11/5/24, 8:13 AM Income Tax Department

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

I. Income under the head Salaries

1.1 Salary is defined to include:
a) Wages
b) Annuity
c) Pension
d) Gratuity
e) Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages
f) Advance of Salary
g) Leave Encashment
h) Annual accretion to the balance of Recognized Provident Fund
i) Transferred balance in Recognized Provident Fund
j) Contribution by Central Government or any other employer to Employees Pension Account as
referred in Sec. 80CCD

1.2 Points to consider:

a) Salary income is chargeable to tax on “due basis” or “receipt basis” whichever is earlier.
b) Existence of relationship of employer and employee is must between the payer and payee to tax the
income under this head.
c) Income from salary taxable during the year shall consists of following:
i. Salary due from employer (including former employer) to taxpayer during the previous year,
whether paid or not;
ii. Salary paid by employer (including former employer) to taxpayer during the previous year
before it became due;
iii. Arrear of salary paid by the employer (including former employer) to taxpayer during the
previous year, if not charged to tax in any earlier year;
Exceptions - Remuneration, bonus or commission received by a partner from the firm is not taxable under
the head Salaries rather it would be taxable under the head business or profession.

1.3 Place of accrual of salary:

a) Salary accrues where the services are rendered even if it is paid outside India;
b) Salary paid by the Foreign Government to his employee serving in India is taxable under the head
Salaries;
c) Leave salary paid abroad in respect of leave earned in India shall be deemed to accrue or arise in
India.

about:blank 1/60
11/5/24, 8:13 AM Income Tax Department

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 Fully taxable
to as ‘DA’)
3. 17 Bonus, fees or commission Fully taxable
A. Allowances
4. 10(13A) read House rent allowance Least of the following is exempt:
with Rule 2A 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 Rs. 3,200 per month granted to an
an employee to meet employee, who is blind or deaf and dumb
expenditure for the purpose of or orthopedically handicapped with
commuting between place of disability of lower extremities
residence and place of duty
8. Sec. 10(14) Allowance granted to an Amount of exemption shall be lower of
employee working in any following:
transport business to meet his a) 70% of such allowance; or
personal expenditure during his b) Rs. 10,000 per month.
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.

about:blank 2/60
11/5/24, 8:13 AM Income Tax Department

9. 10(14) Conveyance allowance granted Exempt to the extent of expenditure

to meet the expenditure on incurred for official purposes
conveyance in performance of
duties of an office
10. 10(14) Travelling allowance to meet Exempt to the extent of expenditure
the cost of travel on tour or on incurred for official purposes
transfer
11. 10(14) Daily allowance to meet the Exempt to the extent of expenditure
ordinary daily charges incurred incurred for official purposes
by an employee on account of
absence from his normal place
of duty
12. 10(14) Helper/Assistant allowance Exempt to the extent of expenditure
incurred for official purposes
13. 10(14) Research allowance granted for Exempt to the extent of expenditure
encouraging the academic incurred for official purposes
research and other professional
pursuits
14. 10(14) Uniform allowance Exempt to the extent of expenditure
incurred for official purposes
15. 10(7) Any allowance or perquisite Fully Exempt
paid or allowed by
Government to its employees
(an Indian citizen) posted
outside India
16. - Allowances to Judges of High Fully Exempt.
Court/Supreme Court (Subject
to certain conditions)
17. 10(45) Following allowances and Fully Exempt
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
19. Sec. 10(14) read Special compensatory Amount exempt from tax varies from Rs.
with Rule 2BB Allowance (Hilly Areas) 300 to Rs. 7,000 per month.
(Subject to certain conditions
and locations)
20. Sec. 10(14) read Border area, Remote Locality Amount exempt from tax varies from Rs.
with Rule 2BB or Disturbed Area or Difficult 200 to Rs. 1,300 per month.
Area Allowance (Subject to
certain conditions and
locations)

about:blank 3/60
11/5/24, 8:13 AM Income Tax Department

21. Sec. 10(14) read Tribal area allowance in (a) Up to Rs. 200 per month is exempt
with Rule 2BB Madhya Pradesh (b) Tamil
Nadu (c) Uttar Pradesh (d)
Karnataka (e) Tripura (f)
Assam (g) West Bengal (h)
Bihar (i) Odisha
22. Sec. 10(14) read Compensatory Field Area Up to Rs. 2,600 per month is exempt
with Rule 2BB Allowance. If this exemption is
taken, employee cannot claim
any exemption in respect of
border area allowance (Subject
to certain conditions and
locations)
23. Sec. 10(14) read Compensatory Modified Area Up to Rs. 1,000 per month is exempt
with Rule 2BB Allowance. If this exemption is
taken, employee cannot claim
any exemption in respect of
border area allowance (Subject
to certain conditions and
locations)
24. Sec. 10(14) read Counter Insurgency Allowance Up to Rs. 3,900 per month is exempt
with Rule 2BB 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)
25. Sec. 10(14) read Underground Allowance to Up to Rs. 800 per month is exempt
with Rule 2BB employees working in
uncongenial, unnatural climate
in underground mines
26. Sec. 10(14) read High Altitude Allowance a) Up to Rs. 1,060 per month (for altitude
with Rule 2BB granted to armed forces of 9,000 to 15,000 feet) is exempt
operating in high altitude areas b) Up to Rs. 1,600 per month (for altitude
(Subject to certain conditions above 15,000 feet) is exempt
and locations)
27. Sec. 10(14) read Highly active field area Up to Rs. 4,200 per month is exempt
with Rule 2BB allowance granted to members
of armed forces (Subject to
certain conditions and
locations)
28. Sec. 10(14) read Island Duty Allowance granted Up to Rs. 3,250 per month is exempt
with Rule 2BB to members of armed forces in
Andaman and Nicobar and
Lakshadweep group of Island
(Subject to certain conditions
and locations)
29. 10(14) City Compensatory Allowance Fully Taxable

about:blank 4/60
11/5/24, 8:13 AM Income Tax Department

30. 10(14) Fixed Medical Allowance Fully Taxable

31. 10(14) Tiffin, Lunch, Dinner or Fully Taxable
Refreshment Allowance
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 The exemption shall be limited to fare for
Assistance (LTC/LTA), going anywhere in India along with family
extended by an employer to an twice in a block of four years:
employee for going anywhere • Where journey is performed by Air -
in India along with his family* Exemption up to Air fare of economy class
*Family includes spouse, in the National Carrier by the shortest route
children and dependent • Where journey is performed by Rail -
brother/sister/parents. Exemption up to air-conditioned first class
However, family doesn’t rail fare by the shortest route
include more than 2 children of
• If places of origin of journey and
an Individual born on or after destination are connected by rail but the
01-10-1998. journey is performed by any other mode of
(Subject to certain conditions) 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 Taxable (computed in manner prescribed
provided to assessee by his by the board)
employer
40. 17(2)(ii) Value of any accommodation Taxable (computed in manner prescribed
provided to assessee by his by the board)
employer at concessional rate

about:blank 5/60
11/5/24, 8:13 AM Income Tax Department

41. 17(2)(viii) Motor Car / Other Conveyance Taxable value of perquisites (See Note 1
read with Rule below)
3(2)

42. 17(2)(iv) Any sum paid by employer in Fully Taxable

respect of any obligation of an
employee
43. 17(2)(viii) Services of a domestic servant Taxable value of perquisite shall be salary
read with Rule including sweeper, gardener, paid or payable by the employer for such
3(3) watchmen or personal services less any amount recovered from
attendant (taxable only in case the employee.
of specified employee [See
Note 4])
44. 17(2)(viii) Supply of gas, electricity or Taxable value of perquisites:
read with Rule water for household purposes ➢ Manufacturing cost per unit incurred by
3(4) 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) Education Facilities Taxable value of perquisites (See Note 2
read with Rule below)
3(5)
46. 17(2)(viii) Transport facilities provided by Value at which services are offered by the
read with Rule the employer engaged in employer to the public less amount
3(6) carriage of passenger or goods recovered from the employee shall be a
(except Airlines or Railways) taxable perquisite
47. 17(2)(v) Amount payable by the Fully Taxable
employer to effect an insurance
on life of employee or to effect
a contract for an annuity
48. 17(2)(vi) read ESOP/ Sweat Equity Shares Fair Market value of shares or securities on
with Rule the date of exercise of option by the
3(8)/3(9) 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
about:blank 6/60
11/5/24, 8:13 AM Income Tax Department

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 Taxable in the hands of employee to the
towards superannuation fund extent such contribution exceeds
national pension scheme and Rs.7,50,000
recognised provident fund.
50. 17(2)(viii) read Interest free loan or Loan at Interest free loan or loan at concessional
with Rule 3(7)(i) concessional rate of interest 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:

about:blank 7/60
11/5/24, 8:13 AM Income Tax Department

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 Facility of travelling, touring a) Taxable value of perquisite shall be
with Rule 3(7)(ii) and accommodation availed of expenditure incurred by the employer
by the employee or any less amount recovered from
member of his household for employee.
any holiday 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 Free food and beverages 1) Fully Taxable: Free meals in excess of
with Rule 3(7) provided to the employee Rs. 50 per meal less amount paid by
(iii) 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 Gift or Voucher or Coupon on a) Gifts in cash or convertible into money
with Rule 3(7)(iv) ceremonial occasions or (like gift cheque) are fully taxable
otherwise provided to the b) Gift in kind below Rs.5,000 in
employee aggregate per annum would be
exempt, beyond which it would be
taxable.
54. 17(2)(viii) read Credit Card a) Expenditure incurred by the employer
with Rule 3(7)(v) in respect of credit card used by the
employee or any member of his
household less amount recovered

about:blank 8/60
11/5/24, 8:13 AM Income Tax Department

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 Free Recreation/ Club a) Expenditure incurred by the employer
with Rule 3(7)(vi) Facilities 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 Use of movable assets of the Taxable value of perquisites
with Rule 3(7) employer by the employee is a a) Use of Laptops and Computers: Nil
(vii) taxable perquisite 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 Transfer of movable assets by Taxable value of perquisites
with Rule 3(7) an employer to its employee a) Computers, Laptop and Electronics
(viii) 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 Any other benefit or amenity Taxable value of perquisite shall be
with Rule 3(7)(ix) extended by employer to computed on the basis of cost to the
employee employer (under an arm’s length
transaction) less amount recovered from the
employee.
about:blank 9/60
11/5/24, 8:13 AM Income Tax Department

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 Fully exempt
perquisites (not provided for by
way of monetary payments)
given to employee
60. Proviso to section Medical facilities in India a) Expense incurred or reimbursed by
17(2) 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 Medical facilities outside India Any expenditure incurred or reimbursed by
17(2) 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.

about:blank 10/60
11/5/24, 8:13 AM Income Tax Department

62. Proviso to section Medical facility or Any sum paid by the employer in respect of
17(2) reimbursement for COVID-19 any expenditure actually incurred by the
treatment 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
• Rs. 75,000 or the amount of salary,
whichever is lower (applicable w.e.f
AY 2025-26)
2. 16 (ii) Entertainment Allowance Least of the following is exempt from tax:
received by the Government a) Rs 5,000
employees (Fully taxable in b) 1/5th of salary (excluding any
case of other employees) allowance, benefits or other
perquisite)
c) Actual entertainment allowance
received
3. 16(iii) Employment Tax/Professional Amount actually paid during the year.
Tax. 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 Fully Exempt
earned leave at the time of
retirement of Government
employees
2. 10(10AA) Encashment of unutilized Least of the following shall be exempt from
earned leave at the time of tax:
retirement of other employees a) Amount actually received
(not being a Government b) Unutilized earned leave* X Average
employee) monthly salary
c) 10 months Average Salary**
d) Rs. 25,00,000
* While computing unutilized earned leave,
earned leave entitlements cannot exceed 30

about:blank 11/60
11/5/24, 8:13 AM Income Tax Department

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 Least of the following shall be exempt from
received by a workman under tax:
the Industrial Dispute Act, a) Amount calculated as per section
1947 (Subject to certain 25F(b)of the Industrial Disputes Act,
conditions). 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 Fully Exempt
Government Employees (Other
than employees of statutory
corporations)
5. 10(10)(ii) Death -cum-Retirement Least of following amount is exempt from
Gratuity received by other tax:
employees who are covered 1. (*15/26) X Last drawn salary** X
under Gratuity Act, 1972 (other completed year of service or part
than Government employee) thereof in excess of 6 months.
(Subject to certain conditions). 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 Least of following amount is exempt from
Gratuity received by other tax:
employees who are not covered 1. Half month’s Average Salary* X
under Gratuity Act, 1972 (other Completed years of service
than Government employee) 2. Rs. 20,00,000
(Subject to certain conditions).
3. Gratuity actually received.
*Average salary = Average Salary of last 10
months immediately preceding the month
about:blank 12/60
11/5/24, 8:13 AM Income Tax Department

of retirement
** Salary = Basic Pay + DA (to the extent
it forms part of retirement benefits)+
turnover based commission
Pension
7. - Pension received from United Fully Exempt
Nation Organization by the
employee of his family
members
8. 10(10A)(i) Commuted Pension received Fully Exempt
by an employee of Central
Government, State
Government, Local Authority
Employees and Statutory
Corporation
9. 10(10A)(ii) Commuted Pension received 1/3 of full value of commuted pension will
by other employees who also be exempt from tax
receive gratuity
10. 10(10A)(iii) Commuted Pension received 1/2 of full value of commuted pension will
by other employees who do not be exempt from tax
receive any gratuity
10A. 10(10A)(iii) Commuted Pension received Fully Exempt
from a fund under clause
(23AAB)
11. 10(19) Family Pension received by the Fully Exempt
family members of Armed
Forces
12. 57(iia) Family pension received by In case of normal tax regime:
family members in any other • 33.33% of Family Pension subject to
case maximum of Rs. 15,000 In case of
new tax regime under section
115BAC
• 33.33% of Family Pension subject to
maximum of Rs. 25,000 (Applicable
w.e.f. AY 2025-26)
Voluntary Retirement
13. 10(10C) Amount received on Voluntary Least of the following is exempt from tax:
Retirement or Voluntary 1) Actual amount received as per the
Separation (Subject to certain guidelines i.e. least of the following
conditions) 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
about:blank 13/60
11/5/24, 8:13 AM Income Tax Department

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.
E. Arrear of Salary and relief under section 89(1)
1. 15 Arrear of salary and advance Taxable in the year of receipt. However
salary 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 Fully exempt in the hands of widow or
gratuitously or by way of other legal heirs of employee
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]
2. - Ex-gratia payment to a person Fully exempt in the hands of individual or
(or legal heirs) by Central or legal heirs
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]
3. - Salary received from United Fully exempt
Nation Organization [Circular
No. 293, dated 10-02-1981]

about:blank 14/60
11/5/24, 8:13 AM Income Tax Department

4. 10(6)(ii) Salary received by foreign Fully exempt if corresponding official in

national as an officials of an that foreign country enjoys a similar
embassy, high commission, exemption
legation, consulate or trade
representation of a foreign state
5. 10(6)(vi) Remuneration received by non- Fully exempt
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
6. 10(6)(viii) Salary received by a non- Fully exempt
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.
7. - Salary and allowances received Fully exempt
by a teacher /professor from
SAARC member state (Subject
to certain conditions).

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. Circumstances Engine Capacity up to 1600 Engine Capacity above 1600

No. cc 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- Used wholly and exclusively in Fully exempt subject to Fully exempt subject to
A the performance of official duties. maintenance of specified maintenance of specified
documents documents
1.1- Used exclusively for the personal Actual amount of expenditure incurred by the employer on the
B purposes of the employee or any running and maintenance of motor car including remuneration
member of his household. paid by the employer to the chauffeur and increased by the
amount representing normal wear and tear of the motor car at

about:blank 15/60
11/5/24, 8:13 AM Income Tax Department

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- The motor car is used partly in the Rs. 1,800 per month (plus Rs. Rs. 2,400 per month (plus Rs.
C performance of duties and partly 900 per month, if chauffeur is 900 per month, if chauffeur is
for personal purposes of the also provided to run the motor also provided to run the motor
employee or any member of his car) shall be taxable value of car) shall be taxable value of
household. perquisite 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- Used wholly and exclusively in Not a perquisite, hence, not Not a perquisite, hence, not
A the performance of official duties. taxable taxable
1.2- Used exclusively for the personal Expenditure incurred by the employer (i.e. hire charges, if car
B purposes of the employee or any is on rent or normal wear and tear at 10% of actual cost of the
member of his household 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- The motor car is used partly in the Rs. 600 per month (plus Rs. Rs. 900 per month (plus Rs.
C performance of duties and partly 900 per month, if chauffeur is 900 per month, if chauffeur is
for personal purposes of the also provided to run the motor also provided to run the motor
employee or any member of his car) shall be taxable value of car) shall be taxable value of
household perquisite 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- The reimbursement is for the use Fully exempt subject to Fully exempt subject to
A of the vehicle wholly and maintenance of specified maintenance of specified
exclusively for official purposes documents documents
2.1- The reimbursement is for the use Actual expenditure incurred by the employer minus amount
B of the vehicle exclusively for the recovered from the employee
personal purposes of the employee
or any member of his household
(taxable in case of specified
employee as well as non-specified
employee)
2.1- The reimbursement is for the use Actual expenditure incurred Actual expenditure incurred
C of the vehicle partly for official by the employer minus Rs. by the employer minus Rs.
purposes and partly for personal 1800 per month and Rs. 900 2400 per month and Rs. 900
purposes of the employee or any per month if chauffer is also per month if chauffer is also
member of his household. provided minus amount provided minus amount
recovered from employee recovered from employee
shall be taxable value of shall be taxable value of
perquisite. perquisite.
3 Where the employee owns any other automotive conveyance and actual running and
maintenance charges are met or reimbursed by the employer

about:blank 16/60
11/5/24, 8:13 AM Income Tax Department

3.1 Reimbursement for the use of the Fully exempt subject to Fully exempt subject to
vehicle wholly and exclusively for maintenance of specified maintenance of specified
official purposes; documents documents
3.2 Reimbursement for the use of Actual expenditure incurred Not Applicable
vehicle partly for official purposes by the employer as reduced by
and partly for personal purposes Rs. 900 per month
of the employee.

2. Educational Facilities
Taxable only in the hands of specified employees [See note 4]
Facility Value of perquisite
extended to
Provided in the school owned by the employer Provided in any other school
Children Cost of such education in similar school less Rs. Amount incurred less amount
1,000 per month per child (irrespective of recovered from employee (an
numbers of children) less amount recovered from exemption of Rs. 1,000 per month per
employee child is allowed)
Other family Cost of such education in similar school less Cost of such education incurred
member amount recovered from employee

2.1 Other Educational Facilities

Particulars Taxable Value of
Perquisites
Reimbursement of school fees of children or family member of Fully taxable
employees
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 Recognized provident Unrecognized Public

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

* 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:
about:blank 17/60
11/5/24, 8:13 AM Income Tax Department

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 Rs.50,000
*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

about:blank 18/60
11/5/24, 8:13 AM Income Tax Department

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 30% of net annual value of the house property is allowed as deduction if property
Deduction[Section is let-out during the previous year.
24(a)]
Interest on Borrowed a) In respect of let-out property, actual interest incurred on capital borrowed for
Capital * the purpose of acquisition, construction, repairing, re-construction shall be
[Section 24(b)] 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;
about:blank 19/60
11/5/24, 8:13 AM Income Tax Department

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

about:blank 20/60
11/5/24, 8:13 AM Income Tax Department

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:

about:blank 21/60
11/5/24, 8:13 AM Income Tax Department

S. Section Particulars
No.
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 Income from speculative transactions. However, it shall be deemed to be distinct
to section 28 and separate from any other business.
14A. Explanation 3 Income from letting out of a residential house shall be chargeable to tax under the
to Section 28 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.
about:blank 22/60
11/5/24, 8:13 AM Income Tax Department

• 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;
about:blank 23/60
11/5/24, 8:13 AM Income Tax Department

(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 Actual expenditure incurred All assessee
(excluding capital expenditure) excluding capital expenditure
and insurance for premises
31 Repairs (excluding capital Actual expenditure incurred All assessee
expenditure) and insurance of excluding capital expenditure
machinery, plant and furniture
32(1)(i) Depreciation on Allowed at prescribed Assessees engaged in
i) buildings, machinery, plant percentage on Straight Line business of generation or
or furniture, being Method for each asset generation and
tangible assets; Provided that where an asset is distribution of power
ii) know-how, patents, acquired by the assessee during Note:
copyrights, trademarks, the previous year and is put to Taxpayers engaged in the
licenses, franchises, or use for a period of less than one business of generation or
any other business or hundred and eighty days in that generation and
commercial rights of previous year, the deduction in distribution of power
similar nature not being respect of such asset shall be shall have the option to
goodwill of business or restricted to fifty per cent of the claim depreciation either
profession, being amount calculated at the on basis of straight line
intangible assets percentage prescribed for an basis method or written
asset. down value method on
each block of asset.
32(1)(ii) Depreciation on Allowed at prescribed All assessees
i) buildings, machinery, plant percentage on WDV method for
or furniture, being each block of asset
tangible assets; Provided that where an asset is
ii) know-how, patents, acquired by the assessee during
copyrights, trademarks, the previous year and is put to
licenses, franchises, or use for a period of less than one
any other business or hundred and eighty days in that
commercial rights of previous year, the deduction in
similar nature not being respect of such asset shall be
goodwill of business or restricted to fifty per cent of the
amount calculated at the
about:blank 24/60
11/5/24, 8:13 AM Income Tax Department

profession, being percentage prescribed for an

intangible assets asset.
32(1)(iia) Additional depreciation on new Additional depreciation shall be All assessee engaged in
plant and machinery (other than available @20 % of the actual - manufacture or
ships, aircraft, office appliances, cost of new plant and machinery. production of any
second hand plant or machinery, Provided that where an asset is article or thing; or
etc.). acquired by the assessee during - generation,
(subject to certain conditions) the previous year and is put to transmission or
use for a period of less than one distribution of
hundred and eighty days in that power (if taxpayer
previous year, then deduction of is not claiming
additional depreciation would be depreciation on
restricted to 50% in the year of basis of straight
acquisition and balance 50% line method)
would be allowed in the next
year
Proviso Additional depreciation on new Additional depreciation shall be All assessees- where an
to plant and machinery (other than available @35 % of the actual assessee sets up an
Section ships, aircraft,office appliances, cost of new plant and machinery. undertaking or enterprise
32(1)(iia) second hand plant or machinery, Provided that where an asset is for production or
etc.)) acquired by the assessee during manufacture of any
(Subject to certain conditions) the previous year and is put to article or thing in any
use for a period of less than one notified backward area in
hundred and eighty days in that state of the state of
previous year, then deduction of Andhra Pradesh, Bihar,
additional depreciation would be Telangana or West
restricted to 50% of actual cost Bengal.
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
32AC Deduction under section 32AC 15% of actual cost of new asset Company engaged in
is available if actual cost of new business or
plant and machinery acquired manufacturing or
and installed by a production of any article
manufacturing company during or thing
the previous year exceeds Rs.
25/100 Crores, as the case may
be.(Subject to certain
conditions)
32AD Investment allowance for Investment allowance shall be All assessee who
investment in new plant and available @15 % of the actual acquired new plant and
machinery if manufacturing unit cost of new plant and machinery machinery for the
is set-up in the notified purpose of setting-up
about:blank 25/60
11/5/24, 8:13 AM Income Tax Department

backward area in the state of in the year of installation of new manufacturing unit in the
Andhra Pradesh, Bihar, asset. notified backward area in
Telangana or West Note:- the state of Andhra
Bengal(Subject to certain 1) New asset should be Pradesh, Bihar,
conditions) acquired and installed Telangana or West
during the period Bengal
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
33AB Amount deposited in Deduction shall be lower of All assessee engaged in
Tea/Coffee/Rubber following: business of growing and
Development Account by a) Amount deposited in manufacturing
assessee engaged in business of account with National tea/Coffee/Rubber
growing and manufacturing Bank for Agricultural and
tea/Coffee/Rubber in India 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)
33ABA Amount deposited in Special Deduction shall be lower of All assessee engaged in
Account with SBI/Site following: business of prospecting
Restoration Account by a) Amount deposited in Special for, or extraction or
assessee carrying on business of Account with SBI/Site production of, petroleum
prospecting for, or extraction or Restoration Account; or or natural gas or both in
production of, petroleum or India
b) 20% of profits from such
natural gas or both in India
business before making
any deduction under
section 33ABA and before
adjusting any brought
forward loss.
(Subject to certain conditions)
35(1)(i) Revenue expenditure on Entire amount incurred on All assessee
scientific research pertaining to scientific research is allowed as
business of assessee is allowed deduction.

about:blank 26/60
11/5/24, 8:13 AM Income Tax Department

as deduction (Subject to certain Expenditure on scientific

conditions). 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.
35(1)(ii) Contribution to approved 100% of sum paid to such All assessee
research association, university, association, university, college,
college or other institution to be or other institution is allowed as
used for scientific research shall deduction.
be allowed as deduction
(Subject to certain conditions)
35(1)(iia) Contribution to an approved 100% of sum paid to the All assessee
company registered in India to company is allowed as deduction
be used for the purpose of
scientific research is allowed as
deduction (Subject to certain
conditions)
35(1)(iii) Contribution to approved 100% of sum paid to such All assessee
research association, university, association, university, college,
college or other institution with or other institution is allowed as
objects of undertaking statistical deduction
research or research in social
sciences shall be allowed as
deduction (Subject to certain
conditions)
35(1)(iv) Capital expenditure incurred Entire capital expenditure All assessee
read with during the year on scientific incurred on scientific research is
35(2) research relating to the business allowed as deduction.
carried on by the assessee is Capital expenditure incurred
allowed as deduction (Subject within 3 years before
to certain conditions) 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.
35(2AA) Payment to a National 100% of payment is allowed as All assessee
Laboratory or University or an deduction (Subject to certain
Indian Institute of Technology conditions).
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

about:blank 27/60
11/5/24, 8:13 AM Income Tax Department

scientific research undertaken

under an approved programme.
35(2AB) Any expenditure incurred by a 100% of expenditure so incurred Company engaged in
company on scientific research shall be allowed as deduction. business of bio-
(including capital expenditure Note: technology or in any
other than on land and building) i. Company should enter into business of
on in-house scientific research manufacturing or
an agreement with the
and development facilities as production of eligible
prescribed authority for co-
approved by the prescribed articles or things
operation in such research
authorities shall be allowed as and development and
deduction (Subject to certain fulfils conditions with
conditions).
regard to maintenance of
Expenditure on scientific accounts and audit thereof
research in relation to Drug and and furnishing of reports in
Pharmaceuticals shall include such manner as may be
expenses incurred on clinical prescribed.
trials, obtaining approvals from
authorities and for filing an
application for patent.
35ABA Capital expenditure incurred Deduction will be available in All assessee engaged in
and actually paid for acquiring equal installments starting from telecommunication
any right to use spectrum for the year in which actual payment services
telecommunication services is made and ending in the year in
shall be allowed as deduction which spectrum comes to an end.
over the useful life of the Note:
spectrum. If spectrum fee is actually paid
before the commencement of
business, the deduction will be
available from the year in which
business is commenced.
35ABB Capital expenditure incurred for Deduction would be allowed in All assessee engaged in
acquiring any license or right to equal installments starting from telecommunication
operate telecommunication the year in which such payment services
services shall be allowed as has been made and ending in the
deduction over the term of the year in which license comes to
license. an end.
35AC Expenditure by way of payment Actual payment made to All assessee. However,
of any sum to a public sector prescribed entities. However, a deduction for direct
company/local company can also claim expenditure is allowed
authority/approved association deduction for expenditure only to a company
or institution for carrying out incurred by it directly on eligible
any eligible scheme or project projects.
(Subject to certain conditions). Note:-
No deduction in any A.Y.
commencing on or after the 1st
day of April, 2018
35AD Deduction in respect of 150% of capital expenditure All assessee
`expenditure on specified incurred for the purpose of
businesses, as under: business is allowed as deduction
a) Setting up and operating a provided the specified business
cold chain facility has commenced its operation on
b) Setting up and operating a or after 01-04-2012.
warehousing facility for
about:blank 28/60
11/5/24, 8:13 AM Income Tax Department

storage of agricultural 100% of capital expenditure will

produce be allowed to be deducted from
c) Building and operating, the assessment year 2018-19
anywhere in India, a onwards
hospital with at least 100 Note: If such specified
beds for patients businesses commence operations
d) Developing and building a on or before 31-03-2012 but
housing project under a after prescribed dates, deduction
notified scheme for shall be limited to 100% of
affordable housing capital expenditure.
e) Production of fertilizer in Note: No deduction of any
India capital expenditure above Rs
10,000 shall be allowed if it is
(Subject to certain conditions)
incurred in cash.
35AD Deduction in respect of 100% of capital expenditure All assessee
expenditure on specified incurred for the purpose of Note: Such deduction is
businesses, as under: business is allowed as deduction available to Indian
a) Laying and operating a provided specified businesses company in case of
cross-country natural gas commence operations on or after following business,
or crude or petroleum oil the prescribed dates. namely;-
pipeline network for Note: No deduction of any i) Business of laying
distribution, including capital expenditure above Rs and operating a
storage facilities being an 10,000 shall be allowed if the cross-country
integral part of such payment for such expenditure is natural gas or
network; made otherwise than by an crude or petroleum
b) Building and operating, account payee cheque/draft or oil pipeline
anywhere in India, a hotel ECS or through prescribed network
of two-star or above electronic mode of payment.
ii) Developing or
category; maintaining and
c) Developing and building a operating or
housing project under a developing,
scheme for slum maintaining and
redevelopment or operating a new
rehabilitation infrastructure
d) Setting up and operating an facility.
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
about:blank 29/60
11/5/24, 8:13 AM Income Tax Department

(Subject to certain conditions)

35CCA Payment to following Funds are Actual payment to specified All assessee
allowed as deduction: funds
a) National Fund for Rural
Development; and
b) Notified National Urban
Poverty Eradication Fund
35CCC Expenditure (not being cost of 100% of the expenditure All assessee
land/building) incurred on (Subject to certain conditions)
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).
35CCD Expenditure incurred by a 100% of the expenditure Company engaged in
company (not being expenditure (Subject to certain conditions) manufacturing of any
in the nature of cost of any land Note: article or providing
or building) on any notified specified services
(i) No deduction shall be
skill development project is allowed to a company
allowed as deduction (Subject engaged in manufacturing
to certain conditions). alcoholic spirits or tobacco
products.
35D An Indian company can Qualifying preliminary Indian Company
amortize certain preliminary expenditure is allowable in each
expenses (up to maximum of of 5 successive years beginning
5% of cost of the project or with the previous year in which
capital employed, whichever is the extension of undertaking is
more) (Subject to certain completed or the new unit
conditions and nature of commences production or
expenditures) operation.
35D Non-corporate taxpayers can Qualifying preliminary Resident Non-corporate
amortize certain preliminary expenditure is allowable in each assessees
expenses (up to maximum of of 5 successive years beginning
5% of cost of the project) with the previous year in which
(Subject to certain conditions the extension of undertaking is
and nature of expenditures) completed or the new unit
commences production or
operation.
35DD Expenditure incurred after 31-3- Expenditure is allowed as Indian Company
1999 in respect of deduction in five equal
amalgamation or demerger can installments in 5 previous years
be amortized by an Indian starting with the year in which
Company amalgamation or demerger took
place.

about:blank 30/60
11/5/24, 8:13 AM Income Tax Department

35DDA Expenditure incurred under Each payment under VRS is All assessee
Voluntary Retirement Scheme is allowed as deduction in five
allowed as deduction. equal installments in 5 previous
years.
35E Qualifying expenditure incurred Eligible expenditure is allowed Resident persons
by resident persons on as deduction in ten equal
prospecting for the minerals or installments in 10 previous
on the development of mine or years.
other natural deposit of such
minerals shall be allowed as
deduction (Subject to certain
conditions).
36(1)(i) Insurance premium covering Actual expenditure incurred All assessee
risk of damage or destruction of
stocks/stores
36(1)(ia) Insurance premium covering Actual expenditure incurred All assessee
life of cattle owned by a
member of co-operative society
engaged in supplying milk to
federal milk co-operative
society
36(1)(ib) Medical insurance premium Actual expenditure incurred All assessee
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
36(1)(ii) Bonus or commission paid to Actual expenditure incurred All assessee
employees which would not
have been payable as profit or
dividend if it had not been paid
as bonus or commission
36(1)(iii) Interest on borrowed capital Interest paid in respect of capital All assessee
(Subject to certain conditions) 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.
36(1) Discount on Zero Coupon Pro-rata amount of discount on Specified Assessee
(iiia) Bonds (Subject to certain zero coupon bonds shall be
conditions) allowed as deduction over the
life of such bond
36(1)(iv) Employer’s contributions to Actual expenditure incurred All assessee
recognized provident fund and
approved superannuation fund
about:blank 31/60
11/5/24, 8:13 AM Income Tax Department

[subject to certain limits and

conditions]
36(1) Any sum paid by assessee- Actual expenditure not All assessee - Employer
(iva) employer by way of exceeding 14% of the salary* of
contribution towards a pension the employee
scheme, as referred to in section *Salary = Basic Pay + Dearness
80CCD, on account of an Allowance (to the extent it forms
employee. part of retirement benefits)+
turnover based commission
36(1)(v) Employer’s contribution Actual expenditure not All assessee - Employer
towards approved gratuity fund exceeding 8.33% of salary of
created exclusively for the each employee
benefit of employees under an
irrevocable trust shall be
allowed as deduction (Subject
to certain conditions).
36(1)(va) Deposit of employee’s Actual amount received if All assessee - Employer
contributions in their respective credited to the employee’s
provident fund or account in relevant fund on or
superannuation fund or any before due date specified under
fund set up under Employees’ relevant Act
State Insurance Act, 1948
36(1)(vi) Allowance in respect of animals Actual cost of acquisition of All assessee
which have died or become such animals less realization on
permanently useless (Subject to sale of carcasses of animals
certain conditions)
36(1) Bad debts which have been Actual bad debts which have All assessee
(vii) written off as irrecoverable been written off from books of
(Subject to certain conditions) 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.
36(1) Deductions for provision for Deductions for provision for bad Banks, Public Financial
(viia) bad and doubtful debts created and doubtful debts shall be Institutions, Non-
by certain banks, financial limited to following: banking financial
institutions and non-banking (a) In case of scheduled and company, State Financial
financial company (Subject to non-scheduled banks: Sum Corporation, State
certain conditions). not exceeding aggregate of Industrial Investment
Note 8.5% of total income Corporations
(before any deductions
under this provision and
about:blank 32/60
11/5/24, 8:13 AM Income Tax Department

Deduction in respect of bad Chapter VI-A) and 10% of

debts actually written off under aggregate average
section 36(1)(vii) shall be advances made by rural
limited to that amount of bad branches of such bank;
debts which exceed the (b) In case of Financial
provision for bad and doubtful Institutions: Up to 5% of
debts created under section total income before any
36(1)(viia). 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
36(1) Deduction under this provisions Deduction shall be allowed to Specified financial
(viii) is allowed to following entities the extent of lower of following: corporations or public
in respect of amount transferred a) Amounts transferred to company
to special reserve account: special reserve account
a) Financial Corporation b) 20% of profits derived from
which is engaged in eligible business
providing long-term c) 200% of paid-up capital and
finance for industrial or
general reserve (on last
agricultural development
day of previous year)
or development of
minus balance in special
infrastructure facility in reserve account (on first
India; or day of previous year)
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]
36(1)(ix) Expenditure incurred by a 1) Entire revenue expenditure is Company
company on promotion of allowed as deduction
family planning amongst 2) Capital expenditure shall be
employees is allowed as allowed as deduction in five
deduction equal installment in five years
36(1) Any expenditure incurred by a Actual expenditure incurred (not Notified corporations
(xii) notified corporation or body being in the nature of capital
corporate constituted or expenditure)
established by a Central, State
or Provincial Act, for the
objects and purposes authorized

about:blank 33/60
11/5/24, 8:13 AM Income Tax Department

by the respective Act is allowed

as deduction
36(1) Contribution to Credit Actual expenditure incurred Public Financial
(xiv) Guarantee Trust Fund for micro Institutions
and small industries is allowed
as deduction
36(1)(xv) Securities Transaction Tax paid Actual expenditure incurred if All assessee
corresponding income is
included as income under the
head profits and gains of
business or profession
36(1) Amount equal to commodities Actual expenditure incurred if All assessee
(xvi) transaction tax paid by an corresponding income is
assessee in respect of taxable included as income under the
commodities transactions head profits and gains of
entered into in the course of his business or profession
business during the previous
year is allowed as deduction
36(1) Amount of expenditure incurred Deduction would be allowed the Co-operative society
(xvii) by a co-operative society extent of lower of following: engaged in the business
engaged in the business of a) Actual purchase price of of manufacture of sugar
manufacture of sugar for sugarcane, or
purchase of sugarcane. b) Price of sugarcane fixed or
approved by the
Government
36(1) Marked to market loss or other Actual losses incurred All assessee
(xviii) unexpected loss as computed in
accordance with notified ICDS
37(1) Any other expenditure [not Actual expenditure incurred All assessee
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

about:blank 34/60
11/5/24, 8:13 AM Income Tax Department

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).
37(2B) Expenditure on advertisement Not Allowed All assessee
in any souvenir, brochure etc.
published by a political party
shall not be allowed as
deduction
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

about:blank 35/60
11/5/24, 8:13 AM Income Tax Department

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.

about:blank 36/60
11/5/24, 8:13 AM Income Tax Department

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 Following deductions shall be allowed as
prospecting etc. for mineral oil (including deductions:
petroleum and natural gas) in relation to a) Any infructuous exploration expenditure
which the Central Government has entered
b) Expenditure on drilling or exploration
into an agreement with the taxpayer for the
activities or services, etc.
association or participation (Subject to
certain conditions). c) Allowance in relation to depletion of mineral
oil, etc.
43A Special provisions consequential to changes Any increase or decrease in the liability incurred
in rate of exchange of Currency (Subject to in foreign currency (to acquire a capital asset)
certain conditions). 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- Cost of acquisition of any asset (except stock-in-
trade) by the taxpayer in the scheme of trade) acquired by the taxpayer in the scheme of
amalgamation or by way of gift, will etc. amalgamation or by way of gift, will etc. from the
transferor (who sold it as stock-in-trade) shall be
about:blank 37/60
11/5/24, 8:13 AM Income Tax Department

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 Available to
Computation of
income/deduction
44B Income from shipping business shall be 7.5% of specified sum shall be Non-resident
read computed on presumptive basis (Subject deemed to be the presumptive engaged in
with to certain conditions). income shipping business
172 (other than cruise
ships referred to in
section 44BBC)
44BB Income of a non-resident engaged in the 10% of specified sum shall be Non-resident
business of providing services or deemed to be the presumptive engaged in
facilities in connection with, or income activities
supplying plant and machinery on hire connected with
used, or to be used, in the prospecting exploration of
for, or extraction or production of, mineral oils
mineral oils shall be computed on
presumptive basis (Subject to certain
conditions).
44BBA Income of a non-resident engaged in the 5% of specified sum shall be Non-resident
business of operation of aircraft shall be deemed to be the presumptive engaged in the
computed on presumptive basis (Subject income business of
to certain conditions). operating of
aircraft
44BBB Income of a foreign company engaged in 10% of specified sum shall be Foreign Company
the business of civil construction or the deemed to be the presumptive
business of erection of plant or income
machinery or testing or commissioning
thereof, in connection with turnkey
power projects shall be computed on
presumptive basis (Subject to certain
conditions).
44BBC Presumptive taxation scheme for the 20% of the specified amounts Non-resident
business of operation of cruise ships by shall be deemed to be the
non-residents presumptive income.`
44C Deduction for Head office Expenditure Deduction for head-office Non-resident
(Subject to certain conditions and limits) 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

about:blank 38/60
11/5/24, 8:13 AM Income Tax Department

** Adjusted total income or

average adjusted total income
shall be computed after
prescribed adjustments i.e.
unabsorbed depreciations,
carry forward losses, etc.
44DA Deduction of expenditure from royalty Expenditure incurred wholly Non-resident
and FTS received under an agreement and exclusively for the
made after 31-03-2003 which is business of PE or fixed place of
effectively connected to the PE of non- profession in India shall be
resident in India (Subject to certain allowed as deduction.
conditions)
3.7 Accounts and Audit
Section Particulars Threshold
44AA Compulsory maintenance of Mandatory in every case except where presumptive taxation
prescribed books of account - scheme under Section 44ADA is opted by the assessee
Specified Profession
44AA Compulsory maintenance of 1) If total sales, turnover or gross receipts exceeds Rs.
books of account - Other 25,00,000 in any one of the three years immediately
business or profession preceding the previous year; or
(Subject to certain conditions 2) If income from business or profession exceeds Rs.
and circumstances) 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 1) If total sales, turnover or gross receipts exceeds Rs. 1Crore
accounts (Subject to certain in any previous year, in case of business; or
conditions and circumstances) 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 Presumptive income of eligible business shall
computed on presumptive basis if turnover of be 8% of gross receipt or total turnover.
such business does not exceed two crore Note: Presumptive income shall be calculated
rupees. at rate of 6% in respect of total turnover or
Note: If the amount of cash received during gross receipts which is received by an account
the previous year does not exceed 5% of the payee cheque or draft or use of electronic
total turnover or gross receipt of such year clearing system or through any other electronic
then the threshold limit for total turnover or mode as may be prescribed.
gross receipt shall be taken as Rs. 3,00,00,000
instead of Rs. 2,00,00,000.

about:blank 39/60
11/5/24, 8:13 AM Income Tax Department

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)
44ADA Income from eligible profession u/s 44AA(1) Presumptive income of such profession shall be
can be computed on presumptive basis if the 50% of total gross receipt.
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)
44AE Presumptive income from business of plying, For Heavy Goods Vehicle:
hiring or leasing of goods carriage if assessee Rs. 1,000 per ton of gross vehicle weight
does not own more than 10 goods carriage. 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) Any kind of property held by an assessee, whether or not connected with business or profession of the
assessee.
b) Any securities held by a FII which has invested in such securities in accordance with the regulations
made under the SEBI Act, 1992.
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;
about:blank 40/60
11/5/24, 8:13 AM Income Tax Department

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 The period for which the asset was held by the
assessee in the circumstances mentioned in section previous owner should be included (cost of
49(1) read with section 47 [i.e., when an asset is acquisition in this case shall be computed in the
acquired by gift, will, succession, inheritance or the manner provided in Para 4.10)
asset is required at the time of partition of family or
under a revocable or irrevocable trust or under
amalgamation, etc.]
Allotment of shares in amalgamated Indian The period of holding shall be computed from the
company in lieu shares held in amalgamating date of acquisition of shares in the amalgamating
company 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.

about:blank 41/60
11/5/24, 8:13 AM Income Tax Department

Issue of shares by the resulting company in a The period of holding shall be computed from the
scheme of demerger to the shareholders of the date of acquisition of shares in the demerged
demerged company company.
Membership right held by a member of recognised In case of shares as well as trading/clearing rights,
stock exchange 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 The period of holding shall include the period for
transfer of shares as referred to in section 47(xvii)] 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 The period of holding of such units shall include
consolidation of two or more scheme of a mutual the period for which the unit or units in the
fund as referred to in Section 47(xviii) consolidating scheme of the mutual fund were held
by the assessee.
Shares in a company acquired by the non-resident The period of holding of such shares shall be
assessee on redemption of Global Depository reckoned from the date on which a request for such
Receipts referred to in Section 115AC(1)(b) redemption was made.
Transactions in shares and securities not given
above:
1) Date of purchase (through stock exchanges) a) Date of purchase by broker on behalf of
of shares and Securities investor.
2) Date of transfer (through stock exchanges) of b) Date of broker's note provided such
shares and securities transactions are followed up by delivery of
3) Date of purchase/transfer of shares and shares and also the transfer deeds.
securities (transaction taken place directly c) Date of contract of sale as declared by parties
between parties and not through stock provided it is followed up by actual delivery
exchanges) of shares and the transfer deeds.
4) Date of purchase/sale of shares and securities d) The FIFO method shall be adopted to reckon
purchased in several lots at different points of the period of the holding of the security, in
time but delivery taken subsequently and sold cases where the dates of purchase and sale
in parts cannot be correlated through specific number
5) Transfer of a security by a depository (i.e., of scrips.
demat account) 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 The period for which the assessee held the gold
issued by Vault Manager 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)]
about:blank 42/60
11/5/24, 8:13 AM Income Tax Department

"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

about:blank 43/60
11/5/24, 8:13 AM Income Tax Department

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

about:blank 44/60
11/5/24, 8:13 AM Income Tax Department

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 Depreciable asset
[Section 48] [Section 50]*
Full value of consideration WDV of block of asset at the beginning of previous
Less: Cost of acquisition of asset (See Note 1) year
Less: Cost of improvement (See Note 1) Add: Actual cost of assets falling within that block
Less: Expenditure incurred wholly and exclusively acquired during the year
in connection with such transfer 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 assetsbefore 23-07-2024*, indexed cost of acquisition and
indexed cost of improvement shall be deducted from the full value of consideration;
b) Indexed cost of acquisition and Indexed cost of improvement shall be computed with reference to
Cost Inflation Index (‘CII’) in the following manner:
[(Cost of Acquisition) × (CII for the year of transfer)]
Indexed Cost of Acquisition = (CII for the year of acquisition or for the Financial Year 2001-
02, whichever is later)

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

Indexed Cost of Improvement =
CII for the year of Improvement
Note : The base year for computation of capital gains has been shifted from 1981 to 2001 with effect from
assessment year 2018-19. Thus, if any capital asset (acquired before April 1, 2001) is transfered then
about:blank 45/60
11/5/24, 8:13 AM Income Tax Department

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 Long-term capital gains arising from transfer of an equity share, or Any Person
to Section 48 a unit of an equity oriented fund or a unit of a business trust as
referred to in Section 112A.
Fourth proviso Bonds or debentures. Any person
to section 48 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)
112 Capital gains arising from transfer of unlisted shares (which is Non-resident
taxable at concessional rate) as calculated without giving effect to
first proviso to Section 48
50A Depreciable asset (other than an asset used by a power generating Any person
unit eligible for depreciation on straight line basis)
50B Undertaking/division transferred by way of slump sale as covered Any person
by section 50B
115AB Units purchased in foreign currency as given in section 115AB Offshore fund
115AC Global depository receipts (GDR) purchased in foreign currency as Non-resident
given in section 115AC
115ACA Global depository receipts (GDR) purchased in foreign currency as Resident
given in section 115ACA 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 Cost Inflation Index
year
2001-02 100
2002-03 105
2003-04 109
2004-05 113

about:blank 46/60
11/5/24, 8:13 AM Income Tax Department

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

about:blank 47/60
11/5/24, 8:13 AM Income Tax Department

S. Nature of transaction Section Full Value of Consideration

No.
1. Money or other asset received 45(1A) Value of money or the FMV of the asset (on the date of
under any insurance from an receipt)
insurer due to damage or
destruction of a capital asset
2. Conversion of capital asset 45(2) FMV of the capital asset on the date of conversion
into stock-in-trade
3. Transfer of capital asset by a 45(3) Amount recorded in the books of accounts of the firm
partner or member to firm or or AOP/BOI as the value of the capital asset received as
AOP/BOI, as the case may be, capital contribution
as his capital contribution
4. Distribution of capital asset by 45(4) FMV of such asset on the date of transfer
Firm or AOP/BOI to its
partners or members, as the
case may be, on its dissolution
5. Money or other assets 46(2) Total money plus FMV of assets received on the date of
received by share- holders at distribution less amount assessed as deemed dividend
the time of liquidation of the under section 2(22)(c)
company
6. Buy-back of shares and other 46A Consideration paid by company on buyback of shares or
specified securities by a other securities would be deemed as full value of
company 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 Fourth Fair Market value of securities at the time of gift
(‘securities’) allotted by an Proviso
employer to an employee to
under notified Employees Section
Stock Option Scheme and 48
such securities are gifted by
about:blank 48/60
11/5/24, 8:13 AM Income Tax Department

the concerned employee to

any person
7A. Conversion of capital asset 49 FMV of the inventory as on the date of conversion
into stock-in-trade
The transfer of a Specified
Mutual Fund acquired on or Full value of consideration a rising out of transfer or
after 1st April 2023 or a redemption or maturity of such debenture or unit as
Market Linked Debenture reduced by-
(a) The cost of acquisition of the debenture or unit;
7B. Note: Applicability of Section 50AA and
50AA extended to unlisted
bonds and unlisted debentures (b) Expenditure incurred wholly and exclusively in
that are transferred, redeemed, connection with such transfer or redemption or
or matured on or after July 23, maturity.
2024.
7C. Computation of capital gains 50B FMV of the capital assets (being an undertaking or
in case of slump sale 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 50C The value adopted or assessed or assessable by the
building, if sale consideration Stamp Valuation Authority shall be deemed to be the
declared in the conveyance full value of consideration. However, no such
deed is less than the stamp adjustment is required to be made if value adopted for
duty value 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 50CA The Fair Market Value (so determined in prescribed
transfer of unquoted shares is manner) shall be deemed to be the full value of
less than the Fair Market consideration
Value 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 50D FMV of asset on the date of transfer
accruing as a result of transfer
of a capital asset is not
ascertainable or cannot be
determined
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. Particulars Notional Cost of Acquisition
No.

about:blank 49/60
11/5/24, 8:13 AM Income Tax Department

1. Additional compensation in the case of Nil

compulsory acquisition of capital assets
2. Assets received by a shareholder on liquidation FMV of such asset on the date of distribution of
of the company assets to the shareholders
3. Stock or shares becomes property of taxpayer Cost of acquisition of such stock or shares from
on consolidation, conversion, etc. which such asset is derived
4. Allotment of shares in an amalgamated Indian Cost of acquisition of shares in the amalgamating
co. to the shareholders of amalgamating co. in co.
a scheme of amalgamation
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 The part of the cost of preference shares in
shares relation to which such asset is acquired by the
assessee.
6. Allotment of shares/securities by a co. to its a) If shares are allotted during 1999-2000 or on
employees under ESOP Scheme approved by or after April 1, 2009, FMV of securities on
the Central Government 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 Higher of :

Oriented Funds or Units of Business Trust as (i) Cost of acquisition of such asset; and
referred to in Section 112A acquired before (ii) Lower of:
February 1, 2018.
(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) The value which has been considered for the
or (x) purpose of Section 56(2)(vii) or (viia) or (x)
8. Allotment of shares in Indian resulting Cost of acquisition of shares in demerged
company to the existing shareholders of the company ? Net book value of assets transferred in
demerger company in a scheme of demerger demerger ? Net worth of the demerged company
immediately before demerger
9. Cost of acquisition of original shares in Cost of acquisition of such shares minus amount
demerged company after demerger calculated above in point 8.
10. Cost of acquisition of assets acquired by Cost of acquisition of the assets to the predecessor
successor LLP from predecessor private private company or unlisted public company
company or unlisted public company at the
time of conversion of the company into LLP in

about:blank 50/60
11/5/24, 8:13 AM Income Tax Department

compliance with conditions of Section

47(xiiib)
11. Cost of acquisition of rights of a partner in a Cost of acquisition of the shares in the co.
LLP which became the property of the immediately before conversion
taxpayer due to conversion of a private
company or unlisted public company into the
LLP
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 WDV of the asset minus terminal depreciation
as covered under Section 50A* plus balancing charge
14. Undertaking/division acquired by way of Net worth of such undertaking
slump sale as covered under Section 50B
15. New asset acquired for claiming exemptions Actual cost of acquisition minus exemption
under sections 54, 54B, 54D, 54G or 54GA if it claimed under these sections
is transferred within three years
16. Goodwill of business/profession or trade mark a) If such asset were acquired by the assessee by
or brand name associated with business or right purchase from a previous owner; cost of
to manufacture, produce or process any article acquisition means amount of purchase price;
or thing or right to carry on any business or b) In the case falling under sub-clauses(i) to (iv)
profession, tenancy right, stage permits or of sub-section (1) of section 49 and such
loom hours 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 Nil
entitlement)
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 a) Cost of acquisition of shares: Cost of
stock exchange, allotted to members of stock acquisition of original membership of the
exchange under a scheme of demutualization stock exchange
or corporatization of stock exchanges as b) Cost of acquisition of trading or clearing
approved by SEBI rights of the stock exchange: Nil
21. Capital asset, being a unit of business trust, Cost of acquisition of shares as referred to in
acquired in consideration of transfer as referred section 47(xvii) [applicable from AY 2015-16]
to in section 47(xvii)
Units allotted to an assessee pursuant to Cost of acquisition of such units shall be the cost
consolidation of two or more scheme of a of acquisition of units in the consolidating scheme
mutual fund as referred to in Section 47(xviii) of the mutual fund

about:blank 51/60
11/5/24, 8:13 AM Income Tax Department

Shares in a company acquired by the non- Cost of acquisition of such shares shall be
resident assessee on redemption of Global calculated on the basis of the price prevailing on
Depository Receipts referred to in Section any recognized stock exchange on the date on
115AC(1)(b) 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;
about:blank 52/60
11/5/24, 8:13 AM Income Tax Department

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. Particular Cost of Improvement
No.
1. In relation to goodwill of a business, right to NIL
manufacture, produce any article or thing or right to
carry on business or profession
2. In relation to capital asset which becomes property of Any expenditure of capital nature
the assessee or previous owner before 01-04-2001 incurred on or after 01-04-2001
3. In relation to capital asset which becomes property of Any expenditure of capital nature
the assessee or previous owner before 01.04.2001 by incurred on or after 01-04-2001 by the
way of any mode specified under Section 49(1) assessee or the previous owner
4. In relation to capital asset which becomes property of Any expenditure of capital nature
the assessee or previous owner on or after 01.04.2001 incurred by the assessee or the previous
owner
5. In relation to capital asset which becomes property of Any expenditure of capital nature
the assessee or previous owner on or after 01-04-2001 incurred by the assessee or the previous
by way of any mode specified under Section 49(1) 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 111A at:
• 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
about:blank 53/60
11/5/24, 8:13 AM Income Tax Department

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.
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 Section Section 54F Section Section Section
54EC 54EE 54G 54GA 54GB

Eligible Individual Individual Any person Any person Any Person Individual and HUF Any person Any person Individual
taxpayers and HUF and HUF and HUF

Capital Long-term Short-term Short-term or Long-term Long-term Long-term Short-term Short-term Long-term
gains or Long- Long-term or Long- or Long-
eligible for term term term
exemption

about:blank 54/60
11/5/24, 8:13 AM Income Tax Department
Capital Residential Agriculture Compulsory Any long- Any long- Any long term asset Land, Land, Residential
gains House land used by acquisition of term capital term capital (other than a building, building, property
arising from property taxpayer or land or asset being asset residential house plant or plant or (house or a
transfer of by his building Land or property) provided machinery, machinery, plot of land)
parents or forming part Building or on date of transfer in order to in order to Note:
HUF for of industrial Both taxpayer does not shift shift Provisions of
agriculture undertaking own more than one industrial industrial this section
purposes in (which was residential house undertaking undertaking shall not
last 2 years used for property (except the from urban from urban apply to any
before its industrial new house) area to rural area to SEZ. transfer of
transfer purposes for area. residential
at least 2 property
years before made after
its March 31,
acquisition). 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 One Agricultural Land or Bond of Units of One residential Land, Land, Subscription
acquired for residential land (may building for NHAI or such fund as house property building, building, in equity
exemption house be in urban shifting or REC, etc. may be plant or plant or shares of an
property area or rural reestablishing notified by machinery, machinery, eligible
Or area) said Central in order to in order to company.
industrial Government shift shift Note:
Two undertaking to finance industrial industrial 1. W.e.f.
residential start-ups undertaking undertaking April 1,
house to rural area. to SEZ. 2017,
properties eligible start-
Note: up is also
With effect included in
from definition of
Assessment eligible
Year 2020- company.
21, a 2. The
taxpayer has eligible
an option to company
make should
investment in utilize the
two amount of
residential subscription
house for purchase
properties in of new assets
India. This (i.e., plant
option can be and
exercised by machinery
the taxpayer except
only once in vehicle,
his lifetime office
provided the appliances,
amount of computer or
long-term computer
capital gain software
does not etc.).
exceed Rs. 2 However, In
crores. the case of
eligible
startup, the
new asset
shall include
about:blank 55/60
11/5/24, 8:13 AM Income Tax Department
computers or
computer
software.
Time limit Purchase: Within 2 Within 3 Within 6 Within 6 Purchase: within 1 within 1 Within 1 Investment
for within 1 year years after years from months months after year before or year before year before by the
acquiring before or 2 date of date of from date the date of within 2 years after or 3 years or within 3 assessee -
the new years after transfer receipt of of transfer transfer of date of transfer after date of years after Before due
assets date of compensation original Construction: transfer date of date for
transfer asset within 3 years after transfer furnishing of
Construction: date of transfer return under
within 3 Sec. 139(1).
years after Investment
date of by the
transfer company -
within 1 year
from date of
subscription.
Exemption Investment in Investment Investment in Investment Investment Investment in new Investment Investment Investment
Amount new assets or in new assets or in new in new assets X capital in new in new in new assets
capital gain, agricultural capital gain, assets or assets or gain/net assets or assets or X capital
whichever is land or whichever is capital capital consideration capital gain, capital gain, gain/net
lower capital gain, lower gains, gains, Note: if the cost of whichever is whichever is consideration
Note: if the whichever is whichever whichever is new asset exceeds lower lower
cost of new lower is lower, lower, Rs. 10 crore, the
asset exceeds however, however, excess amount shall
Rs. 10 crore, subject to subject to be ignored and Rs.
the excess Rs. 50 Rs. 50 lakhs. 10 crore shall be
amount shall lakhs. taken into
be ignored consideration
and Rs. 10
crore shall be
taken into
consideration

Withdrawal If new asset If new asset If new asset If new asset If new asset a) If new asset is If new asset If new asset If equity
of is transferred is is transferred is is transferred is is shares in
exemption within 3 transferred within 3 transferred transferred within 3 transferred transferred company or
years of its within 3 years of its or it is within a years of within 3 within 3 new asset
acquisition years of its acquisition converted period of 3 acquisition, years of years of acquired by
acquisition into money years from b) if another acquisition acquisition company is
or a loan is the date of residential sold or
taken on its its house is transferred
security acquisition. purchased within a
within 5 Note: within 2 period of 5
years of its Where years of years from
acquisition assessee transfer of date of
takes loans original acquisition.
or advance asset; Note: w.e.f.
on security Assessment
of such c) if another Year 2020-
specified house is 21, the
asset, he constructed restriction on
shall be within the transfer
deemed to 3 years of transfer of new asset
have of original asset is reduced to
transferred 3 years in
such asset case of
on the date computer or
on which computer
such loan or software.
advance is
taken.
Deposit in Yes Yes Yes No No Yes Yes Yes Yes
Capital
gains
deposit
scheme
before due
date under
Sec. 139(1)

Capital Gain Account Scheme 1988

a) The scheme is open to all taxpayers, who wish to claim exemption under Sections 54, 54B, 54D, 54F,
54G or 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
about:blank 56/60
11/5/24, 8:13 AM Income Tax Department

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. Nature of income taxable as residuary income
No.
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

about:blank 57/60
11/5/24, 8:13 AM Income Tax Department

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

about:blank 58/60
11/5/24, 8:13 AM Income Tax Department

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

about:blank 59/60
11/5/24, 8:13 AM Income Tax Department

1. 57(i) Dividend [other than dividend referred to Any reasonable sum paid by way of
in section 2(22)(f)] or Interest on commission or remuneration to banker or any
securities other person for purpose of realizing
dividend or interest on securities
2. 57(ia) Employee’s contribution towards If employees’ contribution is credited to their
Provident Fund, Superannuation Fund, account in relevant fund on or before the due
ESI Fund or any other fund setup for the date
welfare of such employees
3. 57(ii) Rental income letting of plant, Rent, rates, taxes, repairs, insurance and
machinery, furniture or building 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
• 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 50% of such interest (subject to certain
compensation conditions)
7. 58(4) Income from activity of owning and All expenditure relating to such activity.
Proviso maintaining race horses.

5.3 Expenses not deductible [Section 58]:

S.N. Section Nature of Income
1. 58(1)(a)(i) Personal expenses
2. 58(1)(a) Interest chargeable to tax which is payable outside India on which tax has not been
(ii) paid or deducted at source
3. 58(1)(a) ‘Salaries’ payable outside India on which no tax is paid or deducted at source
(iii)
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 (No. 2) Act, 2024]

about:blank 60/60