Rule 118 of the Draft Income-tax Rules, 2026 provides the mechanism for granting relief in tax payable under section 206(1) due to the operation of section 206(1)(i). The relief is computed using a prescribed formula: (A-B) – (C-D), where A represents tax payable on current book profits including past income, B represents tax payable excluding such past income, C represents aggregate tax payable for past years after increasing book profits by relevant past income, and D represents aggregate tax payable for those past years without such increase. If the resulting figure is negative, it is deemed to be zero. “Past income” refers to income of earlier years included in current book profit due to an advance pricing agreement under section 168 or secondary adjustment under section 170. Upon granting relief, the tax credit allowed under section 206(1)(m) is correspondingly reduced. The assessee company must claim relief by filing Form No. 53 electronically, uploading a signed printout as specified by the designated tax systems authority, and the form must be verified by the authorised person under section 265.
Extract of Rule No. 118 of Draft Income-tax Rules, 2026
Rule 118
Relief in tax payable under section 206(1) due to operation of section 206(1)(i).
(1) For the purposes of section 206(1)(i), the tax payable by the assessee company under section 206(1), for the tax year referred to in that section, shall be reduced by the following amount, namely:—
(A-B) – (C-D), where,
A = tax payable by the assessee company under section 206(1) on the book profit of the tax year including the past income and where there is no tax payable, the value shall be taken as zero;
B = tax payable by the assessee company under section 206(1) on the book profit of the tax year excluding the past income and where there is no tax payable, the value shall be taken as zero;
C = Aggregate of tax payable by the assessee company under section 206(1) on the book profit of past year or years, referred to in item D, after increasing the book profit with the relevant past income of such year or years and where there is no tax payable, the value shall be taken as zero.
D = Aggregate of tax payable by the assessee company under section 206(1) on the book profit of those past year or years to which the past income belongs and where there is no tax payable, the value shall be taken as zero;
(2) If the value of (A-B) – (C-D) is negative, its value shall be deemed to be zero.
(3) For the purposes of sub-rule (1) past income shall be the amount of income of past year or years included in the book profit of the tax year on account of an advance pricing agreement entered into by the assessee under section 168 or on account of secondary adjustment required to be made under section 170.
(4) On application of provision of sub-rule (1), the tax credit allowed to the assessee under section 206 (1)(m) shall be reduced by the amount allowed under sub-rule (1).
(5) A claim for relief under section 206(1)(i) shall be made by an assessee company in Form No. 53 by uploading signed printout of said Form in the manner specified by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, and which shall be verified by the person who is authorised to verify the return of income of the assessee company under section 265 of the Act.
