Income Tax Provisions applicable to business entities

b) Any sum received or receivable for not sharing any know-how, patent, copyright, trademark, licence, franchise, or any other business or commercial right or information or technique likely to assist in the manufacture of goods or provision of services.

• Remission or cessation of liability in respect of any loss, expenditure, or trading liability incurred by the taxpayers
• Recovery of trading liability by the successor which was allowed to the predecessor shall be chargeable to tax in the hands of the successor. Succession could be due to amalgamation or demerger or succession of a firm succeeded by another firm or company, etc.
• Any liability which is unilaterally written off by the taxpayer from the books of accounts shall be deemed as remission or cessation of such liability and shall be chargeable to tax.

However, no such adjustment is required to be made if value adopted for stamp duty purposes does not exceed 110% of the sale consideration.

Note:

To boost the demand in the real-estate sector and to enable the real-estate developers to sell their unsold inventory at a lower rate, the safe harbour limit is increased from existing 10% to 20% in case of transfer of residential property during the period from 12-11-2020 to 30-06-2021 by way of the first-time allotment to any person. Further, the consideration received or accruing as a result of such transfer should not exceed Rs. 2 crores.

In case of contract for providing services with duration of not more than 90 days, the profits and gains shall be determined on basis of project completion method.

While as in case of contract for providing services with indeterminate number of acts over a specified period of time shall be determined on basis of straight line method.

With effect from Assessment Year 2020-21, the Finance (No. 2) Act, 2019 has covered ‘Deposit Taking NBFCs’ and ‘Systemically Important Non-deposit Taking NBFCs’ in the ambit of 43D. Hence, such NBFCs shall be able to recognize interest on bad and doubtful debts in the year in which it is credited to Profit and Loss A/c or year in which it is actually received, whichever happens earlier.

Deposit Taking NBFC’ means a NBFC which is accepting or holding public deposits and is registered with the RBI.

‘Systemically Important Non-deposit Taking NBFC’ means a NBFC which is not accepting or holding public deposits and having total assets of not less than Rs. 500 crore as per the last audited balance sheet and is registered with the RBI.

With effect from Assessment Year 2024-25, the Finance Act, 2023 has substituted the word ‘a Deposit-Taking NBFC’ or ‘a Systemically Important Non-Deposit-Taking NBFC’ to ‘such class of NBFC as may be notified by the Central Government’.

i) The subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of Section 43;

ii) The subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be.

i) buildings, machinery, plant or furniture, being tangible assets;

ii) know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature not being goodwill of business or profession, being intangible assets

Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, the deduction in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset.

Note:

Taxpayers engaged in the business of generation or generation and distribution of power shall have the option to claim depreciation either on basis of straight line basis method or written down value method on each block of asset.

i) buildings, machinery, plant or furniture, being tangible assets;

ii) know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature not being goodwill of business or profession, being intangible assets

Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, the deduction in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset.

(subject to certain conditions)

Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, then deduction of additional depreciation would be restricted to 50% in the year of acquisition and balance 50% would be allowed in the next year

– manufacture or production of any article or thing; or

– generation, transmission or distribution of power (if taxpayer is not claiming depreciation on basis of straight line method)

(Subject to certain conditions)

Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, then deduction of additional depreciation would be restricted to 50% of actual cost in the year of acquisition and balance 50% would be allowed in the next year

Note:

1. Manufacturing unit should be set-up on or after 1st day of April, 2015.

2. New plant and machinery acquired and installed during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020

Note:-

1) New asset should be acquired and installed during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020.

2) Manufacturing unit should be set-up on or after 1st day of April, 2015.

3) Deduction shall be allowed under Section 32AD in addition to deduction available under Section 32AC if assessee fulfils the specified conditions

a) Amount deposited in account with National Bank for Agricultural and Rural Development (NABARD) or in Deposit Account of Tea Board, Coffee Board or Rubber Board in accordance with approved scheme; or

b) 40% of profits from such business before making any deduction under section 33AB and before adjusting any brought forward loss.

(Subject to certain conditions)

a) Amount deposited in Special Account with SBI/Site Restoration Account; or

b) 20% of profits from such business before making any deduction under section 33ABA and before adjusting any brought forward loss.

(Subject to certain conditions)

Expenditure on scientific research within 3 years before commencement of business (in the nature of purchase of materials and salary of employees other than perquisite) is allowed as deduction in the year of commencement of business to the extent certified by prescribed authority.

Capital expenditure incurred within 3 years before commencement of business is allowed as deduction in the year of commencement of business.

Note:

i. Capital expenditure excludes land and any interest in land;

ii. No depreciation shall be allowed on such assets.

The payment should be made with the specified direction that the sum shall be used in a scientific research undertaken under an approved programme.

Expenditure on scientific research in relation to Drug and Pharmaceuticals shall include expenses incurred on clinical trials, obtaining approvals from authorities and for filing an application for patent.

Note:

i. Company should enter into an agreement with the prescribed authority for co-operation in such research and development and fulfils conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed.

Note:

If spectrum fee is actually paid before the commencement of business, the deduction will be available from the year in which business is commenced.

Note:-

No deduction in any A.Y. commencing on or after the 1st day of April, 2018

a) Setting up and operating a cold chain facility

b) Setting up and operating a warehousing facility for storage of agricultural produce

c) Building and operating, anywhere in India, a hospital with at least 100 beds for patients

d) Developing and building a housing project under a notified scheme for affordable housing

e) Production of fertilizer in India

(Subject to certain conditions)

100% of capital expenditure will be allowed to be deducted from the assessment year 2018-19 onwards

Note: If such specified businesses commence operations on or before 31-03-2012 but after prescribed dates, deduction shall be limited to 100% of capital expenditure.

Note: No deduction of any capital expenditure above Rs 10,000 shall be allowed if it is incurred in cash.

a) Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network;

b) Building and operating, anywhere in India, a hotel of two-star or above category;

c) Developing and building a housing project under a scheme for slum redevelopment or rehabilitation

d) Setting up and operating an inland container depot or a container freight station

e) Bee-keeping and production of honey and beeswax

f) Setting up and operating a warehousing facility for storage of sugar

g) Laying and operating a slurry pipeline for the transportation of iron ore

h) Setting up and operating a semi-conductor wafer fabrication manufacturing unit

i) Developing or maintaining and operating, or developing, maintaining and operating a new infrastructure facility

(Subject to certain conditions)

Note: No deduction of any capital expenditure above Rs 10,000 shall be allowed if the payment for such expenditure is made otherwise than by an account payee cheque/draft or ECS or through prescribed electronic mode of payment.

Note: Such deduction is available to Indian company in case of following business, namely;-

i) Business of laying and operating a cross-country natural gas or crude or petroleum oil pipeline network

ii) Developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility.

a) National Fund for Rural Development; and

b) Notified National Urban Poverty Eradication Fund

Note:

(i) No deduction shall be allowed to a company engaged in manufacturing alcoholic spirits or tobacco products.

*Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission

Note:-

However, if amount of debt or part thereof has been taken into account in computing the income of assessee on basis of income computation and disclosure standards notified under Section 145(2) without recording the same in accounts then, such debt shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable. It shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts.

Note

Deduction in respect of bad debts actually written off under section 36(1)(vii) shall be limited to that amount of bad debts which exceed the provision for bad and doubtful debts created under section 36(1)(viia).

(a) In case of scheduled and non-scheduled banks: Sum not exceeding aggregate of 8.5% of total income (before any deductions under this provision and Chapter VI-A) and 10% of aggregate average advances made by rural branches of such bank;

(b) In case of Financial Institutions: Up to 5% of total income before any deductions under this provision and Chapter VI-A; and

(c) In case of foreign banks: Up to 5% of total income before any deductions under this provision and Chapter VI-A

(d) In case of non-banking financial company: Up to 5% of total income before any deduction under this provision and chapter VI-A

a) Financial Corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India; or

b) Public company registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of residential houses in India.

[Subject to certain conditions]

a) Amounts transferred to special reserve account

b) 20% of profits derived from eligible business

c) 200% of paid-up capital and general reserve (on last day of previous year) minus balance in special reserve account (on first day of previous year)

2) Capital expenditure shall be allowed as deduction in five equal installment in five years

a) Actual purchase price of sugarcane, or

b) Price of sugarcane fixed or approved by the Government

Note: With effect from assessment year 2022-23, a new Explanation 3 has been inserted in section 37(1) to clarify that expenditure incurred to provide perquisite, in whatever form to any person, irrespective of whether the recipient is engaged in any business or profession, where the acceptance of such benefit or perquisite is a violation of any rule, law or regulation, which governs the recipient, shall be deemed to have not been incurred for business or profession and accordingly, the deduction for the same shall not be available. Furthermore, the expenditure, whether constituting an offence as per the prevailing laws in India or outside India, or prohibited by any law in force – whether in India or outside India, shall not be eligible for deduction under section 37(1).

Where deductor has failed to deduct the tax and he is not deemed to be an assessee in default under first proviso to section 201(1), then it shall be deemed that the deductor has deducted and paid the tax on the date on which the payee has furnished his return of Income.

However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.

However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.

Where deductor has failed to deduct the tax and he is not deemed to be an assessee in default under first proviso to section 201(1), then it shall be deemed that the deductor has deducted and paid the tax on the date on which the payee has furnished his return of Income.

However, where in respect of any such sum, Equalisation levy is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.

Note: This provision has been inserted by the Finance Act, 2016, w.e.f. 1-6-2016

Note: Tax shall include ‘surcharge or cess’.

1) Salary, bonus, commission or remuneration paid to non-working partners;

2) Remuneration or interest paid to the partners is not in accordance with the terms of the partnership deed;

3) Remuneration or interest to partners is in accordance with the terms of the partnership deed but relates to any period prior to the date of the deed;

4) Interest to partners is in accordance with the terms of the partnership deed but exceeds 12% per annum;

5) Remuneration to partners is in accordance with the terms of the partnership deed but exceeds the following permissible limit:

a) On first Rs. 3 Lakhs of book profit or in case of loss – Rs. 1,50,000 or 90% of book profit, whichever is more;

b) On the balance of the book profit – 60% of book profit

Gratuity actually paid (or payable) during the year and contribution to approved gratuity fund is allowed as deduction.

a) Any infructuous exploration expenditure

b) Expenditure on drilling or exploration activities or services, etc.

c) Allowance in relation to depletion of mineral oil, etc.

a) 5% of adjusted total income*

b) Head office exp. as attributable to business or profession of taxpayer in India

* In case adjusted total income of the assessee is a loss, adjusted total income shall be substituted by average adjusted total income

** Adjusted total income or average adjusted total income shall be computed after prescribed adjustments i.e. unabsorbed depreciations, carry forward losses, etc.

(Subject to certain conditions and circumstances)

(Subject to certain conditions and circumstances)

2) If income from business or profession exceeds Rs. 2,50,000 in any one of the three years immediately preceding the previous year

Threshold limit of Rs. 1 crore shall be increased to Rs. 10 crore in case where the cash receipt and payment made during the year does not exceed 5% of total receipt or payment the business; or

2) If gross receipts exceeds Rs. 50 Lakhs in any previous year, in case of profession.

Note:

The provision of this section is not applicable to the person, who declares profits and gains in accordance with presumptive taxation Scheme under Section 44AD/44ADA.

Note: If the amount of cash received during the previous year does not exceed 5% of the total turnover or gross receipt of such year then the threshold limit for total turnover or gross receipt shall be taken as Rs. 3,00,00,000 instead of Rs. 2,00,00,000.

Note: If an assessee opts out of the presumptive taxation scheme, after a specified period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter. [section 44AD(4)]

(Subject to conditions)

Note: Presumptive income shall be calculated at rate of 6% in respect of total turnover or gross receipts which is received by an account payee cheque or draft or use of electronic clearing system or through any other electronic mode as may be prescribed.

Note: If the amount of cash received during the previous year does not exceed 5% of the total turnover or gross receipt of such year then the threshold limit for total turnover shall be taken as Rs. 3 crore instead of Rs. 2 crore. The receipts through the mode of cheque or a bank draft which is not an account payee, shall be considered a receipt in cash for this purpose.

Note:If the amount of cash received during the previous year does not exceed 5% of the total gross receipt of such year then the threshold limit for total gross receipt shall be taken as Rs. 75,00,000 instead of Rs. 50,00,000.

(Subject to conditions)

Note: if the amount of cash received during the previous year does not exceed 5% of the total gross receipt of such year then the threshold limit for total gross receipt shall be taken as Rs. 75,00,000 instead of Rs. 50,00,000. The receipts through the mode of cheque or a bank draft which is not an account payee, shall be considered a receipt in cash for this purpose.

Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by assessee.

For Other Goods Vehicle:

Rs. 7,500 for every month or part of a month during which the goods carriage is owned by assessee.

Note: ‘Heavy goods vehicle’ means goods carriage vehicle the gross vehicle weight of which exceeds 12,000 kilograms.

– in case of individual, on life of assessee, assessee’s spouse and any child of assessee

– in case of HUF, on life of any member of the HUF

■ Sum paid under a contract for a deferred annuity :

– in case of individual, on life of the individual, individual’s spouse and any child of the individual (however, contract should not contain an option to receive cash payment in lieu of annuity)

– in case of HUF, on life of any member of the HUF

■ Sum deducted from salary payable to Government servant for securing deferred annuity or making provision for his wife/children [qualifying amount limited to 20% of salary]

■  Contributions by an individual made under Employees’ Provident Fund Scheme

■ Contribution to Public Provident Fund Account in the name of:

– in case of individual, such individual or his spouse or any child of such individual

– in case of HUF, any member of HUF

■ Contribution by an employee to a recognised provident fund

■ Contribution by an employee to an approved superannuation fund

■ Subscription to any notified security or notified deposit scheme of the Central Government. For this purpose, Sukanya Samriddhi Account Scheme has been notified vide Notification No. 9/2015, dated 21.01.2015. Any sum deposited during the year in Sukanya Samriddhi Account by an individual would be eligible for deduction.

■ Amount can be deposited by an individual or in the name of girl child of an individual or in the name of the girl child for whom such an individual is the legal guardian.

■ Subscription to notified savings certificates [National Savings Certificates (VIII Issue)]

■ Contribution for participation in unit-linked Insurance Plan of UTI :

– in case of an individual, in the name of the individual, his spouse or any child of such individual

– in case of a HUF, in the name of any member thereof

■ Contribution to notified unit-linked insurance plan of LIC Mutual Fund [Dhanaraksha 1989]

– in the case of an individual, in the name of the individual, his spouse or any child of such individual

– in the case of a HUF, in the name of any member thereof

■ Subscription to notified deposit scheme or notified pension fund set up by National Housing Bank [Home Loan Account Scheme/National Housing Banks (Tax Saving) Term Deposit Scheme, 2008]

■ Tuition fees (excluding development fees, donations, etc.) paid by an individual to any university, college, school or other educational institution situated in India, for full time education of any 2 of his/her children

■ Certain payments for purchase/construction of residential house property

■ Subscription to notified schemes of (a) public sector companies engaged in providing long-term finance for purchase/construction of houses in India for residential purposes/(b) authority constituted under any law for satisfying need for housing accommodation or for planning, development or improvement of cities, towns and villages, or for both

■ Sum paid towards notified annuity plan of LIC (New Jeevan Dhara/New Jeevan Dhara-I/New Jeevan Akshay/New Jeevan Akshay-I/New Jeevan Akshay-II/Jeewan Akshay-III plan of LIC) or other insurer

■ Subscription to any units of any notified [u/s 10(23D)] Mutual Fund or the UTI (Equity Linked Saving Scheme, 2005)

■ Contribution by an individual to any pension fund set up by any mutual fund which is referred to in section 10(23D) or by the UTI (UTI Retirement Benefit Pension Fund)

■ Subscription to equity shares or debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions

■ Subscription to any units of any approved mutual fund referred to in section 10(23D), provided amount of subscription to such units is subscribed only in ‘eligible issue of capital’ referred to above.

■ Term deposits for a fixed period of not less than 5 years with a scheduled bank, and which is in accordance with a scheme¹¹ framed and notified.

■ Subscription to notified bonds issued by the NABARD.

■ Deposit in an account under the Senior Citizen Savings Scheme Rules, 2004 (subject to certain conditions)

■ 5-year term deposit in an account under the Post Office Time Deposit Rules, 1981 (subject to certain conditions)

■ Contribution to specified account of the pension scheme referred to in 80CCD, in case of central Government employee.

Contribution made by employer shall also be allowed as deduction under 80CCD(2) while computing total income of the employee. However, amount of deduction could not exceed 14% of salary where contribution is made by central/state government and 10% of salary, where contribution is made by any other employee.

■  specified person means:

– In case of Individual – self, spouse, dependent children or parents

– In case of HUF – Any member thereof

■  Deduction for preventive health check-up shall not exceed in aggregate Rs. 5,000.

■  Payment on account of preventive health check-up may be made in cash.

No deduction under this section shall be available to an enterprise which starts the development or operation and maintenance of the infrastructure facility on or after the 1st day of April, 2017.

No deduction under this section shall be available to an assessee, being a developer, where the development of Special Economic Zone begins on or after the 1st day of April, 2017.

No deduction shall be available to an enterprise which commence the business activity on or after 1-4-2017.

(a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the specified period.

(b) which has begun or begins to manufacture or produce any article or thing specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the specified period

Additional employee cost means total emoluments paid or payable to additional employees employed during the previous year.

Deduction shall be allowed for first three Assessment Years including the Assessment Year relevant to previous year in which such employment is provided.

(Subject to certain other condition)