Tax on Income from Other Sources under Income-tax Act, 1961

The provisions relating to “Income from Other Sources” under the Income-tax Act, 1961 establish a comprehensive framework for taxing residual income not covered under other heads such as salary, house property, business, or capital gains. As per Section 56, all such income is chargeable unless specifically exempt. The computation follows Sections 56 to 59 and is based on either cash or mercantile accounting, though certain incomes like dividends and interest on tax refunds are taxed strictly on receipt basis. Key taxable incomes include dividends (with deduction limited to 20% interest expense), winnings from lotteries, gambling, and online games (taxed at 30% without deductions), interest on securities, rental income from plant or machinery, and keyman insurance proceeds. Further, deemed income provisions tax gifts or property received without or for inadequate consideration exceeding ₹50,000, subject to specified exemptions such as gifts from relatives or on marriage. Interest on compensation is taxable on receipt with a 50% deduction, while forfeited advances on transfer of capital assets are also taxable. Compensation on termination is taxed either as salary or under this head depending on the payer. Family pension is taxable with standard deductions. Sections 57 and 58 regulate deductions, allowing only expenses incurred wholly for earning income while disallowing personal expenses, TDS defaults, and gambling-related expenses. Section 59 ensures that recovered deductions are taxed. Overall, the framework ensures broad coverage, prevents tax avoidance, and provides clarity on taxation of miscellaneous receipts.

Introduction

Income from other sources is a residuary head of income, covering all taxable income not classified under salaries, house property, business or profession, or capital gains. Certain incomes are always taxable under this head, including lottery winnings, gifts, and interest on enhanced compensation.

Method of Accounting

Income is computed using the cash or mercantile system, as per Section 145. Certain incomes, such as interim dividends and interest on income-tax refunds, are taxable only on receipt basis, irrespective of the accounting method followed.

Computation of Income

Taxable income under this head is computed as per Sections 56 to 59 and follows Income Computation and Disclosure Standards (ICDS) only if income is computed on the mercantile system of accountingA few specific incomes taxable under this head

1. Dividend Income
   • Taxable in the hands of shareholders.
   • Interest deduction allowed up to 20% of dividend income.
   • No deduction for deemed dividends under Section 2(22)(f).
2. Winnings from Gambling & Online Games
   • Flat tax of 30% applies to winnings from lotteries, horse races, gambling, betting, and online games categorized as lotteries or betting.
   • No deduction for any expenses or losses against such income.
3. Interest on Securities
   • Taxable if not chargeable under business or profession.
   • Taxable at normal tax rate in case of residents.
   • Special concessional tax rates apply to non-residents for certain interest income.
4. Rental Income from Machinery, Plant, or Furniture
   • Taxable under this head if not part of a business.
   • If rented with a building as an inseparable unit, income is taxable as business income or other sources.
5. Keyman Insurance Policy Payouts
   • Any sum received under a keyman insurance policy, including bonuses, is taxable unless taxed under business income or salaries.
6. Interest on Compensation or Enhanced Compensation
   • 50% deduction allowed under Section 57.
   • Taxable only on receipt basis.
7. Advance Money Forfeited on Sale of Capital Asset
   • If a sale fails and advance money is forfeited, the amount is taxable under other sources.
8. Gifts and Deemed Income
   • Any sum, property, or benefit received without consideration or at an inadequate price is taxable if its value or benefits exceed ₹50,000.
   • Aggregation applies to money and movable assets, but each transaction is considered separately for immovable property.
   • Gifts received from relatives, on the occasion of marriage, or through inheritance or will, etc., are exempt from tax.
9. Compensation on Termination of Employment
   • If paid by an employer, it is taxable as salary.
   • If paid by any other person, it is taxable under other sources.
10. Income from Business Trusts
    • Taxable unless it is dividends, interest from SPVs, or rental income from REITs.
11. Life Insurance Payouts
    • Amounts received under high-premium life insurance policies exceeding aggregate premiums paid are taxable.
12. Family Pension
    • Standard deduction: Lower of 1/3rd of pension or ₹15,000 under the old tax regime [₹25,000 if income tax is computed under the new tax regime of section 115BAC].

Deductible Expenses (Section 57)

• Interest on loans taken to earn dividend income (limited to 20% of dividend).
• Expenses on renting machinery or plant.
• 50% deduction for interest on compensation.

Non-Deductible Expenses (Section 58)

• Personal expenses.
• Interest or salary payments outside India if TDS is not deducted.
• Any expense related to gambling, lotteries, or online game winnings.

Recovery against Loss or Expenditure (Section 59)

If any previously deducted loss or liability is later recovered, it is taxable in the year of recovery.

Income Tax Act, 1961

Section – 2

Definitions.2. In this Act, unless the context otherwise requires,—(1) “advance tax” means the advance tax payable in accordance with the provisions of Chapter XVII-C;(1A) “agricultural income” means—(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes;(b) any income derived from such land by—i. agriculture; orii. the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; oriii. the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause;(c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on :Provided that—(i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and(ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated—(A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand; or(B) in any area within the distance, measured aerially,—(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten lakh.Explanation 1.—For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section. Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income.Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.Explanation 4.—For the purposes of clause (ii) of the proviso to sub-clause (c), “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;(1B) “amalgamation”, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that—i. all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation;ii. all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation;iii. shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company;(IC) “Additional Commissioner” means a person appointed to be an Additional Commissioner of Income-tax under sub-section (1) of section 117;(1D) “Additional Director” means a person appointed to be an Additional Director of Income-tax under sub-section (1) of section 117;(2)”annual value”, in relation to any property, means its annual value as determined under section 23;(3) [***](4) “Appellate Tribunal” means the Appellate Tribunal constituted under section 252 ;(5) “approved gratuity fund” means a gratuity fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part C of the Fourth Schedule ;(6)”approved superannuation fund” means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part B of the Fourth Schedule ;(7) “assessee” means a person by whom any tax or any other sum of money is payable under this Act, and includes—a. every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person ;b. every person who is deemed to be an assessee under any provision of this Act ;c. every person who is deemed to be an assessee in default under any provision of this Act ;(7A) “Assessing Officer” means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act ;(8) “assessment” includes reassessment ;(9) “assessment year” means the period of twelve months commencing on the 1st day of April every year ;(9A) “Assistant Commissioner” means a person appointed to be an Assistant Commissioner of Income-tax or a Deputy Commissioner of Income-tax under sub-section (1) of section 117 ;(9B) “Assistant Director” means a person appointed to be an Assistant Director of Income-tax under sub-section (1) of section 117 ;(10) “average rate of income-tax” means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income ;(11) “block of assets” means a group of assets falling within a class of assets comprising—(a) tangible assets, being buildings, machinery, plant or furniture ;(b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, not being goodwill of a business or profession, in respect of which the same percentage of depreciation is prescribed ;(12) “Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) ;(12A) “books or books of account” includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or in electronic form or in digital form or as print-outs of data stored in such electronic form or in digital form or in a floppy, disc, tape or any other form of electro­magnetic data storage device;(13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture; (13A) “business trust” means a trust registered as,—(i) an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or(ii) a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),(14) “capital asset” means—(a) property of any kind held by an assessee, whether or not connected with his business or profession;(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);Following sub-dause (b) shall be substituted for existing sub-clause (b) of dause (14) of section 2 by the Finance Act, 2025, w.e.f. 1-4­2026:(b) any securities held by—(i) a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or(ii) an investment fund specified in clause (a) of Explanation 1 to section 115UB which has invested such securities in accordance with the provisions of the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or under the International Financial Services Centres Authority Act, 2019 (50 of 2019);(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply ^lion account of the applicability of the fourth and fifth provisos thereof], but does not include—(i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession ;(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—a. jewellery;b. archaeological collections;c. drawings;d. paintings;e. sculptures; orf. any work ofExplanation.—For the purposes of this sub-dause, “jewellery” includes—a. ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;b. precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;(iii) agricultural land in India, not being land situate—a. in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; orb. in any area within the distance, measured aerially,—I. not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; orII. not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; orIII. not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.Explanation.—For the purposes of this sub-dause, “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;(iv) 6¹/₂ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government;(v) Special Bearer Bonds, 1991, issued by the Central Government ;(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central GovernmentExplanation 1.—For the removal of doubts, it is hereby clarified that “property” includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.Explanation 2.—For the purposes of this clause—a. the expression “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;b. the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);(15) “charitable purpose” includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;(15A) “Chief Commissioner” means a person appointed to be a Chief Commissioner of Income-tax or a Director General of Income-tax or a Principal Chief Commissioner of Income-tax or a Principal Director General of Income-tax under sub-section (1) of section 117;(15B) “child”, in relation to an individual, includes a step-child and an adopted child of that individual;(16) “Commissioner” means a person appointed to be a Commissioner of Income-tax or a Director of Income-tax or a Principal Commissioner of Income-tax or a Principal Director of Income-tax under sub-section (1) of section 117;(16A) “Commissioner (Appeals)” means a person appointed to be a Commissioner of Income-tax (Appeals) under sub-section (1) of section 117 ;(17) “company” means—i. any Indian company, orii. any body corporate incorporated by or under the laws of a country outside India, oriii. any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922) or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, oriv. any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company :Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971 or on or after that date) as may be specified in the declaration ;(18) “company in which the public are substantially interested”—a company is said to be a company in which the public are substantially interested—(a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank ; or(aa) if it is a company which is registered under section 25 of the Companies Act, 1956 (1 of 1956) ; or(ab) if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, it is declared by order of the Board to be a company in which the public are substantially interested :Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration ; or(ac) if it is a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society ; or(ad) if it is a company, wherein shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by, one or more co-operative societies ;(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :—(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ;(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by—(a) the Government, or(b) a corporation established by a Central, State or Provincial Act, or(c) any company to which this clause applies or any subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year. —In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words “not less than fifty per cent”, the words “not less than forty per cent” had been substituted ;(19) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ;(19A) “Deputy Commissioner” means a person appointed to be a Deputy Commissioner of Income-tax under sub-section (1) of section 117 ;(19AA) “demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that—(i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger;(ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger;(iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger:Provided that the provisions of this sub-clause shall not apply where the resulting company records the value of the property and the liabilities of the undertaking or undertakings at a value different from the value appearing in the books of account of the demerged company, immediately before the demerger, in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015;(iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis except where the resulting company itself is a shareholder of the demerged company;(v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become share-holders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company;(vi) the transfer of the undertaking is on a going concern basis;(vii) the demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf.Explanation 1.—For the purposes of this clause, “undertaking” shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. Explanation 2.—For the purposes of this clause, the liabilities referred to in sub-clause (ii), shall include—(a) the liabilities which arise out of the activities or operations of the undertaking;(b) the specific loans or borrowings (including debentures) raised, incurred and utilised solely for the activities or operations of the undertaking; and(c) in cases, other than those referred to in clause (a) or clause (b), so much of the amounts of general or multipurpose borrowings, if any, of the demerged company as stand in the same proportion which the value of the assets transferred in a demerger bears to the total value of the assets of such demerged company immediately before the demerger.Explanation 3.—For determining the value of the property referred to in sub-clause (iii), any change in the value of assets consequent to their revaluation shall be ignored.Explanation 4.—For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils such conditions as may be notified in the Official Gazette, by the Central Government.Explanation 5.—For the purposes of this clause, the reconstruction or splitting up of a company, which ceased to be a public sector company as a result of transfer of its shares by the Central Government, into separate companies, shall be deemed to be a demerger, if such reconstruction or splitting up has been made to give effect to any condition attached to the said transfer of shares and also fulfils such other conditions as may be notified by the Central Government in the Official Gazette.Explanation 6.—For the purposes of this clause, the reconstruction or splitting up of a public sector company into separate companies shall be deemed to be a demerger, if such reconstruction or splitting up has been made to transfer any asset of the demerged company to the resulting company and the resulting company—(i) is a public sector company on the appointed day indicated in such scheme, as may be approved by the Central Government or any other body authorised under the provisions of the Companies Act, 2013 (18 of 2013) or any other law for the time being in force governing such public sector companies in this behalf; and(ii) fulfils such other conditions as may be notified by the Central Government in the Official Gazette in this behalf;(19AAA) “demerged company” means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company;(19B) “Deputy Commissioner (Appeals)” means a person appointed to be a Deputy Commissioner of Income-tax (Appeals) ^la[***] under sub-section (1) of section 117 ;(19C) “Deputy Director” means a person appointed to be a Deputy Director of Income-tax under sub-section (1) of section 117 ;(20) “director”, “manager” and “managing agent”, in relation to a company, have the meanings respectively assigned to them in the Companies Act, 1956 (1 of 1956) ;(21) “Director General or Director” means a person appointed to be a Director General of Income-tax or a Principal Director General of Income-tax or, as the case may be, a Director of Income-tax or a Principal Director of Income-tax, under sub-section (1) of section 117, and includes a person appointed under that sub-section to be an Additional Director of Income-tax or a Joint Director of Income-tax or an Assistant Director or Deputy Director of Income-tax;(22) “dividend” includes—(a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ;(b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not ;(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not ;(d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not ;(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;²[(f) any payment by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 68 of the Companies Act, 2013 (18 of 2013);]but “dividend” does not include—(i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ;(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965;(ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ;³1(iia) any advance or loan between two group entities, where,—(A) one of the group entity is a “Finance company” or a “Finance unit”; and(B) the parent entity or principal entity of such group is listed on stock exchange in a country or territory outside India other than the country or territory outside India as may be specified by the Board in this behalf,•](iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off;(iv) 4[***](v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).Explanation 1.—The expression “accumulated profits”, wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956.Explanation 2.—The expression “accumulated profits” in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place.Explanation 2A.—In the case of an amalgamated company, the accumulated profits, whether capitalised or not, or loss, as the case may be, shall be increased by the accumulated profits, whether capitalised or not, of the amalgamating company on the date of amalgamation.Explanation 3.—For the purposes of this clause,—(a) “concern” means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ;(b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ;⁵1(c) “Finance Company” and “Finance Unit” shall have the same meaning as assigned respectively to them in clauses (e) and (f) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Finance Company) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019):Provided that such Finance Company or Finance Unit, is set up as a global or regional corporate treasury centre for undertaking treasury activities or treasury services as per the relevant regulations made by the International Financial Services Centres Authority established under section 4 of the said Act;(d) “group entity”, “parent entity” and “principal entity” shall be such entities which satisfy such conditions as prescribed in this behalf,•](22A) “domestic company” means an Indian company, or any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income ;(22AA) “document” includes an electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000);(22AAA) “electoral trust” means a trust so approved by the Board in accordance with the scheme made in this regard by the Central Government;(22B) “fair market value”, in relation to a capital asset, means—(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date ; and(ii) where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act ;(23) (i) “firm” shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);(ii) “partner” shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include,—(a) any person who, being a minor, has been admitted to the benefits of partnership; and(b) a partner of a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);(iii) “partnership” shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);(23A) “foreign company” means a company which is not a domestic company;(23B) “fringe benefits” means any fringe benefits referred to in section 115WB;(24C) “hearing” includes communication of data and documents through electronic mode;(24) “income” includes—(i) profits and gains ;(ii) dividend ;(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (Iliad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust.Explanation.—For the purposes of this sub-clause, “trust” includes any other legal obligation ;(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17 ;

(iiia) any special allowance or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit ;

(iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living ;(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid ;(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the “beneficiary”) and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary ;(v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59 ;(va) any sum chargeable to income-tax under clause (iiia) of section 28;(vb) any sum chargeable to income-tax under clause (iiib) of section 28;(vc) any sum chargeable to income-tax under clause (iiic) of section 28;(vd) the value of any benefit or perquisite taxable under clause (iv) of section 28 ;(ye) any sum chargeable to income-tax under clause (v) of section 28;(vi) any capital gains chargeable under section 45 ;(vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule ;(viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;(viii) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original sub-clause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;](ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.Explanation.—For the purposes of this sub-dause,—(i) “lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;(ii) “card game and other game of any sort” includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game ;(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ;(xi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.Explanation.—For the purposes of this clause, the expression “Keyman insurance policy” shall have the meaning assigned to it in theExplanation to clause (I OD) of section 10 ;(xii) any sum referred to in clause (va) of section 28;(xiia) the fair market value of inventory referred to in clause (via) of section 28;(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;(xv) any sum of money or value of property referred to in clause (vii) or clause (viia) of sub-section (2) of section 56;(xvi) any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of sub-section (2) of section 56;(xvii) any sum of money referred to in clause (ix) of sub-section (2) of section 56;(xviia) any sum of money or value of property referred to in clause (x) of sub-section (2) of section 56;(xviib) any compensation or other payment referred to in clause (xi) of sub-section (2) of section 56;⁶[(xviic) any sum referred to in clause (xii) of sub-section (2) of section 56;(xviid) any sum referred to in clause (xiii) of sub-section (2) of section 56;](xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than,—(a) 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; or(b) 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;(25) “Income-tax Officer” means a person appointed to be an Income-tax Officer under section 117 ;(25A) “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters;(26) “Indian company” means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes—(i) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir and the Union territories specified in sub-clause (iii) of this clause) ;(ia) a corporation established by or under a Central, State or Provincial Act ;(ib) any institution, association or body which is declared by the Board to be a company under clause (17);(ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State ;(iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory :Provided that the registered or, as the case may be, principal office of the company, corporation, institution, association or body in all cases is in India(26A) “infrastructure capital company” means such company which makes investments by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three-star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients;

(268) “infrastructure capital fund” means such fund operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908) established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three-star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients;

(27) [***]

(28) “Inspector of Income-tax” means a person appointed to be an Inspector of Income-tax under sub-section (1) of section 117 ;

(28A) “interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ;

(28B) “interest on securities” means,—

(i) interest on any security of the Central Government or a State Government ;

(ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act ;

(2888) “insurer” means an insurer, being an Indian insurance company, as defined under clause (7A) of section 2 of the Insurance Act, 1938 (4 of 1938), which has been granted a certificate of registration under section 3 of that Act;

(28C) “Joint Commissioner” means a person appointed to be a Joint Commissioner of Income-tax or an Additional Commissioner of Income-tax under sub­section (1) of section 117;

⁷[(28CA) “Joint Commissioner (Appeals)” means a person appointed to be a Joint Commissioner of Income-tax (Appeals) or an Additional Commissioner of Income-tax (Appeals) under sub-section (1) of section 117;]

(28D) “Joint Director” means a person appointed to be a Joint Director of Income-tax or an Additional Director of Income-tax under sub-section (1) of section 117;

(29) “legal representative” has the meaning assigned to it in clause (11) of section 2 of the Code of Civil Procedure, 1908 (5 of 1908) ;

(29A) “liable to tax”, in relation to a person and with reference to a country, means that there is an income-tax liability on such person under the law of that country for the time being in force and shall include a person who has subsequently been exempted from such liability under the law of that country; (29m) “long-term capital asset” means a capital asset which is not a short-term capital asset ;

(29B) “long-term capital gain” means capital gain arising from the transfer of a long-term capital asset ;

(298A) “manufacture”, with its grammatical variations, means a change in a non-living physical object or article or thing,—

(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or

(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;

(29C) “maximum marginal rate” means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual , association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year;

(29D) “National Tax Tribunal” means the National Tax Tribunal established under section 3 of the National Tax Tribunal Act, 2005;

(30) “non-resident” means a person who is not a “resident”, and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6;

(31) “person” includes—

(i) an individual,

(ii) a Hindu undivided family,

(iii) a company,

(iv) a firm,

(v) an association of persons or a body of individuals, whether incorporated or not,

(vi) a local authority, and

(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.

Explanation.—For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;

(32) “person who has a substantial interest in the company”, in relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power ,

(33) “prescribed” means prescribed by rules made under this Act ;

(34) “previous year” means the previous year as defined in section 3 ;

(34A) “Principal Chief Commissioner of Income-tax” means a person appointed to be a Principal Chief Commissioner of Income-tax under sub-section (1) of section 117;

(34B) “Principal Commissioner of Income-tax” means a person appointed to be a Principal Commissioner of Income-tax under sub-section (1) of section 117;

(34C) “Principal Director of Income-tax” means a person appointed to be a Principal Director of Income-tax under sub-section (1) of section 117;

(34D) “Principal Director General of Income-tax” means a person appointed to be a Principal Director General of Income-tax under sub-section (1) of section 117;

(35) “principal officer”, used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means—

a. the secretary, treasurer, manager or agent of the authority, company, association or body, or

b. any person connected with the management or administration of the local authority, company, association or body upon whom the Assessing Officer has served a notice of his intention of treating him as the principal officer thereof ;

(36) “profession” includes vocation ;

(36A) “public sector company” means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in

section 617 of the Companies Act, 1956 (1 of 1956) ;

(37) “public servant” has the same meaning as in section 21 of the Indian Penal Code (45 of 1860) ;

(37A) “rate or rates in force” or “rates in force”, in relation to an assessment year or financial year, means—

(i) for the purposes of calculating income-tax under the first proviso to sub-section (5) of section 132, or computing the income-tax chargeable under sub-section (4) of section 172 or sub-section (2) of section 174 or section 175 or sub-section (2) of section 176 or deducting income-tax under section 192 from income chargeable under the head “Salaries” or computation of the “advance tax” payable under Chapter XVII-C in a case not falling under section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, and for the purposes of computation of the “advance tax” payable under Chapter XVII-C in a case falling under section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, the rate or rates specified in section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, as the case may be, or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, whichever is applicable ;

(ii) for the purposes of deduction of tax under sections 193, 194, 194A , 194B ⁸[, 194BA] , 194BB and 194D, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year ;

(iii) for the purposes of deduction of tax under section 194LBA or section 194LBB or section 194LBC or section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government under section 90A, whichever is applicable by virtue of the provisions of section 90, or section 90A, as the case may be;

(38) “recognised provident fund” means a provident fund which has been and continues to be recognised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (19 of 1952) ;

(39) [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;]

(40) “regular assessment” means the assessment made under sub-section (3) of section 143 or section 144 ;

(41) “relative”, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual ;

(41A) “resulting company” means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger;

(42) “resident” means a person who is resident in India within the meaning of section 6 ;

(42A) “short-term capital asset” means a capital asset held by an assessee for not more than ⁹[twenty-four] months immediately preceding the date of its transfer :

Provided that in the case of a security ^1O[***] listed in a recognized stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of an equity oriented fund or a zero coupon bond, the provisions of this clause shall have effect as if for the words ^illtwenty-four] months”, the words “twelve months” had been substituted:

Provided further that in case of a share of a company (not being a share listed in a recognised stock exchange) or a unit of a Mutual Fund specified under clause (23D) of section 10, which is transferred during the period beginning on the 1st day of April, 2014 and ending on the 10th day of July, 2014, the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twelve months” had been substituted ¹²[as it stood immediately prior to the commencement of the Finance (No. 2) Act, 2024].

12a_[****]

Explanation 1.—(i) In determining the period for which any capital asset is held by the assessee—

(a) in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation ;

(b) in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in sub-section (1) of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section ;

(ba) in the case of a capital asset referred to in clause (via) of section 28, the period shall be reckoned from the date of its conversion or treatment;

(c) in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee ;

(d) in the case of a capital asset, being a share or any other security (hereafter in this clause referred to as the financial asset) subscribed to by the assessee on the basis of his right to subscribe to such financial asset or subscribed to by the person in whose favour the assessee has renounced his right to subscribe to such financial asset, the period shall be reckoned from the date of allotment of such financial asset ;

(e) in the case of a capital asset, being the right to subscribe to any financial asset, which is renounced in favour of any other person, the period shall be reckoned from the date of the offer of such right by the company or institution, as the case may be, making such offer ;

(f) in the case of a capital asset, being a financial asset, allotted without any payment and on the basis of holding of any other financial asset, the period shall be reckoned from the date of the allotment of such financial asset ;

(g) in the case of a capital asset, being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a demerger, there shall be included the period for which the share or shares held in the demerged company were held by the assessee ;

(h) in the case of a capital asset, being trading or clearing rights of a recognised stock exchange in India acquired by a person pursuant to demutualisation or corporatisation of the recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation;

(ha) in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualisation or corporatisation of a recognised stock exchange in India as referred to in clause(xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation;

(hb) in the case of a capital asset, being any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees), the period shall be reckoned from the date of allotment or transfer of such specified security or sweat equity shares;

(hc) in the case of a capital asset, being a unit of a business trust, allotted pursuant to transfer of share or shares as referred to in clause (xvii) of section 47, there shall be included the period for which the share or shares were held by the assessee;

(hd) in the case of a capital asset, being a unit or units, which becomes the property of the assessee in consideration of a transfer referred to in clause (xviii)of section 47, there shall be included the period for which the unit or units in the consolidating scheme of the mutual fund were held by the assessee;

(he) in the case of a capital asset, being share or shares of a company, which is acquired by the non-resident assessee on redemption of Global Depository Receipts referred to in clause (b) of sub-section (1) of section 115AC held by such assessee, the period shall be reckoned from the date on which a request for such redemption was made;

(hf) in the case of a capital asset, being equity shares in a company, which becomes the property of the assessee in consideration of a transfer referred to in clause (xb) of section 47, there shall be included the period for which the preference shares were held by the assessee;

(hg) in the case of a capital asset, being a unit or units, which becomes the property of the assessee in consideration of a transfer referred to in clause (xix) of section 47, there shall be included the period for which the unit or units in the consolidating plan of a mutual fund scheme were held by the assessee;

(hh) in the case of a capital asset, being a unit or units in a segregated portfolio referred to in sub-section (2AG) of section 49, there shall be included the period for which the original unit or units in the main portfolio were held by the assessee;

¹³[(hi) in the case of a capital asset, being—

a. Electronic Gold Receipt issued in respect of gold deposited as referred to in clause (viid) of section 47, there shall be included the period for which such gold was held by the assessee prior to conversion into the Electronic Gold Receipt;

b. gold released in respect of an Electronic Gold Receipt as referred to in clause (viid) of section 47, there shall be included the period for which such Electronic Gold Receipt was held by the assessee prior to its conversion into gold;]

(ii) In respect of capital assets other than those mentioned in clause (i), the period for which any capital asset is held by the assessee shall be determined subject to any rules which the Board may make in this behalf.

Explanation 2.—For the purposes of this clause, the expression “security” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

Explanation 3.—For the purposes of this clause, the expressions “specified security” and “sweat equity shares” shall have the meanings respectively assigned to them in the Explanation to clause (d) of sub-section (1) of section 115WB.

Explanation 4.—For the purposes of this clause, the expression “equity oriented fund” shall have the meaning assigned to it in clause (a) of the

Explanation to section 112A;

(428) “short-term capital gain” means capital gain arising from the transfer of a short-term capital asset ;

(42C) “slump sale” means the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer.

Explanation 1.—For the purposes of this clause, “undertaking” shall have the meaning assigned to it in Explanation I to clause (19AA).

Explanation 2.—For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities. Explanation 3.—For the purposes of this clause, “transfer” shall have the meaning assigned to it in clause (47);

(43) “tax” in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under section 115WA ;

(43A) “tax credit certificate” means a tax credit certificate granted to any person in accordance with the provisions of Chapter XXII-B and any scheme made thereunder;

(43B) [***]

(44) “Tax Recovery Officer” means any Income-tax Officer who may be authorised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, by general or special order in writing, to exercise the powers of a Tax Recovery Officer and also to exercise or perform such powers and functions which are conferred on, or assigned to, an Assessing Officer under this Act and which may be prescribed;

(45) “total income” means the total amount of income referred to in section 5, computed in the manner laid down in this Act ;

(46) [***]

(47) “transfer”, in relation to a capital asset, includes,—

i. the sale, exchange or relinquishment of the asset ; or

ii. the extinguishment of any rights therein ; or

iii. the compulsory acquisition thereof under any law ; or

iv. in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or

iva. the maturity or redemption of a zero coupon bond; or

v. any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or

vi. any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Explanation 1.—For the purposes of sub-clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA.

Explanation 2.—For the removal of doubts, it is hereby clarified that “transfer” includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;

(47A) “virtual digital asset” means—

a. any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;

b. a non-fungible token or any other token of similar nature, by whatever name called;

c. any other digital asset, as the Central Government may, by notification in the Official Gazette specify:

Following sub-clause (d) shall be inserted after sub-clause (c) of clause (47A) of section 2 by the Finance Act, 2025, w.e.f. 1-4-2026:

d. any crypto-asset being a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions, whether or not such asset is included in sub-clause (a) or sub-clause (b) or sub-clause (c):

Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein.

Explanation.-For the purposes of this clause,-

(a) “non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify;

(b) the expressions “currency”, “foreign currency” and “Indian currency” shall have the same meanings as respectively assigned to them in clauses (h), (m) and (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999);

(48) “zero coupon bond” means a bond-

(a) issued by any infrastructure capital company or infrastructure capital fund or infrastructure debt fund or public sector company or scheduled bank on or after the 1st day of June, 2005;

(b) in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company or infrastructure capital fund or infrastructure debt fund or public sector company or scheduled bank; and

(c) which the Central Government may, by notification in the Official Gazette, specify in this behalf.

Explanation 1.-For the purposes of this clause, the expression “scheduled bank” shall have the meaning assigned to it in clause (ii) of the Explanation to sub-clause (c) of clause (viia) of sub-section (1) of section 36.

Explanation 2.-For the purposes of this clause, the expression “infrastructure debt fund” shall mean the infrastructure debt fund notified by the Central Government in the Official Gazette under clause (47) of section 10.

Notes:

¹ Words “on account of the applicability of the fourth and fifth provisos thereof” shall be omtt. by Act No. 7 of 2025, w.e.f. 1-4-2026.

²a. Words “or an Additional Commissioner of Income-tax (Appeals)” omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

³ by Act No. 15 of 2024, w.e.f. 1-10-2024.

⁴ by Act No. 7 of 2025, w.e.f. 1-4-2025.

⁵ by Act No. 15 of 2024, w.e.f. 1-10-2024.

⁶ Clauses (c) and (d) by Act No. 7 of 2025, w.e.f. 1-4-2025.

⁷ by Act No. 08 of 2023, w.e.f. 1-4-2024.

⁸ by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁹ by Act No. 08 of 2023, w.e.f. 1-4-2023.

¹⁰ for “thirty-six” by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

¹¹ Words “(other than a unit)” omtt by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

¹² for “thirty-six”, by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

¹³ by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

¹³a. Omtt by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

¹⁴ by Act No. 08 of 2023, w.e.f. 1-4-2024.

Section 56

F. Income from other sources

Income from other sources.

56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.

(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :—

(i) dividends ;

(ia) income referred to in sub-clause (viii) of clause (24) of section 2;

(ib) income referred to in sub-clause (ix) of clause (24) of section 2;

(ic) income referred to in sub-clause (x) of clause (24) of section 2, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(id) income by way of interest on securities, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(ii) income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(iv) income referred to in sub-clause (xi) of clause (24) of section 2, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession” or under the head “Salaries”;

(v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004 but before the 1st day of April, 2006, the whole of such sum :

Provided that this clause shall not apply to any sum of money received—

a. from any relative; or

b. on the occasion of the marriage of the individual; or

c. under a will or by way of inheritance; or

d. in contemplation of death of the payer; or

e. from any local authority as defined in the Explanation to clause (20) of section 10; or

f. from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

g. from any trust or institution registered under section 12AA or section 12AB.

Explanation.—For the purposes of this clause, “relative” means—

i. spouse of the individual;

ii. brother or sister of the individual;

iii. brother or sister of the spouse of the individual;

iv. brother or sister of either of the parents of the individual;

v. any lineal ascendant or descendant of the individual;

vi. any lineal ascendant or descendant of the spouse of the individual;

vii. spouse of the person referred to in clauses (ii) to (vi);

(vi) 0that this clause shall not apply to any sum of money received—

a. from any relative; or

b. on the occasion of the marriage of the individual; or

c. under a will or by way of inheritance; or

d. in contemplation of death of the payer; or

e. from any local authority as defined in the Explanation to clause (20) of section 10; or

f. from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

g. from any trust or institution registered under section 12AA or section 12AB.

—For the purposes of this clause, “relative” means—

i. spouse of the individual;

ii. brother or sister of the individual;

iii. brother or sister of the spouse of the individual;

iv. brother or sister of either of the parents of the individual;

v. any lineal ascendant or descendant of the individual;

vi. any lineal ascendant or descendant of the spouse of the individual;

vii. spouse of the person referred to in clauses (ii) to (vi);

(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,—

a. any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

b. any immovable property,—

i. without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

ii. for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:

Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause:

Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;

(c) any property, other than immovable property,—

(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :

Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections :

Provided further that this clause shall not apply to any sum of money or any property received—

(a) from any relative; or

(b) on the occasion of the marriage of the individual; or

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer or donor, as the case may be; or

(e) from any local authority as defined in the Explanation to clause (20) of section 10; or

(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g) from any trust or institution registered under section 12AA or section 12AB; or

(h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation.—For the purposes of this clause,—

(a) “assessable” shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 50C;

(b) “fair market value” of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed;

(c) “jewellery” shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2;

(d) “property” means the following capital asset of the assessee, namely:—

(i) immovable property being land or building or both;(ii) shares and securities;

(iii) jewellery;

(iv) archaeological collections;

(v) drawings;

(vi) paintings;

(vii) sculptures;

(viii) any work of art; or

(ix) bullion;

(e) “relative” means,—

(i) in case of an individual—

A. spouse of the individual;

B. brother or sister of the individual;

C. brother or sister of the spouse of the individual;

D. brother or sister of either of the parents of the individual;

E. any lineal ascendant or descendant of the individual;

F. any lineal ascendant or descendant of the spouse of the individual;

G. spouse of the person referred to in items (B) to (F); and

(ii) in case of a Hindu undivided family, any member thereof;

(f) “stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;

(viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 but before the 1st day of April, 2017, any property, being shares of a company not being a company in which the public are substantially interested,—

(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :

Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47.

Explanation.—For the purposes of this clause, “fair market value” of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);

(viib)where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person ⁶⁵[***], any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:

Provided that this clause shall not apply where the consideration for issue of shares is received—

(i) by a venture capital undertaking from a venture capital company or a venture capital fund or a specified fund; or

(ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf:

Provided further that where the provisions of this clause have not been applied to a company on account of fulfilment of conditions specified in the notification issued under clause (ii) of the first proviso and such company fails to comply with any of those conditions, then, any consideration received for issue of share that exceeds the fair market value of such share shall be deemed to be the income of that company chargeable to income-tax for the previous year in which such failure has taken place and, it shall also be deemed that the company has under reported the said income in consequence of the misreporting referred to in sub-section (8) and sub-section (9) of section 270A for the said previous year:

⁶⁶[Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.]

Explanation.—For the purposes of this clause,—

(a) the fair market value of the shares shall be the value—

i. as may be determined in accordance with such method as may be prescribed; or

ii. as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher;

(aa) “specified fund” means a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulated under the ⁶⁷[International Financial Services Centre Authority (Fund Management) Regulations, 2022 made under the] International Financial Services Centres Authority Act, 2019 (50 of 2019);

(ab) “trust” means a trust established under the Indian mists Act, 1882 (2 of 1882) or under any other law for the time being in force;

(b) “venture capital company”, “venture capital fund” and “venture capital undertaking” shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation to clause (23FB) of section 10;

(viii) income by way of interest received on compensation or on enhanced compensation referred to in sub-section (1) of section 145B;

(ix) any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if,—

(a) such sum is forfeited; and

(b) the negotiations do not result in transfer of such capital asset;

(x) where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,—

(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

(b) any immovable property,—

A. without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

B. for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:—

i. the amount of fifty thousand rupees; and

ii. the amount equal to ten per cent of the consideration:

Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause :

Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, on or before the date of agreement for transfer of such immovable property:

Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub­section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections:

Provided also that in case of property being referred to in the second proviso to sub-section (1) of section 43CA, the provisions of sub-item (ii) of item (B) shall have effect as if for the words “ten per cent”, the words “twenty per cent” had been substituted;

(c) any property, other than immovable property,—

(A) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(B) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :

Provided that this clause shall not apply to any sum of money or any property received—

I. from any relative; or

II. on the occasion of the marriage of the individual; or

III. under a will or by way of inheritance; or

IV. in contemplation of death of the payer or donor, as the case may be; or

V. from any local authority as defined in the Explanation to clause (20) of section 10; or

VI. from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

VII. from or by any trust or institution registered under section 12A or section 12AA or section 12AB; or

VIII. by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or

IX. by way of transaction not regarded as transfer under clause (i) or clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or clause (vid) or clause (vii) or clause (viiac) or clause (viiad) or clause (viiae) or clause (viiaf) of section 47; or

X. from an individual by a trust created or established solely for the benefit of relative of the individual;

XI. from such class of persons and subject to such conditions, as may be prescribed;

XII. by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, for any illness related to COVID-19 subject to such conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf;

XIII. by a member of the family of a deceased person,—

(A) from the employer of the deceased person; or

(B) from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees, where the cause of death of such person is illness related to COVID-19 and the payment is—

i. received within twelve months from the date of death of such person; and

ii. subject to such other conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf. —For the purposes of clauses (XII) and (XIII) of this proviso, “family”, in relation to an individual, shall have the same meaning as assigned to it in Explanation I to clause (5) of section 10:

Provided further that clauses (VI) and (VII) of the first proviso shall not apply where any sum of money or any property has been received by any person referred to in sub-section (3) of section 13.

Explanation.—For the purposes of this clause,—

a. the expressions “assessable”, “fair market value”, “jewellery”, “relative” and “stamp duty value” shall have the same meanings as respectively assigned to them in the Explanation to clause (vii); and

b. the expression “property” shall have the same meaning as assigned to it in clause (d) of the Explanation to clause (vii) and shall include virtual digital asset;

(xi) any compensation or other payment, due to or received by any person, by whatever name called, in connection with the termination of his employment or the modification of the terms and conditions relating thereto;

⁶⁸ [(xii)] any specified sum received by a unit holder from a business trust during the previous year, with respect to a unit held by him at any time during the previous year.

Explanation.—For the purposes of this clause, “specified sum” shall be computed in accordance with the following formula, namely:—

Specified sum = A-B-C (which shall be deemed to be zero if sum of B and C is greater than A), where—

A = aggregate of sum distributed by the business trust with respect to such unit, during the previous year or during any earlier previous year or years, to such unit holder, who holds such unit on the date of distribution of sum or to any other unit holder who held such unit at any time prior to the date of such distribution, which is,—

a. not in the nature of income referred to in clause (23FC) or clause (23FCA) of section 10; and

b. not chargeable to tax under sub-section (2) of section 115UA;

B = amount at which such unit was issued by the business trust; and

C = amount charged to tax under this clause in any earlier previous year;

(xiii) where any sum is received, including the amount allocated by way of bonus, at any time during a previous year, under a life insurance policy, other than the sum,—

a. received under a unit linked insurance policy;

b. being the income referred to in clause (iv),

which is not to be excluded from the total income of the previous year in accordance with the provisions of clause (IOD) of section 10, the sum so received as exceeds the aggregate of the premium paid, during the term of such life insurance policy, and not claimed as deduction under any other provision of this Act, computed in such manner as may be prescribed.

Explanation.—For the purposes of this clause “unit linked insurance policy” shall have the meaning assigned to it in Explanation 3 to clause (IOD) of section 10.]

Notes:

⁶⁵ Words “being a resident” Omtt. by Act No. 08 of 2023, w.e.f. 1-4-2024.

⁶⁶ by Act No. 15 of 2024, w.e.f. 1-4-2025.

⁶⁷ by Act No. 08 of 2023, w.e.f. 1-4-2023.

⁶⁸ Clauses (xii) and (xiii) by Act No. 08 of 2023, w.e.f. 1-4-2024.

Section 57

Deductions.

57. The income chargeable under the head “Income from other sources” shall be computed after making the following deductions, namely :—

(i) in the case of dividends, ⁶⁹[other than that referred in sub-clause (f) of clause (22) of section 2] or interest on securities, any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend or interest on behalf of the assessee ;

(ia) in the case of income of the nature referred to in sub-clause (x) of clause (24) of section 2 which is chargeable to income-tax under the head “Income from other sources”, deductions, so far as may be, in accordance with the provisions of clause (va) of sub-section (1) of section 36;

(ii) in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30, section 31 and sub-sections (1) and (2) of section 32 and subject to the provisions of section 38 ;

(lia) in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or fifteen thousand rupees, whichever is less:

⁷⁰[Provided that in a case where income-tax is computed under clause (ii) of sub-section (IA) of section 1158AC, the provisions of this clause shall have effect as if for the words “fifteen thousand rupees”, the words “twenty-five thousand rupees” had been substituted.]

Explanation.—For the purposes of this clause, “family pension” means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death;

(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income;

(iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section:

Provided that no deduction shall be allowed from the dividend income, or income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or income in respect of units from a specified company defined in the Explanation to clause (35) of section 10, other than deduction on account of interest expense, and in any previous year such deduction shall not exceed twenty per cent of the dividend income, or income in respect of such units, included in the total income for that year, without deduction under this section:

⁷¹[Provided further that no deduction shall be allowed in case of dividend income of the nature referred to in sub-clause (f) of clause (22) of section 2.] Explanation.—[Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]

Notes:

⁶⁹ by Act No. 15 of 2024, w.e.f. 1-10-2024.

⁷⁰ by Act No. 15 of 2024, w.e.f. 1-4-2025.

⁷¹ by Act No. 15 of 2024, w.e.f. 1-10-2024.

Section 58

Amounts not deductible.

58. (1) Notwithstanding anything to the contrary contained in section 57, the following amounts shall not be deductible in computing the income chargeable under the head “Income from other sources”, namely :—

(a) in the case of any assessee,—

(i) any personal expenses of the assessee ;

(ia) any expenditure of the nature referred to in sub-section (12) of section 40A;

(ii) any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938) on which tax has not been paid or deducted under Chapter XVII-B ;

(iii) any payment which is chargeable under the head “Salaries”, if it is payable outside India, unless tax has been paid thereon or deducted therefrom under Chapter XVII-B ;

(iv) [***]

(b) [***]

(1A) The provisions of sub-clauses (ia) and (Ha) of clause (a) of section 40 shall, so far as may be, apply in computing the income chargeable under the head “Income from other sources” as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.

(2) The provisions of section 40A shall, so far as may be, apply in computing the income chargeable under the head “Income from other sources” as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.

(3) In the case of an assessee, being a foreign company, the provisions of section 44D shall, so far as may be, apply in computing the income chargeable under the head “Income from other sources” as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.

(4) In the case of an assessee having income chargeable under the head “Income from other sources”, no deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of this Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature, whatsoever :

Provided that nothing contained in this sub-section shall apply in computing the income of an assessee, being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses.

Explanation.—For the purposes of this sub-section, “horse race” means a horse race upon which wagering or betting may be lawfully made.

Profits chargeable to tax.

Section 59

59. (1) The provisions of sub-section (1) of section 41shall apply, so far as may be, in computing the income of an assessee under section 56, as they apply in computing the income of an assessee under the head “Profits and gains of business or profession”.

(2) [***]

(3) [***]

Explanation.—[***]

Section 80 IAC

Special provision in respect of specified business.

80-IAC. (1) Where the gross total income of an assessee, being an eligible start-up, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for three consecutive assessment years.

(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any three consecutive assessment years out of ten years beginning from the year in which the eligible start-up is incorporated.

(3) This section applies to a start-up which fulfils the following conditions, namely:—

(i) it is not formed by splitting up, or the reconstruction, of a business already in existence:

Provided that this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section;

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

Explanation 1.—For the purposes of this clause, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:—

a. such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;

b. such machinery or plant is imported into India;

c. no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. Explanation 2.—Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.

(4) The provisions of sub-section (5) and sub-sections (7) to (11) of section 80-IA shall apply to the start-ups for the purpose of allowing deductions under sub- section (1).

Explanation.—For the purposes of this section,—

(i) “eligible business” means a business carried out by an eligible start-up engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation;

(ii) “eligible start-up” means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions, namely:—

(a) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, [2030];

(b) the total turnover of its business does not exceed one hundred crore rupees in the previous year relevant to the assessment year for which deduction under sub-section (1) is claimed; and

(c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government;

(iii) “limited liability partnership” means a partnership referred to in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009).

Notes:

⁹⁷ Sub. for “2025” by Act No. 7 of 2025, w.e.f. 1-4-2025. Earlier “2025” was Sub. for “2024” by Act No. 8 of 2024, w.e.f. 1-4-2024, “2024” was Sub. for “2023” by Act No. 08 of 2023, w.e.f. 1-4-2023, “2023” was Sub. for “2022” by Act No. 06 of 2022, w.e.f. 1-4-2022, “2022” was Sub. for “2021” by Act No. 13 of 2021, w.e.f. 1-4-2021 and “2021” was Sub. for “2019” by Act No. 13 of 2018, w.e.f. 1-4-2018.

Section 94

Avoidance of tax by certain transactions in securities.

94 (1) Where the owner of any securities (in this sub-section and in sub-section (2) referred to as “the owner”) sells or transfers those securities, and buys back or reacquires the securities, then, if the result of the transaction is that any interest becoming payable in respect of the securities is receivable otherwise than by the owner, the interest payable as aforesaid shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this sub-section, be deemed, for all the purposes of this Act, to be the income of the owner and not to be the income of any other person.

Explanation.—The references in this sub-section to buying back or reacquiring the securities shall be deemed to include references to buying or acquiring similar securities, so, however, that where similar securities are bought or acquired, the owner shall be under no greater liability to income-tax than he would have been under if the original securities had been bought back or reacquired.

(2) Where any person has had at any time during any previous year any beneficial interest in any securities, and the result of any transaction relating to such securities or the income thereof is that, in respect of such securities within such year, either no income is received by him or the income received by him is less than the sum to which the income would have amounted if the income from such securities had accrued from day to day and been apportioned accordingly, then the income from such securities for such year shall be deemed to be the income of such person.

(3) The provisions of sub-section (1) or sub-section (2) shall not apply if the owner, or the person who has had a beneficial interest in the securities, as the case may be, proves to the satisfaction of the Assessing Officer—

(a) that there has been no avoidance of income-tax, or

(b) that the avoidance of income-tax was exceptional and not systematic and that there was not in his case in any of the three preceding years any avoidance of income-tax by a transaction of the nature referred to in sub-section (1) or sub-section (2).

(4) Where any person carrying on a business which consists wholly or partly in dealing in securities, buys or acquires any securities and sells back or retransfers the securities, then, if the result of the transaction is that interest becoming payable in respect of the securities is receivable by him but is not deemed to be his income by reason of the provisions contained in sub-section (1), no account shall be taken of the transaction in computing for any of the purposes of this Act the profits arising from or loss sustained in the business.

(5) Sub-section (4) shall have effect, subject to any necessary modifications, as if references to selling back or retransferring the securities included references to selling or transferring similar securities.

(6) The Assessing Officer may, by notice in writing, require any person to furnish him within such time as he may direct (not being less than twenty-eight days), in respect of all securities of which such person was the owner or in which he had a beneficial interest at any time during the period specified in the notice, such particulars as he considers necessary for the purposes of this section and for the purpose of discovering whether income-tax has been borne in respect of the interest on all those securities.

(7) Where—

(a) any person buys or acquires any securities or unit within a period of three months prior to the record date;

(b) such person sells or transfers—

(i) such securities within a period of three months after such date; or

(ii) such unit within a period of nine months after such date;

(C) the dividend or income on such securities or unit received or receivable by such person is exempt, then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.

(8) Where—

(a) any person buys or acquires any securities or units within a period of three months prior to the record date;

(b) such person is allotted additional securities or units without any payment on the basis of holding of such securities or units on such date;

(c) such person sells or transfers all or any of the securities or units referred to in clause (a) within a period of nine months after such date, while continuing to hold all or any of the additional securities or units referred to in clause (b),

then, the loss, if any, arising to him on account of such purchase and sale of all or any of such securities or units shall be ignored for the purposes of computing his income chargeable to tax and notwithstanding anything contained in any other provision of this Act, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional securities or units referred to in clause (b) as are held by him on the date of such sale or transfer. Explanation.—For the purposes of this section,—

(a) “interest” includes a dividend ;

(aa) “record date” means such date as may be fixed by—

(i) a company;

(ii) a Mutual Fund or the Administrator of the specified undertaking or the specified company referred to in the Explanation to clause (35) of section 10; or

(iii) a business trust defined in clause (13A) of section 2; or

(iv) an Alternative Investment Fund defined in clause (b) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), for the purposes of entitlement of the holder of the securities or units, as the case may be, to receive dividend, income, or additional securities or units without any consideration, as the case may be;

(b) “securities” includes stocks and shares ;

(c) securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights, notwithstanding any difference in the total nominal amounts of the respective securities or in the form in which they are held or in the manner in which they can be transferred;

(d) “unit” shall mean,—

(i) a unit of a business trust defined in clause (13A) of section 2;

(ii) a unit defined in clause (b) of the Explanation to section 115AB; or

(iii) beneficial interest of an investor in an Alternative Investment Fund, defined in clause (b) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and shall include shares or partnership interests.

Section 115BB

Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever.

115BB. Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of—

i. the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of thirty per cent; and

ii. the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i):

⁴⁴[Provided that nothing contained in this section shall apply to income by way of winnings from any online game for the assessment year beginning on or after the 1st day of April, 2024.

Explanation.— For the purposes of this section,—

i. “horse race” shall have the meaning assigned to it in section 74A;

ii. “online game” shall have the meaning assigned to it in section 115BBJ.]

Income-tax Rules

Rule – 6ABBA

52[Other electronic modes.

6ABBA. The following shall be the other electronic modes for the purposes of clause (d) of first proviso to section 13A, clause (f) of sub-section (8) of section 35AD, sub-section (3), sub-section (3A), proviso to sub-section (3A) and sub-section (4) of section 40A, second proviso to clause (1) of section 43, sub- section (4) of section 43CA, proviso to sub-section (1) of section 44AD, second proviso to sub-section (1) of section 50C, second proviso to sub-clause (b) of clause (x) of sub-section (2) of section 56, clause (b) of first proviso of clause (i) of Explanation to section 80JJAA, section 269SS, section 269ST and section 269T, namely:—

a. Credit Card;

b. Debit Card;

c. Net Banking;

d. IMPS (Immediate Payment Service);

e. UPI (Unified Payment Interface);

f. RTGS (Real Time Gross Settlement);

g. NEFT (National Electronic Funds Transfer), and

h. BHIM (Bharat Interface for Money) Aadhaar Pay.]

Notes:

⁵² Inserted by the IT (Third Amdt.) Rules, 2020, w.r.e.f. 1-9-2019

Rule – 11U

H. Determination of fair market value of the property other than immovable property

Meaning of expressions used in determination of fair market value.

11U. For the purposes of this rule and rule 11UA,—

(a) ⁷³[***]

(b) “balance sheet”, in relation to any company, means,—

(i) for the purposes of sub-rule (2) of rule 11UA, the balance sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under section 224 of the Companies Act, 1956 (1 of 1956) and where the balance sheet on the valuation date is not drawn up, the balance sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company; and

^74-75[(ii) in any other case,—

(A) in relation to an Indian company, the balance sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under the laws relating to companies in force; and

(B) in relation to a company, not being an Indian company, the balance sheet of the company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company, if any, appointed under the laws in force of the country in which the company is registered or incorporated;]

(c) “merchant banker” means category I merchant banker registered with Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(d) “quoted shares or securities” in relation to share or securities means a share or security quoted on any recognized stock exchange with regularity from time to time, where the quotations of such shares or securities are based on current transaction made in the ordinary course of business;

(e) “recognized stock exchange” shall have the same meaning as assigned to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(f) “registered dealer” means a dealer who is registered under Central Sales Tax Act, 1956 or General Sales Tax Law for the time being in force in any State including value added tax laws;

(g) “registered valuer” shall have the same meaning as assigned to it in section 34AB of the Wealth-tax Act, 1957 (27 of 1957) read with rule 8A of the Wealth-tax Rules, 1957;

(h) “securities” shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(i) “unquoted shares and securities”, in relation to shares or securities, means shares and securities which is not a quoted shares or securities;

(j) “valuation date” means the date on which the property or consideration, as the case may be, is received by the assessee.

Notes:

⁷³ Omitted by the IT (Sixth Amdt.) Rules, 2018, w.e.f. 24-5-2018.

^74-75. Substituted by the IT (Ninth Amdt.) Rules, 2018, w.e.f. 1-4-2019 and shall apply in relation to assessment year 2019-20 and subsequent years.

Rule – 11UA

Determination of fair market value.

11UA. (1) For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely,—

(a) valuation of jewellery,—

i. the fair market value of jewellery shall be estimated to be the price which such jewellery would fetch if sold in the open market on the valuation date;

ii. in case the jewellery is received by the way of purchase on the valuation date, from a registered dealer, the invoice value of the jewellery shall be the fair market value;

iii. in case the jewellery is received by any other mode and the value of the jewellery exceeds rupees fifty thousand, then assessee may obtain the report of registered valuer in respect of the price it would fetch if sold in the open market on the valuation date;

(b) valuation of archaeological collections, drawings, paintings, sculptures or any work of art,—

i. the fair market value of archaeological collections, drawings, paintings, sculptures or any work of art (hereinafter referred as artistic work) shall be estimated to be price which it would fetch if sold in the open market on the valuation date;

ii. in case the artistic work is received by the way of purchase on the valuation date, from a registered dealer, the invoice value of the artistic work shall be the fair market value;

iii. in case the artistic work is received by any other mode and the value of the artistic work exceeds rupees fifty thousand, then assessee may obtain the report of registered valuer in respect of the price it would fetch if sold in the open market on the valuation date;

(c) valuation of shares and securities,—

(a) the fair market value of quoted shares and securities shall be determined in the following manner, namely,—

(i) if the quoted shares and securities are received by way of transaction carried out through any recognized stock exchange, the fair market value of such shares and securities shall be the transaction value as recorded in such stock exchange;

(ii) if such quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be,—

(a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation date, and

(b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock exchange;

⁷⁶[(b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, namely:—

the fair market value of unquoted equity shares = (A + B + C + D – L) x (PV)/(PE), where,

A = book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balance sheet as reduced by,

i. any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and

ii. any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;

B = the price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer;

C = fair market value of shares and securities as determined in the manner provided in this rule;

D = the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property;

L = book value of liabilities shown in the balance sheet, but not including the following amounts, namely:—

i. the paid-up capital in respect of equity shares;

ii. the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;

iii. reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;

iv. any amount representing provision for taxation, other than amount of income-tax paid, if any, less the amount of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

v. any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

vi. any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

PV = the paid-up value of such equity shares;

PE = total amount of paid-up equity share capital as shown in the balance sheet;]

(c) the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation.

⁷⁷[(2) Notwithstanding anything contained in sub-clause (b) or sub-clause (c), as the case may be, of clause (c) of sub-rule (1): —

(A) the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of the Explanation to clause (vllb) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares, as shall be determined under sub-clause (a), sub-clause (b), sub- clause (c) or sub-clause (e), at the option of the assessee , where the consideration received by the assessee is from a resident ; and under sub-clauses (a) to (e) at the option of the assessee, where the consideration received by the assessee is from a non-resident, in the following manner:—

(a) the fair market value of unquoted equity shares = (A-L) x 1^–PV/PE), where,

A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;

L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:—

(i) the paid-up capital in respect of equity shares;

(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;

(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;

(iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

PE = total amount of paid up equity share capital as shown in the balance-sheet;

PV = the paid up value of such equity shares; or

(b) the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method;

(c) where any consideration is received by a venture capital underta- king for issue of unquoted equity shares, from a venture capital fund or a venture capital company or a specified fund, the price of the equity shares corresponding to such consideration may, at the option of such undertaking, be taken as the fair market value of the equity shares to the extent the consideration from such fair market value does not exceed the aggregate consideration that is received from a venture capital fund or a venture capital company or a specified fund :

Provided that the consideration has been received by the undertaking from a venture capital fund or a venture capital company or a specified fund, within a period of ninety days before or after the date of issue of shares which are the subject matter of valuation.

Explanation.—For the purposes of this clause,—

(i) “specified fund” shall have the same meaning as assigned to it in clause (aa) of Explanation to clause (viib) of sub-section (2) of section 56;

(ii) “venture capital company”, “venture capital fund” and “venture capital undertaking” shall have the same meaning assigned to them in clause (b) of Explanation to clause (viib) of sub-section (2) of section 56.

Illustration: If a venture capital undertaking receives a consideration of fifty thousand rupees from a venture capital company for issue of one hundred shares at the rate of five hundred rupees per share, then such an undertaking can issue one hundred shares at this rate to any other investor within a period of ninety days before or after the receipt of consideration from venture capital company;

(d) the fair market value of the unquoted equity shares determined by a merchant banker in accordance with any of the following methods:

(i) Comparable Company Multiple Method;

(ii) Probability Weighted Expected Return Method;

(iii) Option Pricing Method;

(iv) Milestone Analysis Method;

(v) Replacement Cost Methods;

(e) where any consideration is received by a company for issue of unquoted equity shares, from any entity notified under clause (ti) of the first proviso to clause (viib) of sub-section (2) of section 56, the price of the equity shares corresponding to such consideration may, at the option of such company, be taken as the fair market value of the equity shares to the extent the consideration from such fair market value does not exceed the aggregate consideration that is received from the notified entity:

Provided that the consideration has been received by the company from the entity notified under clause (ti) of the first proviso to clause (viib) of sub-section (2) of section 56, within a period of ninety days before or after the date of issue of shares which are the subject matter of valuation;

(B) the fair market value of compulsorily convertible preference shares for the purposes of sub-clause 0) of clause (a) of the Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, as determined—

(i) in accordance with the provisions of sub-clause (b), sub-clause (c), or sub-clause (e) of clause (A), at the option of the assessee, or based on the fair market value of unquoted equity shares determined in accordance with sub-clause (a), sub-clause (b), sub-clause (c), or sub-clause (e) of clause (A), at the option of the assessee, where such consideration is received from a resident; and

(ii) in accordance with the provisions of sub-clauses (b) to (e) of clause (A), at the option of the assessee, or based on the fair market value of unquoted equity shares determined in accordance with sub-clauses (a) to (e) of clause (A), at the option of the assessee, where such consideration is received from a non-resident.

(3) Where the date of valuation report by the merchant banker for the purposes of sub-rule (2) is not more than ninety days prior to the date of issue of shares which are the subject matter of valuation, such date may, at the option of the assessee, be deemed to be the valuation date:

Provided that where such option is exercised under this sub-rule, the provisions of clause (j) of rule 11 U shall not apply.

(4) For the purposes of clause (A) or clause (B) of sub-rule (2), where the issue price of the shares exceeds the value of shares as determined in accordance with —

(i) sub-clause (a) or sub-clause (b) of clause (A), for consideration received from a resident, by an amount not exceeding ten per cent of the valuation price, the issue price shall be deemed to be the fair market value of such shares;

(ii) sub-clause (a) or sub-clause (b) or sub-clause (d) of clause (A), for consideration received from a non-resident, by an amount not exceeding ten per cent of the valuation price, the issue price shall be deemed to be the fair market value of such shares.

Explanation.—For the purposes of this sub-rule, ‘issue price’ means the consideration received by the company for one share.]

Notes:

⁷⁶ Substituted by the IT (Twentieth Amdt.) Rules, 2017, w.e.f. 1-4-2018 and shall apply in relation to assessment year 2018-19 and subsequent years.

⁷⁷ Sub-rules (2) to (4) substituted for sub-rule (2) by the IT (Twenty-first Amdt.) Rules, 2023, w.e.f. 25-9-2023.

Rule – 11UAC

⁸⁰[Prescribed dass of persons for the purpose of clause (X/) of the proviso to clause (x) of sub-section (2) of section 56.

11UAC. The provisions of clause (x) of sub-section (2) of section 56 shall not apply to,—

(1) any immovable property, being land or building or both, received by a resident of an unauthorised colony in the National Capital Territory of Delhi, where the Central Government by notification in the Official Gazette, regularised the transactions of such immovable property based on the latest Power of Attorney, Agreement to Sale, Will, possession letter and other documents including documents evidencing payment of consideration for conferring or recognising right of ownership or transfer or mortgage in regard to such immovable property in favour of such resident. Explanation.—For the purposes of this sub-rule,—

a. “resident” means a person having physical possession of property on the basis of a registered sale deed or latest set of Power of Attorney, Agreement to Sale, Will, possession letter and other documents including documents evidencing payment of consideration in respect of a property in unauthorised colonies and includes their legal heirs but does not include tenant, licensee or permissive user;

b. “unauthorised colony” shall have the same meaning as assigned to it in dause (b) of section 2 of the National Capital Territory of Delhi (Recognition of Property Rights of Residents in Unauthorised Colonies) Act, 2019 (45 of 2019).

(2) any movable property, being unquoted shares, of a company and its subsidiary and the subsidiary of such subsidiary received by a shareholder, where,

i. the Tribunal, on an application moved by the Central Government under section 241 of the Companies Act, 2013, has suspended the Board of Directors of such company and has appointed new directors nominated by the Central Government under section 242 of the said Act; and

ii. share of company and its subsidiary and the subsidiary of such subsidiary has been received pursuant to a resolution plan approved by the Tribunal under section 242 of the Companies Act, 2013 after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.

Explanation.—For the purposes of this sub-rule,—

a. a company shall be a subsidiary of another company, if such other company holds more than half in nominal value of the equity share capital of the company;

b. “Tribunal” shall have the meaning assigned to it in dause (90) of section 2 of the Companies Act, 2013 (18 of 2013).

(3) any movable property, being equity shares, of the reconstructed bank, received by the investor or the investor bank, as the case may be, where the said share has been allotted by the reconstructed bank under the scheme at a price specified in sub-paragraph (3) of paragraph 3 of the Scheme. Explanation.—For the purposes of this sub-rule,—

a. “investor” shall have the same meaning as assigned to it in sub-clause (b) of clause (1) of paragraph 2 of the Scheme;

b. “investor bank” shall have the same meaning as assigned to it in sub-clause (c) of clause (1) of paragraph 2 of the Scheme;

c. “reconstructed bank” shall have the same meaning as assigned to it in sub-clause (d) of dause (1) of paragraph 2 of the Scheme;

d. “Scheme” means Yes Bank Limited Reconstruction Scheme, 2020.]

⁸¹[(4) any movable property, being equity shares, of a public sector company or a company, received by a person from a public sector company or the Central Government or any State Government under strategic disinvestment.

Explanation.—For the purposes of ⁸²1this sub-rule], ‘strategic disinvestment’ shall have the same meaning as assigned to it in clause (iii) of Explanation to clause (d) of sub-section (1) of section 724.1

⁸³ (5) any movable property, being shares or units or interest in the resultant fund received by the fund management entity of the resultant fund, in lieu of shares or units or interest held by the investment manager entity in the original fund, pursuant to the relocation, subject to the following conditions, namely:—

(i) not less than ninety per cent of shares or units or interest in the fund management entity of the resultant fund are held by the same entity(ies) or person(s) in the same proportion as held by them in the investment manager entity of the original fund; and

(ii) not less than ninety per cent of the aggregate of shares or units or interest in the investment manager entity of the original fund was held by such entity(ies) or person(s).

Explanation.—For the purposes of this sub-rule,—

a. the expressions “relocation”, “original fund” and “resultant fund” shall have the meanings respectively assigned to them in the Explanation to clause (viiac) and clause (viiad) of section 47;

b. “fund management entity” shall have the same meaning as provided in the sub-clause (p) of regulation 2 of the International Financial Services Centres Authority (Fund Management) Regulations, 2022; and

c. “investment manager entity” means the fund manager of the original fund regulated by the respective regulation of the jurisdiction in which the original fund is located.]

Notes:

⁸⁰ Substituted by the IT (Fourteenth Amdt.) Rules, 2020, w.r.e.f. 1-4-2020 and shall be applicable for assessment year 2020-21 and subsequent assessment years.

⁸¹ Substituted by the IT (Eighth Amdt.) Rules, 2023, w.r.e.f. 1-4-2023 and shall be applicable for the assessment year 2023-24 and subsequent assessment years.

⁸² Substituted for “this clause” by the IT (Thirteenth Amdt.) Rules, 2023, w.e.f. 18-7-2023.

⁸³ Inserted by the IT (Thirteenth Amdt.) Rules, 2023, w.e.f. 18-7-2023.

Tax Reference Tables

Disclaimer:

The contents of this document are for information purposes only. This aims to enable public to have a quick and an easy access to information and do not purport to be legal documents.

Viewers are advised to verify the content from Government Acts/Rules/Notifications etc.

Treatment of Income from Different Sources

1. Income under the head Salaries

1.1 Salary is defined to include:

a. Wages

b. Annuity

c. Pension

d. Gratuity

e. Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages

f. Advance of Salary

g. Leave Encashment

h. Annual accretion to the balance of Recognized Provident Fund

i. Transferred balance in Recognized Provident Fund

j. Contribution by Central Government or any other employer to Employees Pension Account as referred in Sec. 80CCD

1.2 Points to consider:

a. Salary income is chargeable to tax on “due basis” or “receipt basis” whichever is earlier.

b. Existence of relationship of employer and employee is must between the payer and payee to tax the income under this head.

c. Income from salary taxable during the year shall consists of following:

i. Salary due from employer (including former employer) to taxpayer during the previous year, whether paid or not;

ii. Salary paid by employer (including former employer) to taxpayer during the previous year before it became due;

iii. Arrear of salary paid by the employer (including former employer) to taxpayer during the previous year, if not charged to tax in any earlier year; Exceptions – Remuneration, bonus or commission received by a partner from the firm is not taxable under the head Salaries rather it would be taxable under the head business or profession.

1.3 Place of accrual of salary:

a. Salary accrues where the services are rendered even if it is paid outside India;

b. Salary paid by the Foreign Government to his employee serving in India is taxable under the head Salaries;

c. Leave salary paid abroad in respect of leave earned in India shall be deemed to accrue or arise in India.

Exceptions – If a Citizen of India render services outside India, and receives salary from Government of India, it would be taxable as salary deemed to have accrued in India.

1.4 Taxability of various components of salary:

S.No.	Section	Particulars	Taxability/Exemption
1.	17	Basic salary	Fully taxable
2.	17	Dearness Allowance (referred to as `DA’)	Fully taxable
3.	17	Bonus, fees or commission	Fully taxable
A.	Allowances
4.	10(13A) read with Rule 2A	House rent allowance	Least of the following is exempt:a) Actual HRA Receivedb) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Chennai)c) Rent paid minus 10% of salary* Salary = Basic + DA (if part of retirement benefit) + Turnover basedCommissionNote:i. Fully taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rentii. It is mandatory for employee to report PAN of the landlord to the employer if rent paid is more than Rs. 1,00,000 [Circular No. 08 /2013 dated 10-10-2013].
5.	10(14)	Children education allowance	Up to Rs. 100 per month per child up to a maximum of 2 children is exempt
6.	10(14)	Hostel expenditure allowance	Up to Rs. 300 per month per child up to a maximum of 2 children is exempt
7.	10(14)	Transport Allowance granted to an employee to meet expenditure for the purpose of commuting between place of residence and place of duty	Rs. 3,200 per month granted to an employee, who is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities
8.	Sec. 10(14)	Allowance granted to an employee working in any transport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided employee is not in receipt of daily allowance.	Amount of exemption shall be lower of following:a) 70% of such allowance; orb) Rs. 10,000 per month.
9.	10(14)	Conveyance allowance granted to meet the expenditure on conveyance in performance of duties of an office	Exempt to the extent of expenditure incurred for official purposes
10.	10(14)	Travelling allowance to meet the cost of travel on tour or on transfer	Exempt to the extent of expenditure incurred for official purposes
11.	10(14)	Daily allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty	Exempt to the extent of expenditure incurred for official purposes
12.	10(14)	Helper/Assistant allowance	Exempt to the extent of expenditure incurred for official purposes
13.	10(14)	Research allowance granted for encouraging the academic research and other professional pursuits	Exempt to the extent of expenditure incurred for official purposes
14.	10(14)	Uniform allowance	Exempt to the extent of expenditure incurred for official purposes
15.	10(7)	Any allowance or perquisite paid or allowed by Government to its employees (an Indian citizen) posted outside India	Fully Exempt
16.	–	Allowances to Judges of High Court/Supreme Court (Subject to certain conditions)	Fully Exempt.
17.	10(45)	Following allowances and perquisites given to serving Chairman/Member of UPSC is exempt from tax:a) Value of rent free official residenceb) Value of conveyance facilities including transport allowancec) Sumptuary allowanced) Leave travel concession	Fully Exempt
19.	Sec. 10(14) read with Rule 2BB	Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)	Amount exempt from tax varies from Rs. 300 to Rs. 7,000 per month.
20.	Sec. 10(14) read with Rule 2BB	Border area, Remote Locality or Disturbed Area or Difficult Area Allowance (Subject to certain conditions and locations)	Amount exempt from tax varies from Rs. 200 to Rs. 1,300 per month.
21.	Sec. 10(14) read with Rule 2BB	Tribal area allowance in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Odisha	Up to Rs. 200 per month is exempt
22.	Sec. 10(14) read with Rule 2BB	Compensatory Field Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations)	Up to Rs. 2,600 per month is exempt
23.	Sec. 10(14) read with Rule 2BB	Compensatory Modified Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations)	Up to Rs. 1,000 per month is exempt
24.	Sec. 10(14) read with Rule 2BB	Counter Insurgency Allowance granted to members of Armed Forces operating in areas away from their permanent locations. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations)	Up to Rs. 3,900 per month is exempt
25.	Sec. 10(14) read with Rule 2BB	Underground Allowance to employees working in uncongenial, unnatural climate in underground mines	Up to Rs. 800 per month is exempt
26.	Sec. 10(14) read with Rule 2BB	High Altitude Allowance granted to armed forces operating in high altitude areas (Subject to certain conditions and locations)	a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet) is exemptb) Up to Rs. 1,600 per month (for altitude above 15,000 feet) is exempt
27.	Sec. 10(14) read with Rule 2BB	Highly active field area allowance granted to members of armed forces (Subject to certain conditions and locations)	Up to Rs. 4,200 per month is exempt
28.	Sec. 10(14) read with Rule 2BB	Island Duty Allowance granted to members of armed forces in Andaman and Nicobar and Lakshadweep group of Island (Subject to certain conditions and locations)	Up to Rs. 3,250 per month is exempt
29.	10(14)	City Compensatory Allowance	Fully Taxable
30.	10(14)	Fixed Medical Allowance	Fully Taxable
31.	10(14)	Tiffin, Lunch, Dinner or Refreshment Allowance	Fully Taxable
32.	10(14)	Servant Allowance	Fully Taxable
33.	10(14)	Project Allowance	Fully Taxable
34.	10(14)	Overtime Allowance	Fully Taxable
35.	10(14)	Telephone Allowance	Fully Taxable
36.	10(14)	Holiday Allowance	Fully Taxable
37.	10(14)	Any Other Cash Allowance	Fully Taxable
38.	10(5)	Leave Travel Concession or Assistance (LTC/LTA), extended by an employer to an employee for going anywhere in India along with his family**Family includes spouse, children and dependent brother/sister/parents. However, family doesn’t include more than 2 children of an Individual born on or after 01-10-1998.(Subject to certain conditions)	The exemption shall be limited to fare for going anywhere in India along with family twice in a block of four years: Where journey is performed by Air – Exemption up to Air fare of economy class in the National Carrier by the shortest route Where journey is performed by Rail – Exemption up to air-conditioned first class rail fare by the shortest route If places of origin of journey and destination are connected by rail but the journey is performed by any other mode of transport – Exemption up to air-conditioned first class rail fare by the shortest route. Where the places of origin of journey and destination are not connected by rail: * Where a recognized public transport system exists – Exemption up to first Class or deluxe class fare by the shortest route* Where no recognized public transport system exists – Exemption up to air conditioned first class rail fare by shortest route.Notes:i. Two journeys in a block of 4 calendar years is exemptii. Taxable only in case of Specified Employees [See note 4]
B.	Perquisites
39.	17(2)(i)	Rent free accommodation provided to assessee by his employer	Taxable (computed in manner prescribed by the board)
40.	17(2)(ii)	Value of any accommodation provided to assessee by his employer at concessional rate	Taxable (computed in manner prescribed by the board)
41.	17(2)(viii) read with Rule 3(2)	Motor Car / Other Conveyance	Taxable value of perquisites (See Note I below)
42.	17(2)(iv)	Any sum paid by employer in respect of any obligation of an employee	Fully Taxable
43.	17(2)(viii) read with Rule 3(3)	Services of a domestic servant including sweeper, gardener, watchmen or personal attendant (taxable only in case of specified employee [See Note 4])	Taxable value of perquisite shall be salary paid or payable by the employer for such services less any amount recovered from the employee.
44.	17(2)(viii) read with Rule 3(4)	Supply of gas, electricity or water for household purposes	Taxable value of perquisites: Manufacturing cost per unit incurred by the employer., if provided from resources owned by the employer; Amount paid by the employer, if purchased by the employer from outside agency Note:1. Any amount recovered from the employee shall be deducted from the taxable value of perquisite.2. Taxable in case of specified employees only [See note 4]
45.	17(2)(viii) read with Rule 3(5)	Education Facilities	Taxable value of perquisites (See Note 2 below)
46.	17(2)(viii) read with Rule 3(6)	Transport facilities provided by the employer engaged in carriage of passenger or goods (except Airlines or Railways)	Value at which services are offered by the employer to the public less amount recovered from the employee shall be a taxable perquisite
47.	17(2)(v)	Amount payable by the employer to effect an insurance on life of employee or to effect a contract for an annuity	Fully Taxable
48.	17(2)(vi) read with Rule 3(8)/3(9)	ESOP/ Sweat Equity Shares	Fair Market value of shares or securities on the date of exercise of option by the assessee less amount recovered from the employee in respect of such shares shall be the taxable value of perquisites.Fair Market Value shall be determined as follows:a) In case of listed Shares: Average of opening and closing price as on date of exercise of option (Subject to certain conditions and circumstances)b) In case of unlisted shares/ security other than equity shares: Value determined by a Merchant Banker as on date of exercise of option or an earlier date, not being a date which is more than 180 days earlier than the date of exercise of the option.Note:The Finance Act, 2020 has deferred the taxation of perquisite in case of start-ups from date of allotment to the earliest of the following three dates:1. Expiry of 48 months from the end of the relevant assessment year;2. Sale of such shares by the employees;3. Date on which employee ceases to be employee of the start-up.The eligible start-up shall accordingly, be required to deposit tax with the government within 14 days of the happening of any of the above events (whichever is earlier).However, Section 17(2)(vi) has not been amended, thus the income shall be computed in the year in which shares are allotted but tax shall be paid in subsequent year.
49.	17(2)(vll)	Employer’s contribution towards superannuation fund national pension scheme and recognised provident fund.	Taxable in the hands of employee to the extent such contribution exceeds Rs.7,50,000
50.	17(2)(viii) read with Rule 3(7)(i)	Interest free loan or Loan at concessional rate of interest	Interest free loan or loan at concessional rate of interest given by an employer to the employee (or any member of his household) is a perquisite chargeable to tax in the hands of all employees on following basis:1) Find out the “maximum outstanding monthly balance” (i.e. the aggregate outstanding balance for each loan as on the last day of each month);2) Find out rate of interest charged by the SBI as on the first day of relevant previous year in respect of loan for the same purpose advanced by it;3) Calculate interest for each month of the previous year on the outstanding amount (mentioned in Step 1) at the rate of interest given in Step 24) From the total interest calculated for the entire previous year (step 3), deduct interest actually recovered, if any, from employee5) The balance amount (Step 3-Step 4) is taxable value of perquisite Nothing is taxable if:a) Loan in aggregate does not exceed Rs. 20,000; ord) Loan is provided for treatment of specified diseases ( Rule 3A) like neurological diseases, Cancer, AIDS, Chronic renal failure, Hemophilia (specified diseases). However, exemption is not applicable to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.
51.	17(2)(viii) read with Rule 3(7)(ll)	Facility of travelling, touring and accommodation availed of by the employee or any member of his household for any holiday	a) Taxable value of perquisite shall be expenditure incurred by the employer less amount recovered from employee.b) Where such facility is maintained by the employer, and is not available uniformly to all employees, the value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the public.
52.	17(2)(viii) read with Rule 3(7)(iii)	Free food and beverages provided to the employee	1) Fully Taxable: Free meals in excess of Rs. 50 per meal less amount paid by the employee shall be a taxable perquisite2) Exempt from tax: Following free meals shall be exempt from tax:a) Food and non-alcoholic beverages provided during working hours in remote area or in an offshore installation;b) Tea, Coffee or Non-Alcoholic beverages and Snacks during working hours are tax free perquisites;c) Food in office premises or through non-transferable paid vouchers usable only at eating joints provided by an employer is not taxable, if cost to the employer is Rs. 50(or less) per meal.
53.	17(2)(viii) read with Rule 3(7)(iv)	Gift or Voucher or Coupon on ceremonial occasions or otherwise provided to the employee	a) Gifts in cash or convertible into money (like gift cheque) are fully taxableb) Gift in kind below Rs.5,000 in aggregate per annum would be exempt, beyond which it would be taxable.
54.	17(2)(viii) read with Rule 3(7)(v)	Credit Card	a) Expenditure incurred by the employer in respect of credit card used by the employee or any member of his household less amount recovered from the employee is a taxable perquisited) Expenses incurred for official purposes shall not be a taxable perquisite provided complete details in respect of such expenditure are maintained by the employer
55.	17(2)(viii) read with Rule 3(7)(vi)	Free Recreation/ Club Facilities	a) Expenditure incurred by the employer towards annual or periodical fee etc. (excluding initial fee to acquire corporate membership) less amount recovered from the employee is a taxable perquisiteb) Expenses incurred on club facilities for the official purposes are exempt from tax.c) Use of health club, sports and similar facilities provided uniformly to all employees shall be exempt from tax.
56.	17(2)(viii) read with Rule 3(7)(vll)	Use of movable assets of the employer by the employee is a taxable perquisite	Taxable value of perquisitesa) Use of Laptops and Computers: Nilb) Movable asset other than Laptops, computers and Motor Car*: 10% of original cost of the asset (if asset is owned by the employer) or actual higher charges incurred by the employer (if asset is taken on rent) less amount recovered from employee.*See Note I for computation of perquisite value in case of use of the Motor Car
57.	17(2)(viii) read with Rule 3(7) (viii)	Transfer of movable assets by an employer to its employee	Taxable value of perquisitesa) Computers, Laptop and Electronics items: Actual cost of asset less depreciation at 50% (using reducing balance method) for each completed year of usage by employer less amount recovered from the employeeb) Motor Car: Actual cost of asset less depreciation at 20% (using reducing balance method) for each completed year of usage by employer less amount recovered from the employeec) Other movable assets: Actual cost of asset less depreciation at 10% (on SLM basis) for each completed year of usage by employer less amount recovered from the employee.
58.	17(2)(viii) read with Rule 3(7)(ix)	Any other benefit or amenity extended byemployer to employee	Taxable value of perquisite shall be computed on the basis of cost to the employer (under an arm’s length transaction) less amount recovered from the employee.However, expenses on telephones including a mobile phone incurred by the employer on behalf of employee shall not be treated as taxable perquisite.
59.	10(10CC)	Tax paid by the employer on perquisites (not provided for by way of monetary payments) given to employee	Fully exempt
60.	Proviso to section 17(2)	Medical facilities in India	a) Expense incurred or reimbursed by the employer for the medical treatment of the employee or his family (spouse and children, dependent – parents, brothers and sisters) in any of the following hospital is not chargeable to tax in the hands of the employee:i. Hospital maintained by the employer.ii. Hospital maintained by the Government or Local Authority or any other hospital approved by Central Governmentiii. Hospital approved by the Chief Commissioner having regard to the prescribed guidelines for treatment of the prescribed diseases.b) Medical insurance premium paid or reimbursed by the employer is not chargeable to tax.However, the medical facility is taxable only in case of Specified Employees [See note 4]
61.	Proviso to section 17(2)	Medical facilities outside India	Any expenditure incurred or reimbursed by the employer for medical treatment of the employee or his family member outside India is exempt to the extent of following (subject to certain condition):a. Expenses on medical treatment – exempt to the extent permitted by RBI.b. Expenses on stay abroad for patient and one attendant – exempt to the extent permitted by RBI.c. Expenditure incurred on travelling of patient and one attendant- exempt, if Gross Total Income (before including the travel expenditure) of the employee, does not exceed Rs. 2,00,000.
62.	Proviso to section 17(2)	Medical facility or reimbursement for COVID-19 treatment	Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to Covid-19, shall not be taxable as perquisite in the hands of the employee. However, this benefit shall be allowed subject to certain conditions as may be notified by the Government in this behalf. [applicable w.e.f. Assessment Year 2020­21]
C.	Deduction from salary
1.	16(ia)	Standard Deduction	In case of normal tax regime Rs. 50,000 or the amount of salary, whichever is lower In case of new tax regime under section 115BAC(1A)(ii) Rs. 75,000 or the amount of salary, whichever is lower
2.	16 (ii)	Entertainment Allowance received by the Government employees (Fully taxable in case of other employees)	Least of the following is exempt from tax:a) Rs 5,000b) 1/5th of salary (excluding any allowance, benefits or other perquisite)c) Actual entertainment allowance received
3.	16(iii)	Employment Tax/Professional Tax.	Amount actually paid during the year. However, if professional tax is paid by the employer on behalf of its employee than it is first included in the salary of the employee as a perquisite and then same amount is allowed as deduction.
D.	Retirement Benefits
	Leave Encashment
1.	10(10AA)	Encashment of unutilized earned leave at the time of retirement of Government employees	Fully Exempt
2.	10(10AA)	Encashment of unutilized earned leave at the time of retirement of other employees (not being a Government employee)	Least of the following shall be exempt from tax:a) Amount actually receivedb) Unutilized earned leave* X Average monthly salaryc) 10 months Average Salary**d) Rs. 25,00,000* While computing unutilized earned leave, earned leave entitlements cannot exceed 30 days for each completed year of service rendered to the current employer** Average salary = Average Salary*** of last 10 months immediatelypreceding the retirement***Salary = Basic Pay + DA (to the extent it forms part of retirementbenefits)+ turnover based commission
	Retrenchment Compensation
3.	10(10B)	Retrenchment Compensation received by a workman under the Industrial Dispute Act, 1947 (Subject to certain conditions).	Least of the following shall be exempt from tax:a) Amount calculated as per section 25F(b)of the Industrial Disputes Act, 1947;b) Rs. 5,00,000; orc) Amount actually receivedNote:i. Relief under Section 89(1) is availableii. 15 days average pay for each completed year of continuous service or any part thereof in excess of 6 months is to be adopted under section 25F(b) of the Industrial Disputes Act, 1947
	Gratuity
4.	10(10)(i)	Gratuity received by Government Employees (Other than employees of statutory corporations)	Fully Exempt
5.	10(10)(ll)	Death -cum-Retirement Gratuity received by other employees who are covered under Gratuity Act, 1972 (other than Government employee) (Subject to certain conditions).	Least of following amount is exempt from tax:1. (*15/26) X Last drawn salary** X completed year of service or part thereof in excess of 6 months.2. Rs. 20,00,0003. Gratuity actually received.*7 days in case of employee of seasonal establishment.** Salary = Last drawn salary including DA but excluding any bonus, commission, HRA, overtime and any other allowance, benefits or perquisite
6.	10(10)(iii)	Death -cum-Retirement Gratuity received by other employees who are not covered under Gratuity Act, 1972 (other than Government employee) (Subject to certain conditions).	Least of following amount is exempt from tax:1. Halfmonth’s Average Salary* X Completed years of service2 Rs. 20,00,0003. Gratuity actually received.*Average salary = Average Salary of last 10 months immediately preceding the month of retirement** Salary = Basic Pay + DA (to the extent it forms part of retirement benefits)+ turnover based commission
	Pension
7.	–	Pension received from United Nation Organization by the employee of his family members	Fully Exempt
8.	10(10A)(i)	Commuted Pension received by an employee of Central Government, State Government, Local Authority Employees and Statutory Corporation	Fully Exempt
9.	10(10A)(ii)	Commuted Pension received by other employees who also receive gratuity	1/3 of full value of commuted pension will be exempt from tax
10.	10(10A)(iii)	Commuted Pension received by other employees who do not receive any gratuity	1/2 of full value of commuted pension will be exempt from tax
10A.	10(10A)(iii)	Commuted Pension received from a fund under clause (23AAB)	Fully Exempt
11.	10(19)	Family Pension received by the family members of Armed Forces	Fully Exempt
12.	57(lla)	Family pension received by family members in any other case	In case of normal tax regime: 33.33% of Family Pension subject to maximum of Rs. 15,000 In case of new tax regime under section 115BAC(1A)(ii) 33.33% of Family Pension subject to maximum of Rs. 25,000
	Voluntary Retirement
13.	10(10C)	Amount received on Voluntary Retirement orVoluntary Separation (Subject to certain conditions)	Least of the following is exempt from tax:1) Actual amount received as per the guidelines i.e. least of the followinga)3 months salary for each completed year of servicesb) Salary at the time of retirement X No. of months of services left for retirement; or2) Rs. 5,00,000
	Provident Fund
14.	–	Employee’s Provident Fund	For taxability of contribution made to various employee’s provident fund and interest arising thereon see Note 3.
	National Pension System (NPS)
15.	10(12A)/10(12B)	National Pension System	Any payment from the National Pension System Trust to an assessee on closure of his account or on his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed 60% of the total amount payable to him at the time of such closure or his opting out of the scheme.Note: Partial withdrawal from NPS shall be exempt to the extent of 25% of amount of contributions made by the employee.
2.	10(12BA)	National Pension System	Partial withdrawal from the NPS shall be exempt to the extent of 25% of amount of contributions made by the parent or guardian of a minor.
E.	Arrear of Salary and relief under section 89(1)
1.	15	Arrear of salary and advance salary	Taxable in the year of receipt. However relief under section 89 is available
2.	89	Relief under Section 89	If an individual receives any portion of his salary in arrears or in advance or receives profits in lieu of salary, he can claim relief as per provisions of section 89 read with rule 21A
3.	89A	Relief under 89A	Relief from taxation in income from retirement benefit account maintained in a notified country in accordance with Rule 21AAA.
F.		Other Benefits
1.	–	Lump-sum payment made gratuitously or by way of compensation or otherwise to widow or other legal heirs of an employee who dies while still in active service [Circular No. 573, dated 21-08­1990]	Fully exempt in the hands of widow or other legal heirs of employee
2.	–	Ex-gratia payment to a person (or legal heirs) by Central or State Government, Local Authority or Public Sector Undertaking consequent upon injury to the person or death of family member while on duty [Circular No. 776, dated 08-06-1999]	Fully exempt in the hands of individual or legal heirs
3.	–	Salary received from United Nation Organization [Circular No. 293, dated 10-02-1981]	Fully exempt
4.	10(6)(ll)	Salary received by foreign national as an officials of an embassy, high commission, legation, consulate or trade representation of a foreign state	Fully exempt if corresponding official in that foreign country enjoys a similar exemption
5.	10(6)(vi)	Remuneration received by non-resident foreign citizen as an employee of a foreign enterprise for services rendered in India, if:a) Foreign enterprise is not engaged in any trade or business in Indiac) His stay in India does not exceed in aggregate a period of 90 days in such previous yearb) Such remuneration is not liable to deducted from the income of employer chargeable under this Act	Fully exempt
6.	10(6)(viii)	Salary received by a non-resident foreign national for services rendered in connection with his employment on a foreign ship if his total stay in India does not exceed 90 days in the previous year.	Fully exempt
7.	–	Salary and allowances received by a teacher /professor from SAARC member state (Subject to certain conditions).	Fully exempt

Notes:

1. Motor Car (taxable only in case of specified employees [See note 4] except when car owned by the employee is used by him or members of his household wholly for personal purposes and for which reimbursement is made by the employer)

S. No.	Circumstances	Engine Capacity up to 1600 cc	Engine Capacity above 1600 cc
1	Motor Car is owned or hired by the employer
1.1	Where maintenances and running expenses including remuneration of the chauffeur are met or reimbursed by the employer.
1.1-A	Used wholly and exclusively in the performance of official duties.	Fully exempt subject to maintenance of specified documents	Fully exempt subject to maintenance of specified documents
1.1-B	Used exclusively for the personal purposes of the employee or any member of his household.	Actual amount of expenditure incurred by the employer on the running and maintenance of motor car including remuneration paid by the employer to the chauffeur and increased by the amount representing normal wear and tear of the motor car at 10% per annum of the cost of vehicle less any amount charged from the employee for such use is taxable value of perquisite.
1.1-C	The motor car is used partly in the performance of duties and partly for personal purposes of the employee or any member of his household.	Rs. 1,800 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car) shall be taxable value of perquisite	Rs. 2,400 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car) shall be taxable value of perquisite
		Nothing is deductible in respect of any amount recovered from the employee.
1.2	Where maintenances and running expenses are met by the employee.
1.2-A	Used wholly and exclusively in the performance of official duties.	Not a perquisite, hence, not taxable	Not a perquisite, hence, not taxable
1.2-B	Used exclusively for the personal purposes of the employee or any member of his household	Expenditure incurred by the employer (i.e. hire charges, if car is on rent or normal wear and tear at 10% of actual cost of the car, if car is owned by the employer) plus salary of chauffeur if paid or payable by the employer minus amount recovered from the employee.
1.2-C	The motor car is used partly in the performance of duties and partly for personal purposes of the employee or any member of his household	Rs. 600 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car) shall be taxable value of perquisite	Rs. 900 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car) shall be taxable value of perquisite
		Nothing is deductible in respect of any amount recovered from the employee.
2	Motor Car is owned by the employee
2.1	Where maintenances and running expenses including remuneration of the chauffeur are met or reimbursed by the employer.
2.1-A	The reimbursement is for the use of the vehicle wholly and exclusively for official purposes	Fully exempt subject to maintenance of specified documents	Fully exempt subject to maintenance of specified documents
2.1-B	The reimbursement is for the use of the vehicle exclusively for the personal purposes of the employee or any member of his household (taxable in case of specified employee as well as non-specified employee)	Actual expenditure incurred by the employer minus amount recovered from the employee
2.1-C	The reimbursement is for the use of the vehicle partly for official purposes and partly for personal purposes of the employee or any member of his household.	Actual expenditure incurred by the employer minus Rs. 1800 per month and Rs. 900 per month if chauffer is also provided minus amount recovered from employee shall be taxable value of perquisite.	Actual expenditure incurred by the employer minus Rs. 2400 per month and Rs. 900 per month if chauffer is also provided minus amount recovered from employee shall be taxable value of perquisite.
3	Where the employee owns any other automotive conveyance and actual running and maintenance charges are met or reimbursed by the employer
3.1	Reimbursement for the use of the vehicle wholly and exclusively for official purposes;	Fully exempt subject to maintenance of specified documents	Fully exempt subject to maintenance of specified documents
3.2	Reimbursement for the use of vehicle partly for official purposes and partly for personal purposes of the employee.	Actual expenditure incurred by the employer as reduced by Rs. 900 per month	Not Applicable

2. Educational Facilities

Taxable only in the hands of specified employees [See note 4]

Facility extended to	Value of perquisite
	Provided in the school owned by the employer	Provided in any other school
Children	Cost of such education in similar school less Rs. 1,000 per month per child (irrespective of numbers of children) less amount recovered from employee	Amount incurred less amount recovered from employee (an exemption of Rs. 1,000 per month per child is allowed)
Other family member	Cost of such education in similar school less amount recovered from employee	Cost of such education incurred

2.1 Other Educational Facilities

Particulars	Taxable Value of Perquisites
Reimbursement of school fees of children or family member of employees	Fully taxable
Free educational facilities/ training of employees	Fully exempt

3. Employees Provident Fund

Tax treatment in respect of contributions made to and payment from various provident funds are summarized in the table given below:

Particulars	Statutory provident fund	Recognized provident fund	Unrecognized provident fund	Public provident fund
Employers contribution to provident fund	Fully Exempt	Exempt only to the extent of 12% of salary*	Fully Exempt	–
Deduction under section 80C on employees contribution	Available	Available	Not Available	Available
Interest credited to provident fund See Note	Fully Exempt	Exempt only to the extent rate of interest does not exceed 9.5%	Fully Exempt	Fully Exempt
Payment received at the time of retirement or termination of service	Fully Exempt	Fully Exempt (Subject to certain conditions and circumstances)	Fully Taxable (except employee’s contribution)	Fully Exempt

* Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits) + turnover based commission Payment from recognized provident fund shall be exempt in the hands of employees in following circumstances:

a) If employee has rendered continue service with his employer (including previous employer, when PF account is transferred to current employer) for a period of 5 years or more

b) If employee has been terminated because of certain reasons which are beyond his control (ill health, discontinuation of business of employer, etc.)

Note:

No exemption shall be available for the interest income accrued during the previous year in the recognised and statutory provident fund to the extent it relates to the contribution made by the employees over Rs. 2,50,000 in the previous year.

However, if an employee is contributing to the fund but there is no contribution to such fund by the employer, then the interest income accrued during the previous year shall be taxable to the extent it relates to the contribution made by the employee to that fund in excess of Rs. 5,00,000 in a financial year.

4. Specified Employee

The following employees are deemed as specified employees:

1) A director-employee

2) An employee who has substantial interest (i.e. beneficial owner of equity shares carrying 20% or more voting power) in the employer-company

3) An employee whose monetary income* under the salary exceeds the specified limit.

*Monetary Income means Income chargeable under the salary but excluding perquisite value of all non-monetary perquisites

II. Income under the House Properties

2.1 Basis of Charge [Section 22]:

Income from house property shall be taxable under this head if following conditions are satisfied:

a) The house property should consist of any building or land appurtenant thereto;

b) The taxpayer should be the owner of the property;

c) The house property should not be used for the purpose of business or profession carried on by the taxpayer.

2.2 Computation of income from house property:

Income from a house property shall be determined in the following manner:

Particulars	Amount
Gross Annual Value	–
Less: Municipal Taxes	–
Net Annual Value	****
Less: Standard deduction at 30% [Section 24(a)]	–
Less: Interest on borrowed capital [Section 24(b)]	–
Income from house property	****

2.3 Gross Annual value [Sec. 23(1)]

The Gross Annual Value of the house property shall be higher of following:

a) Expected rent, i.e., the sum for which the property might reasonably be expected to be let out from year to year. Expected rent shall be higher of municipal valuation or fair rent of the property, subject to maximum of standard rent;

b) Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy

Out of sum computed above, any loss incurred due to vacancy in the house property shall be deducted and the remaining sum so computed shall be deemed to the gross annual value.

2.4 Deductions:

Description	Nature of Deductions
Municipal Taxes	Municipal taxes including service-taxes levied by any local authority in respect of house property is allowed as deduction, if:a) Taxes are borne by the owner; andb) Taxes are actually paid by him during the year.
Standard Deduction[Section 24(a)]	30% of net annual value of the house property is allowed as deduction if property is let-out during the previous year.
Interest on Borrowed Capital * [Section 24(b)]	a) In respect of let-out property, actual interest incurred on capital borrowed for the purpose of acquisition, construction, repairing, re-construction shall be allowed as deduction
	b) In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of acquisition or construction of house property shall be allowed as deduction up to Rs. 2 lakhs. The deduction shall be allowed if capital is borrowed on or after 01-04-1999 and acquisition or construction of house property is completed within 5 years.
	c) In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of reconstruction, repairs or renewals of a house property shall be allowed as deduction up to Rs. 30,000.

* Any interest pertaining to the period prior to the year of acquisition/ construction of the house property shall be allowed as deduction in five equal installments, beginning with the year in which the property was acquired/ constructed.

* Deduction for interest on borrowed capital shall be limited to Rs. 30,000 in following circumstances:

a) If capital is borrowed before 01-04-1999 for the purpose of purchase or construction of a house property;

b) If capital is borrowed on or after 01-04-1999 for the purpose of re-construction, repairs or renewals of a house property;

c) If capital is borrowed on or after 01-04-1999 but construction of house property is not completed within five years from end of the previous year in which capital was borrowed.

Note:

With effect from Assessment Year 2020-21, deduction for interest paid or payable on borrowed capital shall be allowed in respect of two self-occupied house properties. However, the aggregate amount of deduction under this provision shall remain same i.e., Rs. 30,000 or Rs. 2,00,000, as the case may be.

2.4.1 Deduction for interest on housing loan [Section 80EE]

Deduction of up to Rs 50,000 shall be allowed to an Individual for interest payable on loan taken for the purpose of acquisition of a house property subject to following conditions:

a) Loan has been sanctioned by Financial institution during the financial year 2016-17;

b) The amount of loan sanctioned does not exceed Rs 35,00,000;

c) The value of residential property does not exceed Rs 50,00,000;

d) The assessee does not own any residential house property on the date of sanction of loan;

e) Where deduction has been allowed under this section, no deduction shall be allowed in respect of such interest under any other provision.

2.4.2 Deduction for interest paid on housing loan taken for affordable housing [Section 80EEA]

With an objective to provide an impetus to the ‘Housing for all’ initiative of the Government and to enable the home buyer to have low-cost funds at his disposal, the Finance (No. 2) Act, 2019 has inserted a new Section 80EEA under the Income-tax Act for those individuals who are not eligible to claim deduction under Section 80EE. An individual can claim deduction of up to Rs. 150,000 under Section 80EEA subject to following conditions:

(a) Loan should be sanctioned by the financial institution during the period beginning on 01-04-2019 and ending on the 31-03-2022;

(b) Stamp duty value of residential house property should not exceed Rs. 45 lakhs;

(c) The assessee should not own any residential house property on the date of sanction of loan; and

(d) The assessee should not be eligible to claim deduction under Section 80EE.

Hence, an individual who does not meet the criteria of Section 80EE shall now be eligible to claim deduction under Section 80EEA of up to Rs. 150,000 in addition to deduction under section 24(b). This deduction is available from Assessment Year 2020-21.

2.5 Computation of Income from House Property

S. No.	Property Type	Gross Annual Value of the property	Deduction for municipal taxes	Net Annual Value of the property	Standard Deduction	Interest on borrowed capital
1.	Self-occupied house property/properties	Nil	Nil	Nil	Nil	Aggregate Deduction for interest on borrowed capital is allowed up to Rs. 30,000 or Rs. 2,00,000, as the case may be.
2.	House property cannot be actually occupied due to any reason	Nil	Nil	Nil	Nil	Deduction for interest on borrowed capital is allowed up to Rs. 30,000 or Rs. 2,00,000, as the case may be.
3.	Let out property	To be computed as per provisions of Section 23(1)	Allowed on actual payment basis	Gross annual value less Municipal taxes	30% of Net Annual Value	Entire amount of interest paid or payable on borrowed capital shall be allowed as deduction. Pre-construction interest shall be allowed as deduction in 5 annual equal installments (Subject to certain conditions).
4.	More than two-self occupied properties	Only two properties selected by the taxpayer will be considered as self-occupied house properties and all other properties shall be deemed to be let-out for the purpose of computation of income under the head house property.
5.	Self-occupied property/properties let-out for the part of the year	The house will be taken as let-out property and no concession shall be available for the duration during which the property was self-occupied.
6.	One part of the property is let-out and other part is used for self-occupied purposes	Each part of the property shall be considered as separate property and income will be computed accordingly

2.6 Composite Rent:

If letting out of building along with movable assets i.e., machinery, plan, furniture or fixtures, etc. forms part of a single transaction and are inseparable, the composite rent shall be taxable under the head “Profits and gains from business or profession” or “Income from other sources”, as the case may be. On the other hand, if the letting out of building is separable from letting of other assets, then income from letting out of building shall be taxable under the head “Income from house property” and income from letting out of other assets shall be taxable under the head “Profits and gains from business or profession” or “Income from other sources”, as the case may be.

2.7 Treatment of unrealized rent and arrears of rent [Explanation to section 23(1)]

2.7.1 Deduction for unrealized rent:

Unrealized rent is that portion of rental income which the owner could not realize from the tenant. Unrealized rent is allowed to be deducted from actual rent received or receivable only if the following conditions are satisfied:

a) The tenancy is bona fide;

b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;

c) The defaulting tenant is not in occupation of any other property of the assessee;

d) The taxpayer has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.

2.7.2 Arrears of rent or recovery of unrealized rent [Section 25A]

Amount received in respect of arrears of rent or any subsequent recovery of unrealized rent shall be deemed to be the income of taxpayer under the head “Income from house property” in the year in which such rent is realized or received (whether or not the assessee is the owner of that property in that year).

Further, 30% of such rent shall be allowed as deduction.

2.8 Co-owner and Deemed Owner

2.8.1 Property owned by co-owners [Section 26]:

If house property is owned by co-owners and their share in house property is definite and ascertainable then the income of such house property will be assessed in the hands of each co-owner separately. For the purpose of computing income from house property, the annual value of the property will be taken in proportion to their share in the property. In such a case, each co-owner shall be entitled to claim benefit of self-occupied house property in respect of their share in the property (subject to prescribed conditions). However, where the shares of co-owners are not definite, the income of the property shall be assessed as that of an Association of persons.

2.8.2 Deemed owner [Section 27]:

Income from house property is taxable in the hands of its owner. However, in the following cases, legal owner is not considered as the real owner of the property and someone else is considered as the deemed owner of the property to pay tax on income earned from such house property:

1. An individual, who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred;

2. The holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate;

3. A member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme shall be deemed to be the owner of that building or part thereof;

4. A person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 shall be deemed to be the owner of that building or part thereof;

5. A person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in section 269UA(f), shall be deemed to be the owner of that building or part thereof.

III. Profits and Gains from Business and Profession

3.1 Chargeability:

The following incomes are chargeable to tax under the head Profit and Gains from Business or Profession:

S. No.	Section	Particulars
1.	28(i)	Profit and gains from any business or profession carried on by the assessee at any time during the previous year
2.	28(ii)	Any compensation or other payment due to or received by any specified person
3.	28(iii)	Income derived by a trade, professional or similar association from specific services performed for its members
4.	28(iiia)	Profit on sale of a license granted under the Imports (Control) Order 1955, made under the Import Export Control Act, 1947
5.	28(iiib)	Cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of Government of India
6.	28(iiic)	Any duty of Customs or Excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971.
7.	28(iiid)	Profit on transfer of Duty Entitlement Pass Book Scheme, under Section 5 of Foreign Trade (Development and Regulation) Act, 1992
8.	28(iiie)	Profit on transfer of Duty Free Replenishment Certificate, under Section 5 of Foreign Trade (Development and Regulation) Act 1992
9.	28(iv)	Value of any benefits or perquisites arising from a business or the exercise of a profession.
10.	28(v)	Interest, salary, bonus, commission or remuneration due to or received by a partner from partnership firm
11.	28(va)	a) Any sum received or receivable for not carrying out any activity in relation to any business or profession; orb) 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.
12.	28(vi)	Any sum received under a Key man Insurance policy including the sum of bonus on such policy
12A.	28(via)	Any profit or gains arising from conversion of inventory into capital asset.
13.	28(vii)	Any sum received ( or receivable) in cash or in kind, on account of any capital assets (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital assets has been allowed as a deduction under section 35AD
14.	Explanation 2 to section 28	Income from speculative transactions. However, it shall be deemed to be distinct and separate from any other business.
14A.	Explanation 3 to Section 28	Income from letting out of a residential house shall be chargeable to tax under the head ‘Income from house property’
15.	41(1)	• Remission or cessation of liability in respect of any loss, expenditure or trading liability incurred by the taxpayers• Recovery of trading liability by successor which was allowed to the predecessor shall be chargeable to tax in the hands of 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.
16.	41(2)	Depreciable asset in case of power generating units, is sold, discarded, demolished or destroyed, the amount by which sale consideration and/ or insurance compensation together with scrap value exceeds its WDV shall be chargeable to tax.
17.	41(3)	Where any capital asset used in scientific research is sold without having been used for other purposes and the sale proceeds together with the amount of deduction allowed under section 35 exceed the amount of the capital expenditure, such surplus or the amount of deduction allowed, whichever is less, is chargeable to tax as business income in the year in which the sale took place.
18.	41(4)	Where bad debts have been allowed as deduction under Section 36(1)(vii) in earlier years, any recovery of same shall be chargeable to tax.
19.	41(4A)	Amount withdrawn from special reserves created and maintained under Section 36(1)(viii) shall be chargeable as income in the previous year in which the amount is withdrawn.
20.	41(5)	Loss of a discontinued business or profession could be adjusted from the deemed business income as referred to in section 41(1), 41(3), (4) or (4A) without any time limit.
20A.	43AA	Any foreign exchange gain or loss arising in respect of specified foreign currency transactions shall be treated as income or loss. Such gain or loss shall be computed in accordance with notified ICDS [subject to Section 43A]
21.	43CA	Where consideration for transfer of land or building or both as stock-in-trade is less than the stamp duty value, the value so adopted shall be deemed to be the full value of consideration for the purpose of computing income under this head.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.
22.	43CB	The profits and gains arising from construction contract or a contract for providing service is to be determined on the basis of percentage completion method, in accordance with the notified ICDS.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.
23.	43D	In the case of following assessees, income by way of interest on the prescribed bad or doubtful debts is chargeable to tax in the year of receipt or in the year of credit of such income in the profit and loss account, whichever is earlier:(a) A public financial institution;(b) A scheduled bank;(c) A co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank;(d) A state financial corporation;(e) A state Industrial investment corporation;(f) Such class of non-banking financial companies as notified by Govt.
24	—	Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Govt. or State Govt. or any authority or body or agency to the assessee would be included in definition of income as referred to in Section 2(24). However, in the following cases subsidy or grant shall not be treated as income: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.

3.2 Deductions under Sections 30 to 37

Amount deductible, while computing, Profits and Gains of Business or Profession are:-

Section	Nature of expenditure	Quantum of deduction	Assessee
30	Rent, rates, taxes, repairs (excluding capital expenditure) and insurance for premises	Actual expenditure incurred excluding capital expenditure	All assessee
31	Repairs (excluding capital expenditure) and insurance of machinery, plant and furniture	Actual expenditure incurred excluding capital expenditure	All assessee
32(1)(i)	Depreciation oni) 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	Allowed at prescribed percentage on Straight Line Method for each assetProvided 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.	Assessees engaged in business of generation or generation and distribution of powerNote: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.
32(1)(ii)	Depreciation oni) 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	Allowed at prescribed percentage on WDV method for each block of assetProvided 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.	All assessees
32(1)(iia)	Additional depreciation on new plant and machinery (other than ships, aircraft, office appliances, second hand plant or machinery, etc.).(subject to certain conditions)	Additional depreciation shall be available @20 % of the actual cost of new plant and machinery.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	All assessee engaged in- 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)
Proviso to Section 32(1)(iia)	Additional depreciation on new plant and machinery (other than ships, aircraft, office appliances, second hand plant or machinery, etc.))(Subject to certain conditions)	Additional depreciation shall be available @35 % of the actual cost of new plant and machinery.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 yearNote: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	All assessees- where an assessee sets up an undertaking or enterprise for production or manufacture of any article or thing in any notified backward area in state of the state of Andhra Pradesh, Bihar, Telangana or West Bengal.
32AC	Deduction under section 32AC is available if actual cost of new plant and machinery acquired and installed by a manufacturing company during the previous year exceeds Rs. 25/100 Crores, as the case may be.(Subject to certain conditions)	15% of actual cost of new asset	Company engaged in business or manufacturing or production of any article or thing
32AD	Investment allowance for investment in new plant and machinery if manufacturing unit is set-up in the notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal(Subject to certain conditions)	Investment allowance shall be available @15 % of the actual cost of new plant and machinery in the year of installation of new asset.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	All assessee who acquired new plant and machinery for the purpose of setting-up manufacturing unit in the notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal
33AB	Amount deposited in Tea/Coffee/Rubber Development Account by assessee engaged in business of growing and manufacturing tea/Coffee/Rubber in India	Deduction shall be lower of following: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; orb) 40% of profits from such business before making any deduction under section 33AB and before adjusting any brought forward loss.(Subject to certain conditions)	All assessee engaged in business of growing and manufacturing tea/Coffee/Rubber
33ABA	Amount deposited in Special Account with SBI/Site Restoration Account by assessee carrying on business of prospecting for, or extraction or production of, petroleum or natural gas or both in India	Deduction shall be lower of following:a) Amount deposited in Special Account with SBI/Site Restoration Account; orb) 20% of profits from such business before making any deduction under section 33ABA and before adjusting any brought forward loss.(Subject to certain conditions)	All assessee engaged in business of prospecting for, or extraction or production of, petroleum or natural gas or both in India
35(1)(i)	Revenue expenditure on scientific research pertaining to business of assessee is allowed as deduction (Subject to certain conditions).	Entire amount incurred on scientific research is allowed as deduction.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.	All assessee
35(1)(ii)	Contribution to approved research association, university, college or other institution to be used for scientific research shall be allowed as deduction (Subject to certain conditions)	100% of sum paid to such association, university, college, or other institution is allowed as deduction.	All assessee
35(1)(iia)	Contribution to an approved company registered in India to be used for the purpose of scientific research is allowed as deduction (Subject to certain conditions)	100% of sum paid to the company is allowed as deduction	All assessee
35(1)(iii)	Contribution to approved research association, university, college or other institution with objects of undertaking statistical research or research in social sciences shall be allowed as deduction (Subject to certain conditions)	100% of sum paid to such association, university, college, or other institution is allowed as deduction	All assessee
35(1)(iv) read with 35(2)	Capital expenditure incurred during the year on scientific research relating to the business carried on by the assessee is allowed as deduction (Subject to certain conditions)	Entire capital expenditure incurred on scientific research is allowed as deduction.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.	All assessee
35(2AA)	Payment to a National Laboratory or University or an Indian Institute of Technology or a specified person is allowed as deduction.The payment should be made with the specified direction that the sum shall be used in a scientific research undertaken under an approved programme.	100% of payment is allowed as deduction (Subject to certain conditions).	All assessee
35(2AB)	Any expenditure incurred by a company on scientific research (including capital expenditure other than on land and building) on in-house scientific research and development facilities as approved by the prescribed authorities shall be allowed as deduction (Subject to certain conditions).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.	100% of expenditure so incurred shall be allowed as deduction.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.	Company engaged in business of bio-technology or in any business of manufacturing or production of eligible articles or things
35ABA	Capital expenditure incurred and actually paid for acquiring any right to use spectrum for telecommunication services shall be allowed as deduction over the useful life of the spectrum.	Deduction will be available in equal installments starting from the year in which actual payment is made and ending in the year in which spectrum comes to an end.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.	All assessee engaged in telecommunication services
35ABB	Capital expenditure incurred for acquiring any license or right to operate telecommunication services shall be allowed as deduction over the term of the license.	Deduction would be allowed in equal installments starting from the year in which such payment has been made and ending in the year in which license comes to an end.	All assessee engaged in telecommunication services
35AC	Expenditure by way of payment of any sum to a public sector company/local authority/approved association or institution for carrying out any eligible scheme or project (Subject to certain conditions).	Actual payment made to prescribed entities. However, a company can also claim deduction for expenditure incurred by it directly on eligible projects.Note:-No deduction in any A.Y. commencing on or after the 1st day of April, 2018	All assessee. However, deduction for direct expenditure is allowed only to a company
35AD	Deduction in respect of `expenditure on specified businesses, as under:a) Setting up and operating a cold chain facilityb) Setting up and operating a warehousing facility for storage of agricultural producec) Building and operating, anywhere in India, a hospital with at least 100 beds for patientsd) Developing and building a housing project under a notified scheme for affordable housinge) Production of fertilizer in India(Subject to certain conditions)	150% of capital expenditure incurred for the purpose of business is allowed as deduction provided the specified business has commenced its operation on or after 01-04-2012.100% of capital expenditure will be allowed to be deducted from the assessment year 2018-19 onwardsNote: 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.	All assessee
35AD	Deduction in respect of expenditure on specified businesses, as under: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 rehabilitationd) Setting up and operating an inland container depot or a container freight statione) Bee-keeping and production of honey and beeswaxf) Setting up and operating a warehousing facility for storage of sugarg) Laying and operating a slurry pipeline for the transportation of iron oreh) Setting up and operating a semi-conductor wafer fabrication manufacturing uniti) Developing or maintaining and operating, or developing, maintaining and operating a new infrastructure facility(Subject to certain conditions)	100% of capital expenditure incurred for the purpose of business is allowed as deduction provided specified businesses commence operations on or after the prescribed dates.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.	All assesseeNote: 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 networkii) Developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility.
35CCA	Payment to following Funds are allowed as deduction:a) National Fund for Rural Development; andb) Notified National Urban Poverty Eradication Fund	Actual payment to specified funds	All assessee
35CCC	Expenditure (not being cost of land/building) incurred on notified agricultural extension project for the purpose of training, educating and guiding the farmers shall be allowed as deduction, provided the expenditure to be incurred is expected to be more than Rs. 25 lakhs (Subject to certain conditions).	100% of the expenditure (Subject to certain conditions)	All assessee
35CCD	Expenditure incurred by a company (not being expenditure in the nature of cost of any land or building) on any notified skill development project is allowed as deduction (Subject to certain conditions).	100% of the expenditure (Subject to certain conditions)Note:(i) No deduction shall be allowed to a company engaged in manufacturing alcoholic spirits or tobacco products.	Company engaged in manufacturing of any article or providing specified services
35D	An Indian company can amortize certain preliminary expenses (up to maximum of 5% of cost of the project or capital employed, whichever is more) (Subject to certain conditions and nature of expenditures)	Qualifying preliminary expenditure is allowable in each of 5 successive years beginning with the previous year in which the extension of undertaking is completed or the new unit commences production or operation.	Indian Company
35D	Non-corporate taxpayers can amortize certain preliminary expenses (up to maximum of 5% of cost of the project) (Subject to certain conditions and nature of expenditures)	Qualifying preliminary expenditure is allowable in each of 5 successive years beginning with the previous year in which the extension of undertaking is completed or the new unit commences production or operation.	Resident Non-corporate assessees
35DD	Expenditure incurred after 31-3-1999 in respect of amalgamation or demerger can be amortized by an Indian Company	Expenditure is allowed as deduction in five equal installments in 5 previous years starting with the year in which amalgamation or demerger took place.	Indian Company
35DDA	Expenditure incurred under Voluntary Retirement Scheme is allowed as deduction.	Each payment under VRS is allowed as deduction in five equal installments in 5 previous years.	All assessee
35E	Qualifying expenditure incurred by resident persons on prospecting for the minerals or on the development of mine or other natural deposit of such minerals shall be allowed as deduction (Subject to certain conditions).	Eligible expenditure is allowed as deduction in ten equal installments in 10 previous years.	Resident persons
36(1)(i)	Insurance premium covering risk of damage or destruction of stocks/stores	Actual expenditure incurred	All assessee
36(1)(ia)	Insurance premium covering life of cattle owned by a member of co-operative society engaged in supplying milk to federal milk co-operative society	Actual expenditure incurred	All assessee
36(1)(ib)	Medical insurance premium paid by any mode other than cash, to insure employee’s health under (a) scheme framed by GIC of India and approved by Central Government; or (b) scheme framed by any other insurer and approved by IRDA	Actual expenditure incurred	All assessee
36(1)(ii)	Bonus or commission paid to employees which would not have been payable as profit or dividend if it had not been paid as bonus or commission	Actual expenditure incurred	All assessee
36(1)(iii)	Interest on borrowed capital (Subject to certain conditions)	Interest paid in respect of capital borrowed for the purposes of the business or profession shall be allowed as deduction. However, if capital is borrowed for acquiring an asset, then interest for any period beginning from the date on which capital was borrowed till the date on which asset was first put to use, shall not be allowed as deduction.	All assessee
36(1)(iiia)	Discount on Zero Coupon Bonds (Subject to certain conditions)	Pro-rata amount of discount on zero coupon bonds shall be allowed as deduction over the life of such bond	Specified Assessee
36(1)(iv)	Employer’s contributions to recognized provident fund and approved superannuation fund [subject to certain limits and conditions]	Actual expenditure incurred	All assessee
36(1)(iva)	Any sum paid by assessee-employer by way of contribution towards a pension scheme, as referred to in section 80CCD, on account of an employee.	Actual expenditure not exceeding 14% of the salary* of the employee*Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission	All assessee – Employer
36(1)(v)	Employer’s contribution towards approved gratuity fund created exclusively for the benefit of employees under an irrevocable trust shall be allowed as deduction (Subject to certain conditions).	Actual expenditure not exceeding 8.33% of salary of each employee	All assessee – Employer
36(1)(va)	Deposit of employee’s contributions in their respective provident fund or superannuation fund or any fund set up under Employees’ State Insurance Act, 1948	Actual amount received if credited to the employee’s account in relevant fund on or before due date specified under relevant Act	All assessee – Employer
36(1)(vi)	Allowance in respect of animals which have died or become permanently useless (Subject to certain conditions)	Actual cost of acquisition of such animals less realization on sale of carcasses of animals	All assessee
36(1)(vii)	Bad debts which have been written off as irrecoverable (Subject to certain conditions)	Actual bad debts which have been written off from books of accountsNote:-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.	All assessee
36(1)(viia)	Deductions for provision for bad and doubtful debts created by certain banks, financial institutions and non-banking financial company (Subject to certain conditions).NoteDeduction 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).	Deductions for provision for bad and doubtful debts shall be limited to following:(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	Banks, Public Financial Institutions, Non-banking financial company, State Financial Corporation, State Industrial Investment Corporations
36(1)(viii)	Deduction under this provisions is allowed to following entities in respect of amount transferred to special reserve account:a) Financial Corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India; orb) 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]	Deduction shall be allowed to the extent of lower of following:a) Amounts transferred to special reserve accountb) 20% of profits derived from eligible businessc) 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)	Specified financial corporations or public company
36(1)(ix)	Expenditure incurred by a company on promotion of family planning amongst employees is allowed as deduction	1) Entire revenue expenditure is allowed as deduction2) Capital expenditure shall be allowed as deduction in five equal installment in five years	Company
36(1)(xii)	Any expenditure incurred by a notified corporation or body corporate constituted or established by a Central, State or Provincial Act, for the objects and purposes authorized by the respective Act is allowed as deduction	Actual expenditure incurred (not being in the nature of capital expenditure)	Notified corporations
36(1)(xiv)	Contribution to Credit Guarantee Trust Fund for micro and small industries is allowed as deduction	Actual expenditure incurred	Public Financial Institutions
36(1)(xv)	Securities Transaction Tax paid	Actual expenditure incurred if corresponding income is included as income under the head profits and gains of business or profession	All assessee
36(1)(xvi)	Amount equal to commodities transaction tax paid by an assessee in respect of taxable commodities transactions entered into in the course of his business during the previous year is allowed as deduction	Actual expenditure incurred if corresponding income is included as income under the head profits and gains of business or profession	All assessee
36(1)(xvii)	Amount of expenditure incurred by a co-operative society engaged in the business of manufacture of sugar for purchase of sugarcane.	Deduction would be allowed the extent of lower of following:a) Actual purchase price of sugarcane, orb) Price of sugarcane fixed or approved by the Government	Co-operative society engaged in the business of manufacture of sugar
36(1)(xviii)	Marked to market loss or other unexpected loss as computed in accordance with notified ICDS	Actual losses incurred	All assessee
37(1)	Any other expenditure [not being personal or capital expenditure and expenditure mentioned in sections 30 to 36] laid out wholly and exclusively for purposes of business or professionNote:(1) 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.(2) 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, or to settle proceedings initiated in relation to contravention under such law as may be notified by the Central Govt, shall not be eligible for deduction under section 37(1).	Actual expenditure incurred	All assessee
37(2B)	Expenditure on advertisement in any souvenir, brochure etc. published by a political party shall not be allowed as deduction	Not Allowed	All assessee

3.3 Amount expressly disallowed under the Act

Section	Description
40(a)(i)	Any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it was paid without deduction of tax at source or if tax was deducted but not deposited with the Central Government till the due date of filing of return. 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.
40(a)(ia)	Any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it was paid without deduction of tax at source or if tax was deducted but not deposited with the Central Government till the due date of filing of return.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.
40(a)(ib)	Any sum paid or payable to a non-resident which is subject to a deduction of Equalisation levy would attract disallowance if such sum was paid without deduction of such levy or if it was deducted but not deposited with the Central Government till the due date of filing of return.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
40(a)(ii)	Any sum paid on account of any rate or tax levied on the profits and gains of business or profession is not deductibleNote: Tax shall include ‘surcharge or cess’.
40(a)(iia)	Wealth-tax or any other tax of similar nature shall not be deductible
40(a)(iib)	Amount paid by way of royalty, license fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on (or any amount appropriated) a State Government undertaking by the State Government shall not be deductible.
40(a)(iii)	Salaries payable outside India, or in India to a non-resident, on which tax has not been paid/deducted at source is not deductible.
40(a)(iv)	Payments to provident fund or other funds for employees’ benefit shall not be deductible if no effective arrangements have been made to ensure deduction of at source from payments made from such funds to employees which shall be chargeable to tax as ‘salaries’.
40(a)(v)	Tax paid by the employer on non-monetary perquisites provided to employees is not deductible if the tax so paid is not taxable in the hands of employees by virtue of Section 10(10CC).
40(b)	Following sum paid by a partnership firm to its partners shall not be allowed to be deducted: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. 6 Lakhs of book profit or in case of loss – Rs. 3,00,000 or 90% of book profit, whichever is more;b) On the balance of the book profit – 60% of book profit
40(ba)	Interest, salary, bonus, commission or remuneration paid by Association of Persons or Body of Individuals to its members shall not be allowed as deduction (Subject to certain conditions).
40A(2)	Any payment to related parties (relatives, directors, partner, member of HUF/AOP, person who has substantial interest in business of the taxpayer, etc.) in respect of any expenditure shall be disallowed to the extent such expenditure is considered excessive or unreasonable by the Assessing Officer having regard to its fair market value.
40A(3)/(3A)	An expenditure, which is otherwise deductible under any provision of the Act, shall be disallowed if payment thereof has been made otherwise than by account payee cheque/bank draft or use of electronic clearing system through a bank account or through other prescribed electronic mode of payment and it exceeds Rs. 10,000 (Rs. 35,000 in case of payment made for plying, hiring or leasing goods carriages) in a day (Subject to certain conditions and exceptions).
40A(7)	Provision for payment of gratuity to employees, other than a provision for contribution to approved gratuity fund, shall not be allowed as deduction (Subject to specified conditions).Gratuity actually paid (or payable) during the year and contribution to approved gratuity fund is allowed as deduction.
40A(9)	Any sum paid as an employer for setting up or as contribution to any fund, trust, company, AOP, BOI, Society or other institution (other than recognized provident fund, approved superannuation fund, approved gratuity fund or pension scheme referred to in section 80CCD) shall not be allowed as deduction if such contribution or payment is not required by any law.
40(A)(13)	No deduction shall be allowed in respect of marked to market loss or other unexpected loss except as allowable under section 36(1)(xviii).

3.4 Expenses deductible on actual payment basis

The following expenses shall be allowed as deduction if such expenditure are actually paid on or before the due date of filing of return of income:-

Section	Particulars
43B(a)	Any Tax, Duty, Cess or Fees under any Law
43B(b)	Any contribution to Provident Fund/Superannuation Fund/Gratuity Fund/Welfare Fund
43B(c)	Bonus or Commission paid to employees which would not have been payable as profit or dividend
43B(d)	Interest on Loan or Borrowings from Public Financial Institutions/State Financial Institutions etc.
43B(da)	Interest on loan from a deposit taking NBFC or systemically important non-deposit taking NBFC
43B(e)	Interest on loan or advance from bank
43B(f)	Payment of Leave Encashment
43B(g)	Sum payable to the Indian Railways for the use of railway assets.
43B(h)	Sum payable to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006

Notes :

1) No deduction shall be allowed under section 43B if any interest has been converted debenture or any other instrument by which liability to pay interest is deferred to a future date.

2) Any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in Section 15 of MSMED Act shall be allowed in the previous year in which such sum is actually paid.

3.5 Other provisions

Section	Particulars	Provision
42	Special allowance in case of business of prospecting etc. for mineral oil (including petroleum and natural gas) in relation to which the Central Government has entered into an agreement with the taxpayer for the association or participation (Subject to certain conditions).	Following deductions shall be allowed as deductions:a) Any infructuous exploration expenditureb) Expenditure on drilling or exploration activities or services, etc.c) Allowance in relation to depletion of mineral oil, etc.
43A	Special provisions consequential to changes in rate of exchange of Currency (Subject to certain conditions).	Any increase or decrease in the liability incurred in foreign currency (to acquire a capital asset) pursuant to fluctuation in the foreign exchange rates shall be adjusted with the actual cost of such asset only on actual payment of the liability.
43C	Acquisition of any asset (except stock-in-trade) by the taxpayer in the scheme of amalgamation or by way of gift, will etc.	Cost of acquisition of any asset (except stock-in-trade) acquired by the taxpayer in the scheme of amalgamation or by way of gift, will etc. from the transferor (who sold it as stock-in-trade) shall be the cost of acquisition in the hands of transferor as increased by cost of any improvement made

3.6 Provisions applicable to Non-Resident/Foreign Company

Section	Particulars	Limit of exemption or Computation of income/deduction	Available to
44B read with 172	Income from shipping business shall be computed on presumptive basis (Subject to certain conditions).	7.5% of specified sum shall be deemed to be the presumptive income	Non-resident engaged in shipping business (other than cruise ships referred to in section 44BBC)
44BB	Income of a non-resident engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils shall be computed on presumptive basis (Subject to certain conditions).	10% of specified sum shall be deemed to be the presumptive income	Non-resident engaged in activities connected with exploration of mineral oils
44BBA	Income of a non-resident engaged in the business of operation of aircraft shall be computed on presumptive basis (Subject to certain conditions).	5% of specified sum shall be deemed to be the presumptive income	Non-resident engaged in the business of operating of aircraft
44BBB	Income of a foreign company engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with turnkey power projects shall be computed on presumptive basis (Subject to certain conditions).	10% of specified sum shall be deemed to be the presumptive income	Foreign Company
44BBC	Presumptive taxation scheme for the business of operation of cruise ships by non-residents	20% of the specified amounts shall be deemed to be the presumptive income.`	Non-resident
44C	Deduction for Head office Expenditure (Subject to certain conditions and limits)	Deduction for head-office expenditure shall be limited to lower of following: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.	Non-resident
44DA	Deduction of expenditure from royalty and FTS received under an agreement made after 31-03-2003 which is effectively connected to the PE of non-resident in India (Subject to certain conditions)	Expenditure incurred wholly and exclusively for the business of PE or fixed place of profession in India shall be allowed as deduction.	Non-resident

3.7 Accounts and Audit

Section	Particulars	Threshold
44AA	Compulsory maintenance of prescribed books of account – Specified Profession	Mandatory in every case except where presumptive taxation scheme under Section 44ADA is opted by the assessee
44AA	Compulsory maintenance of books of account – Other business or profession(Subject to certain conditions and circumstances)	1) If total sales, turnover or gross receipts exceeds Rs. 25,00,000 in any one of the three years immediately preceding the previous year; or2) If income from business or profession exceeds Rs. 1,20,000 (Rs. 2,50,000 in the case of an individual or HUF) in any one of the three years immediately preceding the previous year
44AB	Compulsory Audit of books of accounts (Subject to certain conditions and circumstances)	1) If total sales, turnover or gross receipts exceeds Rs. 1Crore in any previous year, in case of business; orNote: The 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 business2) If gross receipts exceeds Rs. 50 Lakhs in any previous year, in case of profession.Note:a) The provisions of this section is not applicable to the person, who declares profits and gains in accordance with presumptive taxation Scheme under Section 44AD/44ADA/44AE

3.8 Presumptive Taxation

Section	Nature of business	Presumptive income
44AD	Income from eligible business can be computed on presumptive basis if turnover of such business does not exceed two crore rupees.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)	Presumptive income of eligible business shall be 8% of gross receipt or total turnover.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.
44ADA	Income from eligible profession u/s 44AA(1) can be computed on presumptive basis if the total gross receipts from such profession do not exceed fifty lakh rupees in a previous year.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)	Presumptive income of such profession shall be 50% of total gross receipt.
44AE	Presumptive income from business of plying, hiring or leasing of goods carriage if assessee does not own more than 10 goods carriage.	For Heavy Goods Vehicle: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.

IV. Income under the Capital Gains

4.1 Chargeability:

Capital gains shall be chargeable to tax if following conditions are satisfied:

a) There should be a capital asset. In other words, the asset transferred should be a capital asset on the date of transfer;

b) It should be transferred by the taxpayer during the previous year;

c) There should be profits or gain as a result of transfer.

4.2 Meaning of Capital Asset [Sec 2(14)]

Capital Asset is defined to include:

(a) Property of any kind, held by an assessee, whether or not connected with his business or profession;

(b) Any securities held by a FII which has invested in such securities in accordance with the SEBI Regulations;

(c) Any securities held by a Category I or Category II AIFwhich has invested in such securities in accordance with the SEBI or IFSC Regulations;

(d) Any unit linked insurance policy to which exemption under Section 10(10D) does not apply.

However, the term ‘capital asset’ shall exclude the following:

a) Stock-in-trade, consumable stores, raw materials held for the purpose of business or profession;

b) Movable property held for personal use of taxpayer or for any member of his family dependent upon him. However, jewellery, costly stones, and ornaments made of silver, gold, platinum or any other precious metal, archaeological collections, drawings, paintings, sculptures or any work of art shall be considered as capital asset even if used for personal purposes;

c) Specified Gold Bonds and Special Bearer Bonds;

d) Agricultural Land in India, not being a land situated:

a. Within jurisdiction of municipality, notified area committee, town area committee, cantonment board and which has a population not less than 10,000;

b. Within range of following distance measured aerially from the local limits of any municipality or cantonment board:

i. not being more than 2 KMs, if population of such area is more than 10,000 but not exceeding 1 lakh;

ii. not being more than 6 KMs , if population of such area is more than 1 lakh but not exceeding 10 lakhs; or

iii. not being more than 8 KMs , if population of such area is more than 10 lakhs.

e) Deposit certificates issued under the Gold Monetisation Scheme, 2015

4.3 Type of Capital Assets

A. Short Term Capital Asset

Capital asset held for not more than 24 months (36 months if the transfer takes place before 23-07-2024) immediately prior to the date of transfer shall be deemed as short-term capital asset. However, the following assets held for not more than 12 months shall be treated as short-term capital assets:

a) Equity or preference shares in a company which are listed in any recognized stock exchange in India;

b) Other listed securities;

c) Units of UTI;

d) Units of equity oriented funds; or

e) Zero Coupon Bonds.

Long Term Capital Asset

Capital Asset that held for more than 24 months (36 months if the transfer takes place before 23-07-2024) or 12 months, as the case may be, immediately preceding the date of transfer is treated as long-term capital asset.

4.4 Period of Holding

The period of holding shall be determined as follows:

Different situations	How to calculate the period of holding
Shares held in a company in liquidation	The period subsequent to the date on which the company goes into liquidation shall be excluded.
Capital asset which becomes the property of the assessee in the circumstances mentioned in section 49(1) read with section 47 [i.e., when an asset is acquired by gift, will, succession, inheritance or the asset is required at the time of partition of family or under a revocable or irrevocable trust or under amalgamation, etc.]	The period for which the asset was held by the previous owner should be included (cost of acquisition in this case shall be computed in the manner provided in Para 4.10)
Allotment of shares in amalgamated Indian company in lieu shares held in amalgamating company	The period of holding shall be computed from the date of acquisition of shares in the amalgamating company.
Right shares	The period of holding shall be computed from the date of allotment of right shares.
Right entitlement	The period of holding will be considered from the date of offer to subscribe to shares to the date when such right entitlement is renounced by the person.
Bonus shares	The period of holding shall be computed from the date of allotment of bonus shares.
Issue of shares by the resulting company in a scheme of demerger to the shareholders of the demerged company	The period of holding shall be computed from the date of acquisition of shares in the demerged company.
Membership right held by a member of recognised stock exchange	In case of shares as well as trading/clearing rights, the period for which the person was a member of the stock exchange immediately prior to such demutualization/corporatization shall be included.
Flat in a co-operative society	The period of holding shall be computed from the date of allotment of shares in the society.
Sweat equity shares allotted by employer	The period of holding shall be reckoned from the date of allotment or transfer of such equity shares (applicable from the assessment year 2008-09)
Unit of a business trust [allotted pursuant to transfer of shares as referred to in section 47(xvii)]	The period of holding shall include the period for which shares were held by the assessee.
Conversion of preference shares into equity shares	The period of holding of equity shares shall include the period for which preference shares were held by the assessee
Units allotted to an assessee pursuant to consolidation of two or more scheme of a mutual fund as referred to in Section 47(xviii)	The period of holding of such units shall include the period for which the unit or units in the consolidating scheme of the mutual fund were held by the assessee.
Shares in a company acquired by the non-resident assessee on redemption of Global Depository Receipts referred to in Section 115AC(1)(b)	The period of holding of such shares shall be reckoned from the date on which a request for such redemption was made.
Transactions in shares and securities not given above:
1) Date of purchase (through stock exchanges) of shares and Securities2) Date of transfer (through stock exchanges) of shares and securities3) Date of purchase/transfer of shares and securities (transaction taken place directly between parties and not through stock exchanges)4) Date of purchase/sale of shares and securities purchased in several lots at different points of time but delivery taken subsequently and sold in parts5) Transfer of a security by a depository (i.e., demat account)	a) Date of purchase by broker on behalf of investor.b) Date of broker’s note provided such transactions are followed up by delivery of shares and also the transfer deeds.c) Date of contract of sale as declared by parties provided it is followed up by actual delivery of shares and the transfer deeds.d) The FIFO method shall be adopted to reckon the period of the holding of the security, in cases where the dates of purchase and sale cannot be correlated through specific number of scrips.e) The period of holding shall be determined on the basis of the first-in-first-out method.
Conversion of stock-in-trade into capital asset	The period of holding of such converted asset shall be reckoned from the date of conversion.
Conversion of gold into Electronic Gold receipt issued by Vault Manager	The period for which the assessee held the gold before conversion into EGR would be included in the period of holding of EGR
Conversion of Electronic Gold Receipt into gold	The period for which the assessee holds the EGR before conversion to gold would be included in the period of holding of gold

4.5 Meaning of Transfer [Section 2(47)]

“Transfer”, in relation to a capital asset, includes:

(i) Sale, exchange or relinquishment of the asset;

(ii) Extinguishment of any rights in relation to a capital asset;

(iii) Compulsory acquisition of an asset;

(iv) Conversion of capital asset into stock-in-trade;

(v) Maturity or redemption of a zero coupon bond;

(vi) Allowing possession of immovable properties to the buyer in part performance of the contract;

(vii) Any transaction which has the effect of transferring an (or enabling the enjoyment of) immovable property; or

(viii) Disposing of or parting with an asset or any interest therein or creating any interest in any asset in any manner whatsoever.

4.6 Transactions which are not regarded as transfer [Section 47]

Following transactions shall not be regarded as transfer (subject to certain condition). Hence, following transaction shall not be charged to capital gains:

Section	Particulars
46(1)	Distribution of asset in kind by a company to its shareholders at the time of liquidation
47(i)	Distribution of capital asset on total or partial partition of HUF
47(iii)	Transfer of capital asset by an individual or a Hindu Undivided Family under a gift or will or an irrevocable trust
47(iv)	Transfer of capital asset by a company to its wholly owned subsidiary company
47(v)	Transfer of a capital asset by a wholly owned subsidiary company to its holding company
47(vi)	Transfer of capital assets in a scheme of amalgamation
47(via)	Transfer of shares in an Indian company held by a foreign company to another foreign company under a scheme of amalgamation of the two foreign companies
47(viab)	Transfer of share of a foreign company (which derives, directly or indirectly, its value substantially from the share or shares of an Indian company) held by a foreign company to another foreign company under a scheme of amalgamation (subject to conditions)
47(viaa)	Transfer of capital assets in a scheme of amalgamation of a banking company with a banking institution
47(vib)	Transfer of capital assets by the demerged company to the resulting company in a demerger
47(vic)	Transfer of shares held in an Indian company by a demerged foreign company to the resulting foreign company
47(vica)	Any transfer of a capital asset by the predecessor co-operative bank to the successor co-operative bank in a business reorganization.
47(vicb)	Any transfer of capital asset (being shares) held by a shareholder in the predecessor co-operative bank if the transfer is made in consideration of the allotment to him of any shares in the successor co-operative bank in a scheme of business reorganization
47(vicc)	Transfer of share of a foreign company (which derives, directly or indirectly, its value substantially from the share or shares of an Indian company) held by a demerged foreign company to resulting foreign company in case of demerger (subject to conditions)
47(vid)	Transfer or issue of shares by the resulting company to the shareholders of the demerged company in a scheme of demerger
47(vii)	Allotment of shares in amalgamated company in lieu of shares held in amalgamating company
47(viia)	Transfer of capital assets (being foreign currency convertible bonds or GDR) by a non-resident to another non-resident
47(viiaa)	Any transfer made outside India, of a capital asset (being rupee denominated bond of an Indian company issued outside India) by a non-resident to another non-resident
47(viiab)	Any transfer of following capital assets by a non-resident on a recognised stock exchange located in any International Financial Services Centre:a) Bond or GDRb) Rupee Denominated Bond of an Indian Co.c) Derivatived) Such other Securities as may be prescribed.
47(viiac)	Any transfer of a capital asset by original fund to the resulting fund in a relocation.
47(viiad)	Transfer of capital asset (being share, unit, interest), by a shareholder or unit holder or interest holder, held by him, in original fund in consideration for share or unit or interest in the resultant fund in a relocation.
47(viiae)	Transfer of capital asset by India Infrastructure Finance Company to an institution established for financing the infrastructure and development.
47(viiaf)	Transfer of capital asset, under a plan approved by the Central Government, by a public sector company to another public sector company
47(viib)	Transfer of capital assets (being a Government security carrying periodic payment of interest) outside India through an intermediary dealing in settlement of securities by a non-resident to another non- resident
47(viic)	Redemption of capital asset being sovereign gold bond issued by RBI under the Sovereign Gold Bond Scheme, 2015
47(viid)	Conversion of Gold into Electronic Gold Receipt issued by a Vault Manager, or Conversion of Electronic Gold Receipt into Gold.
47(ix)	Transfer of a capital asset (being work of art, manuscript, painting, etc.) to Government, University, National museum, etc.
47(x)	Transfer by way of conversion of bonds or debentures into shares
47(xa)	Transfer by way of conversion of bonds [as referred to in section 115AC(1)(a)] into shares or debentures of any company
47(xb)	Any transfer by way of conversion of preference shares into equity shares
47(xi)	Transfer by way of exchange of a capital asset being membership of a recognized stock exchange for shares of a company
47(xii)	Transfer of land by a sick industrial company which is managed by its workers’ co-operative
47(xiii)	Transfer of a capital asset by a firm to a company in the case of conversion of firm into company
47(xiiia)	Transfer of a capital asset being a membership right held by a member of a recognized stock exchange in India
47(xiiib)	Transfer of a capital asset by a private company or unlisted public company to an LLP, or any transfer of shares held in the company by a shareholder, in the case of conversion of company into LLP
47(xiv)	Transfer of a capital asset to a company in the case of conversion of proprietary concern into a company
47(xv)	Transfer involved in a scheme of lending of securities
47(xvi)	Transfer of a capital asset in a transaction of reverse mortgage made under a scheme notified by the Government
47(xvii)	Transfer of a capital asset (being share of a special purpose vehicle) to a business trust in exchange of units allotted by that trust to the transferor
47(xviii)	Transfer of units of a mutual fund pursuant to consolidation of two or more schemes of equity oriented mutual fund or of two or more schemes of a mutual fund other than equity oriented mutual fund
47(xix)	Transfer of units of a mutual fund from one plan to another pursuant to consolidation of plans within scheme of mutual funds.
47(xx)	Transfer of the interest in a Joint Venture in exchange for shares in a foreign company.

4.7 Computation of capital Gain:

Computation of capital gain depends upon the nature of the capital asset transferred during the previous year, vis-à-vis, short-term capital asset, long-term capital asset or depreciable asset. Capital gain arising on transfer of short-term capital asset or depreciable asset is considered as short-term capital gain, whereas transfer of long-term capital asset gives rise to long-term capital gain.

The capital gains on transfer of capital asset shall be computed in the following manner:

Short-term or long-term capital assets[Section 48]	Depreciable asset[Section 50]*
Full value of considerationLess: Cost of acquisition of asset (See Note 1)Less: Cost of improvement (See Note 1)Less: Expenditure incurred wholly and exclusively in connection with such transfer	WDV of block of asset at the beginning of previous yearAdd: Actual cost of assets falling within that block acquired during the yearLess: Full value of consideration of assets transferred during the yearLess: Expenditure incurred wholly and exclusively in connection with such transfer

* Short-term capital gain or loss from sale of depreciable asset will arise only in the following two situations:

a) When on last day of the previous year, WDV of the block of asset is nil; or

b) When on last day of the previous year, block ceases to exist.

Note 1: Indexed Cost of Acquisition and Improvement [Second Proviso to Section 48]

a) In case of transfer of long-term capital assetsbefore 23-07-2024*, indexed cost of acquisition and indexed cost of improvement shall be deducted from the full value of consideration;

b) Indexed cost of acquisition and Indexed cost of improvement shall be computed with reference to Cost Inflation Index (‘CII’) in the following manner:

Indexed Cost of Acquisition =	[(Cost of Acquisition) × (CII for the year of transfer)]
	(CII for the year of acquisition or for the Financial Year 2001-02, whichever is later)

—

Indexed Cost of Improvement =	[(Cost of Improvement) × (CII for the year of transfer)]
	CII for the year of Improvement

Note : The base year for computation of capital gains has been shifted from 1981 to 2001 with effect from assessment year 2018-19. Thus, if any capital asset (acquired before April 1, 2001) is transfered then assessee has an option to take its cost of acquisition either as fair market value as on April 1, 2001 or its actual cost.

* The Finance (No. 2) Act, 2024 removed the indexation benefit and introduced a uniform tax rate of 12.5% on long-term capital gains. As per the amendment, no indexation benefit is allowed while computing capital gain from long-term capital assets transferred on or after 23-07-2024. However, the Government has introduced a grandfathering provision. This provision allows resident individuals and resident HUFs to still apply indexation on land or building acquired before 23-07-2024 and pay tax at the old rate of 20% if the tax under the new law (i.e., tax calculated at 12.5% without indexation benefit) results in a higher amount.

However, there are some cases where benefit of indexation is not available, which are as under:

Section	Capital Asset	Transferor
Third Proviso to Section 48	Long-term capital gains arising from transfer of an equity share, or a unit of an equity oriented fund or a unit of a business trust as referred to in Section 112A.	Any Person
Fourth proviso to section 48	Bonds or debentures.Note: However, indexation benefit is available on two type of bonds, namely,- Capital indexed bonds (issued by the Government) Sovereign Gold Bond (issued by the RBI under the Sovereign Gold Bond Scheme, 2015)	Any person
112	Capital gains arising from transfer of unlisted shares (which is taxable at concessional rate) as calculated without giving effect to first proviso to Section 48	Non-resident
50A	Depreciable asset (other than an asset used by a power generating unit eligible for depreciation on straight line basis)	Any person
50B	Undertaking/division transferred by way of slump sale as covered by section 50B	Any person
115AB	Units purchased in foreign currency as given in section 115AB	Offshore fund
115AC	Global depository receipts (GDR) purchased in foreign currency as given in section 115AC	Non-resident
115ACA	Global depository receipts (GDR) purchased in foreign currency as given in section 115ACA	Resident individual – employee
115AD	Securities as given in section 115AD	Foreign InstitutionalInvestors

CII in relation to a previous year means such index, as Central Government notifies on year to year basis.

The Central Government has notified the following Cost Inflation Indexes

Financial year	Cost Inflation Index
2001-02	100
2002-03	105
2003-04	109
2004-05	113
2005-06	117
2006-07	122
2007-08	129
2008-09	137
2009-10	148
2010-11	167
2011-12	184
2012-13	200
2013-14	220
2014-15	240
2015-16	254
2016-17	264
2017-18	272
2018-19	280
2019-20	289
2020-21	301
2021-22	317
2022-23	331
2023-24	348
2024-25	363
2025-26	376

4.8 Computation of capital gain in case of sale of shares or debentures of an Indian company purchased by a non-resident in foreign currency [first proviso to section 48]

In such a case, capital gain shall be determined as under:-

Full Value of Consideration (X)	Find out sale consideration in Indian currency and convert it into same foreign currency, which was used to acquire the capital asset, at average exchange rate* on the date of transfer.
Cost of acquisition (Y)	Find out the cost of acquisition in Indian currency and convert it into foreign currency at average exchange rate on the date of acquisition.
Expenditure on sale (Z)	Find out the expenditure on transfer in Indian currency and convert it into same foreign currency at average exchange rate on the date of transfer (not on the date when expenditure is incurred).
Capital gain (X-Y-Z)	The capital gains as computed in after reducing the cost of acquisition and expenditure from the full value of consideration shall be reconverted into Indian currency at buying rate** on the date of transfer.

* Average exchange rate means the average of the telegraphic transfer buying rate and telegraphic transfer selling rate of the foreign currency initially utilised in the purchase of capital asset.

** Buying rate is the telegraphic transfer buying rate of such currency.

4.9 Full Value of Consideration

Full value of consideration is the consideration received or receivable by the transferor in lieu of assets, which he has transferred. Such consideration may be received in cash or in kind. If it is received in kind, then fair market value (‘FMV’) of such assets shall be taken as full value of consideration.

However, in the following cases “full value of the consideration” shall be determined on notional basis as per the relevant provisions of the Income-tax Act, 1961:

S. No.	Nature of transaction	Section	Full Value of Consideration
1.	Money or other asset received under any insurance from an insurer due to damage or destruction of a capital asset	45(1A)	Value of money or the FMV of the asset (on the date of receipt)
2.	Conversion of capital asset into stock-in-trade	45(2)	FMV of the capital asset on the date of conversion
3.	Transfer of capital asset by a partner or member to firm or AOP/BOI, as the case may be, as his capital contribution	45(3)	Amount recorded in the books of accounts of the firm or AOP/BOI as the value of the capital asset received as capital contribution
4.	Distribution of capital asset by Firm or AOP/BOI to its partners or members, as the case may be, on its dissolution	45(4)	FMV of such asset on the date of transfer
5.	Money or other assets received by share- holders at the time of liquidation of the company	46(2)	Total money plus FMV of assets received on the date of distribution less amount assessed as deemed dividend under section 2(22)(c)
6.	Buy-back of shares and other specified securities by a company	46A	Consideration paid by company on buyback of shares or other securities would be deemed as full value of consideration. The difference between the cost of acquisition and buy-back price (full value of consideration) would be taxed as capital gain in the hands of the shareholder.However, in case of buy-back of shares by a domestic company (whether listed or unlisted), the company shall be liable to pay additional tax at the rate of 20% under section 115QA on the distributed income (i.e., buy-back price as reduced by the amount received by the company for issue of such shares). Consequently, capital gain arising in hands of shareholder shall be exempt by virtue of section 10(34A) in such cases.Note:(1) The Finance (No. 2) Act, 2024, has inserted a sunset date in section 115QA and provides that, with effect from 01-10-2024, the company shall not pay taxes on the buyback of shares. The buyback is now taxable in the hands of shareholders as a dividend under Section 2(22)(f).(2) The Finance (No. 2) Act, 2024 has also inserted a proviso to Section 46A to provides that the full value of consideration will be considered ‘Nil’ while computing capital gains in respect of the buy-back of shares on or after 01-10-2024.
7.	Shares, debentures, warrants (‘securities’) allotted by an employer to an employee under notified Employees Stock Option Scheme and such securities are gifted by the concerned employee to any person	Fourth Proviso to Section 48	Fair Market value of securities at the time of gift
7A.	Conversion of capital asset into stock-in-trade	49	FMV of the inventory as on the date of conversion
7B.	The transfer of a Specified Mutual Fund acquired on or after 1st April 2023 or a Market Linked DebentureNote: Applicability of Section 50AA extended to unlisted bonds and unlisted debentures that are transferred, redeemed, or matured on or after July 23, 2024.	50AA	Full value of consideration a rising out of transfer or redemption or maturity of such debenture or unit as reduced by-(a) The cost of acquisition of the debenture or unit; and(b) Expenditure incurred wholly and exclusively in connection with such transfer or redemption or maturity.
7C.	Computation of capital gains in case of slump sale	50B	FMV of the capital assets (being an undertaking or division transferred by way of slump sale) as on the date of transfer shall be deemed to be full value of the consideration received or accruing as a result of transfer of such capital asset. Such FMV shall be calculated in the prescribed manner.
8.	In case of transfer of land or building, if sale consideration declared in the conveyance deed is less than the stamp duty value	50C	The value adopted or assessed or assessable by the Stamp Valuation Authority shall be deemed to be the full value of consideration. 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: Where the date of agreement (fixing the amount of consideration) and the date of registration for the transfer of property are not the same, the value adopted or assessed or assessable by Stamp Valuation Authority on the date of agreement may be taken as full value of consideration.
8A.	Where consideration for transfer of unquoted shares is less than the Fair Market Value	50CA	The Fair Market Value (so determined in prescribed manner) shall be deemed to be the full value of consideration Note: The Board may prescribe transactions undertaken by certain class of persons to which the provisions of Section 50CA shall not be applicable. (w.e.f. Assessment Year 2020-21)
9.	If consideration received or accruing as a result of transfer of a capital asset is not ascertainable or cannot be determined	50D	FMV of asset on the date of transfer

4.10 Cost of Acquisition

Cost of acquisition of an asset is the amount for which it was originally acquired by the assessee. It includes expenses of capital nature incurred in connection with such purchase or for completing the title of the property.

However, in cases given below, cost of acquisition shall be computed on notional basis:

S. No.	Particulars	Notional Cost of Acquisition
1.	Additional compensation in the case of compulsory acquisition of capital assets	Nil
2.	Assets received by a shareholder on liquidation of the company	FMV of such asset on the date of distribution of assets to the shareholders
3.	Stock or shares becomes property of taxpayer on consolidation, conversion, etc.	Cost of acquisition of such stock or shares from which such asset is derived
4.	Allotment of shares in an amalgamated Indian co. to the shareholders of amalgamating co. in a scheme of amalgamation	Cost of acquisition of shares in the amalgamating co.
5.	Conversion of debentures into shares	That part of the cost of debentures in relation to which such asset is acquired by the assessee
5A.	Conversion of preference shares into equity shares	The part of the cost of preference shares in relation to which such asset is acquired by the assessee.
6.	Allotment of shares/securities by a co. to its employees under ESOP Scheme approved by the Central Government	a) If shares are allotted during 1999-2000 or on or after April 1, 2009, FMV of securities on the date of exercise of optionb) If shares are allotted before April 1, 2007 (not being during 1999-2000), the amount actually paid to acquire the securitiesc) If shares are allotted on or after April 1, 2007 but before April 1, 2009, FMV of securities on the date of vesting of option (purchase price paid to the employer or FBT paid to employer shall not be considered)
6A.	Listed Equity Shares or Units of Equity Oriented Funds or Units of Business Trust as referred to in Section 112A acquired before February 1, 2018.	Higher of :(i) Cost of acquisition of such asset; and(ii) Lower of:(A) The fair market value of such asset; and(B) The full value of consideration received or accruing as a result of transfer of such asset.Note: For meaning of ‘Fair market Value’ refer Explanation to Section 55(2)(ac).
7.	Property covered by section 56(2)(vii) or (viia) or (x)	The value which has been considered for the purpose of Section 56(2)(vii) or (viia) or (x)
8.	Allotment of shares in Indian resulting company to the existing shareholders of the demerger company in a scheme of demerger	Cost of acquisition of shares in demerged company ? Net book value of assets transferred in demerger ? Net worth of the demerged company immediately before demerger
9.	Cost of acquisition of original shares in demerged company after demerger	Cost of acquisition of such shares minus amount calculated above in point 8.
10.	Cost of acquisition of assets acquired by successor LLP from predecessor private company or unlisted public company at the time of conversion of the company into LLP in compliance with conditions of Section 47(xiiib)	Cost of acquisition of the assets to the predecessor private company or unlisted public company
11.	Cost of acquisition of rights of a partner in a LLP which became the property of the taxpayer due to conversion of a private company or unlisted public company into the LLP	Cost of acquisition of the shares in the co. immediately before conversion
12.	Depreciable assets covered under Section 50	Opening WDV of block of assets on the first day of the previous year plus actual cost of assets acquired during the year which fall within the same block of assets
13.	Depreciable assets of a power generating unit as covered under Section 50A*	WDV of the asset minus terminal depreciation plus balancing charge
14.	Undertaking/division acquired by way of slump sale as covered under Section 50B	Net worth of such undertaking
15.	New asset acquired for claiming exemptions under sections 54, 54B, 54D, 54G or 54GA if it is transferred within three years	Actual cost of acquisition minus exemption claimed under these sections
16.	Goodwill of business/profession or trade mark or brand name associated with business or right to manufacture, produce or process any article or thing or right to carry on any business or profession, tenancy right, stage permits or loom hours	a) If such asset were acquired by the assessee by purchase from a previous owner; cost of acquisition means amount of purchase price;b) In the case falling under sub-clauses(i) to (iv) of sub-section (1) of section 49 and such asset was acquired by the previous owner by purchase; cost of acquisition means amount of purchase price for such previous owner; andc) in any other case, cost of acquisition shall be taken to be nil.
17.	Right shares	Amount actually paid by assessee
18.	Right to subscribe to shares (i.e., right entitlement)	Nil
19.	Bonus shares	a) If allotted to the assessee before April 1, 2001 : Fair market value on that date of 01-04-2001b) In any other case: Nil
20.	Allotment of equity shares and right to trade in stock exchange, allotted to members of stock exchange under a scheme of demutualization or corporatization of stock exchanges as approved by SEBI	a) Cost of acquisition of shares: Cost of acquisition of original membership of the stock exchangeb) Cost of acquisition of trading or clearing rights of the stock exchange: Nil
21.	Capital asset, being a unit of business trust, acquired in consideration of transfer as referred to in section 47(xvii)	Cost of acquisition of shares as referred to in section 47(xvii) [applicable from AY 2015-16]
	Units allotted to an assessee pursuant to consolidation of two or more scheme of a mutual fund as referred to in Section 47(xviii)	Cost of acquisition of such units shall be the cost of acquisition of units in the consolidating scheme of the mutual fund
	Shares in a company acquired by the non-resident assessee on redemption of Global Depository Receipts referred to in Section 115AC(1)(b)	Cost of acquisition of such shares shall be calculated on the basis of the price prevailing on any recognized stock exchange on the date on which a request for such redemption was made.
24.	Any other capital asset:	a) If it became property of taxpayer before April 1, 2001 by gift, will, etc., in modes specified in section 49(1): Cost of acquisition to the previous owner or FMV as on April 1, 2001, whichever is higherb) If it became property of taxpayer before April 1, 2001 : Cost of acquisition or FMV as on April 1, 2001, whichever is morec) If it became property of taxpayer on or after April 1, 2001 by gift, will, etc., in modes specified in section 49(1): Cost of acquisition to the previous ownerd) If it became property of taxpayer on or after April 1, 2001 : Actual cost of acquisition

* Terminal Depreciation/Balancing Charge:

a) Balancing Charge = Sales Consideration – WDV of the depreciable asset

b) Terminal Depreciation = WDV – Sales Consideration

When a depreciable asset (which was subject to depreciation on straight line basis) of a power generating units is sold, discarded, demolished or destroyed then terminal depreciation shall be deductible from sale consideration while computing capital gains, or balancing charge is taxable in the relevant year, as the case may be.

4.11 Cost to the Previous Owner [sec. 49(1)]

Cost to the previous owner shall be deemed to be the cost of acquisition in the hands of the taxpayer in cases where a capital asset becomes the property of the assessee under any of the modes given below:

a) On any distribution of assets on the total or partial partition of a HUF

b) Under a Gift or Will;

c) By Succession, Inheritance or Devolution;

d) On any distribution of assets on dissolution of a firm, BOI or AOP (where such dissolution had taken place at any time before the 01-04-1987);

e) On any distribution of assets on liquidation of a company;

f) Under a transfer to a revocable or an irrevocable trust;

g) On any transfer by a holding company to its wholly owned Indian subsidiary company;

h) On any transfer by a wholly owned subsidiary company to its Indian holding company;

i) On any transfer by the amalgamating company to the Indian amalgamated company;

j) In a scheme of amalgamation, any transfer of shares held in a Indian company by a amalgamating foreign company to the amalgamated Foreign company;

k) Consequent to transfer of share(in a scheme of amalgamation as referred to in Section 47(viab)of a foreign company which derives, directly or indirectly, its value substantially from the share or shares of an Indian company held by amalgamating foreign company to the amalgamated foreign company.

l) Consequent to transfer of capital asset by the demerged company to the resulting Indian company. (in case of demerger)

m) Consequent to transfer of share (in case of demerger as referred to in Section 47(vic)of a foreign company which derives, directly or indirectly, its value substantially from the share or shares of an Indian company held by a demerged foreign company to resulting foreign company.

n) Any transfer, in a scheme of amalgamation of a banking company with a banking institution;

o) On any transfer in a scheme of business reorganization of a cooperative bank;

p) On any transfer in a scheme of conversion of private company or unlisted company into LLP;

q) On any transfer in case of conversion of Firm or Sole proprietary concern into Company;

r) By HUF where one of its members has converted his self-acquired property into joint family property.

Note:

Where previous owner has also acquired the property in the aforesaid manner the ‘previous owner’ of the property shall be construed as the last previous owner who acquired the property by means other than those stated above.

4.12 Cost of Improvement [Sec. 55(1)(b)]

Cost of improvement, in relation to the capital assets shall include all capital expenditure incurred in making addition or alteration to the capital assets by the assessee or the previous owner. However, cost of improvement does not include any expenditure incurred prior to 01-04-2001. Cost of improvement shall be computed in the following manner:

S. No.	Particular	Cost of Improvement
1.	In relation to goodwill of a business, right to manufacture, produce any article or thing or right to carry on business or profession	NIL
2.	In relation to capital asset which becomes property of the assessee or previous owner before 01-04-2001	Any expenditure of capital nature incurred on or after 01-04-2001
3.	In relation to capital asset which becomes property of the assessee or previous owner before 01.04.2001 by way of any mode specified under Section 49(1)	Any expenditure of capital nature incurred on or after 01-04-2001 by the assessee or the previous owner
4.	In relation to capital asset which becomes property of the assessee or previous owner on or after 01.04.2001	Any expenditure of capital nature incurred by the assessee or the previous owner
5.	In relation to capital asset which becomes property of the assessee or previous owner on or after 01-04-2001 by way of any mode specified under Section 49(1)	Any expenditure of capital nature incurred by the assessee or the previous owner

4.13 Rates of tax on capital gains:

1. Short Term Capital Gains

a) Short-term capital gains shall be included in the gross total income of the taxpayer and will be taxed at the normal rates;

b) Short-term capital gains arising from the transfer of Equity Shares, Units of an Equity Oriented Funds or a unit of a business trust which is chargeable to securities transaction tax shall be taxed under section 111Aat:

• 15% for any transfer which takes place before 23-07-2024; and
• 20% for any transfer which takes place on or after 23-07-2024.

Note:-

Now benefit of reduced rate of tax (i.e., 20%/15%) shall be available in respect of income arising from transfer of units of a business trust which were acquired by assessee in lieu of shares of special purpose vehicle as referred to in section 47(xvii).

2. Long Term Capital Gains

a) Long-term capital gains are subject to tax at the rate of:

• • 20% for any transfer which takes place before 23-07-2024; and
  • 12.5% for any transfer which takes place on or after 23-07-2024.

b) Long-term capital gains arising from transfer of listed securities [other than as referred to in point d) below] or a zero coupon shall be taxable as follows:

• • If transfer takes place before 23-07-2024, long-term capital gains shall be taxable at the following rate, whichever is beneficial:

i. 20% after taking benefit of indexation; or

ii. 10% without taking benefit of indexation.

If transfer takes place on or after 23-07-2024, long-term capital gains shall be taxable at 12.5% without indexation.

c) Long-term capital gains arising to a non-residents or foreign company from transfer of unlisted securities shall be taxed at the following rates without giving benefit for indexation;

• • 10% for any transfer which takes place before 23-07-2024; and
  • 12.5% for any transfer which takes place on or after 23-07-2024.

d) Long-term capital gains arising from transfer of listed equity share, or a unit of an equity oriented fund or a unit of a business trust as referred to in Section 112A shall be chargeable to tax at the rate of:

• • 10% in excess of Rs. 1,00,000** for any transfer which takes place before 23-07-2024; and
  • 12.5% in excess of Rs. 1,25,000** for any transfer which takes place on or after 23-07-2024.

**The aggregate limit of Rs. 1,25,000 shall be considered to compute long-term capital gains from transfer made during 01-04-2024 to 31-03-2025. For Financial Year 2025-26, the threshold limit of Rs. 1,25,000 shall be considered.

Note:

(1) The Finance (No. 2) Act, 2024, has provided a uniform tax rate of 12.5% for long-term capital gains on all capital assets and has removed the indexation benefit. Therefore, for long-term capital assets transferred on or after 23-07-2024, the original cost of acquisition or improvement shall be deducted from the full value of consideration to compute capital gains instead of indexed cost of acquisition or indexed cost of improvement. To ease the transition to these new rules, the Government has introduced a grandfathering provision. As per this provision, if the amount of tax under the new law (i.e., the law as amended by the Finance (No. 2) Act, 2024) exceeds the amount of tax under the old law (i.e., the law as it stood immediately before the amendment by the Finance (No. 2) Act, 2024 ), the excess amount shall be ignored. Thus, this provision ensures that the taxpayers do not face higher taxes under the new regime compared to the old one. However, this grandfathering provision applies only to resident individuals or Hindu Undivided Families (HUFs) and only for land or buildings acquired before 23-07-2024.

(2) Beside above, there are special tax rates prescribed under section 115AB, 115AC, 115ACA, 115AD and 115E to tax capital gains.

4.14 Reference to valuation officer [Section 55A]

With a view to ascertaining the fair market value of a capital asset, the concerned Assessing Officer may refer the valuation of the capital asset to a Valuation Officer appointed by the Income-tax Department in the following cases:

1) Where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer (who works in a private capacity under a licence issued by the Board and his valuation is not binding on the Assessing Officer), but the Assessing Officer is of opinion that the value so claimed is at variance with the fair market value of the asset;

2) Where the Assessing Officer is of opinion that the fair market value of the asset exceeds the value of the asset by more than Rs. 25,000 or 15 per cent of the value claimed by the assessee, whichever is less; or

3) Where the Assessing Officer is of opinion that, having regard to nature of an asset and relevant circumstances, it is necessary to make a reference to the Valuation Officer

4.15 Deduction/ Exemption under Capital Gain

Particulars	Section 54	Section 54B	Section 54D	Section 54EC	Section 54EE	Section 54F	Section 54G	Section 54GA	Section 54GB
Eligible taxpayers	Individual and HUF	Individual and HUF	Any person	Any person	Any Person	Individual and HUF	Any person	Any person	Individual and HUF
Capital gains eligible for exemption	Long-term	Short-term or Long-term	Short-term or Long-term	Long-term	Long-term	Long-term	Short-term or Long-term	Short-term or Long-term	Long-term
Capital gains arising from transfer of	Residential House property	Agriculture land used by taxpayer or by his parents or HUF for agriculture purposes in last 2 years before its transfer	Compulsory acquisition of land or building forming part of industrial undertaking (which was used for industrial purposes for at least 2 years before its acquisition).	Any long-term capital asset being Land or Building or Both	Any long-term capital asset	Any long term asset (other than a residential house property) provided on date of transfer taxpayer does not own more than one residential house property (except the new house)	Land, building, plant or machinery, in order to shift industrial undertaking from urban area to rural area.	Land, building, plant or machinery, in order to shift industrial undertaking from urban area to SEZ.	Residential property (house or a plot of land) Note: Provisions of this section shall not apply to any transfer of residential property made after March 31, 2017. However, in case of an investment in eligible start-up, the residential property can be transferred up to March 31, 2019. Note: w.e.f. Assessment Year 2020-21, the sunset date for transfer of original capital asset (residential property) for investment in eligible start-ups is extended from March 31, 2019 to March 31, 2021 and the condition of minimum holding of 50% of share capital or voting rights in the start-up is relaxed to 25%.
Assets to be acquired for exemption	One residential house property Or Two residential house properties Note: With effect from Assessment Year 2020-21, a taxpayer has an option to make investment in two residential house properties in India. This option can be exercised by the taxpayer only once in his lifetime provided the amount of long-term capital gain does not exceed Rs. 2 crores.	Agricultural land (may be in urban area or rural area)	Land or building for shifting or reestablishing said industrial undertaking	Bond of NHAI or REC, etc.	Units of such fund as may be notified by Central Government to finance start-ups	One residential house property	Land, building, plant or machinery, in order to shift industrial undertaking to rural area.	Land, building, plant or machinery, in order to shift industrial undertaking to SEZ.	Subscription in equity shares of an eligible company. Note: 1. W.e.f. April 1, 2017, eligible start-up is also included in definition of eligible company. 2. The eligible company should utilize the amount of subscription for purchase of new assets (i.e., plant and machinery except vehicle, office appliances, computer or computer software etc.). However, In the case of eligible startup, the new asset shall include computers or computer software.
Time limit for acquiring the new assets	Purchase: within 1 year before or 2 years after date of transfer Construction: within 3 years after date of transfer	Within 2 years after date of transfer	Within 3 years from date of receipt of compensation	Within 6 months from date of transfer	Within 6 months after the date of transfer of original asset	Purchase: within 1 year before or within 2 years after date of transfer Construction: within 3 years after date of transfer	within 1 year before or 3 years after date of transfer	Within 1 year before or within 3 years after date of transfer	Investment by the assessee – Before due date for furnishing of return under Sec. 139(1). Investment by the company – within 1 year from date of subscription.
Exemption Amount	Investment in new assets or capital gain, whichever is lower Note: if the cost of new asset exceeds Rs. 10 crore, the excess amount shall be ignored and Rs. 10 crore shall be taken into consideration	Investment in agricultural land or capital gain, whichever is lower	Investment in new assets or capital gain, whichever is lower	Investment in new assets or capital gains, whichever is lower, however, subject to Rs. 50 lakhs.	Investment in new assets or capital gains, whichever is lower, however, subject to Rs. 50 lakhs.	Investment in new assets X capital gain/net consideration Note: if the cost of new asset exceeds Rs. 10 crore, the excess amount shall be ignored and Rs. 10 crore shall be taken into consideration	Investment in new assets or capital gain, whichever is lower	Investment in new assets or capital gain, whichever is lower	Investment in new assets X capital gain/net consideration
Withdrawal of exemption	If new asset is transferred within 3 years of its acquisition	If new asset is transferred within 3 years of its acquisition	If new asset is transferred within 3 years of its acquisition	If new asset is transferred or it is converted into money or a loan is taken on its security within 5 years of its acquisition	If new asset is transferred within a period of 3 years from the date of its acquisition. Note: Where assessee takes loans or advance on security of such specified asset, he shall be deemed to have transferred such asset on the date on which such loan or advance is taken.	a) If new asset is transferred within 3 years of acquisition, b) if another residential house is purchased within 2 years of transfer of original asset; c) if another house is constructed within 3 years of transfer of original asset	If new asset is transferred within 3 years of acquisition	If new asset is transferred within 3 years of acquisition	If equity shares in company or new asset acquired by company is sold or transferred within a period of 5 years from date of acquisition. Note: w.e.f. Assessment Year 2020-21, the restriction on the transfer of new asset is reduced to 3 years in case of computer or computer software.
Deposit in Capital gains deposit scheme before due date under Sec. 139(1)	Yes	Yes	Yes	No	No	Yes	Yes	Yes	Yes

Note: The Central Board of Direct Taxes has notified the bonds redeemable after 5 years issued by Housing and Urban Development Corporation Limited (HUDCO) as a “long-term specified asset” for the purposes of section 54EC.[Notification no. 31/2025, dated 07-04-2025]

Capital Gain Account Scheme 1988

a) The scheme is open to all taxpayers, who wish to claim exemption under Sections 54, 54B, 54D, 54F, 54Gor 54GB.

b) If taxpayer could not invest the capital gains to acquire new asset before due date of furnishing of return, the capital gains can be deposited before due date for furnishing of return of income in deposit account in any branch of a nationalized bank in accordance with Capital Gain Account Scheme 1988.

c) w.e.f. Assessment Year 2024-25, if the capital gains deposited in the Capital Gains Scheme Account (CGSA) exceed Rs. 10 crores, the excess amount shall not be taken into account while computing capital gain exemption under section 54.

d) w.e.f. Assessment Year 2024-25, where the net consideration deposited in the CGSA exceeds Rs. 10 crores, the excess amount shall not be taken into account while computing capital gain exemption under section 54F

V. Income from Other Sources

Any income which is not chargeable to tax under any other heads of income and which is not to be excluded from the total income shall be chargeable to tax as residuary income under the head “Income from Other Sources”.

5.1 Basis of Charge [Sec. 56]:

Income chargeable to tax under the head “Income from other sources” shall include following:

S. No.	Nature of income taxable as residuary income
1.	Dividends
2.	Income by way of winnings from lotteries, crossword puzzles, races including horse races, card games, gambling or betting of any form or nature whatsoever
3.	Any sum received by an employer from his employees as contribution towards PF/ESI/ Superannuation Fund etc., if same is not deposited in the relevant fund and it is not taxable under the head ‘Profits and Gains from Business or Profession’.
4.	Interest on securities, if not taxable under the head ‘Profits and Gains of Business or Profession’
5.	Income from machinery, plant or furniture belonging to taxpayer and let on hire, if income is not chargeable to tax under the head ‘Profits and Gains of Business or Profession’
6.	Composite rental income from letting of plant, machinery or furniture with buildings, where such letting is inseparable and such income is not taxable under the head ‘Profits and Gains of Business or Profession’
7.	Any sum received under Keyman Insurance Policy (including bonus), if not taxable under the head ‘Profits and Gains of Business or Profession’ or under the head ‘Salaries’
8.	In the following cases, any sum of money or property received by a person from any person (except from relatives or member of HUF or in given circumstances, see note 1) shall be taxable under the head ‘Income from other sources’:a) If any sum is received without consideration in excess of Rs. 50,000 during the previous year, the whole amount shall be chargeable to tax;Though the provisions relating to gift applies in case of every person, but it has been reported that gifts by a resident person to a non-resident are claimed to be non-taxable in India as the income does not accrue or arise in India. To ensure that such gifts made by residents to a non-resident person are subjected to tax in India, the Finance (No. 2) Act, 2019 has inserted a new clause (viii) under Section 9 of the Income-tax Act to provide that any income arising outside India, being money paid without consideration on or after 05-07-2019, by a person resident in India to a non-resident or a foreign company shall be deemed to accrue or arise in India.However, the Finance Act, 2023 amended section 9(viii) to include the applicability of provisions of gifts in case of a person being not ordinarily resident in India w.e.f 1st April 2023.b) If an immovable property is received without consideration and the stamp duty value exceeds Rs. 50,000, the stamp duty value of such property shall be chargeable to tax;c) If immovable property is received for consideration which is less than the stamp duty value of property by higher of following amount the difference is chargeable to tax:(i) the amount of Rs. 50,000(ii) the amount equal to 10% of consideration.d) If movable properties* is received without consideration and the aggregate fair market value of such properties exceeds Rs. 50,000, the whole of aggregate fair market value of such properties shall be chargeable to taxe) If movable properties is received for consideration which is less than the aggregate fair market value of properties by an amount exceeding Rs. 50,000, the difference between the aggregate fair market value and the consideration is chargeable to tax.Note:1. Any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family in respect of any illness related to COVID-19, shall not be considered as income of such person. (subject to certain conditions)2. Any sum of money received by family member of a person who died due to COVID-19, the money so received shall not be considered as income of the family member where such money is received from the employer of deceased person. Where the money is received from any other person or persons, the exemption amount shall be limited to Rs. 10 lakh in aggregate. (subject to certain conditions
9.	If shares in a closely held company are received by a firm or another closely held company from any person without consideration or for inadequate consideration, the aggregate fair market value of such shares as reduced by the consideration paid, if any, shall be chargeable to tax.Note: Nothing would be chargeable to tax if taxable amount doesn’t exceed Rs. 50,000.
10.	If a closely held public company receives any consideration for issue of shares which exceed the fair market value of such shares, the aggregate consideration received for such shares as reduced by its fair market value shall be chargeable to tax.Notes:(1) This provision is not applicable in the following cases:a) Where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or venture capital fund or a specified fund.“Specified fund” means a fund established or incorporated in India in the form of a trust or a company or a LLP or a body corporate which has been granted a certificate of registration by SEBI as a Category I or Category II Alternative Investment Fund (AIF).b) Where the consideration for issue of shares is received by company from class or classes of person as notified by the Government.In this regard, the Government has provided that section 56(2)(viib) shall not apply where consideration is received by a start-up company in respect of shares issued to a resident person. However, a start-up company shall fulfil the condition mentioned in the Notification No. 127(E), dated 19-02-2019 issued by the Department for Promotion of Industry and Internal Trade (DPIIT).With a view to ensure compliance to the conditions specified in the said notification, the Finance (No. 2) Act, 2019 reiterates that in case of failure to comply with the conditions specified in the notification, the consideration received from issue of shares as exceeding the fair market value of such shares, shall be deemed to be income of the company chargeable to tax for the previous year in which such failure takes place. Further, it shall be deemed that the company has misreported the said income and, consequently, a penalty of an amount equal to 200% of tax payable on the underreported income (i.e., difference between issue price and fair market value of shares) shall be levied as per section 270A.(2) This provision is not applicable w.e.f. Assessment Year 2025-26.
10A.	Any compensation received by a person in connection with the termination of his employment or modification of terms and conditions relating thereto.
11.	Interest received on compensation or enhanced compensation
12.	Any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset shall be charged to tax under this head, if:a) Such sum is forfeited; andb) The negotiations do not result in transfer of such capital asset.

* ‘Movable property’ shall include shares, securities, jewellery, archaeological collection, drawings, paintings, sculptures, any work of art or bullion etc.

5.1.1 Gifts not chargeable to tax [Sec. 56(2)(x)]

Any sum of money or property received by any person in the following circumstances shall not be chargeable to tax:

a) Gifts received from relatives**;

b) Gifts received by an individual on occasion of his/her marriage;

c) Gifts received by way of Inheritance/will;;

d) Gifts received in contemplation of death of the payer;

e) Gifts received from any local authority;

f) Gifts received from any fund, foundation, university, educational institution, hospital, medical institution, any trust or institution referred to in Section 10(23C); [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in section 13(3)].

g) Gifts received from any trust or institution registered under sections 12A/12AA/12AB[w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in section 13(3)].

h) Share received as a consequences of demerger or amalgamation of a company under clause (vid) or clause (vii) of section 47, respectively.

i) Share received as a consequences of business reorganization of a co-operative bank under section 47(vicb)

j) From any person, in respect of any expenditure actually incurred by individual on his medical treatment or treatment of any member of his family, for any illness related to COVID-19 (subject to such conditions as prescribed by Govt.).

k) By a member of the family*** of a deceased person, if cause of death is illness related to COVID-19,:

• • From the employer of the deceased person; or
  • From any other person or persons to the extent that such sum doesn’t exceed Rs. 10 lakh.

Note: The member must receive the payment within 12 months from the date of death of such person and satisfy such other conditions which may the Central Government may notify in this behalf

l) from such class of persons and subject to such conditions as may be prescribed

** ‘Relative’ shall mean:

1. Spouse of the individual

2. Brother or sister of the individual

3. Brother or sister of the spouse of the individual

4. Brother or sister of either of the parents of the individual

5. Any lineal ascendant or descendant of the individual

6. Any lineal ascendant or descendant of spouse of the individual

7. Spouse of the person referred in point 2-6 above

*** ‘Family’, in relation to an individual, means:

1. The spouse and children of the individual; and

2. The parents, brothers, and sisters of the individual or any of them, wholly or mainly dependent on the individual.

5.2 Deductions [Sec. 57]:

The following expenditures are allowed as deductions from income chargeable to tax under the head ‘Income from Other Sources’:

S.N.	Section	Nature of Income	Deductions allowed
1.	57(i)	Dividend [other than dividend referred to in section 2(22)(f)] or Interest on securities	Any reasonable sum paid by way of commission or remuneration to banker or any other person for purpose of realizing dividend or interest on securities
2.	57(ia)	Employee’s contribution towards Provident Fund, Superannuation Fund, ESI Fund or any other fund setup for the welfare of such employees	If employees’ contribution is credited to their account in relevant fund on or before the due date
3.	57(ii)	Rental income letting of plant, machinery, furniture or building	Rent, rates, taxes, repairs, insurance and depreciation etc.
4.	57(iia)	Family Pension	In case of normal tax regime: 33.33% of Family Pension subject to maximum of Rs. 15,000 In case of new tax regime under section 115BAC(1A)(ii) 33.33% of Family Pension subject to maximum of Rs. 25,000 (Applicable w.e.f. AY 2025-26)
5.	57(iii)	Any other income	Any other expenditure (not being capital expenditure) expended wholly and exclusively for earning such income
6.	57 (iv)	Interest on compensation or enhanced compensation	50% of such interest (subject to certain conditions)
7.	58(4) Proviso	Income from activity of owning and maintaining race horses.	All expenditure relating to such activity.

5.3 Expenses not deductible [Section 58]:

S.N.	Section	Nature of Income
1.	58(1)(a)(i)	Personal expenses
2.	58(1)(a)(ii)	Interest chargeable to tax which is payable outside India on which tax has not been paid or deducted at source
3.	58(1)(a)(iii)	‘Salaries’ payable outside India on which no tax is paid or deducted at source
4.	58(1A)	Wealth-tax
5.	58(2)	Expenditure of the nature specified in section 40A
6.	58(4)	Expenditure in connection with winnings from lotteries, crossword puzzles, races, games, gambling or betting

Tutorials

Disclaimer:

The contents of this document are for information purposes only. This aims to enable public to have a quick and an easy access to information and do not purport to be legal documents.

Viewers are advised to verify the content from Government Acts/Rules/Notifications etc.

Income from other sources

Income from other sources is a residuary head of income that includes any income which is not exempt from tax and needs to be included in the total income and not chargeable under the following heads:

a) Salaries

b) Income from house property

c) Profits and gains from business or profession

d) Capital gains

Certain incomes, such as winnings from lotteries, gifts, interest on enhanced compensation, etc. are always taxable under this head.

Specific Incomes

Income taxable under the head ‘income from other sources’ shall be an aggregate of certain incomes which are specifically taxed under this head and other incomes which are not chargeable under any other head, hence, chargeable under this head.

The following incomes are taxable specifically under the head ‘income from other sources’:

Dividend Income [Section 56(2)(i)]

A dividend usually refers to the distribution of profits by a company to its shareholders. However, certain receipts are also deemed as a dividend.The deemed dividend, as defined in Section 2(22) of the Income-tax Act, includes following:

a) Distribution entailing the release of company’s assets

b) Distribution of debentures, or deposit certificates

c) Distribution of bonus shares to preference shareholders

d) Distribution on liquidation

e) Distribution by the company on reduction of its capital

f) Loan or advance to shareholders

g) Payment by a Company on purchase of its own shares from shareholder (applicable w.e.f. 01-10-2024)

Dividend declared, distributed, or paid on or after 01-04-2020 is taxable in the hands of the shareholders. Dividend income is taxable either at the applicable tax rate or at the flat rate. Such taxation of a dividend income depends on two factors, namely, the residential status of the recipient and the nature of security.

A shareholder is allowed to deduct only the interest expenditure (if any) from dividend income subject to a limit of 20% of total dividend income. No further deduction is allowed for any other expenses including commission or remuneration paid to a banker or any other person to realise such dividend.

Income from gambling activities[Section 56(2)(ib)]

The gross amount of income earned from the following activities is taxable under the head ‘income from other sources’ at the flat rate of 30%:

a) Winnings from any lottery or crossword puzzle;

b) Winnings from online games (if such winnings are from the lottery, crossword puzzle, race, horse race, card game, other game of any sort, gambling or betting);

‘Lottery’ includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called.

c) Horse race (not being activity of owning and maintaining race horses);

‘Horse race’ means a horse race upon which wagering or betting may be lawfully made.

d) Card game and other game of any sort;

‘Card game and other game of any sort’ includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game.

e) Gambling or betting of any form or nature.

Such income from gambling activities is taxable on a gross basis without claiming the deduction for any expense or set-off of any loss suffered under the same or other heads of income.

Employee’s contribution to staff welfare schemes [Section 56(2)(ic)]

Section 2(24)(x) provides that any sum received by an employer from his employees as a contribution to any provident fund or superannuation fund or any fund set up under the provisions of the Employees state insurance, 1948, or any other fund for the welfare of such employee shall be deemed as income of the employer. However, if such sum is deposited by the employer to the employee’s account in the relevant fund on or before the due date by which it is required to be deposited, such sum shall be allowed as a deduction under Section 36(1)(va).

Where the contribution received by the employer from the employee towards EPF is not deposited to the employee account on or before the due date specified under the relevant law, then the amount of contribution not deposited is taxable under the head of other sources if it is not taxable as business income under Section 28.

Interest on securities[Section 56(2)(id)]

Interest on securities is taxable under the head income from other sources if the same is not chargeable to income tax under the head “Business or Profession”.

As per Section 2(28B) of the Income-tax Act, ‘interest on securities’ means:

(a) Interest on any security of the central government or a state government;

(b) Interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation, established by a Central or State or Provincial Act.

The interest shall be chargeable as per tax rates applicable to the assessee. However, in the case of non-residents, certain interest incomes are taxable at concessional rates.

Income from letting of machinery, plant, or furniture [Section 56(2)(ii)/(iii)]

Income from the leasing or renting of machinery, plant, or furniture is taxable as income from other sources provided it is not chargeable to tax under the head profits and gains of business or profession.

Sum received under a Keyman Insurance Policy [Section 56(2)(iv)]

Any sum received from a keyman insurance policy, including bonus allocations, is considered taxable under the head income from other sources if it is not chargeable to tax under the head profits and gains of business or profession or under the head salaries.

Shares issued at a premium by closely held company [Section 56(2)(viib)] [Not applicable w.e.f. Assessment Year 2025-26]

Any excess premium received by a company from any person is considered taxable under the head income from other sources if the following conditions are satisfied:

a) Shares (equity or preference shares) are issued by a closely held company;

b) The consideration received for the issue of shares exceeds the face value and fair market value of shares.

This provision does not apply to any consideration received for the issue of shares in the following cases:

(a) Where consideration is received by a Venture Capital Undertaking from a Venture Capital Company or Venture Capital Fund or Category-I or Category-II Alternative Investment Fund (AIF)

(b) Where the company is an eligible start-up fulfilling conditions as prescribed in the Notification issued by the DPIIT.

For Example, XYZ Pvt. Ltd. issued 10,000 shares to Mr. A having a face value of Rs. 100. Following are the different scenarios explaining the calculation of income under this provision:

Particulars	Scenario 1	Scenario 2	Scenario 3
Face value of the share[A]	Rs. 100	Rs. 100	Rs. 100
Fair market value of the share[B]	Rs. 120	Rs. 140	Rs. 150
Issue price of the share[C]	Rs. 100	Rs. 130	Rs. 160
Whether issue price exceeds face value and fair market value?	No	No	Yes
No. of shares issued [D]	10,000	10,000	10,000
Deemed income under section 56(2)(viib)[E = D* (C-B)]	Nil	Nil	Rs. 1,00,000

Interest on compensation or enhanced compensation [Section 56(2)(viii)]

Income received as interest on compensation or enhanced compensation is considered taxable under the head income from other sources. A deduction of 50% of such interest income is allowed under Section 57. Further, such interest is taxable in the previous year in which it is received.

The interest on compensation or enhanced compensation is only chargeable to tax if the original or enhanced compensation is taxable. Thus, if the compensation is exempt from tax, the interest payable on such compensation is also exempt from tax.

Forfeiture of advance money received for transfer of capital asset [Section 56(2)(ix)]

When any sum of money received as an advance or otherwise, in the course of negotiations for the transfer of a capital asset, is forfeited and negotiations do not result in the transfer of such capital asset, the amount so forfeited is considered taxable under the head other sources.

This treatment is applicable only when advance money is forfeited during the previous year 2014-15 or any subsequent year. The advance money so forfeited is taxable under this head only if the asset involved is a capital asset. If the asset is not a capital asset, forfeiture of advance money will not be taxable under this provision.

For example, Mr. A receives Rs. 2 lakhs advance money in the negotiation for the transfer of a personal car (or rural agricultural land). The car is not transferred and advance money is forfeited by Mr. A. As a personal car is treated as a personal effect (while rural agricultural land is not a capital asset), the advance money received by him shall not be chargeable to tax under this provision.

Deemed income [Section 56(2)(x)]

Section 56(2)(x) applies if any person receives from any person any benefit (cash, movable, or immovable) whose value exceeds Rs. 50,000. This provision is applicable notwithstanding the residential status or class of the assessee. The donor or donee can be an individual, partnership firm, LLP, company, AOP, BOI, co-operative society, or artificial juridical person, whether resident or non-resident.

The deemed income under this provision arises from the following transactions:

Nature of transaction	Whether transactions in each category to be aggregated?	Threshold limit
A sum of money received without consideration	Yes, the aggregate of all transactions in this category shall be considered	50,000
An immovable property received without consideration	No, each transaction in this category should be considered separately	50,000
An immovable property received for inadequate consideration	No, each transaction in this category should be considered separately	50,000
A movable property received without consideration	Yes, the aggregate of all the transactions in this category shall be considered	50,000
A movable property received for inadequate consideration	Yes, the aggregate of all transactions in this category shall be considered	50,000

Compensation on loss of employment [Section 56(2)(xi)]

Any compensation or other payment, due to or received by any person, in connection with the termination of his employment or the modification of the terms and conditions relating thereto is taxable under the head other sources.

Section 17(3)(i) contains a similar provision that any compensation due to or received by an employee from his employer or former employer at or in connection with the termination of his employment or modification of terms of employment is taxable as profit in lieu of salary.

Thus, both the provisions are similar except following:

a) Section 17(3)(i) covers ‘compensation’ only, section 56(2)(xi) covers ‘any other payment’ as well; and

b) Section 17(3)(i) covers payments from ’employer or former employer’, and section 56(2)(xi) covers payments from ‘any person’.

Payment would be taxed under section 17(3)(i) or section 56(2)(xi) depending on the payer and ‘type of payment’.

For example, Mr. A entered into an employment agreement with a company under which he was to be employed as CEO of the company. However, the company denied employment to him and paid a certain amount to him as compensation for the non-commencement of employment. As the employer-employee relationship does not exist, the compensation received by him from the company cannot be taxed under the head salary. Thus, this compensation shall be taxable under the head other sources.

Sum received from business trust [Section 56(2)(xii)]

Specified sum received by a unitholder from a business trust shall be chargeable to tax under the head other sources if-

(a) such sum is not in the nature of interest/dividend from SPV and rental income of REIT as referred to in Section 10(23FC) and Section 10(23FCA); and

(b) such sum is not chargeable to tax in the hands of business trust under Section 115UA.

Sum received under life insurance policy [Section 56(2)(xiii)]

The sum received under excess or high premium life insurance policies is chargeable to tax under the head ‘other sources’ as per Section 56(2)(xiii)¹. It provides that the sum received under a life insurance policy in excess of the aggregate premium paid during the policy term shall be taxable. However, if the premium has been claimed as a deduction under any other provision of the Act, it shall not be included in the aggregate of the premium to be deducted while computing the taxable income. The CBDT may also prescribe the rules for the computation of income.

Family Pension [Section 56(1)]

‘Family pension’ is the monthly pension received by the family or heir of the deceased employee. The pension received by the employee himself is taxable under the head ‘salaries’, while the family pension is taxable under the head income from other sources.

The family members can claim a standard deduction from the family pension to the extent of lower of the following: (a) 1/3rd of the family pension; or (b) Rs. 15,000 (see note).

Note: An enhanced threshold limit of Rs. 25,000 shall be applicable if the income tax is computed under section 115BAC(1A)(ii), i.e., default new tax regime. [Applicable for Assessment Year 2025-26]

Any other income [Section 56(1)]

Any other income (not described above) shall be taxable under this head if it is not taxable under the other four heads of income. The following incomes are generally taxable under this head: (a) Interest on bank deposits (b) Income from investment in small saving schemes, etc.

Attributable Expenses

Deductible expenses [Section 57]

Section 57 specifically provides the list of expenditures which are allowed to be deducted from the income taxable under the head other sources. It also provides that the expenditure incurred wholly and exclusively to earn the income is allowed to be deducted from income taxable under this head, provided the following conditions are satisfied:

a) The expenditure must not be in the nature of the personal expenditure of the assessee;

b) It must not be in the nature of capital expenditure, and

c) It must be laid out or expended wholly and exclusively to earn such income.

Amount not deductible [Section 58]

The following expenses are not allowed to be deducted in computing the income taxable under the head other sources.

(1) Deduction for interest

No deduction shall be allowed for any interest payable outside India if it is taxable in the hands of the recipient but tax has not been deductedor after deduction, it has not been paid to the credit of Central Govt. in accordance with provisions of TDS.

(2) Deduction for salary

No deduction is to be allowed for any payment, chargeable under the head ‘salaries’, payable outside India unless tax has been deducted therefrom and paid in accordance with provisions of TDS.

(3) Deduction in case of TDS default

Section 58(1A) extends the provisions of Section 40(a)(ia) while computing the income chargeable under the head other sources. This provision invokes disallowance of expenditure if tax is not deducted or after deduction tax is not deposited with the Central Govt. on or before the due date for filing of return.

(4) Personal expenses

No deduction shall be allowed for an expenditure which is in the nature of a personal expense of the assessee.

(5) Disallowance of the sum specified in section 40A

Section 58(2) extends the provisions of Section 40A while computing the income chargeable under the head other sources. Some of the disallowances invoked under this provision are as follows:

• Disallowance under Section 40A(2) for excessive payment made to relatives;
• Disallowance under Section 40A(3)/40(3A) for payment made in cash;
• Disallowance under Section 40A(7) for provision made for gratuity;
• Disallowance under Section 40A(9) for contributions made to non-statutory funds;
• Disallowance under Section 40A(13) for marked-to-market loss.

(6) Deduction of expenditure from betting income

No deduction is allowed in respect of any expenditure incurred to earn any income from any winning by way of lottery, crossword puzzle, races including horse races, card games, and other games of any sort or from gambling or betting.

However, the assessee is entitled to claim a deduction for any revenue expenditure incurred in owing and maintaining race horses to run in a horse race on which wagering or batting is lawfully allowed.

Recovery against loss or expenditure [Section 59]

Section 59 extends the provisions of Section 41(1) while computing the income chargeable under the head other sources. This provision provides that if deduction has been allowed to the assessee in any previous year in respect of loss, expenditure, or trading liability and subsequently he obtains any amount or benefit towards such loss, expenditure, or trading liability by way of remission or cessation, the amount or benefit so obtained shall be chargeable to tax. It is chargeable to tax as the income of that previous year in which such amount or benefit is obtained. This taxability arises regardless of the fact whether the source of income is in existence in that year or not.

MCQs on Income from other sources

Q1. Deemed Dividend includes_________.

(a) Dividend declared by the company

(b) Distribution of debentures, or deposit certificates

(c) Distribution by the company on reduction of its capital

(d) Both (b) and (c)

Correct answer: (d)

Justification of correct answer: The deemed dividend, as defined in Section 2(22) of the Income-tax Act, includes the following:

• Distribution entailing the release of the company’s assets
• Distribution of debentures, or deposit certificates
• Distribution of bonus shares to preference shareholders
• Distribution on liquidation
• Distribution by the company on reduction of its capital
• Loan or advance to shareholders

Q2. Mr. A, a shareholder received dividends from ABC Ltd. of Rs. 50,000. He incurred some expenses to get such dividends which are commission to a broker of Rs. 5,000 and Rs. 20,000 as interest payment for a loan which was taken to buy shares of ABC Ltd. How much deduction he can claim against the income of Rs. 50,000?

(a) Rs. 25,000

(b) Rs. 20,000

(c) Rs. 4,000

(d) Rs. 10,000

Correct answer: (d)

Justification of correct answer: A shareholder is allowed to deduct only the interest expenditure (if any) from dividend income subject to a limit of 20% of total dividend income. No further deduction is allowed for any other expenses including commission or remuneration paid to a banker or any other person to realise such dividend. Hence the answer is (d) Rs. 10,000 (Rs. 50,000 * 20%).

Q3. Income from gambling activities is taxable at the rate of ______.

(a) 10%

(b) 20%

(c) 30%

(d) 40%

Correct answer: (c)

Justification of correct answer: The gross amount of income earned from Winnings from any lottery or crossword puzzle, Horse race (not being activity of owning and maintaining race horses), Card game and other game of any sort, Gambling or betting of any form or nature is taxable under the head ‘income from other sources’ at the flat rate of 30%.

Q4. Whether any deduction is allowed for expenditure incurred for earning income from the lottery?

(a) Yes

(b) No

(c) Maybe

(d) Allowed with a certain limit

Correct answer: (b)

Justification of correct answer: Income from the lottery is taxable on a gross basis without claiming the deduction for any expense or set-off of any loss suffered under the same or other heads of income.

Q5. Any excess premium received on the issuance of ________ issued by a closely held company from any person is considered taxable under the head income from other sources where the consideration received exceeds the face value and fair market value.

(a) Equity shares

(b) Preference shares

(c) Both (a) and (b)

(d) None of the above

Correct answer: (c)

Justification of the correct answer: Any excess premium received by a company from any person is considered taxable under the head income from other sources if the following conditions are satisfied:

a) Shares (equity or preference shares) are issued by a closely held company;

b) The consideration received for the issue of shares exceeds the face value and fair market value of shares.

Q6. Interest on compensation or enhanced compensation is taxable in the year of _________.

a) Compulsory acquisition of asset

b) Receipt of the compensation

c) Accrual of interest on such compensation

d) Receipt of interest on such compensation

Correct answer: (d)

Justification of the correct answer: Income received as interest on compensation or enhanced compensation is considered taxable under the head income from other sources. Further, such interest is taxable in the previous year in which it is received.

Q7. How much deduction shall be allowed if a taxpayer has interest income on compensation or enhanced compensation?

(a) All expenses incurred on earning such interest

(b) 20% of such interest

(c) 50% of such interest

(d) No deduction is allowed

Correct answer: (c)

Justification of the correct answer: Income received as interest on compensation or enhanced compensation is considered taxable under the head income from other sources. A deduction of 50% of such interest income is allowed under Section 57.

Q8. Amount forfeited on account of non-transfer of __________ is considered as an income chargeable under the head ‘Income from other sources’

(a) Personal assets

(b) Contracts revenue in nature

(c) Capital assets

(d) All of the above

Correct answer: (c)

Justification of the correct answer: When any sum of money received as an advance or otherwise, in the course of negotiations for the transfer of a capital asset, is forfeited and negotiations do not result in the transfer of such capital asset, the amount so forfeited is considered taxable under the head other sources.

Q9. The immovable properties received without consideration are considered as deemed income if the benefit exceeds __________ and this limit shall be checked for ________.

(a) Rs. 50,000; a financial year

(b) Rs. 50,000; each immovable property separately

(c) Rs. 1,00,000; a financial year

(d) Rs. 1,00,000; each immovable property separately

Correct answer: (b)

Justification of the correct answer: where an immovable property received without consideration exceeds Rs. 50,000, each transaction in this category should be considered separately.

Q10. How much deduction is allowed with respect to the family pension received?

(a) One-third of the family pension

(b) Rs. 15,000

(c) Higher of (a) or (b)

(d) Lower of (a) or (b)

Correct answer: (d)

Justification of the correct answer: The family members can claim a standard deduction from the family pension to the extent of lower of the following: (a) 1/3rd of the family pension; or (b) Rs. 15,000.

Q11. Which type of expenses are not allowed from the income chargeable under the head other sources?

(a) Personal expense

(b) Capital expenditure

(c) Both (a) and (b)

(d) None of the above

Correct answer: (c)

Justification of the correct answer: Section 57 provides that the expenditure incurred wholly and exclusively to earn the income is allowed to be deducted from income taxable under this head, provided the following conditions are satisfied:

a) The expenditure must not be in the nature of personal expenditure of the assessee;

b) It must not be in the nature of capital expenditure; and

c) It must be laid out or expended wholly and exclusively to earn such income.

Notes:

¹ Inserted by the Finance Act, 2023 with effect from Assessment Year 2024-25