Carry Forward and Set-Off
 AY 2023-24:
o Business Income = ₹(-2,00,000) (loss).
o Salary Income = ₹1,00,000.
o Set-Off = ₹1,00,000.
o Remaining Loss = ₹1,00,000 (carried forward).
 AY 2024-25:
o Business Income = ₹50,000.
o Set-Off = ₹50,000.
o Remaining Loss = ₹50,000 (carried forward).
Example 2: Discontinued Business Revived
 Business discontinued in AY 2021-22 due to calamity; loss = ₹5,00,000.
 Revived in AY 2023-24; Profits in 2023-24 = ₹3,00,000.
o Set-Off = ₹3,00,000.
o Remaining Loss = ₹2,00,000 (carried forward for 7 years, subject to continuity of the business).

Purpose of Section 72
This section ensures that taxpayers engaged in business activities are not penalized for temporary losses. It allows them to adjust
such losses against future profits, providing relief and encouraging entrepreneurship.

 Section 72A: Carry Forward and Set Off of Accumulated Loss and Unabsorbed Depreciation in Amalgamation or
Demerger

1. Applicability and Overview

This section applies when there is an amalgamation or demerger of certain businesses. It allows for the carry forward and set
off of accumulated business losses and unabsorbed depreciation.

2. Key Terms:
 Amalgamation: Combining two or more companies into one entity. The amalgamating company transfers its
assets/liabilities to the amalgamated company.
 Accumulated Loss: Loss under “Profits and Gains of Business or Profession” that the company can carry forward as per
Section 72.
 Unabsorbed Depreciation: Depreciation not fully adjusted against business income in a previous year, carried forward
to subsequent years.

3. Provisions for Amalgamation (Sub-section 1)

When there is an amalgamation of:
1. A company owning an industrial undertaking, ship, or hotel with another company.
2. A banking company (under Banking Regulation Act) with a specified bank.
3. Public sector companies engaged in aircraft operations.
Then:
 The accumulated loss and unabsorbed depreciation of the amalgamating company will be treated as those of the
amalgamated company for the year of amalgamation.
 Provisions of set off and carry forward will apply accordingly.
4. Conditions to Avail Set Off (Sub-section 2)
For accumulated loss and unabsorbed depreciation to be allowed, the following conditions must be met:
Conditions for Amalgamating Company:
 (i) It must have been in business for 3+ years where the loss/depreciation occurred.
 (ii) It must hold at least 75% of fixed assets (book value) for 2 continuous years prior to the amalgamation.
Conditions for Amalgamated Company:
 (i) It must hold 75% of fixed assets of the amalgamating company for at least 5 years post-amalgamation.
 (ii) It must continue the business of the amalgamating company for 5 years post-amalgamation.
 (iii) It must fulfill other conditions to ensure that the amalgamation serves a genuine business purpose.

5. Consequence of Non-Compliance (Sub-section 3)

If the above conditions are not met:
 Loss or depreciation already set off in earlier years will be treated as income of the amalgamated company and will be
taxable in the year of non-compliance.

6. Provisions for Demerger (Sub-section 4)

In the case of a demerger:
 Directly relatable losses/depreciation to transferred undertakings will be carried forward and set off by the resulting
company.
 Non-directly relatable losses/depreciation will be apportioned between the demerged and resulting companies in the
same ratio as the division of assets.
Example:
If a demerged company splits its assets 60:40 between itself and the resulting company, losses and depreciation will also be
divided in the same ratio.

7. Genuine Business Purpose (Sub-section 5)

The Central Government can notify conditions to ensure the demerger serves a genuine business purpose.

8. Reorganisation of Business (Sub-sections 6 & 6A)

The section applies to reorganisations such as:
1. A firm succeeded by a company under Section 47(xiii).
2. A proprietary concern succeeded by a company under Section 47(xiv).
3. A private company/unlisted public company succeeded by a Limited Liability Partnership (LLP) under Section
47(xiiib).
Conditions to Be Met:
 If conditions under Section 47 are not complied with, previously set off losses or depreciation will be treated as income
of the successor company or LLP and taxed accordingly.

9. Definitions (Sub-section 7)
 Accumulated Loss: Losses under "Profits and Gains of Business or Profession" of the predecessor firm/company carried
forward.
 Unabsorbed Depreciation: Depreciation not utilized by the predecessor firm/company.
 Industrial Undertaking: Includes businesses engaged in:
o Manufacturing or processing of goods.
o Computer software manufacturing.
o Power generation/distribution.
o Telecommunications services (e.g., broadband, paging, satellite).
o Mining activities.
o Construction of ships, aircraft, or rail systems.
 Specified Bank: Includes State Bank of India (SBI) and its subsidiaries or new banks under the Banking Companies
(Acquisition and Transfer of Undertakings) Acts.

Examples for Clarification

Example 1: Amalgamation
Company A (an industrial undertaking) is amalgamated into Company B. Company A has:
 Accumulated loss: ₹5 crore.
 Unabsorbed depreciation: ₹2 crore.
Post-amalgamation:
 These losses and depreciation will be deemed as losses of Company B and can be carried forward to set off against
Company B’s future profits.
Example 2: Non-Compliance
If Company B fails to retain 75% fixed assets for 5 years or discontinues Company A’s business before 5 years:
 The ₹5 crore loss and ₹2 crore depreciation set off earlier will become taxable income for Company B in the year of
violation.
Example 3: Demerger
Company X splits into:
 Company Y (resulting company).
 Remaining Company X.
If ₹4 crore of losses relate to the transferred undertaking:
 The full ₹4 crore can be carried forward by Company Y.
If the loss is not directly relatable, and the asset split is 70:30:
 ₹2.8 crore (70%) goes to Company Y.
 ₹1.2 crore (30%) remains with Company X.

Key Takeaways:
 Section 72A facilitates tax benefits during business restructuring (amalgamation/demerger).
 Stringent conditions ensure the transactions are for genuine business purposes.
 Non-compliance leads to heavy taxation as past benefits are reversed.

 Section 72AA
Provisions relating to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in the scheme
of amalgamation of a banking company in certain cases
Overview
This section deals specifically with situations where a banking company merges with another banking institution under a
scheme approved and enforced by the Central Government as per the Banking Regulation Act, 1949. In such cases, the
accumulated loss and unabsorbed depreciation of the amalgamating (merging) banking company can be carried forward and set
off by the amalgamated (merged) banking institution.

Key Provisions
1. Amalgamation of Banking Companies
o When a banking company merges with another banking institution through a scheme sanctioned by the Central
Government under Section 45(7) of the Banking Regulation Act, 1949, the accumulated losses and
unabsorbed depreciation of the merging company can be carried forward and set off in the books of the merged
company.
2. Carry Forward of Accumulated Loss and Unabsorbed Depreciation
o The losses or depreciation that were not utilized (carried forward) in the books of the amalgamating company
are transferred to the amalgamated company.
o These will be treated as the losses or unabsorbed depreciation of the amalgamated company for the previous
year in which the scheme of amalgamation became effective.
o Provisions related to "set-off" and "carry forward" of losses under the Income Tax Act will apply accordingly.

Technical Terms and Explanations

1. Amalgamating Company:
o This refers to the company that is being merged into another company (the company ceasing to exist after the
merger).
o Example: If Bank A merges into Bank B, Bank A is the amalgamating company.
2. Amalgamated Company:
o This is the company that takes over the amalgamating company.
o Example: In the above scenario, Bank B is the amalgamated company.
3. Accumulated Loss:
o This refers to losses incurred by the amalgamating company in its business under the head "Profits and Gains
of Business or Profession", which have not been set off against taxable profits.
o Key Point: Losses from speculation businesses (like trading in derivatives) are not covered here.
o Example: If Bank A has losses of ₹50 crore that could not be adjusted against its profits, these losses are
accumulated and transferred to Bank B after the amalgamation.
4. Unabsorbed Depreciation:
o Depreciation is the reduction in value of assets over time due to wear and tear.
o If the allowable depreciation could not be fully claimed as an expense in earlier years (due to insufficient
profits), it is called unabsorbed depreciation.
o After amalgamation, the unabsorbed depreciation of the amalgamating company is transferred to the
amalgamated company.
o Example: Bank A had unabsorbed depreciation of ₹10 crore in earlier years. Post-merger, Bank B can claim this
depreciation.
5. Section 45(7) of the Banking Regulation Act, 1949:
o This provision allows the Central Government to sanction and enforce schemes for the amalgamation of banking
companies when necessary.
6. Banking Company:
o As per Section 5(c) of the Banking Regulation Act, 1949, a "banking company" means any company that
transacts the business of banking, which involves accepting deposits and lending money.
 7. Banking Institution:
o As per Section 45(15) of the Banking Regulation Act, it includes:
 Any banking company, or
 The State Bank of India (SBI), its subsidiaries, and other nationalized banks.

Practical Example
Scenario:
 Bank A (a private bank) has incurred business losses of ₹50 crore and has unabsorbed depreciation of ₹10 crore.
 Due to financial difficulties, Bank A is amalgamated into Bank B (a nationalized bank) under a scheme approved by the
Central Government.
 Post-amalgamation, the following happens:
o The ₹50 crore of accumulated loss of Bank A is transferred to Bank B.
o The ₹10 crore of unabsorbed depreciation of Bank A is also transferred to Bank B.
 Bank B can now claim these amounts as set-offs against its own taxable profits in the future.

Explanation Clause by Clause

1. Accumulated Loss
o Defined as the business loss (not speculative) which the amalgamating company could have carried forward had
the amalgamation not occurred.
2. Banking Company
o Defined as per Section 5(c) of the Banking Regulation Act.
3. Banking Institution
o Defined as per Section 45(15) of the Banking Regulation Act, including SBI and its subsidiaries.
4. Unabsorbed Depreciation
o Defined as the remaining depreciation amount that could not be claimed earlier by the amalgamating banking
company.

 Section 72AB
Provisions relating to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in business
reorganisation of co-operative banks

Overview
This section allows successor co-operative banks to carry forward and set off the accumulated loss and unabsorbed
depreciation of the predecessor co-operative bank after a business reorganisation.
It provides specific conditions under which these tax benefits can be availed, ensuring the reorganisation is genuine and aimed at
reviving the business.

Key Provisions
1. Carry Forward and Set-Off of Losses
o If a co-operative bank merges or undergoes business reorganisation, the successor bank can set off the
accumulated loss and unabsorbed depreciation of the predecessor bank as if no amalgamation or reorganisation
had occurred.
2. Applicability of the Section
o The successor co-operative bank can enjoy this benefit only if the following conditions are met:

Conditions for Predecessor Co-operative Bank

1. Engagement in Business:
o The predecessor co-operative bank must have been engaged in the banking business for at least three years
prior to the reorganisation.
2. Fixed Assets Holding:
o The predecessor bank must have held at least three-fourths (75%) of the book value of fixed assets for a
continuous period of two years immediately before the reorganisation.

Conditions for Successor Co-operative Bank

1. Fixed Assets Continuity:
o The successor co-operative bank must hold at least three-fourths of the book value of fixed assets of the
predecessor bank for a continuous period of five years following the reorganisation.
2. Continuance of Business:
o The successor bank must continue the business of the predecessor co-operative bank for a minimum of five
years from the date of the reorganisation.
3. Genuine Business Purpose:
o The successor bank must meet any other conditions prescribed to ensure:
 The revival of the business of the predecessor co-operative bank, or
 That the business reorganisation is for a genuine business purpose.
Key Terms Explained
1. Accumulated Loss:
o Refers to losses under the head “Profits and Gains of Business or Profession” that have not yet been set off
against income.
2. Unabsorbed Depreciation:
o Refers to the depreciation amount that could not be claimed in earlier years due to insufficient profits.
3. Predecessor Co-operative Bank:
o The bank undergoing reorganisation (the bank being merged or reorganised).
4. Successor Co-operative Bank:
o The bank that takes over the business of the predecessor bank through reorganisation.
5. Business Reorganisation:
o A process involving the merger or amalgamation of co-operative banks to revive or streamline business
operations.

Practical Example
Scenario:
 Predecessor Bank: Co-operative Bank A
 Successor Bank: Co-operative Bank B
 Bank A has accumulated losses of ₹20 crore and unabsorbed depreciation of ₹5 crore.
 Bank A has been in the banking business for 5 years and held 75% of its fixed assets for the last 2 years.
 Bank B acquires Bank A through a business reorganisation.
Conditions Met:
1. Bank A (predecessor) meets the 3-year business condition and the 2-year fixed assets condition.
2. Bank B (successor) agrees to:
o Hold 75% of Bank A's fixed assets for 5 years.
o Continue Bank A’s business for 5 years.
o Ensure the merger has a genuine business purpose.
Result:
 Bank B can set off Bank A’s accumulated losses of ₹20 crore and unabsorbed depreciation of ₹5 crore against its own
taxable income.
 This will reduce Bank B’s tax liability and allow it to benefit from the merger.

Purpose of Section 72AB

1. Revival of Co-operative Banks:
o Helps struggling co-operative banks merge with stronger institutions for business continuity and growth.
2. Tax Relief:
o Provides tax incentives to successor banks by allowing them to carry forward and set off the losses of the
merged bank.
3. Ensures Genuine Reorganisation:
o Imposes strict conditions to prevent misuse and ensure that the reorganisation benefits the banking sector and
the economy.

 Section 73: Losses in Speculation Business

Overview
Section 73 deals with the treatment of losses incurred in speculation business and provides guidelines for their set-off and carry
forward. It restricts speculation losses to be adjusted only against profits from speculation business and lays down rules for
carrying forward such losses to subsequent assessment years.

1. Set-Off of Speculation Losses

 Any loss from a speculation business can only be set off against the profits and gains of another speculation business
carried on by the assessee.
 Speculation losses cannot be set off against income from any other business or any other head of income.
2. Carry Forward of Speculation Losses
 If the speculation loss cannot be fully set off in a particular assessment year, the unabsorbed portion shall be carried
forward to the next assessment year.
 The carried forward loss will be set off only against the profits of any other speculation business in the subsequent
years.

3. Treatment of Depreciation and Capital Expenditure on Scientific Research

 Provisions of Section 72(2) relating to depreciation allowance or capital expenditure on scientific research will apply
to speculation business in the same manner as it applies to other businesses.
4. Time Limit for Carry Forward of Speculation Losses
 Speculation losses can be carried forward for a maximum of four assessment years immediately succeeding the
assessment year in which the loss was first computed.
 If the loss is not set off within this period, it will lapse.

5. Explanation to Section 73
 Deemed Speculation Business: If a part of the business of a company involves the purchase and sale of shares of other
companies, such business is treated as speculation business.
 Exceptions: This provision does not apply to:
o Companies whose gross total income consists mainly of income chargeable under the heads:
 "Interest on securities"
 "Income from house property"
 "Capital gains"
 "Income from other sources"
o Companies whose principal business is:
 Trading in shares
 Banking
 Granting of loans and advances

Key Terms Explained

1. Speculation Business:
o A business where transactions involve contracts for purchase or sale of a commodity, including stocks and
shares, without actual delivery.
2. Deemed Speculation Business:
o Companies engaged in the purchase and sale of shares are deemed to carry on a speculation business to the
extent of such share transactions (unless they fall under the exceptions mentioned).
3. Carry Forward Period:
o Speculation losses can be carried forward for four years only.

Practical Example
Scenario:
 Company X carries on two businesses:
o General trading business
o Speculation business (involving contracts without delivery)
 In Assessment Year 2024-25:
o Speculation business incurred a loss of ₹10 lakh.
o General trading business had a profit of ₹8 lakh.
Key Analysis:
 The ₹10 lakh speculation loss cannot be set off against the ₹8 lakh general trading profit.
 Instead, the speculation loss will:
o Be carried forward to subsequent years.
o Be set off only against profits from the speculation business in future years.
o If no speculation profit arises within four assessment years, the loss will lapse.

 Section 74: Losses under the head “Capital Gains”

Overview
Section 74 of the Income Tax Act deals with the treatment of capital losses and their set-off and carry forward provisions. It
specifically distinguishes between short-term capital losses and long-term capital losses and prescribes rules for their
utilization.

Key Provisions
1. Carry Forward and Set-Off of Capital Losses
 If the net result of computation under the head "Capital Gains" for any assessment year is a loss, the following rules
apply:
a. Short-Term Capital Loss (STCL):
 A short-term capital loss can be set off against:
o Short-term capital gains, and
o Long-term capital gains (if any) arising in the same assessment year.
b. Long-Term Capital Loss (LTCL):
 A long-term capital loss can only be set off against long-term capital gains.
 LTCL cannot be set off against short-term capital gains or any other head of income.
c. Unabsorbed Losses:
  If the capital loss cannot be wholly set off in the same assessment year, it can be carried forward to the following
assessment year.
 The carried-forward capital loss will be set off in the same manner (STCL against STCG/LTCG, LTCL only against
LTCG).

2. Time Limit for Carry Forward of Losses

 A capital loss can be carried forward for a maximum of 8 assessment years immediately succeeding the assessment
year in which the loss was first computed.

Conditions for Carry Forward

1. Return Filing:
o The assessee must file the income tax return within the prescribed due date under Section 139(3) for the year in
which the loss is incurred.
2. Nature of Loss:
o The capital loss retains its character:
 STCL remains short-term and can be set off against STCG/LTCG.
 LTCL remains long-term and can only be set off against LTCG.

Illustrative Example
Scenario:
 Mr. X incurred the following capital gains/losses in FY 2023-24:
1. Short-term capital loss: ₹3,00,000
2. Short-term capital gain: ₹1,00,000
3. Long-term capital gain: ₹2,00,000
Treatment of Losses:
1. The short-term capital loss of ₹3,00,000 will first be set off against:
o Short-term capital gain of ₹1,00,000 → Net STCL = ₹2,00,000.
2. The remaining short-term capital loss of ₹2,00,000 will then be set off against:
o Long-term capital gain of ₹2,00,000 → Net LTCG = ₹0.
Carried Forward Loss:
 If any capital loss remains after this set-off, it can be carried forward for up to 8 years and set off in a similar manner in
future years.

Key Highlights
1. STCL Flexibility:
o Short-term capital losses can be set off against both STCG and LTCG.
2. LTCL Restriction:
o Long-term capital losses can only be set off against long-term capital gains.
3. 8-Year Limit:
o Losses must be utilized within 8 assessment years, after which they lapse.
4. Mandatory Return Filing:
o To carry forward losses, the return of income must be filed on time under Section 139(3).

 Section 74A: Losses from Certain Specified Sources under “Income from Other Sources”

Overview
Section 74A addresses the set-off and carry forward of losses incurred in specific activities falling under the head “Income from
Other Sources”, particularly losses related to owning and maintaining race horses.

Key Provisions
1. Losses from Owning and Maintaining Race Horses
 The loss incurred in the activity of owning and maintaining race horses can only be set off against income from:
o The same activity of owning and maintaining race horses in that assessment year.
 Such losses cannot be set off against income from any other source.

2. Carry Forward of Losses

 If the loss incurred in the activity of owning and maintaining race horses cannot be wholly set off in the same assessment
year, the unabsorbed loss can be carried forward to the following assessment year.
 Conditions for carry forward include:
o Continuation of Activity: The activity of owning and maintaining race horses must be carried on during the
relevant previous year.
o The loss can only be set off against income from the same activity in subsequent years.
o Time Limit: Losses under this section can be carried forward for a maximum of 4 assessment years
immediately succeeding the year in which the loss was first computed.
3. Definition of Key Terms
The Explanation to Section 74A clarifies the following:
a. Amount of Loss:
 Without Income (No Stake Money): The loss is the total expenditure (excluding capital expenditure) incurred
exclusively for maintaining race horses.
 With Income (Stake Money): The loss is the excess of expenditure (excluding capital expenditure) over the income
received as stake money.
b. Horse Race:
 A horse race where wagering or betting is legally permitted.
c. Income by Way of Stake Money:
 The gross prize money received by the owner when a race horse wins or is placed (e.g., first, second, or lower position).

Illustrative Example
Scenario:
 Mr. A owns and maintains race horses for participating in lawful horse races.
 In FY 2023-24:
1. Total expenditure on maintaining race horses = ₹5,00,000
2. Income by way of stake money = ₹2,00,000
Computation of Loss:
 Loss = Expenditure - Stake Money
 Loss = ₹5,00,000 - ₹2,00,000 = ₹3,00,000
Set-Off and Carry Forward:
1. The loss of ₹3,00,000 can only be set off against income from the same activity of owning and maintaining race horses.
2. If no income arises in FY 2023-24, the loss will be carried forward to subsequent assessment years (up to a maximum
of 4 years) for set-off against income from the same activity.

Key Highlights
1. Restricted Set-Off:
o Losses from owning and maintaining race horses can only be set off against income from the same activity.
2. Carry Forward Limitation:
o Losses can be carried forward for a maximum of 4 years.
3. Condition for Continuation:
o The activity of owning and maintaining race horses must continue in the year of set-off.
4. No Set-Off Against Other Sources:
o Such losses cannot be adjusted against income under any other head (e.g., salaries, business, capital gains, etc.).

 Section 75: Losses of Firms

Overview
Section 75 addresses the treatment of losses in firms, particularly losses that were apportioned to a partner but could not be set off
by the partner before a certain period. This provision provides a mechanism for firms to carry forward and set off these losses.

Key Provisions
1. Applicability to Firms:
 Losses of Firms Before April 1, 1992:
o If a firm has a loss for the assessment year commencing on or before April 1, 1992, and such loss could not be
set off against any other income of the firm, then:
 The losses that were apportioned to a partner but were not set off by the partner before the
assessment year commencing on April 1, 1993, can be set off against the income of the firm.
2. Condition for Set-Off:
 The loss that is apportioned to the partner, but not set off by the partner before April 1, 1993, can be set off against the
income of the firm subject to the following condition:
o The partner must continue in the firm at the time the loss is being set off against the firm’s income.
3. Carry Forward of Loss:
 The loss that is carried forward for set-off will be subject to the same provisions that apply to the carry forward and set
off of losses under:
o Section 70: Losses under the head "Income from business or profession"
o Section 71: Losses under the head "Income from other sources"
o Section 72: Losses from business or profession (other than speculation)
o Section 73: Losses from speculation business
o Section 74 and 74A: Losses from capital gains and certain specified sources

Illustrative Example
Scenario:
 A firm incurs a loss for the assessment year 1991-92. The loss is apportioned to one of the partners, Mr. X, but Mr. X
was unable to set off the loss against his other income before April 1, 1993.
 The firm continues to operate, and Mr. X remains a partner in the firm.
Treatment of Loss:
 Since Mr. X continues to be a partner in the firm, the loss apportioned to him can be set off against the income of the
firm for the relevant assessment year.
 The loss can then be carried forward and set off in the subsequent years, following the same rules applicable to other
types of losses under the Income Tax Act.

Key Highlights
1. Losses Before 1992:
o This provision specifically applies to losses that were not set off by the partner before April 1, 1993.
2. Condition for Set-Off:
o The partner must still be continuing in the firm at the time the loss is set off against the firm’s income.
3. Carry Forward:
o The loss can be carried forward for set off against future income under the provisions of sections 70 to 74A.

 Section 78: Carry Forward and Set Off of Losses in Case of Change in Constitution of Firm or on Succession

Overview
Section 78 deals with the carry forward and set-off of losses when there is a change in the constitution of a firm (e.g.,
retirement, death of a partner, or other changes in the partnership) or when a business is succeeded by another person otherwise
than by inheritance. This section imposes limitations on how losses can be carried forward in such scenarios.

1. Change in Constitution of Firm:

 No Carry Forward of Losses for Retired or Deceased Partners:
o If there is a change in the constitution of the firm, such as a partner retiring or dying, the firm cannot carry
forward and set off the loss proportionate to the share of the retired or deceased partner beyond the share of
profits that partner would have been entitled to in the previous year.
o Example:
 If Partner A retires or passes away, and the firm has a loss, the amount of the loss that can be carried
forward and set off against the firm's future income will be limited to Partner A's share of the profits
in the previous year. The firm cannot carry forward a loss that exceeds this share.
2. Succession of Business:
 No Carry Forward of Losses for Successor:
o If a business or profession is succeeded by another person (other than by inheritance), the successor cannot carry
forward and set off any loss incurred by the predecessor.
o Example:
 If Person X succeeds Person Y in a business and Person Y had incurred a loss, Person X cannot carry
forward and set off this loss against their income. This rule ensures that the successor is not allowed to
offset the predecessor's losses against their own income.

Illustrative Examples
1. Change in Constitution of Firm:
o Firm ABC has three partners: A, B, and C. The firm incurs a loss of ₹1,50,000.
o Partner A retires, and the loss is apportioned to the partners as follows:
 Partner A: ₹50,000
 Partner B: ₹50,000
 Partner C: ₹50,000
o In the previous year, Partner A’s share of profits was ₹40,000.
o Firm ABC can only carry forward and set off ₹40,000 of Partner A’s share of the loss, not the full ₹50,000.
o The remaining ₹10,000 of Partner A’s share of the loss cannot be carried forward by the firm.
2. Succession of Business:
o Person X takes over the business of Person Y after Person Y retires.
o Person Y had incurred a loss of ₹2,00,000 in the business, but Person X cannot carry forward this loss to set
off against their income from the business.
o The law does not permit Person X to use Person Y’s losses for their tax benefit.

Key Highlights
1. Retired or Deceased Partner’s Losses:
o Losses apportioned to a retired or deceased partner cannot be carried forward beyond the partner's share of
profits in the previous year.
2. Succession (Other Than Inheritance):
 o A successor in business (other than by inheritance) cannot carry forward or set off losses incurred by the
predecessor.

Conclusion
Section 78 ensures that losses are not carried forward in cases of change in the constitution of a firm or succession by a new
person, unless the change or succession occurs due to inheritance. This helps prevent loss manipulation when there is a change in
the ownership structure or when a business is passed on to someone new.
 Section 79: Carry Forward and Set Off of Losses in Case of Certain Companies

Overview
Section 79 primarily addresses the carry forward and set off of losses in companies when there is a change in shareholding. It
restricts the carry forward of losses to cases where a substantial shift in the ownership of the company has not occurred, with
some exceptions. The section aims to prevent the transfer of losses to new shareholders or entities in order to avoid tax
manipulation.

Key Provisions
1. Companies Not in Which Public Are Substantially Interested:
 General Rule for Carrying Forward Losses:
o In the case of a company that is not publicly traded, and does not fall under the specific categories in sub-
clause (b), the carry forward of losses is restricted when there is a change in shareholding.
o The loss incurred in a year prior to the previous year will not be carried forward and set off against the
income of the previous year unless, on the last day of the previous year, the same shareholders holding at
least 51% of the voting power in the company as on the last day of the year in which the loss was incurred still
hold 51% of the voting power in the company.
o Example:
 Company A has incurred a loss in 2019-20 and then has a change in ownership in 2023-24. If 51% of
the voting shares are not held by the same individuals or entities as on the last day of 2019-20, the
company will not be allowed to carry forward the loss to offset against the income of 2023-24.
2. Eligible Start-Up Companies:
 For Eligible Start-Ups (Section 80-IAC):
o This provision relaxes the restriction for eligible start-ups (as defined under Section 80-IAC), where losses
incurred in any year prior to the previous year may still be carried forward, provided the following conditions
are met:
 Continuity of Shareholding: All shareholders who held shares carrying voting power on the last day
of the year in which the loss was incurred must continue to hold those shares on the last day of the
previous year.
 Time Limit on Loss Incurrence: The loss must have been incurred within 7 years from the year of
the company's incorporation.
o Example:
 Start-Up ABC incurs a loss in 2021 and has a change in shareholding in 2023-24. If 51% of the
shareholders who were present on the last day of 2021 still hold their shares at the end of 2023-24,
and the company is within 7 years of incorporation, the loss can be carried forward for set-off.
3. Exceptions:
 No Impact of Death or Gifted Shares:
o The section does not apply in cases where a change in voting power or shareholding occurs due to:
 The death of a shareholder.
 The transfer of shares by way of gift to any relative of the shareholder making the gift.
 Change in Shareholding Due to Amalgamation or Demerger of Foreign Companies:
o The section does not apply to a change in shareholding of an Indian subsidiary of a foreign company if it is a
result of the amalgamation or demerger of the foreign company, provided that 51% of the shareholders of
the amalgamating or demerged foreign company continue to hold shares in the resulting foreign company.
 Insolvency and Bankruptcy Code (IBC) Resolution Plans:
o The section also does not apply if a change in shareholding occurs under a resolution plan approved under the
Insolvency and Bankruptcy Code, 2016, after the company has been provided a reasonable opportunity to be
heard by the jurisdictional Principal Commissioner or Commissioner.

Illustrative Examples
1. Non-Public Company:
o Company XYZ incurred a loss of ₹10,00,000 in the year 2019-20. The ownership changed in 2023-24, and the
new shareholders did not hold 51% of the voting power that was held in 2019-20.
o Conclusion: Company XYZ will not be allowed to carry forward the loss of ₹10,00,000 to 2023-24.
2. Eligible Start-Up:
o Start-Up DEF incurred a loss of ₹5,00,000 in 2021 and changed shareholders in 2023-24. The same group of
shareholders who held 51% voting shares in 2021 still hold those shares in 2023-24.
 o Conclusion: Start-Up DEF can carry forward the ₹5,00,000 loss to 2023-24 as it is within the 7-year time
period for start-ups and meets the shareholding continuity requirement.
3. Change in Shareholding Due to Amalgamation of Foreign Company:
o An Indian subsidiary of a foreign company undergoes amalgamation with another foreign entity, and 51%
of the shareholders of the amalgamating foreign company continue to hold shares in the resulting foreign
company.
o Conclusion: The section does not apply, and the Indian subsidiary can carry forward its losses.

Key Highlights
 Losses can only be carried forward if the same shareholders continue to hold 51% of the voting power as on the last
day of the year in which the loss was incurred, unless the company is an eligible start-up.
 Start-ups are given a 7-year window to incur losses and carry them forward, as long as shareholders continue holding
their shares.
 Exceptions are made for death, gifting of shares, amalgamations of foreign companies, and insolvency proceedings
under the IBC.

INCOME OF OTHER PERSONS TO BE INCLUDED IN ASSESSEE TOTAL INCOME [SECTIONS 60-64]

 60: Transfer of Income Without Transfer of Assets

Key Provision:
 If income arises to any person through a transfer (whether the transfer is revocable or irrevocable, and whether it
happened before or after the commencement of the Act), but the ownership of the asset generating such income is not
transferred, the income will still be considered as the income of the transferor.
 This income will be included in the total income of the transferor for taxation purposes.
Example:
 Scenario: Mr. A owns a house that generates ₹50,000 rental income every month. Mr. A decides to transfer this rental
income to his friend, Mr. B, without actually transferring the ownership of the house.
 Implication: Under Section 60, the income of ₹50,000 will still be treated as the income of Mr. A (the transferor) and
taxed in his hands, even though Mr. B is receiving the rental income.

 Section 61: Revocable Transfer of Assets

Key Provision:
 If income arises to any person due to a revocable transfer of assets, then such income will be taxed as the income of the
transferor.
 This income will be included in the transferor's total income.
Technical Terms Explained:
1. Revocable Transfer: A transfer where the transferor retains the right to revoke (cancel) or take back the asset at any
time.
o It can be a complete revocation of the transfer or a situation where the income or asset reverts to the transferor
after a certain period.
Example:
 Scenario: Mr. X transfers a piece of land to a trust with the condition that he can take the land back at any time. The land
generates ₹1,00,000 income annually.
 Implication: Since this is a revocable transfer, the income of ₹1,00,000 will be taxed as the income of Mr. X (the
transferor).

 Section 62: Transfer Irrevocable for a Specified Period

This section provides an exception to Section 61 and specifies when income arising from a transfer of assets will not be taxed in
the hands of the transferor.

Sub-Section (1): Exception to Section 61

The income arising from a transfer will not be taxed as the income of the transferor if:
1. Transfer by Way of Trust:
o The transfer is irrevocable (cannot be canceled or taken back) during the lifetime of the beneficiary.
o Beneficiary: A person who is entitled to receive the income or benefit from the asset.
2. Any Other Transfer:
o The transfer is irrevocable during the lifetime of the transferee.
o Transferee: The person to whom the asset or income is transferred.
3. Transfers Made Before April 1, 1961:
o If the transfer is irrevocable for more than six years.
Condition:
 In both cases, the transferor must not derive any direct or indirect benefit from the income of the transferred asset.
Example:
 Scenario 1 (Trust):
 Mr. Y creates an irrevocable trust for his daughter (the beneficiary) where the trust owns shares that generate annual
dividends of ₹2,00,000.
o Implication: Since the trust is irrevocable during the daughter's lifetime and Mr. Y derives no benefit from the
income, the ₹2,00,000 will not be taxed as Mr. Y's income.
 Scenario 2 (Other Transfers):
Mrs. Z transfers a house to her sister irrevocably for her sister’s lifetime. The house generates rental income of ₹75,000
annually.
o Implication: Since the transfer is irrevocable, and Mrs. Z derives no benefit, the ₹75,000 will not be taxed as
Mrs. Z’s income.

Sub-Section (2): Taxation Upon Revocation

 Even in cases where income is not taxed under sub-section (1), the income will become taxable in the hands of the
transferor if the power to revoke the transfer arises.
 At that point, the income will be included in the total income of the transferor.
Example:
 Scenario: Mr. A transfers an asset irrevocably for a period of 10 years to his nephew. The asset generates an annual
income of ₹1,50,000. After 10 years, Mr. A gets back the right to the asset (revocation power arises).
 Implication: For the first 10 years, the income is not taxed in Mr. A’s hands. However, when the revocation power arises
in the 11th year, the income will once again be taxed as Mr. A’s income.

 Section 63: "Transfer" and "Revocable Transfer" Defined

(a) Revocable Transfer

A transfer will be considered revocable if either of the following two conditions is met:
1. Re-transfer Provision:
o The transfer contains any provision (explicit or implied) that allows the re-transfer of the whole or any part of
the income or asset back to the transferor.
o Example:
Mr. A transfers ₹10 lakh to Mr. B with a condition that Mr. B will return the amount to Mr. A after five years.
Here, the transfer is revocable because there is a provision for re-transfer of the asset (₹10 lakh) to Mr. A.
2. Right to Re-assume Power:
o The transfer gives the transferor a right to re-assume power (directly or indirectly) over the whole or any part
of the income or asset.
o This means the transferor retains some control or influence over the income or asset even after the transfer.
o Example:
Mrs. X transfers a property to her friend but retains the right to take back the property after three years. Here,
Mrs. X has the right to re-assume control, so the transfer is considered revocable.

(b) Definition of "Transfer"

The term "transfer" has a broad meaning and includes the following:
1. Settlement:
o A legal arrangement where property or income is transferred to a person or entity for the benefit of someone
else.
o Example: Creating a settlement for children’s education.
2. Trust:
o A fiduciary relationship where one person (trustee) holds property for the benefit of another (beneficiary).
o Example: Mr. Y creates a trust to hold shares for his niece.
3. Covenant:
o A formal agreement where one party promises to do or not do something.
o Example: A covenant to transfer monthly rental income to another person.
4. Agreement:
o A contract between two parties, whether written or oral, to transfer income or an asset.
o Example: Mr. Z agrees to transfer a portion of his business income to a relative.
5. Arrangement:
o Any informal or formal understanding where income or assets are transferred or promised to another person.
o Example: A family arrangement where a portion of farm income is allocated to a family member without
transferring ownership of the farm.

 Section 64: Income of Individual to Include Income of Spouse, Minor Child, etc.
Section 64 provides provisions for clubbing of income to prevent tax avoidance through transfers of income or assets to family
members. The income of certain family members, under specific conditions, will be included in the total income of an individual.
(1) Clubbing Provisions
Inclusions in the Total Income of an Individual
Income that arises directly or indirectly:
1. Salary or Remuneration to Spouse (Clause ii):
o If the spouse of an individual earns any income (salary, commission, fees, etc.) from a concern where the
individual has a substantial interest, such income shall be included in the individual's total income.
o Exception: If the spouse possesses technical or professional qualifications and the income is solely attributable
to their skill or experience, this provision will not apply.
2. Income from Assets Transferred to Spouse (Clause iv):
o Any income arising from assets transferred (directly or indirectly) by an individual to their spouse, without
adequate consideration or not in connection with an agreement to live apart, will be clubbed with the
individual’s income.
3. Income from Assets Transferred to Son’s Wife (Clause vi):
o If an individual transfers assets (directly or indirectly) to their son’s wife, on or after June 1, 1973, without
adequate consideration, the income from those assets will be included in the individual’s total income.
4. Income for the Benefit of Spouse (Clause vii):
o Income arising from assets transferred to any person or an association of persons for the immediate or deferred
benefit of the individual's spouse will be clubbed with the individual's income.
5. Income for the Benefit of Son’s Wife (Clause viii):
o Similar to Clause (vii), income from assets transferred for the immediate or deferred benefit of the individual’s
son’s wife will be clubbed with the individual’s income.

Explanations under Subsection (1):

1. Explanation 1:
o Where income under Clause (ii) (salary/remuneration to spouse) is to be included, it shall be added to the
income of the spouse who has the higher total income (excluding this income).
o Once income is clubbed in one spouse’s income, it cannot be transferred to the other spouse in subsequent years
unless the Assessing Officer finds it necessary.
2. Explanation 2:
o Substantial Interest:
 An individual is deemed to have a substantial interest in a concern if:
 In a company: The individual owns at least 20% of voting power (excluding shares with a
fixed dividend rate).
 In any other concern: The individual (alone or with relatives) is entitled to at least 20% of
the profits of the concern.
3. Explanation 3 (Assets Transferred to Spouse or Son’s Wife):
o If transferred assets are invested in:
1. A Business (excluding capital as a partner): The proportion of business income corresponding to the
transferred asset's value will be clubbed.
2. Partnership Capital: The proportion of interest receivable by the transferee corresponding to the
transferred asset’s value will be clubbed.

(1A) Clubbing of Income of Minor Child

 General Rule: The income of a minor child (other than a child with a disability under Section 80U) will be included in
the income of the parent:
1. If the parents are married, the parent with the higher total income will include it.
2. If the parents are separated, the parent maintaining the child will include it.
 Exceptions: Income arising to a minor child due to:
1. Manual work done by the child.
2. Activities involving their skill, talent, knowledge, or experience.

(2) Property Converted into HUF Property

If an individual converts or transfers separate property into property belonging to a Hindu Undivided Family (HUF):
1. The individual is deemed to have transferred the property to the HUF.
2. The income from the converted property will be included in the individual’s income.
3. If the property is partitioned among HUF members and the spouse receives a share, the income from such share will be
included in the individual’s income (as indirect transfer to the spouse).
 Explanation 1: "Property" includes:
o Any movable or immovable property.
o Proceeds of sale and any investments representing the proceeds of sale.
 Explanation 2: "Income" includes loss.
INCOME-TAX AUTHORITIES AND THEIR POWERS

116. Income-tax authorities.—There shall be the following classes of income-tax authorities for
the purposes of this Act, namely:—
(a) the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963
(54 of 1963),
[(aa) Principal Directors General of Income-tax or Principal Chief Commissioners of
Income-tax,]
(b) Directors-General of Income-tax or Chief Commissioners of Income-tax,
[(ba) Principal Directors of Income-tax or Principal Commissioners of Income-tax,]
(c) Directors of Income-tax or Commissioners of Income-tax or Commissioners of Income-tax
(Appeals),

(cc) Additional Directors of Income-tax or Additional Commissioners of Income-tax or

Additional Commissioners of Income-tax (Appeals),
[(cca) Joint Directors of Income-tax or Joint Commissioners of Income-tax,]
(d) Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy
Commissioners of Income-tax (Appeals),
(e) Assistant Directors of Income-tax or Assistant Commissioners of Income-tax,
(f) Income-tax Officers,
(g) Tax Recovery Officers,
(h) Inspectors of Income-tax.

 Section 131: Power Regarding Discovery, Production of Evidence, etc.

Sub-section (1): Powers of Authorities
The following authorities under the Income Tax Act have the same powers as a civil court under the Code of Civil Procedure,
1908, for specific purposes:
1. Assessing Officer (AO)
2. Deputy Commissioner (Appeals)
3. Commissioner (Appeals)
4. Principal Chief Commissioner or Chief Commissioner
5. Principal Commissioner or Commissioner
6. Dispute Resolution Panel (DRP) mentioned in Section 144C(15)(a)
Powers Available:
(a) Discovery and Inspection:
 This refers to requesting and examining evidence from the involved parties.
 Example: Asking for specific documents like contracts, invoices, or ledgers.
(b) Enforcing Attendance:
 Authorities can summon any person, including officers of banking companies, to appear before them and take an oath for
examination.
 Example: Summoning a bank officer to confirm account details.
(c) Compelling Production of Documents:
 Authorities can demand submission of books of accounts or other relevant documents.
 Example: Requiring a company to submit financial statements for scrutiny.
(d) Issuing Commissions:
 Commissions refer to appointing persons to conduct specific inquiries or inspections on behalf of the authority.
 Example: Appointing a commissioner to inspect a company’s premises for verification of stock records.

Sub-section (1A): Powers of Higher Authorities for Investigation

The following higher authorities have extended powers to investigate concealed income:
1. Principal Director General or Director General
2. Principal Director or Director
3. Joint Director
4. Assistant Director or Deputy Director
5. Authorised Officer under Section 132(1)
When Powers Can Be Used:
 If they suspect that income is concealed or likely to be concealed by any person or group.
 This applies even when no formal proceedings are pending against the person or group.
Example: If there is intelligence suggesting that a person is holding unaccounted cash, the Director General can initiate an
investigation even if no case is officially active against the person.

Sub-section (2): Investigation in International Agreements

Authorities not below the rank of Assistant Commissioner of Income Tax (ACIT), as notified by the Board, can investigate
matters related to international agreements under:
 Section 90 (Avoidance of Double Taxation Agreements - DTAA)
 Section 90A (Adoption of DTAA by specified associations)
Powers:
 These authorities can act even if there are no pending proceedings against the concerned person.
Example: An ACIT investigating a company’s compliance with tax treaty provisions for its overseas transactions.

Sub-section (3): Impounding and Retaining Documents

Authorities mentioned in sub-sections (1), (1A), and (2) can impound and retain documents produced during proceedings.
Conditions:
1. Impounding:
o Requires recording reasons.
o Example: The Assessing Officer must document why a specific ledger is being impounded for review.
2. Retention:
o Cannot exceed 15 days (excluding holidays) without prior approval from higher authorities.
Higher Authorities for Approval:
 Principal Chief Commissioner or Chief Commissioner
 Principal Director General or Director General
 Principal Commissioner or Commissioner
 Principal Director or Director
Example: If the AO wants to keep a company’s financial records for more than 15 days, they must get approval from the
Principal Commissioner.

 Section 132
Section 132 empowers income tax authorities to conduct a search and seizure operation to find and seize undisclosed income or
property (referred to as "black money" or "undisclosed assets"). This is done to ensure compliance with tax laws.
1. Who Can Authorize a Search?
 High-ranking income tax officials can authorize a search, including:
o Principal Director General or Director General
o Principal Director or Director
o Principal Chief Commissioner or Chief Commissioner
o Principal Commissioner or Commissioner
o Additional Director, Joint Director, Assistant Director, etc.
Reason for authorization:
These officials need to have "reason to believe" (based on information) that certain conditions are met (see below).

2. When Can a Search Be Conducted?

A search can be authorized if there’s information to believe:
(a) Non-Compliance with Summons or Notices:
 A person was asked (via summons/notice) to produce books of accounts or documents (under certain sections like
Section 131 or 142) but:
o They failed to produce the required documents.
o Or, they might not comply if asked again.
Example:
If a business owner is asked to show their sales records for tax assessment but refuses or delays, a search can be authorized.
(b) Evidence of Undisclosed Income or Property:
 A person is believed to have:
o Money, jewelry, or other valuables not disclosed in their income tax returns.
o Such items could be wholly or partially from tax-evaded income.
Example:
If someone buys expensive gold jewelry without declaring the income used for the purchase, it may trigger a search.

3. Powers of the Authorized Officer

The officer conducting the search (called the Authorized Officer) has the power to:
(i) Enter and Search Premises:
 Search any building, place, vehicle, or vessel where the undisclosed assets or records are believed to be kept.
Example:
The officer can search a taxpayer's home or business office if there’s suspicion of hidden income.
(ii) Break Locks:
 If access is denied or keys are unavailable, the officer can break open locks on doors, safes, lockers, etc.
Example:
If a business refuses to open its vault, the officer can legally break the lock.
(iii) Search People:
 The officer can search any individual present on the premises if they suspect the person is hiding documents or
valuables.
(iv) Inspect Electronic Records:
 If records are stored electronically (e.g., on computers or servers), the officer can demand access.
Example:
An accountant’s laptop can be inspected for undisclosed sales ledgers.
(v) Seize Items:
 The officer can seize:
o Documents like account books, files, or contracts.
o Undisclosed money, bullion (gold/silver), jewelry, or other valuables.
Exceptions:
 Items that are business stock-in-trade (e.g., inventory) cannot be seized but can be inventoried (recorded).
(vi) Mark and Copy Documents:
 Officers can place identification marks or make copies of important documents.

4. Rules for Seizing Items

 If large or dangerous items (e.g., heavy machinery) cannot be physically seized, the officer can issue an order
prohibiting the owner from moving or tampering with them. DEEMED SEIZURE

5. Retention of Seized Items

 Documents or books seized can be retained for 30 days from the date of assessment.
 Extensions require written approval from senior officers (e.g., Principal Commissioner).

6. Examination During Search

 The officer can examine any person found at the premises on oath regarding the:
o Source of undisclosed income or property.
o Information about the books of accounts, valuables, etc.
Example:
An employee present at the time of search can be questioned about hidden transactions.
Statements Taken as Evidence:
 Any statements made during the search can be used as evidence in tax proceedings.

7. Legal Presumptions (Section 132(4A)):

If undisclosed assets or documents are found during the search, the following are presumed:
 Ownership: The items belong to the person being searched.
 Authenticity: The documents are genuine.
 Accuracy: The contents of the documents are true.
Example:
If unaccounted cash is found in a person’s locker, it is presumed they own it, unless proven otherwise.

8. Rules for Provisional Attachment

 During or after the search (within 60 days), the officer can provisionally attach property (temporarily take control) to
protect the revenue's interest.
 Such attachment remains valid for 6 months.

9. Valuation of Seized Assets

 The officer can refer the property to a Valuation Officer (under Section 142A) to determine its fair market value.

10. Handling Seized Items

 Seized books or documents must be handed over to the Assessing Officer within 60 days for further action.

11. Safeguards and Limitations

(a) Non-Disclosure of Reasons:
 The reasons for the search (i.e., the "reason to believe" or "reason to suspect") are confidential and cannot be disclosed to
the taxpayer.
(b) Rules for Search Procedure:
 The search must follow specific rules to ensure:
o Proper entry into premises.
o Safe custody of seized items.
(c) Objection by Taxpayer:
 If the taxpayer believes the retention of documents is unjustified, they can appeal to the Central Board of Direct Taxes
(CBDT)a for relief.
(d) Compliance with Criminal Procedure Code (CrPC):
 All searches and seizures must comply with the rules under CrPC, 1973 to protect rights and ensure proper conduct.

 Section 132A: Powers to Requisition Books of Account, etc.

Sub-section (1): Powers to Requisition Documents or Assets
Certain high-ranking authorities can requisition books of account, other documents, or assets in specific scenarios based on
information they possess. These authorities include:
1. Principal Director General or Director General
2. Principal Director or Director
3. Principal Chief Commissioner or Chief Commissioner
4. Principal Commissioner or Commissioner
When Can These Powers Be Used?
The above authorities must have "reason to believe" (based on credible information) that:
(a) Books or Documents Not Produced:
 A person who was issued a summons (under Section 37 of the Indian Income-tax Act, 1922 or Section 131 of this Act) or
a notice (under Section 22(4) of the Indian Income-tax Act, 1922 or Section 142(1) of this Act) has failed to produce the
required books of account or documents. These documents are now in custody of another officer or authority under
another law.
 Example: If tax authorities summoned a company to produce its ledger and it failed to do so, but these ledgers were
seized by the police during an investigation, tax authorities can requisition these ledgers.
(b) Books or Documents Useful for Proceedings:
 The books or documents are relevant to ongoing tax proceedings, and there is a likelihood that the person will not
produce them upon return from the authority holding them.
 Example: A company’s financial statements seized by customs authorities during an investigation can be requisitioned
by tax officers if they are relevant for tax assessment.
(c) Undisclosed Assets:
 The assets represent income or property not disclosed under the Income-tax Act, 1922, or the current Act, and they have
been taken into custody by another authority.
 Example: Gold jewelry seized by the police during a raid can be requisitioned if suspected to be undisclosed income.
How is Requisition Made?
The authorized officer (e.g., Joint Director, Joint Commissioner, Assessing Officer, etc.) can direct the officer or authority holding
such books, documents, or assets to deliver them.
Explanation of "Reason to Believe":
The recorded "reason to believe" by the income-tax authority is confidential and will not be disclosed to any person, authority, or
tribunal.

Sub-section (2): Delivery of Requisitioned Items

Upon receiving a requisition:
 The officer or authority holding the items must deliver them either immediately or when they deem it no longer
necessary to retain them.
Example: If police custody of undisclosed cash is no longer required for their investigation, they must hand it over to the
requisitioning tax officer.

Sub-section (3): Application of Provisions from Section 132

Once books, documents, or assets are delivered to the requisitioning officer:
 Provisions from Section 132 (Sub-sections 4A to 14) and Section 132B apply as if the requisitioning officer had directly
seized them.
 Words like "authorized officer" in these provisions are replaced by "requisitioning officer."
Key Provisions from Section 132 (Referenced):
 Custody and Retention: Rules for holding the seized materials.
 Examination of Evidence: Allows analysis and use of seized materials in tax proceedings.
 Return of Assets: Provides conditions for releasing seized items back to the person.

 Section 132B: Application of Seized or Requisitioned Assets

Sub-section (1): Utilization of Seized or Requisitioned Assets
This section outlines how assets seized under Section 132 or requisitioned under Section 132A can be used. The key points are:
1. Discharge of Liabilities:
o The assets may be applied to recover any existing tax liabilities, penalties, or interest due under various Acts,
including:
 Income-tax Act, 1961
 Wealth-tax Act, 1957
 Expenditure-tax Act, 1987
 Gift-tax Act, 1958
 Interest-tax Act, 1974
o Example: If a taxpayer owes ₹10 lakh in unpaid taxes and has ₹15 lakh in cash seized during a search, ₹10
lakh will be adjusted towards the liability.
2. Application for Release of Assets:
o The person from whose custody the assets were seized can apply to the Assessing Officer within 30 days from
the end of the month in which the asset was seized, seeking its release.
 o The application must satisfactorily explain the nature and source of the assets.
o If approved, the remaining portion of the asset (after adjusting liabilities) can be released with prior approval
from the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner.
o Timelines for Release: The asset must be released within 120 days from the execution of the last search or
requisition authorization.
3. Money Seized:
o If the seized assets consist partly or fully of money, the money can be used directly to clear tax liabilities.
o Example: If ₹5 lakh in cash is seized and the taxpayer owes ₹3 lakh in taxes, the cash can be applied towards
clearing the liability.
4. Non-Monetary Assets:
o Non-monetary assets (e.g., gold, property) may be sold to recover any remaining tax liabilities.
o These assets are considered under “distraint,” meaning they are held as security for the tax dues and can be sold
under the rules laid down in the Third Schedule of the Income-tax Act.
o Example: Seized jewelry worth ₹20 lakh can be sold to recover unpaid taxes if liabilities remain after applying
monetary assets.

Sub-section (2): Recovery by Other Modes

The provision specifies that the recovery of tax liabilities can also be done through other means laid out in the Income-tax Act, in
addition to using the seized or requisitioned assets.
Example: If assets seized are insufficient to cover the liability, authorities can attach the taxpayer’s bank accounts or property to
recover the balance.

Sub-section (3): Return of Remaining Assets

Any assets or their proceeds that remain after discharging all liabilities must be returned promptly to the person from whom they
were seized.
Example: If ₹20 lakh in assets were seized and only ₹10 lakh was needed to clear liabilities, the balance ₹10 lakh (or its
equivalent proceeds) must be returned to the taxpayer.

Sub-section (4): Interest on Excess Seized Amount

1. Eligibility for Interest:
o The Central Government must pay simple interest at 0.5% per month on any excess amount of money seized
or proceeds from sold assets that exceed the tax liabilities.
o Example: If ₹15 lakh is seized but only ₹10 lakh is needed for liabilities, the taxpayer is entitled to interest on
the remaining ₹5 lakh from the specified period.
2. Interest Period:
o Interest accrues from:
 The day after 120 days from the execution of the last search or requisition authorization.
 Until the date the assessment is completed under Section 153A or Chapter XIVB.

Explanations:
1. Block Period: Refers to the specific period for which undisclosed income or assets are assessed under Chapter XIVB
(e.g., during a search and seizure operation).
2. Execution of Authorization: Refers to the completion of a search or requisition process as defined under Section
158BE.
3. Existing Liability: Does not include advance tax payments due under Part C of Chapter XVII.

 Section 133: Power to call for information

This section grants certain tax authorities the power to demand specific information from individuals or organizations for the
purposes of income tax assessments or investigations under the Income Tax Act. Let’s break down the content of this section and
understand each part in simple language with explanations of technical terms.

Overview:
The following authorities are empowered to require information for the purposes of the Income Tax Act:
1. Assessing Officer
2. Deputy Commissioner (Appeals)
3. Joint Commissioner or Commissioner (Appeals)
These officers can ask for various types of information related to income, assets, transactions, etc., for their investigations or
assessments.

Subsection Breakdown:
1. Power to Require Information from a Firm:
o Requirement: The officer can ask a firm to provide details of the partners.
 Technical Terms:
  Firm: A business entity formed by two or more people for the purpose of conducting
business.
 Partners: The people who jointly own and manage the business.
 Details to be Provided: Names, addresses, and respective shares of the partners in the firm.
 Example: If a business like "ABC Enterprises" is registered as a partnership firm, the officer can ask
for the names, addresses, and profit-sharing details of the partners.
2. Power to Require Information from a Hindu Undivided Family (HUF):
o Requirement: The officer can ask a Hindu Undivided Family (HUF) to provide details about the manager
and members of the family.
 Technical Terms:
 Hindu Undivided Family (HUF): A family structure under Hindu law where family income
is considered a joint family property, and the head of the family is the manager.
 Manager: The head of the family responsible for managing the family property and income.
 Members: All the people who are part of the HUF.
 Example: If an HUF named "XYZ HUF" is managing family property, the officer can request the
names of the manager (typically the eldest male member) and the other family members.
3. Power to Require Information from Trustees, Guardians, or Agents:
o Requirement: The officer can require anyone who is a trustee, guardian, or agent to provide details of the
persons for whom they are responsible.
 Technical Terms:
 Trustee: A person who holds or manages assets for the benefit of another person or group
(e.g., a charity).
 Guardian: A person legally responsible for the care of a minor or another person.
 Agent: A person authorized to act on behalf of another (e.g., a tax consultant or lawyer).
 Example: If someone is managing the assets of a minor as a guardian, they may need to provide the
officer with the minor’s details.
4. Power to Require Information from the Assessee about Payments:
o Requirement: The officer can ask an assessee to provide information on payments made to individuals or
entities, including details like the amount paid and the recipient's details, if the payment exceeds 1,000 rupees
(or a higher prescribed amount).
 Technical Terms:
 Assessee: A person or entity who is subject to income tax assessment.
 Payment Details: Information regarding rent, interest, commission, royalties, brokerage, or
annuities (except annuities under “Salaries”).
 Example: If an individual made a payment of rent exceeding 1,000 rupees to a landlord, they would
need to provide the officer with details of the payment, the recipient’s name, and address.
5. Power to Require Information from Dealers, Brokers, or Agents:
o Requirement: The officer can require a dealer, broker, or agent (involved in stock or commodity exchanges)
to provide details of payments or receipts related to asset transfers.
 Technical Terms:
 Dealer/Broker/Agent: Individuals or entities that buy, sell, or facilitate the buying and selling
of assets such as stocks, commodities, or real estate.
 Asset Transfer: The process of transferring ownership of assets through transactions like
buying, selling, or exchanging.
 Example: If a broker facilitates the sale of stocks and receives a commission, they must report details
of the transaction, such as the parties involved and the amounts received.
6. Power to Require Information from a Person or Bank:
o Requirement: The officer can require any person, including a banking company or its officers, to provide
detailed financial information, including statements of accounts.
 Technical Terms:
 Banking Company: A financial institution providing services such as accepting deposits,
making loans, and conducting financial transactions.
 Statement of Accounts: A record of a person’s or company’s financial transactions over a
period of time.
 Example: A bank might be required to provide transaction details for an individual or a business for an
investigation under the Income Tax Act.

 Section 133A: Power of Survey

This section of the Income Tax Act empowers income-tax authorities to conduct a survey on business premises to gather
information related to income tax assessments, investigations, and tax compliance. The purpose of the survey is to ensure proper
tax compliance by inspecting business books, verifying cash, stock, or valuable articles, and obtaining relevant information.
Let’s break down Section 133A step by step and explain the technical terms, including examples for better understanding.

Subsections Breakdown:
Subsection (1): Entry for Survey
(1) Powers of the Income-Tax Authority to Enter a Place:
  An income-tax authority has the power to enter specific locations for conducting a survey. These places include:
o (a) Any place within the area assigned to the officer.
o (b) Any place occupied by a person under the officer's jurisdiction.
o (c) Any place authorized by another income-tax authority who has jurisdiction over that area or person.
These locations must be places where a business, profession, or charitable activity is being conducted, whether or not it is the
principal place of the activity.
Technical Terms:
 Income-tax Authority: Any officer with powers under the Income Tax Act (e.g., Principal Commissioner, Assessing
Officer, etc.).
 Business/Profession: Any commercial activity for profit, like trading, manufacturing, consulting, etc.
 Charitable Purpose: Any non-profit activity for the public benefit, such as running a charity.
Example: The income-tax authority can enter a restaurant (where business is conducted), even if it is not the primary office or
main location for the restaurant chain.
Subsection (2): Time of Entry
 The income-tax authority can only enter the place of business or profession during business hours, and for other places
(non-business places), only between sunrise and sunset.
Example: If the business operates from 10 AM to 6 PM, the officer can only enter during these hours. If they want to inspect any
other premises related to the business, they must do so between sunrise and sunset.
Subsection (2A): Verification of Tax Deduction/Collection
 In addition to the powers under Subsection (1), the income-tax authority may also verify whether tax has been
properly deducted or collected at source under certain provisions of the Act. This includes:
o Tax Deducted at Source (TDS) or Tax Collected at Source (TCS), under Chapter XVII or Sub-heading BB.
The authority can enter any office or place where business is conducted and inspect books of accounts or documents to verify
tax compliance.
Technical Terms:
 TDS (Tax Deducted at Source): Tax that is deducted by the payer (e.g., employer) before making payments (e.g.,
salary).
 TCS (Tax Collected at Source): Tax that the seller collects from the buyer at the time of sale (e.g., on sale of certain
goods).
Example: If a business has deducted tax from its employees’ salaries, the income-tax authority may verify if the correct tax
amount was deducted and paid.
Subsection (3): Powers of the Income-Tax Authority during Survey
 The income-tax authority, acting under this section, has the following powers:
1. Inspect Books and Documents: The authority can inspect the books of accounts or other documents available
at the premises.
2. Impound Documents: The authority can seize and retain the books of accounts or documents if necessary.
3. Verify Cash, Stock, or Other Assets: The authority can inspect or verify cash, stock, or other valuable assets
present at the location.
4. Record Statements: The authority can record statements from any person at the location who might have useful
information for the investigation.
Technical Terms:
 Impound: To seize or take possession of something for a certain period.
 Inventory: A list of items or assets, such as cash, stock, and other valuable items, checked during the survey.
Example: During a survey of a retail shop, the officer can check the shop’s cash register, verify the stock of products, and inspect
any documents like purchase bills or sales records. The officer can also take a statement from the shopkeeper regarding the
business operations.
Subsection (4): Restrictions on Removal of Assets
 The income-tax authority cannot remove any cash, stock, or valuable articles from the premises during the survey.
Example: The officer cannot take away any money, goods, or assets from the shop during the survey, although they may make a
record of the items inspected.
Subsection (5): Inquiry into Expenditure Related to Functions or Events
 If the income-tax authority believes that an assessee has incurred significant expenditure for a function, ceremony, or
event, the authority can require the assessee or anyone who might have information about the expenditure to provide
details.
o The authority may also record statements related to the expenditure.
o These statements can be used as evidence in the tax proceeding.
Technical Terms:
 Assessee: A person who is subject to income tax, either an individual, company, or other entity.
 Function, Ceremony, or Event: This refers to any special event like a wedding, business conference, or large social
gathering where significant amounts of money might have been spent.
Example: If an individual throws a grand wedding and spends large sums on catering, decorations, and other services, the
income-tax authority may inquire about the total expenditure and obtain statements regarding the same.
Subsection (6): Non-Compliance with Requirements
 If any person refuses or evades complying with the authority’s request to inspect books, verify assets, or provide
information, the authority can take action under Section 131(1) to enforce compliance.
Technical Terms:
  Section 131(1): This section provides powers for the income-tax authority to issue summons, order production of
documents, or enforce compliance for investigations under the Income Tax Act.
Example: If the shop owner refuses to allow the officer to inspect their financial records or evade providing information, the
officer can invoke stronger enforcement measures under Section 131.
Subsection (7): Approval Requirement for Certain Actions
 For specific actions (such as impounding books or retaining them for more than 15 days), the income-tax authority must
obtain approval from a higher-ranking officer.
o This ensures that such actions are not taken arbitrarily.
Example: If an officer decides to impound a business’s accounting books for further investigation, they must first get approval
from the Principal Chief Commissioner or a similarly senior officer.

 Section 133B: Power to Collect Certain Information

Subsection (1): Entry for Collection of Information

(1) Power of Income-Tax Authority to Enter Places and Collect Information:
An income-tax authority is authorized to enter the following places in order to collect information useful for the purposes of the
Income Tax Act:
 (a) Any building or place within the limits of the area assigned to the authority.
 (b) Any building or place occupied by a person who falls under the authority’s jurisdiction, where a business or
profession is being conducted, whether or not it is the principal location of such business or profession.
The authority can require the following individuals to furnish information:
 Proprietor: The owner of the business or profession.
 Employee: Anyone working for the business or profession.
 Any other person: This includes any individual present at the time of the survey who may be involved in or assisting
with the business.
The required information must be prescribed by the income-tax authority, meaning it is to be provided as per the guidelines or
regulations set by the authority.

Subsection (2): Time of Entry

(2) Limitation on Time of Entry:
An income-tax authority can enter the business premises only during the hours at which the business is open for conducting its
operations. This means the authority cannot visit the premises outside of business hours or when the business is closed.
Example: If a restaurant operates from 11 AM to 10 PM, the tax officer can only visit the restaurant within that time frame. If the
restaurant is closed for the night, the officer cannot enter the premises for information gathering.

Subsection (3): Restrictions on Removing Items

(3) No Removal of Items:
The income-tax authority, when entering a place for the collection of information, cannot remove or take away any of the
following from the premises:
 Books of account or other documents
 Cash, stock, or any other valuable articles or items
This subsection makes it clear that the authority is only allowed to inspect, collect, or ask for information but cannot confiscate or
remove items from the premises.
Example: If a tax officer visits a business premises and inspects financial records or inventory, they cannot take the records or
stock with them. They are only allowed to inspect and gather details

 Section 133C: Power to Call for Information by Prescribed Income-Tax Authority

Subsection (1): Power of Prescribed Income-Tax Authority to Issue Notice

(1) Notice for Furnishing Information or Documents:
 The prescribed income-tax authority has the power to issue a notice to a person to ask for information or documents.
This notice must be responded to by the specified date.
 The request for information or documents is for the purpose of verifying the information already in the possession of
the authority. The requested information must be relevant and useful for any inquiry or proceeding under the Income
Tax Act.
 The person receiving the notice must provide the requested information or documents verified in the manner specified in
the notice.

Subsection (2): Processing of Information or Documents

(2) Processing Information or Documents:
 Once the prescribed income-tax authority receives the information or documents in response to the notice issued under
subsection (1), the authority may process the information.
 After processing, the outcome of the processing is shared with the Assessing Officer.
Subsection (3): Centralized Issuance and Processing of Notices
(3) Centralized Scheme for Issuance and Processing:
 The Board (likely referring to the Central Board of Direct Taxes or CBDT) may create a scheme for centralized
issuance of notices.
 The scheme would allow the centralized processing of information or documents, and the outcome of such processing
would be provided to the Assessing Officer.

 Section 134: Power to Inspect Registers of Companies

Subsection Breakdown:
(1) Power of Various Income-Tax Authorities to Inspect Registers:
 Income-tax authorities such as the Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, and
Commissioner (Appeals) are empowered to inspect:
o Registers of Members (the list of shareholders in a company),
o Registers of Debenture Holders (those who hold debentures, which are a type of debt instrument issued by a
company),
o Registers of Mortgagees (those holding mortgages on the company's property).
 These authorities can take copies of any entries in these registers, if needed.

 Section 135: Power of Higher Income-Tax Authorities

(1) Powers of Senior Income-Tax Authorities:

 The Principal Director General, Director General, Principal Chief Commissioner, Chief Commissioner, Principal
Commissioner, Commissioner, and Joint Commissioner are authorized to make any inquiry under the Income Tax
Act.
 For these inquiries, these higher-ranking officers have the same powers as the Assessing Officer.

 Section 136: Judicial Nature of Proceedings Before Income-Tax Authorities

Subsection Breakdown:
(1) Judicial Proceedings:
 Any proceeding under the Income Tax Act before an income-tax authority is deemed to be a judicial proceeding as
defined under sections 193 and 228 of the Indian Penal Code.
 Income-tax authorities are considered Civil Courts for the purposes of section 195 of the IPC, but not for the purposes
of Chapter XXVI of the Code of Criminal Procedure, 1973.
Technical Terms:
 Judicial Proceeding: A proceeding that takes place within the framework of the law, such as hearings or investigations
carried out by a judge or judicial officer. In this case, it refers to proceedings before tax authorities.
 Section 193 of IPC: Deals with the punishment for false evidence given in judicial proceedings.
 Section 228 of IPC: Deals with the punishment for intentional insult or obstruction of a judicial officer in the
discharge of their duty.
 Section 195 of IPC: Pertains to the punishment for offences related to contempt of court.
 Chapter XXVI of the Code of Criminal Procedure (CrPC): Deals with the procedure for search, arrest, and seizure
by the police, which does not apply to income-tax authorities.

Return of Income
 Section 139: Return of Income

Subsection (1): Mandatory Filing of Return of Income

1. Applicability:
o Mandatory for Companies and Firms:
Every company and firm must file a return of income or loss, regardless of their income level.
o Mandatory for Other Persons:Any person (individual, Hindu Undivided Family (HUF), Association of
Persons (AOP), Body of Individuals (BOI), or Artificial Juridical Person) must file a return if their total income
during the previous year exceeds the maximum amount not chargeable to tax (basic exemption limit).
Basic Exemption Limits (as of AY 2023-24):
 For individuals below 60 years: ₹2,50,000.
 For individuals aged 60-80 years: ₹3,00,000.
  For individuals aged 80+ years: ₹5,00,000.

2. Special Cases: Persons Meeting Specific Conditions: Individuals not otherwise required to file a return must do so if
they meet any of the following conditions:
o Electricity Expenses: Incurs expenses exceeding ₹50,000 for electricity consumption during the previous year.
o Immovable Property: Occupies an immovable property exceeding a specified floor area (to be notified by the
Board).
Example: Owning a large flat or bungalow can make you liable to file returns even if your income is below the
exemption limit.
o Motor Vehicle Ownership: Owns or leases any motor vehicle except a two-wheeler with a detachable sidecar.
Example: Owning a car or an SUV makes filing mandatory.
o Foreign Travel Expenses: Incurs expenditure for oneself or others on travel to any foreign country.
Note: Travel to neighboring countries or certain pilgrimage destinations, as notified, is excluded.
o Credit Card Holder: Possesses a primary credit card (excluding add-on cards).
Example: Holding a credit card even with low usage makes filing returns compulsory.
o Membership in Exclusive Clubs: Membership in a club charging an entrance fee of ₹25,000 or more.
Example: Membership in high-end golf or business clubs applies.

3. Foreign Assets or Signing Authority:

o Persons holding any asset outside India (e.g., property, shares) or signing authority in a foreign bank account
must file a return irrespective of their income.
Example:
 A person owns shares in a foreign company.
 A person has signing authority for a foreign account held jointly with someone else.

4. Due Date for Filing Returns:

o September 30: For companies or individuals whose accounts need auditing.
o November 30: For entities engaged in international transactions (transfer pricing cases).
o October 31: For individuals specified under special cases.
o July 31: For all others.

5. Optional Schemes:
o Employees earning income under "Salaries" may submit their return to their employer under a scheme notified
by the Board.
o Returns can also be filed using electronic means like CD-ROM or other computer-readable formats.

Subsection (1A): Filing by Employees

 Employees receiving income under "Salaries" can submit returns to their employer instead of filing directly, provided
they meet conditions specified by the Board.

Subsection (1B): Filing Under Digital Schemes

 Companies and other taxpayers may file returns using schemes notified by the Board. These schemes allow returns to be
submitted in electronic formats (e.g., floppy disks, CDs, or tapes).

Subsection (1C): Exemptions by Central Government

 The Central Government can exempt specific classes of persons from filing returns by issuing notifications in the Official
Gazette.
Example: Low-income individuals with limited taxable income but high compliance costs might be exempted.

 Section 139(3): Filing Return for Carrying Forward Losses

Subsection (3) of Section 139 of the Income Tax Act, 1961, pertains to the filing of a return of loss by a taxpayer who wishes to
carry forward certain losses to subsequent years for set-off against future income.

Key Points of Subsection (3):

1. Applicability:
This subsection applies to taxpayers who have incurred a loss under the following heads of income during the previous
year:
o Profits and Gains of Business or Profession (Section 28)
o Capital Gains (Section 45)
2. Requirement for Carrying Forward Losses:
If a taxpayer wants to carry forward a loss under any of the following provisions, they must file a return of loss within
the due date specified under Section 139(1):
 o Section 72(1): Carry forward and set-off of business losses.
o Section 73(2): Carry forward and set-off of losses in speculative business.
o Section 73A(2): Carry forward and set-off of losses in specified businesses under Section 35AD (e.g., cold
chain facilities, affordable housing projects).
o Section 74(1) or 74(3): Carry forward and set-off of losses under the head "Capital Gains" (short-term or long-
term).
o Section 74A(3): Carry forward and set-off of losses from activity related to owning and maintaining racehorses.

3. Time Limit for Filing:

o The return of loss must be filed within the time allowed under Section 139(1).
o If the taxpayer fails to file the return within the due date, losses cannot be carried forward, except for
unabsorbed depreciation (Section 32(2)) or losses under the head "Income from House Property" (Section 71B),
which can still be carried forward.

4. Form and Verification:

o The return of loss must be filed in the prescribed form (e.g., ITR-3, ITR-4, or ITR-6, depending on the
taxpayer’s category).
o The return must be verified in the manner prescribed under the Income Tax Rules, 1962.

5. Treatment of Return of Loss:

o Once filed, the return of loss is treated as a return under Section 139(1).

 Section 139(4) to 139(4F): Special Cases for Filing Returns

The provisions under Section 139(4) to Section 139(4F) of the Income Tax Act, 1961, detail specific cases where certain
categories of taxpayers are required to furnish returns under particular circumstances. Below is a breakdown:

Section 139(4): Filing a Belated Return

 Provision:
Any person who has not furnished a return within the time allowed under Section 139(1) can still file a return for the
relevant previous year:
o Before the end of the relevant assessment year, or
o Before the completion of the assessment, whichever is earlier.
 Implication:
This provision ensures that taxpayers who miss the original due date can still file their returns. However, penalties and
interest may apply under Sections 234A, 234B, and 234F for late filing.

Section 139(4A): Returns for Charitable or Religious Trusts

 Applicability:
Every person receiving income from property held:
o Wholly or partly for charitable or religious purposes, or
o Voluntary contributions as referred to in Section 2(24)(iia).
 Condition:
The return must be filed if the total income exceeds the maximum amount not chargeable to tax (before considering
exemptions under Sections 11 and 12).
 Key Requirements:
o The return should be filed in the prescribed form and verified as per the Income Tax Rules.
o The provisions of Section 139(1) will apply.

Section 139(4B): Returns for Political Parties

 Applicability:
The chief executive officer (e.g., Secretary or similar designation) of a political party must file a return if:
o The political party’s total income (computed without exemptions under Section 13A) exceeds the maximum
amount not chargeable to tax.
 Implication:
Political parties must disclose their income transparently, irrespective of Section 13A benefits.

Section 139(4C): Returns for Specific Entities Exempt Under Section 10

 Applicability:
The following entities are required to file returns if their total income exceeds the taxable limit, even if exempt under
Section 10:
o Research associations [Section 10(21)].
o News agencies [Section 10(22B)].
o Institutions under Section 10(23A) or Section 10(23B).
 o Educational institutions [Section 10(23C)(iiiab), (iiiad), (vi)].
o Hospitals [Section 10(23C)(iiiac), (iiiae), (via)].
o Mutual funds [Section 10(23D)].
o Securitization trusts [Section 10(23DA)].
o Venture capital companies/funds [Section 10(23FB)].
o Trade unions [Section 10(24)].
o Other bodies or authorities listed under Section 10(46) or 10(47).
 Key Condition:
The return must be filed without giving effect to exemptions under Section 10.

Section 139(4D): Returns for Universities or Colleges Claiming Section 35 Benefits

 Applicability:
Universities, colleges, or other institutions referred to in Section 35(1)(ii) and Section 35(1)(iii) (engaged in scientific or
social research) must file returns if:
o They are not required to file under any other provision.
 Implication:
Ensures accountability for institutions benefiting from Section 35 deductions for scientific research.

Section 139(4E): Returns for Business Trusts

 Applicability:
A business trust (e.g., REITs or InvITs) must file returns in respect of its income or loss for every previous year,
provided:
o It is not already required to file under any other provision.
 Implication:
The provision ensures that business trusts comply with tax return requirements irrespective of their taxable status.

Section 139(4F): Returns for Investment Funds

 Applicability:
Investment funds referred to in Section 115UB (e.g., Alternative Investment Funds or AIFs) must file returns for
income or loss for every previous year if:
o They are not required to file under any other provision.
 Implication:
Establishes reporting obligations for investment funds, ensuring transparency and proper compliance with pass-through
taxation principles under Section 115UB.

Summary of Requirements for Filing Returns Under Subsections (4A) to (4F):

Subsection Category of Taxpayer Condition for Filing Purpose
Total income exceeds the taxable limit (before Transparency in income derived
139(4A) Charitable/Religious Trusts
Sections 11 & 12 exemptions). from trusts.
Total income exceeds the taxable limit (before Accountability of political parties'
139(4B) Political Parties
Section 13A exemption). income.
Entities exempt under Section Total income exceeds the taxable limit (before Ensures exempt entities disclose
139(4C)
10 Section 10 exemptions). income.
Universities/Colleges under Compliance by research
139(4D) Total income/loss in a previous year.
Section 35 institutions.
Business Trusts (e.g., REITs, Ensures reporting compliance by
139(4E) Total income/loss in a previous year.
InvITs) business trusts.
Investment Funds under Section Facilitates tax transparency for
139(4F) Total income/loss in a previous year.
115UB investment funds.

 Section 139(5): Filing of Revised Return

Provision:
 If a person, after furnishing a return under:
o Section 139(1) (original return), or
o Section 139(4) (belated return),discovers:
o Any omission or
o Any wrong statement in the return,
they are allowed to file a revised return to correct these errors.

Time Limit for Filing a Revised Return:

The revised return must be furnished:
1. Before the end of the relevant assessment year, or
2. Before the completion of the assessment,
 whichever is earlier.

 Section 139(9): Filing of Defective Returns

Provision:
If the Assessing Officer (AO) determines that a return of income filed by the assessee is defective, the following applies:

Procedure for Handling Defective Returns

1. Intimation of Defect:
o The AO must intimate the defect to the assessee.
o The assessee is given an opportunity to rectify the defect within:
 15 days from the date of intimation, or
 A further period allowed by the AO upon the assessee’s application.
2. Failure to Rectify the Defect:
o If the defect is not rectified within the specified or extended time, the return will be treated as an invalid
return.
o The provisions of the Act will then apply as if the assessee failed to furnish a return.
3. Condonation of Delay:
o If the defect is rectified after the expiry of the specified period but before the assessment is made, the AO
may condone the delay and treat the return as valid.

Explanation to Section 139(9): Conditions for a Defective Return

A return is considered defective unless the following conditions are fulfilled:
1. Proper Completion of Income Details:
o Annexures, statements, and columns for computation of income under each head (e.g., business income, salary,
capital gains) are duly filled.
o Computation of gross total income and total income is complete.
2. Statement of Tax Payable:
o The return is accompanied by a statement showing tax computation based on the return.
3. Audit Report (if applicable):
o The return must include the audit report required under Section 44AB, or
o Proof of furnishing the audit report if it was submitted earlier.
4. Proof of Tax Payments:
o The return should include proof of:
 TDS/TCS claimed,
 Advance tax, and
 Self-assessment tax paid.]
o Exception: If the TDS/TCS certificate is unavailable under Sections 203 or 206C, the return is still valid if:
 The certificate is produced within the 2-year period specified under Section 155(14).
5. Books of Accounts:
o If regular books of account are maintained, the return must include:
 Manufacturing/trading/profit & loss account,
 Balance sheet,
 Personal accounts of the proprietor, partners, or members (as applicable).
o If no books are maintained, a statement of:
 Turnover, gross receipts, profit, expenses, and net profit,
 Sundry debtors, creditors, stock-in-trade, and cash balance is required.
6. Audited Accounts (if applicable):
o Copies of:
 Audited profit & loss account,
 Balance sheet,
 Auditor’s report (including reports under Section 233B of the Companies Act, if applicable).

Section 139A: Permanent Account Number (PAN)

1. Obligation to Obtain PAN:
o Individuals and Entities:
 Persons whose income exceeds the taxable limit.
 Businesses or professions with total sales, turnover, or gross receipts exceeding ₹5 lakhs in a financial
year.
 Persons required to file returns under specific provisions, such as fringe benefit tax.
 Residents (other than individuals) engaging in financial transactions aggregating to ₹2.5 lakhs or more
in a financial year.
o Officials and Representatives:
 Managing directors, partners, trustees, founders, etc., of entities covered under PAN requirements must
also apply for PAN.
 2. Government Notifications:
o Central Government may mandate specific classes of persons (e.g., importers, exporters) to apply for PAN for
tax-related or information collection purposes.
3. Voluntary Application:
o Any person not mandatorily required to obtain PAN can apply for it voluntarily.
4. Obligation to Quote PAN:
o PAN must be quoted:
 In income tax returns and correspondence.
 In challans for tax payments.
 In prescribed transactions (e.g., property sales, bank deposits).
o Exceptions apply to non-taxable individuals upon submission of a prescribed declaration.
5. Updates and Maintenance:
o Any changes to address, business name, or nature must be intimated to the Assessing Officer.
o Duplicate PANs are prohibited; only one PAN per individual/entity is allowed.
6. Responsibilities of Other Parties:
o Persons deducting tax must quote the deductee's PAN in certificates, returns, and other prescribed documents.
o Buyers, licensees, and lessees in transactions under Section 206C must provide PAN.
7. Rules and Procedures:
o The Board may make rules for:
 Application procedures for PAN.
 Transactions requiring PAN.
 Exemptions or alternative identifiers.
8. Definitions:
o Permanent Account Number (PAN) is a unique 10-character alphanumeric code for identification.
o General Index Register Number refers to an earlier identifier used before PAN.

Income from House Property

Section 22: Income from House Property
This section explains how the annual value (rent or potential rent) of certain types of property owned by an individual, called the
assessee, is taxed under the head "Income from House Property."
1. Scope of Property Covered:
o Buildings: This includes any constructed structure such as residential houses, offices, shops, or warehouses.
o Lands Appurtenant to Buildings: This means any land directly connected with or attached to the building, like
a garden, courtyard, or parking area.
2. Ownership Requirement:
o The property must belong to the assessee (the person whose income is being assessed).
o If you are not the owner (e.g., tenant, lessee), income from the property will not be taxed under this head.
3. Exceptions to Taxability:
o Self-occupied Property for Business or Profession:
If the assessee uses the property for their business or professional purposes, and the profits from that business or
profession are taxable, this property is excluded.
Example:
 A doctor owns a clinic building. Since the property is used for professional purposes, the income (or
notional rent) from the clinic will not be taxed under this section but considered part of the business's
profit.
4. Taxable Income:
o The "Annual Value" of the property is the amount on which tax is calculated.
o Annual Value: It refers to the potential rental income the property could earn in a year, regardless of whether it
is rented out or vacant.

Section 23: Determination of Annual Value

This section specifies how the "Annual Value" of a property is determined for taxation purposes under Section 22. It covers
various scenarios, including self-occupied properties, let-out properties, and vacant properties.

Sub-section (1): General Determination of Annual Value

1. Basis of Annual Value:
The annual value of a property is determined using the following criteria:
o Clause (a): Reasonable Expected Rent
The sum for which the property might reasonably be expected to be let out from year to year.
Example: If similar properties in the area rent for ₹15,000 per month, the annual value will be ₹1,80,000.
o Clause (b): Higher Actual Rent Received
If the actual rent received or receivable is higher than the reasonable letting value (RLV), the actual rent will be
considered.
 Example: If the reasonable rent is ₹1,80,000 but the actual rent received is ₹2,00,000, the annual value is
₹2,00,000.
o Clause (c): Vacancy Adjustment
If the property was let out but remained vacant for part of the year, and the actual rent is lower than the
reasonable letting value due to the vacancy, the actual rent received is considered.
Example: If the reasonable rent is ₹1,80,000, but the property remained vacant, and the owner received only
₹1,50,000, the annual value is ₹1,50,000.
2. Deduction for Local Taxes (municipal property tax, deducted from the gross annual value):
o Taxes paid to local authorities (e.g., property tax) are deducted while calculating the annual value in the year
they are actually paid.
o Example: If the property tax is ₹20,000, the net annual value will be reduced by this amount.

Balbir Singh vs MCD- reasonably expected rent cannot be more than standard rent set by the rent control act.

3. Irrecoverable Rent:
o Rent that cannot be realized (e.g., tenant absconding without paying rent) is excluded from the actual rent
received.

Sub-section (2): Self-occupied Properties

 Nil Annual Value for Self-occupied Properties:
If the property is used by the owner for their own residence, the annual value is nil (no tax is payable).
o Clause (a): The owner occupies the house for personal use.
o Clause (b): The owner cannot occupy the house due to employment or business at another location and resides
in a rented house there.
 Example:
If Ravi owns a house in Delhi but works in Mumbai and lives in a rented flat there, the annual value of his Delhi house
will be nil.

Sub-section (3): Exceptions to Nil Value

 The nil annual value rule does not apply if:
o Clause (a): The house is let out for any part of the year.
o Clause (b): The owner derives any other benefit from the property (e.g., commercial use).

Sub-section (4): Multiple Properties Owned by the Assessee

 Two Self-occupied Houses:
If the assessee owns multiple houses, they can choose two houses to be treated as self-occupied with nil annual value.
o Other Houses: The annual value of the remaining houses is determined as if they were let out.
o Example:
Kirti owns three houses. She declares two as self-occupied with nil value. The third house’s annual value is
calculated based on rent or reasonable letting value.

Sub-section (5): Stock-in-trade Properties

 Properties held as stock-in-trade by builders or developers (e.g., unsold flats)(Properties held as inventory for sale by
builders or developers) are treated differently:
o If the property is not rented out for up to 2 years after construction completion, its annual value is taken as nil.
o Example:
A builder completes a project in March 2023. Unsold flats will have a nil annual value for the next two years,
i.e., until March 2025.

Section 24: Deductions from Income from House Property

This section provides deductions that can be claimed while calculating taxable income under the head "Income from house
property". These deductions help reduce the tax burden on property owners by accounting for certain expenses.

Types of Deductions
1. Standard Deduction (Clause a):
o A fixed deduction of 30% of the annual value of the property is allowed.
o This accounts for general expenses like maintenance, repairs, and upkeep, irrespective of the actual amount
spent.
o Example: If the annual value of a property is ₹1,00,000, the deduction will be ₹30,000.
2. Deduction for Interest on Borrowed Capital (Clause b):
o Interest paid on loans taken for acquiring, constructing, repairing, renewing, or reconstructing the property is
deductible.
o There are specific limits and conditions based on the purpose and timing of the loan:
Provisos and Conditions for Interest Deduction
1. For Self-occupied Properties (Section 23(2)):
o The maximum deduction for interest payable on loans for self-occupied properties is:
 ₹30,000 for general cases.
 ₹2,00,000 if the following conditions are met:
 The loan was borrowed on or after April 1, 1999.
 The construction or acquisition of the property is completed within 5 years from the end of
the financial year in which the loan was borrowed.
o Example:
 Loan taken in FY 2020-21, property completed in FY 2024-25. Interest payable is ₹2,50,000.
Deduction allowed: ₹2,00,000 (maximum limit).
2. Pre-construction Period Interest: (The time before the property is ready for use (acquisition or completion of
construction)
o If the loan interest pertains to the period before the property is acquired or construction is completed:
 The total interest for this period is distributed equally over 5 years starting from the year of acquisition
or completion.
o Example:
 Loan interest for the pre-construction period (3 years) is ₹1,00,000. Annual deduction: ₹20,000 for 5
years.
3. Certificate Requirement:
o To claim the interest deduction, the assessee must obtain a certificate from the lender specifying:
 Total interest payable.
 Purpose of the loan (e.g., acquisition, construction, or repayment).
o New Loan Concept:
 If the original loan is refinanced (e.g., taking a new loan to repay the old one), the interest on the new
loan is also deductible.
4. Overall Cap on Deduction:
o The total interest deduction (under all provisos) cannot exceed ₹2,00,000 for self-occupied properties.

Section 25: Amounts Not Deductible from Income from House Property
This section specifies certain conditions under which interest payments cannot be deducted while calculating taxable income
under the head "Income from house property."

Non-deductibility of Certain Interest:

 Interest payable outside India is not deductible if it satisfies all of the following conditions:
1. Nature of Interest: The interest is chargeable under the Income Tax Act.
2. Non-compliance with Tax Obligations:
 Tax has not been paid or deducted at source (TDS) as per the provisions of Chapter XVII-B (TDS
provisions for non-residents).
3. No Representative in India:
 There is no person in India who can act as the agent of the non-resident lender under Section 163 of
the Income Tax Act (which deals with the liability of an agent representing a non-resident).
Exception:
 This rule does not apply to interest on loans that were issued for public subscription before April 1, 1938.

Section 25A: Special Provision for Arrears of Rent and Unrealised Rent Received Subsequently
This section addresses the treatment of arrears of rent or unrealised rent that is received or recovered later by the assessee.

1. Taxability of Arrears or Recovered Rent:

o If an assessee receives arrears of rent (rent due from past years) or unrealised rent (rent not recovered earlier
but now collected), it will be treated as income from house property.
o Financial Year of Receipt: The rent is taxable in the financial year in which it is actually received or realised,
regardless of whether the assessee is the current owner of the property in that financial year.
Key Point: Ownership of the property at the time of recovery is not relevant for taxability.

2. Deduction Allowed:
o The assessee is allowed a deduction of 30% of the amount received as arrears or unrealised rent.
o This deduction accounts for standard maintenance and other costs related to the recovery.

Illustration
1. Arrears of Rent:
 o Suppose an assessee let out a property in 2021–22 with an annual rent of ₹1,00,000. However, the tenant
defaulted and only paid in 2024–25.
o In 2024–25, ₹1,00,000 will be taxed under the head "Income from house property" irrespective of the
assessee’s ownership status in 2024–25.
o Deduction Allowed: 30% of ₹1,00,000 = ₹30,000. Taxable income = ₹70,000.
2. Unrealised Rent:
o Unrealised rent of ₹50,000 declared as irrecoverable in 2022–23 and written off by the owner. If recovered in
2024–25, it is treated as income.
o Deduction Allowed: 30% of ₹50,000 = ₹15,000. Taxable income = ₹35,000.

Section 26: Property Owned by Co-Owners

This section governs the taxation of income from property jointly owned by two or more persons.

1. Assessment of Co-Owners:
o When a property (building or building with adjoining land) is owned by two or more persons, and their shares
are definite and ascertainable, each co-owner is taxed on their respective share of income from the property.
o No Assessment as an Association of Persons (AOP): Co-owners are not treated as an Association of Persons
(AOP) for tax purposes. Instead, their income is assessed individually.

2. Computation of Share:
o The income of each co-owner is calculated in accordance with Sections 22 to 25 of the Income Tax Act.
o Each co-owner’s share is included in their total income and taxed as per the applicable tax slab.

3. Explanation and Application of Section 23(2):

o Sub-section (2) of Section 23 provides for self-occupied property (SOP) where the annual value is treated as
nil if the house is occupied by the owner or cannot be occupied due to reasons such as employment at another
location.
o Application for Co-Owners: Each co-owner is entitled to claim the relief under Section 23(2) individually for
their share, as if they are the sole owner of that portion.

Illustrations
1. Equal Ownership:
o Two individuals jointly own a property with equal shares (50%-50%). The annual income from the property is
₹1,00,000.
o Each co-owner's share: ₹50,000.
o Taxation: Each will report ₹50,000 as income from house property in their respective returns and claim
deductions, if applicable.
2. Unequal Ownership:
o A property generates an income of ₹1,20,000 annually. Co-owner A owns 40% and Co-owner B owns 60%.
o Co-owner A's share: ₹48,000; Co-owner B's share: ₹72,000.
o Each will include their respective shares in their taxable income.
3. Self-Occupied Property (SOP):
o Two individuals own a house in equal shares (50%-50%), and it is used for self-residence.
o As per Section 23(2), the annual value is nil for each co-owner for their portion.

Section 27: Definitions Pertaining to "Owner of House Property," "Annual Charge," Etc.

Key Provisions
1. Deemed Ownership in Case of Certain Transfers:
o Transfer to Spouse or Minor Child:
 If an individual transfers a house property to:
 Spouse (without adequate consideration and not under an agreement to live apart), or
 Minor Child (excluding a married daughter),
 The transferor is deemed the owner of the property for tax purposes.
 Example: A father gifting a house to his minor child will still be taxed on the income from that house.

2. Impartible Estate:
o The holder of an impartible estate is deemed the individual owner of all properties within the estate.
o Impartible estates are those that cannot be divided among heirs (e.g., certain ancestral or royal properties).

3. Allotment Under a Housing Scheme:

 o A member of a cooperative society, company, or other association of persons is deemed the owner of a
building (or part thereof) allotted or leased to them under a house building scheme.
o Example: An individual allotted a flat in a housing society is treated as the owner for tax purposes, even if the
property title remains with the society.

4. Possession Under Section 53A of the Transfer of Property Act, 1882:

o A person who has possession of a property (or part thereof) under a part-performance contract (as per Section
53A of the Transfer of Property Act, 1882) is deemed the owner.
o Example: A buyer under a sale agreement who has taken possession but the formal title has not yet been
transferred is treated as the owner.

5. Acquisition of Rights Under Section 269UA(f):

o A person who acquires rights in a property (other than a short-term lease of up to one year) under transactions
like hire purchase or lease-purchase agreements is deemed the owner.

6. Local Taxes Include Service Taxes:

o Taxes levied by a local authority on a property include service taxes levied by the local authority. This
provision ensures clarity when deducting taxes paid to local authorities while computing income from house
property.

Profits and Gains of Business or Profession

Section 28: Profits and Gains of Business or Profession

Incomes Chargeable Under PGBP

1. Profits from Business or Profession:
o Any profits and gains of business or profession carried on by the assessee during the relevant financial year are
taxable.

2. Compensation or Other Payments:

Income includes compensation or payments due to or received by:
o (a) A person managing the whole or substantial affairs of an Indian company at the termination/modification of
terms of management.
o (b) A person managing the affairs in India of any other company at the termination/modification of terms of
office.
o (c) An agent in India for business activities at the termination/modification of terms of agency.
o (d) A person for vesting management of any property or business in the Government or a government-controlled
corporation under any law.
o (e) A person for the termination or modification of terms of any business-related contract.

3. Income from Specific Services to Members:

o Income derived by a trade, professional, or similar association from specific services rendered to its members.

4. Profits from the Sale of Licenses:

o Includes profits from the sale of licenses granted under the Imports (Control) Order, 1955.

5. Export Incentives:
o Income includes:
 (iiib) Cash assistance for exports under government schemes.
 (iiic) Customs or excise duty drawbacks.
 (iiid) Profits from transfer of Duty Entitlement Pass Book (DEPB) under the export-import policy.
 (iiie) Profits from transfer of Duty-Free Replenishment Certificates (DFRC) under the export-import
policy.

6. Benefits or Perquisites from Business or Profession:

o The value of any benefit or perquisite (whether convertible into money or not) arising from business or
professional activities is chargeable.

7. Partner’s Income from the Firm:

o Includes interest, salary, bonus, commission, or remuneration received by a partner from the firm. Adjustments
are made if any such amounts are disallowed as a deduction under Section 40(b).

8. Non-Compete Fees and Payments:

o Includes sums received for:
  (a) Not carrying out any activity related to business or profession.
 (b) Not sharing any know-how, patents, trademarks, copyrights, or trade secrets related to business.
Proviso: This clause does not apply to:
o Sums received for transfer of rights chargeable under "Capital Gains."
o Compensation from the Montreal Protocol Fund for phasing out ozone-depleting substances under the UNEP
agreement.

9. Receipts from Keyman Insurance Policy:

o Sums received (including bonuses) under a Keyman insurance policy are taxable.

10. Conversion of Inventory to Capital Asset:

o Fair market value (FMV) of inventory on the date of conversion into or treatment as a capital asset is taxable.

11. Receipts from Demolished, Destroyed, or Discarded Assets:

o Income from the sale or disposal of capital assets (except land, goodwill, or financial instruments) where full
expenditure was claimed under Section 35AD.

12. Speculative Business Income:

o Speculative transactions constituting a business are treated as a distinct and separate business.

Definitions and Clarifications

1. Keyman Insurance Policy:
o Defined under Section 10(10D). It refers to life insurance for a key employee or director, ensuring financial
security for the business in the event of their absence.
2. Service:
o Covers a wide range of professional, industrial, and commercial services, including banking, construction,
advertising, education, transport, and more.

Section 29: Computation of Income from Profits and Gains of Business or Profession
This section provides the basis for computing the income chargeable to tax under the head "Profits and Gains of Business or
Profession" (PGBP) as referred to in Section 28.

Key Provisions
1. Computation Framework:
o The income under this head shall be computed strictly in accordance with the provisions laid out in Sections 30
to 43D of the Income-tax Act, 1961.
2. Purpose:
o The aim is to standardize the computation process by providing specific rules, allowances, disallowances, and
deductions applicable to various business and professional incomes.

Scope of Sections 30 to 43D

 Sections 30-37: Focus on specific expenses and allowances deductible from gross income. Examples include rent,
repairs, insurance, depreciation, and general business expenditure.
 Section 40: Lists items that are not deductible in certain cases (e.g., payments not compliant with tax laws).
 Section 40A: Provides restrictions on expenses (e.g., cash payments exceeding prescribed limits).
 Section 43B: Mandates certain expenses (e.g., statutory dues) to be deductible only upon actual payment.
 Section 43D: Specifies the method of taxation for certain income, such as interest on bad debts for financial institutions.

Salaries
Section 15: Salaries
Overview:
Section 15 specifies the types of income that are chargeable to income tax under the head “Salaries”. It ensures that all forms of
salary-related income, whether due, received, or paid in arrears, are taxable unless specifically excluded.

1. Chargeability Under "Salaries":

Income under the head "Salaries" includes:
 (a) Salary Due:
o Any salary due from an employer or former employer to the assessee (taxpayer) during the previous year,
whether it is paid or not.
 Example: If an employee was supposed to receive their March 2024 salary in March itself, but it
remains unpaid, it will still be taxed as income for the financial year 2023-24.
 (b) Salary Paid or Allowed in Advance:
o Any salary paid or allowed to the employee before it became due, even if it was not yet owed.
  Example: If an employee's June 2024 salary is paid in May 2024, it will be taxed as income for the
financial year 2023-24.
 (c) Arrears of Salary:
o Any arrears (delayed payment of past salary) paid or allowed in the previous year by or on behalf of the
employer, provided it wasn’t taxed in an earlier year.
 Example: If an employee receives arrears of ₹50,000 in 2024 for work done in 2022, and the amount
wasn’t taxed in 2022, it will be taxed in 2024.
 Technical term: Arrears – Salary that is due but unpaid in the past and paid later.

2. Explanation 1: Salary Paid in Advance

 If salary is paid in advance and already taxed in a previous year, it cannot be taxed again in the year when it becomes
due.
o Example: An employee receives advance salary for April 2024 in March 2024. This amount is taxed in March
2024 (FY 2023-24). When April 2024 arrives, this salary won’t be taxed again.

3. Explanation 2: Partner’s Income

 Income from a Partnership Firm is NOT Salary:
o Any salary, bonus, commission, or remuneration received by a partner from their firm, irrespective of how it
is labeled, is not considered “salary” for the purposes of this section.
o Instead, this income is taxed under a different head, typically “Profits and Gains of Business or Profession.”

Section 16: Deductions from Salaries (Income Tax Act)

Key Provisions:
1. Standard Deduction (Clause ia):
 Amount: ₹50,000 or the amount of salary, whichever is lower.
 This deduction is available to all salaried individuals, irrespective of their employer or the nature of their salary.
 Example:
o If the annual salary is ₹6,00,000, the standard deduction allowed will be ₹50,000.
o If the annual salary is ₹40,000, the deduction will be limited to ₹40,000 (as it is the lower amount).

2. Entertainment Allowance (Clause ii):

 Applicable only to government employees receiving an entertainment allowance.
 Deduction Amount: The least of the following three:
1. 1/5th of the salary (excluding allowances, benefits, and perquisites),
2. ₹5,000,
3. Actual entertainment allowance received.
 Technical term: Entertainment Allowance – A specific allowance granted by the employer to cover entertainment
expenses related to official duties.
 Example:
o A government employee earns ₹5,00,000 as salary (excluding allowances) and receives ₹8,000 as an
entertainment allowance.
 1/5th of ₹5,00,000 = ₹1,00,000,
 ₹5,000,
 Actual allowance = ₹8,000.
 Deduction allowed: ₹5,000 (the least amount).

3. Tax on Employment (Clause iii):

 Deduction is allowed for any sum paid as Professional Tax by the assessee.
 Professional Tax: A tax imposed by state governments on individuals earning an income through employment or
practice of a profession (per Article 276(2) of the Indian Constitution).
 Example:
o If a salaried individual pays ₹2,500 as professional tax during the year, this amount is fully deductible from the
salary income.

DEDUCTIONS
Section 80C: Deduction in respect of Life Insurance Premiums, Provident Funds, and Other Contributions
Key Highlights of Section 80C:
1. Eligibility for Deduction (Sub-section 1):
o This deduction applies to an individual or a Hindu Undivided Family (HUF).
o The total amount of deductions that can be claimed in a year under this section is ₹1,50,000.
2. Sums Eligible for Deduction (Sub-section 2): The following sums qualify for deductions under Section 80C, provided
the payment is made in the previous year:
(i) Life Insurance Premium:
o Deduction for premiums paid on the life insurance policies of the taxpayer, spouse, or children.
o Example: If you pay a premium on your life insurance policy, you can claim it under Section 80C.
(ii) Deferred Annuity:
o Deduction for premiums paid on contracts for deferred annuities, which provide for periodic payments at a
future date (typically after retirement).
o Example: Paying premiums for a pension plan (deferred annuity) qualifies for this deduction.
(iii) Deduction from Salary for Deferred Annuity:
o If the government deducts a portion of salary to contribute to a deferred annuity for the individual or their
family, that amount is deductible, provided it does not exceed 20% of the salary.
o Example: If your salary is ₹5,00,000, and ₹50,000 is deducted for an annuity, the ₹50,000 is eligible for
deduction.
(iv) Provident Fund Contributions:
o Contribution to any provident fund under the Provident Fund Act, 1925 is eligible.
o Example: If you contribute ₹30,000 to your Employees' Provident Fund (EPF), you can claim it under Section
80C.
(v) Central Government Provident Fund:
o Contribution to a provident fund set up by the Central Government is eligible for deduction.
o Example: If you contribute ₹20,000 to the Central Government Employees Provident Fund (CGEPF), it is
deductible.
(vi) Recognized Provident Fund:
o Contributions to a recognized provident fund (like EPF) qualify for deductions.
o Example: Contributions made to EPF by the employee are eligible.
(vii) Approved Superannuation Fund:
o Contributions made by the employee to an approved superannuation fund are deductible.
o Example: If your company contributes to an approved superannuation fund for you, you can claim the
deduction.
(viii) Subscription to Central Government Securities or Deposit Scheme:
o Contributions to any specified deposit schemes or government securities qualify for deduction.
o Example: Subscription to National Savings Certificates (NSC) or Public Provident Fund (PPF) qualifies.
(ix) Savings Certificates:
o Subscription to specified government savings certificates (e.g., NSC) qualifies for deduction.
o Example: Buying an NSC worth ₹40,000 can be claimed under Section 80C.
(x) Unit-linked Insurance Plan (ULIP):
o Contribution to ULIPs, which combine insurance and investment, is deductible.
o Example: If you contribute ₹15,000 to a ULIP, you can claim it under Section 80C.
(xi) Contribution to LIC Mutual Fund ULIP:
o Contribution to an LIC Mutual Fund ULIP is also deductible.
o Example: ₹10,000 contribution to LIC Mutual Fund ULIP qualifies for the deduction.
(xii) Annuity Plan of LIC or Other Insurers:
o Premiums paid to a specified annuity plan by Life Insurance Corporation (LIC) or other insurers qualify for
deduction.
o Example: Contributions to an LIC annuity plan qualify for this deduction.
(xiii) Subscription to Mutual Fund Units:
o Subscription to eligible mutual funds as specified by the government qualifies.
o Example: ₹50,000 invested in a government-approved mutual fund qualifies for this deduction.
(xiv) Pension Fund Contributions:
o Contribution to pension funds (e.g., mutual funds) is deductible.
o Example: ₹30,000 contribution to a pension fund qualifies for the deduction.
(xv) National Housing Bank Contribution:
o Contributions to certain schemes by the National Housing Bank are eligible for deduction.
o Example: ₹25,000 contribution to a housing scheme qualifies for the deduction.
(xvi) Public Sector Company’s Housing Scheme:
o Contributions to deposit schemes of public sector companies or housing authorities for house construction or
purchase are deductible.
o Example: If you contribute ₹20,000 to a public sector housing scheme, it qualifies.
(xvii) Tuition Fees:
 o Payments made as tuition fees to universities, colleges, or schools for full-time education of children qualify for
deduction.
o Example: If you pay ₹50,000 as tuition fees for your child's education, it can be deducted.
(xviii) Residential Property Purchase or Construction:
o Payments made for purchasing or constructing a house (including repayments of housing loans) qualify for
deduction.
o Example: Repayments towards a home loan (e.g., ₹40,000) can be claimed.
(xix) Subscription to Eligible Equity Shares/Debentures:
o Investment in eligible equity shares or debentures can be deducted.
o Example: ₹20,000 invested in the eligible capital of a public company qualifies.
(xx) Subscription to Mutual Fund Units (Equity):
o Subscription to mutual fund units issued by eligible companies also qualifies for deduction.
o Example: ₹15,000 invested in eligible mutual fund units qualifies.
(xxi) Term Deposit for 5+ Years with Scheduled Banks:
o Fixed deposits with a tenure of 5 or more years in scheduled banks are eligible.
o Example: ₹30,000 invested in a 5-year fixed deposit with a scheduled bank qualifies.
(xxii) Bonds Issued by NABARD:
o Subscription to bonds issued by the National Bank for Agriculture and Rural Development (NABARD)
qualifies for deduction.
o Example: ₹25,000 invested in NABARD bonds qualifies for the deduction.
(xxiii) Senior Citizens Savings Scheme:
o Deposits made under the Senior Citizens Savings Scheme (SCSS) are eligible.
o Example: ₹20,000 deposited in SCSS qualifies for deduction.
(xxiv) Post Office Time Deposit (5 years):
o Time deposits with a tenure of five years in a post office qualify for deduction.
o Example: ₹30,000 invested in a 5-year post office time deposit qualifies.
3. Premiums on Life Insurance (Sub-sections 3 & 3A):
o The provisions apply only to premiums not exceeding 20% of the actual capital sum assured for policies issued
before March 31, 2012.
o After April 1, 2012, the limit is reduced to 10% of the capital sum assured, with some exceptions for disabled
persons or those suffering from specified ailments.
4. Persons Eligible for Deductions (Sub-section 4):
o For life insurance, annuity, and other contributions, the eligible persons include the taxpayer, their spouse, and
children.
o Example: A person can claim deductions for premiums paid on their life insurance as well as their spouse’s and
children’s insurance.
5. Penalties for Premature Termination (Sub-section 5):
o If the taxpayer terminates their policy or scheme before completing specified years (e.g., 2 years for a life
insurance policy), the earlier deductions will be taxed.
o Example: If you stop contributing to an insurance plan before completing 2 years, the amount earlier deducted
will be treated as income.
6. Sale of Shares/Debentures (Sub-section 6):
o If shares or debentures purchased with the benefit of Section 80C are sold within 3 years, earlier deductions will
be treated as income.
o Example: If you buy shares with tax benefits and sell them within 3 years, the amount deducted earlier will be
added to your income.
7. Premature Withdrawal from Senior Citizens or Post Office Schemes (Sub-section 6A):
o Withdrawal from deposits under the Senior Citizens Savings Scheme or Post Office schemes before 5 years
results in earlier deductions being taxed.
o Example: If you withdraw funds from a Senior Citizens Savings Scheme before 5 years, the deduction is
reversed.
8. Technical Terms:
o Scheduled Bank: A bank that is included in the second schedule of the Reserve Bank of India Act, 1934.
o Capital Sum Assured: The minimum amount payable on the happening of the insured event (e.g., death) under
an insurance policy.
Summary Example:
Suppose you are an individual who pays:
  ₹30,000 as life insurance premium
 ₹50,000 for tuition fees of your child
 ₹40,000 towards a home loan repayment
 ₹20,000 to a public provident fund (PPF)
The total deduction you can claim under Section 80C is ₹1,50,000, provided that the combined total of these sums does not
exceed the limit.

Section 80CCC: Deduction for Contribution to Certain Pension Funds

1. Applicability:
This section applies to individuals who:
 Have paid or deposited money out of their taxable income in the previous year to purchase or maintain an annuity plan.
 The annuity plan must be from the Life Insurance Corporation (LIC) of India or any other insurer.
 The purpose of the plan must be to receive a pension from a fund referred to in Section 10(23AAB).
2. Deduction Limit:
 The deduction allowed is up to INR 1,50,000 in a financial year.
 The deduction excludes:
o Interest accrued.
o Bonus credited to the account.
Example: If a person deposits INR 1,20,000 in an annuity plan during a financial year, they can claim a deduction of INR
1,20,000 from their taxable income.
3. Taxability of Amount Received:
If any amount is withdrawn or received from the pension plan, it becomes taxable:
 On surrender of the plan (partial or full): The received amount, including interest or bonus, is added to the income of
the year in which it is received.
 As pension: The pension amount received is taxed as income in the year of receipt.
Example: If the individual receives INR 2,00,000 upon surrender of the plan, the entire amount is taxable in that year.
4. Restrictions on Dual Benefits:
 If a deduction is claimed under Section 80CCC:
o No rebate is allowed under Section 88 (for years before 1 April 2006).
o No deduction is allowed under Section 80C (for years after 1 April 2006).

Section 80CCD: Deduction for Contribution to Pension Scheme of Central Government

1. Applicability:
This section is applicable to:
 Central Government employees who joined on or after 1 January 2004.
 Employees of other organizations.
 Any other individual.
2. Deduction Under Sub-Section (1):
 Deduction is allowed for contributions made to a notified pension scheme.
 Deduction limit:
o For salaried individuals: Up to 10% of salary (including dearness allowance but excluding other allowances
and perquisites).
o For non-salaried individuals: Up to 20% of gross total income.
Example:
 A salaried employee earning INR 10,00,000 contributes INR 1,00,000. They can claim a deduction of INR 1,00,000
(10% of salary).
 A self-employed person earning INR 5,00,000 contributes INR 1,00,000. They can claim a deduction of INR 1,00,000
(20% of gross total income).
3. Additional Deduction Under Sub-Section (1B):
 An extra deduction of up to INR 50,000 is allowed for contributions made to the pension scheme.
 This is over and above the deduction under Sub-Section (1).
 Condition: This deduction cannot be claimed for amounts already deducted under Sub-Section (1).
Example:
 If an individual contributes INR 2,00,000, they can claim:
o INR 1,50,000 under Sub-Section (1) (subject to limits).
o INR 50,000 under Sub-Section (1B).
4. Employer Contributions Under Sub-Section (2):
 If an employer contributes to the individual’s pension scheme:
o The employee can claim a deduction equal to the employer’s contribution, up to 10% of salary.
Example: If an employer contributes INR 1,00,000 to an employee’s pension scheme, the employee can claim INR 1,00,000 as a
deduction (subject to the 10% limit).
5. Taxability of Withdrawals Under Sub-Section (3):
Amounts withdrawn or received are taxable if:
 The pension scheme is closed, or the individual opts out of the scheme.
 Pension is received from an annuity purchased after closure or opting out.
 Exception: Amount received by the nominee upon the death of the assessee is not taxable.
Example: If an individual receives INR 3,00,000 upon closing the scheme, the entire amount is taxable in that year.
6. Restrictions on Dual Benefits (Sub-Section 4):
 If a deduction is claimed under Section 80CCD:
o No rebate under Section 88 is allowed (for years before 1 April 2006).
o No deduction under Section 80C is allowed (for years after 1 April 2006).
7. Special Provision (Sub-Section 5):
 If the withdrawal amount is reinvested to purchase an annuity plan in the same year, it is not treated as received and thus
not taxable.
8. Definition of Salary:
 Salary includes basic pay and dearness allowance (if part of terms of employment).
 Salary excludes other allowances and perquisites.

Practical Example: Suppose a salaried individual earns INR 12,00,000 and contributes INR 1,20,000 to a notified pension
scheme. The employer also contributes INR 1,00,000. The deductions available are:
 INR 1,20,000 under Section 80CCD(1) (10% of salary).
 INR 50,000 under Section 80CCD(1B) (additional contribution).
 INR 1,00,000 under Section 80CCD(2) (employer contribution).
 Total deduction = INR 2,70,000.

Section 80D: Deduction in Respect of Health Insurance Premiums

Sub-section (1): Eligibility

 Who can claim?
o Individual: For themselves, their spouse, dependent children, or parents.
o HUF: For any member of the HUF.
 Conditions:
o Payment should be made during the financial year.
o Payment must be made from income chargeable to tax.

Sub-section (2): Deduction for Individuals

The deductions for an individual are divided as follows:
(a) Insurance for Self or Family
 Covers the individual, spouse, and dependent children.
 Maximum deduction: ₹25,000.
 Includes payment for:
1. Health insurance premiums.
2. Contributions to the Central Government Health Scheme (CGHS) or other notified schemes.
3. Expenses for preventive health check-ups (up to ₹5,000, part of ₹25,000).
Example:
If Mr. A pays ₹18,000 as health insurance premium for himself and ₹4,000 for a preventive health check-up, he can claim
₹22,000.
(b) Insurance for Parents
 Covers health insurance or preventive health check-ups for parents (dependent or not).
 Maximum deduction: ₹25,000.
Example:
If Mr. A pays ₹15,000 for his parents' health insurance and ₹5,000 for a check-up, he can claim ₹20,000.
(c) & (d) Medical Expenses for Senior Citizens
 Deduction for medical expenses instead of insurance premiums:
o For self or family: Up to ₹50,000.
o For parents: Up to ₹50,000.
 Applies only if the senior citizen is not covered by health insurance.
Example:
If Mr. A's 65-year-old father incurs ₹45,000 in medical expenses and has no health insurance, Mr. A can claim ₹45,000 under this
provision.
Overall Limits for Individuals:
 Self, family, and parents: ₹50,000 per category (if senior citizens are covered).

Sub-section (2A): Preventive Health Check-ups

 Maximum deduction for preventive health check-ups: ₹5,000.
 Includes payments made in cash.
Example:
If Mr. B pays ₹3,000 for a check-up in cash and ₹20,000 as a premium (non-cash), he can claim ₹23,000.

Sub-section (2B): Mode of Payment

 Health insurance premiums and medical expenses: Payment must be made through non-cash modes (e.g., online
banking, credit card).
 Preventive health check-ups: Can be paid in cash.

Sub-section (3): Deduction for HUFs

 Health insurance premium or medical expenses for HUF members.
 Maximum deduction:
o ₹25,000 for premiums.
o ₹50,000 for medical expenses (for senior citizens without insurance).
Example:
If an HUF pays ₹30,000 for the medical expenses of a senior citizen member, it can claim ₹30,000 as a deduction.

Sub-section (4): Enhanced Limits for Senior Citizens

 If the insured person is a senior citizen (60 years or above):
o The limit increases from ₹25,000 to ₹50,000.
Example:
If Mr. C pays ₹40,000 for his 62-year-old father's health insurance, he can claim ₹40,000 as a deduction.

Sub-section (4A): Lump Sum Premium Payment

 If the premium is paid as a lump sum for multiple years, the deduction is divided proportionately across those years.
Example:
If Mr. D pays ₹1,20,000 for a 3-year policy, he can claim ₹40,000 each year.

Sub-section (5): Approved Insurance Plans

 The insurance must be provided under schemes:
1. By the General Insurance Corporation of India or other government-approved entities.
2. By insurers approved by the Insurance Regulatory and Development Authority of India (IRDAI).

Summary of Deduction Limits

Category Regular (Below 60) Senior Citizen (60 & above)
Self + Family Premium ₹25,000 ₹50,000
Parents’ Premium ₹25,000 ₹50,000
Medical Expenses (No Insurance) NA ₹50,000
Preventive Health Check-ups Up to ₹5,000 (included in above limits)

Practical Examples
1. Mr. A (age 40) pays ₹20,000 for his health insurance and ₹30,000 for his senior citizen father’s health insurance.
Deduction: ₹20,000 + ₹30,000 = ₹50,000.
2. Mrs. B (age 65) incurs ₹45,000 in medical expenses for herself (no insurance) and ₹50,000 for her 90-year-old mother.
Deduction: ₹45,000 + ₹50,000 = ₹95,000.
3. HUF pays ₹30,000 as premium for its members and ₹40,000 as medical expenses for a senior citizen member
without insurance.
Deduction: ₹30,000 + ₹40,000 = ₹70,000 (capped at ₹50,000 for senior citizens).

Section 80E: Deduction in Respect of Interest on Loan Taken for Higher Education
Eligibility Criteria
1. Who can claim?
o Only individuals are eligible for this deduction (not HUFs or other entities).
2. Purpose of Loan:
o The loan must be taken for higher education, which includes studies pursued after completing Senior
Secondary Examination (12th grade or equivalent).
3. Loan Coverage:
o The loan can be taken for:
 Self
 Relative (spouse, children, or a student for whom the individual is a legal guardian).
4. Lenders:
o Loan must be obtained from:
 A financial institution (e.g., a bank covered under the Banking Regulation Act, 1949).
 An approved charitable institution (registered under section 10(23C) or section 80G).

Quantum of Deduction
 Amount: The deduction is allowed only for the interest paid on the loan, not the principal amount.
 Period:
o The deduction starts from the initial assessment year (the year interest payments begin).
o It continues for 7 consecutive assessment years or until the full interest is repaid, whichever is earlier.

Illustrative Examples
1. Case 1: Deduction for Self
o Mr. B takes a loan of ₹10,00,000 for an MBA. In the first year, he pays ₹80,000 as interest.
o He can claim ₹80,000 as a deduction under Section 80E.
2. Case 2: Deduction for Relative
o Mrs. C takes a loan for her daughter’s engineering degree. She pays ₹1,20,000 as interest in the first year.
o She can claim ₹1,20,000 as a deduction.
3. Case 3: Duration Limit
o Mr. D starts paying interest in FY 2024-25 and continues until FY 2032-33.
o Deduction is allowed only for 7 years (FY 2024-25 to FY 2030-31).

Summary
Aspect Details
Who can claim? Individuals.
Loan purpose Higher education for self or relative.
Deductible amount Interest paid on the loan (no limit on the amount).
Lenders Financial institutions or approved charitable institutions.
Duration 8 years total (1 initial year + 7 subsequent years) or until full payment.
Higher education scope Post-12th grade studies (India or abroad).
By leveraging Section 80E, taxpayers can reduce their tax burden while investing in quality education.

Section 80GGA: Deduction in Respect of Donations for Scientific Research or Rural Development

Eligibility Criteria
1. Who can claim?
o Any taxpayer (individual, HUF, or any other entity).
o Exclusion: Taxpayers whose gross total income includes income under the head “Profits and Gains of
Business or Profession” are not eligible.
2. Mode of Payment:
o Non-Cash Payments: Any sum exceeding ₹10,000 must be paid via a mode other than cash (e.g., cheque,
electronic transfer).

Deductible Donations
1. Scientific Research Donations:
o Research Association: Contributions made to a research association focused on scientific research.
o Institutions: Donations to universities, colleges, or institutions approved under Section 35(1)(ii).
Example: Donating to a university conducting government-approved cancer research.
2. Social Science/Statistical Research Donations:
o Payments to associations, universities, colleges, or institutions conducting research in social science or
statistical research, approved under Section 35(1)(iii).
Example: Donating to an institution researching social impact policies.
3. Rural Development Donations:
o Contributions made to associations or institutions carrying out government-approved rural development
programs under Section 35CCA.
o Donations for training individuals in implementing such rural programs.
4. Eligible Project/Scheme Donations:
o Payments made to:
 Public sector companies.
 Local authorities.
 Associations or institutions approved by the National Committee for carrying out eligible projects or
schemes under Section 35AC.
Explanation:
o “Eligible project or scheme” includes initiatives such as infrastructure development in rural areas.
5. Natural Resources and Afforestation Donations:
o Contributions made on or before March 31, 2002, to:
 Associations or institutions approved under Section 35CCB for conservation of natural resources or
afforestation.
 Notified funds for afforestation.
6. Special Funds Donations:
o Payments made to the Rural Development Fund or National Urban Poverty Eradication Fund, both set up
and notified by the Central Government under Section 35CCA.

Key Restrictions
1. Prohibition on Double Deduction:
o If a deduction is claimed under Section 80GGA, the same donation cannot be claimed under any other section
for the same or any other assessment year.
2. Cash Limit:
o Any donation exceeding ₹10,000 made in cash will not qualify for the deduction.

Illustrative Examples
1. Case 1: Donation for Scientific Research
o Mr. A donates ₹50,000 to a government-approved university conducting cancer research.
o He pays through a cheque.
o He is eligible to claim the full ₹50,000 under Section 80GGA.
2. Case 2: Rural Development Program
o Ms. B donates ₹15,000 in cash to an approved institution for rural development.
o Only ₹10,000 is eligible for deduction as the excess ₹5,000 exceeds the cash limit.
3. Case 3: Business Income Included
o Mr. C, a businessman, earns ₹10 lakh, including ₹5 lakh from business income.
o Since his gross total income includes business income, he cannot claim the deduction under Section 80GGA.

Summary
Aspect Details
Eligible Donors All taxpayers (excluding those with business/professional income).
Eligible Donations Contributions towards scientific research, rural development, and afforestation.
Mode of Payment Non-cash for amounts exceeding ₹10,000.
Donation Recipients Approved associations, institutions, public sector companies, local authorities.
Double Deduction Restriction Deduction cannot be claimed under any other section for the same donation.
Exclusion Not applicable to taxpayers with business/professional income.
Section 80GGA provides a clear framework to incentivize donations for causes with significant societal and environmental
benefits.

Section 80GGB: Deduction in Respect of Contributions by Companies to Political Parties

1. Eligibility:
 o The deduction applies only to Indian companies (foreign companies are not eligible).
2. Contributions Covered:
o Donations made to:
 Registered political parties under Section 29A of the Representation of the People Act, 1951.
 Electoral trusts approved by the Central Government.
3. Mode of Contribution:
o Non-Cash Contributions Only:
 Contributions made in cash are not eligible for deduction.
 Accepted modes include cheques, electronic transfers, or any other banking channel.
4. Definition of "Contribute":
o The term “contribute” is defined as per Section 293A of the Companies Act, 1956:
 It includes direct donations or subscriptions made to a political party or for political purposes.

Tax Implications
1. 100% Deduction:
o The entire amount contributed is allowed as a deduction from the total income of the company.
2. Transparency:
o Companies must disclose these contributions in their financial statements as per regulatory requirements.
3. Non-Cash Mandate:
o This ensures accountability and reduces untraceable cash transactions.

Illustrative Example
1. Case 1: Valid Contribution
o An Indian company donates ₹10 lakh via cheque to a registered political party.
o The company is eligible for a full deduction of ₹10 lakh under Section 80GGB.
2. Case 2: Cash Donation
o An Indian company donates ₹5 lakh in cash to a political party.
o The donation is not eligible for deduction under Section 80GGB due to the cash payment restriction.

Summary Table
Aspect Details
Eligible Entities Indian companies only.
Eligible Contributions Donations to registered political parties or electoral trusts.
Mode of Payment Non-cash (e.g., cheque, bank transfer).
Deduction Limit 100% of the contributed amount.
Exclusion Contributions made in cash.

Section 80GGC: Deduction in Respect of Contributions to Political Parties

Key Provisions
1. Eligible Assessees:
o Any person, including individuals, Hindu Undivided Families (HUFs), firms, and other entities.
o Exclusions:
 Local authorities.
 Artificial juridical persons (e.g., statutory corporations) wholly or partly funded by the
Government.
2. Eligible Contributions:
o Contributions made to:
 A political party registered under Section 29A of the Representation of the People Act, 1951.
 An electoral trust recognized by the Central Government.
3. Mode of Contribution:
o Non-Cash Contributions Only:
 Contributions must be made via banking channels, such as cheques, bank drafts, or electronic transfers.
 Cash donations are not allowed for deduction under this section.
4. Definition of Political Party:
o For the purposes of Sections 80GGB and 80GGC, a political party refers to one registered under Section 29A
of the Representation of the People Act, 1951.
Tax Implications
1. 100% Deduction:
o The entire amount contributed is eligible for deduction from the total income.
2. No Monetary Cap:
o Unlike some other deductions, there is no upper limit on the amount that can be claimed under this section.
3. Exclusions:
o Contributions in cash are not eligible for deduction.

Illustrative Example
1. Case 1: Valid Contribution
o Mr. Sharma donates ₹1 lakh via online transfer to a political party registered under Section 29A.
o Mr. Sharma can claim a full deduction of ₹1 lakh under Section 80GGC.
2. Case 2: Cash Donation
o Ms. Rao donates ₹50,000 in cash to a political party.
o The donation is not eligible for deduction under Section 80GGC due to the cash payment restriction.
3. Case 3: Ineligible Assessee
o A government-funded municipal corporation donates ₹2 lakh to a political party.
o The corporation is not eligible to claim a deduction under this section because it is an artificial juridical person
funded by the Government.

Comparison: Section 80GGB vs. Section 80GGC

Aspect Section 80GGB Section 80GGC
Eligible Assessee Indian companies only. All persons except local authorities and govt.-funded entities.
Eligible Contributions To political parties or electoral trusts. To political parties or electoral trusts.
Mode of Payment Non-cash contributions only. Non-cash contributions only.
Deduction Limit 100% of the amount contributed. 100% of the amount contributed.

Advance Tax
Section 207: Liability for Payment of Advance Tax
Sub-section (1):
 Tax Liability in Advance: Tax must be paid in advance during a financial year.
 Applicable Income: The advance tax is computed on the "current income", which refers to the total income of the
assessee (taxpayer) that would be chargeable to tax for the upcoming assessment year.
Sub-section (2): Exceptions to Sub-section (1):
Certain individuals are exempt from advance tax liability if they satisfy the following conditions:
1. Resident Individual: Must be an individual residing in India.
2. No Business or Professional Income: The individual should not have income chargeable under the head “Profits and
Gains of Business or Profession.”
3. Senior Citizens: The individual must be 60 years or older during the previous year (the year before the assessment
year).

Section 208: Conditions of Liability to Pay Advance Tax

 Threshold for Advance Tax: Advance tax is payable if the total tax liability of the assessee for the financial year is
₹10,000 or more.

Section 209: Computation of Advance Tax

1. General Computation Process
The advance tax payable by an assessee is calculated based on the following methods, depending on who makes the computation:
(a) By the Assessee (Self-Assessment):
 The assessee estimates their current income for the financial year.
 Tax is computed at the rates in force for the financial year.
(b) By the Assessing Officer (AO) under Section 210(3):
 The AO uses the higher of the following to calculate tax:
o The latest assessed income from regular assessment.
o The declared income from any recent return filed by the assessee.
(c) Amended Order by AO under Section 210(4):
 Tax is calculated based on:
o Declared income in the latest return filed by the assessee.
o Assessed income from regular assessment for the previous year.
(d) Deduction for TDS/TCS:
 Tax calculated under (a), (b), or (c) is reduced by the amount of tax deductible or collectible at source (TDS/TCS).
  Exception: This reduction is not allowed if the payer failed to deduct or collect the tax as required.

2. Agricultural Income in Advance Tax Computation

If the Finance Act specifies that net agricultural income is to be considered:
 For AO’s Orders (Section 210(3) or 210(4)):
o Net agricultural income is taken from the latest assessed year or from the return of income for the relevant year.
 For Assessee’s Estimate:
o The assessee estimates their net agricultural income for the current financial year.

3. Special Rates for Hindu Undivided Families (HUFs)

If the Finance Act provides separate rates for HUFs with at least one member whose income exceeds the basic exemption limit:
 The AO computes advance tax at such rates when:
o The assessed income of the HUF’s latest year includes such a member’s income exceeding the exemption limit.
o The declared income of the HUF’s previous year includes such a member’s income exceeding the exemption
limit.

Section 210: Payment of Advance Tax by Assessee or in Pursuance of AO’s Order

1. Self-Payment of Advance Tax (Section 210(1))

 Who needs to pay?
Any person liable to pay advance tax under Section 208.
 What to pay?
Advance tax on the current income, calculated as per Section 209.
 When to pay?
On or before the due dates specified in Section 211.

2. Adjustments by Assessee (Section 210(2))

 If an assessee realizes that their current income estimate changes:
o They can increase or reduce the amount of advance tax payable in the remaining instalments.
o This ensures the advance tax aligns with the updated income estimate.
Example:
If you expected an income of ₹10 lakhs earlier but now estimate ₹12 lakhs, you can revise your instalments to pay more.

3. Order by Assessing Officer (Section 210(3))

 The Assessing Officer (AO) can issue a written order for advance tax payment if:
o The assessee has been assessed in the past and is liable to pay advance tax.
o The order must be issued before the last day of February in the financial year.
 The AO specifies the amount and instalments in a notice under Section 156.
Example:
If your assessed income last year was ₹15 lakhs, the AO may calculate your advance tax liability based on this.

4. Amended Orders (Section 210(4))

 If:
o The assessee files a return under Section 139 or responds to a notice under Section 142(1), or
o A new regular assessment is made for a later year,
o The AO can issue an amended order.
 The amended order recalculates advance tax based on the new income details and specifies instalments due after the
amended order's date.
Example:
If your income increases after a new return, the AO may amend the advance tax calculation.

5. Intimation by Assessee (Section 210(5))

 If the assessee believes the advance tax calculated by the AO is too high, they can:
o Send an intimation to the AO in a prescribed form.
o Pay the amount as per their own estimate on the due dates.
Example:
If the AO estimates your tax at ₹1 lakh but your calculation shows ₹80,000, you can inform the AO and pay ₹80,000.

6. Paying a Higher Amount (Section 210(6))

 If the assessee estimates their advance tax liability to be higher than the AO's calculated amount, they must:
o Pay the higher amount on or before the last instalment date specified in Section 211.
Example:
If the AO estimates ₹1 lakh but your updated calculation shows ₹1.2 lakhs, you should pay the additional ₹20,000 in the last
instalment.
Section 211: Instalments of Advance Tax and Due Dates

1. Advance Tax Payment Schedule (Section 211(1))

 Applicable to:
o All assessees liable to pay advance tax as per Section 208, except those covered under Section 44AD(1) or
Section 44ADA(1).
(a) For Regular Assessees (Other than Specified in Clause (b)):
 Advance tax is payable in four instalments during the financial year.
 The due dates and minimum percentages are as follows:
Due Date Minimum Amount Payable
15th June At least 15% of the total advance tax liability.
15th September At least 45% (cumulative), after deducting earlier payments.
15th December At least 75% (cumulative), after deducting earlier payments.
15th March 100% of the total advance tax liability, after adjusting prior payments.
(b) For Assessees Declaring Income Under Section 44AD(1) or 44ADA(1):
 These assessees pay the entire advance tax in one instalment on or before 15th March.
 Special provision: Payments made up to 31st March are also treated as advance tax for the financial year.

2. Impact of Notice of Demand by Assessing Officer (Section 211(2))

 If the notice of demand under Section 156 (issued as per Section 210(3) or 210(4)) is served after the due dates
mentioned above:
o The advance tax becomes payable on or before the remaining due dates after the notice's service date.
Example:
If the notice is served on 20th September, the instalments due on 15th December and 15th March would need to be paid as
specified in the notice.

Section 2(14) – "Capital Asset"

Definition of Capital Asset
1. General Definition:
A capital asset includes property of any kind held by an assessee, whether or not connected to their business or
profession.
Examples: Land, buildings, shares, bonds, trademarks, etc.
2. Specific Inclusion:
Capital assets also include securities held by a Foreign Institutional Investor (FII) that has invested in accordance
with SEBI regulations.

Exclusions from Capital Assets

The following are NOT considered capital assets:
1. Stock-in-trade, consumables, and raw materials:
o These are items used in the ordinary course of business, e.g., inventory in a shop.
2. Personal effects (movable property):
Items meant for personal use by the assessee or their family members.
Examples: Clothes, household furniture, personal vehicles.
Exclusions from personal effects (still considered capital assets):
o Jewellery: Includes ornaments of gold, silver, platinum, or alloys (whether with precious stones or not).
Example: A gold necklace or diamond ring.
o Archaeological collections: Antique items like old coins or artifacts.
o Drawings, paintings, sculptures, or any work of art.
3. Agricultural Land in India:
Agricultural land is excluded unless it is situated in certain areas:
o Within municipal or cantonment board limits with a population of 10,000 or more.
o Within a specific distance from these limits based on population:
 2 km for areas with a population of 10,000–1,00,000.
 6 km for areas with a population of 1,00,000–10,00,000.
 8 km for areas with a population of more than 10,00,000.
Explanation: Population is determined based on the latest available census data.
4. Specific Bonds and Schemes:
o 6.5% Gold Bonds, 1977; 7% Gold Bonds, 1980.
o National Defence Gold Bonds, 1980.
o Special Bearer Bonds, 1991.
o Gold Deposit Bonds (1999) and Gold Monetisation Scheme, 2015.
These bonds are issued by the Central Government and are exempt from being classified as capital assets.
Section 2(42A) - short-term capital asset

A short-term capital asset is a capital asset (as defined under Section 2(14)) held by an assessee for not more than 36 months
immediately preceding its transfer.
Exceptions:
 For certain securities and financial assets, the holding period is reduced to 12 months or 24 months instead of 36
months.
Cases where the Holding Period is Reduced:
1. 12 months (instead of 36 months):
o A security (other than a unit) listed on a recognized stock exchange in India.
o A unit of the Unit Trust of India (UTI).
o A unit of an equity-oriented fund.
o A zero-coupon bond.
2. 24 months (instead of 36 months):
o Unlisted shares of a company.
o Immovable property (land, building, or both).

Explanation 1 – Determining the Holding Period:

This explanation clarifies how to compute the period for which a capital asset is held.
1. Liquidation of a Company (Clause a):
If the asset is a share in a company under liquidation, exclude the period after the company goes into liquidation.
o Example: You purchased shares in a company in Jan 2020. The company went into liquidation in Jan 2022, and
you sold the shares in Jan 2023. Only the period until Jan 2022 is considered.
2. Inherited/Gifted Assets (Clause b):
Include the period for which the previous owner held the asset.
o Example: If your father held land for 10 years before gifting it to you, and you sell it after 2 years, the holding
period is 12 years.
3. Conversion of Stock-in-Trade into Capital Asset (Clause ba):
The period starts from the date of conversion.
o Example: A builder converts land (stock-in-trade) into an investment property. The holding period begins from
the date of conversion.
4. Amalgamation or Demerger (Clause c, g):
Include the period for which the original shares (in the amalgamated/demerged company) were held.
o Example: If you held shares in Company A for 3 years before it merged into Company B, the holding period
includes the time you held Company A shares.
5. Rights Issues (Clause d, e):
o If the rights are subscribed: Count the period from the date of allotment of shares.
o If the rights are renounced: Count the period from the date of offer by the company.
6. Free Allotment of Securities (Clause f):
Count the period from the date of allotment.
o Example: If you receive bonus shares, the holding period begins from the date of allotment.
7. Trading Rights (Clause h):
If trading rights are acquired through demutualization of a stock exchange, include the period for which membership in
the exchange was held.
8. Sweat Equity and Specified Securities (Clause hb):
Count the period from the date of allotment or transfer to the employee.

Explanation 2 – "Security":
The term "security" includes shares, bonds, debentures, and other marketable financial instruments as defined in the Securities
Contracts (Regulation) Act, 1956.

Explanation 3 – "Specified Security" and "Sweat Equity Shares":

 Specified Security: Shares, options, or any financial instrument provided under employee stock option plans (ESOPs).
 Sweat Equity Shares: Shares allotted to employees or directors at concessional rates for their contributions.

Explanation 4 – "Equity-Oriented Fund":

As per Section 112A, an equity-oriented fund primarily invests in equity shares (minimum 65%).

Simplified Examples of Short-term vs. Long-term Capital Assets:

1. Scenario 1:
o You buy listed shares in Jan 2023 and sell them in Dec 2023.
o Holding period = 12 months (short-term capital asset).
2. Scenario 2:
o You acquire unlisted shares in Jan 2020 and sell them in Feb 2022.
o Holding period = 24 months (long-term capital asset).
3. Scenario 3:
o You inherit land in Jan 2018 that was held by your father since Jan 2010. You sell it in Jan 2023.
o Holding period = 13 years (long-term capital asset).