Taxation of income under the head “Salaries”

The Article explains the taxation of income under the head “Salaries” as governed by the Income-tax Act, 1961. Salary income is taxable on a due or receipt basis, whichever occurs earlier, and includes wages, pensions, gratuity, bonuses, perquisites, allowances, and profits in lieu of salary. Employers are required to deduct tax at source under Section 192 and issue Form 16, while filing quarterly TDS statements in Form 24Q.

The computation of salary begins with gross salary, which includes all monetary and non-monetary benefits such as allowances, perquisites, retirement benefits, and profits in lieu of salary. From this, only specified deductions are permitted, namely standard deduction, professional tax, and entertainment allowance. Salary is defined comprehensively under Section 17, covering advance salary, leave encashment, provident fund contributions, pension contributions, and Agniveer Corpus Fund contributions. Employer contributions to pension schemes are included in salary but allowed as deductions within prescribed limits.

Certain categories of salary income are exempt, including remuneration received from the United Nations, income of non-resident seafarers for services outside India, diplomatic salaries subject to reciprocity, and payments to foreign employees under specified conditions. Compensation paid to legal heirs upon death of an employee is also not taxable.

Leave encashment is fully taxable if received during employment. However, for government employees, it is fully exempt upon retirement, while for non-government employees, exemption is available up to ₹25,00,000 subject to prescribed conditions. Leave encashment received by legal heirs is exempt. Relief under Section 89 is available for such income where applicable.

Pension is taxable under the head “Salaries.” Uncommuted pension is fully taxable, whereas commuted pension enjoys exemptions depending on whether gratuity is received and the type of employee. Family pension is taxable under “Income from Other Sources” with limited deduction. Specific pensions, such as those for gallantry awards or disability attributable to service, are fully exempt.

The National Pension System (NPS) provides deductions for employee and employer contributions under Section 80CCD, with additional deductions available. Partial withdrawals and up to 60% of the corpus on final withdrawal are exempt. Payments to nominees upon death are also exempt.

Under the Agnipath Scheme, monthly payments to Agniveers are taxable as salary, but the Seva Nidhi package received after completion of service is fully exempt. Contributions to the Agniveer Corpus Fund are included in salary but allowed as deductions. Payments upon death or disability are also exempt under specified provisions.

The Employee Provident Fund (EPF) is a statutory retirement scheme with contributions from both employer and employee. Employee contributions qualify for deduction under Section 80C, while employer contributions are exempt up to prescribed limits. Interest on contributions is exempt up to notified thresholds, with excess interest being taxable. Withdrawals after five years of continuous service are tax-free, while premature withdrawals are taxable subject to conditions.

Profits in lieu of salary include compensation for termination, voluntary retirement payments, and amounts received from unrecognized provident funds or keyman insurance policies. Such amounts are taxable, though exemptions are available for retrenchment compensation and voluntary retirement up to ₹5,00,000 subject to conditions.

Allowances are generally taxable unless specifically exempt. Dearness allowance is fully taxable, while exemptions are available for HRA, official duty allowances, and certain personal allowances within prescribed limits. Armed forces allowances are partially or fully exempt depending on the nature and location.

Perquisites include benefits such as rent-free accommodation, employer-provided vehicles, concessional loans, education facilities, and insurance benefits. These are taxable based on prescribed valuation rules. Certain perquisites, such as employer-provided laptops, medical facilities under specified conditions, and free food within limits, are exempt.

The Act also provides relief under Section 89 for arrears, advance salary, and other lump-sum receipts to mitigate higher tax liability. Additionally, Section 89A allows deferral of tax on foreign retirement accounts under specified conditions.

Overall, the framework provides a comprehensive mechanism for taxation of salary income, including detailed provisions for inclusions, deductions, exemptions, and valuation of various components.

Income Tax Department
Ministry of Finance, Government of India

Income under the Head ‘Salary’

Introduction

Income under the head ‘Salary’ is computed on a due or receipt basis, whichever is earlier. It includes taxable allowances, perquisites, retirement benefits, and profits in lieu of salary, with permissible deductions.

Tax Deduction at Source (TDS)

• TDS Deduction (Section 192):Employers deduct tax at the time of payment, based on the employee’s estimated annual tax liability.
• TDS Certificate: Employers issue Form 16, containing details of tax deducted.
• TDS Statements: Filed quarterly in Form 24Q, with comprehensive details in the final quarter.

Computation of Salary Income
Income under salary is taxable based on the earlier of accrual or receipt. Components of computation include:

1. Gross Salary: Includes allowances, perquisites, retirement benefits, pensions, and profits in lieu of salary.

2. Deductions:

• • Entertainment allowance
  • Employment tax
  • Standard deduction

Calculation of Income from Salary

Calculation of Income from Salary

Introduction

Section 17 provides a comprehensive definition of salary, covering wages, pensions, gratuity, fees, bonuses, perquisites, and profits in lieu of salary. It also includes advance salary, leave encashment, provident fund contributions, and contributions to the Agniveer Corpus Fund.

Key Inclusions in Salary

• Components:
  • Wages, annuities, pensions, gratuity
  • Any fees, commission, perquisites, bonuses, and profits in lieu of salary
  • Leave encashment and advance salary
  • Annual accretion to the balance in recognised Provident Fund, to the extent to which it is chargeable to tax
  • Transferred balance in a recognised Provident Fund to the extent it is chargeable to tax.
  • Employer contributions to pension schemes (Section 80CCD)
  • Contributions to the Agniveer Corpus Fund (Section 80CCH)
• Pension Scheme Contributions:
  • 14% Employer contributions are added to the employee’s salary and may be deducted under Section 80CCD, subject to limits:
  • of salary (in case the contribution is made by Central Government or State Government employer)
  • 14%of salary (in case the contribution is made by any other employer and the total income of the employee is chargeable to tax under the
  • default tax regime of Section 115BAC)
  • 10% of salary (in case the contribution is made by any other employer and the employee doesn’t opt for the default tax regime of Section 115BAC)
• Agnipath Scheme Contributions:
  • Employer contributions to the Agniveer Corpus Fund are included in salary but are deductible under Section 80CCH.

Deductions Permissible from Salary

Salary is taxable on a gross basis, with only the following deductions allowed:

• Standard Deduction
• Professional Tax
• Entertainment Allowance

Summary of Salary Calculation

Particulars	Amount
Basic Salary	Xxx
Add: Pension	Xxx
Add: Allowances	Xxx
Add: Allowances	Xxx
Add: Perquisites	Xxx
Add: Profits in Lieu	Xxx
Add: Retirement Benefits	Xxx
Less: Standard Deduction	(xxx)
Less: Entertainment Allowance	(xxx)
Less: Professional Tax	(xxx)
Net Salary Income	Xxx

Salary Income Exempt from Tax

Salary Income Exempt from Tax

Certain categories of salary income are fully or partially exempt from tax under specific conditions, often applicable to foreign citizens or special circumstances.

Exempt Salary Categories

• Teachers from SAARC Member States
  • Exemption applies under DTAA agreements for teachers, professors, or research scholars visiting another SAARC country for teaching or research.
  • Exemption is valid for up to 2 years from the date of arrival.
• Salary Received from the United Nations (UN)
  • Salaries and pensions paid by the UN are exempt under the UN (Privileges and Immunities) Act, 1947.[Circular No. 293, dated February 10, 1981]
• Non-Resident Seafarers
  • Salary earned for services rendered on foreign-going ships (Indian or foreign-flagged) outside India is exempt, even if credited to an NRE account in India.[Circular No. 13/2017, dated April 11, 2017]
• Diplomatic Personnel
  • Remuneration received by foreign citizens serving in an embassy, high commission, legation, consulate, or trade representation of a foreign state is exempt, provided that reciprocal exemption is available to Indian officials in that country.
• Foreign Employees
  • Salaries of foreign nationals working for foreign enterprises in India are exempt if:
    • The enterprise does not conduct business in India.
    • The employee’s stay does not exceed 90 days.
    • The remuneration is not deductible under the Income-tax Act.
• Ship Crew Members
  • Salaries of non-resident foreign nationals employed as ship crew are exempt if their stay in India does not exceed 90 days.
• Foreign Trainees
  • Remuneration received by a foreign national as an employee of foreign governments for training in Indian government undertakings, statutory corporations, or government-owned companies is exempt.
• Gratuitous Payments to Legal Heirs
  • Lump-sum payments made to the legal heirs of employees who die in active service or ex-gratia payments for injury or death while on duty are not taxable. [Circular No. 573, dated August 21, 1990 & Circular No. 776, dated June 8, 1999]

Tax on Leave Encashment

Tax on Leave Encashment

Introduction

Leave encashment during employment is fully taxable. However, leave encashment at retirement or upon the employee’s death is exempt up to Rs. 25,00,000.

Taxability of Leave Encashment

• Death of Employee
  • Leave encashment paid to legal heirs is exempt from tax as it is not considered a payment to the employee. [Circular No. F.35/1/65-17(B), dated November 5, 1965 and Circular No. 309, dated July 3, 1981]
• Government Employees
  • Fully exempt on retirement.
  • Fully taxable if encashed during employment.
• Non-Government Employees
  • Fully taxable if encashed during employment.
  • Partially exempt on retirement subject to the lower of
    • Actual leave encashment received.
      25,00,000. [Notification No. 31/2023, dated 24-05-2023, is effective from 01-04-2023]
    • Cash equivalent of unavailed leave calculated on the basis of average salary for up to 30 days per completed year of service.
    • Average salary of the last 10 months.
• Relief for Tax on Arrears
  • Relief under Section 89 is available for leave encashment received during employment. [Circular No. 431, dated September 12, 1985]

Key Calculations

• Average Salary
  • Includes basic salary, dearness allowance (if part of retirement benefits), and commission based on turnover.
• Unavailed Leave Calculation
  • Formula:

Step 1: Calculate number of completed years of service (ignore any fraction of year).

Step 2: Calculate earned leave entitlement for each year of service assuming that earned leave entitlements can’t exceed 30 days for every year of actual service.

Step 3: Calculate earned leave actually taken or already encashed (in number of days) during the service time.

• Step 4: Unveiled Leaves (In Months) = [(Step 1 * Step 2) minus Step 3]/30
• Leave from Multiple Employers
  • Maximum exemption of 25,00,000 applies across all employers and years.

Taxability of Pension

Taxability of Pension

Introduction

Pension income is taxable under “Salaries.” While an uncommuted pension (paid periodically) is fully taxable, a commuted pension (lump sum) enjoys exemptions under specific conditions.

Taxability of Pension

• Uncommuted Pension:
  • Monthly pensions are taxable as “Salary.”
  • Family pensions are taxable as “Income from Other Sources,” with a deduction of the lower of 15,000 (Rs. 25,000 if not opted out of default tax regime under Section 115BAC) or 1/3rd of the pension.
• Commuted Pension:
  • Government Employees: Fully exempt
  • Non-Government Employees:
  • If gratuity is received: 1/3rd of commuted value is exempt.
  • If gratuity is not received: 50% of commuted value is exempt.
  • Family Members: Exempt if received by heirs upon the employee’s death.

Exemptions for Specific Pensions

• Gallantry Award Recipients:
  • Pension for Param Vir Chakra, Maha Vir Chakra, Vir Chakra or any other gallantry award notified by the Government. The exemption has also been extended for the family pension received by any family member of armed personnel.
• Disability Pension for Armed Forces:
  • Fully exempt if disability is attributable to service. [Press Release, Dated 20-12-2007]
• Family Pension for Defence Personnel:
  • Exempt if death occurred in operational duties.

National Pension System (NPS)

• Contributions:
  • Employee’s Contribution: Deduction up to 10% of salary under Section 80CCD(1), plus 50,000 under Section 80CCD(1B).
  • Employer’s Contribution: Deduction for employees:
  • Central/State Govt.: 14% of salary.
  • Others: 10% or 14% (if employee is chargeable to tax under the default tax regime of Section 115BAC)
  • Self-Employed: Deduction up to 20% of gross income plus 50,000 under Section 80CCD(1B).
  • NPS Vatsalya: Additional 50,000 under Section 80CCD(1B) to parent or guardian of minor.
  • Unified Pension Scheme (UPS):Deductions are allowed for employer’s contribution up to 10% under Section 80CCD(2), employee’s contribution up to 10% under Section 80CCD(1), and an additional 50,000 under Section 80CCD(1B).
• Withdrawals:
  • Partial Withdrawal [Section 10(12B)]: Exempt for employees up to 25% of their contribution.
  • Final Withdrawal [Section 10(12A)]: 60% of the corpus is exempt on closure/exit.
  • Nominee’s Receipt: Fully exempt if credited after the subscriber’s death.
  • NPS Vatsalya: Partial withdrawal shall be exempt to the extent of 25% of amount of contributions made by the parent or guardian of a minor.
  • UPS [Section 10(12AA)]: Payments from the NPS Trust to a UPS subscriber at superannuation, voluntary retirement, or retirement are tax- exempt up to 60% of the corpus.
  • UPS [Section 10(12AB)]: Any lump sum received under clause (vi) of para 2 of Notification No. FX-1/3/2024-PR (24-01-2025) by a subscriber of the Unified Pension Scheme is exempt.
• Pension from NPS Funds:
  • Taxable under “Income from Other Sources.”

Taxation under Agnipath Scheme

Taxation under Agnipath Scheme

The Agnipath Scheme, effective from November 1, 2022, enables recruitment of Agniveers in the Indian Armed Forces for a tenure of four years. The scheme provides specific tax exemptions and deductions under the Income-tax Act.

Taxability of Payments to Agniveers

• Monthly Payments:
  • Taxable under the head “Salaries” as per applicable tax rates.
  • If the Agniveer is a minor at enrollment, this income is not clubbed with the parent’s income.
• Seva Nidhi Package (Lump-Sum Payment):
  • Amount received by Agniveer from Agniveer Corpus Fund (Seva Nidhi Package) on completing the tenure of 4 years shall be fully exempt from tax under Section 10(12C).
  • Exemption applies even if tenure is incomplete due to death or disability.
• Payments on Death of Agniveer:
  • Insurance Cover: Insurance compensation by family members is exempt under Section 10(10D).
  • One-Time Ex-Gratia and Pay for Unserved Period: Fully exempt as per CBDT Circular No. 573.
  • Seva Nidhi Fund Balance: Fully exempt under Section 10(12C).
• Payments on Disability of Agniveer:
  • Ex-Gratia: One-time ex-gratia amount received by an agniveer is exempt as per CBDT Circular No. 776.
  • Pay for Unserved Period: Tax treatment unclear; exemption is recommended.
  • Seva Nidhi Fund Balance: Fully exempt under Section 10(12C).
• Government Contributions:
  • Treated as “Salary” for the Agniveer but fully deductible under Section 80CCH.
• Agniveer’s Contributions:
  • Fully deductible under Section 80CCH.

Employee Provident Fund (EPF)

Employee Provident Fund (EPF)

Introduction

Employee Provident Fund (EPF) is a statutory retirement benefit scheme for salaried employees, involving monthly contributions by both the employee and employer. The accumulated contributions, along with interest earned, are paid to the employee upon retirement or leaving service. Withdrawals and earnings from EPF are generally exempt from income tax except under specified circumstances.

Types of Provident Fund

• Statutory Provident Fund (SPF):Established under the Provident Fund Act, 1925, primarily for government and semi-government employees. Recognized Provident Fund (RPF):Recognised by the Income-tax Commissioner under Part A of the Fourth Schedule of the Income-tax Act; includes funds under the Employees’ Provident Fund Act, 1952, prevalent in private sector.
• Unrecognized Provident Fund (UPF):Funds not recognized by the CIT in accordance with the rules contained in Part A of the Fourth Schedule to the Income-tax Act.
• Public Provident Fund (PPF):Voluntary, individual-specific savings scheme with tax benefits under Section 80C.

Contribution to EPF

• Employee Contribution:12% of salary (basic + DA + commission).
• Employer Contribution:5% of salary, apportioned as 3.67% to EPF, 8.33% to Employee Pension Scheme (EPS), and 0.5% to Employees Deposit Linked Insurance Scheme (EDLI).
• Employers also pay 0.5% of salary as administrative charges.
• For employees earning above Rs. 15,000, employee contribution is voluntary; employer contribution to EPS is capped on Rs. 15,000 salary.

Tax Treatment of Contributions and Interest

• Employee’s Contribution: Eligible for deduction under Section 80C up to the overall limit of Rs. 1,50,000.
• Employer’s Contribution: Exempt from tax up to 12% of salary; contributions exceeding Rs. 7,50,000 across recognized funds and schemes are taxable as perquisites.
• Interest on Contributions: Exempt up to the notified rate. Interest earned on employee contributions exceeding Rs. 2,50,000 (or Rs. 5,00,000 where there is no employer contribution) in a financial year is taxable under “Income from Other Sources” (Rule 9D applies). Interest above the notified rate is taxable.

Withdrawal and Taxability

• After 5 Years of Continuous Service: Withdrawals from recognized or statutory PF are exempt from tax.
• Before 5 Years: Withdrawals are taxable unless due to ill health, employer business discontinuance, or other specified reasons.
• Tax Implications of Premature Withdrawal:
• Employer’s contribution and related interest are taxable as salary income.
• Employee’s contribution is taxable if deduction under Section 80C was claimed; otherwise, it is exempt.
• Interest on employee’s contribution is taxable as income from other sources.
  • Tax Deduction at Source (TDS):Tax at 10% under Section 192A applies if withdrawal exceeds Rs. 50,000. In absence of PAN, TDS rate is 20%. No TDS on transfers between PF accounts.

Conversion of Unrecognized PF to Recognized PF

Upon recognition, balances transferred from unrecognized to recognized PF are treated as contributed retrospectively from the fund’s inception. Employer contributions exceeding 12% and interest above notified rates in such transferred balances become taxable in the year of recognition. Untransformed balances are taxed on payment basis similar to UPF withdrawals.

Profits in Lieu of Salary

Profits in Lieu of Salary

Introduction

Profits in lieu of salary refer to specific components deemed as salary payments, including compensation for employment termination, payments from unrecognized provident funds, or under keymap insurance policies. Such amounts are taxable in the hands of employees.

Key Inclusions in Profits in Lieu of Salary

• Compensation for Loss of Employment [Section 17(3)(i)]
  • Includes amounts due or received upon employment termination or modification of terms.
  • Taxable on receipt or accrual, whichever is earlier.
  • Exemption: Retrenchment compensation up to 5,00,000 is exempt under Section 10(10B).
• Voluntary Retirement Compensation [Section 17(3)(i)]
  • Taxable as profits in lieu of salary.
  • Exemption: Up to 5,00,000 under Section 10(10C).
• Payments from Unrecognized Provident Fund [Section 17(3)(ii)]
  • Employer’s contributions and interest are taxable as profits in lieu of salary.
  • Interest on employee’s contributions is taxable under “Income from Other Sources.”
• Keyman Insurance Policy [Section 17(3)(ii)]
  • Any sum received by an employee under a Keyman insurance policy (including bonuses) is taxable as profits in lieu of salary.
• Payments Before or After Employment [Section 17(3)(iii)]
  • Lump-sum or periodic payments received before joining or after cessation of employment are taxable.

Retrenchment Cenchment Compensation

Introduction

Entities under pressure to reduce the operational expenditures generally resort to retrenchment of their additional workforce and to compensate the workforce the entities have to pay retrenchment compensation to them. The retrenchment compensation is taxable in the hands of the employees as profit in lieu of salary.

Retrenchment compensation paid to a workman under the Industrial Disputes Act, 1947, or other applicable laws, is exempt from tax up to Rs. 5,00,000.

Key Provisions

• Eligibility for Retrenchment Compensation:
  • Applies to workmen employed for at least one year in an industry.
  • Excludes:
    • Army or Navy or Air Force or Police Personnel
    • Managerial or administrative employees.
    • Supervisory employees earning more than 10,000/month.
• Exemptions for Retrenchment Compensation:
  • Central Government-Approved Schemes: Fully exempt.
  • Closure Due to Losses: Exempt to the lower of:
    • 5,00,000.
    • Retrenchment compensation received.
    • Average Wage×15/26×Completed Years of Service or any part thereof in excess of six months
• Closure Due to Unavoidable Circumstances: Exempt to the lower of:
  • 5,00,000.
  • Retrenchment compensation received.
  • 3 months’ average wage.
• Conditions for Exemption:
  • If ownership or management is transferred and the employee takes up new employment, exemption is allowed only if:
    • Service is interrupted by the transfer.
    • New terms are less favorable.
    • New employer is not liable for retrenchment compensation.

Key Definitions

• Average Wage: Calculated over:
  • 3 months for monthly-paid workmen.
  • 4 weeks for weekly-paid workmen.
  • 12 days for daily-paid workmen.
    • Wages: Include salary, allowances, and amenities but exclude bonuses, employer contributions to retirement schemes, and gratuity.

Voluntary Retirement Compensation (VRS)

Voluntary Retirement Compensation (VRS)

Introduction

Voluntary Retirement Compensation, provided under approved schemes, is exempt from tax up to Rs. 5,00,000 if certain conditions are satisfied. It is a one-

time benefit taxable as profits in lieu of salary.

Exemption for VRS Compensation

• Quantum of Exemption: Lower of:
  • Compensation received; or
  • 5,00,000.
• One-Time Benefit: The exemption cannot be claimed again if VRS is availed a second time.

Eligibility Criteria for Exemption

• Conditions for Employees:
  • Must have completed 10 years of service or attained 40 years of age (not applicable to Public Sector Companies).
  • Must not re-join a company under the same management.
  • Must not have claimed exemption for VRS earlier.
• Scheme Requirements:
  • VRS is paid by the specified category of employer.
  • Must reduce overall employee strength.
  • No re-filling of vacancies created by VRS.
  • Applies to all employees (excluding directors).
  • Compensation cannot exceed 3 months’ salary for each completed year of service or salary for the remaining period until retirement.

Specified Employers for VRS Exemption

• Central and State Governments.
• Public Sector Companies.
• Any other Companies.
• Local Authorities.
• Co-operative Societies.
• Universities and specified institutions (e.g., IITs, IIMs).
• Action for Food Production, New Delhi (AFPRO)
• Government Tool Room & Training Centre, Rajajinagar Industrial Estate, Bangalore

Non-Eligibility for Exemption

• VRS availed for the second time.
• Employee has not met age or service criteria (except in Public Sector Companies).
• Directors of companies or co-operative societies.
• Employee re-joins a company under the same management.
• Employee claims relief under Section 89.

Taxability of Allowances

Taxability of Allowances

Introduction

Allowances are salary components paid to employees to meet specific expenses. Allowances are generally taxable unless explicitly exempted by the Income- tax Act.

Key Types of Allowances

• Dearness Allowance (DA)
  • Paid to offset inflation and rising living costs.
  • Fully taxable.
  • Included in salary for calculating exemptions (e.g., HRA, retirement compensation).
• City Compensatory Allowance (CCA)
  • Paid to compensate for the high cost of living in metropolitan cities.
• House Rent Allowance (HRA)
  • Exemption available if the employee pays rent for residential accommodation and does not own such accommodation.
  • Exempt amount is based on salary, HRA, rent paid, and the city (metro/non-metro).
• Allowances for Armed Forces
  • Fully or partially exempt based on statutory limits. [See Rule 2BB]
• Allowances for Official Duties
  • Exempt to the extent of actual expenses incurred for official purposes. It includes uniform allowance, helper allowance, daily allowance, etc.
• Personal Allowances
  • Allowances for personal convenience are exempt up to specified limits; others are taxable.
  • Children Education Allowance is tax-exempt up to 100 per month per child (max 2 children), regardless of actual education expenses.
  • Transport allowance up to 3,200/month is tax-exempt only for employees with specified disabilities.
• Foreign Allowance
  • Fully exempt if paid by the Government to Indian citizens for services rendered outside India (Section 10(7)).
  • Allowances from other employers are exempt to the extent of actual expenses incurred.
• Exempt Allowances
  • UNO Employees: Allowances exempt under the UN (Privileges and Immunities) Act, 1947.
  • Judges: Specified allowances (e.g., sumptuary) are exempt.
  • UPSC Chairman/Members: Certain transport and sumptuary allowances are exempt.
  • SAARC Teachers: Exempt under DTAAs, subject to conditions.

Taxability of House Rent Allowance (HRA)

Taxability of House Rent Allowance (HRA)

Introduction

HRA is provided by the employer to employees to meet the cost of rented accommodation. Exemption is allowed under the Income-tax Act if the employee pays rent for a house not owned by them.

Conditions for Exemption

1. Employee must occupy rented accommodation and pay rent.

2. No exemption is available if:

• • Employee lives in his own house.
  • No rent is paid for the accommodation.

Calculation of Exemption [ Rule 2A]
The exemption is the minimum of:

1. Actual HRA received.

2. Rent paid minus 10% of salary.

3. 50% of salary (metro cities: Delhi, Mumbai, Kolkata, Chennai) or 40% (non-metro cities).

• Salary Definition: Includes basic salary, dearness allowance (if part of retirement benefits), and commission (based on turnover). Calculated for the period during which the rented house is occupied.

Evidence Submission for Exemption

1. Employees must submit rent receipts to the employer, including the landlord’s name and address.

2. For rent exceeding 1,00,000 annually, the employee must provide the landlord’s PAN or a declaration if PAN is unavailable and employee is also required to furnish the required details in Form 12BB. [Circular No. 01/2019, Dated 01.01.2019]

Taxability of Armed Force Allowance

Taxability of Armed Force Allowance

Introduction

Armed forces personnel receive various allowances for serving in challenging and risky conditions. These allowances are partially or fully exempt from tax under the Income-tax Act, subject to prescribed limits.

Eligible Armed Forces

Members of the following forces qualify:

• Indian Army, Navy, Air Force, Coast Guard
• Central Reserve Police Force, Border Security Force, Assam Rifles, and others

Key Allowances and Exemptions

• Counter Insurgency Allowance
  • Exempt up to 3,900/month (cannot claim Border Area Allowance simultaneously).
• Border Area Allowance
  • The exemption depends on the specific location. For instance, the allowance is exempt up to 1,300 in Sikkim and Chamoli, whereas it is only up to Rs. 750 in Manipur, Tripura, and certain other notified areas.
• Special Compensatory (Hilly Areas) Allowance
  • Exempt amounts vary by altitude/location:
  • 800/month for specific hilly areas.
  • 7,000/month for Siachen.
  • 300/month in all places located at height of 1000 metres or more above the sea level.
• Tribal Area Allowance
  • Exempt up to 200/month in certain states (e.g., Madhya Pradesh, Karnataka).
• Compensatory Field Area Allowance
  • Exempt up to 2,600/month (cannot claim Border Area Allowance simultaneously).
• Compensatory Modified Field Area Allowance
  • Exempt up to 1,000/month for specific areas.
• Underground Allowance
  • Exempt up to 800/month for work in underground mines.
• High Altitude Allowance
  • Exempt up to 1,060 per month for altitudes between 9,000 and 15,000 feet.
  • Exempt up to 1,600 per month for altitudes above 15,000 feet.
• Special Compensatory Highly Active Field Area Allowance
  • Exempt up to 4,200/month.
• Island Duty Allowance
  • Exempt up to 3,250/month for postings in Andaman & Nicobar or Lakshadweep Islands.

Key Conditions

• Exemptions are allowed irrespective of actual expenditure incurred by
• Specific exemptions cannot be claimed simultaneously (e.g., Counter Insurgency and Border Area Allowances).

Areas Eligible for Exemptions for Armed Forces Allowances

Areas Eligible for Exemptions for Armed Forces Allowances

Introduction

Armed forces personnel receive various allowances to compensate for challenging conditions and high costs of living in specific areas. Exemptions for these allowances are defined under Rule 2BB and Section 10(14) of the Income-tax Act.

Key Allowances and Exemption Limits

• High Altitude Allowance
  • Areas above 9,000 feet: Exempt up to 800/month.
  • Siachen area: Exempt up to 7,000/month.
• Border Area Allowance
  • Specified areas in states such as Arunachal Pradesh, Himachal Pradesh, Jammu & Kashmir: Exempt up to 1,300/month.
  • Other regions and conditions may have lower exemption limits (e.g., 200/month in Assam and Meghalaya).
• Special Compensatory Allowance
  • Granted for hilly, snowbound, or uncongenial climate areas.
  • Exemptions range from 300/month to Rs. 7,000/month based on altitude and location.
• Tribal Area Allowance
  • Applicable in states like Madhya Pradesh, Tamil Nadu, Uttar Pradesh: Exempt up to 200/month.
• Compensatory Field Area Allowance
  • Specified areas in states like Arunachal Pradesh, Nagaland, and Sikkim: Exempt up to 2,600/month.
• Compensatory Modified Field Area Allowance
  • Designated regions in Arunachal Pradesh, Mizoram, Punjab, and others: Exempt up to 1,000/month.

Key Conditions for Exemption

• Allowances are exempt irrespective of actual utilization.
• Exemption limits vary by region, altitude, and specific operational circumstances.

Taxability of Official Duty Allowance

Taxability of Official Duty Allowance

Introduction

Allowances provided to employees for personal expenses are generally taxable under the head “Salary.” However, specific allowances are exempt up to predefined limits under the Income-tax Act.

Key Allowances and Tax Treatment

• Transport Allowance for Transport Employees
  • Exempt for employees in transport systems for duty-related personal expenses.
  • Exemption: Lower of 70% of the allowance or 10,000/month.
• Conveyance Allowance
  • Exempt for expenses incurred on conveyance during official duties.
  • Allowance for commuting between residence and office is not exempt.
• Daily Allowance
  • Exempt for charges incurred during tours or journeys related to official transfers.
• Helper Allowance
  • Exempt for expenses incurred on a helper engaged exclusively for official duties.
• Research Allowance
  • Exempt for academic, research, and training purposes in educational and research institutions, provided the allowance is spent for approved purposes such as conference fees, books, and research equipment.
• Uniform Allowance
  • Exempt for expenses incurred on uniforms required for official duties.
  • Allowance is taxable if uniforms are not prescribed by the employer.
• Conditions for Exemption
  • Exemptions apply to the lower of the actual allowance received or expenses incurred for official duties.
  • Rule 2BB and Section 10(14)(i) of the Income-tax Act govern these exemptions.

Taxability of Personal Allowances

Taxability of Personal Allowances

Introduction

Allowances provided to employees for personal expenses are generally taxable under the head “Salary.” However, specific allowances are exempt up to predefined limits under the Income-tax Act.

Exempt Personal Allowances

1. Transport Allowance for Transport Employees.

• Exempt for employees in transport systems for duty-related personal expenses.
• Exemption: Lower of 70% of the allowance or 10,000/month

2. Children’s Education Allowance

• Exempt up to 100/month per child for a maximum of 2 children.
• Actual education expenditure is irrelevant for exemption.

3. Children’s Hostel Allowance

• Exempt up to 300/month per child for a maximum of 2 children.

4. Transport Allowance (Handicapped Employees)

• Exempt for employees who are blind, deaf, dumb, or orthopedically handicapped.
• Exemption: 3,200/month.

Other Taxable Allowances

The following allowances are fully taxable:

• Tiffin Allowance
• Medical Allowance
• Servant Allowance
• City Compensatory Allowance

Deductions from Salary

Deductions from Salary

The Income-tax Act allows three deductions under Section 16 for salary income:

• Standard Deduction
• Deduction for Entertainment Allowance
• Deduction for Professional Tax

Standard Deduction [Section 16(ia)]

• Available to all employees, including retirees receiving pension.
• Deduction amount:
  • 50,000 (for the regular tax regime).
  • 75,000 (for the new tax regime under Section 115BAC.
• No documentation required to claim this deduction.

Deduction for Professional Tax [Section 16(iii)]

• Deductible if paid by the employee during the year (even in advance).
• If paid by the employer without deducting from salary:
• Amount is treated as a taxable perquisite.
• Deduction is then allowed from gross salary.

Perquisites

Perquisites

Introduction

Perquisites refer to benefits or facilities provided by an employer to an employee in addition to salary. These benefits are taxable under the head “Salaries” when provided during employment.

Definition and Examples

• Perquisites are emoluments for the personal benefit or use of the employee, in cash or kind, or money’s worth.
• Example: A personal watchman is taxable as a perquisite, whereas one provided for official purposes is not.

Key Inclusions in Perquisites

• Rent-free or concessional accommodation.
• Use of motor car or other employer-provided assets.
• Facilities such as gardener, watchman, or servant.
• Free or concessional gas, electricity, or water supply.
• Free or concessional education for children.
• Transport facility.
• Employer-paid obligations of the employee.
• Insurance facilities.
• Employee stock options (ESOPs) or sweat equity shares.
• Contributions to retirement funds exceeding 7,50,000.
• Loans at concessional or nil interest rates.
• Leave travel concession (LTC).
• Gifts, club facilities, or free food and refreshments.
• Mobile or telephone facilities.

Rent-free Accommodation

Rent-free Accommodation

Introduction

When an employer provides residential accommodation rent-free or at a concessional rate, the value of such a benefit is taxable as a perquisite under “Salaries.” This applies regardless of whether the accommodation is employer-owned or leased.

Key Provisions

• Definition
  • Accommodation includes houses, flats, hotels, guest houses, caravans, mobile home, ship or other floating structure.
• Calculation of Taxable Perquisite
  • Government Employees:
  • Taxable value is the license fee per government service rules.
  • Add 10% of the cost of provided furniture (or hire charges if applicable).
  • Non-Government Employees:
  • For employer-owned accommodation:
    • Value depends on city population and salary

Population of City	Value
Up to 15,00,000	5% of Salary
15,00,001 to 40,00,000	7.5% of Salary
Above 40,00,000	10% of Salary

• For leased accommodation:
• Taxable value is lower of 10% of salary or actual rent paid.
• Furnished Accommodation
  • Add 10% of furniture cost or hire charges to the perquisite value of unfurnished accommodation.
• Hotel Accommodation
  • Exempt for up to 15 days annually.
  • Beyond 15 days: Taxable value is the lower of 24% of salary or actual hotel charges.
• Subsequent Years
  • The perquisite value for subsequent years cannot exceed the first year’s value adjusted for Cost Inflation Index (CII).
• Remote Location Exemption
  • • Accommodation in mining, dam, power generation, project execution, or off-shore/onshore oil exploration sites may be tax-free if:
  • The house size is ≤1,000 sq. ft. and situated at least 8 km away from the local limits of a municipality or cantonment board.
  • The accommodation is in a remote area, located at least 30 km away from a town with a population of less than 1,00,000 (as per 2011 census).
• Judges and Parliament Officials
  • Rent-free accommodation for High Court/Supreme Court Judges, Union Ministers, or Leaders of Opposition is exempt.
• Job Transfers
  • During relocation, only the lower-valued accommodation is taxed for 90 days. After 90 days, both accommodations are taxable.

Perquisite – Use of Motor Car

Perquisite – Use of Motor Car

Introduction

When an employer provides a car or reimburses expenses for personal or official use, the value of this benefit is taxable as a perquisite under “Salaries.” Taxability depends on ownership, maintenance costs, and usage.

Perquisite Valuation Based on Ownership and Usage

• Employee-Owned Vehicle with Reimbursement
  • Official Use Only: Taxable value is nil if a logbook and employer certificate confirm official use.
  • Personal Use Only: Taxable value is the reimbursement amount.
  • Mixed Use: Taxable value is the reimbursement minus the amount recovered from the employee and the following additional deduction:
  • Small car (engine capacity upto 1.6 liters): 1,800/month; Big car (exceeding 1.6 liters): Rs. 2,400/month.
  • 900/month if a chauffeur is provided.
• Employer-Owned Vehicle
  • Official Use Only: Taxable value is nil with proper documentation.
  • Personal Use Only: Taxable value includes:
  • Maintenance and running costs.
  • Driver’s salary.
  • 10% p.a. of car’s actual cost (or hire charges if leased).
  • Less any amount recovered from the employee.
• Mixed Use:
  • If employer bears costs: 1,800/month (small car) or Rs. 2,400/month (big car).
  • If employee bears costs: 600/month (small car) or Rs. 900/month (big car).
  • Add 900/month if a chauffeur is provided.
• Other Vehicles
  • If any other vehicle of the employee is used for both office and personal purposes, the taxable value shall be the reimbursed amount less Rs. 900/month and any amount recovered from the employee.
  • If any other vehicle of the employer is used by an employee, the taxable value of the perquisite shall be nil
• Multiple Cars
  • If multiple cars are used, only one car is assumed for mixed use. Others are treated as personal-use only.

Tax-Free Perquisites for Motor Vehicles

• Commute Between Office and Residence
  • Tax-free for employer-provided cars or reimbursements.
• Judges’ Conveyance Facility
  • Tax-free for High Court, Supreme Court Judges, and UPSC members.
• Free Transport by Transport Undertakings
  • Free rail/air travel for railway and airline employees is exempt.
  • Other transport undertakings: Taxable at the public travel rate minus any employee contribution.

Valuation of Educational Facilities

Valuation of Educational Facilities

Introduction

The educational facilities provided by employers for specified employees’ children are taxable as perquisites under “Salaries.” However, certain exemptions and valuation rules apply based on the type of benefit.

Key Provisions

1. Free Education Facility in Employer-Owned Institutions

• Exempt up to 1,000/month per child.
• Only the amount exceeding 1,000 is generally treated as a perquisite, per department instructions.
• Valuation is based on the cost of education in a similar local institution.

2. Concessional Education Facility

• Fully taxable.
• Valued at the cost of similar education locally, minus any amount recovered from the employee.

3. Reimbursement of Education Costs

• Fully taxable as a monetary perquisite (specified or non-specified employees).

4. Direct Payment to Schools

• Taxable as a perquisite in the hands of specified employees [Circular No 35, Dated 12-02-1965]
• Valuation equals the amount paid by the employer, reduced by any recovery from the employee.

5. Fixed Education Allowance

• Exempt up to:
• 100/month per child (max. 2 children).
• 300/month per child for hostel expenses (max. 2 children).

6. Education for Other Family Members

• Taxable for grandchildren or others based on the local cost of similar education.
• Reduced by any recovery from the employee.

7. Education for Employees

• Free training or research-related benefits provided to employees are exempt if used for the intended purpose.

Taxability of Amenities Provided to Specified Employees

Taxability of Amenities Provided to Specified Employees

Introduction

Certain benefits or amenities provided to specified employees are taxable as perquisites under “Salaries.” These include supply of gas, electricity, domestic servants, and other services.

Definition of Specified Employees

• Directors of a Company: Includes full-time, part-time, and nominee directors.
• Employees with Substantial Interest: Beneficial owners of ≥20% voting power in the company.
• Any other employees is deemed to be a specified employee if his monetary income under the head salary exceed Rs. 4,00,000.

Taxable Benefits for Specified Employees

• Gas, Electricity, or Water Supply
  • Employer-Owned Resources: Taxable value is the manufacturing cost per unit, less recovery from the employee.
  • Third-Party Supply: Taxable value is the actual amount paid by the employer, less recovery from the employee.
• Free or Concessional Education
  • Employer-Owned Institutions: Exempt up to 1,000/month per child; taxable for specified employees beyond this limit.
  • Reimbursement of Education Costs: Taxable as a monetary perquisite for all employees.
• Domestic Servants
  • Taxable value: Total cost incurred by the employer for services of sweepers, gardeners, or attendants, less recovery from the employee.
• Transportation Facility
  • For employees of transport undertakings, the taxable value is the fare offered to the public, reduced by recovery from the employee.
  • Exempt for airline and railway employees.
• Employer-Provided Cars
  • Taxable value depends on car type (small/big) and usage (personal/official), calculated per Rule 3.
  • If sold to an employee at a concessional price, the taxable value is the cost to the employer minus 20% depreciation per year of use.

Leave Travel Allowance (LTA)

Leave Travel Allowance (LTA)

Introduction

LTA is provided by employers to employees for travel within India. Exemption is allowed under Section 10(5) for journeys made by the employee and his family, subject to conditions.

Key Provisions

• Eligibility for Exemption
  • Tax exemption is allowed for actual travel expenses incurred by the employee or family.
  • Unspent allowance is taxable.
  • Only domestic travel is covered; foreign travel is excluded.
• Number of Journeys
  • Exemption allowed for two journeys in a block of four calendar years.
  • Current block: 2022–2025.
  • Unused exemptions can be carried over to the first year of the next block.
• Extent of Exemption

Mode of Travel	Exemption Limit
Air Travel	Economy class airfare of the shortest route or actual expenses, whichever is less.
Rail Travel	First-class AC rail fare for the shortest route or actual expenses, whichever is less.
Recognized Public Transport	Deluxe or first-class fare for the shortest route or actual expenses, whichever is less.
Other Modes	Equivalent first-class AC rail fare for the shortest route (if connected by rail) or actual expenses, whichever is less.

• Family Members Covered
  Spouse, dependent children (up to 2 children if born on or after 1-10-1998), dependent parents, and dependent siblings.
• Excludes grandparents, in-laws, or independent family members.
• Ineligible Expenditures
  Hotel stays, local transport, and meals are not eligible.
• Circuitous journeys are limited to the shortest route or farthest point by the shortest route.

Taxability of Insurance Taken by Employer for Employees

Taxability of Insurance Taken by Employer for Employees

Introduction

Insurance policies taken out by employers for their employees may be taxable as perquisites. Tax treatment depends on the type of policy, its beneficiary, and the circumstances of payout.

Key Types and Tax Implications

• Keyman Insurance Policy
  • A life insurance policy taken out by the employer on the life of key employees.

Scenario	Employer’s Tax Implication	Employee’s Tax Implication
Premium Payment	Deductible as a business expense.	Not taxable as perquisite
Maturity Payout to Employer	Taxable as business income.	N/A
Maturity Payout to Employee	N/A	Taxable under “Profit in lieu of Salary.”

Payout to Legal Heirs (Death)Deduction allowed to employer; not taxable for heirs. N/A

Note: If, on the occasion of the death of the employee, the employer chooses to pay the maturity amount to the widow/legal heir of the deceased employee, the employer gets the deduction of the premium as a business expense, while the maturity amount is not taxable in the hands of the family member. [Circular No. 573, dated 21-08-1990]

• Employer-Employee Insurance Policy
  • Benefits are paid to the employee, typically tax-free under Section 10(10D).

Scenario	Employer’s Tax Implication	Employee’s Tax Implication
Premium Payment	Not deductible as business expense	Taxable as a perquisite.
Maturity Payout	N/A	Exempt under Section 10(10D).

Note: If, on the occasion of the death of the employee, the employer chooses to pay the maturity amount to the widow/legal heir of the deceased employee, the employer gets the deduction of the premium as a business expense, while the maturity amount is not taxable in the hands of the family member. [Circular No. 573, dated 21-08-1990]

• Employer-Employee Insurance Policy
  • Benefits are paid to the employee, typically tax-free under Section 10(10D).

Scenario	Employer’s Tax Implication	Employee’s Tax Implication
Premium Payment	Not deductible as business expense.	Taxable as a perquisite.
Maturity Payout	N/A	Exempt under Section 10(10D).

• Exempt Insurance Policies
  • Certain employer-paid policies are not taxable in employees’ hands, including:
  • Recognized Provident Fund.
  • Approved Superannuation Fund.
  • Group Insurance Scheme.
  • Employees’ State Insurance Scheme.
  • Fidelity Guarantee Scheme.
  • Deposit Linked Insurance Fund established under Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948.
  • Deposit Linked Insurance Fund established under Section 6C of Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.

Free or Concessional Loan to Employees

Free or Concessional Loan to Employees

Introduction

Interest-free or concessional loans provided by employers to employees or their family members are taxable as perquisites under “Salaries.” However, petty loans up to Rs. 20,000 and loans for specified medical treatments are exempt.

Taxability of Loans

• Situations Where Perquisite Arises
  • Loans for personal purposes like education, marriage, or medical treatment.
  • Loans provided to employees, their family, or dependents.
• Valuation of Perquisite
  • Steps to calculate taxable value:
  • Determine the outstanding loan balance on the last day of each month.
  • Compute interest at the SBI rate applicable on the first day of the financial year for similar loans.
  • Deduct any interest recovered by the employer.
  • The result is the taxable perquisite value.
• Deemed Dividend
  • If a private company gives a loan to an employee holding ≥10% voting power, the loan is treated as deemed dividend.

Exemptions from Taxability

• Petty Loans
  • Loans up to 20,000 in aggregate are exempt.
  • If the total loan exceeds 20,000 at any time, the entire loan is taxable.
• Medical Loans
  • Loans for treating diseases specified in Rule 3A (e.g., cancer, AIDS) are exempt.
  • If reimbursed by an insurance company, the taxable perquisite is calculated on the reimbursed but unpaid amount.
• List of Specified Diseases
  • Includes ailments like cancer, tuberculosis, heart conditions, fractures, mental disorders, drug addiction, Gynaecological or obstetric ailment and severe allergic reactions requiring hospitalization.

Perquisite – Use of Employer Assets

Perquisite – Use of Employer Assets

Introduction

When an employee or their family uses movable assets owned or hired by the employer, or purchases such assets at concessional rates, the value of these benefits is taxable as a perquisite.

Key Provisions

• Valuation of Perquisite
  • Computers or Laptops:
  • Usage: Tax-free.
  • Purchase: Taxable value = Cost to the employer − Depreciation (50% per year, reducing balance).
  • Motor Cars:
  • Usage: Taxable as per Rule 3 (based on ownership, maintenance costs, and usage).
  • Purchase: Taxable value = Cost to employer − Depreciation (20% per year, reducing balance).
  • Other Assets(e.g., appliances, furniture):
  • Usage: Taxable value = 10% p.a. of the asset’s cost, less any amount recovered.
  • Purchase: Taxable value = Cost to employer − 10% for each completed year (straight-line basis).
  • Hired Assets:
  • Taxable value = Rent paid by employer, less any recovery from the employee.
• Depreciation and Completed Year
  • Depreciation:
  • Computers/laptops: 50% (reducing balance).
  • Cars: 20% (reducing balance).
  • Other assets: 10% (straight-line).
  • A “completed year” means a full 12 months. Partial years are not considered.
• Exemptions
  • Usage of employer-provided laptops and computers is tax-free.

Perquisites – Medical Facilities

Perquisites – Medical Facilities

Introduction

Medical facilities provided by employers to employees or their family members can be tax-free under specific conditions. Taxability depends on the nature, location, and expenditure of the medical benefit.

Tax Treatment of Medical Facilities

• Medical Facilities in India
  • Medical facilities in India are Tax-free if provided to the employee or to his spouse, children, dependent parents or dependent siblings in the following cases:
    • Treatment in employer-maintained hospitals.
    • Treatment in government or approved hospitals for prescribed diseases.
    • Treatment for COVID-19 (subject to required documentation)[Notification No. 90/2022, dated 05-08-2022].
    • Group medical insurance coverage is provided by the employer.
• Taxable:
  • Reimbursements for routine check-ups, medicines, or non-approved treatments.
• Medical Facilities Outside India
  • Medical treatment outside India for the employee, spouse, children, dependent parents, or dependent siblings is taxable only if the expenses exceed the RBI-prescribed limit:
    • Medical treatment, accommodation for the patient or accompanying individuals.
    • The cost of travelling of the employee or any of his family members or any attendant, who accompanies the patient, for treatment outside India shall be taxable as perquisite if the gross total income of the employee, without including therein the expenditure on travelling, exceeds Rs. 8,00,000.
• RBI Limit on Foreign Exchange for Medical Treatment
  • USD 250,000 per annum per individual (or equivalent).
  • Exceeds limit: Requires RBI approval.
• Health Insurance
  • Employer-paid premiums for Central Government or IRDAI-approved health insurance schemes are fully tax-free.
  • Reimbursements for employee-paid premiums under such schemes are also tax-free.
• Personal Accident Policy
  • Employer-paid premiums: Exempt from tax.
  • Reimbursed premiums (paid by the employee): Taxable as perquisite.

Perquisite – Free Food Facility

Perquisite – Free Food Facility

Introduction

Free food, snacks, and beverages provided by employers during working hours can be tax-free under specific conditions. The exemption is subject to limits on the value and nature of the benefit.

Tax Treatment of Free Food Facility

• Tax-Free Benefits
  • Snacks, Tea, Non-Alcoholic Beverages: Not taxable when provided during office hours.
  • Free Meals: Exempt if the cost does not Rs. 50/- per meal, provided:
  • Food is served during working hours at office premises or via non-transferable food vouchers usable at restaurants/cafes.
• Taxable Benefits
  • Food exceeding 50 per meal. [Circular No. 15/2001, dated December 12, 2001]
  • Meals provided beyond working hours or outside office premises.
  • Alcoholic beverages, lunch allowances, or refreshment allowances.
• Free Food in Remote Areas or Offshore Installations
  • Exempt from tax.
  • Remote areas: Locations ≥40 km from a town with a population ≤20,000 (as per the latest census).
• Meal/Food Coupons (e.g., Sodexo)
  • Tax-free when used for meals during office hours.
  • If used at non-eating joints (e.g., grocery stores), technically taxable, but enforcement is limited.

Perquisites – Holiday Facilities

Perquisites – Holiday Facilities

Introduction

Holiday facilities provided by employers to employees or their family members are taxable as perquisites. However, specific exemptions may apply based on the nature of the facility.

Tax Treatment of Holiday Facilities

• Official Tour
  • Tax-free if expenses are incurred solely for official purposes.
  • If family members accompany the employee, the taxable value is the actual expenses incurred for them, reduced by any amount recovered from the employee.
• Official Tour Extended as Vacation
  • Taxable value includes expenses for boarding, lodging, and local tours during the vacation period, less any amount recovered from the employee.
• Employer-Maintained Holiday Facility
  • Uniform Availability: Tax-free if the facility is uniformly available to all employees.
  • Non-Uniform Availability: Taxable at the rate offered by similar facilities to the public, reduced by any amount recovered from the employee.

Perquisites – Club Facility

Perquisites – Club Facility

Introduction

Expenses incurred by employers for club memberships or facilities used by employees or their family members are generally taxable as perquisites. Specific exemptions apply for health or sports clubs provided uniformly to all employees.

Tax Treatment of Club Facilities

• Health or Sports Club
  • Exempt from tax if facilities are provided uniformly to all employees.
• Club Membership
  • Taxable value = Actual cost incurred by the employer, less any amount recovered from the employee.
• Corporate Membership
  • Initial membership fees for corporate or institutional memberships are exempt if the benefit does not remain with a particular employee after employment cessation. [Circular No. 15/2001, dated December 12, 2001]
• Club Expenses for Official Purposes
  • Taxable value = Nil if the expenses are incurred wholly and exclusively for business purposes.
  • Employer must maintain sufficient documentation and certify the expenditure as official.

Perquisite – Credit Card Facility

Perquisite – Credit Card Facility

Introduction

When employers provide a credit card facility for personal expenses of employees or their family members, the benefit is taxable as a perquisite. Official expenses are exempt if supported by proper documentation.

Tax Treatment of Credit Card Facility

• Personal Expenses
  • Taxable value = Total expenses borne by the employer, including membership and annual fees.
  • Reduced by any amount recovered from the employee.
• Official Expenses
  • Taxable value = Nil if the expenses are wholly and exclusively for official purposes.
  • Documentation Required: Employer must maintain sufficient records, including details of the expenditure and a certificate confirming that it was incurred for official duties.

Perquisites – ESOPs

Perquisites – ESOPs

Introduction

Employee Stock Option Plans (ESOPs) are schemes where employers offer securities to employees either free of cost or at a concessional rate. The difference between the fair market value (FMV) and the amount paid by the employee is treated as a taxable perquisite in the year of allotment. In the case of eligible start-ups, the tax liability on such perquisites may be deferred. Capital gains tax applies when these securities are subsequently sold.

About ESOPs

Employers use ESOPs to retain and motivate talent, particularly in start-ups. The process includes:

• Grant: Offering the right to buy securities at a concessional price.
• Vest: Establishing the employee’s right to acquire the securities.
• Exercise: The act of purchasing the securities by the employee.
• On exercising the option and allotment, the employee may sell or hold the securities, sometimes subject to a lock-in period.

Tax Implications of ESOPs

Taxation occurs at two stages:

• At the Time of Allotment of Shares
  • The value of perquisite is calculated as:
  • (FMV on the exercise date – Price paid by the employee for each share) × Number of shares.
  • FMV is determined based on whether the shares are listed or unlisted and follows prescribed valuation norms.
  • The tax is levied in the year of allotment, even though valuation is based on the exercise date’s FMV.
• At the Time of Sale of Securities
  • Taxable as capital gains.
  • Period of holding starts from the date of allotment.
  • Cost of acquisition is the FMV on the date of exercise.
• Deferment of Tax on Perquisites in Case of Start-ups
  • To ease the tax burden, deferment provisions have been introduced for employees of eligible start-ups as defined under section 80-IAC. Key provisions include:
• Time of Tax Deduction
  • TDS under section 192 is deferred and must be deducted within 14 days from the earliest of:
  • Expiry of 48 months from the end of the assessment year in which shares are allotted.
  • Date of cessation of employment.
  • Date of sale of the shares.
• Taxability and Disclosure
  • Income remains chargeable in the year of allotment.
  • Employee must disclose such perquisite in the return for that year.
  • However, actual tax payment is deferred.
  • Tax on regular salary (excluding ESOPs) is computed using a proportionate formula.
• Mechanism and Computation
  • Deferred tax becomes payable in the year of triggering event.
  • Tax already paid (excluding ESOP component) is reduced from total computed tax liability to determine final dues.
• Consequences of Non-compliance
  • Interest and penalties may apply for failure to deduct or pay tax.
  • Prosecution provisions under section 276B may be invoked for employers.
  • Relief is available if the employee has paid the taxes and a CA certificate is provided.

Perquisite – Superannuation Fund

Perquisite – Superannuation Fund

Introduction

Superannuation is a retirement benefit wherein the employer contributes annually to a group superannuation policy to provide pension payments to employees upon retirement. The fund earns interest similar to provident fund rates. Employees can transfer their accumulated superannuation balance to a new employer’s approved fund or withdraw it, subject to tax provisions.

Contribution Limits and Taxability

Employers may contribute up to 27% of the employee’s basic salary towards recognized retirement funds, including contribution to provident fund. For example, if 12% is contributed to PF, the maximum superannuation contribution is 15%. Contributions by the employer exceeding an aggregate limit of Rs. 7,50,000 per year to recognized provident fund, national pension scheme (NPS), and approved superannuation fund are taxable as perquisites in the hands of the employee. Interest attributable to such excess contributions is also taxable as a perquisite.

Taxation in the Employee’s Hands

• Employee’s contributions to the superannuation fund are deductible under Section 80C, subject to the overall Rs. 1,50,000 limit.
• Employer’s contributions within the Rs. 7,50,000 aggregate limit are not taxable. Contributions beyond this limit attract tax as a perquisite. Lump-sum employer contributions to group superannuation schemes where individual benefits are not separately identifiable are not taxable as perquisites. Interest accrued on the superannuation fund balance is exempt unless attributable to excess employer contributions above Rs. 7,50,000, in which case it is taxable as a perquisite.
• Payments from the fund are exempt under Section 10(13) if made due to the employee’s death, commutation of pension after specified retirement age, incapacity, or transfer to NPS. Withdrawals without annuity purchase on retirement or resignation are taxable. Purchase of an annuity from the withdrawn amount exempts the payment and ensures pension continuity.

Taxation in the Employer’s Hands

• Employer contributions to an approved superannuation fund are allowed as a business expenditure under Section 36(1)(iv), subject to limits. Income earned by trustees on behalf of the approved fund is exempt under Section 10(25)(iii).
• Employers must deduct tax at the average rate applicable to the employee on payments from the fund during the employee’s lifetime, unless such payments are exempt under Section 10(13).

Section 89 Relief from Salary

Section 89 Relief from Salary

Introduction

Section 89 provides relief to employees to mitigate additional tax liability arising due to receipt of arrears, advance salary, or other lump sum payments, which may result in higher tax rates in the year of receipt.

Eligibility for Relief

1. Relief is available for the following:

2. Salary arrears or advance salary.

3. Arrears of family pension.

4. Premature withdrawal from Provident Fund.

5. Commuted value of pension.

6. Compensation on termination of employment.

Procedure to Claim Relief

• Relief must be claimed in the income-tax return for the year of receipt.
• Submission of Form 10E is mandatory before filing the return.

Computation of Relief

Relief is calculated by comparing the tax payable with and without the lump sum receipt, both in the year of receipt and the year(s) to which it relates.

The relief in respect of receipts enumerated above shall be calculated in following steps.

Step 1: Calculate tax on total income of current year including above receipts

Step 2: Calculate tax on total income of current year excluding above receipts

Step 3: Calculate tax on total income of the year to which the above receipts relate after excluding these receipts

Step 4: Calculate tax on total income of the year to which the above receipts relate after including these receipts

Step 5: Calculate difference between (Step 1 minus Step 2) and (Step 4 minus Step 3)

If result of calculation in Step 5 is positive, such excess amount is allowed as relief. If result of Step 5 is negative, no relief shall be allowed to the employee.

Specific Cases of Relief

• Gratuity
  • Eligible if service is ≥5 years.
  • Relief applies only to the taxable portion of gratuity.
  • Calculations depend on the term of service:
    • ≥15 Years: Average tax rates for the current year and the previous three years are considered.
    • <15 Years: Average rates for the current year and the previous two years are used.
• Compensation on Termination
  • Calculated like gratuity for service ≥15 years.
  • If claiming Section 89 relief for Voluntary Retirement Compensation, exemption up to 5,00,000 under Section 10(10C) is not allowed.
• Commutation of Pension
  • • Relief calculated as if gratuity were paid for service of ≥15 years.

Relief from Taxation of Income from Foreign Retirement Benefit Account

Relief from Taxation of Income from Foreign Retirement Benefit Account

Introduction

Section 89A provides resident individuals the option to defer tax on income from foreign retirement benefit accounts. Instead of taxing the income on an accrual basis, tax is deferred to the year of withdrawal, applicable to accounts in notified countries and by filing Form 10EE electronically.

Eligibility for Relief under Section 89A

• Resident individuals with foreign retirement benefit accounts.
• The account must be in a notified country.
• The individual must have been non-resident in India and a resident of the notified country when the account was opened.
• Income is taxed in the notified country only at the time of withdrawal or redemption.

Notified Countries

As per Notification No. 25/2022, dated 04-04-2022, the following countries are eligible:

1. Canada

2. United Kingdom

3. United States of America

How to Claim Relief

1. File Form 10EE electronically on or before the due date for the income-tax return.

2. The option applies to income accrued on or after 01-04-2021.

3. Once exercised, the option applies to all subsequent years and cannot be withdrawn.

Taxation Rules ( Rule 21AAA)[ Notification No. 24/2022, dated 04-04-2022]

• Income is taxed in the year of withdrawal or redemption in the notified country.
• Income already taxed in India or exempt due to prior non-residential status is excluded.
• Foreign tax credit is disallowed for excluded income.

Non-Resident Status in Subsequent Years

• If the individual becomes a non-resident after opting for Section 89A, the option is deemed void.
• Income accrued in the specified account during the option period becomes taxable.
• Tax must be paid before the due date for filing the income-tax return for the year of becoming non-resident.

Taxability of Perquisite under Section 17(2)(viia)

Taxability of Perquisite under Section 17(2)(viia)

Introduction

Employer contributions exceeding Rs. 7,50,000 annually to Recognized Provident Fund (PF), National Pension Scheme (NPS), and Superannuation Fund, along with annual accretion on such excess, are taxable as perquisites.

Applicability

• Contributions by the employer across all welfare funds exceeding 7,50,000 are taxable.
• Annual accretion, such as interest, dividends, or similar income on excess contributions, is also taxable.

Computation of Taxable Perquisite (Rule 3B)

Taxable accretion (TP) is calculated using the formula:

TP = (PC/2)*R + (PC1+ TP1)*R
Where,

(a) TP = Taxable perquisite under section 17(2)(viia) for the current previous year;

(b) TP1 = Aggregate of taxable perquisite under section 17(2)(viia) for the previous year(s) commencing on or after 01-04-2020 other than the current previous year.

(c) PC = Aggregate of the principal contribution made by the employer in excess of Rs. 7.50 lakh to the employee’s welfare funds during the previous year;

(d) PC1 = Aggregate of the principal contribution made by the employer in excess of Rs. 7.50 lakh to the employee’s welfare funds for the previous year(s) commencing on or after 01-04-2020 other than the current previous year;

(e) R = I/ Favg;

(f) I = Aggregate of income accrued during the current previous year in the employee’s welfare funds;

(g) Favg = (Aggregate of balance to the credit of the employee’s welfare funds on the first day of the current previous Year + Aggregate of balance to the credit of the employee’s welfare funds on the last day of the current previous year)/2

Where the aggregate of TP1 and PC1 exceeds the aggregate of balance to the credit of the specified fund or scheme on the first day of the current previous year, then the amount in excess of the aggregate of amounts of the said balance shall be ignored to compute the aggregate of amounts of TP1 and PC1.

Taxability of Interest on Contribution to Provident Fund (PF)

Taxability of Interest on Contribution to Provident Fund (PF)

Introduction

Interest on employee contributions to Recognized Provident Fund (RPF) and Statutory Provident Fund (SPF) is exempt under Sections 10(11) and 10(12).

However, exemptions are restricted for contributions exceeding Rs. 2,50,000 (or Rs. 5,00,000 for funds without employer contributions).

Key Provisions

• Employer’s Contribution
  • Interest on contributions up to 9.5% is exempt. [Notification No. 24/2011 [F. No. 142/14/2010- (TPL)]/S.O. 1046(E), Dated 13-5-2011]
  • Excess interest is taxable under “Salaries” and subject to TDS under Section 192.
• Employee’s Contribution
  • Interest on an employee’s EPF/SPF contribution is exempt under Sections 10(11) and 10(12). However, interest exceeding 9.5% is taxable.
  • Interest on contributions exceeding 2,50,000 (or Rs. 5,00,000 for funds without employer contributions) is taxable under “Income from Other Sources.”
• Separate Accounts for Taxable Contributions
  • From FY 2021-22, PF accounts must maintain separate records for:
  • Non-taxable contributions.
  • Taxable contributions (amounts exceeding the threshold).
• Computation of Taxable Interest (Rule 9D)
• For FY 2021-22:
  • Taxable contribution = Contributions exceeding 2,50,000/Rs. 5,00,000 + Interest thereon −Withdrawals.
• For Subsequent Years:
  • Taxable contribution = Closing balance of taxable account (previous year) + Current year excess contribution + Interest − Withdrawals.

SBI’s Rate of Interest for Perquisite Valuation

SBI’s Rate of Interest for Perquisite Valuation

Introduction

The taxable value of the perquisite arising from free or concessional loans extended by employers is determined based on the State Bank of India’s (SBI) interest rates as of April 1 of the relevant financial year.

Key Provisions

• Applicability
  • Perquisite tax applies to loans for personal purposes such as education, medical treatment, or housing when provided interest-free or at concessional rates.
  • Tax liability extends to loans availed by the employee, their family, or dependents.
  • Loans up to 20,000 or for specified medical treatments are exempt from tax.
• Valuation of Perquisite

The perquisite value is the difference between interest at SBI rates and the actual interest paid by the employee.

For rate of interest, visit the website of SBI from the following link:

https://sbi.co.in/web/business/information/interest-rates-perquisite-calculation

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Income-tax Act, 1961

Section – 10

CHAPTER III

INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

Incomes not included in total income.

10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—

(1) agricultural income ;

(2) subject to the provisions of sub-section (2) of section 64, any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family ;

(2A) in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. Explanation.—For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits ;

(3) [***]

(4) (i) in the case of a non-resident, any income by way of interest on such securities or bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf, including income by way of premium on the redemption of such bonds :

Provided that the Central Government shall not specify, for the purposes of this sub-clause, such securities or bonds on or after the 1st day of June, 2002;

(ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999 (42 of 1999), and the rules made thereunder :

Provided that such individual is a person resident outside India as defined in clause (w) of section 2 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account ;

(4B) in the case of an individual, being a citizen of India or a person of Indian origin, who is a non-resident, any income from interest on such savings certificates issued before the 1st day of June, 2002 by the Central Government as that Government may, by notification in the Official Gazette, specify in this behalf :

Provided that the individual has subscribed to such certificates in convertible foreign exchange remitted from a country outside India in accordance with the provisions of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder. Explanation.—For the purposes of this clause,—

(a) a person shall be deemed to be of Indian origin if he, or either of his parents or any of his grandparents, was born in undivided India ;

(b) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder ;

(4C) any income by way of interest payable to a non-resident, not being a company, or to a foreign company, by any Indian company or business trust in respect of monies borrowed from a source outside India by way of issue of rupee denominated bond, as referred to in clause (ia) of sub-section (2) of section 194LC, during the period beginning from the 17th day of September, 2018 and ending on the 31st day of March, 2019;

(4D) any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in clause (viiab) of section 47, on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in convertible foreign exchange or as a result of transfer of securities (other than shares in a company resident in India) or any income from securities issued by a non-resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India or any income from a securitisation trust which is chargeable under the head “Profits and gains of business or profession”, to the extent such income accrued or arisen to, or is received, is attributable to units held by non-resident (not being the permanent establishment of a non-resident in India) or is attributable to the investment division of offshore banking unit, as the case may be, computed in the prescribed manner.

Explanation.—For the purposes of this clause, the expression—

(a) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the rules made thereunder;

(aa) “investment division of offshore banking unit” means an investment division of a banking unit of a non-resident located in an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA and which has commenced its operations on or before the 31st day of March, [2030];

(b) “manager” shall have the meaning assigned to it in clause (q) 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);

(ba) “permanent establishment” shall have the same meaning assigned to it in clause (iiia) of section 92F;

(bb) “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) and shall also include such other securities or instruments as may be notified by the Central Government in the Official Gazette in this behalf;

(bc) “securitisation trust” shall have the same meaning assigned to it in clause (d) of the Explanation to section 115TCA;

(c) “specified fund” means,—

(i) 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,—

[(I) (a)] which has been granted a certificate of registration as a Category III 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 International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the] International Financial Services Centres Authority Act, 2019 (50 of 2019);

[(b) which has been granted a certificate as a retail scheme or an Exchange Traded Fund and satisfies the conditions laid down for such schemes or funds under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the International Financial Services Centres Authority Act, 2019 (50 of 2019);]

(II) which is located in any International Financial Services Centre; and

(III) of which all the units other than unit held by a sponsor or manager are held by non-residents :

Provided that the condition specified in this item shall not apply where any unit holder or holders, being non­resident during the previous year when such unit or units were issued, becomes resident under clause (1) or clause (1A) of section 6 in any previous year subsequent to that year, if the aggregate value and number of the units held by such resident unit holder or holders do not exceed five per cent of the total units issued and fulfil such other conditions as may be prescribed; or

(ii) investment division of an offshore banking unit, which has been—

II. granted a certificate of registration as a Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and which has commenced its operations on or before the 31st day of March, ²³[2030]; and

II. fulfils such conditions including maintenance of separate accounts for its investment division, as may be prescribed;

(d) “sponsor” shall have the meaning assigned to it in clause (w) 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);

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

(f) “unit” means beneficial interest of an investor in the fund and shall include shares or partnership interests;

²⁴[(4E) any income accrued or arisen to, or received by a non-resident as a result of—

(i) transfer of non-deliverable forward contracts or offshore derivative instruments or over-the-counter derivatives; or

(ii) distribution of income on offshore derivative instruments [or over-the-counter derivatives],

entered into with an offshore banking unit of an International Financial Services Centre referred to in sub-section (1A) of section 80LA ²⁵[or any Foreign Portfolio Investor being a unit of an International Financial Services Centre], which fulfils such conditions as may be prescribed;]

Following Explanation shall be inserted in clause (4E) of section 10 by the Finance Act, 2025, w.e.f. 1-4-2026:

Explanation.—For the purposes of this clause, “Foreign Portfolio Investor” means a person registered under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(4F) any income of a non-resident by way of royalty or interest , on account of lease of an aircraft or a ship in a previous year, paid by a unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, if the unit has commenced its operations on or before the 31st day of March, [2030].

Explanation.—For the purposes of this clause,—

(i) “aircraft” means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;

(ii) “ship” means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof;

²⁷[(4G) any income received by a non-resident from,—

(i) portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non­resident; or

(ii) such activity carried out by such person, as may be notified by the Central Government in the Official Gazette,

in an account maintained with an Offshore Banking Unit in any International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.

Explanation.—For the purposes of this clause, “portfolio manager” shall have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021, made under the International Financial Services Centres Authority Act, 2019 (50 of 2019);

(4H) any income of a non-resident or a Unit of an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, engaged primarily in the business of leasing of an aircraft [or a ship], by way of capital gains arising from the transfer of equity shares of domestic company, being a Unit of an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, engaged primarily in the business of leasing of an aircraft [or a ²⁹[2030]:

Provided that the provisions of this clause shall apply for capital gains arising from the transfer of equity shares of such domestic company in a previous year relevant to an assessment year falling within the—

(a) period of ten assessment years beginning with the assessment year relevant to the previous year in which the domestic company has commenced operations; or

(b) period of ten assessment years beginning with the assessment year commencing on the 1st day of April, 2024, where the period referred to in clause (a) ends before the 1st day of April, 2034.

[Explanation.—For the purposes of this clause,—

(a) “aircraft” means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;

(b) “ship” means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof;]]

(5) in the case of an individual, the value of any travel concession or assistance received by, or due to, him,—

(a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India ;

(b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service,

subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government :

Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel:

Provided further that for the assessment year beginning on the 1st day of April, 2021, the value in lieu of any travel concession or assistance received by, or due to, such individual shall also be exempt under this clause subject to the fulfilment of such conditions (including the condition of incurring such amount of such expenditure within such period), as may be prescribed.

Explanation 1.—For the purposes of this clause, “family”, in relation to an individual, means—

(i) the spouse and children of the individual ; and

(ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.

Explanation 2.—For the removal of doubts, it is hereby clarified that where an individual claims exemption and the exemption is allowed under the second proviso in connection with the prescribed expenditure, no exemption shall be allowed under this clause in respect of such prescribed expenditure to any other individual;

(5A) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(5B) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]

(6) in the case of an individual who is not a citizen of India,—

(i) [***]

(ii) the remuneration received by him as an official, by whatever name called, of an embassy, high commission, legation, commission, consulate or the trade representation of a foreign State, or as a member of the staff of any of these officials, for service in such capacity :

Provided that the remuneration received by him as a trade commissioner or other official representative in India of the Government of a foreign State (not holding office as such in an honorary capacity), or as a member of the staff of any of those officials, shall be exempt only if the remuneration of the corresponding officials or, as the case may be, members of the staff, if any, of the Government resident for similar purposes in the country concerned enjoys a similar exemption in that country :

Provided further that such members of the staff are subjects of the country represented and are not engaged in any business or profession or employment in India otherwise than as members of such staff ;

(iii) [Sub-clause (ii) substituted for sub-clauses (ii) to (v) by the Finance Act, 1988, w.e.f. 1-4-1989;] to (v)

(vi) the remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India, provided the following conditions are fulfilled—

(a) the foreign enterprise is not engaged in any trade or business in India ;

(b) his stay in India does not exceed in the aggregate a period of ninety days in such previous year ; and

(c) such remuneration is not liable to be deducted from the income of the employer chargeable under this Act ; (via) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

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

(viia) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(viii) any income chargeable under the head “Salaries” received by or due to any such individual being a non-resident as remuneration for services rendered in connection with his employment on a foreign ship where his total stay in India does not exceed in the aggregate a period of ninety days in the previous year ;

(ix) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(x) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(xi) the remuneration received by him as an employee of the Government of a foreign State during his stay in India in connection with his training in any establishment or office of, or in any undertaking owned by,—

(i) the Government ; or

(ii) any company in which the entire paid-up share capital is held by the Central Government, or any State Government or Governments, or partly by the Central Government and partly by one or more State Governments ; or

(iii) any company which is a subsidiary of a company referred to in item (ii) ; or

(iv) any corporation established by or under a Central, State or Provincial Act ; or

any society registered under the Societies Registration Act, 1860 (21 of 1860), or under any other corresponding law for the time being in force and wholly financed by the Central Government, or any State Government or State Governments, or partly by the Central Government and partly by one or more State Governments ;

(6A) where in the case of a foreign company deriving income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976 but before the 1st day of June, 2002 and,—

(a) where the agreement relates to a matter included in the industrial policy, for the time being in force, of the Government of India, such agreement is in accordance with that policy ; and

(b) in any other case, the agreement is approved by the Central Government,

the tax on such income is payable, under the terms of the agreement, by Government or the Indian concern to the Central Government, the tax so paid.

Explanation.—For the purposes of this clause and clause (6B),—

(a) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ;

(b) “foreign company” shall have the same meaning as in section 80B ;

(c) “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;

(6B) where in the case of a non-resident (not being a company) or of a foreign company deriving income (not being salary, royalty or fees for technical services) from Government or an Indian concern in pursuance of an agreement entered into before the 1st day of June, 2002 by the Central Government with the Government of a foreign State or an international organisation, the tax on such income is payable by Government or the Indian concern to the Central Government under the terms of that agreement or any other related agreement approved before that date by the Central Government, the tax so paid ;

(6BB) where in the case of the Government of a foreign State or a foreign enterprise deriving income from an Indian company engaged in the business of operation of aircraft, as a consideration of acquiring an aircraft or an aircraft engine (other than payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease under an agreement entered into after the 31st day of March, 1997 but before the 1st day of April, 1999, or entered into after the 31st day of March, 2007 and approved by the Central Government in this behalf and the tax on such income is payable by such Indian company under the terms of that agreement to the Central Government, the tax so paid.

Explanation.—For the purposes of this clause, the expression “foreign enterprise” means a person who is a non-resident;

(6C) any income arising to such foreign company, as the Central Government may, by notification in the Official Gazette, specify in this behalf, by way of royalty or fees for technical services received in pursuance of an agreement entered into with that Government for providing services in or outside India in projects connected with security of India ;

(6D) any income arising to a non-resident, not being a company, or a foreign company, by way of royalty from, or fees for technical services rendered in or outside India to, the National Technical Research Organisation;

(7) any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India ;

(8) in the case of an individual who is assigned to duties in India in connection with any co-operative technical assistance programmes and projects in accordance with an agreement entered into by the Central Government and the Government of a foreign State (the terms whereof provide for the exemption given by this clause)—

(a) the remuneration received by him directly or indirectly from the Government of that foreign State for such duties, and

(b) any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the Government of that foreign State :

Provided that nothing contained in this clause shall apply to such remuneration and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;

(8A) in the case of a consultant—

(a) any remuneration or fee received by him or it, directly or indirectly, out of the funds made available to an international organisation [hereafter referred to in this clause and clause (8B) as the agency] under a technical assistance grant agreement between the agency and the Government of a foreign State ; and

(b) any other income which accrues or arises to him or it outside India, and is not deemed to accrue or arise in India, in respect of which such consultant is required to pay any income or social security tax to the Government of the country of his or its origin: Provided that nothing contained in this clause shall apply to such remuneration, fee and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023.

Explanation.—In this clause, “consultant” means—

(i) any individual, who is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India ; or

(ii) any other person, being a non-resident,

engaged by the agency for rendering technical services in India in connection with any technical assistance programme or project, provided the following conditions are fulfilled, namely :—

(1) the technical assistance is in accordance with an agreement entered into by the Central Government and the agency ; and

(2) the agreement relating to the engagement of the consultant is approved by the prescribed authority for the purposes of this clause ;

(8B) in the case of an individual who is assigned to duties in India in connection with any technical assistance programme and project in accordance with an agreement entered into by the Central Government and the agency—

(a) the remuneration received by him, directly or indirectly, for such duties from any consultant referred to in clause (8A) ; and

(b) any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the country of his origin, provided the following conditions are fulfilled, namely :—

(i) the individual is an employee of the consultant referred to in clause (8A) and is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India ; and

(ii) the contract of service of such individual is approved by the prescribed authority before the commencement of his service : Provided that nothing contained in this clause shall apply to such remuneration and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;

(9) the income of any member of the family of any such individual as is referred to in clause (8) or clause (8A) or, as the case may be, clause (8B) accompanying him to India, which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such member is required to pay any income or social security tax to the Government of that foreign State or, as the case may be, country of origin of such member:

Provided that nothing contained in this clause shall apply to such income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;

(10) (i) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services ;

(ii) any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of that Act ;

(iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependents on his death, to the extent it does not, in either case, exceed one-half month’s salary for each year of completed service, calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government :

Provided that where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this clause shall not exceed the limit so specified :

Provided further that where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this clause shall not exceed the limit so specified as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years.

Explanation.—In this clause, and in clause (10AA), “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule ;

(10A) (i) any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or a corporation established by a Central, State or Provincial Act ;

(ii) any payment in commutation of pension received under any scheme of any other employer, to the extent it does not exceed—

(a) in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive, and

(b) in any other case, the commuted value of one-half of such pension, such commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality ;

(iii) any payment in commutation of pension received from a fund under clause (23AAB) ;

(10AA) (i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise ;

(ii) any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement whether on superannuation or otherwise, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government :

Provided that where any such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this sub-clause shall not exceed the limit so specified :

Provided further that where any such payment or payments was or were received in any one or more earlier previous years also and the whole or any part of the amount of such payment or payments was or were not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this sub-clause shall not exceed the limit so specified, as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years.

Explanation.—For the purposes of sub-clause (ii),—

the entitlement to earned leave of an employee shall not exceed thirty days for every year of actual service rendered by him as an employee of the employer from whose service he has retired ;

(10B) any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947), or under any other Act or Rules, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise, at the time of his retrenchment :

Provided that the amount exempt under this clause shall not exceed—

(i) an amount calculated in accordance with the provisions of clause (b) of section 25F of the Industrial Disputes Act, 1947 (14 of 1947); or

(ii) such amount, not being less than fifty thousand rupees, as the Central Government may, by notification in the Official Gazette,

specify in this behalf, whichever is less :

Provided further that the preceding proviso shall not apply in respect of any compensation received by a workman in accordance with any scheme which the Central Government may, having regard to the need for extending special protection to the workmen in the undertaking to which such scheme applies and other relevant circumstances, approve in this behalf.

Explanation.—For the purposes of this clause—

(a) compensation received by a workman at the time of the closing down of the undertaking in which he is employed shall be deemed to be compensation received at the time of his retrenchment ;

(b) compensation received by a workman, at the time of the transfer (whether by agreement or by operation of law) of the ownership or management of the undertaking in which he is employed from the employer in relation to that undertaking to a new employer, shall be deemed to be compensation received at the time of his retrenchment if—

(i) the service of the workman has been interrupted by such transfer ; or

(ii) the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer ; or

(iii) the new employer is, under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer ;

(c) the expressions “employer” and “workman” shall have the same meanings as in the Industrial Disputes Act, 1947 (14 of 1947);

(10BB) any payments made under the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 (21 of 1985), and any scheme framed thereunder except payment made to any assessee in connection with the Bhopal Gas Leak Disaster to the extent such assessee has been allowed a deduction under this Act on account of any loss or damage caused to him by such disaster ;

(10BC) any amount received or receivable from the Central Government or a State Government or a local authority by an individual or his legal heir by way of compensation on account of any disaster, except the amount received or receivable to the extent such individual or his legal heir has been allowed a deduction under this Act on account of any loss or damage caused by such disaster.

Explanation.—For the purposes of this clause, the expression “disaster” shall have the meaning assigned to it under clause (d) of section 2 of the Disaster Management Act, 2005 (53 of 2005);

(10C) any amount received or receivable by an employee of—

(i) a public sector company ; or

(ii) any other company ; or

(iii) an authority established under a Central, State or Provincial Act ; or

(iv) a local authority ; or

(v) a co-operative society ; or

(vi) a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956) ; or

(vii) an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961) ; or

(viia) any State Government; or

(viib) the Central Government; or

(i) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette, specify in this behalf; or

(ii) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf, on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i), a scheme of voluntary separation, to the extent such amount does not exceed five lakh rupees :

Provided that the schemes of the said companies or authorities or societies or Universities or the Institutes referred to in sub-clauses (vii) and (viii), as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be prescribed :

Provided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year :

Provided also that where any relief has been allowed to an assessee under section 89 for any assessment year in respect of any amount received or receivable on his voluntary retirement or termination of service or voluntary separation, no exemption under this clause shall be allowed to him in relation to such, or any other, assessment year;

(10CC) in the case of an employee, being an individual deriving income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of clause (2) of section 17, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee, notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956);

(10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than—

(a) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA; or

(b) any sum received under a Keyman insurance policy; or

(c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured ; or

(d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:

Provided that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person:

Provided further that for the purpose of calculating the actual capital sum assured under sub-clause (c), effect shall be given to the

Explanation to sub-section (3) of section 80C [***] :

Provided also that where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any person, who is—

(a) a person with disability or a person with severe disability as referred to in section 80U; or

(b) suffering from disease or ailment as specified in the rules made under section 80DDB, the provisions of this sub-clause shall have effect as if for the words “ten per cent”, the words “fifteen per cent” had been substituted: Provided also that nothing contained in this clause shall apply with respect to any unit linked insurance policy, issued on or after the 1st day of February, 2021, if the amount of premium payable for any of the previous year during the term of such policy exceeds two lakh and fifty thousand rupees:

Provided also that if the premium is payable, by a person, for more than one unit linked insurance policies, issued on or after the 1st day of February, 2021, the provisions of this clause shall apply only with respect to those unit linked insurance policies, where the aggregate amount of premium does not exceed the amount referred to in fourth proviso in any of the previous year during the term of any of those policies:

³²[Provided also that nothing contained in this clause shall apply with respect to any life insurance policy, other than a unit linked insurance policy, issued on or after the 1st day of April, 2023, if the amount of premium payable for any of the previous years during the term of such policy exceeds five lakh rupees:

Provided also that if the premium is payable by a person for more than one life insurance policy, other than unit linked insurance policy, issued on or after the 1st day of April, 2023, the provisions of this clause shall apply only with respect to those life insurance policies, other than unit linked insurance policies, where the aggregate amount of premium does not exceed the amount referred to in the sixth proviso in any of the previous years during the term of any of those policies:

Provided that the provisions of this clause shall not apply to the income by way of interest accrued during the previous year in the account of a person to the extent it relates to the amount or the aggregate of amounts of contribution made by that person exceeding two lakh and fifty thousand rupees in any previous year in that fund, on or after the 1st day of April, 2021 and computed in such manner as may be prescribed :

Provided further that if the contribution by such person is in a fund in which there is no contribution by the employer of such person, the provisions of the first proviso shall have the effect as if for the words “two lakh and fifty thousand rupees”, the words “five lakh rupees” had been substituted;

(11) 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 sixty per cent of the total amount payable to him at the time of such closure or his opting out of the scheme;

^33a[(12AA) any payment from the National Pension System Trust to an assessee, who is a subscriber to the Unified Pension Scheme, to the extent that it does not exceed sixty per cent. of the individual corpus, as specified in notification number FX-1/3/2024-PR, dated the 24th January, 2025 of the Department of Financial Services, made at the time of his superannuation or voluntary retirement or retirement under clause (j) of rule 56 of the Fundamental Rules [which is not treated as penalty under the Central Civil Services (Classification, Control and Appeal) Rules, 1965];

(12AB) any sum received as lump sum amount as per clause (vi) of paragraph 2 of the notification number FX-1/3/2024-PR, dated the 24th January, 2025 of the Department of Financial Services, by an assessee being a subscriber to the Unified Pension Scheme;]

(11A) any payment from the National Pension System Trust to an employee under the pension scheme referred to in section 80CCD, on partial withdrawal made out of his account in accordance with the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013) and the regulations made thereunder, to the extent it does not exceed twenty-five per cent of the amount of contributions made by him;

Following clause (12BA) shall be inserted after clause (12B) of section 10 by the Finance Act, 2025, w.e.f. 1-4-2026:

(12BA) any payment from the National Pension System Trust to an assessee, being the parent or guardian of a minor, under the pension scheme referred to in section 80CCD, on partial withdrawal made out of the account of the minor, as per the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013) and the regulations made thereunder, to the extent it does not exceed twenty-five per cent of the amount of contributions made by him;

³⁴[(12C) any payment from the Agniveer Corpus Fund to a person enrolled under the Agnipath Scheme, or to his nominee.

Explanation.—For the purposes of this clause “Agniveer Corpus Fund” and “Agnipath Scheme” shall have the meanings respectively assigned to them in section 80CCH;]

(13) any payment from an approved superannuation fund made—

(i) on the death of a beneficiary; or

(ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapa­citated prior to such retirement; or

(iii) by way of refund of contributions on the death of a beneficiary ; or

(iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon; or

(v) by way of transfer to the account of the employee under a pension scheme referred to in section 80CCD and notified by the Central Government;

(13A) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.

Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where—

(a) the residential accommodation occupied by the assessee is owned by him ; or

(b) the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him ;

(i) any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed, to the extent to which such expenses are actually incurred for that purpose ;

(ii) any such 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 the place where he ordinarily resides, or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed :

Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence ;

(14A) [***]

(15) (i) income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf, subject to such conditions and limits as may be specified in the said notification ;

(iib) in the case of an individual or a Hindu undivided family, interest on such Capital Investment Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf :

Provided that the Central Government shall not specify, for the purposes of this sub-clause, such Capital Investment Bonds on or after the 1st day of June, 2002;

(iic) in the case of an individual or a Hindu undivided family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf ;

(iid) interest on such bonds, as the Central Government may, by notification in the Official Gazette, specify, arising to—

(a) a non-resident Indian, being an individual owning the bonds ; or

(b) any individual owning the bonds by virtue of being a nominee or survivor of the non-resident Indian ; or

(c) any individual to whom the bonds have been gifted by the non-resident Indian :

Provided that the aforesaid bonds are purchased by a non-resident Indian in foreign exchange and the interest and principal received in

respect of such bonds, whether on their maturity or otherwise, is not allowable to be taken out of India :

Provided further that where an individual, who is a non-resident Indian in any previous year in which the bonds are acquired, becomes a

resident in India in any subsequent year, the provisions of this sub-clause shall continue to apply in relation to such individual :

Provided also that in a case where the bonds are encashed in a previous year prior to their maturity by an individual who is so entitled, the provisions of this sub-clause shall not apply to such individual in relation to the assessment year relevant to such previous year :

Provided also that the Central Government shall not specify, for the purposes of this sub-clause, such bonds on or after the 1st day of June, 2002.

Explanation.—For the purposes of this sub-clause, the expression “non-resident Indian” shall have the meaning assigned to it in clause (e) of section 115C;

(iii) interest on securities held by the Issue Department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;

(iiia) interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India, with any scheduled bank.

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

(iiib) interest payable to the Nordic Investment Bank, being a multilateral financial institution constituted by the Governments of Denmark, Finland, Iceland, Norway and Sweden, on a loan advanced by it to a project approved by the Central Government in terms of the Memorandum of Understanding entered into by the Central Government with that Bank on the 25th day of November, 1986;

(iiic) interest payable to the European Investment Bank, on a loan granted by it in pursuance of the framework-agreement for financial co­operation entered into on the 25th day of November, 1993 by the Central Government with that Bank;

(iv) interest payable—

(a) by Government or a local authority on moneys borrowed by it before the 1st day of June, 2001 from, or debts owed by it before the 1st day of June, 2001 to, sources outside India;

(b) by an industrial undertaking in India on moneys borrowed by it under a loan agreement entered into before the 1st day of June, 2001 with any such financial institution in a foreign country as may be approved in this behalf by the Central Government by general or special order ;

(c) by an industrial undertaking in India on any moneys borrowed or debt incurred by it before the 1st day of June, 2001 in a foreign country in respect of the purchase outside India of raw materials or components or capital plant and machinery, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or debt and its repayment.

Explanation 1.—For the purposes of this item, “purchase of capital plant and machinery” includes the purchase of such capital plant and machinery under a hire-purchase agreement or a lease agreement with an option to purchase such plant and machinery. Explanation 2.—For the removal of doubts, it is hereby declared that the usance interest payable outside India by an undertaking engaged in the business of ship-breaking in respect of purchase of a ship from outside India shall be deemed to be the interest payable on a debt incurred in a foreign country in respect of the purchase outside India;

(d) by the Industrial Finance Corporation of India established by the Industrial Finance Corporation Act, 1948 (15 of 1948), or the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964), or the Export-Import Bank of India established under the Export-Import Bank of India Act, 1981 (28 of 1981), or the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987), or the Small Industries Development Bank of India established under section 3 of the Small Industries Development Bank of India Act, 1989 (39 of 1989), or the Industrial Credit and Investment Corporation of India a company formed and registered under the Indian Companies Act, 1913 (7 of 1913), on any moneys borrowed by it from sources outside India before the 1st day of June, 2001, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;

(e) by any other financial institution established in India or a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act), on any moneys borrowed by it from sources outside India before the 1st day of June, 2001 under a loan agreement approved by the Central Government where the moneys are borrowed either for the purpose of advancing loans to industrial undertakings in India for purchase outside India of raw materials or capital plant and machinery or for the purpose of importing any goods which the Central Government may consider necessary to import in the public interest, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;

(f) by an industrial undertaking in India on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government before the 1st day of June, 2001 having regard to the need for industrial development in India, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;

(fa) by a scheduled bank to a non-resident or to a person who is not ordinarily resident within the meaning of sub-section (6) of section 6 on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India. Explanation.—For the purposes of this item, the expression “scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank;

(g) by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, being a company eligible for deduction under clause (viii) of sub-section (1) of section 36 on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government before the 1st day of June, 2003, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment.

Explanation.—For the purposes of items (f), (fa) and (g), the expression “foreign currency” shall have the meaning assigned to it in the Foreign Exchange Management Act, 1999 (42 of 1999);

(h) by any public sector company in respect of such bonds or debentures and subject to such conditions, including the condition that the holder of such bonds or debentures registers his name and the holding with that company, as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(i) by Government on deposits made by an employee of the Central Government or a State Government or a public sector company, in accordance with such scheme as the Central Government may, by notification in the Official Gazette, frame in this behalf, out of the moneys due to him on account of his retirement, whether on superannuation or otherwise.

Explanation 1.—For the purposes of this sub-clause, the expression “industrial undertaking” means any undertaking which is engaged in—

(a) the manufacture or processing of goods; or

(aa) the manufacture of computer software or recording of programme on any disc, tape, perforated media or other information device;

(b) the business of generation or distribution of electricity or any other form of power; or

(ba) the business of providing telecommunication services; or

(c) mining; or

(d) the construction of ships; or

(da) the business of ship-breaking; or

(e) the operation of ships or aircrafts or construction or operation of rail systems.

Explanation 1A.—For the purposes of this sub-clause, the expression “interest” shall not include interest paid on delayed payment of loan or on default if it is in excess of two per cent per annum over the rate of interest payable in terms of such loan.

Explanation 2.—For the purposes of this clause, the expression “interest” includes hedging transaction charges on account of currency fluctuation;

(v) interest on—

(a) securities held by the Welfare Commissioner, Bhopal Gas Victims, Bhopal, in the Reserve Bank’s SGL Account No. SL/DH 048;

(b) deposits for the benefit of the victims of the Bhopal gas leak disaster held in such account, with the Reserve Bank of India or with a public sector bank, as the Central Government may, by notification in the Official Gazette, specify, whether prospectively or retrospectively but in no case earlier than the 1st day of April, 1994 in this behalf.

Explanation.—For the purposes of this sub-clause, the expression “public sector bank” shall have the meaning assigned to it in the Explanation to clause (23D);

(vi) interest on Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central Government;

(vii) interest on bonds—

(a) issued by a local authority or by a State Pooled Finance Entity; and

(b) specified by the Central Government by notification in the Official Gazette.

Explanation.—For the purposes of this sub-clause, the expression “State Pooled Finance Entity” shall mean such entity which is set up in accordance with the guidelines for the Pooled Finance Development Scheme notified by the Central Government in the Ministry of Urban Development;

(viii) any income by way of interest received by a non-resident or a person who is not ordinarily resident, in India on a deposit made on or after the 1st day of April, 2005, in an Offshore Banking Unit referred to in clause (u) of section 2 of the Special Economic Zones Act, 2005;

(ix) any income by way of interest payable to a non-resident by a unit located in an International Financial Services Centre in respect of monies borrowed by it on or after the 1st day of September, 2019.

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

(a) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(b) “unit” shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(15A) any payment made, by an Indian company engaged in the business of operation of aircraft, to acquire an aircraft or an aircraft engine (other than a payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease from the Government of a foreign State or a foreign enterprise under an agreement, not being an agreement entered into between the 1st day of April, 1997 and the 31st day of March, 1999, and approved by the Central Government in this behalf :

Provided that nothing contained in this clause shall apply to any such agreement entered into on or after the 1st day of April, 2007.

Explanation.—For the purposes of this clause, the expression “foreign enterprise” means a person who is a non-resident;

³⁵[(15B) any income of a foreign company from lease rentals, by whatever name called, of cruise ships, received from a specified company which operates such ship or ships in India, where such foreign company and the specified company are subsidiaries of the same holding company, and such income is received or accrues or arises in India for any relevant assessment year beginning on or before the 1st day of April, 2030.

Explanation.–For the purposes of this clause,—

(a) “specified company” means any company, other than a domestic company which operates cruise ships in India and opts to pay tax in accordance with the provisions of section 44BBC;

(b) “holding company”, in relation to a foreign company or a specified company, means a company of which such companies are subsidiary companies;

(c) “subsidiary company” or “subsidiary”, in relation to a holding company, means a company in which the holding company exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies;]

(16) scholarships granted to meet the cost of education;

(17) any income by way of—

(i) daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof;

(ii) any allowance received by any person by reason of his membership of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986;

(iii) any constituency allowance received by any person by reason of his membership of any State Legislature under any Act or rules made by that State Legislature;

(17A) any payment made, whether in cash or in kind,—

(i) in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government in this behalf; or

(ii) as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Govern­ment in this behalf in the public interest;

(18) any income by way of—

(i) pension received by an individual who has been in the service of the Central Government or State Government and has been awarded “Param Vir Chakra” or “Maha Vir Chakra” or “Vir Chakra” or such other gallantry award as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(ii) family pension received by any member of the family of an individual referred to in sub-clause (i).

Explanation.—For the purposes of this clause, the expression “family” shall have the meaning assigned to it in the Explanation to clause

(18A) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(19) family pension received by the widow or children or nominated heirs, as the case may be, of a member of the armed forces (including para­military forces) of the Union, where the death of such member has occurred in the course of operational duties, in such circumstances and subject to such conditions, as may be prescribed;

(19A) the annual value of any one palace in the occupation of a Ruler, being a palace, the annual value whereof was exempt from income-tax before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, by virtue of the provisions of the Merged States (Taxation Concessions) Order, 1949, or the Part B States (Taxation Concessions) Order, 1950, or, as the case may be, the Jammu and Kashmir (Taxation Concessions) Order, 1958:

Provided that for the assessment year commencing on the 1st day of April, 1972, the annual value of every such palace in the occupation of such Ruler during the relevant previous year shall be exempt from income-tax;

(20) the income of a local authority which is chargeable under the head “Income from house property”, “Capital gains” or “Income from other sources” or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area. Explanation.—For the purposes of this clause, the expression “local authority” means—

(i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or

(ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or

(iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or

(v) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924);

(20A) [***]

(21) any income of a research association for the time being approved for the purpose of clause (ii) or clause (iii) of sub-section (1) of section

Provided that the research association—

(a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established, and the provisions of sub-section (2) and sub-section (3) of section 11 shall apply in relation to such accumulation subject to the following modifications, namely :—

(i) in sub-section (2),—

(1) the words, brackets, letters and figure “referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section” shall be omitted;

(2) for the words “to charitable or religious purposes”, the words “for the purposes of scientific research or research in social science or statistical research” shall be substituted;

(3) the reference to “Assessing Officer” in clause (a) thereof shall be construed as a reference to the “prescribed authority” referred to in clause (ii) or clause (iii) of sub-section (1) of section 35;

(ii) in sub-section (3), in clause (a), for the words “charitable or religious purposes”, the words “the purposes of scientific research or research in social science or statistical research” shall be substituted; and

(b) does not invest or deposit its funds, other than—

(i) any assets held by the research association where such assets form part of the corpus of the fund of the association as on the 1st day of June, 1973;

(ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the research association before the 1st day of March, 1983;

(iii) any accretion to the shares, forming part of the corpus of the fund mentioned in sub-clause (i), by way of bonus shares allotted to the research association;

(iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify,

for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11:

Provided further that the exemption under this clause shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the first proviso to this clause, subject to the condition that such voluntary contribution is not held by the research association, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:

Provided also that nothing contained in this clause shall apply in relation to any income of the research association, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business:

Provided also that where the research association is approved by the Central Government and subsequently that Government is satisfied that—

(i) the research association has not applied its income in accordance with the provisions contained in clause (a) of the first proviso; or

(ii) the research association has not invested or deposited its funds in accordance with the provisions contained in clause (b) of the first proviso; or

(iv) the activities of the research association are not genuine; or

(v) the activities of the research association are not being carried out in accordance with all or any of the conditions subject to which such association was approved,

it may, at any time after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association, by order, withdraw the approval and forward a copy of the order withdrawing the approval to such association and to the Assessing Officer;

(22) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(22A) [Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(22B) any income of such news agency set up in India solely for collection and distribution of news as the Central Government may, by notification in the Official Gazette, specify in this behalf:

[Provided also that nothing contained in this clause shall apply to any income of the news agency of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2024;]

(23) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]

(23A) any income (other than income chargeable under the head “Income from house property” or any income received for rendering any specific services or income by way of interest or dividends derived from its investments) of an association or institution established in India having as its object the control, supervision, regulation or encouragement of the profession of law, medicine, accountancy, engineering or architecture or such other profession as the Central Government may specify in this behalf, from time to time, by notification in the Official Gazette:

Provided that—

(i) the association or institution applies its income, or accumulates it for application, solely to the objects for which it is established; and

(ii) the association or institution is for the time being approved for the purpose of this clause by the Central Government by general or special order:

Provided further that where the association or institution has been approved by the Central Government and subsequently that Government is satisfied that—

(i) such association or institution has not applied or accumulated its income in accordance with the provisions contained in the first proviso; or

(ii) the activities of the association or institution are not being carried out in accordance with all or any of the conditions subject to which such association or institution was approved,

it may, at any time after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association or institution, by order, withdraw the approval and forward a copy of the order withdrawing the approval to such association or institution and to the Assessing Officer;

(23AA) any income received by any person on behalf of any Regimental Fund or Non-Public Fund established by the armed forces of the Union for the welfare of the past and present members of such forces or their dependants;

(23AAA) any income received by any person on behalf of a fund established, for such purposes as may be notified by the Board in the Official Gazette, for the welfare of employees or their dependents and of which fund such employees are members if such fund fulfils the following conditions, namely :—

(a) the fund—

(i) applies its income or accumulates it for application, wholly and exclusively to the objects for which it is established; and

(ii) invests its funds and contributions and other sums received by it in the forms or modes specified in sub-section (5) of section 11;

(b) the fund is approved by the Principal Commissioner or Commissioner in accordance with the rules made in this behalf:

Provided that any such approval shall at any one time have effect for such assessment year or years not exceeding three assessment years as may be specified in the order of approval;

(23AAB) any income of a fund, by whatever name called, set up by the Life Insurance Corporation of India on or after the 1st day of August, 1996 or any other insurer under a pension scheme,—

(i) to which contribution is made by any person for the purpose of receiving pension from such fund;

(ii) which is approved by the Controller of Insurance or the Insurance Regulatory and Development Authority established under sub­section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), as the case may be. —For the purposes of this clause, the expression “Controller of Insurance” shall have the meaning assigned to it in clause (5B) of section 2 of the Insurance Act, 1938 (4 of 1938);

(23B) any income of an institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India, and existing solely for the development of khadi or village industries or both, and not for purposes of profit, to the extent such income is attributable to the business of production, sale, or marketing, of khadi or products of village industries:

Provided that—

(i) the institution applies its income, or accumulates it for application, solely for the development of khadi or village industries or both; and

(ii) the institution is, for the time being, approved for the purpose of this clause by the Khadi and Village Industries Commission: Provided further that the Commission shall not, at any one time, grant such approval for more than three assessment years beginning with the assessment year next following the financial year in which it is granted:

Provided also that where the institution has been approved by the Khadi and Village Industries Commission and subsequently that Commission is satisfied that—

(i) the institution has not applied or accumulated its income in accordance with the provisions contained in the first proviso; or

(ii) the activities of the institution are not being carried out in accordance with all or any of the conditions subject to which such institution was approved,

it may, at any time after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned institution, by order, withdraw the approval and forward a copy of the order withdrawing the approval to such institution and to the Assessing Officer. Explanation.—For the purposes of this clause,—

(i) “Khadi and Village Industries Commission” means the Khadi and Village Industries Commission established under the Khadi and Village Industries Commission Act, 1956 (61 of 1956);

(ii) “khadi” and “village industries” have the meanings respectively assigned to them in that Act;

(23BB) any income of an authority (whether known as the Khadi and Village Industries Board or by any other name) established in a State by or under a State or Provincial Act for the development of khadi or village industries in the State.

Explanation.—For the purposes of this clause, “khadi” and “village industries” have the meanings respectively assigned to them in the Khadi and Village Industries Commission Act, 1956 (61 of 1956);

(23BBA) any income of any body or authority (whether or not a body corporate or corporation sole) established, constituted or appointed by or under any Central, State or Provincial Act which provides for the administration of any one or more of the following, that is to say, public religious or charitable trusts or endowments (including maths, temples, gurdwaras, wakfs, churches, synagogues, agiaries or other places of public religious worship) or societies for religious or charitable purposes registered as such under the Societies Registration Act, 1860 (21 of 1860), or any other law for the time being in force:

Provided that nothing in this clause shall be construed to exempt from tax the income of any trust, endowment or society referred to therein;

(23BBB) any income of the European Economic Community derived in India by way of interest, dividends or capital gains from investments made out of its funds under such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf. Explanation.—For the purposes of this clause, “European Economic Community” means the European Economic Community established by the Treaty of Rome of 25th March, 1957;

(23BBC) any income of the SAARC Fund for Regional Projects set up by Colombo Declaration issued on the 21st day of December, 1991 by the Heads of State or Government of the Member Countries of South Asian Association for Regional Cooperation established on the 8th day of December, 1985 by the Charter of the South Asian Association for Regional Cooperation;

(23BBD) any income of the Secretariat of the Asian Organisation of the Supreme Audit Institutions registered as “ASOSAI-SECRETARIAT” under the Societies Registration Act, 1860 (21 of 1860) for ten previous years relevant to the assessment years beginning on the 1st day of April, 2001 and ending on the 31st day of March, 2011;

(23BBE) any income of the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);

(23BBF) [***]

(23BBG) any income of the Central Electricity Regulatory Commission constituted under sub-section (1) of section 76 of the Electricity Act, 2003 (36 of 2003);

(23BBH) any income of the Prasar Bharati (Broadcasting Corporation of India) established under sub-section (1) of section 3 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 (25 of 1990);

(23C) any income received by any person on behalf of—

(i) the Prime Minister’s National Relief Fund or the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND); or

(ii) the Prime Minister’s Fund (Promotion of Folk Art); or

(iii) the Prime Minister’s Aid to Students Fund; or

(iiia) the National Foundation for Communal Harmony; or

(iiiaa) the Swachh Bharat Kosh, set up by the Central Government; or

(iiiaaa) the Clean Ganga Fund, set up by the Central Government; or

(iiiaaaa) the Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any State or Union territory as referred to in sub-clause (iiihf) of clause (a) of sub-section (2) of section 80G; or

(iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or

(iiiac) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, and which is wholly or substantially financed by the Government.

Explanation.—For the purposes of sub-clauses (iiiab) and (iiiac), any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds such percentage of the total receipts including any voluntary contributions, as may be prescribed, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year; or

(iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of the person from such university or universities or educational institution or educational institutions do not exceed five crore rupees; or

(iiiae) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of the person from such hospital or hospitals or institution or institutions do not exceed five crore rupees.

Explanation.—For the purposes of sub-clauses (iiiad) and (iiiae), it is hereby clarified that if the person has receipts from university or universities or educational institution or institutions as referred to in sub-clause (iiiad), as well as from hospital or hospitals or institution or institutions as referred to in sub-clause (iiiae), the exemptions under these clauses shall not apply, if the aggregate of annual receipts of the person from such university or universities or educational institution or institutions or hospital or hospitals or institution or institutions, exceed five crore rupees; or

(iv) any other fund or institution established for charitable purposes which may be approved by the Principal Commissioner or Commissioner, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or

(v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the Principal Commissioner or Commissioner, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof;

(vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the Principal Commissioner or Commissioner; or

(via) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may be approved by the Principal Commissioner or Commissioner :

Provided that the exemption to the fund or trust or institution or university or other educational institution or hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), under the respective sub-clauses, shall not be available to it unless such fund or trust or institution or university or other educational institution or hospital or other medical institution makes an application [before the 1st day of October, 2024,] in the prescribed form and manner to the Principal Commissioner or

Commissioner, for grant of approval,—

(i) where such fund or trust or institution or university or other educational institution or hospital or other medical institution is approved under the second proviso [as it stood immediately before its amendment by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020], within three months from the 1st day of April, 2021;

(ii) where such fund or trust or institution or university or other educational institution or hospital or other medical institution is approved and the period of such approval is due to expire, at least six months prior to expiry of the said period;

(iii)where such fund or trust or institution or university or other educational institution or hospital or other medical institution has been provisionally approved, at least six months prior to expiry of the period of the provisional approval or within six months of commencement of its activities, whichever is earlier;

³⁹[(iv) in any other case, where activities of the fund or trust or institution or university or other educational institution or hospital or other medical institution have—

(A) not commenced, at least one month prior to the commencement of the previous year relevant to the assessment year from which the said approval is sought;

(B) commenced and no income or part thereof of the said fund or trust or institution or university or other educational institution or hospital or other medical institution has been excluded from the total income on account of applicability of sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) or section 11 or section 12 for any previous year ending on or before the date of such application, at any time after the commencement of such activities,]

and the said fund or trust or institution or university or other educational institution or hospital or other medical institution is approved under the second proviso:

Provided further that the Principal Commissioner or Commissioner, on receipt of an application made under the first proviso [before the 1st day of October, 2024], shall,—

(i) where the application is made under clause (i) of the said proviso, pass an order in writing granting approval to it for a period of five years;

(ii) where the application is made under clause (ii) or clause (iii) [or sub-clause (B) of clause (iv)] of the said proviso,— 41

(a) call for such documents or information from it or make such inquiries as he thinks necessary in order to satisfy himself about—

(A) the genuineness of activities of such fund or trust or institution or university or other educational institution or hospital or other medical institution; and

(B) the compliance of such requirements of any other law for the time being in force by it as are material for the purpose of achieving its objects; and

(b) after satisfying himself about the objects and the genuineness of its activities under item (A), and compliance of the requirements under item (B), of sub-clause (a),—

(A) pass an order in writing granting approval to it for a period of five years;

⁴²[(B) if he is not so satisfied, pass an order in writing,—

(I) in a case referred to in clause (ii) or clause (iii) of the first proviso, rejecting such application and also cancelling its approval;

(II) in a case referred to in sub-clause (B) of clause (iv) of the first proviso, rejecting such application,

after affording it a reasonable opportunity of being heard;]

⁴²[(iii) where the application is made under sub-clause (A) of clause (iv) of the said proviso or the application made under clause (iv) of the said proviso, as it stood immediately before its amendment by the Finance Act, 2023, pass an order in writing granting approval to it provisionally for a period of three years from the assessment year from which the approval is sought, and send a copy of such order to the fund or trust or institution or university or other educational institution or hospital or other medical institution:]

Provided also that the 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)—

(a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent of its income shall in no case exceed five years; and

(b) does not invest or deposit its funds, other than—

(i) any assets held by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of the fund, trust or institution or any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1973;

(ia) any asset, being equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1998;

(iii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution before the 1st day of March, 1983;

(iv) any accretion to the shares, forming part of the corpus mentioned in sub-clause (i) and sub-clause (ia), by way of bonus shares allotted to the fund, trust or institution or any university or other educational institution or any hospital or other medical institution ;

(v) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11.

Explanation 1.—For the removal of doubts, it is hereby clarified that for the purposes of this proviso, the income of the funds or trust or institution or any university or other educational institution or any hospital or other medical institution, shall not include income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus.

Explanation 1A.—For the purposes of this proviso, where the property held under a trust or institution referred to in clause (v) includes any temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G, any sum received by such trust or institution as a voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may, at its option, be treated by such trust or institution as forming part of the corpus of that trust or institution, subject to the condition that the trust or institution,—

(a) applies such corpus only for the purpose for which the voluntary contribution was made;

(b) does not apply such corpus for making contribution or donation to any person;

(c) maintains such corpus as separately identifiable; and

(d) invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11.

Explanation 1B.—For the purposes of Explanation 1A, where any trust or institution referred to in sub-clause (v) has treated any sum received by it as forming part of the corpus, and subsequently any of the conditions specified in clause (a) or clause (b) or clause (c) or clause (d) of the said Explanation is violated, such sum shall be deemed to be the income of such trust or institution of the previous year during which the violation takes place.

Explanation 2.—For the purposes of determining the amount of application under this proviso,—

(i) application for charitable or religious purposes from the corpus as referred to in Explanation 1, shall not be treated as application of income for charitable or religious purposes:

Provided that the amount not so treated as application or part thereof, shall be treated as application for charitable or religious purposes in the previous year in which the amount, or part thereof, is invested or deposited back, into one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus, from the income of that year and to the extent of such investment or deposit: [***]

⁴⁴[Provided further that the provisions of the first proviso shall apply only if there was no violation of the conditions specified in the twelfth, thirteenth and twenty-first provisos, and those specified in Explanation 2 and Explanation 3, of this clause, at the time the application was made from the corpus:

Provided also that the amount invested or deposited back shall not be treated as application for charitable or religious purposes under the first proviso unless such investment or deposit is made within a period of five years from the end of the previous year in which such application was made from the corpus:

Provided also that nothing contained in the first proviso shall apply where the application from the corpus is made on or before the 31st day of March, 2021;]

(ii) application for charitable or religious purposes, from any loan or borrowing, shall not be treated as application of income for charitable or religious purposes:

Provided that the amount not so treated as application or part thereof, shall be treated as application for charitable or religious purposes in the previous year in which the loan or borrowing, or part thereof, is repaid from the income of that year and to the extent of such repayment:

⁴⁴[Provided further that the provisions of the first proviso shall apply only if there was no violation of the conditions specified in the twelfth, thirteenth and twenty-first provisos, and those specified in Explanation 2 and Explanation 3, of this clause at the time the application was made from loan or borrowing:

Provided also that the amount repaid shall not be treated as application for charitable or religious purposes under the first proviso unless such repayment is made within a period of five years from the end of the previous year in which such application was made from loan or borrowing:

Provided also that nothing contained in the first proviso shall apply where the application from any loan or borrowing is made on or before the 31st day of March, 2021; and]

[(iii) any amount credited or paid out of the income of 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), other than the amount referred to in the twelfth proviso, to any other 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), or trust or institution registered under section 12AB, as the case may be, shall be treated as application for charitable or religious purposes only to the extent of eighty-five per cent of such amount credited or paid.]

Explanation 3.—For the purposes of determining the amount of application under this proviso, where eighty-five per cent of the income referred to in clause (a) of this proviso is not applied wholly and exclusively to the objects for which the fund or institution or trust 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) is established, during the previous year but is accumulated or set apart, either in whole or in part, for application to such objects, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, if the following conditions are complied with, namely:—

(a) such person furnishes a statement in such form and manner, as may be prescribed, to the Assessing Officer stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years;

(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) of section 11; and

(c) the statement referred to in clause (a) is [furnished at least two months prior to] the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year:

Provided that in computing the period of five years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.

Explanation 4.—Any income referred to in Explanation 3, which,—

(a) is applied for purposes other than wholly and exclusively to the objects for which the fund or institution or trust 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) is established or ceases to be accumulated or set apart for application thereto; or

(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5) of section 11; or

(c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of Explanation 3; or

(d) is credited or paid to any trust or institution registered under section 12AA or section 12AB or to any fund or institution or trust 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),

shall be deemed to be the income of such person of the previous year—

(i) in which it is so applied or ceases to be so accumulated or set apart under clause (a); or

(ii) in which it ceases to remain so invested or deposited under clause (b); or

(iii) being the last previous year of the period, for which the income is accumulated or set apart under clause (a) of Explanation 3, but not utilised for the purpose for which it is so accumulated or set apart under clause (c); or

(iv) in which it is credited or paid to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution under clause (d).

Explanation 5.—Notwithstanding anything contained in Explanation 4, where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of Explanation 3 cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other purpose in India as is specified in the application by that person and as is in conformity with the objects for which the fund or institution or trust 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) is established; and thereupon the provisions of Explanation 4 shall apply as if the purpose specified by that person in the application under this Explanation were a purpose specified in the notice given to the Assessing Officer under clause (a) of Explanation 3:

Provided that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of Explanation 4 :

Provided also that the exemption under sub-clause (iv) or sub-clause (v) shall not be denied in relation to any funds invested or deposited before the 1st day of April, 1989, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 1993 :

Provided also that the exemption under sub-clause (vi) or sub-clause (via) shall not be denied in relation to any funds invested or deposited before the 1st day of June, 1998, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 2001:

Provided also that the exemption under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this sub-clause, subject to the condition that such voluntary contribution is not held by the trust or institution or any university or other educational institution or any hospital or other medical institution, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:

Provided also that nothing contained in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall apply in relation to any income of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business:

Provided also that any approval granted under the second proviso shall apply in relation to the income of the fund or trust or institution or university or other educational institution or hospital or other medical institution,—

(i) where the application is made under clause (i) of the first proviso, from the assessment year from which approval was earlier granted to it;

(ii) where the application is made under clause (iii) of the first proviso, from the first of the assessment years for which it was provisionally approved;

(iii) in any other case, from the assessment year immediately following the financial year in which such application is made:

Provided also that the order under clause (i), sub-clause (b) of clause (ii) and clause (iii) of the second proviso shall be passed, in such form and manner as may be prescribed, before expiry of the period of three months, six months and one month, respectively, calculated from the end of the month in which the application was received:

Provided also that where the total income of the fund or institution or trust 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), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall,—

(a) keep and maintain books of account and other documents in such form and manner and at such place, as may be prescribed; and

(b) get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and furnish by that date, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:

Provided also that any amount of donation received by the fund or institution in terms of clause (d) of sub-section (2) of section 80G in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub-section (5C) of that section, in the manner specified in that clause, or which has been utilised for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister’s National Relief Fund on or before the 31st day of March, 2004 shall be deemed to be the income of the previous year and shall accordingly be charged to tax:

Provided also that any amount credited or paid out of income of 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), to any other 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) or trust or institution registered under section 12AA or section 12AB, being voluntary contribution made with a specific direction that they shall form part of the corpus, shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established:

Provided also that for the purposes of determining the amount of application under item (a) of the third proviso, the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”:

Provided also that where the 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) does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under section 12AA or section 12AB or to 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) shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established :

Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) is approved or provisionally approved under the said clause and subsequently—

(a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or

(b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub­section (3) of section 143 for any previous year; or

(c) such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner, shall,—

(a) call for such documents or information from the fund or institution or trust or any university or other educational institution or any hospital or other medical institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence of any specified violation;

(b) pass an order in writing cancelling the approval of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution, on or before the specified date, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violation has taken place;

(c) pass an order in writing refusing to cancel the approval of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution, on or before the specified date, if he is not satisfied about the occurrence of one or more specified violations;

(d) forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such fund or institution or trust or any university or other educational institution or any hospital or other medical institution.

Explanation 1.—For the purposes of this proviso, “specified date” shall mean the day on which the period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry, under clause (i) expires.

Explanation 2.—For the purposes of this proviso, the following shall mean “specified violation”,—

(a) where any income of the fund or institution or trust or any university or other educational institution or any hospital or other medical institution has been applied other than for the objects for which it is established; or

(b) the fund or institution or trust or any university or other educational institution or any hospital or other medical institution has income from profits and gains of business, which is not incidental to the attainment of its objectives or separate books of account are not maintained by it in respect of the business which is incidental to the attainment of its objectives; or

(c) any activity of the fund or institution or trust or any university or other educational institution or any hospital or other medical institution,—

(A) is not genuine; or

(B) is not being carried out in accordance with all or any of the conditions subject to which it was notified or approved; or

(d) the fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not complied with the requirement of any other law for the time being in force, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has [attained finality; or]

[(e) the application referred to in the first proviso of this clause is not complete or it contains false or incorrect information.]

Explanation 3.—For the purposes of clause (b) of this proviso, where the Assessing Officer has intimated the Central Government or the prescribed authority under the first proviso of sub-section (3) of section 143 about the contravention of the provisions of sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of this clause by any fund or institution or trust or university or other educational institution or any hospital or other medical institution in respect of an assessment year, and the approval granted to such fund or institution or trust or university or other educational institution or any hospital or other medical institution has not been withdrawn, or the notification issued in its case has not been rescinded, on or before the 31st day of March, 2022, such intimation shall be deemed to be a reference received by the Principal Commissioner or Commissioner as on the 1st day of April, 2022, and the provisions of clause (b) of the second proviso to sub-section (3) of section 143 shall apply accordingly for such assessment year:

Provided also that any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of the said section shall be included in the total income :

Provided also that all applications made under the first proviso [as it stood before its amendment by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020] pending before the Principal Commissioner or Commissioner, on which no order has been passed before the 1st day of April, 2021, shall be deemed to be applications made under clause (iv) of the first proviso on that date:

Provided also that the income of a trust or institution referred to in sub-clause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded :

Provided also that where the fund or institution referred to in sub-clause (iv) or the trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) has been approved by the Principal Commissioner or Commissioner, and the approval is in force for any previous year, then, nothing contained in any other provision of this section, other than clause (1) thereof, shall operate to exclude any income received on behalf of such fund or institution or trust or university or other educational institution or hospital or other medical institution, as the case may be, from the total income of the person in receipt thereof for that previous year.

Explanation.—Where, on or after the 1st day of April, 2022 any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) is notified under clause (46) [or (46A)] of section 10, the approval or provisional approval 49 granted to such fund or institution or trust or university or other educational institution or hospital or other medical institution shall become inoperative from the date of notification of such fund or institution or trust or university or other educational institution or hospital or other medical institution, as the case may be, under clause (46) [or clause (46A)] of the said section:

Provided also that the fund or institution or trust 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) shall furnish the return of income for the previous year in accordance with the provisions of sub-section (4C) of section 139, [within the time allowed under sub-section (1) or sub-50

section (4) of that section] :

Provided also that where the income or part of income or property of any fund or institution or trust 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), has been applied directly or indirectly for the benefit of any person referred to in sub-section (3) of section 13, such income or part of income or property shall, after taking into account the provisions of sub-sections (2), (4) and (6) of the said section, be deemed to be the income of such fund or institution or trust or university or other educational institution or hospital or other medical institution of the previous year in which it is so applied:

Provided also that where any fund or institution or trust 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) violates the conditions of the tenth proviso or twentieth proviso, or where the provisions of the eighteenth proviso are applicable, its income chargeable to tax shall be computed after allowing deduction for the expenditure (other than capital expenditure) incurred in India, for the objects of the fund or institution or trust or university or other educational institution or hospital or other medical institution, subject to fulfilment of the following conditions, namely:

[Provided also that no approval under the second proviso shall be granted in relation to any application made on or after the 1st day of October, 2024.]

Explanation 1.—In this clause, where any income is required to be applied or accumulated, then, for such purpose the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this clause in the same or any other previous year.

Explanation 2.—For the purposes of this clause, it is clarified that the calculation of income required to be applied or accumulated during the previous year shall be made without any set off or deduction or allowance of any excess application of any of the year preceding to the previous year.

Explanation 3.—For the purposes of this clause, any sum payable by any fund or institution or trust 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) shall be considered as application of income during the previous year in which such sum is actually paid by it (irrespective of the previous year in which the liability to pay such sum was incurred by the fund or institution or trust or any university or other educational institution or any hospital or other medical institution according to the method of accounting regu-larly employed by it):

Provided that where during any previous year any sum has been claimed to have been applied by the fund or institution or trust or any university or other educational institution or any hospital or other medical institution, such sum shall not be allowed as application in any subsequent previous year;

(23D) any income of—

(i) a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder;

(ii) such other Mutual Fund set up by a public sector bank or a public financial institution or authorised by the Reserve Bank of India and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf. —For the purposes of this clause,—

Explanation.—For the purposes of this clause,—

(a) the expression “public sector bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new Bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) and a bank included in the category “other public sector banks” by the Reserve Bank of India;

(b) the expression “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

(c) the expression “Securities and Exchange Board of India” shall have the meaning assigned to it in clause (a) of sub-section (1) of section 2 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(23DA) any income of a securitisation trust from the activity of securitisation.

Explanation.—For the purposes of this clause,—

(a) “securitisation” shall have the same meaning as assigned to it,—

(i) in clause (r) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956); or

(ia) in clause (z) of sub-section (1) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); or

(iii) under the guidelines on securitisation of standard assets issued by the Reserve Bank of India;

(b) “securitisation trust” shall have the meaning assigned to it in the Explanation below section 115TCA;

(23E) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]

(23EA) any income, by way of contributions received from recognised stock exchanges and the members thereof, of such Investor Protection Fund set up by recognised stock exchanges in India, either jointly or separately, as the Central Government may, by notification in the Official Gazette, specify in this behalf:

Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part, with a recognised stock exchange, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall accordingly be chargeable to income-tax;

(23EB) [***]

(23EC) any income, by way of contributions received from commodity exchanges and the members thereof, of such Investor Protection Fund set up by commodity exchanges in India, either jointly or separately, as the Central Government may, by notification in the Official Gazette, specify in this behalf:

Provided that where any amount standing to the credit of the said Fund and not charged to income-tax during any previous year is shared, either wholly or in part, with a commodity exchange, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall accordingly be chargeable to income-tax.

Explanation.—For the purposes of this clause, “commodity exchange” shall mean a “registered association” as defined in clause (jj) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952);

(23ED) any income, by way of contributions received from a depository, of such Investor Protection Fund set up in accordance with the regulations by a depository as the Central Government may, by notification in the Official Gazette, specify in this behalf:

Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part with a depository, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall, accordingly, be chargeable to income-tax.

Explanation.—For the purposes of this clause,—

(i) “depository” shall have the same meaning as assigned to it in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 (22 of 1996);

(ii) “regulations” means the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Depositories Act, 1996 (22 of 1996);

(23EE) any specified income of such Core Settlement Guarantee Fund, set up by a recognised clearing corporation in accordance with the regulations, as the Central Government may, by notification in the Official Gazette, specify in this behalf:

Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part with the specified person, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall, accordingly, be chargeable to income-tax.

Explanation.—For the purposes of this clause,—

(i) “recognised clearing corporation” shall have the same meaning as assigned to it in clause (o) of sub-regulation (1) of regulation 2 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956)

clause (n) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Market Infrastructure Institutions) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019)];

(ii) “regulations” means the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956) [or the International Financial Services Centres Authority (Market Infrastructure Institutions) Regulations, 2021 53-54 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019)];

(iii) “specified income” shall mean,—

(a) the income by way of contribution received from specified persons;

(b) the income by way of penalties imposed by the recognised clearing corporation and credited to the Core Settlement Guarantee Fund; or

(c) the income from investment made by the Fund;

(iv) “specified person” shall mean,—

(a) any recognised clearing corporation which establishes and maintains the Core Settlement Guarantee Fund;

(b) any recognised stock exchange, being a shareholder in such recognised clearing corporation, or a contributor to the Core Settlement Guarantee Fund; and

(c) any clearing member contributing to the Core Settlement Guarantee Fund;

(23F) any income by way of dividends or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking :

Provided that such venture capital fund or venture capital company is approved for the purposes of this clause by the prescribed authority in accordance with the rules made in this behalf and satisfies the prescribed conditions :

Provided further that any approval by the prescribed authority shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years, as may be specified in the order of approval :

Provided also that nothing contained in this clause shall apply in respect of any investment made after the 31st day of March, 1999. Explanation.—For the purposes of this clause,—

(a) “venture 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 investments mainly by way of acquiring equity shares of a venture capital undertaking in accordance with the prescribed guidelines;

(b) “venture capital company” means such company as has made investments by way of acquiring equity shares of venture capital undertakings in accordance with the prescribed guidelines;

(c) “venture capital undertaking” means such domestic company whose shares are not listed in a recognised stock exchange in India and which is engaged in the business of generation or generation and distribution of electricity or any other form of power or engaged in the business of providing telecommunication services or in the business of developing, maintaining and operating any infrastructure facility or engaged in the manufacture or production of such articles or things (including computer software) as may be notified by the Central Government in this behalf; and

(d) “infrastructure facility” means a road, highway, bridge, airport, port, rail system, a water supply project, irrigation project, sanitation and sewerage system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions specified in sub-section (4A) of section 80-IA;

(23FA) any income by way of dividends, other than dividends referred to in section 115-O, or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking :

Provided that such venture capital fund or venture capital company is approved, for the purposes of this clause, by the Central Government

on an application made to it in accordance with the rules made in this behalf and which satisfies the prescribed conditions :

Provided further that any approval by the Central Government shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years, as may be specified in the order of approval :

Provided also that nothing contained in this clause shall apply in respect of any investment made after the 31st day of March, 2000. Explanation.—For the purposes of this clause,—

(a) “venture 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 investments mainly by way of acquiring equity shares of a venture capital undertaking in accordance with the prescribed guidelines;

(b) “venture capital company” means such company as has made investments by way of acquiring equity shares of venture capital undertakings in accordance with the prescribed guidelines; and

(c) “venture capital undertaking” means such domestic company whose shares are not listed in a recognised stock exchange in India and which is engaged in the—

(i) business of—

(A) software;

(B) information technology;

(C) production of basic drugs in the pharmaceutical sector;

(D) bio-technology;

(E) agriculture and allied sectors; or

(F) such other sectors as may be notified by the Central Government in this behalf; or

(ii) production or manufacture of any article or substance for which patent has been granted to the National Research Laboratory or any other scientific research institution approved by the Department of Science and Technology;

(23FB) any income of a venture capital company or venture capital fund from investment in a venture capital undertaking :

Provided that nothing contained in this clause shall apply in respect of any income of a venture capital company or venture capital fund, being an investment fund specified in clause (a) of the Explanation 1 to section 115UB, of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2016.

Explanation.—For the purposes of this clause,—

(a) “venture capital company” means a company which—

(A) has been granted a certificate of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 (hereinafter referred to as the Venture Capital Funds Regulations) made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or

(B) has been granted a certificate of registration as Venture Capital Fund as a sub-category of Category I Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (hereinafter referred to as the Alternative Investment Funds Regulations) made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and which fulfils the following conditions, namely:—

(i) it is not listed on a recognised stock exchange;

(ii) it has invested not less than two-thirds of its investible funds in unlisted equity shares or equity linked instruments of venture capital undertaking; and

(iii) it has not invested in any venture capital undertaking in which its director or a substantial shareholder (being a beneficial owner of equity shares exceeding ten per cent of its equity share capital) holds, either individually or collectively, equity shares in excess of fifteen per cent of the paid-up equity share capital of such venture capital undertaking;

(b) “venture capital fund” means a fund—

(A) operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908), which—

(I) has been granted a certificate of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under the Venture Capital Funds Regulations; or

(II) has been granted a certificate of registration as Venture Capital Fund as a sub-category of Category I Alternative Investment Fund under the Alternative Investment Funds Regulations [or as referred to in sub-regulation (2) of 55 regulation 18 of the International Financial Services Centres Authority (Fund Management) Regulations, 2022 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019),] and which fulfils the follow-ing conditions, namely:—

(i) it has invested not less than two-thirds of its investible funds in unlisted equity shares or equity linked instruments of venture capital undertaking;

(ii) it has not invested in any venture capital undertaking in which its trustee or the settler holds, either individually or collectively, equity shares in excess of fifteen per cent of the paid-up equity share capital of such venture capital undertaking; [***]

(iii) the units, if any, issued by it are not listed in any recognised stock exchange; [and] 57

⁵⁸[(iv) any other condition as may be prescribed; or]

(B) operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);

(c) “venture capital undertaking” means—

(i) a venture capital undertaking as defined in clause (n) of regulation 2 of the Venture Capital Funds Regulations; or

(ii) a venture capital undertaking as defined in clause (aa) of sub-regulation (1) of regulation 2 of the Alternative Investment Funds Regulations;

(23FBA) any income of an investment fund other than the income chargeable under the head “Profits and gains of business or profession”;

(23FBB) any income referred to in section 115UB, accruing or arising to, or received by, a unit holder of an investment fund, being that proportion of income which is of the same nature as income chargeable under the head “Profits and gains of business or profession”. Explanation.—For the purposes of clauses (23FBA) and (23FBB), the expression “investment fund” shall have the meaning assigned to it in clause (a) of the Explanation 1 to section 115UB;

(23FBC) any income accruing or arising to, or received by, a unit holder from a specified fund or on transfer of units in a specified fund.

Explanation.—For the purposes of this clause, the expressions—

(a) “specified fund” shall have the same meaning as assigned to it in clause (c) of the Explanation to clause (4D);

(b) “unit” means beneficial interest of an investor in the fund and shall include shares or partnership interests; (23FC) any income of a business trust by way of—

(23FC) any income of a business trust by way of—

(a) interest received or receivable from a special purpose vehicle; or

(b) dividend received or receivable from a special purpose vehicle.

Explanation.—For the purposes of this clause, the expression “special purpose vehicle” means an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the regulations under which such trust is granted registration;

(23FCA) any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust.

Explanation.—For the purposes of this clause, the expression “real estate asset” shall have the same meaning as assigned to it in clause (zj) of sub-regulation (1) of regulation 2 of 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);

(23FD) any distributed income, referred to in section 115UA, received by a unit holder from the business trust, not being that proportion of the income which is of the same nature as the income referred to in sub-clause (a) of clause (23FC) or sub-clause (b) of said clause (in a case where the special purpose vehicle has exercised the option under section 115BAA) or clause (23FCA);

(23FE) any income of a specified person in the nature of dividend, interest [, any sum referred to in clause (xii) of sub-section (2) of section 56] or long-term capital gains [(whether or not such capital gains are deemed as short-term capital gains under section 50AA)] arising from 60 an investment made by it in India, whether in the form of debt or share capital or unit, if the investment—

(i) is made on or after the 1st day of April, 2020 but on or before the 31st day of March, [2030]; 61

(ii) is held for at least three years; and

(iii) is in—

(a) a business trust referred to in sub-clause (i) of clause (13A) of section 2; or

(b) a company or enterprise or an entity carrying on the business of developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA or such other business as the Central Government may, by notification in the Official Gazette, specify in this behalf; or

(c) a Category-I or Category-II Alternative Investment Fund 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), having not less than fifty per cent investment in one or more of the company or enterprise or entity referred to in item (b) or item (d) or item (e) or in an Infrastructure Investment Trust referred to in sub-clause (i) of clause (13A) of section 2; or

(d) a domestic company, set up and registered on or after the 1st day of April, 2021, having minimum seventy-five per cent investments in one or more of the companies or enterprises or entities referred to in item (b); or

(e) a non-banking financial company registered as an Infrastructure Finance Company as referred to in notification number RBI/2009-10/316 issued by the Reserve Bank of India or in an Infrastructure Debt Fund, a non-banking finance company, as referred to in the Infrastructure Debt Fund – Non-Banking Financial Companies (Reserve Bank) Directions, 2011, issued by the Reserve Bank of India, having minimum ninety per cent lending to one or more of the companies or enterprises or entities referred to in item (b):

Provided that if any difficulty arises regarding interpretation or implementation of the provisions of this clause, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty:

Provided further that every guideline issued under the first proviso, shall be laid before each House of Parliament and shall be binding on the income-tax authority and the specified person:

Provided also that where any income has not been included in the total income of the specified person due to the provisions of this clause, and subsequently during any previous year the specified person fails to satisfy any of the conditions of this clause so that the said income would not have been eligible for such non-inclusion, such income shall be chargeable to income-tax as the income of the specified person of that previous year:

Provided also that in case a Category-I or Category-II Alternative Investment Fund referred to in item (c) of sub-clause (iii) has investment of less than one hundred per cent in one or more of the companies or enterprises or entities referred to in item (b) or item (d) or item (e) of the said sub-clause or in an Infrastructure Investment Trust referred to in item (c) of the said sub-clause, income accrued or arisen or received or attributable to such investment, directly or indirectly, which is exempt under this clause shall be calculated proportionately to that investment made in one or more of the companies or enterprises or entities referred to in item (b) or item (d) or item (e) of the said sub-clause or in the Infrastructure Investment Trust referred to in item (c) of the said sub-clause, in such manner as may be prescribed:

Provided also that in case a domestic company referred to in item (d) of sub-clause (iii) has investment of less than one hundred per cent in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, income accrued or arisen or received or attributable to such investments, directly or indirectly, which is exempt under this clause shall be calculated proportionately to the investment made in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, in such manner as may be prescribed:

Provided also that in case a non-banking finance company registered as an Infrastructure Finance Company or Infrastructure Debt Fund, referred to in item (e) of sub-clause (iii), has lending of less than one hundred per cent in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, income accrued or arisen or received or attributable to such lending, directly or indirectly, which is exempt under this clause shall be calculated proportionately to the lending made in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, in such manner as may be prescribed:

Provided also that in case a sovereign wealth fund or pension fund has loans or borrowings, directly or indirectly, for the purposes of making investment in India, such fund shall be deemed to be not eligible for exemption under this clause.

Explanation 1.—For the purposes of this clause, “specified person” means—

(a) a wholly owned subsidiary of the Abu Dhabi Investment Authority which—

(i) is a resident of the United Arab Emirates; and

(ii) makes investment, directly or indirectly, out of the fund owned by the Government of the Abu Dhabi;

(b) a sovereign wealth fund which satisfies the following conditions, namely:—

(i) it is wholly owned and controlled, directly or indirectly, by the Government of a foreign country;

(ii) it is set up and regulated under the law of such foreign country;

(iii) the earnings of the said fund are credited either to the account of the Government of that foreign country or to any other account designated by that Government so that no portion of the earnings inures any benefit to any private person;

(iv) the asset of the said fund vests in the Government of such foreign country upon dissolution:

Provided that the provisions of sub-clauses (iii) and (iv) shall not apply to any payment made to creditors or depositors for loan taken or borrowing for the purposes other than for making investment in India;

(v) it does not participate in the day to day operations of investee but the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive director shall not be considered as participation in the day to day operations of the investee; and

(vi) it is specified by the Central Government, by notification in the Official Gazette, for this purpose and fulfils conditions specified in such notification;

(c) a pension fund, which—

(i) is created or established under the law of a foreign country including the laws made by any of its political constituents being a province, State or local body, by whatever name called;

(ii) is not liable to tax in such foreign country or if liable to tax, exemption from taxation for all its income has been provided by such foreign country;

(iii) satisfies such other conditions as may be prescribed;

(iiia) it does not participate in the day to day operations of investee but the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive director shall not be considered as participation in day to day operations of the investee; and

(iv) is specified by the Central Government, by notification in the Official Gazette, for this purpose and fulfils conditions specified in such notification.

^33a[(d) (i) the Public Investment Fund of the Government of the Kingdom of Saudi Arabia; and

(ii) a wholly owned subsidiary of the Public Investment Fund of the Government of the Kingdom of Saudi Arabia, which—

(A) is a resident of Saudi Arabia; and

(B) makes investment, directly or indirectly, out of the fund owned by the said Government.] Explanation 2.— For the purposes of this clause,—

(i) “investee” means a business trust, or a company, or an enterprise, or an entity, or a Category I or Category II Alternative Investment Fund, or an Infrastructure Investment Trust or a domestic company, or an Infrastructure Finance Company or an Infrastructure Debt Fund referred to in item (e) of sub-clause (iii), in which the sovereign wealth fund or the pension fund, as the case may be, has made the investment, directly or indirectly, under the provisions of this clause;

(ii) “loan and borrowing” means—

(a) any loan taken or borrowing by a sovereign wealth fund from, or any deposit or investment made in a sovereign wealth fund by, any person other than the Government of the country in which the sovereign wealth fund is set up;

(b) any loan taken or borrowing by a pension fund from or any deposit or investment made in a pension fund by, any person but shall not include the deposit or investment which represents statutory obligations and defined contributions of one or more funds or plans established for providing retirement, social security, employment, disability, death benefits or any similar compensation to the participants or beneficiaries of such funds or plans, as the case may be.

Explanation 3.—For the purposes of this clause, the Central Government may prescribe that the method of calculation of “fifty per cent” referred to in item (c) or “seventy-five per cent” referred to in item (d) or “ninety per cent” referred to in item (e), of sub-clause (iii) shall be such as may be prescribed;

(23FF) any income of the nature of capital gains, arising or received by a non-resident or a specified fund, which is on account of transfer of share of a company resident in India, by the resultant fund or a specified fund to the extent attributable to units held by non-resident (not being a permanent establishment of a non-resident in India) in such manner as may be prescribed, and such shares were transferred from the original fund, or from its wholly owned special purpose vehicle, to the resultant fund in relocation, and where capital gains on such shares were not chargeable to tax if that relocation had not taken place.

Explanation.—For the purposes of this clause,—

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

(b) the expression “specified fund” shall have the meaning assigned to it in clause (c) of the Explanation to clause (4D) of section 10; (23G) [Omitted by the Finance Act, 2006, w.e.f. 1-4-2007;]

(24) any income chargeable under the heads “Income from house property” and “Income from other sources” of—

(a) a registered union within the meaning of the Trade Unions Act, 1926 (16 of 1926), formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen;

(b) an association of registered unions referred to in sub-clause (a);

(25) (i) interest on securities which are held by, or are the property of, any provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies, and any capital gains of the fund arising from the sale, exchange or transfer of such securities;

(ii) any income received by the trustees on behalf of a recognised provident fund;

(iii) any income received by the trustees on behalf of an approved superannuation fund;

(iv) any income received by the trustees on behalf of an approved gratuity fund;

(v) any income received—

(a) by the Board of Trustees constituted under the Coal Mines Provident Funds and Miscellaneous Provisions Act, 1948 (46 of 1948), on behalf of the Deposit-linked Insurance Fund established under section 3G of that Act; or

(b) by the Board of Trustees constituted under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), on behalf of the Deposit-linked Insurance Fund established under section 6C of that Act;

(25A) any income of the Employees’ State Insurance Fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948);

(26) in the case of a member of a Scheduled Tribe as defined in clause (25) of article 366 of the Constitution, residing in any area specified in Part I or Part II of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution or in the States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura or in the areas covered by notification No. TAD/R/35/50/109, dated the 23rd February, 1951, issued by the Governor of Assam under the proviso to sub-paragraph (3) of the said paragraph 20 [as it stood immediately before the commencement of the North-Eastern Areas (Reorganisation) Act, 1971 (81 of 1971)] or in the Ladakh region of the State of Jammu and Kashmir, any income which accrues or arises to him,—

(a) from any source in the areas or States aforesaid, or

(b) by way of dividend or interest on securities;

(26A) [***]

(26AA) [***]

⁶³[(26AAA) in case of an individual, being a Sikkimese, any income which accrues or arises to him—

(a) from any source in the State of Sikkim; or

(b) by way of dividend or interest on securities.

Explanation.—For the purposes of this clause “Sikkimese” shall mean—

(i) an individual, whose name is recorded in the register maintained under the Sikkim Subjects Regulation, 1961 read with the Sikkim Subject Rules, 1961 (hereinafter referred to as the “Register of Sikkim Subjects”), immediately before the 26th day of April, 1975; or

(ii) an individual, whose name is included in the Register of Sikkim Subjects by virtue of the Government of India Order No. 26030/36/90-I.C.I., dated the 7th August, 1990 and Order of even number dated the 8th April, 1991; or

(iii) any other individual, whose name does not appear in the Register of Sikkim Subjects, but it is established beyond doubt that the name of such individual’s father or husband or paternal grand-father or brother from the same father has been recorded in that register; or

(iv) any other individual, whose name does not appear in the Register of Sikkim Subjects but it is established that such individual was domiciled in Sikkim on or before the 26th day of April, 1975; or

(v) any other individual, who was not domiciled in Sikkim on or before the 26th day of April, 1975, but it is established beyond doubt that such individual’s father or husband or paternal grand-father or brother from the same father was domiciled in Sikkim on or before the 26th day of April, 1975;]

(26AAB) any income of an agricultural produce market committee or board constituted under any law for the time being in force for the purpose of regulating the marketing of agricultural produce;

(26B) any income of a corporation established by a Central, State or Provincial Act or of any other body, institution or association (being a body, institution or association wholly financed by Government) where such corporation or other body or institution or association has been established or formed for promoting the interests of the members of the Scheduled Castes or the Scheduled Tribes or backward classes or of any two or all of them.

Explanation.—For the purposes of this clause,—

(a) “Scheduled Castes” and “Scheduled Tribes” shall have the meanings respectively assigned to them in clauses (24) and (25) of article 366 of the Constitution;

(b) “backward classes” means such classes of citizens, other than the Scheduled Castes and the Scheduled Tribes, as may be notified—

(i) by the Central Government; or

(ii) by any State Government, as the case may be, from time to time;

(26BB) any income of a corporation established by the Central Government of a minority community.

Explanation.—For the purposes of this clause, “minority community” means a community notified as such by the Central Government in the Official Gazette in this behalf;

(26BBB) any income of a corporation established by a Central, State or Provincial Act for the welfare and economic upliftment of ex-servicemen being the citizens of India.

Explanation.—For the purposes of this clause, “ex-serviceman” means a person who has served in any rank, whether as combatant or non­combatant, in the armed forces of the Union or armed forces of the Indian States before the commencement of the Constitution (but excluding the Assam Rifles, Defence Security Corps, General Reserve Engineering Force, Lok Sahayak Sena, Jammu and Kashmir Militia and Territorial Army) for a continuous period of not less than six months after attestation and has been released, otherwise than by way of dismissal or discharge on account of misconduct or inefficiency, and in the case of a deceased or incapacitated ex-serviceman includes his wife, children, father, mother, minor brother, widowed daughter and widowed sister, wholly dependant upon such ex-serviceman immediately before his death or incapacitation;

(27) any income of a co-operative society formed for promoting the interests of the members of either the Scheduled Castes or Scheduled Tribes or both referred to in clause (26B):

Provided that the membership of the co-operative society consists of only other co-operative societies formed for similar purposes and the finances of the society are provided by the Government and such other societies;

(28) [***]

(29) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]

(29A) any income accruing or arising to—

(a) the Coffee Board constituted under section 4 of the Coffee Act, 1942 (7 of 1942) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1962 or the previous year in which such Board was constituted, whichever is later;

(b) the Rubber Board constituted under sub-section (1) of section 4 of the Rubber Board Act, 1947 (24 of 1947) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1962 or the previous year in which such Board was constituted, whichever is later;

(c) the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1962 or the previous year in which such Board was constituted, whichever is later;

(d) the Tobacco Board constituted under the Tobacco Board Act, 1975 (4 of 1975) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1975 or the previous year in which such Board was constituted, whichever is later;

(e) the Marine Products Export Development Authority established under section 4 of the Marine Products Export Development Authority Act, 1972 (13 of 1972) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1972 or the previous year in which such Authority was constituted, whichever is later;

(f) the Agricultural and Processed Food Products Export Development Authority established under section 4 of the Agricultural and Processed Food Products Export Development Act, 1985 (2 of 1986) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1985 or the previous year in which such Authority was constituted, whichever is later;

(g) the Spices Board constituted under sub-section (1) of section 3 of the Spices Board Act, 1986 (10 of 1986) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1986 or the previous year in which such Board was constituted, whichever is later;

(h) the Coir Board established under section 4 of the Coir Industry Act, 1953 (45 of 1953);

(30) in the case of an assessee who carries on the business of growing and manufacturing tea in India, the amount of any subsidy received from or through the Tea Board under any such scheme for replantation or replacement of tea bushes or for rejuvenation or consolidation of areas used for cultivation of tea as the Central Government may, by notification in the Official Gazette, specify:

Provided that the assessee furnishes to the Assessing Officer, along with his return of income for the assessment year concerned or within such further time as the Assessing Officer may allow, a certificate from the Tea Board as to the amount of such subsidy paid to the assessee during the previous year.

Explanation.—In this clause, “Tea Board” means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953);

(31) in the case of an assessee who carries on the business of growing and manufacturing rubber, coffee, cardamom or such other commodity in India, as the Central Government may, by notification in the Official Gazette, specify in this behalf, the amount of any subsidy received from or through the concerned Board under any such scheme for replantation or replacement of rubber plants, coffee plants, cardamom plants or plants for the growing of such other commodity or for rejuvenation or consolidation of areas used for cultivation of rubber, coffee, cardamom or such other commodity as the Central Government may, by notification in the Official Gazette, specify:

Provided that the assessee furnishes to the Assessing Officer, along with his return of income for the assessment year concerned or within such further time as the Assessing Officer may allow, a certificate from the concerned Board, as to the amount of such subsidy paid to the assessee during the previous year.

Explanation.—In this clause, “concerned Board” means,—

(a) in relation to rubber, the Rubber Board constituted under section 4 of the Rubber Act, 1947 (24 of 1947),

(b) in relation to coffee, the Coffee Board constituted under section 4 of the Coffee Act, 1942 (7 of 1942),

(c) in relation to cardamom, the Spices Board constituted under section 3 of the Spices Board Act, 1986 (10 of 1986),

(d) in relation to any other commodity specified under this clause, any Board or other authority established under any law for the time being in force which the Central Government may, by notification in the Official Gazette, specify in this behalf;

(32) in the case of an assessee referred to in sub-section (1A) of section 64, any income includible in his total income under that sub-section, to the extent such income does not exceed one thousand five hundred rupees in respect of each minor child whose income is so includible;

(33) any income arising from the transfer of a capital asset, being a unit of the Unit Scheme, 1964 referred to in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) and where the transfer of such asset takes place on or after the 1st day of April, 2002;

(34) any income by way of dividends referred to in section 115-O :

Provided that nothing in this clause shall apply to any income by way of dividend chargeable to tax in accordance with the provisions of section 115BBDA:

Provided further that nothing contained in this clause shall apply to any income by way of dividend received on or after the 1st day of April, 2020 other than the dividend on which tax under section 115-O and section 115BBDA, wherever applicable, has been paid;

(34A) any income arising to an assessee, being a shareholder, on account of buy back of shares by the company as referred to in section 115QA: ⁶⁴

[Provided that this clause shall not apply with respect to any buy back of shares by a company on or after the 1st day of October, 2024;]

⁶⁵[(34B) any income of a Unit of any International Financial Services Centre, primarily engaged in the business of leasing of an aircraft [or a ship], by way of dividends from a company being a Unit of any International Financial Services Centre primarily engaged in the business of leasing of an aircraft [or a ship].

67[Explanation.—For the purposes of this clause,—

(a) “aircraft” means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;

(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special
Economic Zones Act, 2005 (28 of 2005);

(c) “ship” means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof;]]

(35) any income by way of,—

(a) income received in respect of the units of a Mutual Fund specified under clause (23D); or

(b) income received in respect of units from the Administrator of the specified undertaking; or

(c) income received in respect of units from the specified company:

Provided that this clause shall not apply to any income arising from transfer of units of the Administrator of the specified undertaking or of the specified company or of a mutual fund, as the case may be:

Provided further that nothing contained in this clause shall apply to any income in respect of units received on or after the 1st day of April, 2020.

Explanation.—For the purposes of this clause,—

(a) “Administrator” means the Administrator as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);

(b) “specified company” means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);

(35A) any income by way of distributed income referred to in section 115TA received from a securitisation trust by any person being an investor of the said trust :

Provided that nothing contained in this clause shall apply to any income by way of distributed income referred to in the said section, received on or after the 1st day of June, 2016.

Explanation.—For the purposes of this clause, the expressions “investor” and “securitisation trust” shall have the meanings respectively assigned to them in the Explanation below section 115TCA;

(36) any income arising from the transfer of a long-term capital asset, being an eligible equity share in a company purchased on or after the 1st day of March, 2003 and before the 1st day of March, 2004 and held for a period of twelve months or more.

Explanation.—For the purposes of this clause, “eligible equity share” means,—

(i) any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as on the 1st day of March, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognised stock exchange in India;

(ii) any equity share in a company allotted through a public issue on or after the 1st day of March, 2003 and listed in a recognised stock exchange in India before the 1st day of March, 2004 and the transaction of sale of such share is entered into on a recognised stock exchange in India;

(37) in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head “Capital gains” arising from the transfer of agricultural land, where—

(i) such land is situate in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of section 2;

(ii) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his;

(iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India;

(iv) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004.

Explanation.—For the purposes of this clause, the expression “compensation or consideration” includes the compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority;

(37A) any income chargeable under the head “Capital gains” in respect of transfer of a specified capital asset arising to an assessee, being an individual or a Hindu undivided family, who was the owner of such specified capital asset as on the 2nd day of June, 2014 and transfers that specified capital asset under the Land Pooling Scheme (herein referred to as “the scheme”) covered under the Andhra Pradesh Capital City Land Pooling Scheme (Formulation and Implementation) Rules, 2015 made under the provisions of the Andhra Pradesh Capital Region Development Authority Act, 2014 (Andhra Pradesh Act 11 of 2014) and the rules, regulations and Schemes made under the said Act. Explanation.—For the purposes of this clause, “specified capital asset” means,—

(a) the land or building or both owned by the assessee as on the 2nd day of June, 2014 and which has been transferred under the scheme; or

(b) the land pooling ownership certificate issued under the scheme to the assessee in respect of land or building or both referred to in clause (a); or

(c) the reconstituted plot or land, as the case may be, received by the assessee in lieu of land or building or both referred to in clause (a) in accordance with the scheme, if such plot or land, as the case may be, so received is transferred within two years from the end of the financial year in which the possession of such plot or land was handed over to him;

(38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust where—

(a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and

(b) such transaction is chargeable to securities transaction tax under that Chapter :

Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB :

Provided also that nothing contained in sub-clause (b) shall apply to a transaction undertaken on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency: Provided also that nothing contained in this clause shall apply to any income arising from the transfer of a long-term capital asset, being an equity share in a company, if the transaction of acquisition, other than the acquisition notified by the Central Government in this behalf, of such equity share is entered into on or after the 1st day of October, 2004 and such transaction is not chargeable to securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004):

Provided also that nothing contained in this clause shall apply to any income arising from the transfer of long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust, made on or after the 1st day of April, 2018. Explanation.—For the purposes of this clause,—

(a) “equity oriented fund” means a fund—

(i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty-five per cent of the total proceeds of such fund; and

(ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D):

Provided that the percentage of equity shareholding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures;

(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(c) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of the Explanation 1 to sub-section (5) of section 43;

(39) any specified income, arising from any international sporting event held in India, to the person or persons notified by the Central Government in the Official Gazette, if such international sporting event—

(a) is approved by the international body regulating the international sport relating to such event;

(b) has participation by more than two countries;

(c) is notified by the Central Government in the Official Gazette for the purposes of this clause.

Explanation.—For the purposes of this clause, “the specified income” means the income, of the nature and to the extent, arising from the international sporting event, which the Central Government may notify in this behalf;

(40) any income of any subsidiary company by way of grant or otherwise received from an Indian company, being its holding company engaged in the business of generation or transmission or distribution of power if receipt of such income is for settlement of dues in connection with reconstruction or revival of an existing business of power generation:

Provided that the provisions of this clause shall apply if reconstruction or revival of any existing business of power generation is by way of transfer of such business to the Indian company notified under sub-clause (a) of clause (v) of sub-section (4) of section 80-IA;

(41) [***]

(42) any specified income arising to a body or authority which—

(a) has been established or constituted or appointed under a treaty or an agreement entered into by the Central Government with two or more countries or a convention signed by the Central Government;

(b) is established or constituted or appointed not for the purposes of profit;

(c) is notified by the Central Government in the Official Gazette for the purposes of this clause.

Explanation.—For the purposes of this clause, “specified income” means the income, of the nature and to the extent, arising to the body or authority referred to in this clause, which the Central Government may notify in this behalf;

(43) any amount received by an individual as a loan, either in lump sum or in instalment, in a transaction of reverse mortgage referred to in clause (xvi) of section 47;

(44) any income received by any person for, or on behalf of, the New Pension System Trust established on the 27th day of February, 2008 under the provisions of the Indian Trusts Act, 1882 (2 of 1882);

(45) [***]

(46) any specified income arising to a body or authority or Board or Trust or Commission (by whatever name called) [other than those covered under clause (46A)] , or a class thereof which—

(a) has been established or constituted by or under a Central, State or Provincial Act, or constituted by the Central Government or a State Government, with the object of regulating or administering any activity for the benefit of the general public;

(b) is not engaged in any commercial activity; and

(c) is notified by the Central Government in the Official Gazette for the purposes of this clause.

Explanation.—For the purposes of this clause, “specified income” means the income, of the nature and to the extent arising to a body or authority or Board or Trust or Commission (by whatever name called) [other than those covered under clause

(46A)], or a class thereof referred to in this clause, which the Central Government may, by notification in the Official Gazette, specify in this behalf; [(46A) any income arising to a body or authority or Board or Trust or Commission, not being a company, which—

(a) has been established or constituted by or under a Central Act or State Act with one or more of the following purposes, namely:–

(i) dealing with and satisfying the need for housing accommodation;

(ii) planning, development or improvement of cities, towns and villages;

(iii) regulating, or regulating and developing, any activity for the benefit of the general public; or

(iv) regulating any matter, for the benefit of the general public, arising out of the object for which it has been created; and

(b) is notified by the Central Government in the Official Gazette for the purposes of this clause;

(46B) any income accruing or arising to,—

(i) National Credit Guarantee Trustee Company Limited, being a company established and wholly financed by the Central Government for the purposes of operating credit guarantee funds established and wholly financed by the Central Government; or

(ii) a credit guarantee fund established and wholly financed by the Central Government and managed by the National Credit Guarantee Trustee Company Limited; or

(iii) Credit Guarantee Fund Trust for Micro and Small Enterprises, being a trust created by the Government of India and the Small Industries Development Bank of India established under sub-section (1) of section 3 of the Small Industries Development Bank of India Act, 1989 (39 of 1989);]

(47) any income of an infrastructure debt fund, set up in accordance with the guidelines as may be prescribed, which is notified by the Central Government in the Official Gazette for the purposes of this clause;

(48) any income received in India in Indian currency by a foreign company on account of sale of crude oil, any other goods or rendering of services, as may be notified by the Central Government in this behalf, to any person in India:

Provided that—

(i) receipt of such income in India by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government;

(ii) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf; and

(iii) the foreign company is not engaged in any activity, other than

(48A) any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India:

Provided that—

(i) the storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and

(ii) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf;

(48B) any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil, if any, from the facility in India after the expiry of the agreement or the arrangement referred to in clause (48A) or on termination of the said agreement or the arrangement, in accordance with the terms mentioned therein, as the case may be, subject to such conditions as may be notified by the Central Government in this behalf;

(48C) any income accruing or arising to the Indian Strategic Petroleum Reserves Limited, being a wholly owned subsidiary of the Oil Industry Development Board under the Ministry of Petroleum and Natural Gas, as a result of arrangement for replenishment of crude oil stored in its storage facility in pursuance of directions of the Central Government in this behalf:

Provided that nothing contained in this clause shall apply to an arrangement, if the crude oil is not replenished in the storage facility within three years from the end of the financial year in which the crude oil was removed from the storage facility for the first time;

(48D) any income accruing or arising to an institution established for financing the infrastructure and development, set up under an Act of Parliament and notified by the Central Government for the purposes of this clause, for a period of ten consecutive assessment years beginning from the assessment year relevant to the previous year in which such institution is set up;

(48E) any income accruing or arising to a developmental financing institution, licensed by the Reserve Bank of India under an Act of the Parliament referred to in clause (48D) and notified by the Central Government for the purposes of this clause, for a period of five consecutive assessment years beginning from the assessment year relevant to the previous year in which the developmental financing institution is set up :

Provided that the Central Government may, by issuing notification under this clause, extend the period of exemption under this clause for a further period, not exceeding five more consecutive assessment years, subject to fulfilment of such conditions as may be specified in the said notification;

(49) [***]

(50) [any income arising from any–

(i) specified service provided on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016 (28 of 2016) comes into force; or

(ii) e-commerce supply or services made or provided or facilitated on or after the 1st day of April, 2020 but before the 1st day of August, 2024, and chargeable to Equalisation levy under that Chapter:]

Explanation 2.—For the purposes of this clause,—

(i) “e-commerce supply or services” shall have the meaning assigned to it in clause (cb) of section 164 of the Finance Act, 2016 (28 of 2016);

(ii) “specified service” shall have the meaning assigned to it in clause (i) of section 164 of the Finance Act, 2016 (28 of 2016).

Notes:

^19. 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.

^20. Item (I) renumbered as item (I)(a) by Act No. 15 of 2024, w.e.f. 1-4-2025.

^21. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.22. Sub. by Act No. 7 of 2025, w.e.f. 1-4-2025. Prior to its substitution, sub-item (b), as Ins. by Act No. 15 of 2024, w.e.f. 1-4-2025, read as under :

^22. Sub. by Act No. 7 of 2025, w.e.f. 1-4-2025. Prior to its substitution, sub-item (b), as Ins. by Act No. 15 of 2024, w.e.f. 1-4-2025, read as under :

“(b) which has been granted a certificate as a retail scheme or an Exchange Traded Fund, and is regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the International Financial Services Centres Authority Act, 2019 (50 of 2019) and satisfies such conditions, as may be prescribed;

^23. 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.

^24. Sub. by Act No. 08 of 2023, w.e.f. 1-4-2024.

^25. Italicised words shall be Ins. by Act No. 7 of 2025, w.e.f. 1-4-2026.

^26. 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.

^27. Clauses (4G) and (4H) sub. for clause (4G) by Act No. 08 of 2023, w.e.f. 1-4-2024.

^28. Ins. by Act. No. 7 of 2025, w.e.f. 1-4-2025.

^29. Sub. for “2026” by Act. No. 7 of 2025, w.e.f. 1-4-2025.

^30. Sub. for “2026” by Act. No. 7 of 2025, w.e.f. 1-4-2025. Prior to its substitution, Explanation read as under:

‘Explanation.—For the purposes of this clause, “aircraft” means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;’

^31. Words “or the Explanation to sub-section (2A) of section 88, as the case may be” omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

^32. Sub. for the sixth proviso by Act No. 08 of 2023, w.e.f. 1-4-2024.

^33. Sub. for the eighth proviso by Act No. 7 of 2025, w.e.f. 1-4-2025. Prior to its substitution, the eighth proviso read as under:

“Provided also that the provisions of the fourth, fifth, sixth and seventh provisos shall not apply to any sum received on the death of a person:”

^33a. Inserted by the Act No. 29 of 2025, w.e.f. 1-4-2025.

^34. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

^35. Ins. by Act No. 15 of 2024, w.e.f. 1-4-2025.

^36. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

^37. Omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

^38. Ins. by Act No. 15 of 2024, w.e.f. 1-10-2024.

^39. Sub. by Act No. 08 of 2023, w.e.f. 1-10-2023.

^40. Ins. by Act No. 15 of 2024, w.e.f. 1-10-2024.

^41. Ins. by Act No. 08 of 2023, w.e.f. 1-10-2023.

^42. Sub. by Act No. 08 of 2023, w.e.f. 1-10-2023.

^43. Word “and” omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

^44. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

^45. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

^46. Sub. for “furnished on or before” by Act No. 08 of 2023, w.e.f. 1-4-2023.

^47. Sub. for “attained finality.” by Act No. 08 of 2023, w.e.f. 1-4-2023.

^48. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

^49. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

^50. Sub. for “within the time allowed under that section” by Act No. 08 of 2023, w.e.f. 1-4-2023.

^51. Ins. by Act No. 15 of 2024, w.e.f. 1-10-2024.

^52. Omtt. by Act No. 08 of 2023 w.e.f. 1-4-2023.

⁵³–^54.Ins. by Act No. 15 of 2024, w.e.f. 1-4-2025.

^55. Ins. by Act No. 15 of 2024 w.e.f. 1-4-2025.

^56. Word “and” omtt. by Act No. 15 of 2024 w.e.f. 1-4-2025.

^57. Sub. for “or” by Act No. 15 of 2024 w.e.f. 1-4-2025.

^58. Ins. by Act No. 15 of 2024 w.e.f. 1-4-2025.

^59. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

^60. Ins. by Act No. 7 of 2025, w.e.f. 1-4-2025.

^61. Sub. for “2025” by Act No. 7 of 2025, w.e.f. 1-4-2025. Earlier “2025” was sub. for “2024” by Act No. 08 of 2024, w.e.f. 1-4-2024.

^62. Omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

^63. Sub. by Act No. 08 of 2023, w.e.f. 1-4-1990.

^64. Ins. by Act No. 15 of 2024, w.e.f. 1-10-2024.

^65. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

^66. Ins. by Act No. 7 of 2025, w.e.f. 1-4-2025.

^67. Sub. by Act No. 7 of 2025, w.e.f. 1-4-2025. Prior to its substitution, Explanation read as under:

‘Explanation.—For the purposes of this clause, “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);’

^68. Omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

^69. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

^70. Clauses (46A) and (46B) Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

^71. Omtt. by Act No. 08 of 2023, w.e.f. 1-4-2023.

^72. Sub. by Act No. 15 of 2024, w.r.e.f. 1-8-2024.

^73. Ins. by Act No. 7 of 2025, w.e.f. 1-4-2025.

*********

A.—Salaries

Section – 15

Salaries.

15. The following income shall be chargeable to income-tax under the head “Salaries”—

(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;

(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.

Explanation 1.—For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.

Explanation 2.—Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section.

********

Section – 16

Deductions from salaries.

16. The income chargeable under the head “Salaries” shall be computed after making the following deductions, namely :—

(i) [***]

(ia) a deduction of fifty thousand rupees or the amount of the salary, whichever is less:

[Provided that in a case where income-tax is computed under clause (ii) 6a[or clause (iii)] of sub-section (1A) of section 115BAC, the provisions of [Provided that in a case where income-tax is computed under clause (ii) [or clause (iii)] of sub-section (1A) of section 115BAC, the provisions of this clause shall have effect as if for the words “fifty thousand rupees”, the words “seventy-five thousand rupees” had been substituted;]

(ii) a deduction in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less;

(iii) a deduction of any sum paid by the assessee on account of a tax on employment within the meaning of clause (2) of article 276 of the Constitution, leviable by or under any law

(iv) [***]

(v) [***]

^6. Ins. by Act No. 15 of 2024, w.e.f. 1-4-2025.

^6a. Inserted by the Act No. 29 of 2025, w.e.f. 1-4-2025.

*******

Section – 17

“Salary”, “perquisite” and “profits in lieu of salary” defined.

17. For the purposes of sections 15 and 16 and of this section,—

(1) “salary” includes—

(i) wages;

(ii) any annuity or pension;

(iii) any gratuity;

(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;

(v) any advance of salary;

(va) any payment received by an employee in respect of any period of leave not availed of by him;

(vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule;

(vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; and

(viii) the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD;

⁷[(ix) the contribution made by the Central Government in the previous year, to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to in section 80CCH;]

(2) “perquisite” includes—

(i) the value of rent-free accommodation provided to the assessee by his employer [computed in such manner as may be prescribed];

⁹[(ii) the value of any accommodation provided to the assessee by his employer at a concessional rate.

Explanation.—For the purposes of this sub-clause, it is clarified that accommodation shall be deemed to have been provided at a concessional rate, if the value of accommodation computed in such manner as may be prescribed, exceeds the rent recoverable from, or payable by, the assessee;]

(iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases—

(a) by a company to an employee who is a director thereof;

(b) by a company to an employee being a person who has a substantial interest in the company;

(c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head “Salaries” (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds [fifty thousand rupees]:

Explanation.—For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause;

(iiia) [***]

(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee;

(v) any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), to effect an assurance on the life of the assessee or to effect a contract for an annuity;

(vi) the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.

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

(a) “specified security” means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees’ stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme;

(true of intellectual property rights or value additions, by whatever name called;

(c) the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from, the assessee in respect of such security or shares;

(d) “fair market value” means the value determined in accordance with the method as may be prescribed;

(e) “option” means a right but not an obligation granted to an employee to apply for the specified security or sweat equitb) “sweat equity shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nay shares at a predetermined price;

(vii) the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—

(a) in a recognised provident fund;

(b) in the scheme referred to in sub-section (1) of section 80CCD; and

(c) in an approved superannuation fund, to the extent it exceeds seven lakh and fifty thousand rupees in a previous year;

(viia) the annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme referred to in sub-clause (vii) to the extent it relates to the contribution referred to in the said sub-clause which is included in total income under the said sub-clause in any previous year computed in such manner as may be prescribed; and

(viii) the value of any other fringe benefit or amenity as may be prescribed:

Provided that nothing in this clause shall apply to,—

(i) the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer;

(ii) 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—

(a) in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees;

(b) in respect of the prescribed diseases or ailments, in any hospital approved by the Principal Chief Commissioner or Chief Commissioner having regard to the prescribed guidelines:

Provided that, in a case falling in sub-clause (b), the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital;

(c) in respect of any illness relating to COVID-19 subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(iii) any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved by the Central Government or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), for the purposes of clause (ib) of sub-section (1) of section 36;

(iv) any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any member of his family under any scheme approved by the Central Government or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), for the purposes of section 80D;

(v) [***]

(vi) any expenditure incurred by the employer on—

(1) medical treatment of the employee, or any member of the family of such employee, outside India;

(2) travel and stay abroad of the employee or any member of the family of such employee for medical treatment;

(3) travel and stay abroad of one attendant who accompanies the patient in connection with such treatment, subject to the condition that—

(A) the expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India; and

(B) the expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed [two lakh rupees];

(vii) any sum paid by the employer in respect of any expenditure actually incurred by the employee for any of the purposes specified in clause (vi) subject to the conditions specified in or under that clause :

Provided further that for the assessment year beginning on the 1st day of April, 2002, nothing contained in this clause shall apply to any employee whose income under the head “Salaries” (whether due from, or paid or allowed by, one or more employers) exclusive of the value of all perquisites not provided for by way of monetary payment, does not exceed one lakh rupees.

Explanation.—For the purposes of clause (2),—

(i) “hospital” includes a dispensary or a clinic or a nursing home;

(ii) “family”, in relation to an individual, shall have the same meaning as in clause (5) of section 10; and

(iii) “gross total income” shall have the same meaning as in clause (5) of section 80B;

(3) “profits in lieu of salary” includes—

(i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;

(ii) any payment (other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12), clause (13) or clause (13A) of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions or 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 sub-clause, the expression “Keyman insurance policy” shall have the meaning assigned to it in clause (10D) of section 10;

(iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any person—

(A) before his joining any employment with that person; or

(B) after cessation of his employment with that person.

Notes:

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

^8.by Act No. 08 of 2023, w.e.f. 1-4-2024.

^9.Sub, by Act No. 08 of 2023, w.e.f. 1-4-2024.

^10.Words “such amount as may be prescribed” shall be sub. for “fifty thousand rupees” by Act No. 7 of 2025, w.e.f. 1-4-2026.

^11.Words “such amount as may be prescribed” shall be sub. for “two lakh rupees” by Act No. 7 of 2025, w.e.f. 1-4-2026.

******

Section – 80CCH

⁸⁴[Deduction in respect of contribution to Agnipath Scheme.

80CCH. (1) Where an assessee, being an individual enrolled in the Agnipath Scheme and subscribing to the Agniveer Corpus Fund on or after the 1st day of November, 2022, has in the previous year paid or deposited any amount in his account in the said Fund, he shall be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited.

(2) Where the Central Government makes any contribution to the account of an assessee in the Agniveer Corpus Fund referred to in sub-section (1), the assessee shall be allowed a deduction in the computation of his total income of the whole of the amount so contributed.

Explanation.—For the purposes of this section,—

(a) “Agnipath Scheme” means the scheme for enrolment in Indian Armed Forces introduced vide letter No. 1(23)2022/D(Pay/Services), dated the 29th December, 2022 of the Government of India in the Ministry of Defence;

(b) “Agniveer Corpus Fund” means a fund in which consolidated contributions of all the Agniveers and matching contributions of the Central Government along with interest on both these contributions are held.]

Note:

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

*******

Section – 89

B.—Relief for income-tax

Relief when salary, etc., is paid in arrears or in advance.

89. Where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than twelve months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the Explanation to clause (iia) of section 57, being paid in arrears, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant such relief as may be prescribed:

Provided that no such relief shall be granted in respect of any amount received or receivable by an assessee on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i) of clause (10C) of section 10, a scheme of voluntary separation, if an exemption in respect of any amount received or receivable on such voluntary retirement or termination of his service or voluntary separation has been claimed by the assessee under clause (10C) of section 10 in respect of such, or any other, assessment year.

*********

Income-tax Rules, 1962

Rule – 2A

PART II

DETERMINATION OF INCOME

A.—Salaries

Limits for the purposes of section 10(13A).

2A. The amount which is not to be included in the total income of an assessee in respect of the special allowance referred to in clause (13A) of section 10 shall be—

(a) the actual amount of such allowance received by the assessee in respect of the relevant period; or

(b) the amount by which the expenditure actually incurred by the assessee in payment of rent in respect of residential accommodation occupied by him exceeds one-tenth of the amount of salary due to the assessee in respect of the relevant period; or

(c) an amount equal to—

(i) where such accommodation is situate at Bombay, Calcutta, Delhi or Madras, one-half of the amount of salary due to the assessee in respect of the relevant period; and

(ii) where such accommodation is situate at any other place, two-fifth of the amount of salary due to the assessee in respect of the relevant period,

(d) [***]

whichever is the least

Explanation.—In this rule—

(i) “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;

(ii) “relevant period” means the period during which the said accommodation was occupied by the assessee during the previous year.

(iii) [***]

*******

Rule – 2B

Conditions for the purpose of section 10(5).

2B. (1) The amount exempted under clause (5) of section 10 in respect of the value of travel concession or assistance received by or due to the individual from his employer or former employer for himself and his family, in connection with his proceeding,—

(a) on leave to any place in India;

(b) to any place in India after retirement from service or after the termination of his service

shall be the amount actually incurred on the performance of such travel subject to the following conditions, namely :—

(i) where the journey is performed on or after the 1st day of October, 1997, by air, an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination;

(ii) where places of origin of journey and destination are connected by rail and the journey is performed on or after the 1st day of October, 1997, by any mode of transport other than by air, an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and

(iii) where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed on or after the 1st day of October, 1997, between such places, the amount eligible for exemption shall be :—

(A) where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and

(B) where no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.

¹[(1A) For the assessment year beginning on the 1st day of April, 2021, where the individual referred to in sub-rule (1) avails any cash allowance from his employer in lieu of any travel concession or assistance, the amount exempted under the second proviso to clause (5) of section 10 shall be the amount, not exceeding thirty-six thousand rupees per person, for the individual and the member of his family, or one-third of the specified expenditure, whichever is less, subject to fulfilment of the following conditions, namely:—

(i) the individual has exercised an option to avail exemption under the second proviso of clause (5) of section 10, in lieu of the exemption under clause (5) of section 10 in respect of one unutilised journey during the block of four calendar years commencing from the calendar year 2018;

(ii) the payment in respect of the specified expenditure is made by the individual or any member of his family to a registered person during the specified period;

(iii) the payment in respect of the specified expenditure is made by an account payee cheque drawn on a bank or account payee bank draft, or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA; and

(iv) the individual obtains a tax invoice in respect of specified expenditure from the registered person referred to in clause (ii).

Explanation 1.—For the purpose of this sub-rule,—

(i) ‘tax invoice’ means an invoice issued by the registered person under section 31 of the Central Goods and Services Tax Act, 2017 (12 of 2017);

(ii) ‘registered person’ shall have the meaning assigned to it in clause (94) of section 2 of the Central Goods and Services Tax Act, 2017 (12 of 2017);

(iii) ‘specified expenditure’ means expenditure incurred by an individual or a member of his family during specified period on goods or services, which are liable to tax at an aggregate rate of twelve per cent or above under various Goods and Services Tax (GST) laws and goods are purchased or services procured from GST registered vendors or service providers;

(iv) ‘specified period’ means the period commencing from the 12th day of October, 2020 and ending on the 31st day of March, 2021.

Explanation 2.—For the removal of doubt, it is hereby clarified that if the amount received by or due to an individual, as per the terms of his employment, from his employer in relation to himself and member of his family, in connection with the specified expenditure is in excess of the thirty six thousand rupees per person, for the individual and the member of his family, the exemption under this sub-rule would be restricted to thirty-six thousand rupees per person, for the individual and the member of his family, or one-third of the specified expenditure, whichever is less.

Explanation 3.—It is hereby clarified that the clarification issued by the Department of Expenditure, Ministry of Finance, vide OM F. No. 12(2)/2020-EII (A) dated 12th October, 2020 and any subsequent clarifications, if any, issued in this regard shall apply mutatis mutandis to the exemption under this sub-rule.

(1B) Where an exemption under the second proviso to clause (5) of section 10 is claimed and allowed, sub-rule (2) shall have effect as if for the words “two journeys”, the words “one journey” has been substituted.]

(2) The exemption referred to in sub-rule (1) shall be available to an individual in respect of two journeys performed in a block of four calendar years commencing from the calendar year 1986 :

Provided that nothing contained in this sub-rule shall apply to the benefit already availed of by the assessee in respect of any number of journeys performed before the 1st day of April, 1989 except to the extent that the journey or journeys so performed shall be taken into account for computing the limit of two journeys specified in this sub-rule.

(3) Where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, an amount in respect of the value of the travel concession or assistance, if any, first availed of by the individual during first calendar year of the immediately succeeding block of four calendar years shall be eligible for exemption.

Explanation.— The amount in respect of the value of the travel concession or assistance referred to in this sub-rule shall not be taken into account in deter-mining the eligibility of the amount in respect of the value of the travel concession or assistance in relation to the number of journeys under sub-rule (2).

(4) The exemption referred to in sub-rule (1) shall not be available to more than two surviving children of an individual after 1st October, 1998 :

Provided that this sub-rule shall not apply in respect of children born before 1st October, 1998, and also in case of multiple births after one child.

*******

Rule – 2BA

Guidelines for the purposes of section 10(10C).

2BA. The amount received by an employee of—

(i) a public sector company; or

(ii) any other company; or

(iii) an authority established under a Central, State or Provincial Act; or

(iv) a local authority; or

(v) a co-operative society; or

(vi) a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or

(vii) an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961); or

(viia) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette, specify in this behalf; or

(viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf, at the time of his voluntary retirement or voluntary separation shall be exempt under clause (10C) of section 10 only if the scheme of voluntary retirement framed by the aforesaid company or authority or co-operative society or University or institute, as the case may be or if the scheme of voluntary separation framed by a public sector company, is in accordance with the following requirements, namely :—

(i) it applies to an employee who has completed 10 years of service or completed 40 years of age;

(ii) it applies to all employees (by whatever name called) including workers and executives of a company or of an authority or of a co-operative society, as the case may be, excepting directors of a company or of a co-operative society;

(iii) the scheme of voluntary retirement or voluntary separation has been drawn to result in overall reduction in the existing strength of the employees;

(iv) the vacancy caused by the voluntary retirement or voluntary separation is not to be filled up;

(v) the retiring employee of a company shall not be employed in another company or concern belonging to the same management;

(vi) the amount receivable on account of voluntary retirement or voluntary separation of the employee does not exceed the amount equivalent to three months’ salary for each completed year of service or salary at the time of retirement multiplied by the balance months of service left before the date of his retirement on superannuation

Provided that requirement of (i) above would not be applicable in case of amount received by an employee of a public sector company under the scheme of voluntary separation framed by such public sector company.

Explanation.—In this rule, the expression “salary” shall have the same meaning as is assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule.

********

Rule – 2BB

Prescribed allowances for the purposes of clause (14) of section 10.

2BB. (1) For the purposes of sub-clause (i) of clause (14) of section 10, prescribed allowances, by whatever name called, shall be the following, namely :—

(a) any allowance granted to meet the cost of travel on tour or on transfer;

(b) any allowance, whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

(c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit :

Provided that free conveyance is not provided by the employer;

(d) any allowance granted to meet the expenditure incurred on a helper where such helper is engaged for the performance of the duties of an office or employment of profit;

(e) any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions;

(f) any allowance granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.

Explanation.—For the purpose of clause (a), “allowance granted to meet the cost of travel on transfer” includes any sum paid in connection with transfer, packing and transportation of personal effects on such transfer.

(2) For the purposes of sub-clause (ii) of clause (14) of section 10, the prescribed allowances, by whatever name called, and the extent thereof shall be the following, namely :—

Sl. No.	Name of allowance	Place at which allowance is exempt	Extent to which allowance is exempt
(1)	(2)	(3)	(4)
1	Any Special Compensatory Allowance in the nature of Special Compensatory (Hilly Areas) Allowance or High Altitude Allowance or Uncongenial Climate Allowance or Snow Bound Area Allowance or Avalanche Allowance	I. (a) Manipur Mollan/RH-2365. (b) Arunachal Pradesh (i) Kameng; (ii) North Eastern Arunachal Pradesh where heights are 9,000 ft. and above; (iii) Areas east or west of Siang and Subansiri sectors (c) Sikkim (i) Area North-NE-East of line Chhaten LR 0105, Launchung LR 1902, pt. 4326 LW 1790, pt. 4549 LW 1479, pt. 3601 LW 1471 to mile 13 LW 1367 to Berluk LW 2253. (ii) All other areas at 9,000 ft. and above. (d) Uttar Pradesh Areas of Harsil, Mana and Malari Sub-divisions and other areas of heights at 9,000 ft. and above. (e) Himachal Pradesh (i) All areas at 9,000 ft. and above ahead of line joining Puhkaja-kunzomla towards the bower. (ii) Area ahead of line joining Karchham and Shigrila to—wards the bower. (iii) All areas in Kalpa, Spiti, Lahaul and Tisa. (f) Jammu and Kashmir (i) All areas from NR 396950 to NR 350850, NR 370790, NR 311776 North of Shaikhra Village, North of Pindi Village to NR 240800. (ii) Areas of Doda, Sank and other posts located in areas at a height of 9,000 ft. and above. (iii) North of line Kud-Dudu and Bastt-garh, Bilwar, Batote and Patnitop. (iv) All areas ahead of Zojila served by Road Srinagar-Zojila-Leh in Leh District. (v) Gulmarg – All areas forward of line joining Anita Linyan 3309 – Kaunrali – 2407. (vi) Uri South – All areas forward of Kaunrali – Kandi 1810 Kustam 1505 – Sebasantra 1006 Changez 0507 – Jak 19904 Keekar 9704 Jamun 9607 Neeta 9508. (vii) BAAZ Kaiyan Bowl – All areas forward of Dulurja 9712-BAAZ 0317 – Shamsher 0416 including New Shamsher 0615 – Zorawar 1017 – Malaugan Base 1027 – Radha 0836 to Nastachun Pass 9847. (viii) Tangdhar – All areas west of Nastachun Pass Tangdhar Bowl and on Shamshabari Range and forward of it. (ix) Karan and Machhal sub-sectors – All areas along the line Pharkiangali 0869 to Z Gali 4376 and forward of Sham-Sabari Range. (x) Panzgam, Tregay and Drumful. II. Siachen area of Jammu and Kashmir III. All places located at a height of 1,000 metros or more above the sea level, other than places specified at (I) and (II) above.	Rs. 800 per month Rs. 7,000 per month Rs. 300 per month
2.	Any Special Compensatory Allowance in the nature of Border Area Allowance, Remote Locality Allowance or Difficult Area Allowance or Disturbed Area Allowance	I. (a) Little Andaman, Nicobar Rs. 1,300 per and Narcondum Islands; (b) North and Middle Andamans; (c) Throughout Lakshadweep and Minicoy Islands; (d) All places on or north of the following demarcation line: Point 14600 (2881) to Sala MS 2686-Matau MS 6777 – Sakong MT 1379-BamongKhonawa MO 2803 – Nyapin MO 7525 – River Khru to its junction with the river Kamla MP – 2226 – Taliha – Yapuik MK 7410 – Gshong MK 9749 – Yinki Yong NF 4324-Damoroh MF 6208 – Ahinkolin NF 8811 – Kronli MG 2407 – Hanli NM 4096 – Gurongon NM 4592-Loon NM 7579 – Mayuliang NM 0169-Chawah NM 9943 – Kamphu NM 1125 – Point 6490 (NM 1493) Vijayanagar NSA 486; (e) Following areas in Himachal Pradesh : (i) Pangi Tehsil of Chamba District; (ii) Following Panchayats and villages of Bharmour Tehsil of Chamba District : (A) Panchayat : Badgaun, Bajol, Deol Kugti Nayagam and Tundah. (B) Villages : Ghatu of Gram Panchayat Jagat Kanarsi of Gram Panchayat, Cauhata. (iii) Lahaul and Spiti District; (iv) Kinnaur district: (A) Asrang, Chitkul and Hango Kuno Charang Panchayats; (B) 15/20 Area comprising the Gram Panchayats of Chhota Khamba, Nathpa and Rupi; (C) Pooh Sub-Division excluding the Panchayat Areas specified above. (v) 15/20 Area of Rampur Tehsil comprising of Panchayats of Koot, Labana-Sadana, Sarpara and Chandi Branda of Shimla District. (vi) 15/20 Area of Nirmand Tehsil, comprising the Gram Panchayats of Kharga, Kushwar and Sarga of Kullu District. (f) Chimptuipui District of Mizoram and areas beyond 25 km. from Lunglei town in Lunglei District of Mizoram. (g) Following areas in Jammu and Kashmir: (i) Niabat Bani, Lohi, Malhar and Macchodi of Kathua District; (ii) Dudu Basantgarh Lander Bhamag Illaqa, Thakrakote and Nagote of Udhampur District; (iii) All areas in Tehsil Mahore except those specified at III(f )(i)below in Udhampur District; (iv) Illaqas of Padder and Niabat Nowgaon in Kishtwar Tehsil of Doda District; (v) Leh District; (vi) Entire Gurez – Niabat, Tangdhar Sub-Division and Keran Illaqa of Baramulla District. (h) Following areas of Uttar Pradesh :— (i) Chamoli District; (ii) Pithoragarh District; (iii) Uttarkashi District. (i) Throughout Sikkim State. Rs. 1,300 per month II. Installations in the Continent Shelf of India and the Exclusive Economic Zone of India. III. (a) Throughout Arunachal Pradesh other than areas covered by those specified at I(d) above. (b) Throughout Nagaland State. (c) South Andaman (including Port Blair). (d) Throughout Lunglei District (excluding areas beyond 25 km. from Lunglei town) of Mizoram. (e) Dharmanagar, Kailasahar, Amarpur and Khowai in Tripura. (f) Following areas in Jammu and Kashmir : (i) Areas up to Goel from Kamban side and areas upto Arnas from Keasi side in Tehsil Mahore of Udhampur District; (ii) Matchill in Baramulla District. (g) Following areas in Himachal Pradesh : (i) Bharmour Tehsil, excluding Panchayats and villages covered by those specified at I(e)(ii) above of Chamba District; (ii) Chhota Bhangal and Bara Bhangal area of Kangra District; (iii) Kinnaur District other than areas specified at I(e)(iv); (iv) Dodra – Kawar Tehsil, Gram Panchayats of Darkali in Rampur, Kashapath Tehsil and Munish, Ghori Chaibis of Pargana Sarahan of Shimla District. IV. (a) Throughout Aizawal District of Mizoram; (b) Throughout Tripura except areas those specified at III(e); (c) Throughout Manipur; (d) Following areas of Himachal Pradesh : (i) Jhandru Panchayat in Bhatiyat Tehsil, Churah Tehsil, Dalhousie Town (including Banikhet proper) of Chamba District; (ii) Outer Seraj (excluding Village of Jakat Khana and Burow in Nirmand Tehsil of Kullu District); (iii) Following areas of Mandi District : (A) Chhuhar Valley (Jogindernagar Tehsil); (B) Bagram, Chhatri, Choudhary, Garagushain, Gatos, Gharials, Janjehli, Jaryar, Johar Kalhani Kalwan, Kholanal, Loth, Silibagi, Somachan, Thachdhar, Tachi and Thana Panchayats of Thunag Tehsil; (C) Binga, Kamlah, Saklana, Tanyar and Tarakholah, Panchayats of Dharampur Block; (D) Baridhara, Bagram, Gopalpur, Kholo, Mahog, Mehudi, Manj, Pekhi, Sainj, Sarahan and Teban, Panchayats of Karsog Tehsil; (E) Bohi, Batwara, Dhanyara, Paura-Kothi, Seri and Shoja, Panchayats of Sundernagar Tehsil. (iv) Following areas and offices of Kangra District: (A) Dharamshala town and Women’s ITI; Dari, Mechanical Workshop, Ramnagar; Child Welfare and Town Country Planning Offices, Sakoh; CRSF Office at lower Sakoh; Kangra Milk Supply Scheme, Shamnagar; Tea Factory, Dari; Forest Corporation Office, Shamnagar; Tea Factory, Dari; Settlement Office, Shamnagar and Binwa Project, Shamnagar. Offices located outside the Municipal limit of Dharamshala town but included in Dharamshala town for purposes of eligibility to special Compensatory (Remote Locality) Allowance; (B) Palampur town, including HPKVV Campus at Palampur and H.P. Krishi Vishvavidyalaya Campus; Cattle Development Office/ Jersy Farm, Banuri; Sericulture Office/Indo-German Agriculture Workshop/HPPWD Division, Bundla; Electrical Sub-Division, Lohna; D.P.O. Corporation, Bundla and Electrical HPSEE Division, Ghuggar offices located outside the Municipal limits of Palampur town but included in Palampur town for the purpose of above allowance; (v) Chopal Tehsil; Ghoris, Panjgaon, Patsnu, Naubis and Teen Koti of Pargana Sarahan; Deothi Gram Panchayat of Taklesh Area; Pargana Barabis; Kasba Rampur and Ghori Nog of Pargana Rampur of Rampur Tehsil of Shimla District and Shimla Town and its suburbs (Dhalli, Jatog, Kasumpti, Mashobra, Taradevi and Tutu); (vi) Panchayats of Bani, Bakhali (Pachhad Tehsil), Bharog Bheneri (Paonata Tehsil), Birla (Nahan Tehsil), Dibber (Pachhad Tehsil) of Thanan Kasoga (Nahan Tehsil) in Sirmour District and Transgiri Tract of Sirmour District; (vii) Mangal Panchayat of Solan District; (e) Following areas in Jammu and Kashmir : (i) Areas in Poonch and Rajouri Districts excluding the towns of Poonch and Rajouri and Sunderbani and other Urban areas in the two districts; (f) Following areas in Jammu and Kashmir : Areas not included in I(g), III(f) and IV(e) above, but which are within a distance of 8 km. from the line of actual control or at places which may be declared as qualifying for Border Allowance from time to time by the State Government for their own staff. Rs. 750 per month V. Jog Falls in Shimoga District in Karnataka. VI. (a) Throughout the State of Himachal Pradesh other than areas covered by those specified in I(e), III(g) and IV(d) (b) Throughout the State of Assam and Meghalaya	RRs. 1,300 per months. 1,300 per month Rs. 1,100 per month Rs. 1,050 per month
3	Special Compensatory (Tribal Areas/Schedule Areas/Agency Areas) Allowance	(a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa	Rs. 200 per month.
4	Any allowance granted to an employee working in any transport system to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place, provided that such employee is not in receipt of daily allowance	Whole of India	70 per cent of such allowance up to a maximum of Rs. 10,000 per month.
5	Children Education Allowance	Whole of India	Rs. 100 per month per child up to a maximum of two children.
6	Any allowance granted to an employee to meet the hostel expenditure on his child	Whole of India	Rs. 300 per month per child up to a maximum of two children.
7	Compensatory Field Area Allowance	(a) Following areas in Arunachal Pradesh :— (i) Tirap and Changeling Districts; (ii) All areas North of line joining point 4448 in LZ 4179-Nukme Dong MS 3272-Sepla MT 2969-Palin MO 9213-Daporijo NR 5841-Along NL 1273-Hunli NM 3196- Tidding Tuwi MT 6369-Hayuliang NN 0170-Tawaken MT 8136-Champai Bun NM 8814, all inclusive. (b) Throughout Manipur and Nagaland. (c) Following areas in Sikkim :— All areas North and North East of line joining Phalut LV 4750-Gezing LV 7059-Mangkha LV 6160-Penlang La LW 0666-Rangli LW 1448-BP 1 in LW 2453 on Indo-Bhutan Border, all inclusive. (d) Following areas in Himachal Pradesh : All areas East of line joining Umasila NV 3951-Udaipur NY 8663-Manikaran SB 2300-Pir Parbati Pass TA 1459-Taranda TA 2335-Barasua Pass TA 8801, all inclusive. (e) Following areas in Uttar Pradesh :— All areas North and North-East of line joining Barasua Pass Gangnani TG 1362-Govind Ghat TG 0937-Tapovan TH 1822-Musiari TN 8982-Relagad TO 2466, all inclusive. (f) Following areas in Jammu and Kashmir :— (i) Areas North and East of line joining Zojila MU 3036-Baralachala NE 6672 along the Great Himalayan Range, all inclusive; (ii) All areas West of line joining point 1556 in NR 5470-Gulmarg MT 3105-Naushara MY 3105-Ringapat MT 2133-Handwara MT 2043-Laingyal MT 2339-Point 8405 in NG 4565-North of line joining point 8403-Bunakut MT 5453-Razan NN 2239- Zojila, all inclusive; (iii) All areas West of line joining tip of Chicken Neck RD 7073-Canal junction RD 6364-Mawa Brahmana RD 6183-Chauki RD 6393-Road junction RD 6499- Baramgala MY 3854-Point 1556 in NR 5470, allinclusive.	Rs. 2,600 per month.
8	Compensatory Modified Field Area Allowance	a) Following areas in Punjab and Rajasthan :— Areas West of line joining Jessai, Barmer, Jaisalmer, Pokhran, Udasar, Mahajan Ranges, Suratgarh, Lalgarh, Jattan, Abohar, Govindgarh, Fazilka, Jandiala Guru, Moga, Dholewal,Deas, Bir Sarangwal, Hussainiwala, Dera Baba Nanak, Aliasing pulge upto the international border, all inclusive. (b) Following area in Haryana :— Satrod (Hissar). (c) Following areas in Himachal Pradesh :— Areas North of line joining Narkhanda, Key long up to Field Area line/High Altitude line. (d) Following areas in Arunachal Pradesh and Assam :— (i) Cachar and North Cachar Districts of Assam including Silchar; (ii) All areas of Arunachal Pradesh and Assam North of river Brahmaputra except Tejpur- Misamari and Field Areas. (e) Throughout Mizoram and Tripura. (f) Following areas in Sikkim and West Bengal :— Areas Northwards of line joining Sevoke LV 9112-Burdong LV 985-Sherwani LV 9453 -Bagrakot LW 0113-Damdim LW 1109-New Mal- Hasimara-QB 7894 Ganga Ram Tea Estate QA 1377 up to the High Altitude line/field area line/international border, all inclusive. (g) Following areas in Uttar Pradesh :— Areas North of line joining Uttarkashi, Karan Prayag, Gauchar, Joshimath, Chamoli, Rudra Prayag, Askote, Charamgad, Dharchula, Kausani and Narendra Nagar up to international border, all inclusive. (h) Following areas in Jammu and Kashmir :— i) Areas West of line joining Pattan, Baramulla, Kupwara, Drugmula, Panges, Mankes,Buniyar, Pantha Chowk, Khanabal, Anantnag, Khundru and Khru up to the existing High altitude line, all inclusive; (ii) Areas West of line joining – BP-19, Brahmanadi- Bari, Jindra, Dhansal, Katra, Sanjhi Chatt, Batote, Patnitop, Ramban and Banihal up to the existing High altitude line, all inclusive.	Rs. 1,000 per month
9	Any special allowance in the nature of counter-insurgency allowance granted to the members of armed forces operating in areas away from their permanent locations	Any special allowance in the nature of counter-insurgency allowance granted to the members of armed forces operating in areas away from their permanent locations	Rs. 3,900 per month.
10	[***] 1a		[Rs. 3,200 per month]3
11	Transport allowance granted to an employee, who is blind [or deaf and dumb]or orthopedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty	Whole of India	Rs. 800 per month.
12	Underground allowance granted to an employee who is working in uncongenial, unnatural climate in underground mines	Whole of India	Rs. 1,060 per month.
13	Any special allowance in the nature of high altitude(uncongenial climate) allowance granted to the member of the armed forces operating in high-altitude areas	(a) For altitude of 9,000 to 15,000 feet (b) For altitude above 15,000 feet	Rs. 1,600 per month.
14	Any special allowance granted to the members of the armed forces in the nature of special compensatory highly active field area allowance	Whole of India	Rs. 4,200 per month.
15	Any special allowance granted to the member of the armed forces in the nature of Island (duty)allowance	Andaman & Nicobar and Lakshadweep Group of Islands	Rs. 3,250 per month:

Provided further that any assessee claiming exemption in respect of the allowance mentioned at serial number 9 shall not be entitled to the exemption in respect of disturbed area allowance referred to at serial number 2.

⁴[(3) Notwithstanding anything contained in sub-rules (1) and (2), an employee, being an assessee,—

(i) who has exercised option under sub-section (5) of section 115BAC; or

(ii) whose income is chargeable to tax under sub-section (1A) of section 115BAC,

shall be entitled to exemption only in respect of the allowances mentioned in sub-clauses (a) to (c) of sub-rule (1) and at serial No. 11 of the Table below sub rule (2) to the extent and subject to the conditions, if any, specified therein.]

Notes:

^21a. Omitted by the IT (Third Amdt.) Rules, 2018, w.e.f. 1-4-2019 and shall apply to the assessment year 2019-2020 and subsequent assessment years.

^2. Inserted by the IT (Thirteenth Amdt.) Rules, 2015, w.e.f. 23-9-2015.

^3. Substituted for “Rs. 1,600 per month” by the IT (Sixth Amd.) Rules, 2015, w.e.f. 1-4-2015.

^4. Substituted by the IT (Tenth Amd.) Rules, 2023, w.e.f. 21-6-2023.

******

Rule – 3

Valuation of perquisites.

3. For the purpose of computing the income chargeable under the head “Salaries”, the value of perquisites provided by the employer directly or indirectly to the assessee (hereinafter referred to as employee) or to any member of his household by reason of his employment shall be determined in accordance with the following sub-rules, namely:—

21[(1) The value of residential accommodation provided by the employer, for the purpose of sub-clauses (i) and (ii) of sub-section (2) of section 17, during the previous year shall be determined on the basis provided in the Table I given below:

TABLE I

Sl. No.	Circumstances	Where accommodation is unfurnished	Where accommodation is furnished
(1)	(2)	(3)	(4)
(1)	Where the accommodation is provided by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State.	License fee determined by the Central Government or any State Government in respect of accommodation in accordance with the rules framed by such Government as reduced by the rent actually paid by the employee.	The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(2)	Where the accommodation is provided by any other employer and— (a) where the accommodation is owned by the employer, or	(i) 10% of salary in cities having population exceeding 40 lakhs as per 2011 census; (ii) 7.5% of salary in cities having population exceeding 15 lakhs but not exceeding 40 lakhs as per 2011 census; (iii) 5% of salary in other areas, in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee.	The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
	(b) where the accommodation is taken on lease or rent by the employer.	Actual amount of lease rental paid or payable by the employer or 10% of salary, whichever is lower, as reduced by the rent, if any, actually paid by the employee.	The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerator’s, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(3)	Where the accommodation is provided by the employer specified in serial number (1) or (2) in a hotel (except where the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to another).	Not applicable.	24% of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, which is lower, for the period during which such accommodation is provided as reduced by the rent, if any, actually paid or payable by the employee:

Provided that nothing contained in this sub-rule shall apply to any accommodation temporarily provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site, or a dam site or a power generation site or an off-shore site—

(i) which, having plinth area not exceeding 1000 square feet, is located not less than eight kilometres away from the local limits of any municipality or a cantonment board; or

(ii) which is located in a remote are

Provided further that where on account of his transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding ninety days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the Table:

Provided also that where the accommodation is owned ²²[or taken on lease or rent] by the employer and the same accommodation is continued to be provided to the same employee for more than one previous year, the amount calculated in accordance with Sl. No. 2(a) or 2(b) shall not exceed the amount so calculated for the first previous year, as multiplied by the amount which is a ratio of the Cost Inflation Index for the previous year for which the amount is calculated and the Cost Inflation Index for the previous year in which the accommodation was initially provided to the employee.

Explanation 1.—For the purposes of this sub-rule, where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government,—

(i) the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and

(ii) the value of perquisite of such an accommodation shall be the amount calculated in accordance with Sl. No. (2)(a) of Table I, as if the accommodation is owned by the employer.

Explanation 2.—For the purposes of third proviso,—

(i) “Cost Inflation Index” means the index notified by the Central Government in Official Gazette under clause (v) of Explanation to section 48;

(ii) “first previous year” means the previous year 2023-2024, or the previous year in which the accommodation was provided to the employee, whichever is later.]

(2)(A) The value of perquisite by way of use of motor car to an employee by an employer shall be determined in accordance with the following Table, namely:—

TABLE II

VALUE OF PERQUISITE PER CALENDAR MONTH

Sl. No.	Circumstances	Where cubic capacity of engine does not exceed 1.6 liters	Where cubic capacity of engine exceeds 1.6 liters
(1)	(2)	(3)	(4)
(1)	Where the motor car is owned or hired by the employer and— (a) is used wholly and exclusively in the performance of his official duties; (b) is used exclusively for the private or personal purposes of the employee or any member of his household and the running and maintenance expenses are met or reimbursed by the employer. (c) is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and — (i) the expenses on maintenance and running are met or reimbursed by the employer; (ii) the expenses on running and maintenance for private or personal use are fully met by the assessee.	No value: Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer. Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use. Rs. 1,800 (plus Rs. 900, if chauffeur is also provided to run the motor car) Rs. 600 (plus Rs. 900, if chauffeur is also provided by the employer to run the motor car)	No value: Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer. Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by an amount charged from the employee for such use. Rs. 2,400 (plus Rs. 900, if chauffeur is also provided to run the motor car) Rs. 900 (plus Rs. 900, if chauffeur is also provided to run the motor car)
(2)	Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer and— (i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes; (ii) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee or any member of his household.	No value: Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer. Subject to the provisions of clause (B) of this sub rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.	No value: Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer. Subject to the provisions of clause (B) of this sub rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.
(3)	Where the employee owns any other automotive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer and (i)such reimbursement is for the use of the vehicle wholly and exclusively for official purposes; (ii) such reimbursement is for the use of vehicle partly for official purposes and partly for personal or private purposes of the employee.	No value : Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer. Subject to the provisions of clause (B) of this sub rule, the actual amount of expenditure incurred by the employer as reduced by the amount of Rs. 900.	Not applicable :

Provided that where one or more motor-cars are owned or hired by the employer and the employee or any member of his household are allowed the use of such motor-car or all of any of such motor-cars (otherwise than wholly and exclusively in the performance of his duties), the value of perquisite shall be the amount calculated in respect of one car in accordance with Sl. No. (1)(c)(i) of Table II as if the employee had been provided one motor-car for use partly in the performance of his duties and partly for his private or personal purposes and the amount calculated in respect of the other car or cars in accordance with Sl. No. (1)(b) of Table II as if he had been provided with such car exclusively for his private or personal purposes.

(B) Where the employer or the employee claims that the motor-car is used wholly and exclusively in the performance of official duty or that the actual expenses on the running and maintenance of the motor-car owned by the employee for official purposes is more than the amounts deductible in Sl. No. 2(ii) or 3(ii) of Table II, he may claim a higher amount attributable to such official use and the value of perquisite in such a case shall be the actual amount of charges met or reimbursed by the employer as reduced by such higher amount attributable to official use of the vehicle provided that the following conditions are fulfilled :—

(a) the employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon;

(b) the employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.

Explanation.—For the purposes of this sub-rule, the normal wear and tear of a motor-car shall be taken at 10 per cent per annum of the actual cost of the motor-car or cars.

(3) The value of benefit to the employee or any member of his household resulting from the provision by the employer of services of a sweeper, a gardener, a watchman or a personal attendant, shall be the actual cost to the employer. The actual cost in such a case shall be the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services.

(4) The value of the benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption shall be determined as the sum equal to the amount paid on that account by the employer to the agency supplying the gas, electric energy or water. Where such supply is made from resources owned by the employer, without purchasing them from any other outside agency, the value of perquisite would be the manufacturing cost per unit incurred by the employer. Where the employee is paying any amount in respect of such services, the amount so paid shall be deducted from the value so arrived at.

(5) The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be determined as the sum equal to the amount of expenditure incurred by the employer in that behalf or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees’ household are allowed in any other educational institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered :

Provided that where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, nothing contained in this sub-rule shall apply if the cost of such education or the value of such benefit per child does not exceed one thousand rupees per month.

(6) The value of any benefit or amenity resulting from the provision by an employer who is engaged in the carriage of passengers or goods, to any employee or to any member of his household for personal or private journey free of cost or at concessional fare, in any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity :

Provided that nothing contained in this sub-rule shall apply to the employees of an airline or the railways.

(7) In terms of provisions contained in sub-clause (viii) of clause (2) of section 17, the following other benefits or amenities and value thereof shall be determined in the manner provided hereunder:

(i) The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the interest computed at the rate charged per annum by the State Bank of India, constituted under the State Bank of India Act, 1955 (23 of 1955), as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household:

Provided that no value would be charged if such loans are made available for medical treatment in respect of diseases specified in rule 3A of these Rules or where the amount of loans are petty not exceeding in the aggregate twenty thousand rupees:

Provided further that where the benefit relates to the loans made available for medical treatment referred to above, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.

(ii) The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household, other than concession or assistance referred to in rule 2B of these rules, shall be determined as the sum equal to the amount of the expenditure incurred by such employer in that behalf. 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. Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying him, the amount of expenditure so incurred shall also be a fringe benefit or amenity:

Provided that where any official tour is extended as a vacation, the value of such fringe benefit shall be limited to the expenses incurred in relation to such extended period of stay or vacation. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

(iii) The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:

Provided that nothing contained in this clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof in either case does not exceed fifty rupees per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation:

²³[Provided further that the provisions of the first proviso in respect of free food and non-alcoholic beverage provided by the employer through paid voucher shall not apply to an employee, being an assessee, who has exercised an option under sub-section (5) of section 115BAC or whose income is chargeable to tax under sub-section (1A) of section 115BAC.]

(iv) The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise from the employer shall be determined as the sum equal to the amount of such gift:

Provided that where the value of such gift, voucher or token, as the case may be, is below five thousand rupees in the aggregate during the previous year, the value of perquisite shall be taken as “nil“.

(v) The amount of expenses including membership fees and annual fees incurred by the employee or any member of his household, which is charged to a credit card (including any add-on-card) provided by the employer, or otherwise, paid for or reimbursed by such employer shall be taken to be the value of perquisite chargeable to tax as reduced by the amount, if any paid or recovered from the employee for such benefit or amenity:

Provided that there shall be no value of such benefit where expenses are incurred wholly and exclusively for official purposes and the following conditions are fulfilled:—

(a) complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure and the nature of expenditure;

(b) the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

(vi) (A) The value of benefit to the employee resulting from the payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by him or by a member of his household shall be determined to be the actual amount of expenditure incurred or reimbursed by such employer on that account. The amount so determined shall be reduced by the amount, if any paid or recovered from the employee for such benefit or amenity:

Provided that where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership.

(B) Nothing contained in this clause shall apply if such expenditure is incurred wholly and exclusively for business purposes and the following conditions are fulfilled:—

(a) complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure, the nature of expenditure and its business expediency;

(b) the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

(C) Nothing contained in this clause shall apply for use of health club, sports and similar facilities provided uniformly to all employees by the employer.

(vii) The value of benefit to the employee resulting from the use by the employee or any member of his household of any movable asset (other than assets already specified in this rule and other than laptops and computers) belonging to the employer or hired by him shall be determined at 10 per cent per annum of the actual cost of such asset or the amount of rent or charge paid or payable by the employer, as the case may be, as reduced by the amount, if any, paid or recovered from the employee for such use.

Provided that in the case of computers and electronic items, the normal wear and tear would be calculated at the rate of 50 per cent and in the case of motor cars at the rate of 20 per cent by the reducing balance method.

(viii) The value of any other benefit or amenity, service, right or privilege provided by the employer shall be determined on the basis of cost to the employer under an arm’s length transaction as reduced by the employee’s contribution, if any :

Provided that nothing contained in this clause shall apply to the expenses on telephones including a mobile phone actually incurred on behalf of the employee by the employer.

(8)(i) For the purposes of sub-clause (vi) of clause (2) of section 17, the fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option is exercised by the employee, shall be determined in accordance with the provisions of clause (ii) or clause (iii).

(ii) In a case where, on the date of the exercising of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange :

Provided that where, on the date of exercising of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share :

Provided further that where, on the date of exercising of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be—

(a) the closing price of the share on any recognised stock exchange on a date closest to the date of exercising of the option and immediately preceding such date; or

(b) the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of exercising of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.

(iii) In a case where, on the date of exercising of the option, the share in the company is not listed on a recognised stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.

(iv) For the purpose of this sub-rule,—

(a) “closing price” of a share on a recognised stock exchange on a date shall be the price of the last settlement on such date on such stock exchange :

Provided that where the stock exchange quotes both “buy” and “sell” prices, the closing price shall be the “sell” price of the last settlement;

(b) “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);

(c) “opening price” of a share on a recognised stock exchange on a date shall be the price of the first settlement on such date on such stock exchange :

Provided that where the stock exchange quotes both “buy” and “sell” prices, the opening price shall be the “sell” price of the first settlement;

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

(e) “specified date” means,—

(i) the date of exercising of the option; or

(ii) any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the exercising.

(9) For the purposes of sub-clause (vi) of clause (2) of section 17, the fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date.

Explanation.—For the purposes of this sub-rule, “merchant banker” and “specified date” shall have the meanings assigned to them in sub-clause (b) and sub-clause (e) respectively of clause (iv) of sub-rule (8).

(10) This rule shall come into force with effect from the 1st day of April, 2009.

Explanation.—For the purposes of this rule—

(i) “accommodation” includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure;

(ii) “entertainment” includes hospitality of any kind and also, expenditure on business gifts other than free samples of the employers own product with the aim of advertising to the general public;

(iii) “hotel” includes licensed accommodation in the nature of motel, service apartment or guest house;

(iv) “member of household” shall include—

(a) spouse(s),

(b) children and their spouses,

(c) parents, and

(d) servants and dependents;

24(v) “remote area”, for purposes of proviso to sub-rule (1) means any area other than an area which is located—

(a) within the local limits of ; or

(b) within a distance, measured aerially, of 30 kilometers from the local limits of, any municipality or a cantonment board having a population of 1,00,000 or more based on the 2011 census;]

(vi) “salary” includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include the following, namely:—

(a) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;

(b) employer’s contribution to the provident fund account of the employee;

(c) allowances which are exempted from payment of tax;

(d) the value of perquisites specified in clause (2) of section 17 of the Income-tax Act;

(e) any payment or expenditure specifically excluded under proviso to sub-clause (iii) of clause (2) or proviso to clause (2) of section 17;

(f) lump-sum payments received at the time of termination of service or superannuation or voluntary retirement, like gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments;

(vii) “maximum outstanding monthly balance” means the aggregate outstanding balance for each loan as on the last day of each month.

Notes:

^21. Substituted by the IT (Eighteenth Amdt.) Rules, 2023, w.e.f. 1-9-2023 (as corrected by Corrigendum G.S.R. 636(E), dated 29-8-2023).

^22.Inserted by Corrigendum G.S.R. 636(E), dated 29-8-2023.

^23.Substituted by the IT (Tenth Amdt.) Rules, 2023, w.e.f. 21-6-2023.

^24. Substituted by the IT (Eighteenth Amdt.) Rules, 2023, w.e.f. 1-9-2023.

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Rule – 3A

Chief Commissioner.

3A. (1) In granting approval to any hospital other than a hospital for Indian system of medicine and homeopathic treatment for the purposes of sub-clause (b) of clause (ii) of the proviso to sub-clause (vi) of clause (2) of section 17, the Chief Commissioner shall satisfy himself that the hospital is registered with the local authority and fulfils the following requirements, namely :—

(i) The building used for the hospital complies with the municipal bye-laws in force.

(ii) The rooms are well ventilated, lighted and are kept in clean and hygienic conditions.

(iii) At least ten iron spring beds are provided for patients.

(iv) At least one properly equipped operation theatre is provided, with minimum floor space of 180 square feet and with a separate sterilisation room.

(v) At least one labour room is provided, with minimum floor space of 180 square feet, in case the hospital provides medical service for maternity cases.

(vi) Aseptic conditions are maintained in the operation theatre and the labour room.

(vii) A duty room is provided for the nursing staff on duty.

(viii) Adequate space for storage of medicines, food articles, Equipments, etc., is provided.

(ix) The water used in the hospital or nursing home is fit for drinking.

(x) Adequate arrangements are made for isolating septic and infectious patients.

(xi) The hospital is provided with and maintains :—

(a) high pressure sterilizer and instrument sterilizer;

(b) oxygen cylinders and necessary attachments for giving oxygen;

(c) adequate surgical Equipments, instruments and apparatus including intravenous apparatus;

(d) a pathological laboratory for testing of blood, urine and stool;

(e) electro-cardiogram monitoring system;

(f) stand-by generator for use in case of power failure.

(xii) There is at least one qualified doctor available on duty round the clock for every twenty beds or fraction thereof.

(xiii) In hospitals providing intensive care unit facilities, there are at least two qualified doctors available on duty round the dock exclusively for such intensive care unit.

(xiv) One nurse is on duty round the clock for every five beds or a fraction thereof.

(xv) In hospitals providing intensive care unit facilities, there are at least four nurses provided exclusively for every four beds or fraction thereof for such intensive care unit.

(xvi) The hospital maintains record of health of every patient containing information about the patient’s name, address, occupation, sex, age, date of admission, date of discharge, diagnosis of disease and treatment undertaken.

(1A) In granting approval to any hospital for Indian system of medicine and homeopathic treatment for the purposes of sub-clause (b) of clause (ii) of the proviso to sub-clause (vi) of clause (2) of section 17, the Chief Commissioner shall satisfy himself that the hospital fulfils the conditions specified vide Office Memorandum dated the 6th June, 2002, by the Department of Indian Systems of Medicine and Homeopathy, Ministry of Health and Family Welfare for approval of private hospitals for Indian system of medicine and homeopathic treatment to Central Government Health Scheme beneficiaries and Central Government employees.

(2) For the purpose of sub-clause (b) of clause (ii) of the proviso to sub-clause (vi) of clause (2) of section 17, the prescribed diseases or ailments shall be the following, namely :—

(a) cancer;

(b) tuberculosis;

(C) acquired immunity deficiency syndrome;

(d) disease or ailment of the heart, blood, lymph glands, bone marrow, respiratory system, central nervous system, urinary system, liver, gall bladder, digestive system, endocrine glands or the skin, requiring surgical operation;

(e) ailment or disease of the eye, ear, nose or throat, requiring surgical operation;

(f) fracture in any part of the skeletal system or dislocation of vertebrae requiring surgical operation or orthopaedic treatment;

(9) Gynaecological or obstetric ailment or disease requiring surgical operation, caesarean operation or laparoscopic intervention;

(h) ailment or disease of the organs mentioned at (d), requiring medical treatment in a hospital for at least three continuous days;

(i) gynaecological or obstetric ailment or disease requiring medical treatment in a hospital for at least three continuous days;

(g) burn injuries requiring medical treatment in a hospital for at least three continuous days;

(k) mental disorder – neurotic or psychotic – requiring medical treatment in a hospital for at least three continuous days;

(/) drug addiction requiring medical treatment in a hospital for at least seven continuous days;

(m) anaphylactic shocks including insulin shocks, drug reactions and other allergic manifestations requiring medical treatment in a hospital for at least three continuous days.

Explanation.—For the purpose of this rule,—

(a) “qualified doctor” means a person who holds a degree recognised by the Medical Council of India and is registered by the Medical Council of any State;

(b) “nurse” means a person who holds a certificate of a recognised Nursing Council and is registered under any law for the registration of nurses; (C) “surgical operation” includes treatment by modern methodology such as angioplasty, dialysis, lithotripsy, laser or cryo-surgery.

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Rule – 3B

²⁵[Annual accretion referred to in the sub-clause (viia) of clause (2) of section 17 of the Act.

3B. For the purposes of sub-clause (viia) of clause (2) of section 17 of the Act, annual accretion by way of interest, dividend or any other amount of similar nature during the previous year (hereinafter in this rule referred to as the current previous year) to balance to the credit of the fund or scheme referred to in sub-clause (vii) of clause (2) of section 17 of the Act shall be the amount or aggregate of amounts computed in accordance with the following formula, namely:—

TP = (PC/2) × R + (PC¹ + TP¹) × R

Where,

TP = Taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the current previous year;

TP¹ = Aggregate of taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the previous year or years commencing on or after 1st day of April, 2020 other than the current previous year (See Note);

PC = Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakhs to the specified fund or scheme during the previous year;

PC¹ = Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakhs to the specified fund or scheme for the previous year or years commencing on or after 1st day of April, 2020 other than the current previous year (See Note);

R = I/ Favg ;

I = Amount or aggregate of amounts of income accrued during the current previous year in the specified fund or scheme account;

Favg = (Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous year + Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the last day of the current previous year)/2.

Explanation.—For the purposes of this rule, “specified fund or scheme” shall mean a fund or scheme referred to in sub-clause (vii) of clause (2) of section 17 of the Act.

Note: Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous year, then the amount in excess of the amount or aggregate of amounts of the said balance shall be ignored for the purpose of computing the amount or aggregate of amounts of TP1 and PC1.]

TP = (PC/2) × R + (PC¹ + TP¹) × R

Where,

TP = Taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the current previous year;

TP¹ = Aggregate of taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the previous year or years commencing on or after 1st day of April, 2020 other than the current previous year (See Note);

PC = Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakhs to the specified fund or scheme during the previous year;

PC¹ = Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakhs to the specified fund or scheme for the previous year or years commencing on or after 1st day of April, 2020 other than the current previous year (See Note);

R = I/ Favg ;

I = Amount or aggregate of amounts of income accrued during the current previous year in the specified fund or scheme account;

Favg = (Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous year + Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the last day of the current previous year)/2.

Explanation.—For the purposes of this rule, “specified fund or scheme” shall mean a fund or scheme referred to in sub-clause (vii) of clause (2) of section 17 of the Act.

Note: Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous year, then the amount in excess of the amount or aggregate of amounts of the said balance shall be ignored for the purpose of computing the amount or aggregate of amounts of TP1 and PC1.]

Note:

^25.Inserted by the IT (First Amdt.) Rules, 2021, w.e.f. 1-4-2021.

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Rule – 16A

PART IV

TAX EXEMPTIONS AND RELIEFS

Prescribed authority for approving any institution or body established for scientific research.

16A. For the purposes of sub-clause (viia) of clause (6) of section 10, the “prescribed authority” shall be the Secretary, Department of Scientific and Industrial Research, Government of India :

Provided that every case pending on or before the 1st day of June, 1982, with any authority, other than the said Secretary, shall stand transferred to the said Secretary for disposal.

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Rule – 21A

Relief when salary is paid in arrears or in advance, etc.

21A. (1) Where, by reason of any portion of an assessee’s salary being paid in arrears or in advance or, by reason of any portion of family pension received by an assessee being paid in arrears or, by reason of his having received in any one financial year salary for more than twelve months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, his income is assessed at a rate higher than that at which it would otherwise have been assessed, the relief to be granted under sub-section (1) of section 89 shall be—

(a) where any portion of the assessee’s salary is received in arrears or in advance or, any portion of family pension is received by an assessee in arrears, in accordance with the provisions of sub-rule (2);

(b) where the payment is in the nature of gratuity in respect of past services of the assessee extending over a period of not less than five years, in accordance with the provisions of sub-rule (3);

(c) where the payment is in the nature of compensation received by the assessee from his employer or former employer at or in connection with the termination of his employment after continuous service for not less than three years and where the unexpired portion of his term of employment is also not less than three years, in accordance with the provisions of sub-rule (4);

(d) where the payment is in commutation of pension, in accordance with the provisions of sub-rule (5); and

(e) where the payment is not in the nature of salary paid in arrears or in advance or gratuity in respect of past services or compensation received at or in connection with the termination of employment or in commutation of pension, in accordance with the provisions of sub-rule (6).

(2)(a) In a case referred to in clause (a) of sub-rule (1), the tax payable by the assessee on his total income of the previous year in which the salary is received in arrears or in advance or, in which the family pension is received in arrears (such salary or family pension being hereafter in this sub-rule referred to respectively as the additional salary or additional family pension, as the case may be, and such previous year being hereafter in this sub-rule referred to as the relevant previous year) shall be reduced by the amount, if any, by which the tax on the additional salary or additional family pension, calculated in the manner specified in clause (b), exceeds the tax or the aggregate tax on the additional salary or additional family pension, calculated in the manner specified in clause (c) or clause (d), as the case may be.

(b) Tax shall be calculated on the total income of the relevant previous year as reduced by the additional salary or additional family pension, as the case may be, as if the total income so reduced were the total income of the assessee, and the amount by which the tax so calculated falls short of the tax on the total income before such reduction shall, for the purposes of clause (a), be taken to be the tax on the additional salary or additional family pension, under this clause.

(c) Where the additional salary or additional family pension, as the case may be, relates to only one previous year, tax shall be calculated on the total income of the said previous year as increased by the additional salary or additional family pension, as if the total income so increased were the total income of the assessee, and the amount by which the tax so calculated exceeds the tax payable by the assessee in respect of the total income of the said previous year shall, for the purposes of clause (a), be taken to be the tax on the additional salary or additional family pension, under this clause.

(d) Where the additional salary or additional family pension, as the case may be, relates to more than one previous year,—

(i) the previous years to which the additional salary or additional family pension relates and the amount relating to each such previous year shall first be ascertained;

(ii) tax shall, then, be calculated on the total income of each such previous year as increased by the amount relating to such previous year ascertained under sub-clause (i); as if the total income so increased were the total income of that previous year, and the amount by which the aggregate amount of tax in respect of the aforesaid previous years as calculated under sub-clause (ii) exceeds the aggregate amount of tax payable by the assessee in respect of the total income of the said previous years shall, for the purposes of clause (a), be taken to be the aggregate tax on the additional salary or additional family pension, under this clause.

(3) (a) In a case referred to in clause (b) of sub-rule (1), the tax payable by the assessee on his total income of the previous year in which the payment by way of gratuity is received (such previous year being hereafter in this sub-rule referred to as the relevant previous year) shall be reduced by the amount, if any, by which the tax on the amount of the gratuity included in the total income of the relevant previous year, calculated at the average rate of tax applicable to such total income, exceeds the tax on the amount of such gratuity, calculated at the rate of tax determined under clause (b) or, as the case may be, clause (c).

(b) Where the payment by way of gratuity is made in respect of past services of the assessee extending over a period of not less than five years but less than fifteen years,—

(i) the total income of the assessee in respect of each of the two previous years immediately preceding the relevant previous year shall be increased by an amount equal to one-half of the amount of the gratuity included in the total income of the relevant previous year, and the average rate of tax for each of the said two previous years shall be calculated as if the total income so increased were the total income of that previous year; and

(ii) the average of the average rates of tax for the two previous years immediately preceding the relevant previous year, calculated in accordance with sub-clause (i), shall, for the purposes of clause (a), be the rate of tax determined under this clause.

(c) Where the payment by way of gratuity is made in respect of past services of the assessee extending over a period of not less than fifteen years,—

(i) the total income of the assessee in respect of each of the three previous years immediately preceding the relevant previous year shall be increased by an amount equal to one-third of the amount of the gratuity included in the total income of the relevant previous year, and the average rate of tax for each of the said three previous years shall be calculated as if the total income so increased were the total income of that previous year; and

(ii) the average of the average rates of tax for the three previous years immediately preceding the relevant previous year, calculated in accordance with sub-clause (i), shall, for the purposes of clause (a), be the rate of tax determined under this clause.

(4) (a) In a case referred to in clause (c) of sub-rule (1), the tax payable by the assessee on his total income of the previous year in which the payment by way of compensation is received (such previous year being hereafter in this sub-rule referred to as the relevant previous year) shall be reduced by the amount, if any, by which the tax on the amount of the compensation included in the total income of the relevant previous year, calculated at the average rate of tax applicable to such total income, exceeds the tax on the amount of such compensation, calculated at the rate of tax determined under clause (b).

(b) The total income of the assessee in respect of each of the three previous years immediately preceding the relevant previous year shall be increased by an amount equal to one-third of the amount of the compensation included in the total income of the relevant previous year, and the average rate of tax for each of the said three previous years shall be calculated as if the total income so increased were the total income of that previous year; and the average of the average rates of tax so calculated for the three previous years shall, for the purposes of clause (a), be the rate of tax determined under this clause.

(5) (a) In a case referred to in clause (d) of sub-rule (1), the tax payable by the assessee on his total income of the previous year in which the payment in commutation of pension is received (such previous year being hereafter in this sub-rule referred to as the relevant previous year) shall be reduced by the amount, if any, by which the tax on the payment in commutation of pension included in the total income of the relevant previous year, calculated at the average rate of tax applicable to such total income, exceeds the tax on the amount of such payment, calculated at the rate of tax determined under clause (b).

(b) The total income of the assessee in respect of each of the three previous years immediately preceding the relevant previous year shall be increased by an amount equal to one-third of the amount of payment in commutation of pension included in the total income of the relevant previous year, and the average rate of tax for each of the said three previous years shall be calculated as if the total income so increased were the total income of that previous year; and the average of the average rates of tax so calculated for the three previous years shall, for the purposes of clause (a), be the rate of tax determined under this clause.

(6) In a case referred to in clause (e) of sub-rule (1), the Board may, having regard to the circumstances of the case, allow such relief as it deems fit.

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Rule – 21AA

Furnishing of particulars for claiming relief under¹[section 89].

21AA. Where the assessee, being a Government servant or an employee in a [company, co-operative society, local authority, university, institution, association or body], is entitled to relief under ²[section 89], he may furnish to the person responsible for making the payment referred to in sub-section (1) of section 192, the particulars specified in Form No. 10E.

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Income-tax Forms

Form No. : 1

¹[Appendix IV

FORM NO. 1

[See rule 11UE (1)]

Undertaking under sub-rule (1) of rule 11UE of the Income-tax Rules, 1962

To,
Principal Commissioner/Commission
………………….. ………………………. ……………………

Sir/Madam,

I …………………………………….. (name in block letters) son/daughter of …………………………………………. designation ………………………………….. and nationality …………………………………. and related passport number………………………………….. (hereinafter referred to as “signatory”) having Permanent Account Number/Aadhaar Number (see Note 1) …………………………………………………………………. on behalf of ………………………………………… (name of the declarant) having Permanent Account Number/Aadhaar number/Tax Deduction Account Number (see Note 2) ……………………………………….. and being duly authorised and competent to represent the declarant in this regard pursuant to Board Resolution and legal authorisation (see Note 3), as the case may be ,hereby declare as follows:

a. That specified orders have been passed or made in respect of income accruing or arising through or from the transfer of an asset or a capital asset situate in India in consequence of the transfer of a share or interest in a company or entity registered or incorporated outside India made before the 28th day of May, 2012 and particulars of such specified orders are provided in Part A of the Annexure.

b. The declarant has (strike off the options that are not applicable),

i. not filed any appeal or application or petition or proceeding before any Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings constituted under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court against the relevant orders, and hereby undertakes that it shall not file any appeal, application, petition or proceeding in future against the relevant order or orders. Particulars of such relevant order or orders are provided in Part B of the Annexure;

ii. filed one or more appeals or applications or petitions or proceeding before any Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court against the relevant orders and has irrevocably withdrawn, on a with prejudice basis, all such appeals or applications or petitions or proceeding and evidence thereof is furnished herewith and hereby undertakes that it shall not file any appeal, application, petition or proceeding in future against the relevant order or orders. Particulars of such appeals or applications or petitions or proceeding filed and irrevocably withdrawn with prejudice by the declarant, are provided in Part C of the Annexure;

iii. filed one or more appeals or applications or petitions or proceeding before any Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court against the relevant order or orders and all the appeals or applications or petitions or proceeding filed by the declarant have been disposed of and no further appeal or application or petition or proceeding has been filed by the declarant and evidence thereof is furnished herewith and hereby undertake that it shall not file any appeal, application, petition or proceeding in future against the relevant order or orders. Particulars of such appeals or applications or petitions or proceeding filed and disposed of, are provided in Part C of the Annexure;

iv. filed appeals or applications or petitions or proceeding before any Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court against the relevant orders and one or more of such appeals or applications or petitions or proceeding are pending as on the date of this undertaking and hereby undertakes to irrevocably withdraw, terminate and discontinue any and all such appeals or applications or petitions or proceeding that are pending as on the date of signing this undertaking, on a with prejudice basis, in accordance with clause (e) below. The declarant further undertakes that it shall not file any such appeal, application, petition or proceeding in future against the relevant order or orders. Particulars of such pending appeals or applications or petitions or proceeding filed by the declarant and their status as on the date of this undertaking, are provided in Part D of the Annexure;

c. The declarant has (strike off the options that are not applicable),

i. not initiated any proceeding for arbitration, conciliation or mediation, and no notice has been given thereof under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise against the relevant orders, and hereby undertakes that it shall not initiate any such arbitration, conciliation or mediation in future. Particulars of such relevant order or orders are provided in Part B of the Annexure;

ii. initiated proceeding for arbitration, conciliation or mediation, or notices thereof has been given, under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise against the relevant order or orders and has irrevocably, on a with prejudice basis, withdrawn any such proceeding for arbitration, conciliation or mediation, and notices given thereof and evidence thereof is furnished herewith. The declarant hereby undertakes that it shall not reopen in future any such proceeding or initiate or file any such arbitration, conciliation or mediation in future arising out of or in connection with the relevant order or orders. Particulars of such proceeding for arbitration, conciliation or mediation and notices given thereof, initiated and irrevocably withdrawn with prejudice by the declarant, are provided in Part E of the Annexure;

iii. initiated proceeding for arbitration, conciliation or mediation, or notices thereof has been given, under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise against the relevant order or orders and all the arbitration, conciliation or mediation filed by the declarant have been disposed of and no further proceeding has been initiated by the declarant and evidence thereof is furnished herewith. The declarant hereby undertakes that it shall not reopen in future any such proceeding or initiate or file any such arbitration, conciliation or mediation in future arising out of or in connection with the relevant order or orders. Particulars of such proceeding for arbitration, conciliation or mediation and notices given thereof, initiated and disposed of, are provided in Part E of the Annexure;

iv. initiated proceeding for arbitration, conciliation or mediation, or notices thereof has been given, under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise against the relevant order or orders and one or more of such proceeding or notices are pending on the date of undertaking and hereby undertakes to irrevocably withdraw, terminate and discontinue any and all such proceeding or notices for arbitration, conciliation or mediation that are pending as on the date of signing this undertaking, on a with prejudice basis, in accordance with clause (e) below. Particulars of such pending proceeding and notices filed by the declarant are provided in Part F of the Annexure. The declarant hereby further undertakes that it shall not initiate any such arbitration, conciliation or mediation in future arising out of or in connection with the relevant order or orders;

v. received or got any awards, orders, judgments or any other reliefs issued in favour of the declarant, arising out of or in any way relating to the imposition of tax, interest and penalty based on the relevant order or orders, under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise and hereby undertakes to irrevocably waive any right to seek or pursue any claim or costs or declaratory relief in relation to or arising out of such awards, orders or judgments or any other relief that may have been ordered, issued or passed against India and any Indian affiliate, whether it is in proceeding initiated by the declarant or by India and any Indian affiliate. The declarant also undertakes to irrevocably waive any right to seek or pursue any claim for costs or relief in respect of any proceeding initiated by the Republic of India to set aside such award, order or judgment or any other relief issued in favour of the declarant. The declarant hereby undertakes that it shall not initiate or file any such arbitration, conciliation or mediation in future. Particulars of such awards, orders, judgment or any other relief are provided in Part G of the Annexure;

.d. The declarant has (strike off the options that are not applicable),

i. not initiated any proceeding to enforce or pursue attachments in connection with any awards, orders, judgments, any other relief that may have been ordered, issued or passed by any tribunal or court or other judicial, quasi-judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the declarant as referred in clause (c) of this undertaking either against the Republic of India and any Indian affiliate, and hereby undertakes that it shall not initiate any such proceeding in future. Particulars of such award, order or judgment are provided in Part B of the Annexure;

ii. initiated proceeding to enforce or pursue attachments in connection with any awards, orders, judgments or any other relief that may have been ordered, issued or passed by any tribunal or court or other judicial, quasi-judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the declarant, as referred to in clause (c) of this undertaking against the Republic of India and any Indian affiliate. The declarant has irrevocably and with prejudice withdrawn or discontinued any such proceeding and hereby undertakes that it shall not reopen any such proceeding in future or file or initiate fresh proceeding to enforce or pursue attachments and evidence thereof is furnished herewith. Particulars of such proceeding, initiated and withdrawn or discontinued by the declarant, are provided in Part H of the Annexure;

iii. initiated proceeding to enforce or pursue attachments in connection with any awards, orders, judgments or any other relief that may have been ordered, issued or passed by any tribunal or court or other judicial, quasi-judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the declarant, as referred to in clause (c) of this undertaking against the Republic of India and any Indian affiliate. All such proceeding filed by the declarant have been disposed of and no further proceeding has been filed by the declarant and evidence is herewith furnished and hereby undertakes that it shall not reopen any such proceeding in future or file or initiate fresh proceeding to enforce or pursue attachments. Particulars of such proceeding, initiated and disposed of, are provided in Part H of the Annexure;

iv. initiated proceeding to enforce or pursue attachments in connection with any awards, orders, judgments, or any other relief that may have been ordered, issued or passed by any tribunal or court or other judicial, quasi-judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the declarant as referred to in clause (c) of this undertaking, either against the Republic of India and any Indian affiliate and one or more of such proceeding are pending on the date of undertaking and, the declarant has obtained one or more orders from any court or other authority which remain outstanding against India and any Indian Affiliate. The declarant hereby undertakes that it shall not file in future any such proceeding to enforce or pursue attachments regarding any awards, orders, judgments, or any other relief that may have been ordered , issued or passed by any tribunal or court or other judicial, quasi-judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the declarant as referenced in clause (c) of this undertaking or to enforce the orders from any court or other authority which remain outstanding against Republic of India and any Indian Affiliate. The declarant further undertakes to fully cooperate with the Republic of India or any Indian affiliate which is subject to such outstanding order, in order to set-aside or otherwise nullify any such outstanding order, and irrevocably and with prejudice waives any rights or remedies arising from such outstanding order. Particulars of such proceeding are provided in Part I of the Annexure. The declarant also undertakes to irrevocably withdraw, terminate and discontinue with prejudice any and all such proceeding to enforce or pursue attachments in accordance with clause (e).

e. The declarant hereby undertakes as follows:

i. to irrevocably and with prejudice withdraw, discontinue, terminate and take all necessary steps to irrevocably and with prejudice close the pending proceeding referred in sub-clause (iv) of clause (b), sub-clause (iv) of clause (c), sub-clause (v) of clause (c) and sub-clause (iv) of clause (d) of this undertaking, as well as any other pending proceeding against India or Indian affiliates relating to the relevant order or orders and not referenced in clauses (b), (c) and (d) above, and not to pursue in any way and by any means in future the pending proceeding as referenced in clauses (b), (c), and (d) above, and any other pending proceeding relating to the relevant order or orders not referred in the above clauses and any other fresh proceeding relating to the relevant order or orders. In so acting, declarant shall act in accordance with this undertaking and in full cooperation with the Republic of India;

ii. to irrevocably terminate, release, discharge, and forever irrevocably waive any right, whether direct or indirect, and any claims, demands, liens, actions, suits, causes of action, obligations, controversies, debts, costs, attorneys’ fees, court’s fees, expenses, damages, judgments, orders, declaratory reliefs and liabilities of whatever kind or nature at law, in equity, or otherwise, whether now known or unknown previously (or in future discovered), suspected or unsuspected, and whether or not concealed or hidden, which have existed or may have existed, or do exist or which hereafter can, shall or may exist , in relation to any award, order, judgment, or any other relief as referred in clauses (b), (c) and (d) of this undertaking, against the Republic of India and all Indian affiliates, ordered, issued or passed in connection with the relevant order or orders, whether it is in proceeding initiated by the declarant or by Republic of India and any Indian Affiliate. The declarant further undertakes to fully cooperate with the Republic of India or any Indian affiliate which is subject to any outstanding order referenced in clause (d), in order to set-aside or otherwise nullify any such outstanding order, and irrevocably and with prejudice waives any rights or remedies arising from such outstanding order. For the avoidance of doubt, the declarant’s irrevocable waiver includes irrevocable waiver of any right provided by any existing ex parte, provisional, or other kind of court order permitting enforcement or attachment against the Republic of India and any Indian affiliate, in furtherance of any award, order judgment, or any other relief that may have been ordered or issued or passed by any arbitral tribunal as referred in clauses (b), (c) and (d) above. For further avoidance of doubt, the declarant also undertakes to irrevocably waive any right to seek or pursue any claim for costs in respect of any proceeding initiated by Republic of India and any Indian affiliate to set aside such award, order or judgement ordered, issued or passed in favour of the declarant. Such irrevocable waiver includes, but is not limited to, any right under any relevant ex parte order;

iii. to irrevocably waive any right to seek or pursue any claim for costs in respect of any proceeding initiated by the Republic of India to set aside such award, order or judgment, or any other relief issued in favour of the declarant.

f. The declarant specifically represents that all Parts of the Annexure as described in this undertaking are full and complete to the best of its knowledge.

g. The declarant hereby undertakes to irrevocably terminate, release, discharge and forever irrevocably waive any right, whether direct or indirect, and any remedies, claims, demands, liens, actions, suits, causes of action, obligations, controversies, debts, costs, attorneys’ fees, court’s fees, expenses, damages, judgments, orders, compensation, and liabilities of whatever kind or nature at law, in equity, or otherwise, whether now known or unknown, suspected or unsuspected, and whether or not concealed or hidden, which have existed or may have existed, or do exist or which hereafter can, shall or may exist, based on pursuit of any remedy or any and all claims, demands, damages, judgments, awards, costs, expenses, compensation or liabilities of any kind (whether asserted or unasserted) in relation to any facts, events, or omissions occurring from the beginning of time to the date of this undertaking and thereafter in future in relation to taxation of said income or relevant order or orders, or any related award, judgment or court order, which may otherwise be available to the declarant under any law for the time being in force, in equity, under any statute or under any agreement entered into by Republic of India with any country or territory outside Republic of India, whether for protection of investment or otherwise , whether it is in proceeding initiated by the declarant or by Republic of India and any Indian affiliate. For the avoidance of doubt, the declarant’s above waiver includes an irrevocable waiver of any claim against India and any Indian Affiliate to costs incurred or interest accrued in relation to the relevant order or orders, or any related ongoing or completed litigation, arbitration, conciliation or mediation. Moreover, for the avoidance of any doubt, the declarant hereby undertakes (for itself and on behalf of all related parties) to forgo any reliance on any right under any award, judgment, or court order pertaining to the relevant order or orders or under the relevant order or orders.

h. The declarant further represents that as of the date of this undertaking, it has not transferred any of its claims under any award, judgment, or court order pertaining to the relevant order or orders or under the relevant order or orders, or granted any rights, to third parties, and further undertakes to not transfer any of its claims to third parties after entering this undertaking. Where any such claim or right is transferred, the declarant confirms that it has provided the particulars of all the interested parties in Part L, and the undertakings from each of such interested parties is attached with this undertaking in accordance with Part M of the Annexure.

i. In the event that, notwithstanding the foregoing, any person asserts, brings, files or maintains any claim against the Republic of India or Indian affiliates (hereinafter collectively referred to as “releasees”) at any time on or after the date of furnishing this undertaking, the declarant shall indemnify, defend and hold harmless such releases from and against any and all costs, expenses (including attorney’s fees and court’s fees), interest, damages, and liabilities of any nature arising out of or in any way relating to the assertion or, bringing, filing or maintaining of such claim. The declarant specifically represents that, to the best of its knowledge, after—

i. the execution of this undertaking;

ii. the execution of any separate related undertaking by any other party in connection with the relevant order or orders; and

iii. irrevocable withdrawal of all pending proceeding as outlined in this undertaking, no other claim regarding the said relevant order or orders referenced above, or any related award, judgment, or court order, shall remain outstanding against the Republic of India or any Indian affiliates. To avoid any doubt, the declarant’s indemnity of releasees under this clause shall include any claim brought by any third party alleging that it has obtained the declarant’s claims under an award, judgment or court order or the relevant order or orders. An indemnity bond to this effect is attached in Part N of the undertaking.

j. For the removal of any doubt, the declarant fully assumes the risk through the indemnity in clause (i) of any omission or mistake with respect to securing releasees against any related claim by any person. If the declarant fails to obtain any release from such person, the declarant warrants that it will indemnify the Republic of India or any Indian affiliates from any defense costs, court costs, and damages. An indemnity bond to the effect of clauses (i) and (j) is annexed to the undertaking.

k. The declarant further undertakes to refrain from facilitating, procuring, encouraging or otherwise assisting any person (including but not limited to any related party or interested party) from bringing any proceeding or claims of any kind referred to in the above clauses, or any proceeding or claim of any kind related to any relevant order or orders referred to above (whether in respect of tax, interest or penalty). The declarant shall notify by a public notice or press release, at any time before furnishing intimation in Form No. 3 where this Form is required to be furnished under rule 11UF and before furnishing this undertaking in other cases, that by signing this undertaking any claims arising out of or relating to the relevant order or orders or any related award, judgment or court order, no longer subsist. Such public notice or press release shall include, among other things, confirmation that,—

i. the declarant (and its related parties) forever irrevocably forgo any reliance on any right and provisions under any award, judgment or court order pertaining to the relevant order or orders or under the relevant order or orders;

ii. the declarant has provided this undertaking, which includes a complete release of the Republic of India and any Indian Affiliates with respect to any award, judgment or court order pertaining to the relevant order or orders or under the relevant order or orders, and with respect to any claim pertaining to the relevant order or orders;

iii. the undertaking also includes an indemnity against any claims brought against the Republic of India or any India affiliate, including by related parties or interested parties, contrary to the release; and

iv. the declarant confirms it will treat any such award, judgment or court order as null and void and without legal effect to the same extent as if it had been set aside by a competent court and will not take any action or initiate any proceeding or bring any claim based on that.

l. The declarant confirms that the undertakings given herein are intended to be enforceable by the Republic of India, including so as to secure the irrevocable waiver, withdrawal or discontinuance (as appropriate) of all the proceeding and claims referred to in any of the clauses of this undertaking.

m. The declarant represents and warrants that:

i. it has full legal power and authority to execute and deliver this undertaking (including but not limited to the issuance of the indemnity described in clauses (i) and (j)under applicable law;

ii. the execution, delivery and performance of this undertaking (including but not limited to the issuance of the indemnity described in clauses (i) and (j) has been duly authorised by all necessary corporate action, including but not limited to any board resolution or similar authorisation under applicable law (see Note 3);

iii. this undertaking constitutes the legal, valid and binding obligation of the declarant, enforceable against the declarant in accordance with its terms;

iv. such authorisations described in the above sub-clauses (i), (ii) and (iii) are effective under applicable law, and to this end, letters from local counsel in the relevant jurisdictions are attached to this undertaking which confirm the legality of such authorisations under applicable law.

n. The declarant confirms that by submitting the present undertaking, it fulfills the conditions specified in the Explanation below the sixth proviso to Explanation 5 to clause (i) of sub-section (1) of section 9.

o. The details of the bank account in which the refund may be credited are provided in Part J of the Annexure.

p. The details of all the interested parties are provided in Part K and Part L of the Annexure. The undertaking in Part M of the Annexure by each of such persons is attached with this undertaking. The declarant represents and warrants that:

i. all such undertakings have been executed and delivered by the person who has full legal power and authority to execute and deliver such undertakings;

ii. the execution, delivery and performance of this undertaking has been duly authorised by all necessary corporate action; and

iii. this undertaking constitutes the legal, valid and binding obligation of the declarant, enforceable against such person in accordance with its terms. Such separate, related undertakings may take the same form as this undertaking.

q. The declarant is or is not covered under sub-rule (6) of rule 11UF and in case if the declarant is not covered under said sub-rule all the conditions provided under sub-rule (2) of rule 11UE have been fulfilled.

r. This undertaking is governed by relevant Indian law and any dispute with respect to this undertaking shall be subject to Indian laws and be decided in accordance with the procedures specified in the Act under the exclusive jurisdiction of the relevant income-tax authorities, tribunals or courts in Republic of India, as the case may be, which are empowered to decide disputes under the Act.

I also confirm that I am aware of all the consequences and implications of this undertaking.

Place:…………………………………

Signature:………………………………….

Date: …………………………………………………………………………………………………………………………….

Attachments

1. The Board Resolution or legal authorisation, as the case may be, as referred to in clause (m) of the undertaking

2. An indemnity bond to the effect of clause (i) and clause (j) of the undertaking attached in Part N of the undertaking.

3. Copy of the public notice referred to in clause (k) of the undertaking, where Form No. 3 is not required to be furnished under sub-rule (6) of rule 11UF.

4. Attachments as required in different parts of the Annexure to this undertaking.

Notes

1. This information is required to be furnished where the Permanent Account Number or Aadhaar Number of the signatory is available.

2. Company Identification Number and Taxpayer Identification Number are to be provided where Permanent Account Number or Aadhaar Number or Tax Deduction Account Number of the declarant are not available.

3. The Board Resolution or legal authorisation, as referred to in clause (m) of the undertaking shall, among other things:

a. record the signatory’s power and authority to give the undertaking on behalf of the declarant; and

b. record the declarant’s power and authority to indemnify defend and hold harmless the Republic of India and the Indian affiliates in accordance with clause (i) of the undertaking.

VERIFICATION

Verified that the contents of this undertaking are true to the best of my knowledge and belief. No part of the undertaking is false and nothing has been concealed or misstated therein.

Verified at________________ place_______________ on this the_________ day________________ of ______ month_______________ , year .

Place: ……………………

Date:……………………..

Signature…………………………

 

Annexure

Part A– Particulars of the relevant order or orders:

Sl. No.	Assessment Year or Financial year	Income-tax Authority passing the order	Details of the order under consideration		Taxes or penalty determined	Interest	Total demand	Relief, provided in any appeal proceeding , if any	Demand recovered from the declarant	Pending demand or refund due as on date	Details of the attachments made by any Income-tax Authority
			Section and sub-section of the Income-tax Act, 1961	Date of order
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)

Part B– Particulars of the relevant order or orders covered by sub-clause (i) of clauses (b), (c) and (d) of the undertaking:

Sl. No.	Sl. No. in Part A where the relevant order is mentioned	No appeal or application or petition or proceeding before any Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court has been filed(refer clause (b)(i) of the undertaking).	No proceeding has been initiated for arbitration, conciliation or mediation, and no notice has been given thereof under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise (refer clause (c)(i) of the undertaking).	No proceeding initiated to enforce or pursue attachments in connection with any award, order or judgment, any other relief that may have been ordered or issued or passed by any tribunal or court or other judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the declarant against the Republic of India and Indian affiliates (refer clause (d)(i) of the undertaking).
(1)	(2)	(3)	(4)	(5)
		Applicable or Not applicable	Applicable or Not applicable	Applicable or Not applicable

Part C: Particulars of the appeals or applications or petitions or proceeding under sub-clauses (ii) and (iii) of clause (b) of the undertaking:

Sl. No.	Sl. No. in Part A where the relevant order is mentioned	Nature of appeals or applications or petitions or proceeding	Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court before whom such appeals or applications or petitions or proceeding has been filed	Date of filing the appeals or applications or petitions or proceeding	Date of disposing of or withdrawal such appeals or applications or petitions or proceeding (Please attach a copy of order by the Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court accepting the withdrawal or disposing of)
(1)	(2)	(3)	(4)	(5)	(6)

Part D – Particulars of the appeals or applications or petitions or proceeding under sub-clause (iv) of clauses (b) of the undertaking:

Sl. No.	Sl. No. in Part A where the relevant order is mentioned	Nature of appeals or applications or petitions or proceeding	Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court before whom such appeals or applications or petitions or proceeding has been filed	Date of filing the appeals or applications or petitions or proceeding
(1)	(2)	(3)	(4)	(5)

Part E – Particulars of the proceeding for arbitration, conciliation or mediation, or notices under sub-clause (ii) and (iii) of clause (c) of the undertaking:

Sr. No.	Sl. No in Part A where the relevant order is mentioned	Nature of proceeding for arbitration, conciliation or mediation, or notices thereof with case number or Notice given	Particulars (including the name of the country) where such proceeding for arbitration, conciliation or mediation are pending or notices thereof have been issued	Date of initiating the proceeding for arbitration, conciliation or mediation/issue of notice	Name of the agreement entered into by India under which the proceeding for arbitration, conciliation or mediation are pending	Status of the proceeding for arbitration, conciliation or mediation	Date of disposing of or withdrawal of such proceeding for arbitration, conciliation or mediation, or notices (Please attach evidence of such disposing of or withdrawal, including order of the Tribunal or court or other judicial or quasi-judicial or administrative authority).
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)

Part F – Particulars of the proceeding for arbitration, conciliation or mediation, or notices under sub-clause (iv) of clause (c) of the undertaking:

Sl. No.	Sl. No in Part A where the relevant order is mentioned	Nature of proceeding for arbitration, conciliation or mediation, or notices thereof with case number or Notice given	Particulars (including the name of the country where such proceeding for arbitration, conciliation or mediation are pending or notices thereof have been issued)	Date of initiating the proceeding for arbitration, conciliation or mediation/issue of notice	Name of the agreement entered into by India under which proceeding for arbitration, conciliation or mediation are pending	Status of the proceeding for arbitration, conciliation or mediation
(1)	(2)	(3)	(4)	(5)	(6)	(7)

Part G – Particulars of the award, order or judgment or any other relief under sub-clause (v) of clause (c) of the undertaking:

Sl. No.	Sl. No. in Part A where the relevant order is mentioned	Nature of such award, order or judgment or any other relief	Particulars (including the name of the country) where proceeding related to such award, order, judgment or any other relief were held	Date of such award, order, judgment or any other relief along with reference number	Status of the award, order, judgment or any other relief
(1)	(2)	(3)	(4)	(5)	(6)

Part H – Particulars of the proceeding to enforce any award, order or judgment or any other relief under sub-clauses (ii) and (iii) of clause (d) of the undertaking:

Sl. No.	Sl. No. in Part A where the relevant order is mentioned	Nature of proceeding to enforce such award, order or judgment or any other relief	Particulars (including the name of the country where such proceeding to enforce any award, order or judgment or any other relief are taking place)	Date of filing proceeding to enforce any award, order or judgment or any other relief	Nature of such award, order or judgment or any other relief (Attach copy thereof)	Status of the proceeding to enforce such award, order or judgment or any other relief	Date of disposing of or withdrawal of proceeding to enforce such award, order or judgment or any other relief (Please attach a copy of evidence of such disposing of/withdrawal, including order of the Court or other judicial authority)
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)

Part I – Particulars of the proceeding to enforce any award, order or judgment or any other relief under sub-clause (iv) of clause (d) of the undertaking:

Sl. No.	Sl. No in Part A where the relevant order is mentioned	Nature of proceeding to enforce such award, order or judgment or any other relief	Particulars (including the name of the country where such proceeding to enforce any award, order or judgment or any other relief are taking place)	Date of filing proceeding to enforce any award, order or judgment or any other relief	Nature of such award, order or judgment or any other relief (Attach copy thereof)	Status of the proceeding to enforce such award, order or judgment or any other relief
(1)	(2)	(3)	(4)	(5)	(6)	(7)

Part J – Details of bank account in Republic of India to which the refund is to be remitted

Sl. No.	Bank Name and Address	Account Number and other required details for remittance
(1)	(2)	(3)

Part K– Details of all the companies or entities in the entire chain of holding of the declarant till the ultimate holding company or entity of the declarant:

Sl. No.	Name of holding company	Percentage of the ownership by such holding company in the declarant as on the date of undertaking	If the ownership in the declarant is not held directly by such holding company, the chain of ownership with the names of all the companies in the chain of ownership
(1)	(2)	(3)	(4)

Part L- Details of all the interested parties other than the interested parties covered under Part K

Sl. No.	Name of such persons whose interest may be affected directly or indirectly by this undertaking	Nature of interest of such person	Amount of interest of such person (Rs), if available
(1)	(2)	(3)	(4)

PART M Undertaking by person(s) declared in Part K and Part L of the Undertaking

To,
Principal Commissioner/Commissioner
……………….. ……………………… ………….

Sir/Madam,

I………………….. (name in block letters) son/daughter of…………………………………………….. designation ……………….. .and nationality …………………………. .and related passport number……………………………… (hereinafter referred to as “signatory”) having Permanent Account Number/Aadhaar Number (see Note 1) ………………………………. on behalf of …………………………………. . (name of the interested party) having Permanent Account Number/Aadhaar number/Tax Deduction Account Number (see Note 2) …………………………………………. . and being duly authorised and competent to represent the interested party in this regard pursuant to Board Resolution and legal authorisation (see Note 3), as the case may be , hereby declare as follows:

(a) The particulars of specified orders that have been passed or made in respect of income accruing or arising through or from the transfer of an asset or a capital asset situate in India in consequence of the transfer of a share or interest in a company or entity registered or incorporated outside Republic of India made before the 28th day of May, 2012 in the case of declarant and the nature of interest of the interested party in such specified orders are provided in Part MA of the Annexure.

(b) The interested party has (strike off options that are not applicable):

i. not filed any appeal or application or petition or proceeding before any Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court against the relevant order or orders, and hereby undertakes that it shall not file any appeal, application, petition or proceeding in future against the relevant order or orders. Particulars of such relevant order or orders are provided in Part MB of the Annexure;

ii. filed one or more appeals or applications or petitions or proceeding before any Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court against the relevant order or orders and has irrevocably, on a with prejudice basis, withdrawn all such appeals or applications or petitions or proceeding or such appeals or applications or petitions or proceeding have been disposed at any time before the date of filing Form No. 1, and hereby undertake that it shall not file any appeal, application, petition or proceeding in future against the relevant order or orders. Particulars of such appeals or applications or petitions or proceeding filed and irrevocably withdrawn with prejudice by the interested party, are provided in Part MC of the Annexure.

iii. filed one or more appeals or applications or petitions or proceeding before any Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court against the relevant order or orders and all the appeals or applications or petitions or proceeding filed by the interested party have been disposed of and no further appeal or application or petition or proceeding has been filed by the interested party and evidence thereof is furnished herewith and hereby undertake that it shall not file any appeal, application, petition or proceeding in future against the relevant order or orders. Particulars of such appeals or applications or petitions or proceeding filed and disposed of, are provided in Part MC of the Annexure.

iv. filed appeals or applications or petitions or proceeding before any Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court against the relevant order or orders and one or more of such appeals or applications or petitions or proceeding are pending as on the date of this undertaking and hereby undertakes to irrevocably withdraw, terminate and discontinue any and all such appeals or applications or petitions or proceeding that are pending as on the date of signing this undertaking, on a with prejudice basis, in accordance with clause (e) below. The interested party further undertakes that it shall not file any such appeal, application, petition or proceeding in future against the relevant order or orders. Particulars of such pending appeals or applications or petitions or proceeding filed by the interested party and their status as on the date of this undertaking, are provided in Part D of the Annexure. Particulars of any appeals or applications or petitions or proceeding as described in this clause (b) which are not covered by the sub-clauses (i) and (ii) are also provided in Part MD of the Annexure.

(c) The interested party has (strike off options that are not applicable):

i. not initiated any proceeding for arbitration, conciliation or mediation, and no notice has been given thereof under any law for the time being in force or under any agreement entered into by Republic of India with any other country or territory outside India, whether for protection of investment or otherwise against the relevant order or orders, and hereby undertakes that it shall not initiate any such arbitration, conciliation or mediation in future. Particulars of such relevant order or orders are provided in Part MB of the Annexure;

ii. initiated proceeding for arbitration, conciliation or mediation, or notices thereof has been given, under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise against the relevant order or orders and has irrevocably, on a with prejudice basis, withdrawn any such proceeding for arbitration, conciliation or mediation, and notices given thereof. The interested party hereby undertakes that it shall not reopen in future any such proceeding or initiate or file any such arbitration, conciliation or mediation in future arising out of or in connection with the relevant order or orders. Particulars of such proceeding for arbitration, conciliation or mediation and notices given thereof, initiated and irrevocably withdrawn with prejudice by the interested party, are provided in Part ME of the Annexure.

iii. initiated proceeding for arbitration, conciliation or mediation, or notices thereof has been given, under any law for the time being in force or under any agreement entered into by Republic of India with any other country or territory outside India, whether for protection of investment or otherwise against the relevant order or orders and all the arbitration, conciliation or mediation filed by the interested party have been disposed of and no further proceeding has been initiated by the interested party and evidence thereof is furnished herewith. The interested party hereby undertakes that it shall not reopen in future any such proceeding or initiate or file any such arbitration, conciliation or mediation in future arising out of or in connection with the relevant order or orders. Particulars of such proceeding for arbitration, conciliation or mediation and notices given thereof, initiated and disposed of, are provided in Part ME of the Annexure.

iv. has initiated proceeding for arbitration, conciliation or mediation, or notices thereof has been given, under any law for the time being in force or under any agreement entered into by Republic of India with any other country or territory outside Republic of India, whether for protection of investment or otherwise against the relevant order or orders and one or more of such proceeding or notices are pending on the date of undertaking and hereby undertakes to irrevocably withdraw, terminate and discontinue any and all such proceeding or notices for arbitration, conciliation or mediation that are pending as on the date of signing this undertaking, on a with prejudice basis, in accordance with clause (e). Particulars of such pending proceeding and notices filed by the interested party are provided in Part F of the Annexure. The interested party hereby further undertakes that it shall not initiate any such arbitration, conciliation or mediation in future arising out of or in connection with the relevant order or orders. Particulars of any proceeding for arbitration, conciliation or mediation, or notices thereof, which are not covered by the sub-clause (i) and sub- clause (ii), are also provided in Part MF of the Annexure.

v. received or got any awards, orders, judgements or any other reliefs issued in favour of the interested party, arising out of or in any way relating to the imposition of tax, interest and penalty based on the relevant order or orders, under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise and hereby undertakes to irrevocably waive any right to seek or pursue any claim or costs or declaratory relief in relation to or arising out of such awards, orders or judgments or any other relief that may have been ordered, issued or passed against India and any Indian affiliate, whether it is in proceeding initiated by the interested party or by India and any Indian affiliate. The interested party also undertakes to irrevocably waive any right to seek or pursue any claim for costs in respect of any proceeding initiated by the Republic to set aside such award, order or judgment issued in favour of the interested party. The interested party hereby undertakes that it shall not initiate or file any such arbitration, conciliation or mediation in future. Particulars of such awards, orders, judgment or any other relief are provided in Part MG of the Annexure.

(d) The interested party has (strike off options that are not applicable):

i. not initiated any proceeding to enforce or pursue attachments in connection with any awards, orders, judgments, or any other relief that may have been ordered, issued or passed by any tribunal or court or other judicial, quasi-judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the interested party as referred in clause (c) of this undertaking either against the Republic of India and any Indian affiliate, and hereby undertakes that it shall not initiate any such proceeding in future. Particulars of such award, order or judgment are provided in Part MB of the Annexure.

ii. initiated proceeding to enforce or pursue attachments in connection with any awards, orders, judgements or any other relief that may have been ordered, issued or passed by any tribunal or court or other judicial, quasi-judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the interested party, as referred to in clause (c) of this undertaking against the Republic of India and any Indian affiliate. The interested party has irrevocably and with prejudice withdrawn or discontinued any such proceeding and hereby undertakes that it shall not reopen any such proceeding in future or file fresh proceeding to enforce or pursue attachments. Particulars of such proceeding, initiated and withdrawn or discontinued by the interested party, are provided in Part MH of the Annexure.

iii. initiated proceeding to enforce or pursue attachments in connection with any awards, orders, judgements or any other relief that may have been ordered, issued or passed by any tribunal or court or other judicial, quasi-judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the interested party, as referred to in clause (c) of this undertaking against the Republic of India and any Indian affiliate. All such proceeding filed by the interested party have been disposed of and no further proceeding has been filed by the interested party and evidence is herewith furnished and hereby undertakes that it shall not reopen any such proceeding in future or file or initiate fresh proceeding to enforce or pursue attachments. Particulars of such proceeding, initiated and disposed of, are provided in Part MH of the Annexure.

iv. initiated proceeding to enforce or pursue attachments in respect of any awards, orders, judgments, or any other relief that may have been ordered, issued or passed by any tribunal or court or other judicial, quasi-judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the interested party as referred to in clause (c) of this undertaking, either against the Republic of India and any Indian affiliate and one or more of such proceeding are pending on the date of undertaking and, interested party has obtained one or more orders from any court or other authority which remain outstanding against India and any Indian affiliate. The interested party hereby undertakes that it shall not file in future any such proceeding to enforce or pursue attachments regarding any awards, orders, judgments, or any other relief that may have been ordered , issued or passed by any tribunal or court or other judicial, quasi-judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the interested party as referenced in clause (c) of this undertaking or to enforce the orders from any court or other authority which remain outstanding against India and any Indian affiliate. The interested party further undertakes to fully cooperate with the Republic of India or any Indian affiliate which is subject to such outstanding order, in order to set-aside or otherwise nullify any such outstanding order, and irrevocably and with prejudice waives any rights or remedies arising from such outstanding order. Particulars of such proceeding, are provided in Part MI of the Annexure. Particulars of any such proceeding, to enforce or pursue attachments in connection with any awards, orders, judgments, or any other relief, which are not covered by the sub-clauses (i) and (ii), are also provided in Part MI of the Annexure. The interested party also undertakes to irrevocably withdraw, terminate and discontinue with prejudice any and all such proceeding to enforce or pursue attachments in accordance with clause (e) below.

(e) The interested party hereby undertakes as follows: –

i. to irrevocably and with prejudice withdraw, discontinue, terminate and take all necessary steps to irrevocably and with prejudice close the pending proceeding referred in sub-clause (iv) of clause (b), sub-clause (iv) of clause (c), sub-clause (v) of clause (c) and sub-clause (iv) of clause (d) of this undertaking, as well as any other pending proceeding against Republic of India or Indian affiliates relating to the relevant order or orders and not referenced in clauses (b), (c) and (d) above, and not to pursue in any way and by any means in future the pending proceeding as referenced in clauses (b), (c) and (d) and any other pending proceeding relating to the relevant order or orders not referred in the above clauses and any other fresh proceeding relating to the relevant order or orders. In so acting, interested party shall act in accordance with this undertaking and in full cooperation with the Republic of India.

ii. to irrevocably terminate, release, discharge, and forever irrevocably waive any right, whether direct or indirect, and any claims, demands, liens, actions, suits, causes of action, obligations, controversies, debts, costs, attorneys’ fees, court’s fees, expenses, damages, judgments, orders, declaratory reliefs, and liabilities of whatever kind or nature at law, in equity, or otherwise, whether now known or unknown previously (or in future discovered), suspected or unsuspected, and whether or not concealed or hidden, which have existed or may have existed, or do exist or which hereafter can, shall or may exist , in relation to any award, order, judgment, or any other relief as referred in clauses (b), (c) and (d) of this undertaking, against the Republic of India and all Indian affiliates, ordered, issued or passed in connection with the relevant order or orders, whether it is in proceeding initiated by the interested party or by India and any Indian affiliate. For the avoidance of doubt, the interested party’s irrevocable waiver includes irrevocable waiver of any right provided by any existing ex parte, provisional, or other kind of court order permitting enforcement or attachment against the Republic of India and any Indian affiliate, in furtherance of any award, order, judgment, or any other relief that may have been ordered or issued or passed by any arbitral tribunal as referred in clauses (b), (c) and (d). The interested party further undertakes to fully cooperate with the Republic of India or any Indian affiliate which is subject to any outstanding order referenced in clause (d), in order to set aside or otherwise nullify any such outstanding order, and irrevocably and with prejudice waives any rights or remedies arising from such outstanding order. For further avoidance of doubt, the interested party also undertakes to irrevocably waive any right to seek or pursue any claim for costs in respect of any proceeding initiated by Republic of India and any Indian Affiliate to set aside such award, order or judgment ordered, issued or passed in favour of the interested party. Such irrevocable waiver includes, but is not limited to, any right under any relevant ex parte order.

iii. to irrevocably waive any right to seek or pursue any claim for costs in respect of any proceeding initiated by the Republic of India to set aside such award, order or judgment, or any other relief issued in favour of the interested party.

(f) The interested party specifically represents that all Parts of the Annexure as described in this undertaking are full and complete to the best of its knowledge.

(g) The interested party hereby undertakes to irrevocably terminate, release, discharge, and forever irrevocably waive any right, whether direct or indirect, and any remedies, claims, demands, liens, actions, suits, causes of action, obligations, controversies, debts, costs, attorneys’ fees, court’s fees, expenses, damages, judgments, orders, compensation and liabilities of whatever kind or nature at law, in equity, or otherwise, whether now known or unknown, suspected or unsuspected, and whether or not concealed or hidden, which have existed or may have existed, or do exist or which hereafter can, shall or may exist, based on pursuit of any remedy or any and all claims, demands, damages, judgments, awards, costs, expenses, compensation or liabilities of any kind (whether asserted or unasserted) in relation to any facts, events, or omissions occurring from the beginning of time to the date of this undertaking and thereafter in future in relation to taxation of said income or relevant order or orders, or any related award, judgment or court order, which may otherwise be available to the interested party under any law for the time being in force, in equity, under any statute or under any agreement entered into by India with any country or territory outside India, whether for protection of investment or otherwise , whether it is in proceeding initiated by the interested party or by India and any Indian affiliate. For the avoidance of doubt, the interested party’s above waiver includes an irrevocable waiver of any claim against India and any Indian affiliate to costs incurred or interest accrued in relation to the relevant order or orders, or any related ongoing or completed litigation, arbitration, conciliation or mediation. Moreover, for the avoidance of any doubt, the interested party hereby undertakes to forgo any reliance on any right under any award, judgment, or court order pertaining to the relevant order or orders or under the relevant order or orders.

(h) The interested party further represents that as of the date of this undertaking, it has not transferred any of its claims under any award, judgment, or court order pertaining to the relevant order or orders or under the relevant order or orders, or granted any rights, to third parties, and further undertakes to not transfer any of its claims to third parties after entering this undertaking.

(i) In the event that, notwithstanding the foregoing, any person asserts, brings , files or maintains any claim against the Republic of India or Indian affiliates (hereinafter collectively referred to as “releasees”)at any time on or after the date of furnishing this undertaking, the interested party shall indemnify, defend and hold harmless such releasee from and against any and all costs, expenses (including attorneys’ fees and court’s fees), interest, damages, and liabilities of any nature arising out of or in any way relating to the assertion or, bringing, filing or maintaining of such claim. The interested party specifically represents that, to the best of its knowledge, after

i. the execution of this undertaking;

ii. the execution of any separate related undertaking by any other party in connection with the relevant order or orders; and

iii. irrevocable withdrawal of all pending proceeding as outlined in this undertaking.

no other claim regarding the said relevant order or orders referenced above, or any related award, judgment, or court order, shall remain outstanding against the Republic of India or any Indian affiliate. To avoid any doubt, the interested party’s indemnity of releases shall include any claim brought by any third party alleging that it has obtained the interested party’s claims under an award, judgment or court order or the relevant order or orders. An indemnity bond to this effect is attached in Part N of the undertaking.

(j) For the avoidance of any doubt, the interested party fully assumes the risk through the indemnity in clause (i) of any omission or mistake with respect to securing releases against any related claim by any person. If the interested party fails to obtain any release from such person, the interested party warrants that it will indemnify the Republic of India or any Indian affiliates from any defense costs, court costs, and damages. An indemnity bond to the effect of clauses (i) and (j) is annexed to the undertaking.

(k) The interested party further undertakes to refrain from facilitating, procuring, encouraging or otherwise assisting any party (including but not limited to any related party) from bringing any proceeding or claims of any kind referred to in the above clauses, or any proceeding or claim of any kind related to any relevant order or orders referred to above (whether in respect of tax, interest or penalty). The interested party shall notify by a public notice or press release, at any time before furnishing intimation in Form No. 3 where Form No. 3 is required to be furnished under rule 11UF and before furnishing this undertaking in other cases, that by signing this undertaking any claims arising out of or relating to the relevant order or orders or any related award, judgment or court order, no longer subsist. Such public notice shall include, among other things, confirmation that,-

i. the interested party forever irrevocably forgoes any reliance on any right and provisions under any award, judgment, or court order pertaining to the relevant order or orders or under the relevant order or orders;

ii. the interested party has provided this undertaking, which includes a complete release of the Republic of India and any Indian Affiliate with respect to any award, judgment, or court order pertaining to the relevant order or orders or under the relevant order or orders, and with respect to any claim pertaining to the relevant order or orders;

iii. the undertaking also includes an indemnity against any claims brought against the Republic of India or any India affiliate contrary to the release; and

iv. the interested party confirms it will treat any such award, judgment, or court order as null and void and without legal effect to the same extent as if it had been set aside by a competent court and will not take any action or initiate any proceeding or bring any claim based on that.

(l) The interested party confirms that the undertakings given herein are intended to be enforceable by the Republic of India, including so as to secure the irrevocable waiver, withdrawal or discontinuance (as appropriate) of all the proceeding and claims referred to in any of the clauses of this undertaking.

(m) The interested party represents and warrants that:

i. it has full legal power and authority to execute and deliver this undertaking (including but not limited to the issuance of the indemnity described in clauses (i) and (j) under applicable law;

ii. the execution, delivery and performance of this undertaking (including but not limited to the issuance of the indemnity described in clauses (i) and (j) has been duly authorised by all necessary corporate action, including but not limited to any board resolution or similar authorisation under applicable law (see Note 3);

iii. this undertaking constitutes the legal, valid and binding obligation of the interested party, enforceable against the interested party in accordance with its terms;

iv. such authorisations described in the above sub-clauses (i), (ii) and (iii) are effective under applicable law, and to this end, letters from local counsel in the relevant jurisdictions are attached to this undertaking which confirm the legality of such authorisations under applicable law; and

(n) This undertaking is governed by relevant Indian law and any dispute with respect to this undertaking shall be subject to Indian laws and be decided in accordance with the procedures specified in the Act under the exclusive jurisdiction of the relevant Income-tax authorities, tribunals or courts in India, as the case may be, which are empowered to decide disputes under the Act.

I also confirm that, I am aware of all the consequences and implications of this undertaking.

Place: ……………….. .

Date: ……………………….. .

Signature………………………………………….

Attachments

1. The Board Resolution and legal authorisation, as referred to in clause (m) of Part M.

2. An indemnity bond to the effect of clauses (i) and (j) of Part M in Part N of the undertaking in Form No. 1;

3. Copy of the public notice referred to in clause (k) of Part M, where Form No. 3 is not required to be furnished under sub-rule (6) of rule 11UF.

4. Attachments as required in different parts of the Annexure to Part M of this undertaking

Note:

1. This information is required to be furnished where the Permanent Account Number or Aadhaar Number of the signatory is available.

2. Company Identification Number and Taxpayer Identification Number are to be provided where Permanent Account Number/Aadhaar Number or Tax Deduction Account Number of the interested party are not available.

3. The Board Resolution or legal authorisation, as referred to in clause (m) of the undertaking shall, among other things:

a. record the Signatory’s power and authority to give the undertaking on behalf of the interested party; and

b. record the interested party’s power and authority to indemnify defend and hold harmless the Republic of India and the Indian affiliates in accordance with clause (i) of the undertaking.

VERIFICATION

Verified that the contents of this undertaking are true to the best of my knowledge and belief. No part of the undertaking is false and nothing has been concealed or misstated therein.

Verified at ___________place_________ on this the ___day ____of ___month ______ ,_year ________ .

Place: ……………..

Date: ……………….

Signature…………….

Annexure

Part MA– Particulars of the relevant order or orders:

Sl. No.	Assessment Year or Financial year	Income-tax Authority passing the order	Details of the order under consideration		Nature of interest of the interested party
			Section and sub-section of the Income-tax Act, 1961	Date of order
(1)	(2)	(3)	(4)	(5)	(6)

Part MB– Particulars of the relevant order or orders covered by sub-clause (i) of clauses (b), (c) and (d) of the undertaking:

Sl. No.	Sl. No. in Part MA where the relevant order is mentioned	No appeal or application or petition or proceeding before any Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court has been filed(refer clause (b)(i) of the undertaking).	No proceeding has been initiated for arbitration, conciliation or mediation, and no notice has been given thereof under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise (refer clause (c)(i) of the undertaking).	No proceeding initiated to enforce or pursue attachments in connection with any award, order or judgment, any other relief that may have been ordered or issued or passed by any tribunal or court or other judicial or administrative authority in relation to the said arbitration, conciliation or mediation proceeding in favour of the interested party against the Republic of India and Indian affiliates (refer clause (d)(i) of the undertaking).
(1)	(2)	(3)	(4)	(6)
		Applicable or Not applicable	Applicable or Not applicable	Applicable or Not applicable

Part MC – Particulars of the appeals or applications or petitions or proceeding under sub-clauses (ii) and (iii) of clause (b) of the undertaking:

Sl. No.	Sl. No. in Part MA where the relevant order is mentioned	Nature of appeals or applications or petitions or proceeding	Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court before whom such appeals or applications or petitions or proceeding has been filed	Date of filing the appeals or applications or petitions or proceeding	Date of disposing of or withdrawal of such appeals or applications or petitions or proceeding (Please attach a copy of order by the Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court accepting the withdrawal or disposing of)
(1)	(2)	(3)	(4)	(5)	(6)

Part MD – Particulars of the appeals or applications or petitions or proceeding under sub-clause (iv) of clause (b) of the undertaking:

Sl. No.	Sl. No. in Part MA where the relevant order is mentioned	Nature of appeals or applications or petitions or proceeding	Income-tax authority or Authority for Advance Rulings constituted under section 245-O of the Act or the Board for Advance Rulings under section 245-OB or Income-tax Settlement Commission constituted under section 245B or the Interim Board for Settlement constituted under section 245AA or any tribunal or court before whom such appeals or applications or petitions or proceeding has been filed	Date of filing the appeals or applications or petitions or proceeding
(1)	(2)	(3)	(4)	(5)

Part ME – Particulars of the proceeding for arbitration, conciliation or mediation, or notices under sub-clauses (ii) and (iii) of clause (c) of the undertaking:

Sl. No.	Sl. No. in Part MA where the relevant order is mentioned	Nature of proceeding for arbitration, conciliation or mediation, or notices thereof with case number or Notice given	Particulars (including the name of the country where such proceeding for arbitration, conciliation or mediation are pending or notices thereof have been issued)	Date of initiating the proceeding for arbitration, conciliation or mediation/issue of notice	Name of the agreement entered into by India under which the proceeding for arbitration, conciliation or mediation are pending	Status of the proceeding for arbitration, conciliation or mediation	Date of disposing of or withdrawal of such proceeding for arbitration, conciliation or mediation, or notices (Please attach evidence of such disposing or withdrawal, including order of the Tribunal or court or other judicial or quasi-judicial or administrative authority)
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)

Part MF – Particulars of the proceeding for arbitration, conciliation or mediation, or notices under sub-clause (iv) of clause (c) of the undertaking:

Sl. No.	Sl. No. in Part MA where the relevant order is mentioned	Nature of proceeding for arbitration, conciliation or mediation, or notices thereof with case number or Notice given	Particulars (including the name of the country where such proceeding for arbitration, conciliation or mediation are pending or notices thereof have been issued)	Date of initiating the proceeding for arbitration, conciliation or mediation/issue of notice	Name of the agreement entered into by India under which the proceeding for arbitration, conciliation or mediation are pending	Status of the proceeding for arbitration, conciliation or mediation
(1)	(2)	(3)	(4)	(5)	(6)	(7)

Part MG – Particulars of the award, order or judgment or any other relief under sub-clause (v) of clause (c) of the undertaking:

Sl. No.	Sl. No. in Part MA where the relevant order is mentioned	Nature of such award, order or judgment or any other relief	Particulars (Including the name of the country) where proceeding related to such award, order, judgment or any other relief were held	Date of such award, order, judgment or any other relief along with reference number	Status of the award, order, judgment or any other relief
(1)	(2)	(3)	(4)	(5)	(6)

Part MH – Particulars of the proceeding to enforce any award, order or judgment or any other relief under sub-clauses (ii) and (iii) of clause (d) of the undertaking:

Sl. No.	Sl. No. in Part MA where the relevant order is mentioned	Nature of proceeding to enforce such award, order or judgment or any other relief	Particulars (including the name of the country where such proceeding to enforce any award, order or judgment or any other relief are taking place)	Date of filing proceeding to enforce any award, order or judgment or any other relief	Nature of such award, order or judgment or any other relief (Attach copy thereof)	Status of the proceeding to enforce such award, order or judgment or any other relief	Date of disposing of or withdrawal of proceeding to enforce such award, order or judgment or any other relief (Please attach a copy of evidence of such disposing of/withdrawal, including order of the Court or other judicial authority)
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)

Part MI – Particulars of the proceeding under sub-clause (iv) of clause (d) of the undertaking:

Sl. No.	Sl. No. in Part MA where the relevant order is mentioned	Nature of proceeding to enforce such award, order or judgment or any other relief	Particulars (including the name of the country where such proceeding to enforce any award, order or judgment or any other relief are taking place)	Date of filing proceeding to enforce any award, order or judgment or any other relief	Nature of such award, order or judgment or any other relief (Attach copy thereof)	Status of the proceeding to enforce such award, order or judgment or any other relief
(1)	(2)	(3)	(4)	(5)	(6)	(7)

Part N

INDEMNITY BOND

This Indemnity Bond (“Bond”) is made on this………….. day of……….. , 2021 by………….. (name in block letters) son/daughter of………………….. designation and nationality……………………… and related passport number…………….. (hereinafter referred to as “Signatory”) having Permanent Account Number/Aadhaar Number/Tax Deduction Account Number (See Note 1)………………. on behalf of……………. (name of the declarant or interested party, as the case may be) having Permanent Account Number/Aadhaar number/Tax Deduction Account Number………………………… (See Note 2) and being duly authorised and competent to represent the declarant or interested party, as the case may be, in this regard pursuant to Board Resolution or legal authorisation (See Note 3), of the FIRST PART.

And

The Republic of India and any Indian affiliate (hereinafter collectively referred to as “releases”) of the OTHER PART WHEREAS:

A. The Income-tax Rules, 1962 have been amended and the Income-tax (31st Amendment) Rules, 2021 have come into force from the date of their publication in the Official Gazette.

B. The declarant or interested party, as the case may be, has filed an undertaking under sub-rule (1) of rule 11UE of the Income -tax Rules, 1962, to which this indemnity bond is annexed. Any defined terms not defined herein shall have the same meaning as the definitions given under rule 11UE and the undertaking.

C. Pursuant to the above, the declarant or interested party, as the case may be, has agreed to indemnify, defend and hold harmless the Republic of India and Indian affiliates from and against any and all costs, expenses (including attorney fees and court fees), interest, damages, and liabilities of any nature arising out of or in any way relating to the assertion or, bringing, filing or maintaining of any claim at any time after the date of furnishing the undertaking in Form No. 1 by any person, related to any relevant order or orders, or in relation to any award, order, judgment, or any other relief, or to any dispute underlying the award, and the declarant or interested party, as the case may be, has agreed to furnish an indemnity bond to this effect, such that the declarant or interested party, as the case may be, fully assumes the risk of any omission or mistake with respect to identification and procurement of authorisations and undertakings from any related parties or interested parties as provided in the undertaking, and securing the Republic of India and Indian affiliates from any claim related to any relevant order or orders, or in relation to any award, order, judgment, or any other relief or to the dispute underlying the award against the Republic of India or Indian affiliates in connection with the relevant order or orders.

D. Accordingly the declarant or interested party, as the case may be, is executing this Indemnity Bond in favour of the Republic of India on the terms appearing hereunder.

NOW THIS INDEMINTY BOND WITNESSETH AS FOLLOWS:

1. In the event that any person or entity asserts, brings, files or maintains any claim against any releasee at any time on or after the date of furnishing this undertaking, related to any relevant order or orders, or in relation to any award, order, judgment, or any other relief, or to any dispute underlying the award, against the Republic of India or Indian affiliates in connection with the relevant order or orders, the declarant or interested party, as the case may be, shall indemnify, defend and hold harmless such releases from and against any and all costs, expenses (including attorney fees and court fees), interest, damages, and liabilities of any nature arising out of or in any way relating to the assertion or, bringing, filing or maintaining of such claim.

2. The declarant or interested party, as the case may be, specifically represents that, to the best of
its knowledge, after—

i. the execution of this undertaking;

ii. the execution of any separate related undertaking by any other party in connection with the relevant order or orders; and

iii. withdrawal of all pending proceeding as outlined in this undertaking,

that no other claim regarding the said relevant order or orders referenced above, or any related award, judgment, or court order, or any aspect of the dispute underlying the award shall remain outstanding against the Republic of India or other release.

Explanation I.-For the removal of any doubt, the declarant’s or interested party’s indemnity of releases under this clause shall include any claim brought by any third party alleging that it has obtained declarant’s or interested party’s, as the case may be, claims under an award, judgment or court order or the relevant order or orders.

Explanation II.- the declarant or interested party, as the case may be, fully assumes the risk through this indemnity of any omission or mistake with respect to securing releases against any related claim by any person. If the declarant or interested party, as the case may be, fails to obtain any release from such person, the declarant or interested party, as the case may be, indemnifies through this document the releases from any defense costs, court costs, and damages.

3. This Indemnity Bond shall be governed by the relevant laws of India and the Delhi High Court
shall have sole jurisdiction to entertain and try any dispute or difference arising out of or in connection with the terms of this Bond.

IN WITNESS WHEREOF the undersigned herein has signed and set his hands on this ………………. day of………… , 2021.

For and on behalf of the declarant or interested party, as the case may be,

Name and address of Witness

Signature of the Witness

1.

2.

Place:
Date:
Notes

1. This information is required to be furnished where the Permanent Account Number or Aadhaar Number of the signatory is available.

2. Company Identification Number and Taxpayer Identification Number are to be provided where Permanent Account Number or Aadhaar Number or Tax Deduction Account Number of the declarant or interested party, as the case may be, are not available.

3. The Board Resolution or legal authorisation, as referred to in clause (m) of the undertaking shall, among other things:

(a) record the signatory’s power and authority to give the undertaking on behalf of the declarant or interested party, as the case may be; and

(b) record the declarant or interested party’s power and authority, as the case may be, to indemnify defend and hold harmless the Republic of India and the Indian affiliates in accordance with clause (i) of the undertaking).]

Note:

^1.Inserted by the Income-tax (Thirty-first Amendment) Rules, 2021, w.e.f. 1-10-2021.

*******

Form No. : 2

¹[FORM NO. 2
[See rule 11UF]
Form for Certificate Under sub-rule (2) of rule 11UF

<Name of the declarant>
Address of the declarant
Sir/Madam

1. The……………………… (name of the declarant) (hereinafter referred to as the declarant) with Permanent Account Number/Aadhaar number/Tax Deduction Account Number/Company Identification Number and Taxpayer Identification Number……….. has filed an undertaking in Form No. 1 dated………. under sub-rule (1) of the rule 11UE of the rules.

2. Pursuant to the undertaking filed by the declarant in Form No. 1 under sub-rule (1) of rule 11UE, the provisions of fifth proviso to Explanation 5 to clause (i) of sub-section (1) of section 9 of the Act shall be applicable to the orders mentioned below, subject to the fulfilment of the conditions specified in said proviso read with relevant rules and fulfilment of the undertakings by the declarant in Form No. 1:

TABLE

Sl. No.	Sl. No. of the Table in Part A of Form No. 1 where the relevant order is mentioned	Assessment Year or Financial year	Income-tax Authority passing the order	Details of the order under consideration		Taxes or Penalty determined	Interest	Total demand	Relief, provided in any appeal proceeding, if any	Demand recovered from the declarant	Pending demand or refund due as on date	Details of the attachments made by any Income-tax Authority
				Section and sub-section of the Income-tax Act, 1961	Date of order
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)	(13)

3. Demand recovered, as per the column (11) of the Table above, shall be refunded to the declarant, subject to the conditions under sub-rule (2) of the rule 11UE and the provisions of the Act, without any interest as per the provisions of the sixth proviso to Explanation 5 to clause (i) of sub-section (1) of section 9 of the Act, attachments, if any, the details whereof are provided in column (13) of the Table, shall be revoked and appeals or applications or petitions or proceeding, if any, filed by any income-tax authority or any other person representing the Republic of India with respect to the specified orders, as per column (2) of the Table, shall be withdrawn or intimation shall be sent to the concerned person, on the issue of Form No. 4, as per the procedure provided in sub-rule (16) of rule 11UF. Further, no interest under section 244A of the Act will be payable to the declarant as per the provisions of sixth proviso to Explanation 5 to clause (i) of sub-section (1) of section 9 of the Act.

Certificate No…….
Place…..
Date………..

………………………….

(Principal Commissioner/Commissioner of Income-tax) ]

Note:

^1.Inserted by the Income-tax (Thirty-first Amendment) Rules, 2021, w.e.f. 1-10-2021.

********

Form No. : 2A

FORM NO. 2A [Omitted by the IT (Tenth Amdt.) Rules, 2001, w.e.f. 2-7-2001. Earlier, existing Form No. 2A was inserted by the IT (Third Amdt.) Rules, 1994, w.e.f. 1-6-1994; substituted by the IT (Fourth Amdt.) Rules, 1995, w.e.f. 1-6-1995; amended by the IT (Fourth Amdt.) Rules, 1998, w.e.f. 1-4- 1998 and later on substituted by the IT (Fifth Amdt.) Rules, 2000, w.e.f. 11-5-2000.]

*******

Form No. : 2B

FORM NO. 2B [Omitted by the IT (Twenty-first Amdt.) Rules, 2021, w.e.f. 29-7-2021 (see rule 130). Earlier, Form No. 2B was inserted by the IT (Sixteenth Amdt.) Rules, 1995, w.e.f. 23-8-1995; amended by the IT (Eighth Amdt.) Rules, 1999, w.e.f. 18-5-1999, IT (Sixth Amdt.) Rules, 2000, w.e.f. 11-5-2000 and later on substituted by the IT (Fifteenth Amdt.) Rules, 2001, w.e.f. 27-7-2001.]

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Form No. : 2C

FORM NO. 2C [Omitted by the IT (Twenty-first Amdt.) Rules, 2021, w.e.f. 29-7-2021 (see rule 130). Earlier, Form No. 2C was inserted by the IT (Eighth Amdt.) Rules, 1997, w.e.f. 27-6-1997; substituted by the IT (Eleventh Amdt.) Rules, 1998, w.e.f. 25-8-1998; amended by the IT (Seventh Amdt.) Rules, 2000, w.e.f. 11-5-2000 and IT (Eighteenth Amdt.) Rules, 2002, w.e.f. 29-7-2002 and later on substituted IT (Sixteenth Amdt.) Rules, 2001, w.e.f. 27-7-2001.]

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Form No. : 2E

FORM NO. 2E [Omitted by the IT (Twenty-first Amdt.) Rules, 2021, w.e.f. 29-7-2021 (see rule 130). Earlier, Form No. 2E was inserted by the IT (Sixth Amdt.) Rules, 2003, w.e.f. 14-5-2003 and later on amended by the IT (Ninth Amdt.) Rules, 2004, w.e.f. 14-7-2004 and IT (Sixteenth Amdt.) Rules, 2005, w.e.f. 20-6-2005.

********

Form No. : 3

¹[FORM NO. 3

[See rule 11UF]

Intimation for Withdrawal under sub-rule (3) of rule 11UF of the Income- tax Rules, 1962

To,

The Principal Commissioner/Commissioner

………………………………………. ……………………………….

Sir/Madam,

I……………… (name in block letters) son/daughter of ………………… designation ……………..and nationality ………………..and related passport number………………. (hereinafter referred to as “signatory”) having Permanent Account Number/Aadhaar Number ………………………(see Note 1) on behalf of …………………….. (name of the declarant) having Permanent Account Number/Aadhaar number/Tax Deduction Account Number (see Note 2) ……………………………….. and being duly authorised and competent to represent the declarant in this regard pursuant to Board Resolution and legal authorisation (see Note 3), as the case may be, hereby confirm that the declarant has received an order in Form No. 2 dated________

Pursuant thereto, I confirm that the pending appeals or applications or petitions, arbitration, conciliation, mediation, claims or other proceeding, if any, as referred in Part D, Part F, Part G, Part I and Part M of the undertaking in Form No. 1 dated…… have been irrevocably, on a with prejudice basis, withdrawn or discontinued and are not being pursued. The evidence of action taken in this regard are enclosed herewith.

Place…………….
Date……………..

………………..
Signature/Verification

Attachments

1. Attach the Board Resolution or legal authorisation, as the case may be, as referred to in clause (m) of the undertaking.

2. Attach the evidence of action taken as referred above.

VERIFICATION

Verified that the contents of this intimation are true to the best of my knowledge and belief. No part of the intimation is false and nothing has been concealed or misstated therein.

Verified at……place………. on this the ……. day …………. of…. month……….,…year………..
Place: ……………..
Date: ……………..

Signature
………………………………..

Notes

1. This information is required to be furnished where the Permanent Account Number or Aadhaar Number of the signatory is available.

2. Company Identification Number and Taxpayer Identification Number are to be provided where Permanent Account Number or Aadhaar Number or Tax Deduction Account Number of the interested party are not available.

3. The Board Resolution or legal authorisation, as referred to in clause (m) of the undertaking and such Board resolution or legal authorisation shall, among other things:

(a) record the signatory’s power and authority to give the undertaking on behalf of the interested party; and

(b) record the interested party’s power and authority to indemnify defend and hold harmless the Republic of India and the Indian affiliates in accordance with clause (i) of the undertaking.]

Note:

^1.Inserted by the Income-tax (Thirty-first Amendment) Rules, 2021, w.e.f. 1-10-2021.

*********

Form No. : 3AA

FORM NO. 3AA [Omitted by the IT (Twenty-first Amdt.) Rules, 2021, w.e.f. 29-7-2021 (see rule 130). Earlier, Form No. 3AA was inserted by the IT (Fourteenth Amdt.) Rules, 2002, w.e.f. 1-4-2003 and later on amended by the IT (Fifteenth Amdt.) Rules, 2004, w.e.f. 1-4-2005.]

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Form No. : 3AAA

FORM NO. 3AAA [Omitted by the IT (Twenty-first Amdt.) Rules, 2021, w.e.f. 29-7-2021 (see rule 130). Earlier, Form No. 3AAA was inserted by the IT (Sixth Amdt.) Rules, 1986, w.e.f. 1-4-1987 and later on amended by the IT (Ninth Amdt.) Rules, 1987 and IT (Fourteenth Amdt.) Rules, 2002, w.e.f. 1-4-2003.]

********

Form No. : 3AB

FORM NO. 3AB [Omitted by the IT (Thirty-second Amdt.) Rules, 1999, w.e.f. 19-11-1999. Earlier, Form No. 3AB was inserted by the IT (Amdt.) Rules, 1978 and amended by the IT (Sixth Amdt.) Rules, 1986, w.e.f. 1-4-1987.]

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Tax Reference Tables

Employees – Benefits allowable

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.

List of benefits available to Salaried Persons^*

[AY 2026-27]

S. N.	Section	Particulars	Benefits
A.	Allowances
1.	10(13A)	House Rent Allowance (Sec. 10(13A) & Rule 2A)	Least of the following is exempt: a) Actual HRA Received b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras) c) Rent paid minus 10% of salary * Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission Note: i. Fully Taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent ii. 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 10th October, 2013].
2.	10(14)	Children Education Allowance	Up to Rs. 100 per month per child up to a maximum of 2 children is exempt
3.	10(14)	Hostel Expenditure Allowance	Up to Rs. 300 per month per child up to a maximum of 2 children is exempt
4.	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
5.	Sec. 10(14)	Transport Allowance 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; or b) Rs. 10,000 per month.
6.	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
7.	10(14)	Any Allowance granted to meet the cost of travel on tour or on transfer	Exempt to the extent of expenditure incurred
8.	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
9.	10(14)	Helper/Assistant Allowance	Exempt to the extent of expenditure incurred
10.	10(14)	Research Allowance granted for encouraging the academic research and other professional pursuits	Exempt to the extent of expenditure incurred
11.	10(14)	Uniform Allowance	Exempt to the extent of expenditure incurred
12.	10(7)	Foreign allowances or perquisites paid or allowed by Government to its employees (an Indian citizen) posted outside India	Fully Exempt
13.	–	Allowances to Judges of High Court/Supreme Court (Subject to certain conditions)	Fully Exempt.
14.	10(45)	Following allowances and perquisites given to serving Chairman/Member of UPSC is exempt from tax: a) Value of rent free official residence b) Value of conveyance facilities including transport allowance c) Sumptuary allowance d) Leave travel concession	Fully Exempt
15.	–	Allowances paid by the UNO to its employees	Fully Exempt
16.	10(45)	Allowances to Retired Chairman/Members of UPSC (Subject to certain conditions)	Exempt subject to maximum of Rs.14,000 per month for defraying services of an orderly and for secretarial assistant on contract basis. The value of residential telephone free of cost and the number of free calls to the extent of 1500 per month shall be exempt.
17.	Sec. 10(14)	Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)	Amount exempt from tax varies from Rs. 300 per month to Rs. 7,000 per month.
18.	Sec. 10(14)	Border area allowances, Remote Locality allowance or Disturbed Area allowance or Difficult Area Allowance (Subject to certain conditions and locations)	Amount exempt from tax varies from Rs. 200 per month to Rs. 1,300 per month.
19.	Sec. 10(14)	Tribal area allowance given in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Odisha	Rs. 200 per month
20.	Sec. 10(14)	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)	Rs. 2,600 per month
21.	Sec. 10(14)	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)	Rs. 1,000 per month
22.	Sec. 10(14)	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)	Rs. 3,900 per month
23.	Sec. 10(14)	Underground Allowance is granted to employees working in uncongenial, unnatural climate in underground mines	Up to Rs. 800 per month
24.	Sec. 10(14)	High Altitude Allowance is 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) b) Up to Rs. 1,600 per month (for altitude above 15,000 feet)
25.	Sec. 10(14)	Highly active field area allowance granted to members of armed forces (Subject to certain conditions and locations)	Up to Rs. 4,200 per month
26.	Sec. 10(14)	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
B.	Perquisites
1.	17(2)(i)/(ii) read with Rule 3(1)	Rent free unfurnished accommodation provided to Central and State Government employees	License Fees determined in accordance with rules framed by Government for allotment of houses shall be deemed to be the taxable value of perquisites.
2.	17(2)(i)/(ii) read with Rule 3(1)	Unfurnished rent free accommodation provided to other employees	Taxable value of perquisites A. If House Property is owned by the employer: i. 10% of salary, if population of city where accommodation is provided exceeds 40 lakhs as per 2011 census ii. 7.5% of salary, if population of city where accommodation provided exceeds 15 lakhs but does not exceed 40 lakhs as per 2011 census iii. 5% of salary, if accommodation is provided in any other city B. If House Property is taken on lease or rent by the employer, the perquisite value shall be : i. Lease rent paid or payable by the employer or 10% of the salary, whichever is lower *Salary includes: a) Basic Pay b) Dearness Allowance (only to the extent it forms part of retirement benefit salary) c) Bonus d) Commission e) All other allowances (only taxable portion) f) Any monetary payment which is chargeable to tax But does not include i. Value of any perquisite [under section 17(2)] ii. Employer’s contribution to PF iii. Benefits received at the time of retirement like gratuity, pension etc. C. If same accommodation is provided for more than one year, the perquisite value shall be lower of the following: (a) Perquisite value computed as per the above rules; or (b) First year’s perquisite value as adjusted by the Cost Inflation Index (CII). Note: 1) Rent free accommodation is not chargeable to tax if provided to an employee working at mining site or an on-shore oil exploration site, etc.,— (i) which is being of temporary nature (subject to conditions) (ii) which is located in remote area. 2) Rent free accommodation if provided to High Court or Supreme Court Judges, Union Ministers, Leader of Opposition in Parliament, an official in Parliament and Serving Chairman and members of UPSC is Tax Free Perquisites. 3) The value so determined shall be reduced by the amount of rent, if any, paid by the employee. 4) If employee is transferred and retain property at both the places, the taxable value of perquisites for initial period of 90 days shall be determined with reference to only one accommodation (at the option of the assessee). The other one will be tax free. However after 90 days, taxable value of perquisites shall be charged with reference to both the accommodations.
3.	17(2)(i)/(ii) read with Rule 3(1)	Rent free furnished accommodation	Taxable value of perquisites a) Find out taxable value of perquisite assuming accommodation to be provided to the employee is unfurnished b) Add: 10% of original cost of furniture and fixtures (if these are owned by the employer) or actual higher charges paid or payable (if these are taken on rent by the employer). Note: The value so determined shall be reduced by the amount of rent, if any, paid by the employee
4.	17(2)(i)/(ii) read with Rule 3(1)	A furnished accommodation in a Hotel	Taxable value of perquisites Value of perquisite shall be lower of following: a) Actual charges paid or payable by the employer to such hotel b) 24% of salary Note: Hotel accommodation will not be chargeable to tax if : a) It is provided for a total period not exceeding in aggregate 15 days in the financial year; and b) Such accommodation in hotel is provided on employee’s transfer from one place to another place.
5.	17(2)(iv)	Any sum paid by employer in respect of any obligation of an employee	Fully Taxable
5A.	17(2)(vii)	Contribution made to the account of the assessee by the employer–– (a) in a recognised provident fund; (b) in the scheme referred to in section 80CCD(1); and (c) in an approved superannuation fund	To the extent it exceeds Rs. 7,50,000
5B.	17(2)(iv)	Any annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme	To the extent it relates to the employer’s contribution which is included in total income
5C.	17(2)(viii) read with Rule 3(2)	Motor Car / Other Conveyance	Taxable value of perquisites (See Note 1 below)
6.	17(2)(viii) read with Rule 3(3)	Services of a domestic servant including sweeper, gardener, watchmen or personal attendant (Taxable in case of specified employee only [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.
7.	17(2)(viii) read with Rule 3(4)	Supply of gas, electricity or water for household purposes	Taxable value of perquisites: 1. Manufacturing cost per unit incurred by the employer., if provided from resources owned by the employer; 2. Amount paid by the employer, if purchased by the employer from outside agency Note: i. Any amount recovered from the employee shall be deducted from the taxable value of perquisite. ii. Taxable in case of specified employees only [See note 4]
8.	17(2)(viii)read with Rule 3(5)	Education Facilities	Taxable value of perquisites (See Note 2 below)
9.	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) (Taxable in case of specified employee only [See Note 4])	Value at which services are offered by the employer to the public less amount recovered from the employee shall be a taxable perquisite
10.	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
11.	17(2)(vi) read with Rule 3(8)/3(9)	ESOP/ Sweat Equity Shares	Taxable value of perquisites 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, 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.
12.	17(2)(vii)	Employer’s contribution towards: a) recognised provided fund b) NPS (Section 80CCD(1)) c) Approved Superannuation fund	Taxable in the hands of employee to the extent such contribution exceed Rs.7,50,000
13.	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 point 1) at the rate of interest (given in point 2) 4. Interest actually recovered, if any, from employee 5. The balance amount (point 3-point 4) is taxable value of perquisite Nothing is taxable if: a) Loan in aggregate does not exceed Rs 20,000 b) 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.
14.	17(2)(viii) read with Rule 3(7)(ii)	Facility of travelling, touring and accommodation availed of by the employee or any member of his household for any holiday	a) Perquisite value taxable in the hands of employee 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 less amount recovered from employee.
15.	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 perquisite 2) 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.
16.	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 taxable b) Gift in kind up to Rs.5,000 in aggregate per annum would be exempt, beyond which it would be taxable.
17.	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 perquisite b) Expenses incurred for official purposes shall not be a taxable perquisite provided complete details in respect of such expenditure are maintained by the employer
18.	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 perquisite b) 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.
19.	17(2)(viii) read with Rule 3(7)(vii)	Use of movable assets of the employer by the employee is a taxable perquisite	Taxable value of perquisites a) Use of Laptops and Computers: Nil b) 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 1 for computation of perquisite value in case of use of the Motor Car
20.	17(2)(viii) read with Rule 3(7)(viii)	Transfer of movable assets by an employer to its employee	Taxable value of perquisites a) 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 employee b) 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 employee c) 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.
21.	17(2)(viii) read with Rule 3(7)(ix)	Any other benefit or amenity extended by employer 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.
22.	10(10CC)	Tax paid by the employer on perquisites (not provided for by way of monetary payments) given to employee	Fully exempt
23.	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.	The exemption shall be limited to fare for going anywhere in India along with family twice in a block of four years: i. Exemption limit where journey is performed by Air – Air fare of economy class in the National Carrier by the shortest route or the amount spent, whichever is less ii. Exemption limit where journey is performed by Rail – Air-conditioned first class rail fare by the shortest route or the amount spent, whichever is less iii. Exemption limit if places of origin of journey and destination are connected by rail but the journey is performed by any other mode of transport – Air-conditioned first class rail fare by the shortest route or the amount spent, whichever is less iv. Exemption limit where the places of origin of journey and destination are not connected by rail: a. Where a recognized public transport system exists – First Class or deluxe class fare by the shortest route or the amount spent, whichever is less b. Where no recognized public transport system exists – Air conditioned first class rail fare by shortest route or the amount spent, whichever is less Notes: i. Two journeys in a block of 4 calendar years is exempt ii. Taxable only in case of Specified Employees [See note 4]
24.	Proviso to section 17(2)	Medical facilities in India	1) 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: a) Hospital maintained by the employer. b) Hospital maintained by the Government or Local Authority or any other hospital approved by Central Government c) Hospital approved by the Chief Commissioner having regard to the prescribed guidelines for treatment of the prescribed diseases. 2) Medical insurance premium paid or reimbursed by the employer is not chargeable to tax.
25.	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) Cost on travel of the employee or any family or one attendant – exempt, if Gross Total Income (before including the travel expenditure) of the employee, does not exceed such amount as may be prescribed.
26.	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 2020-21]
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 deductible : a) Rs 5,000 b) 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 is deductible. 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
	a) 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 received b) Unutilized earned leave* X Average monthly salary c) 10 months Average Salary** d) Rs. 25,00,000 *While computing unutilized earned leave, earned leave entitlements cannot exceed 30 days for each year of service rendered to the current employer **Average salary = Average Salary*** of last 10 months immediately preceding the retirement ***Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission
	b) Retrenchment Compensation
1.	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) an amount calculated as per section 25F(b) of the Industrial Disputes Act, 1947; b) Rs. 5,00,000; or c) Amount actually received Note: i. Relief under Section 89(1) is available ii. 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.
	c) Gratuity
1.	10(10)(i)	Gratuity received by Government Employees (Other than employees of statutory corporations)	Fully Exempt
2.	10(10)(ii)	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. 20,00,000 3. 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
3.	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. Half month’s Average Salary* X Completed years of service 2. Rs. 20,00,000 3. Gratuity actually received. *Average salary = Average Salary of last 10 months immediately preceding the month of retirement ** Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission
	d) Pension
1.	–	Pension received from United Nation Organization by the employee of his family members	Fully Exempt
2.	10(10A)(i)	Commuted Pension received by an employee Central Government, State Government, Local Authority Employees and Statutory Corporation	Fully Exempt
3.	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
4.	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
5.	10(19)	Family Pension received by the family members of Armed Forces	Fully Exempt
6.	57(iia)	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
	e) Voluntary Retirement
1.	10(10C)	Amount received on Voluntary Retirement or Voluntary 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 following a) 3 months salary for each completed year of services b) Salary at the time of retirement X No. of months of services left for retirement; or 2) Rs. 5,00,000
	f) Provident Fund
1.	–	Employee’s Provident Fund	For taxability of contribution made to various employee’s provident fund and interest arising thereon see Note 3.
	g) National Pension System (NPS)
1.	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 the 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 Section 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 21-08-1990]	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)(ii)	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 India b) His stay in India does not exceed in aggregate a period of 90 days in such previous year c) 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 upto 1600 cc (value of perquisite )	Engine Capacity above 1600 cc (value of perquisite)
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	If car is 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	If car is 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% p.a. of the cost of vehicle less any amount charged from the employee for such use is taxable
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)	Rs. 2,400 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car)
		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	If car is 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	If car is 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) 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)	Rs. 900 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car)
		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	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.	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.
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 minus Rs. 900 per month minus amount recovered from employee	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
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 such amount as may be prescribed.

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

[As amended by Finance Act, 2025]

********

Treatment of income from different sources

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 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 Received b) 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 based Commission Note: i. Fully taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent ii. 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; or b) 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 residence b) Value of conveyance facilities including transport allowance c) Sumptuary allowance d) 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 exempt b) 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 exempt ii. 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 1 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)(vii)	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 2 4) From the total interest calculated for the entire previous year (step 3), deduct interest actually recovered, if any, from employee 5) 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; or b) 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)(ii)	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 perquisite 2) 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 taxable b) 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 perquisite b) 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 perquisite b) 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)(vii)	Use of movable assets of the employer by the employee is a taxable perquisite	Taxable value of perquisites a) Use of Laptops and Computers: Nil b) 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 1 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 perquisites a) 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 employee b) 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 employee c) 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 by employer 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 Government iii. 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 2020-21]
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 5,000 b) 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 received b) Unutilized earned leave* X Average monthly salary c) 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 immediately preceding the retirement ***Salary = Basic Pay + DA (to the extent it forms part of retirement benefits)+ 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; or c) Amount actually received Note: i. Relief under Section 89(1) is available ii. 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)(ii)	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. 20,00,000 3. 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. Half month’s Average Salary* X Completed years of service 2. Rs. 20,00,000 3. 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(iia)	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 or Voluntary 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 following a) 3 months salary for each completed year of services b) Salary at the time of retirement X No. of months of services left for retirement; or 2) 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 21-08-1990]	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)(ii)	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 India b) His stay in India does not exceed in aggregate a period of 90 days in such previous year c) 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; and b) 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; or b) Any sum received or receivable for not sharing any know-how, patent, copyright, trademark, licence, franchise, or any other business or commercial right or information or technique likely to assist in the manufacture of goods or provision of services.
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 on i) buildings, machinery, plant or furniture, being tangible assets; ii) know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature not being goodwill of business or profession, being intangible assets	Allowed at prescribed percentage on Straight Line Method for each asset Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, the deduction in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset.	Assessees engaged in business of generation or generation and distribution of power Note: Taxpayers engaged in the business of generation or generation and distribution of power shall have the option to claim depreciation either on basis of straight line basis method or written down value method on each block of asset.
32(1)(ii)	Depreciation on i) buildings, machinery, plant or furniture, being tangible assets; ii) know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature not being goodwill of business or profession, being intangible assets	Allowed at prescribed percentage on WDV method for each block of asset Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, the deduction in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset.	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 year Note: 1. Manufacturing unit should be set-up on or after 1st day of April, 2015. 2. New plant and machinery acquired and installed during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020	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; or b) 40% of profits from such business before making any deduction under section 33AB and before adjusting any brought forward loss. (Subject to certain conditions)	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; or b) 20% of profits from such business before making any deduction under section 33ABA and before adjusting any brought forward loss. (Subject to certain conditions)	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 facility b) Setting up and operating a warehousing facility for storage of agricultural produce c) Building and operating, anywhere in India, a hospital with at least 100 beds for patients d) Developing and building a housing project under a notified scheme for affordable housing e) Production of fertilizer in India (Subject to certain conditions)	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 onwards Note: If such specified businesses commence operations on or before 31-03-2012 but after prescribed dates, deduction shall be limited to 100% of capital expenditure. Note: No deduction of any capital expenditure above Rs 10,000 shall be allowed if it is incurred in cash.	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 rehabilitation d) Setting up and operating an inland container depot or a container freight station e) Bee-keeping and production of honey and beeswax f) Setting up and operating a warehousing facility for storage of sugar g) Laying and operating a slurry pipeline for the transportation of iron ore h) Setting up and operating a semi-conductor wafer fabrication manufacturing unit i) Developing or maintaining and operating, or developing, maintaining and operating a new infrastructure facility (Subject to certain conditions)	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 assessee Note: Such deduction is available to Indian company in case of following business, namely;- i) Business of laying and operating a cross-country natural gas or crude or petroleum oil pipeline network ii) Developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility.
35CCA	Payment to following Funds are allowed as deduction: a) National Fund for Rural Development; and b) 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 accounts Note:- However, if amount of debt or part thereof has been taken into account in computing the income of assessee on basis of income computation and disclosure standards notified under Section 145(2) without recording the same in accounts then, such debt shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable. It shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts.	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). Note Deduction in respect of bad debts actually written off under section 36(1)(vii) shall be limited to that amount of bad debts which exceed the provision for bad and doubtful debts created under section 36(1)(viia).	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; or b) Public company registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of residential houses in India. [Subject to certain conditions]	Deduction shall be allowed to the extent of lower of following: a) Amounts transferred to special reserve account b) 20% of profits derived from eligible business c) 200% of paid-up capital and general reserve (on last day of previous year) minus balance in special reserve account (on first day of previous year)	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 deduction 2) 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, or b) 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 profession Note: (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 deductible Note: 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 expenditure b) 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; or 2) 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; or Note: 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 business 2) 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.

B. 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 Securities 2) Date of transfer (through stock exchanges) of shares and securities 3) 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 parts 5) 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 GDR b) Rupee Denominated Bond of an Indian Co. c) Derivative d) 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 consideration Less: 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 year Add: Actual cost of assets falling within that block acquired during the year Less: Full value of consideration of assets transferred during the year Less: 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 assets before 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 transferred 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 Institutional Investors

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 Debenture Note: 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 option b) If shares are allotted before April 1, 2007 (not being during 1999-2000), the amount actually paid to acquire the securities c) 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; and c) 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 01-04-2001 b) 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 exchange b) 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 higher b) If it became property of taxpayer before April 1, 2001 : Cost of acquisition or FMV as on April 1, 2001, whichever is more c) 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 owner d) 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 tax e) 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; and b) 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

[As amended by Finance Act, 2025]

********

Allowances allowable to tax payer

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.

1.b Allowances available to different categories of Tax payers

[AY 2026-27]

S. No.	Section		Particulars			Limit of exemption		Exemption available to
A. Under the head Salaries
1.	10(7)		Any allowance or perquisite paid or allowed by Government to its employees posted outside India			Entire Amount		Individual- Salaried Employee (being a citizen of India)
2.	–		Allowances to Judges of High Court/Supreme Court			Exempt, subject to certain conditions.		Individual – Judges of High Court/Supreme Court
3.	–		Salary and allowances received by a teacher /professor from SAARC member state (Subject to certain conditions).			Fully Exempt		Individual – Teacher from SAARC member State
4.	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 5,000 b) 1/5th of salary (excluding any allowance, benefits or other perquisite) c) Actual entertainment allowance received		Individual – Government Employee
5.	10(13A)		House Rent Allowance (Sec. 10(13A) & Rule 2A)			Least of the following is exempt: a) Actual HRA Received b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras) c) Rent paid minus 10% of salary * Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission Note: i. Fully Taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent ii. 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 10th October, 2013].		Individual – Salaried employee
6.	10(14)		Children Education Allowance			Up to Rs. 100 per month per child up to a maximum of 2 children is exempt		Individual – Salaried employee
7.	10(14)		Hostel Expenditure Allowance			Up to Rs. 300 per month per child up to a maximum of 2 children is exempt		Individual – Salaried employee
8.	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		Individual – Salaried Employee
9.	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; or b) Rs. 10,000 per month.		Individual – Salaried employee
10.	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		Individual – Salaried employee
11.	10(14)		Any Allowance to meet the cost of travel on tour or on transfer			Exempt to the extent of expenditure incurred for official purposes		Individual – Salaried employee
12.	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		Individual – Salaried employee
13.	10(14)		Helper/Assistant Allowance			Exempt to the extent of expenditure incurred for official purposes		Individual – Salaried employee
14.	10(14)		Research Allowance granted for encouraging the academic research and other professional pursuits			Exempt to the extent of expenditure incurred for official purposes		Individual – Salaried employee
15.	10(14)		Uniform Allowance			Exempt to the extent of expenditure incurred for official purposes		Individual – Salaried employee
16.	Sec. 10(14)		Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)			Amount exempt from tax varies from Rs. 300 per month to Rs. 7,000 per month.		Individual – Salaried employee
17.	Sec. 10(14) read with Rule 2BB		Border area allowance Remote Locality or allowance or Disturbed Area allowance or Difficult Area Allowance (Subject to certain conditions and locations)			Amount exempt from tax varies from Rs. 200 per month to Rs. 1,300 per month.		Individual – Salaried employee
18.	Sec. 10(14)		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		Individual – Salaried employee
19.	Sec. 10(14)		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		Individual – Salaried employee
20.	Sec. 10(14)		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		Individual – Salaried employee
21.	Sec. 10(14)		Counter Insurgency 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. 3,900 per month		Individual – Members of Armed Forces
22.	Sec. 10(14)		Underground Allowance is granted to employees working in uncongenial, unnatural climate in underground mines			Up to Rs. 800 per month		Individual – Salaried employee
23.	Sec. 10(14)		High Altitude Allowance is 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) b) Up to Rs. 1,600 per month (for altitude above 15,000 feet)		Individual – Members of Armed Forces
24.	Sec. 10(14)		Highly active field area allowance is granted to members of armed forces (Subject to certain conditions and locations)			Up to Rs. 4,200 per month		Individual – Members of Armed Forces
25.	Sec. 10(14)		Island Duty Allowance is 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		Individual – Members of Armed Forces
26.	–		City Compensatory Allowance			Fully Taxable		Individual – Salaried employee
27.	–		Fixed Medical Allowance			Fully Taxable		Individual – Salaried employee
28.	–		Tiffin/Lunch/Dinner/Refreshment Allowance			Fully Taxable		Individual – Salaried employee
29.	–		Servant Allowance			Fully Taxable		Individual – Salaried employee
30.	–		Dearness Allowance			Fully Taxable		Individual – Salaried employee
31.	–		Project Allowance			Fully Taxable		Individual – Salaried employee
32.	–		Overtime Allowance			Fully Taxable		Individual – Salaried employee
33.	–		Telephone Allowance			Fully Taxable		Individual – Salaried employee
34.	–		Holiday Allowance			Fully Taxable		Individual – Salaried employee
35.	–		Any Other Cash Allowance			Fully Taxable		Individual – Salaried employee
36.	16(ia)		Standard Deduction			Under regular tax regime: • Rs. 50,000 or the amount of salary, whichever is lower Under Alternative Tax Regime [Section 115BAC(1A)(ii)) • Rs. 75,000 or the amount of salary, whichever is lower		Individual – Salaried Employee & Pensioners
B. Under the head Income from house property
1.	First proviso to section 23(1)		Municipal tax levied by local authority and borne by owner in respect of house property			Amount actually paid during the relevant previous year		All assessee
1A.	23(5)		No Notional income for house property held as stock-in-trade			Any building and land appurtenant thereto held as stock-in-trade which is not let during the whole or any part of the previous year. Annual value of such property for the period upto two year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be Nil.		All assessee
2.	24(a)		Standard Deduction			30% of the Annual Value (Gross Annual Value- Municipal Taxes)		All assessee
3.	24(b)		Interest incurred on borrowed capital			Interest on borrowed capital is allowed as deduction from income from house property as under: a) Up to Rs. 2,00,000 (if amount is borrowed for construction/acquisition of self-occupied house property on or after 01-04-1999), subject to certain other conditions b) Up to Rs. 30,000 (if amount is borrowed for reconstruction, repair or renewals of self-occupied house property) c) Actual amount of interest paid or payable during the year (in case of let-out property) d) Pre-construction period interest is allowed in 5 equal annual installments (Subject to certain conditions) 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.		All assessee
4.	Section 25A		Standard Deduction from arrears of rent or unrealized rent received subsequently			30% of arrears of rent or unrealized rent.		All assessee
C. Under the head Profits and gains from business or profession
1.	32(1)		Depreciation in respect of: i) Tangible assets (buildings, machinery, plant or furniture); ii) Intangible Assets (know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature not being goodwill of business or profession)			Depreciation shall be allowed at prescribed percentage on actual cost of an asset. However, if asset is acquired and put to use for less than 180 days during the previous year, the deduction shall be restricted to 50% of depreciation computed above.		Taxpayer engaged in business of generation or generation and distribution of power. Note: Taxpayer engaged in business of generation or generation and distribution of power have the option to claim depreciation either on straight line basis or written down value basis.
2.	32(1)		Depreciation in respect of: i) Tangible assets (buildings, machinery, plant or furniture); ii) Intangible Assets (know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature not being goodwill of business or profession)			Depreciation shall be allowed at prescribed percentage on written down value of each block of asset (as per WDV method). However, if asset is acquired and put to use for less than 180 days during the previous year, the deduction shall be restricted to 50% of depreciation computed above.		All assessees
3.	32(1)(iia)		Additional depreciation on new plant and machinery (other than ships, aircraft, office appliances, second hand plant or machinery, etc.) shall be allowed subject to certain conditions.			Additional depreciation to be allowed at 20 % of actual cost of new plant and machinery. However, if an asset is acquired and put to use for less than 180 days during the previous year, 50% of additional depreciation shall be allowed in year of acquisition and balance 50% would be allowed in the next year.		All taxpayers engaged in: a) manufacture or production of any article or thing; or b) generation or transmission or distribution of power (if taxpayer not claiming depreciation on basis of straight line method)
4.	Proviso to Section 32(1)(iia)		Additional depreciation on new plant and machinery (other than ships, aircraft, vehicle, office appliances, second hand plant or machinery, etc.) shall be allowed subject to certain conditions.			Additional depreciation to be allowed at 35 % of actual cost of new plant and machinery. However, if an asset is acquired and put to use for less than one 180 days during the previous year, 50% of additional depreciation shall be allowed in year of acquisition and balance 50% in next year.		All taxpayers which set up an undertaking or enterprise for production or manufacture of any article or thing in any notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal. Note: 1. Manufacturing unit should be set-up on or after April 1, 2015. 2. New plant and machinery should be acquired and installed on or after April 1, 2015 but before April 1, 2020.
5.	32AC		Deduction under section 32AC is available if actual cost of new plant and machinery acquired and installed by a manufacturing company after 31-3-2013 but before 1-4-2015 exceeds Rs. 25/100 Crores, as the case may be.(Subject to certain conditions)			15% of actual cost of new asset acquired and installed		Company engaged in business or manufacturing or production of any article or thing
6.	32AD		Investment allowance for investment in new plant and machinery (other than ships, aircraft, vehicle, office appliances, second hand plant or machinery, etc.) if manufacturing unit is set-up in notified backward area in the State of Andhra Pradesh, Bihar, Telangana or West Bengal (subject to certain conditions)			Investment allowance to be allowed at 15 % of actual cost of new plant and machinery in the year in which such asset is installed.		All taxpayers who acquire new plant and machinery for purpose of setting-up manufacturing unit in notified backward areas in the State of Andhra Pradesh, Bihar, Telangana or West Bengal Note: 1) New asset should be acquired and installed on or after April 1, 2015 but before April 1, 2020. 2) Manufacturing unit should be set-up on or after April 1, 2015. 3) Deduction shall be allowed under Section 32AD in addition to deduction under Section 32AC if assessee fulfils the specified conditions.
7.	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; or b) 40% of profits from such business before making any deduction under section 33AB and before adjusting any brought forward loss. (Subject to certain conditions)		All assessee engaged in business of growing and manufacturing tea/Coffee/Rubber
8.	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; or b) 20% of profits from such business before making any deduction under 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
9.	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
10.	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
11.	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
12.	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
13.	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
14.	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
15.	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 as deduction. Note: i. Deduction shall be allowed if company enters 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
16.	35AD		Deduction in respect of expenditure on specified businesses, as under: a) Setting up and operating a cold chain facility b) Setting up and operating a warehousing facility for storage of agricultural produce c) Building and operating, anywhere in India, a hospital with at least 100 beds for patients d) Developing and building a housing project under a notified scheme for affordable housing e) Production of fertilizer in India (Subject to certain conditions)			100% of capital expenditure incurred for the purpose of business is allowed as deduction Note: No deduction of any capital expenditure above Rs 10,000 shall be allowed where such expenditure is incurred in cash.		All assessee
17.	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 rehabilitation d) Setting up and operating an inland container depot or a container freight station e) Bee-keeping and production of honey and beeswax f) Setting up and operating a warehousing facility for storage of sugar g) Laying and operating a slurry pipeline for the transportation of iron ore h) Setting up and operating a semi-conductor wafer fabrication manufacturing unit i) Developing or maintaining and operating or developing , maintaining and operating a new infrastructure facility (Subject to certain conditions)			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.		All assessee Note: Such deduction is available to Indian company in case of following business, namely;- (i) Business of laying and operating a cross-country natural gas or crude or petroleum oil pipeline network (ii) Developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility. No deduction of any capital expenditure shall be allowed in respect of which cash payment is made above Rs. 10,000.
18.	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
19.	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
D. Under the head Capital Gain
Particulars	Section 54	Section 54B	Section 54D	Section 54EC	Section 54EE	Section 54F	Section 54G	Section 54GA	Section 54GB
Eligible taxpayer	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).	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, 2022.
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. Note: The Central Government has notified bonds redeemable after five years and issued on or after 1st day of April, 2025 by ‘Housing and Urban Development Corporation Limited (HUDCO)’ as ‘long-term specified asset’ for Section 54EC. [Notification no. 31/2025, dated 07-04-2025]	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 in a financial year.	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

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

E. Under the head Income from other sources
1.	56(2)(vii)	Any sum of money or immovable property or movable property received without consideration or for inadequate consideration from a relative or member of HUF (subject to certain conditions and circumstances) [on or after 01-10-2009 but before 01-04-2017]	The whole amount received from specified relatives or in specified circumstances shall not be included in taxable income.	Individual and HUF
1A.	56(2)(x)	Any sum of money or immovable property or movable property received without consideration of for inadequate consideration*** from any person. [on or after 01-04-2017] *** in case of immovable property, ‘inadequate consideration’ shall mean difference between stamp duty value and actual consideration, if it exceeds Rs. 50,000 or amount equal to 10% of consideration, whichever is higher. 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)	The whole amount received from specified relatives or in specified circumstances shall not be included in taxable income.	Any person
2.	57(iia)	Standard Deduction for family pension	Under regular tax regime: • 33.33% of Family Pension subject to maximum of Rs. 15,000 Under Alternative Tax Regime [Section 115BAC(1A)(ii) • 33.33% of Family Pension subject to maximum of Rs. 25,000	Individual

[As amended by Finance Act, 2025]

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Tax Tutorials

Deductions/Allowances allowed to a salaried employee

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.

Deductions/Allowances allowed to a salaried employee

‘Salary’ is the first head of income. The income taxable under this head shall be calculated on the due basis or the receipt basis, whichever occurs earlier. Taxable salary shall include taxable allowances, perquisites, retirement benefits, and profit in lieu of salary. Certain deductions are also allowed from salary income.

Taxability of Allowances

Allowances are additional components of salary that are regularly given to the employees to meet the expenditure for particular purposes. Allowances are generally fixed irrespective of actual expenditure and are taxable. Under the Act, it is taxable under Section 15 on a due or accrual basis, irrespective of whether it is paid in addition to or in lieu of salary. However, some exemptions are allowed by the Income-tax Act.

Types of Allowances

In accordance with the term of employment or condition of the workplace or statutory requirement, an employer may provide various allowances to the employees. An allowance is assumed to be taxable under the head ‘Salary’ unless it is specifically exempted from tax, fully or partly. The treatment of popular allowances shall be in accordance with the following provision.

Fully Taxable Allowances

Allowance	Description
Dearness Allowance	Dearness Allowance is provided to an employee to compensate for the effect of rising prices and inflation.
Overtime Allowance	Allowance given to employees for working overtime.
City Compensatory Allowance	City Compensatory Allowance is paid by employers to their employees to compensate them for the high cost of living in metro cities.
Transport Allowance to employee other than blind/ deaf and dumb/ orthopedically handicapped employee	Transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty is fully taxable. However, in the case of blind/deaf and dumb/ orthopedically handicapped employees, an exemption of up to Rs. 3,200 per month is provided.
Medical Allowance, Tiffin Allowance, and Servant Allowance are also taxable under Section 15.

Partially Taxable Allowances

Description	Exemption
House Rent Allowance is paid by the employers to the employees to meet the cost of rented house taken by them. [Section 10(13A)] (See Note)	Minimum of the following three amounts: 🞄 HRA Actually Received 🞄 Actual house rent paid minus 10% of salary 🞄 50% of salary (if the residence is in Delhi, Mumbai, Kolkata, or Chennai), otherwise 40% of salary.
Transport Allowance granted to an employee working in any transport system to meet his personal expenditure during the performance of his duties for going from one place to another, provided he does not receive the daily allowance,	Lower of 70% of such transport allowance or Rs. 10,000 per month.
Children Education Allowance – Granted to meet the tuition fees of a maximum of two children.	Up to Rs. 100 per month per child for a maximum of 2 children
Hostel Allowance – Granted to meet the Hostel expenditure of a maximum of two children	Up to Rs. 300 per month per child for a maximum of 2 Children.
Office Duty Allowances 🞄 Travelling allowance 🞄 Conveyance allowance 🞄 Daily allowance 🞄 Helper allowance 🞄 Research allowance 🞄 Uniform allowance	These allowances are exempt to the extent of a minimum of actual allowance received or actual amount spent for the purpose of duties of employment.
Special Compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations)	Varies from Rs. 300 per month to Rs. 7,000 per month.
Border Area Allowance, or Remote Locality Allowance, or Disturbed Area Allowance, or Difficult Area Allowance (Subject to certain conditions and locations)	Varies from Rs. 200 per month to Rs. 1,300 per month.
Tribal Area or Special Compensatory or Scheduled Area or Agency Area Allowance (Subject to certain locations)	Up to Rs. 200 per month
Compensatory Field Area Allowance. (Subject to certain conditions and locations)	Up to Rs. 2,600 per month
Compensatory Modified Field Area Allowance. (Subject to certain conditions and locations)	Up to Rs. 1,000 per month
Counter Insurgency Allowance granted to the members of armed forces operating in areas away from their permanent locations.	Up to Rs. 3,900 per month
Underground Allowance granted to employees working in uncongenial, unnatural climates in underground mines	Up to Rs. 800 per month
High Altitude Allowance granted to the armed forces operating in high-altitude areas	a) Up to Rs. 1,060 per month (for an altitude of 9,000 to 15,000 feet) b) Up to Rs. 1,600 per month (for an altitude above 15,000 feet)
Special Compensatory Highly Active Field Area Allowance granted to members of the armed forces	Up to Rs. 4,200 per month
Island Duty Allowance granted to members of the armed forces in Andaman and Nicobar and Lakshadweep group of Island	Up to Rs. 3,250 per month

Note: House Rent Allowance

The exemption for House Rent Allowance (‘HRA’) shall be allowed if the residential accommodation occupied by the employee is not owned by him and he actually pays rent in respect of such residential accommodation. Thus, no exemption is allowed if the employee stays in an accommodation owned by him or where he does not pay any rent in respect of the accommodation.

‘Salary’ for this purpose shall be the aggregate of basic salary, dearness allowance (if it forms part of salary for retirement benefits), and commission paid to the employee.

The exemption is allowed only for the period during which the rented house is occupied by the employee and not for any period after or before that. If rental expenditure is less than 10% of salary, no exemption shall be allowed to the employee for the HRA.

Deductions from Salary [Section 16]

Income-tax Act allows three deductions from the salary income, i.e., Standard Deduction, Deduction for Entertainment Allowance, and Deduction for Professional Tax. Standard Deduction is allowed to every employee whose income is taxable under the head salary. In contrast, the other two deductions are allowed subject to certain conditions.

Standard Deduction

This deduction is available to all employees drawing salary income, including retired employees drawing pension income. The Standard Deduction is absolute and unconditional, and the employee does not require to furnish any supporting evidence to claim this deduction. The deduction is the same for all employees with a ceiling of Rs. 50,000, irrespective of the salary drawn. However, with effect from 01-04-2025, the Finance (No. 2) Act, 2024 increased the amount of standard deduction from the existing Rs. 50,000 to Rs. 75,000 in a case where the assessee-employee computes the income tax under the new (default) tax regime prescribed under Section 115BAC(1A)(ii). Accordingly, this will apply to assessment year 2025-26.

Entertainment Allowance

The entertainment allowance received by an employee is a taxable allowance. If such entertainment allowance is received by a Government employee, a deduction is allowed to him while computing the taxable income under the head salary. However, no deduction is allowed under this provision to a taxpayer who is not an employee of any Central or State Government.

The amount of deduction allowable to the Govt. employee for the Entertainment Allowance shall be lower of the following:

🞄 Actual amount of entertainment allowance received during the previous year

🞄 20% of salary exclusive of any allowance, benefit, or other perquisites

🞄 Rs. 5,000

Professional tax

Professional tax paid by the employee, by way of deduction from his salary, is allowed as a deduction from the taxable salary income. Even if paid in advance, the professional tax paid during the year is deductible from the salary income.

If the employer pays the professional tax out of his pocket, without deducting it from the employee’s salary, then it shall be first included in the employee’s income as a perquisite. After that, a deduction on such professional tax is allowed from gross salary.

Deduction allowed to salaried employee [Chapter VI-A]

Section 80C Common investments or expenditures for which the deduction under Section 80C is allowed are as under: 1. Payment for life insurance premium 2. Sum paid under a contract for a deferred annuity 3. Contributions to the Employees’ or Recognised Provident Fund 4. Contribution to Public Provident Fund Account 5. Contribution to an approved superannuation fund 6. Subscription to any notified security or notified deposit scheme (Sukanya Samrudhi Account Scheme) 7. Subscription to notified savings certificates 8. Contribution to notified unit-linked insurance plan 9. Tuition fees for the full-time education of any 2 children 10. Certain payments for the purchase/construction of residential house property 11. Notified annuity plan of LIC or other insurers 12. Investment in Equity Linked Saving Scheme 13. Term deposits for a fixed period of not less than 5 years with a scheduled bank 14. Deposit in Senior Citizen Savings Scheme 15. Contribution to Tier-II NPS account by central government’s employees.	Up to 1,50,000 (Subject to overall limit of Rs. 1,50,000 under Section 80C, 80CCC and 80CCD(1))
Section 80CCC Contribution to certain specified Pension Funds of LIC/other insurers (Subject to certain conditions).	Up to 1,50,000 (Subject to overall limit of Rs. 1,50,000 under Section 80C, 80CCC and 80CCD )
Section 80CCD Contribution to New Pension Scheme (NPS) notified by the Central Government (Subject to certain conditions).	🞄 Amount contributed to a pension scheme or 10% or 14%, as the case may be, of salary/gross total income*, whichever is less (subject to ceiling limit of Rs. 1,50,000 as provided under Section 80CCE) shall be allowed as deduction under section 80CCD(1). 🞄 Additional deduction to the extent of Rs. 50,000 shall also be available to the assessee under section 80CCD(1B). The additional deduction is not subject to a ceiling limit of Rs. 1,50,000 as provided under Section 80CCE. 🞄 Contribution made by the employer shall also be allowed as a deduction under section 80CCD(2) while computing the total income of the employee. However, the amount of deduction could not exceed 14% of the salary in case of central/state Govt. employees and 10% or 14%, as the case may be, in any other employees. *10% of salary in case of employees otherwise 20% of gross total income. Note: The benefit of additional deduction of upto Rs. 50,000 under section 80CCD(1B) is also available to sum deposited to the account of minor by parent or guardian (effective from AY 2026-27)
Section 80CCH Amount paid/deposited in Agniveer Corpus Fund by the assessee and contribution made by Central Government to such fund	Whole of the amount paid/deposited
Section 80D Amount paid (in any mode other than cash) to LIC or other insurers to effect or keep in force an insurance on the health of a specified person (self, spouse, dependent children or parents). An individual can also make payment to the Central Government health scheme and/or on account of preventive health check-up. Note: 🞄 Deduction for preventive health check-up shall not exceed in aggregate Rs. 5,000. 🞄 Payment on account of preventive health check-up may be made in cash. 🞄 Within the overall limit, deduction shall also be allowed up to Rs. 50,000 towards medical expenditure incurred on the health of a specified person provided such person is a resident senior citizen and no amount has been paid to effect or to keep in force an insurance on the health of such person.	🞄 For self, spouse, and dependent children: Up to Rs. 25,000 (Rs. 50,000 if specified person is a senior citizen) 🞄 For parents: additional deduction of Rs. 25,000 shall be allowed (Rs. 50,000 if the parent is a senior citizen)
Section 80DD (a) Any expenditure incurred for the medical treatment (including nursing), training, and rehabilitation of a dependent, being a person with disability (b) Any amount paid or deposited under an approved scheme framed in this behalf by the LIC or any other insurer or the Administrator or the specified company for the maintenance of a dependent, being a person with disability (Subject to certain conditions).	Rs. 75,000 (Rs. 1,25,000 in case of severe disability) Note: Dependant of individual means the spouse, children, parents, brothers and sisters of the individual or any of them.
Section 80DDB Expenses actually paid for medical treatment of specified diseases and ailments for the assessee himself or wholly dependent spouse, children, parents, brothers and sisters(Subject to certain conditions).	Up to Rs. 40,000 (Rs. 100,000 in case of senior citizen)
Section 80E Amount paid out of income chargeable to tax by way of payment of interest on loan taken from financial institution/approved charitable institution for pursuing higher education (Subject to certain conditions).	The amount of interest paid during the initial year and 7 immediately succeeding assessment years (or until the above interest is paid in full).
Section 80EE Interest payable on a loan taken up to Rs. 35 lakhs by the taxpayer from any financial institution, sanctioned during the FY 2016-17, for the purpose of acquisition of a residential house property whose value does not exceed Rs. 50 lakhs. Note: On the date of sanction of loan, the taxpayer should not own any other residential house property.	Deduction of up to Rs. 50,000 towards interest on loan.
Section 80EEA Interest payable on a loan taken by an individual, who is not eligible to claim deduction under section 80EE, from any financial institution during the period beginning from 01-04-2019 ending on 31-03-2022 for the purpose of acquisition of a residential house property whose stamp duty value does not exceed Rs. 45 lakhs.	Deduction of up to Rs. 1,50,000 towards interest on loan
Section 80EEB Interest payable on a loan taken by an individual from any financial institution during the period beginning from 01-04-2019 and ending on 31/03/2023 to purchase an electric vehicle.	Deduction of up to Rs. 1,50,000 towards interest on loan
Section 80G Donation to specified institutions or funds Note: No deduction shall be allowed in respect of donation in cash over Rs. 2,000.	50% to 100% of donation made
Section 80GG Rent paid for furnished/unfurnished residential accommodation (Subject to certain conditions)	Minimum of the following shall be allowed as deduction: (a) Rent paid in excess of 10% of total income; (b) 25% of the Total Income; or (c) Rs. 5,000 per month. Total Income = Gross total income minus long-term capital gains, short-term capital gains under section 111A, deductions under sections 80C to 80U (other than 80GG ) and income under Section 115A
Section 80GGA Donation for scientific research or rural development Note: No deduction shall be allowed in respect of cash contribution over Rs. 2,000.	100% of the donation made
Section 80GGC Donation to a political party or an electoral trust Note: The amount contributed in cash shall not be eligible for deduction.	100% of the donation made
Section 80TTA Interest on deposits in saving account with a banking company, a post office, a co-operative society engaged in banking business, etc. (Subject to certain conditions)	100% of the amount of such income subject to maximum of Rs. 10,000
Section 80TTB Interest on deposits with a banking company, a post office, a co-operative society engaged in banking business, etc. (Subject to certain conditions)	100% of the amount of such income subject to the maximum amount of Rs. 50,000
Section 80U A resident individual who, at any time during the previous year, is certified by the medical authority to be a person with disability	Rs. 75,000 (Rs. 1,25,000 in case of severe disability)

MCQs on Deductions/Allowances allowed to salaried employees

Q1. Transport allowance granted to an employee (except who is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities) to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty is _________.

(a) Fully Taxable

(b) Exempt up to Rs. 3,200 per month

(c) Exempt up to Rs. 1,600 per month

(d) None of the above

Correct answer: (a)

Explanation: Transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty is fully taxable. However, in the case of blind/deaf and dumb/ orthopedically handicapped employees, an exemption of up to Rs. 3,200 per month is provided.

Q2. Medical allowance granted by an employer to the employee is fully taxable.

(a) True

(b) False

Correct answer: (a)

Explanation: Medical Allowance, Tiffin Allowance, and Servant Allowance granted by an employer to the employee is fully taxable.

Q3. House Rent Allowance paid by the employers to the employees is exempt up to _________.

(a) HRA Actually Received

(b) Actual house rent paid minus 10% of salary

(c) 50% of the salary (if the residence is in Delhi, Mumbai, Kolkata, or Chennai), otherwise 40% of the salary

(d) Lower of (a), (b) and (c)

Correct answer: (d)

Explanation: House Rent Allowance paid by the employers to the employees is exempt up to the minimum of the following amounts:

🞄 HRA Actually Received

🞄 Actual house rent paid minus 10% of salary

🞄 50% of salary (if the residence is in Delhi, Mumbai, Kolkata, or Chennai), otherwise 40% of salary.

Q4. Transport Allowance granted to an employee working in any transport system to meet his personal expenditure during the performance of his duties for going from one place to another is exempt up to _________.

(a) 70% of such transport allowance

(b) Rs. 10,000 per month

(c) Lower of (a) or (b)

(d) Higher of (a) or (b)

Correct answer: (c)

Explanation: Transport Allowance granted to an employee working in any transport system to meet his personal expenditure during the performance of his duties for going from one place to another, provided he does not receive the daily allowance and is exempt up to Lower of 70% of such transport allowance or Rs. 10,000 per month.

Q5. Which of the following allowances are exempt to the extent of a minimum of actual allowance received or actual amount spent for the purpose of duties of employment?

(a) Travelling allowance

(b) Research allowance

(c) Uniform allowance

(d) All of the above

Correct answer: (d)

Explanation: Office Duty Allowances are exempt to the extent of a minimum of actual allowance received or actual amount spent for the purpose of duties of employment. This includes Travelling allowance, Conveyance allowance, Daily allowance, Helper allowance, Research allowance and Uniform allowance.

Q6. The entertainment allowance received by an employee (other than a government employee) is exempt up to ______.

(a) Actual amount of entertainment allowance received

(b) 20% of salary exclusive of any allowance, benefit, or other perquisite

(c) Rs. 5,000

(d) None of the above

Correct answer: (d)

Explanation: The entertainment allowance received by an employee is a taxable allowance. If such entertainment allowance is received by a Government employee, a deduction is allowed to him while computing the taxable income under the head salary. The amount of deduction allowable to the Govt. employee for the Entertainment Allowance shall be lower of the following:

🞄 Actual amount of entertainment allowance received during the previous year

🞄 20% of salary exclusive of any allowance, benefit, or other perquisite

🞄 Rs. 5,000

Q7. Which of the following payments are covered for the deduction under Section 80C?

(a) Life insurance premium

(b) Contribution to Public Provident Fund Account

(c) Tuition fees

(d) All of the above

Correct answer: (d)

Explanation: Deduction under Section 80C can be claimed for all of the above-mentioned payments including Life insurance premium, Contribution to Public Provident Fund Account, and Tuition fees (excluding development fees, donations, etc.) paid by an individual to any university, college, school, or other educational institution situated in India, for the full-time education of any 2 of his/her children.

Q8. What is the maximum amount allowed under Section 80D for the payment made by an individual for the health insurance premium of the parents (senior citizen)?

(a) Rs. 25,000

(b) Rs. 50,000

(c) Rs. 1,00,000

(d) Rs. 5,000

Correct answer: (b)

Explanation: An individual can claim a maximum deduction of Rs. 50,000 under section 80D where payment is made in respect of medical insurance premium on the health of his parents (if the parent is a senior citizen) otherwise Rs. 25,000 shall be allowed as deduction.

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Taxability of Retirement Benefits

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.

Taxability of Retirement Benefits

Retirement benefits play a crucial role in providing financial security to employees in their post-retirement years. In India, employers provide various retirement benefits to employees. The most common retirement benefits offered by employers in India include the Employee Provident Fund (EPF) and the National Pension System (NPS), both of which are savings schemes that allow employees to accumulate a portion of their salary, along with a matching contribution from their employer. Additionally, employees are entitled to receive gratuity, a lump sum payment made as a token of appreciation for their service, and leave encashment on their retirement. If an employee is eligible for a pension, he may also receive the commuted pension. If an employee is voluntarily retired or retrenched, he may be entitled to voluntary retirement compensation or retrenchment compensation. The taxability of these retirement benefits under the Income-tax Act is as follows:

Gratuity

An employer is liable to pay gratuity to an employee who has completed 5 years of continuous services and his employment with the employer terminates due to retirement, resignation, or superannuation. However, in case of death or disablement of the employee, the employer is liable to pay the gratuity even if the employee does not complete 5 years of service. The taxability of gratuity shall be as under:

Particulars	Taxability
Gratuity received during service	Fully Taxable
Gratuity received at the time of retirement
Gratuity received by Government Employees (Other than employees of statutory corporations)	Fully Exempt
Death -cum-Retirement gratuity received by other employees who are covered under Gratuity Act, 1972 (other than Government employees) (Subject to certain conditions).	Least of the 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. 20,00,000 3. Gratuity actually received. *7 days in case of an employee of a seasonal establishment. ** Salary = Last drawn salary including DA but excluding any bonus, commission, HRA, overtime, and any other allowance, benefits, or perquisite
Death -cum-Retirement gratuity received by other employees who are not covered under Gratuity Act, 1972 (other than Government employees) (Subject to certain conditions).	Least of the following amount is exempt from tax: 1. Half month’s Average Salary* X Completed years of service 2. Rs. 20,00,000 3. Gratuity actually received. *Average salary = Average Salary of the last 10 months immediately preceding the month of retirement ** Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover-based commission

Pension

Pension is a payment made by the employer after the retirement/death of the employee as a reward for past services. There are two kinds of pension:-

(a) Commuted Pension – Commutation of pension means immediate payment of the lump-sum amount to an employee in lieu of surrender of a portion of the monthly pension.

(b) Uncommuted Pension – When the pension is paid on a periodical basis, it is called an uncommuted Pension.

The tax treatment of pension shall be as under:

Particulars	Taxability
Uncommuted Pension	Fully Taxable. However, disability pension payable to disabled armed forces personnel shall be exempt from tax.
Family Pension	33.33% of Family Pension subject to a maximum of Rs. 15,000 shall be exempt from tax. However, the family pension received by the family members of the armed forces shall be fully exempt from tax.
Commuted pension received by an employee of the Central Government, State Government, Local Authority, and Statutory Corporation	Fully Exempt
Commuted pension received by other employees who also receive gratuity	1/3 of the full value of commuted pension will be exempt from tax
Commuted pension received by other employees who do not receive any gratuity	1/2 of the full value of commuted pension will be exempt from tax

Leave Encashment Salary

Every entity provides leaves to the employees, which can be availed of by them in emergency situations or for vacations. If these leaves are not availed of by them, they may lapse or are encashed at the year-end or are carried forward to next year, as per the service rules of the employer. The accumulated leaves standing to the credit of an employee may be availed of by the employee during the tenure of employment or may be encashed at the time of retirement or resignation. When leaves are surrendered in lieu of monetary consideration, it is known as ‘leave encashment’. The taxability of leave encashment shall be as under:

Particulars	Taxability
Received during the period of service	Fully Taxable
Received on dealth of the employee	Fully Exempt
Received on retirement, whether on superannuation or otherwise
Encashment of unutilized earned leave at the time of retirement of Government employees	Fully Exempt
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 received b) Unutilized earned leave* X Average monthly salary c) 10 months Average Salary** d) Rs. 25,00,000 *While computing unutilized earned leave, earned leave entitlements cannot exceed 30 days for each year of service rendered to the current employer **Average salary = Average Salary*** of the last 10 months immediately preceding the retirement ***Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover-based commission

Voluntary Retirement Scheme

Voluntary retirement is an early retirement option given by an employer to its employees to take retirement before the decided age of retirement. To ensure social security for the retiring employees, employers provide ‘voluntary retirement compensation’ to its employees. Such compensation is taxable in the hands of the employees as profit in lieu of salary. However, exemption under Section 10(10C) is allowed to the extent of lower of the following:

(a) Compensation received; or

(b) Rs. 500,000.

The exemption is allowed subject to the following conditions:-

(a) The voluntary retirement compensation is paid by the specified category of employer.

(b) The scheme should be drawn to result in an overall reduction in the existing strength of the employees.

(c) The employee has completed 10 years of service or completed 40 years of age. (This condition is not applicable in the case of employees of a Public Sector Company).

(d) The vacancy caused by the voluntary retirement is not re-filled by any other new hiring. Moreover, the retiring employee must not be employed in any other company or concern of the same management.

(e) The employee has not availed of any tax exemption in respect of voluntary retirement compensation in the past.

(f) The amount of compensation does not exceed 3 months’ salary for each completed year of service or salary for the remaining period of employment left before such retirement. ‘Salary’ for this purpose shall be the total of last drawn basic salary, dearness allowance (if forms part of salary for computing retirement benefits), and commission paid to the employee.

(g) The scheme should apply to all employees, including workers and executives of a concern excluding directors of a company or a co-operative society.

(h) Employee should not claim relief under Section 89 in respect of such compensation.

Retrenchment Compensation

Retrenchment Compensation received by a workman under the Industrial Dispute Act, 1947, or any other law for termination of his employment is exempt from tax up to Rs. 5,00,000. The taxability of retrenchment compensation is as follows:

Particulars	Taxability
Payment of compensation under a Scheme approved by the Central Government	Fully Exempt
Payment of compensation on the closure of the undertaking due to the losses	Lower of the following is exempt: (a) Rs. 5,00,000. (b) Retrenchment compensation actually received. (c) Average wage * 15/26 * completed year of continuous service or any part thereof in excess of 6 months.
Payment of compensation on the closure of the undertaking for any other reason beyond the control of the employer	Lower of the following is exempt: (a) Rs. 5,00,000. (b) Retrenchment compensation actually received. (c) Average wage of three months.

Provident Fund

Employee’s Provident Fund (EPF) is a retirement benefit scheme that’s available to salaried employees. Contribution in EPF is made both by the employee and the employer. The contribution, earning, and withdrawals from the EPF account are exempt from tax except in certain circumstances.

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

Treatment of	Recognised Provident Fund (RPF)	Statutory Provident Fund (SPF)	Unrecognized Provident Fund (UPF)
Employer’s Contribution	Contribution up to 12% of basic salary + DA is exempt from tax. However, it shall be taxable in the following two scenarios: (a) Any contribution above 12%; (b) Any contribution above Rs. 7,50,0001.	–	Not Taxable
Employee’s Contribution	Eligible for deduction under Section 80C	Eligible for deduction under Section 80C	Not eligible for deduction under Section 80C
Interest earned on PF	Exempt from tax. However, it shall be taxable in the following two scenarios: (a) Interest above the notified rate; (b) Interest relating to the employee’s contribution above Rs. 5 lakh, in case no contribution is made by employer; (c) Interest relating to the employee’s contribution above Rs. 2.5 lakh, in case employer has also contributed to the fund.	Exempt from tax. However, it shall be taxable in the following scenarios: (a) Interest relating to the employee’s contribution above Rs. 5 lakh, in case no contribution is made by employer; (b) Interest relating to the employee’s contribution above Rs. 2.5 lakh, in case employer has also contributed to the fund.	Not taxable at the time of accrual
Withdrawal after 5 years	Exempt from tax	Exempt from tax	Aggregate of the following shall be taxable: (a) Employer’s contribution; (b) Interest on employer’s contribution; and (c) Interest on employee’s contribution
Withdrawal before 5 years	Total income is computed as if the fund is not recognised from the beginning.	Exempt	Aggregate of the following shall be taxable: (a) Employer’s contribution; (b) Interest on employer’s contribution; and (c) Interest on employee’s contribution

National Pension System (NPS)

National Pension System (NPS) is a retirement savings scheme administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA). Under the NPS, individual savings are pooled into a pension fund which is invested by PFRDA regulated professional fund managers as per the approved investment guidelines into the diversified portfolios comprising of government bonds, bills, corporate debentures and shares. These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.

The tax treatment of the contribution made to the NPS, accumulation of return and the amount withdrawn from the NPS is as follows:

Particulars	Taxability
Contribution to NPS
(a) Employees’ contribution to NPS	The deduction is allowed up to 10% of salary plus additional deduction of Rs. 50,000.
(b) Employers’ contribution to NPS*	The deduction is allowed up to: ■ 14% of salary in case of Central Government or State Government employees; ■ 10%* of salary in case of other employees. * 14% if the total income of employee is chargeable to tax under section 115BAC(1A), i.e., new tax regime Note: The benefit of additional deduction of upto Rs. 50,000 under section 80CCD(1B) is also available to sum deposited to the account of minor by parent or guardian (effective from AY 2026-27)
(c) Any other person not being an employee	The deduction is allowed up to 20% of gross total income plus additional deduction of Rs. 50,000.
Accumulation
Yearly return on the corpus amount	Tax-free
Withdrawal
(a) Partial withdrawal	In subscriber is an employee, exempt to the extent of 25% of the contribution made by the employee to the NPS. Note: Any partial withdrawal from NPS shall be exempt to the extent of 25% of amount of contributions made by the parent or guardian of minor.
(b) Final withdrawal at the time of closure of account or opting out of the scheme	Exempt up to 60% of the total corpus available in the NPS account of the subscriber.
(c) Amount received by the nominee on death of subscriber	Fully exempt
Pension Income
Pension received out of NPS or annuity	Fully Taxable

MCQs on Taxability of retirement benefits

Q1. An employer is liable to pay gratuity to an employee who has completed ________ and his employment with the employer terminates due to retirement, resignation, or superannuation.

(a) 5 years of continuous service

(b) 2 years of continuous service

(c) 1 year of continuous service

(d) 10 years of continuous service

Correct answer – (a)

Explanation: An employer is liable to pay gratuity to an employee who has completed 5 years of continuous services and his employment with the employer terminates due to retirement, resignation, or superannuation.

Q2. Gratuity received by an employee during his service is ________.

(a) Fully taxable

(b) Fully exempt

(c) Exempt to the extent of Rs. 10 lakhs

(d) Exempt to the extent of Rs. 20 lakhs

Correct answer – (a)

Explanation: Gratuity received by an employee during his service is fully taxable.

Q3. When the pension is paid on a periodic basis, it is called ________.

(a) Commuted pension

(b) Uncommuted pension

Correct answer – (b)

Explanation: When the pension is paid on a periodical basis, it is called an uncommuted Pension.

Q4. Commuted pension received by an employee of the Local Authority is fully exempt.

(a) True

(b) False

Correct answer – (a)

Explanation: Commuted pension received by an employee of the Central Government, State Government, Local Authority, and Statutory Corporation is fully exempt.

Q5. Leave encashment received on the death of the employee is fully taxable.

(a) True

(b) False

Correct answer – (b)

Explanation: Leave encashment received on the death of the employee is fully exempt.

Q6. What is the maximum amount allowed as exempt under section 10(10C) in respect of voluntary retirement compensation?

(a) Compensation received

(b) Rs. 5,00,000

(c) Lowed of (a) and (b)

(d) Higher of (a) and (b)

Correct answer – (c)

Explanation: Exemption under Section 10(10C) is allowed to the extent of lower of the following:

(a) Compensation received; or

(b) Rs. 500,000.

Q7. What is the maximum amount allowed as exempt in respect of retrenchment compensation received on the closure of undertaking due to the losses?

(a) Retrenchment compensation received

(b) Rs. 5,00,000

(c) Average wage * 15/26 * completed year of continuous service or any part thereof in excess of 6 months.

(d) Lowed of (a), (b), and (c)

Correct answer – (d)

Explanation: Lower of the following is exempt where retrenchment compensation received by the employee on the closure of the undertaking due to the losses:

(a) Rs. 5,00,000.

(b) Retrenchment compensation actually received.

(c) Average wage * 15/26 * completed year of continuous service or any part thereof in excess of 6 months.

Q8. Whether employee’s contribution to the Unrecognised Provident Fund is allowed as a deduction under Section 80C?

(a) Yes

(b) No

Correct answer – (b)

Explanation: Employee’s contribution to the Unrecognised Provident Fund (UPF) is not allowed as a deduction under Section 80C.

Q9. Pension received out of annuity is ________.

(a) Fully taxable

(b) Fully exempt

(c) Partially taxable and partially exempt

Correct answer – (a)

Explanation: Pension received out of NPS or annuity is fully taxable.

Note:

¹The excess contribution shall be taxable only if the aggregate amount of contribution made by the employer to the account of employee in a Recognised Provident Fund, National Pension Scheme and Superannuation Fund exceeds Rs. 7,50,000. In this situation, the excess amount so contributed is taxable as perquisite in the hands of employee.