CHAPTER IV — COMPUTATION OF TOTAL INCOME

PART A — HEADS OF INCOME (ss. 13-14)

Section 13 — Heads of Income

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Heads of income.

13. Save as otherwise provided in this Act, all incomes shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:—

(a) Salaries;

(b) Income from house property;

(c) Profits and gains of business or profession;

(d) Capital gains; and

(e) Income from other sources.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 14 of the 1961 Act — Heads of income

14. Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:— A.—Salaries. [B.—Interest on securities. — Omitted by the Finance Act, 1988.] C.—Income from house property. D.—Profits and gains of business or profession. E.—Capital gains. F.—Income from other sources.

BLOCK 3 : COMMENTARY

Section 13 is functionally identical to old s. 14. The five heads of income are preserved. Both sections are introduced by the saving phrase "Save as otherwise provided", which preserves the various special-rate and special-computation regimes (presumptive, special incomes, MAT, AMT, capital gains on listed shares etc.).

The mutual exclusivity of the heads is preserved. The Supreme Court's decision in CIT v. Bombay Burmah Trading Corporation (1986) 161 ITR 386 (SC) — that the same income cannot be charged under two heads — continues to apply. The order of preference where an income may fall under more than one head is also preserved: salary → house property → PGBP → capital gains → other sources, with the residual head of "Other Sources" catching whatever does not fit elsewhere.

Drafting changes. (i) The 1961 Act used the alphabetic prefix (A, B, C, D, E, F) in s. 14 itself; the 2025 Act uses small-letter clauses (a) to (e) which is more consistent with modern drafting. (ii) The (long-omitted) head "B. Interest on Securities" is gone — interest on securities had been merged into Other Sources by FA 1988. (iii) The architecture of using separate Parts of the chapter for the rules of each head is now visible from s. 13 itself; old s. 14 had no such structural signpost.

Continuity of jurisprudence. The classical authorities on heads of income — East India Housing & Land Development Trust v. CIT (1961) 42 ITR 49 (SC) (income from letting out of property is house-property income, not business income, even where letting is the regular business of the assessee unless the property is itself the stock of an organised business activity); Karanpura Development Co. Ltd. v. CIT (1962) 44 ITR 362 (SC) (where letting is incidental to the business of carrying on commercial exploitation of property, income is PGBP) — continue to apply with full force.

Practical takeaway. The foundational classification rule is unchanged. Assessees and practitioners must continue to identify the proper head with care — the head determines the computational rules (gross vs net basis, deductions allowed, indexation, set-off, carry-forward, special rates), the head determines the rate in some cases (capital gains have separate rate schedules), and the head determines the timing of inclusion (accrual basis under PGBP and Other Sources for non-cash items, receipt basis under Salaries for most items). Misclassification leads to disallowance of deductions, denial of indexation, or wrong tax rate. Where the case is ambiguous, document the basis of classification and consider obtaining an advance ruling under Chapter XVIII.

Section 14 — Income not forming part of Total Income and Expenditure in relation to such Income

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Income not forming part of total income and expenditure in relation to such income.

14. (1) Irrespective of anything to the contrary contained in this Act, for the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income.

(2) Where the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with— (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under this Act, he shall determine the amount of expenditure in relation to such income by such method as may be prescribed.

(3) Provided that the provisions of sub-section (2) shall apply even where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income for that tax year.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 14A of the 1961 Act — Expenditure incurred in relation to income not includible in total income

14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.

(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.

(3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act.

[Explanation inserted by FA 2022 with retrospective effect — clarifying that the section applies even where exempt income has not accrued or arisen in the tax year, overruling the Delhi HC decision in Cheminvest.]

BLOCK 3 : COMMENTARY

Section 14 of the 2025 Act re-states section 14A of the 1961 Act — the bedrock disallowance provision for expenditure attributable to exempt income. Inserted by Finance Act, 2001 with retrospective effect, s. 14A has spawned more litigation than perhaps any other provision of Chapter IV. The 2025 Act preserves the operative content but elevates the post-FA-2022 clarification (that disallowance applies even where exempt income has not accrued in the year) to express statutory text in the proviso to sub-section (3).

Sub-section (1) — the operative bar. "Irrespective of anything to the contrary contained in this Act" — this is a non-obstante clause; it overrides every other provision, including the deduction provisions of Part D. No deduction is allowed for any expenditure incurred in relation to income which does not form part of the total income.

Sub-section (2) — the Rule 8D mechanism. Where the AO is not satisfied with the assessee's claim, he must determine the disallowance by the prescribed method — Rule 8D under the 1961 Rules, expected to be re-issued under the new Rules with the same formula: (i) direct expenditure attributable; (ii) interest expenditure attributable on a proportional basis (gross investment in exempt assets ÷ average total assets); (iii) 1% of the average value of investments yielding exempt income.

Sub-section (3) and proviso — even when no exempt income has accrued. The FA 2022 clarification — that disallowance applies even when no exempt income has accrued — is now in the body of the section. This overrules the Delhi High Court's decision in Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Del) and the line of decisions which had held that no disallowance can be made if no exempt income is earned in the year. Practitioners must take note: a holding of investments in shares of group companies, even if no dividend is declared in the year, continues to attract Rule 8D disallowance under the new s. 14.

Continuity of jurisprudence. The Supreme Court's decisions in Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC) (dominant purpose test rejected; expenditure in relation to exempt income is to be apportioned even if the predominant purpose is acquiring controlling interest) and in CIT v. Walfort Share & Stock Brokers (P) Ltd. (2010) 326 ITR 1 (SC) (disallowance is mechanical once the connection is established) continue to apply.

Strategic guidance. (i) Maintain separate accounts for investments yielding exempt income vs taxable income — this materially improves the assessee's position when challenging Rule 8D computation. (ii) Where own-funds are sufficient to cover the investment in exempt-income-yielding assets, take the benefit of the presumption in HDFC Bank Ltd. v. DCIT (2014) 366 ITR 505 (Bom.) — interest disallowance under Rule 8D(2)(ii) cannot be made where own funds exceed exempt-income investments. (iii) Quantify the 1% disallowance under Rule 8D(2)(iii) ex ante as part of return-filing — minimum disallowance is unavoidable; pre-empting the AO's determination strengthens the Tribunal-level argument.

PART B — SALARIES (ss. 15-19)

Part B contains the five sections that govern the head "Salaries". Section 15 is the charge; section 16 defines what is salary; section 17 defines perquisites; section 18 defines profits in lieu of salary; section 19 sets out the deductions from salary income (standard deduction and exemptions for retirement benefits).

Section 15 — Charge of Salaries

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Salaries.

15. (1) The following income shall be chargeable to income-tax under the head "Salaries":—

(a) any salary due from an employer (or former employer) to an assessee in the tax year, whether paid or not;

(b) any salary paid or allowed to him in the tax year by or on behalf of an employer (or former employer), though not due or before it became due to him;

(c) any arrears of salary paid or allowed to him in the tax year by or on behalf of an employer (or former employer), if not charged to income-tax for any earlier tax year.

(2) Where any salary, paid in advance, is included in the total income of any person for any tax year, it shall not be included again in the total income of the person when the salary becomes due. Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as "salary" for the purposes of this section.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 15 of the 1961 Act — Salaries

15. The following income shall be chargeable to income-tax under the head "Salaries"— (a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.

Explanation 1.—Where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.

Explanation 2.—Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as "salary" for the purposes of this section.

BLOCK 3 : COMMENTARY

Section 15 is the charging section for the head Salaries. The classical rule — earliest of due, paid, arrears — is preserved. The architecture of two Explanations of old s. 15 has been collapsed into sub-section (2) of new s. 15. Substantively, nothing changes.

Earliest-of rule. Salary is taxed on the earlier of (a) due date, (b) actual receipt (including advance), or (c) arrears year of payment, whichever is the earlier. The receipt basis used in s. 15(b) is the standard method for salaried employees: the employer's TDS at the time of payment matches the employee's tax liability. The accrual basis under s. 15(a) catches situations where salary is due but unpaid (typical of corporate insolvency and salary arrears litigation).

Partner's remuneration. The proviso (now sub-section (2) second sentence) carves out partner-firm remuneration from the head "Salaries". Partner's remuneration is taxed under PGBP in the partner's hands and is allowable (subject to s. 36 conditions) in the firm's hands. This dichotomy is preserved.

TDS coupling. The income chargeable under s. 15 is also the basis for TDS under s. 392 of the new Act (corresponding to old s. 192). The pay-as-you-earn architecture demands that the employer compute taxable salary at every pay period — this includes due, paid, and arrears for the year, less the deductions and exemptions provided under sections 19 (standard deduction etc.) and the relevant Schedule II exemptions.

Practical takeaways. (i) For year-end accruals: where salary is due but unpaid (typical for management bonus, performance-linked pay), s. 15(a) charges the income in the year of accrual. The employee may request the employer to defer the accrual but cannot defer the charge. (ii) For arrears under VI Pay Commission, central government dearness allowance arrears, or private-sector salary settlements: s. 15(c) charges the arrears in the year of receipt; relief under s. 156 of the new Act (corresponding to old s. 89) is available to spread the tax incidence. (iii) For partners: the carve-out is binding — do not treat partner remuneration as salary in TDS, in income classification, or in deduction. Partner remuneration goes under PGBP.

Section 16 — Definition of "Salary"

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Salary defined.

16. For the purposes of this Part, "salary" includes—

(a) wages;

(b) any annuity or pension;

(c) any gratuity;

(d) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;

(e) any advance of salary;

(f) any payment received by an employee in respect of any period of leave not availed of by him;

(g) the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 124;

(h) the annual accretion in that year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in paragraph 6 of Part A of Schedule XI;

(i) the aggregate of all sums that are comprised in the transferred balance in a recognised provident fund, to the extent provided in paragraph 11(4) and (5) of Part A of Schedule XI;

(j) the contribution made by the Central Government to the account of an employee under a pension scheme referred to in section 124 (Agniveer Corpus Fund).

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 17(1) of the 1961 Act — "salary" defined

17(1) "salary" includes— (i) wages; (ii) any annuity or pension; (iii) any gratuity; (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; (v) any advance of salary; (vi) any payment received by an employee in respect of any period of leave not availed of by him; (vii) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule; (viii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; (ix) the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD; (x) the contribution made by the Central Government to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to in section 80CCH.

BLOCK 3 : COMMENTARY

Section 16 of the new Act re-states section 17(1) of the 1961 Act. The 10 inclusive items of "salary" are preserved verbatim — wages, annuity / pension, gratuity, fees / commission / perquisite / profits in lieu, advance, leave encashment, NPS contribution, RPF accretion, RPF transferred balance, Agniveer Corpus Fund contribution. The drafting innovation is that "salary" is now defined in its own dedicated section rather than as a sub-section within the larger s. 17 of the old Act.

Inclusive definition. The use of "includes" preserves the long-standing position that the definition is illustrative, not exhaustive. Anything received by an employee from an employer in connection with employment can be salary even if not specifically listed. The Supreme Court's authority in CIT v. L.W. Russel (1964) 53 ITR 91 (SC) — definition is wide enough to include any payment with the character of remuneration — continues to apply.

Cross-references to Schedule XI. Items (h) and (i) — RPF accretion and transferred balance — point to Schedule XI Part A paragraphs 6 and 11. The substantive thresholds (interest above the notified rate, FA 2021 threshold of Rs 2.5 lakh / Rs 5 lakh employee contribution) are preserved in the Schedule. Practitioners advising on RPF contributions must continue to monitor the threshold contributions and the consequent taxability in the employee's hands.

NPS and Agniveer. Items (g) and (j) preserve the items inserted by FA 2014 (s. 80CCD) and FA 2023 (s. 80CCH for Agniveer Corpus Fund) respectively. The corresponding deduction provisions (section 124 of the new Act, formerly s. 80CCD; section 132 of the new Act, formerly s. 80CCH) are in Chapter VIII.

Practical takeaway. For Form 16 / payroll preparation, the inclusive list of s. 16 sets the core taxable salary computation; deductions and exemptions thereon are governed by s. 19 (read with Schedule II). The complete picture for an employee is: gross salary as per s. 16 → less exempt items per Schedule II → less standard deduction per s. 19 → equals net taxable salary.

Section 17 — Definition of "Perquisite"

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Perquisite defined.

17. (1) For the purposes of this Part, "perquisite" includes—

(a) the value of rent-free accommodation provided to the assessee by his employer (whether housing accommodation or any other type of accommodation);

(b) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer;

(c) the value of any benefit or amenity granted or provided free of cost or at concessional rate, by an employer to specified employees;

(d) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee;

(e) any sum payable by the employer (whether directly or through a fund, other than RPF/approved superannuation/Schedule XI fund) to effect an assurance on the life of the assessee or to effect a contract for an annuity;

(f) the value of any specified security or sweat equity shares allotted or transferred by the employer (or former employer), free of cost or at concessional rate, to the assessee — value being FMV on date of exercise less amount paid (ESOP);

(g) the contribution by an employer to the account of the assessee in a recognised provident fund / approved superannuation fund / NPS / similar fund, to the extent the aggregate exceeds Rs 7,50,000 in the tax year;

(h) the annual accretion by way of interest, dividend or any other amount of similar nature on the balance at the credit of the assessee in such recognised funds, to the extent it relates to the contribution beyond Rs 7,50,000;

(i) the value of any other fringe benefit or amenity, as may be prescribed.

(2) Definitions: (a) "specified employee" — employee with monetary salary above prescribed threshold (currently Rs 50,000) or specified directorial / shareholder relationship; (b) "specified security" — see Companies Act / SEBI Regulations; (c) various other ancillary definitions.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 17(2) of the 1961 Act — "perquisite" defined

17(2) "perquisite" includes— (i) the value of rent-free accommodation provided to the assessee by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer; (iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate to specified employees; (iv) any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee; (v) any sum payable by the employer (whether directly or indirectly) to effect an assurance on the life of the assessee or annuity contract; (vi) the value of any specified security or sweat equity shares allotted by the employer (or former employer) — ESOP rules; (vii) employer contribution to PF/super/NPS exceeding Rs 7,50,000; (viia) annual accretion on the excess; (viii) any other fringe benefit or amenity as may be prescribed.

Explanations and provisos elaborate on the meaning of specified employee, specified security, accommodation valuation, etc. Rule 3 of the Income-tax Rules, 1962 prescribes the valuation methods (formerly perquisite valuation rules; substantially modified by FA 2009 and FA 2020).

BLOCK 3 : COMMENTARY

Section 17 is the most-litigated provision under the head Salaries. The inclusive definition — covering rent-free accommodation, concessional accommodation, benefits to specified employees, employer-discharge-of-personal-obligation, life insurance / annuity contributions, ESOP, PF/super/NPS contributions exceeding Rs 7.5 lakh, accretion thereon, and the residual rule-based fringe benefit — is preserved without disturbance.

Rent-free / concessional accommodation. The valuation rules (currently Rule 3) will be re-issued under the new Income-tax Rules, 2026 with substantively the same formula: 7.5%/10%/15% of salary depending on city population for company-owned accommodation; cost basis for hired accommodation; with applicable concessions for transfers, and for hotel accommodation provided up to 15 days. Valuation continues to follow Rule 3.

Specified employee. The threshold remains relevant (currently monetary salary above Rs 50,000) for the purposes of clause (c) — benefits to specified employees. For non-specified employees, the value of benefits is not perquisite (with the carve-outs for rent-free accommodation under (a) and concessional accommodation under (b) which apply to all employees).

ESOP — clause (f). The valuation regime is preserved: FMV on the date of exercise (or date of allotment for unlisted) less amount paid by the employee equals the perquisite. The valuation is governed by Rule 3(8) (to be re-issued). Double charging is avoided by including the same amount as cost of acquisition for capital gains under section 73 of the new Act (corresponding to old s. 49(2AA)). The deferral of TDS for ESOP issued by eligible startups (FA 2020) is preserved through s. 392 of the new Act with a corresponding rule.

Clauses (g) and (h) — Rs 7.5 lakh PF / NPS / super cap. Inserted by FA 2020, this clause caps the tax-free employer contribution at Rs 7.5 lakh per year (cumulatively across RPF, approved superannuation, and NPS). Any contribution beyond this cap, plus the accretion thereon, is perquisite in the year of contribution / accretion. The Rule 3B mechanism for computing the accretion (using PFRDA-approved formula) is preserved.

Continuity of jurisprudence. CIT v. L. W. Russel (1964) 53 ITR 91 (SC) — perquisite must arise from employment; mere shareholding does not generate perquisite. Arun Kumar v. UOI (2007) 290 ITR 200 (SC) — perquisite valuation rules are valid; the AO has no power to deviate from prescribed rules. Both authorities continue to apply.

Practical takeaways. (i) For HR / payroll: re-validate perquisite valuation against the new Rule 3 once notified. (ii) For HNI senior employees with PF / super / NPS: monitor the Rs 7.5 lakh aggregate cap; the post-cap contribution and accretion is fully taxable. (iii) For ESOP: capture FMV on exercise; coordinate with the capital gains computation on subsequent sale. (iv) For board members / directors: clauses (a) to (e) apply irrespective of "specified employee" status; review annually. (v) For tax audit (s. 63 of new Act, formerly s. 44AB): ensure that the auditor's certificate addresses all perquisite items disclosed in Form 12BA.

Section 18 — Profits in lieu of Salary

NEW ACT, 2025 — text (gist)

18. "Profits in lieu of salary" includes — (a) compensation for termination / modification of terms of employment; (b) any payment received by an employee from a fund, other than RPF / approved superannuation / Schedule XI fund, where contributions have been made by the employer; (c) any sum paid by the employer in commutation of pension or other lump-sum payment; (d) any amount due or received from an unrecognised PF (employer contribution + interest portion); (e) any amount received before joining or after cessation, as the case may be.

OLD ACT, 1961 — corresponding section

Section 17(3) of the 1961 Act — Profits in lieu of salary. Includes (i) termination compensation; (ii) employer-contribution-fund payouts where not RPF; (iii) commutation of pension etc.; (iv) keyman insurance proceeds (since FA 2002); (v) amounts received before joining / after cessation.

COMMENTARY

Section 18 of the 2025 Act re-states section 17(3) of the 1961 Act. The five inclusive items are preserved. Practical relevance: termination compensation under service contracts / VRS is the main flashpoint — it can be partly exempt under Schedule II (corresponding to old s. 10(10C)), with the non-exempt part being "profits in lieu of salary" and chargeable under s. 15. Keyman insurance proceeds received by an employee where the policy was assigned by the employer continue to be "profits in lieu of salary" under clause (b) (jurisprudence of CBDT Circular 762 — assigned keyman policies are taxable as salary in the employee's hands).

Section 19 — Deductions from Salaries

NEW ACT, 2025 — text (gist)

19. (1) The income chargeable under the head "Salaries" shall be computed after making the deductions specified in the Table. The Table sets out 14 items of standard deductions and exemptions including: (1) Entire amount paid towards profession-tax; (2) Standard deduction of Rs 75,000 or salary, whichever less; (3) Death-cum-retirement gratuity — entire amount under specified rules; (4) Retiring gratuity — entire amount; (5)/(6) Gratuity (other) — least of three amounts; (7) Commutation of pension — specified categories entire / formula-based; (10) Compensation on retrenchment — least of three; (11)/(12) VRS / golden handshake — formula-based; (13)/(14) Other specified payments — entire amount or specified formula.

OLD ACT, 1961 — corresponding section

Section 16 of the 1961 Act — Deductions from salaries: (i) standard deduction Rs 50,000 [revised to Rs 75,000 by FA 2024 in new regime]; (ii) entertainment allowance for Government employees subject to ceiling; (iii) profession tax. Plus exemptions under section 10 — (10), (10A), (10AA), (10B), (10C), (13A), (14) etc. for gratuity, leave encashment, retrenchment, VRS, HRA, special allowances.

COMMENTARY

Section 19 unifies into a single table what had been split between old s. 16 (standard deduction, profession tax, entertainment allowance) and old s. 10 (gratuity / leave encashment / retrenchment / VRS / HRA exemptions). The unification is one of the more conspicuous drafting innovations of the 2025 Act — the head Salaries now has a single computational provision in s. 19 instead of being scattered across two sections of two different chapters. Substantively, every limit and every condition is preserved. The post-FA 2024 standard deduction of Rs 75,000 (in the new regime) is built into item 2 of the Table. The gratuity formula (least of: actual / Rs 20 lakh / 15 days × last salary × completed years), the leave encashment Rs 25 lakh exemption (FA 2023), the VRS Rs 5 lakh ceiling, and the HRA formula (least of: actual / 50%/40% of salary / rent paid – 10% of salary) are all preserved within Schedule II as cross-referenced in the Table.

PART C — INCOME FROM HOUSE PROPERTY (ss. 20-25)

Part C contains the six sections that govern the head "Income from House Property". Section 20 is the charge; section 21 prescribes the annual value computation; section 22 provides the deductions; section 23 deals with arrears of rent and unrealised rent; section 24 deals with co-ownership; section 25 defines "owner" (including deemed owners). The substantive content is preserved from old ss. 22-27 of the 1961 Act.

Section 20 — Charge of House Property Income

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Income from house property.

20. (1) The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property".

(2) [FA 2026 deletion: see footnote] [Where the property consists of any building / land owned by the assessee but used by him for any business or profession carried on by him, the income from such use is taxable under PGBP, not under House Property — preserved].

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 22 of the 1961 Act — Income from house property

22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property".

BLOCK 3 : COMMENTARY

Section 20 is functionally identical to section 22 of the 1961 Act. The charge is on the annual value of the buildings/lands appurtenant of which the assessee is the owner. The carve-out for property used in own business/profession (which is taxable under PGBP) is preserved.

Three-element test. (i) The property must consist of buildings or lands appurtenant to buildings — vacant land alone is not house property (taxed under Other Sources). (ii) The assessee must be the owner — including deemed owner under s. 25 (corresponding to old s. 27). (iii) The property must not be occupied for own business/profession.

The fundamental separation between "house property" and "business income" preserved by s. 20 has been a recurring source of litigation. The classical authorities — East India Housing & Land Development Trust (1961) 42 ITR 49 (SC), Karanpura Development Co. (1962) 44 ITR 362 (SC), Chennai Properties & Investments Ltd. v. CIT (2015) 373 ITR 673 (SC), Rayala Corporation (P) Ltd. v. ACIT (2016) 386 ITR 500 (SC) — continue to apply. Where letting is the business of the assessee and the assessee is in the business of holding properties for letting (with all elements of organised commercial activity), letting income may be classified under PGBP. Where letting is mere exploitation of property as an investment, it is house property income.

Practical relevance for HUFs and family-owned property holding companies. Identify whether the predominant business of the entity is real-estate development / letting / leasing — if yes, the case for PGBP classification under Chennai Properties is strong; if no, default to house property under s. 20.

Section 21 — Annual Value how determined

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Annual value how determined.

21. (1) For the purposes of section 20, the annual value of any property shall be deemed to be— (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part thereof is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part thereof is let and was vacant during the whole or any part of the tax year and owing to such vacancy the actual rent received or receivable is less than the sum referred to in clause (a), the amount so received or receivable.

(2) Sum referred to in sub-section (1) shall be reduced by taxes (including service charges levied by any local authority) actually paid in the tax year.

(3) Self-occupied property: where the property consists of a house or part of a house in the occupation of the owner for his own residence and which cannot actually be occupied owing to his employment / business / profession at any other place where he resides, annual value shall be NIL — for a maximum of two such properties at the option of the assessee.

(4) Where the assessee owns more than two self-occupied properties, the annual value of the additional properties shall be computed under sub-section (1).

(5) Specified provisions for unrealised rent (write-off, conditions for treatment as deductible).

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 23 of the 1961 Act — Annual value how determined

23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be— (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable. Provisos: (i) less municipal taxes paid; (ii) provision for unrealised rent; (iii) self-occupied house — annual value nil for two properties; (iv) deemed let-out for further self-occupied properties; et al.

BLOCK 3 : COMMENTARY

Section 21 substantively replicates section 23 of the 1961 Act. The annual-value computation rule — the higher of expected reasonable rent or actual rent received (with vacancy carve-out) — is preserved. The self-occupied carve-out — NIL annual value for up to two such properties (FA 2019 amendment) — is preserved. Properties beyond the two-property cap are deemed let-out at expected reasonable rent.

The expected reasonable rent ("ERR") is the principal valuation concept. It is the rent for which the property might reasonably be expected to let, having regard to its location, condition, size, accessibility, and the prevailing rental market. ERR is generally taken to be the higher of (a) municipal valuation, (b) fair rent under rent-control statutes (where applicable), but subject to (c) standard rent under the Rent Control Act (where applicable). The Supreme Court in CIT v. Smt. Aditi Tibrewala (2002) 256 ITR 567 (SC) and in M.S.M.M. Meyappa Chettiar v. CIT (1981) 130 ITR 656 (SC) developed the ERR jurisprudence under old s. 23 — these authorities continue to apply.

Vacancy carve-out — clause (c). Where a let-out property was vacant for part of the year and the actual rent for the period of letting falls below ERR proportionate to that period, the annual value is the actual rent (not ERR). The vacancy must be genuine and not contrived. (See Vivek Jain v. ACIT (2011) 337 ITR 74 (AP).)

Sub-section (3) — self-occupied. Two self-occupied properties (FA 2019 amendment, retained) get NIL annual value. The earlier rule (one self-occupied property) had been a major source of complaint from HNIs maintaining residences in two cities (e.g., Delhi residence + Goa weekend property + parents' house at hometown). The FA 2019 expansion to two properties addressed the most common case. Multi-state professional families (such as a Delhi-based CA with a Goa weekend home and an inherited Mumbai property) must still nominate two of three properties as self-occupied; the third is deemed let-out.

Practical takeaways. (i) Document municipal valuation, fair rent, standard rent for every let-out property; the AO will rely on these in any rectification. (ii) For self-occupied properties beyond two, compute deemed-let-out income on ERR basis; do not rely on actual rent (since none is received). (iii) For vacancy claims: keep records of vacancy (housing society correspondence, broker emails, classified ads) — vacancy is a question of fact and the assessee bears the burden. (iv) For properties under construction: not chargeable until construction is complete and possession received (CIT v. Akbar Khan (2008) 305 ITR 27 (SC)).

Sections 22-25 — House Property: Deductions, Arrears, Co-ownership, Owner

NEW ACT, 2025 — text (gist)

Section 22 — Deductions from income from house property: (1) standard deduction at 30% of annual value; (2) interest on borrowed capital — full deduction for let-out, capped at Rs 2 lakh for self-occupied. Pre-construction interest deductible in 5 equal instalments commencing from completion year.

Section 23 — Special provision for arrears of rent and unrealised rent: arrears chargeable in the year of receipt (with 30% standard deduction); unrealised rent recovered later chargeable in year of recovery.

Section 24 — Co-ownership: where property is co-owned with definite and ascertainable shares, each co-owner is taxed on his share separately (no AOP treatment).

Section 25 — Owner / deemed owner: includes (i) transfer to spouse / minor child without consideration; (ii) impartible estate holder; (iii) member of co-operative society / company / AOP allotted property under house-building scheme; (iv) lessee under specified lease >12 years; (v) holder under power of attorney sale (FA 1988).

OLD ACT, 1961 — corresponding section

Section 24 — Deductions: (a) 30% standard deduction; (b) interest on borrowed capital — uncapped for let-out, Rs 2 lakh cap for self-occupied (post-FA 2017). Pre-construction interest in 5 instalments. Section 25, 25A, 25B — special provisions for arrears / unrealised rent — preserved with various amendments (FA 2016 simplified s. 25A). Section 26 — co-ownership. Section 27 — "owner" / deemed owner — five categories preserved.

COMMENTARY

Sections 22-25 of the new Act re-state old ss. 24, 25, 25A, 25B, 26 and 27. The 30% flat deduction (a hangover from the abolished system of standard deduction at 1/4th of annual value) is preserved. The interest deduction — uncapped for let-out and Rs 2 lakh cap for self-occupied (post-FA 2017) — is preserved.

Pre-construction interest. Continues to be deductible in 5 equal instalments commencing from the year of completion, subject to the overall Rs 2 lakh self-occupied cap. The capitalisation-vs-deduction debate (whether pre-construction interest should be added to cost of property for capital gains purposes if claimed as deduction under house property) is settled by CIT v. Sant Steel and Alloys (P) Ltd. (2009) 313 ITR 132 (P&H) — same item not allowable twice.

Co-ownership. The principle of separate taxation of each co-owner is fundamental. CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625 (SC) — possession plus ownership in commercial sense suffices for s. 22 / s. 27 charge. CIT v. T.V. Sundaram Iyengar & Sons (P) Ltd. (1959) 37 ITR 26 (Mad.) — defining co-ownership shares. Both authorities continue to apply.

Deemed owner under s. 25. The five categories — transfer to spouse / minor without consideration; impartible estate; co-op / company / AOP allotment; long-term lessee (12 years+); power-of-attorney holder under s. 53A of the Transfer of Property Act — are preserved. The post-FA 1988 inclusion of power-of-attorney holders has been contentious; CIT v. Podar Cement settles the position that ownership is to be understood in a substantive sense for s. 22 / s. 27 / s. 25 (new). Power-of-attorney sale (where consideration has been paid and possession transferred without registered conveyance) is now squarely within s. 25, and the income from such property is chargeable in the holder's hands.

PART D — PROFITS AND GAINS OF BUSINESS OR PROFESSION (ss. 26-66)

Part D is the largest Part of the largest chapter — 41 sections covering charge, methodology, deductions, disallowances, deemed PGBP, depreciation, presumptive taxation, and special-purpose business expenditure regimes. It corresponds to old ss. 28 to 44DB of the 1961 Act.

Section 26 — Charge of PGBP

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Profits and gains of business or profession.

26. (1) The incomes referred to in sub-section (2) shall be chargeable to income-tax under the head "Profits and gains of business or profession".

(2) The following incomes are covered: (a) profits and gains of any business or profession carried on by the assessee; (b) compensation due / received in connection with termination / modification of agency / managing agency; (c) income derived by trade / professional / similar association from specific services to its members; (d) profits on sale of import licences, duty drawback, cash incentives, DEPB, MEIS, RoDTEP and similar export benefits; (e) value of any benefit / perquisite arising from business or profession (whether convertible into money or not); (f) interest, salary, bonus, commission or remuneration received by partner of a firm; (g) sum received under non-compete agreements; (h) sum received under Keyman insurance policy; (i) income from speculative business; (j) capital sums received on transfer of right to manufacture / produce / process; (k) profits on sale of carbon credits; (l) compensation from multilateral fund of Montreal Protocol.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 28 of the 1961 Act — Profits and gains of business or profession

Section 28 — Charge of PGBP. Includes 12 limbs (i)-(viii) and (vi-A) covering (i) profits and gains of any business or profession; (ii) compensation on termination of management of Indian company; (iii) compensation on termination of agency / managing agency; (iv) income from specific services to members; (v) export incentives — DEPB / cash compensatory / drawback; (vi) profits on sale of import licences; (va) non-compete; (vi) interest etc. by partner from firm; (vii) Keyman insurance; (viia) carbon credits; (viib) Montreal Protocol; (viii) capital sum on transfer of right to manufacture; etc.

BLOCK 3 : COMMENTARY

Section 26 is the charging section for PGBP, corresponding to s. 28 of the old Act. The thirteen-fold inclusive enumeration (clauses (a) to (l)) preserves every limb of old s. 28. The drafting innovation is a cleaner numbering and the express inclusion of post-2020 export schemes (RoDTEP — Remission of Duties and Taxes on Exported Products; MEIS — Merchandise Exports from India Scheme).

Foundational concepts. Two threshold concepts govern PGBP: (i) what is a "business"; (ii) when is a business "carried on"? Section 2(20) of the new Act (corresponding to old s. 2(13)) defines business inclusively to cover trade, commerce, manufacture, and any adventure or concern in the nature of trade. The case law on "adventure in the nature of trade" — CIT v. P. K. N. Co. Ltd. (1969) 72 ITR 195 (Mad.); G. Venkataswami Naidu & Co. v. CIT (1959) 35 ITR 594 (SC) (six-factor test: nature of commodity, magnitude of transaction, intention, profit motive, frequency, business activity) — continues to apply.

Compensation receipts. Clauses (b) and (g) tax termination / modification / non-compete compensation. The receipts of compensation for loss of source of income / structural agency are taxable PGBP if they relate to revenue-side disruption; they are capital receipts otherwise (and may be taxable as capital gains under section 67 of the new Act, with cost of acquisition deemed nil under s. 73). The line is fact-sensitive — CIT v. Best & Co. (P) Ltd. (1966) 60 ITR 11 (SC) and Khanna & Annadhanam v. CIT (2013) 351 ITR 110 (Del.) continue to guide.

Export incentives. Clause (d) brings every form of export-side incentive — DEPB, MEIS, RoDTEP, drawback, cash compensatory — within PGBP. The Supreme Court in CIT v. Sterling Foods (1999) 237 ITR 579 and Topman Exports v. CIT (2012) 342 ITR 49 settled the head-of-income classification (PGBP, not other sources) and, subject to s. 80HHC-style restrictions (now repealed), the deductibility within Chapter VIII.

Practical takeaways. (i) For service-sector firms (CAs, lawyers, consultants): clauses (a) and (g) — base receipts plus non-compete sums — are PGBP. (ii) For exporters: maintain clear segregation of export incentive receipts; classify as PGBP under clause (d); set off against export-related expenses; deduct allowable portions under Chapter VIII. (iii) For Keyman policies (clause (h)): premium paid by employer is deductible (subject to s. 36 conditions); proceeds in employer's hands are PGBP; proceeds assigned to employee become "profits in lieu of salary" (see Section 18 commentary). (iv) For carbon credits and CDM revenues: clause (k) clarifies the head — earlier disputed — and CIT v. My Home Power Ltd. (2014) 365 ITR 82 (AP) continues to be relevant on whether the receipt is capital (creation of a right) or revenue (sale of a commodity).

Sections 27 to 32 — Method, Deductions and Specific Reserves

NEW ACT, 2025 — text (gist)

S. 27 — Income from PGBP shall be computed in accordance with the provisions of sections 28 to 54 (the operative computational provisions).

S. 28 — Specific deductions in respect of business expenditure (rent, repairs, insurance, etc.) — (1) sums payable for various business needs are allowed; covers premium for business asset insurance, repairs and maintenance.

S. 29 — Deductions for employer contributions: provident funds, gratuity funds, superannuation, ESI, etc., subject to actual payment.

S. 30 — General deductions for expenditure laid out wholly and exclusively for business / profession.

S. 31 — Reserves for specified businesses (banks, insurers, infrastructure) — formula-based deductions on net income.

S. 32 — Other specified deductions — covering preliminary expenses, amalgamation / demerger expenses, scientific research, telecom licence expenses (formerly old s. 35ABB), spectrum fee (old s. 35ABA).

OLD ACT, 1961 — corresponding section

Sections 30, 31 (rent, rates, repairs and insurance), 36 (other deductions including employer contributions to PF / gratuity / family welfare; rural development; bonus / commission to employees; bad debts; provision for bad debts; banks; etc.), 37 (general deduction), 35 / 35ABB / 35ABA / 35AC / 35AD / 35CCA / 35CCB / 35CCC / 35CCD / 35DDA / 35DD / 35E (scientific research, telecom, agricultural extension, infrastructure facility, etc.).

COMMENTARY

Sections 27-32 of the new Act consolidate, simplify and re-classify the deduction provisions of old ss. 30-37 and the specialised deduction sections of 35-series. The substantive content is preserved. Each deduction continues to require: (i) connection with business; (ii) actual payment (where required by s. 29 / s. 35); (iii) reasonable and bona fide character; (iv) no specific disallowance under s. 35-37 of the new Act (corresponding to old s. 40 / 40A series).

Continuity of jurisprudence. CIT v. Travancore Sugars & Chemicals Ltd. (1966) 62 ITR 566 (SC), CIT v. Madras Auto Service (P) Ltd. (1998) 233 ITR 468 (SC), Eastern Investments Ltd. v. CIT (1951) 20 ITR 1 (SC), Sassoon J. David & Co. (P) Ltd. v. CIT (1979) 118 ITR 261 (SC) — all foundational PGBP-deduction authorities — continue to apply with full force. The wholly-and-exclusively test (commercial expediency) of s. 30 is unchanged.

Practical relevance. Maintain clean documentation of the wholly-and-exclusively connection for every claimed deduction. For statutory contributions (s. 29), confirm actual payment within the due date for return-filing — disallowance otherwise. For scientific research weighted deduction (s. 32 read with the corresponding sub-section), continue to maintain the donee approval certificates.

Section 33 — Depreciation

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Depreciation.

33. (1) A deduction in respect of depreciation of— (a) buildings, machinery, plant or furniture, being tangible assets; (b) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets, owned (wholly or partly) by the assessee and used for the purposes of the business or profession, shall be allowed at the prescribed percentage on the written-down value of the block of assets, in such manner as may be prescribed.

(2) Additional depreciation for new plant or machinery acquired and installed by an assessee engaged in business of manufacture or production — at 20% of actual cost (10% if put to use for less than 180 days, balance allowed in subsequent year).

(3) Half-year rule for assets acquired and put to use for less than 180 days — depreciation at 50% of the prescribed rate.

(4) Goodwill of a business / profession (FA 2021) — not eligible for depreciation; not treated as intangible asset for s. 33.

(5) Block of assets methodology: addition to / deletion from block; WDV reduced by sale consideration; if WDV becomes negative, the excess is short-term capital gain.

(6) Carry-forward of unabsorbed depreciation indefinitely — set off against any head of income in subsequent years (subject to s. 110 / s. 113 of new Act, formerly s. 72 / s. 80).

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 32 of the 1961 Act — Depreciation

32. (1) In respect of depreciation of (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets [excluding goodwill — FA 2021], owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed— (a) [omitted — straight line method abolished]; (b) WDV method on block of assets at prescribed percentages; (iia) additional depreciation 20% on new plant in manufacturing / power; (2) Carry forward of unabsorbed depreciation indefinitely under s. 32(2).

BLOCK 3 : COMMENTARY

Section 33 of the new Act re-states section 32 of the 1961 Act. The block-of-assets system (FA 1988) is preserved unchanged. The depreciation rates — to be prescribed in the new Income-tax Rules, 2026 — are expected to mirror the existing Rules: 5%-10% for buildings, 15% for general plant and machinery, 30% for moulds, 40% for computers / books / certain plant, 25% for intangibles. Additional depreciation under sub-section (2) — 20% for new plant in manufacturing/production — is preserved.

Goodwill no longer depreciable. The FA 2021 amendment excluding goodwill of a business / profession from depreciable intangible assets is preserved. The Supreme Court's earlier decision in CIT v. Smifs Securities Ltd. (2012) 348 ITR 302 (SC), which had held goodwill to be a depreciable intangible, was thus statutorily overruled prospectively. For acquisitions completed before FY 2020-21, depreciation already claimed on goodwill stands; for transactions thereafter, no depreciation is allowable. Practitioners advising on M&A purchase price allocation must re-allocate, where possible, to other depreciable intangibles (technical know-how, customer lists, non-compete rights) — but with care to ensure the allocation reflects FMV.

Block of assets — operative mechanics. (i) Opening WDV + additions during the year (at actual cost) less sale consideration of items disposed during the year (limited to opening WDV + additions) = closing WDV. (ii) Depreciation at the prescribed rate on the closing WDV (with half-year for assets put to use less than 180 days). (iii) If the deductions exceed opening WDV + additions, the excess is short-term capital gain under s. 67 (corresponding to old s. 50). (iv) If the block ceases to exist (no asset of the same class held at year-end), short-term capital gain or loss arises.

Continuity of jurisprudence. CIT v. Mahesh Chand (1985) 154 ITR 533 (Raj.) — depreciation allowable even on assets purchased during the year if put to use for any period; CIT v. Tata Robins Fraser Ltd. (2009) 309 ITR 252 (Cal.) — "used" includes passive use and standby; CIT v. Hindustan Coca Cola Beverages (P) Ltd. (2011) 331 ITR 192 (Del.) — "intangibles" of similar nature is broad and covers right to use a building for business. All continue to apply.

Carry forward of unabsorbed depreciation. The unique privilege of indefinite carry-forward — without the 8-year cap that applies to business losses under s. 110 of the new Act — is preserved. Unabsorbed depreciation can be set off against any head of income in subsequent years, even after the assessee has ceased the original business. CIT v. Govind Nagar Sugar Ltd. (2011) 334 ITR 13 (Del.) and CIT v. Manmohan Das Bhargava (1966) 59 ITR 699 (SC) are foundational.

Practical takeaways. (i) Build / verify the depreciation schedule annually for every block — use the depreciation worksheet recommended in CBDT Circular 13/2010. (ii) For acquisitions in M&A — re-allocate purchase consideration to depreciable assets carefully (s. 39 of the new Act, formerly s. 43(1) — "actual cost" rules apply with the well-known anti-abuse adjustments where assets pass between related parties). (iii) For unabsorbed depreciation — track separately year-on-year for inter-head set-off; CBDT Circular 14/1955 and Bombay High Court in IPCA Laboratories Ltd. v. CIT (2011) 333 ITR 376 govern the priority order. (iv) For half-year rule — capture date of put-to-use carefully (commissioning certificates, factory acceptance test reports).

Sections 34 to 38 — General deduction; Disallowances; Deemed PGBP

NEW ACT, 2025 — text (gist)

S. 34 — General deduction for expenditure laid out wholly and exclusively for business / profession (corresponding to old s. 37(1)). Excluded: capital expenditure, personal expenditure, expenditure prohibited by law (s. 37(1) Explanation 1), CSR expenditure (s. 37(1) Explanation 2), penalties for breach of any law.

S. 35 — Disallowances on account of TDS default (corresponding to old s. 40(a)(i), (ia), (ib) and (iib)) — payments on which tax was deductible but not deducted, or not deposited within due dates, are disallowed; partial deduction in subsequent year on payment.

S. 36 — Specific disallowances — payments to relatives, partners, members in excess of fair market value (s. 40A(2)); payments to closely-held company shareholders; cash payments above Rs 10,000 (s. 40A(3) — single-day cumulation rule); deductions for unpaid statutory liabilities (s. 43B-style) — sums deductible only on actual payment (interest to banks / NBFCs included in this list).

S. 37 — Salary to non-resident without TDS — disallowance.

S. 38 — Deemed PGBP receipts (corresponding to old s. 41) — recovery of bad debts; remission of trading liability; sale of building or asset previously written off; balancing charge on certain assets; etc.

OLD ACT, 1961 — corresponding section

Sections 37 (general), 40 (amounts not deductible — chiefly TDS-default), 40A (specific disallowances — payments to relatives, cash above limit, employer's contribution to non-statutory funds, etc.), 43B (sums deductible only on payment — including statutory dues and bank interest), 41 (deemed PGBP — recoveries / remissions / balancing charges).

COMMENTARY

Sections 34-38 of the new Act consolidate the disallowance and deeming-receipt provisions of old ss. 37, 40, 40A, 43B and 41 in five logical sections. Substantively, the rules are preserved: wholly-and-exclusively for s. 34; TDS default disallowance for s. 35; arm's-length and cash-payment-limit for s. 36 (with the s. 43B integration of payment-required items); deemed receipts for s. 38.

Two notable interactions to highlight. (i) S. 35-S. 36 interplay with TDS chapter (Chapter XIX of new Act): disallowance under s. 35 for TDS default is the principal driver of compliance; documentation of TDS deduction and timely deposit is critical. (ii) S. 36 (corresponding to old s. 43B) — the recent expansion to cover payment to micro and small enterprises (FA 2023, MSMED Act-coupled) — is preserved. Late payment to MSMEs beyond statutory credit period is now disallowed in the year of accrual unless paid within the year.

Continuity of jurisprudence. McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC) — colorable devices not entitled to deduction; Walfort Share & Stock Brokers (2010) — disallowance is mandatory; S.A. Builders v. CIT (2007) 288 ITR 1 (SC) — commercial expediency for interest-free loans to sister concerns. All continue to apply.

Section 39 — Actual Cost (with the major Table)

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Actual cost defined.

39. (1) The actual cost of an asset used for the purposes of the business or profession shall be the actual cost to the assessee as reduced by such items as may be specified.

(2) The Table provides 13 specific deeming rules for actual cost in special situations: (1) capital asset transferred in amalgamation — cost to amalgamating company; (2) demerger — cost to demerged company; (3) inventory converted into capital asset — FMV on date of conversion; (4) asset acquired by gift / inheritance — cost to previous owner; (5) building converted from personal to business use — cost as reduced by deemed depreciation; (6) asset transferred to subsidiary / parent — cost to transferor; (7) asset re-acquired by transferor — same cost (with adjustments); (8) asset acquired by holding company / subsidiary — cost to other group company; (9) asset used in business after acquisition under a non-business purpose — cost less notional depreciation; (10) asset acquired and previously partly used — adjustments; (11) asset acquired in exchange — cost equals FMV consideration; (12) (a) asset on which deduction was claimed under another section — cost is the un-deducted balance; (b) reduction for subsidies / grants received from Government / authority; (13) any amount paid in cash above the prescribed limit (Rs 10,000) shall not form part of actual cost.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 43(1) of the 1961 Act — "actual cost" defined

Section 43(1) — "actual cost" defined for various deeming situations through 13 Explanations: covering amalgamation, demerger, inventory conversion, gift / inheritance, conversion from personal to business use, group transfers, re-acquisition, transfer of asset between holding-subsidiary, and reduction for subsidies / Government grants. Explanation 13 (FA 2017) — cash payment above Rs 10,000 not part of actual cost.

BLOCK 3 : COMMENTARY

Section 39 is the actual-cost provision — the foundation of the entire depreciation regime. The 13 Explanations of old s. 43(1) have been re-cast as 13 entries in a Table. Substantively unchanged.

Significance for M&A and group restructuring. Actual cost determines the future depreciation base. In amalgamation / demerger / group transfers, the deeming rule preserves the WDV chain — the transferee company steps into the transferor's shoes. This prevents the artificial step-up that would otherwise be possible by transferring assets between group companies at FMV. The transferee inherits the WDV; the transferor crystallises any short-term capital gain on the deemed transfer (which is generally avoided by the s. 67 amalgamation/demerger exemptions in the new Act, formerly s. 47(vi)/(vib)).

Cash-payment cap (Item 13). Inserted by FA 2017 (Explanation 13 to old s. 43(1)) — any payment for capital expenditure made in cash above Rs 10,000 is excluded from actual cost. The cap covers all capital purchases — plant, machinery, building, furniture. The supplier-side limit (s. 36 of new Act, old s. 40A(3)) and the actual-cost-side limit (s. 39 Item 13 of new Act, old Explanation 13) operate in parallel — both must be observed.

Subsidies / grants — Item 12(b). Subsidies received from Central / State Government in connection with capital purchases are deducted from actual cost. The CBDT's circular 622 dated 6-1-1992 — clarifying that production-linked / investment-linked subsidies (rather than re-imbursement of capital cost) are not deductible — was substantially modified by the FA 2015 Explanation 10. The new s. 39 Item 12(b) preserves this (more restrictive) position: any subsidy / grant linked to the asset must be deducted.

Practical takeaways. (i) For every M&A, perform a cost-allocation analysis mapping each asset to the corresponding Item of the Table. (ii) Document the source of acquisition (gift / inheritance / amalgamation / commercial purchase) — this drives the correct cost determination. (iii) For asset purchases above Rs 10,000 — never pay in cash; always use account-payee cheque, electronic transfer, or banking channel. (iv) For Government-subsidised projects (PLI scheme, MEIS, RoDTEP capital component, State investment subsidy) — reduce the actual cost by the subsidy received attributable to the asset.

Sections 40 to 44 — Special PGBP rules

NEW ACT, 2025 — text (gist)

S. 40 — Computation of income for chargeable PGBP heads — basic principles.

S. 41 — Special provisions for certain assessees (start-ups, eligible startups under s. 80-IAC equivalent) — preservation of FA 2016/2017 startup deductions through new Schedule.

S. 42 — Computation of business income for foreign currency receipts and exchange differences (corresponding to old s. 43A and Rule 115).

S. 43 — Capital gain / loss on FX differences in respect of borrowings for capital assets (FA 2017 amendment to old s. 43A).

S. 44 — Special provision for shipping income (foreign shipping companies) — equivalent to old s. 44B, 172.

OLD ACT, 1961 — corresponding section

Sections 43A (FX adjustments to actual cost), 44B (foreign shipping), 44BB (oil and gas exploration), 44BBA (foreign airlines), 44BBB (foreign turnkey projects in power), 44BBC (foreign cruise shipping — FA 2024 insertion).

COMMENTARY

Sections 40-44 of the new Act consolidate the FX-adjustment rules and the foreign-business-of-non-resident special charge regimes. The core rules — that exchange-rate fluctuations on capital borrowings flow through to actual cost (s. 42-43); presumptive 7.5% on shipping receipts of non-resident shipping companies (s. 44, formerly s. 44B); presumptive 10% for oil-and-gas non-resident contractors (s. 44BB equivalent) — are preserved. Practitioners advising shipping / aviation / oil-and-gas / cruise / engineering-procurement non-resident clients must continue to apply these special provisions in lieu of the general PGBP computation.

Sections 45 to 57 — Specialised business expenditure regimes (R&D, infrastructure, agricultural extension, skill development, tea/coffee/rubber, prospecting)

NEW ACT, 2025 — text (gist)

S. 45 — Scientific research expenditure (formerly old s. 35) — 100% / 150% deduction (with sunset for weighted at 150% from AY 2021-22; back to 100% thereafter).

S. 46 — Specified business deductions (corresponding to old s. 35AD) — capital expenditure on cold-chain, warehousing, hospital, hotel (>=2-star), infrastructure, semiconductor fab — 100% deduction in year of commencement / put-to-use.

S. 47 — Telecom licence fee (formerly old s. 35ABB) — straight-line over licence tenure.

S. 48 — Tea / coffee / rubber development (old s. 33AB).

S. 49 — Prospecting and extracting (old s. 35E).

S. 50 — Bonus / commission to employees (old s. 36(1)(ii) — actual payment basis with statutory wage limit).

S. 51 — Bad debts written off (old s. 36(1)(vii)).

S. 52 — Capital expenditure on certain Specified Businesses (cross-border / mining / shipping etc.).

S. 53 — Capital expenditure on transfer of assets between heads.

S. 54 — Specified oil exploration business (old s. 42).

OLD ACT, 1961 — corresponding section

Sections 35, 35AD, 35ABB, 35ABA, 35AC, 35CCA-CCD, 35DDA, 35DD, 33AB, 33ABA, 35E, 36 — Specialised expenditure / deduction regimes spread across the old Act.

COMMENTARY

Sections 45-54 of the new Act consolidate the specialised business expenditure regimes of the 1961 Act. The substantive incentive structure for scientific research, specified businesses, telecom, tea/coffee/rubber, oil-and-gas, prospecting, bad debts, and bonus/commission is preserved. The sunset clauses on weighted scientific research deduction (FA 2016 phase-down) are preserved. The post-FA 2020 cooling of weighted deductions and the consequential simplification of approvals (in-house R&D under DSIR; specified business notifications) is preserved through cross-references to the new Schedules. Practitioners advising R&D-intensive clients (pharma, biotech, IT, EV, semiconductor) must continue to track the approval architecture (DSIR Form 3CK / 3CL) for s. 45 weighted deductions, and the prescribed-business notifications for s. 46.

Section 58 — Presumptive Taxation (the new unified Table)

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Presumptive taxation — eligible business / profession.

58. (1) The provisions of sections 26 to 54, to the extent contrary to this section, shall not apply to an assessee opting for presumptive taxation under the Table appended below.

(2) The Table provides for presumptive taxation in two principal limbs: (1) Eligible business under section 58 — turnover up to Rs 2 crore (Rs 3 crore in cash-receipts < 5% case) — presumptive PGBP at 8% (or 6% for digital receipts) of the turnover, with no further deductions; (2) Eligible profession (CA, lawyer, doctor, architect, engineer, technical consultant, etc.) — gross receipts up to Rs 50 lakh (Rs 75 lakh where < 5% cash receipts) — presumptive PGBP at 50% of the gross receipts.

(3) Once an assessee opts for presumptive taxation in any year, he must continue for at least five subsequent years; failure to do so triggers compulsory regular computation under sections 26-54 with mandatory tax audit under section 63.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Sections 44AD, 44ADA, 44AE of the 1961 Act — Presumptive taxation

Section 44AD — Eligible business (turnover up to Rs 2 crore, FA 2023 enhanced to Rs 3 crore where cash <5%) — presumptive 8% / 6% for digital. Section 44ADA — Eligible profession (gross receipts up to Rs 50 lakh, FA 2023 enhanced to Rs 75 lakh where cash <5%) — presumptive 50%. Section 44AE — Goods carriages — Rs 1,000 per ton per month for heavy goods carriages, Rs 7,500 per month for other carriages (max 10 vehicles).

BLOCK 3 : COMMENTARY

Section 58 of the new Act consolidates the presumptive taxation regime of old ss. 44AD and 44ADA into a single, table-driven section. The presumptive rates and thresholds are preserved. The five-year lock-in (once opted, must continue for five subsequent years; switching triggers tax audit) is preserved.

Eligibility — the small assessee. Presumptive taxation is for the small business (turnover up to Rs 2 crore / Rs 3 crore digital) and the small professional (gross receipts up to Rs 50 lakh / Rs 75 lakh digital). Above the threshold, the assessee must compute under regular PGBP rules and undergo tax audit under s. 63 (formerly s. 44AB).

Digital-receipts incentive. The FA 2017 / FA 2023 architecture — 6% presumptive (instead of 8%) for digital receipts in eligible business; Rs 3 crore turnover ceiling (instead of Rs 2 crore) for digital-mode cash-receipts < 5% — is preserved. This pushes small assessees towards electronic / banking-channel transactions.

Goods-carriage business. Section 58 also covers goods-carriage assessees (formerly s. 44AE) — presumptive Rs 1,000 / ton / month for heavy goods carriages and Rs 7,500 / month for other carriages, subject to ownership of not more than 10 carriages.

Practical takeaways. (i) For small assessees: presumptive is generally beneficial (no books, no audit, simple return) but compute the break-even — once profit margin exceeds the presumptive rate, regular computation may save tax. (ii) For lock-in: option must be exercised at the time of return-filing; switching out within 5 years triggers tax audit and ineligibility for next 5 years. (iii) For TDS: presumptive does not exempt the assessee from TDS obligations — receipts above Rs 1 crore (TDS thresholds) trigger TDS even for presumptive assessees. (iv) For HRA / s. 156 (formerly s. 89) salary relief — presumptive PGBP receipts cannot also be Salaries / Profits-in-lieu-of-Salary; one head only.

Sections 59 to 65 — Royalty, transfer pricing for non-residents, professional accounts, audit, compulsory audit and key terms

NEW ACT, 2025 — text (gist)

S. 59 — Special rates for royalty / FTS received by non-residents from resident concerns (corresponding to old s. 44DA / s. 115A — flat-rate basis).

S. 60 — Specified non-resident — gross receipts as the base for income computation.

S. 61 — Cruise shipping (FA 2024 insertion — old s. 44BBC).

S. 62 — Books of account for specified professionals (corresponding to old s. 44AA).

S. 63 — Tax audit (corresponding to old s. 44AB) — turnover thresholds, due date, Form 3CA/3CB/3CD.

S. 64 — General provisions on "tax depreciation actually allowed" — anti-circumvention / look-back provisions for s. 33 / s. 44 / s. 52.

S. 65 — Definitions for s. 64 (tax depreciation, etc.).

S. 66 — General definitions for Part D — "actual cost", "capital asset", "plant", "speculative transaction", "speculative business", "transfer", "slump sale", etc.

OLD ACT, 1961 — corresponding section

Sections 44AA (compulsory maintenance of accounts), 44AB (tax audit), 44DA (royalty / FTS to NR), 115A (special rates for NR), 44BBC (cruise shipping), 43, 43A, 43B, 43AA — defining cost / payments / FX / book-write etc.

COMMENTARY

Sections 59-66 of the new Act gather the residual definitional, audit, and special-rate provisions of the PGBP Part. Key practitioner points: (i) S. 62 — books of account requirement for specified professions (medical, legal, architecture, engineering, accountancy, technical consultancy, interior decoration, authorised representative, film artist, company secretary, information technology) — preserved. (ii) S. 63 — tax audit threshold Rs 1 crore (business) / Rs 50 lakh (profession), with FA 2020 / FA 2021 enhancement to Rs 10 crore where cash receipts and payments are each below 5%; preserved. (iii) S. 66 — definitions: speculative business, speculative transaction (with explanations for hedging and trading in commodity derivatives — preserved); slump sale (incorporating the post-FA 2021 expansion to cover any "transfer" not just "sale" — preserved).

PART E — CAPITAL GAINS (ss. 67-91)

Part E contains the 25 sections that govern the head "Capital Gains". Section 67 is the charge; sections 68-69 deal with deemed transfers; section 70 contains the long list of transactions that are NOT regarded as transfer (corresponding to old s. 47); sections 71-77 deal with special computational rules (slump sale, joint development, demerger); sections 78-81 deal with stamp-duty value deeming and reference to Valuation Officer; sections 82-89 contain the exemption regime (residential house s. 82 = old s. 54; agricultural land s. 83 = old s. 54B; industrial undertaking s. 84 = old s. 54D; capital gains bonds s. 86 = old s. 54EC; long-term residential s. 87 = old s. 54F); sections 90-91 deal with cost of acquisition / improvement and FMV reference.

Section 67 — Charge of Capital Gains

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Capital gains.

67. (1) Any profits or gains arising from the transfer of a capital asset effected in the tax year shall, save as otherwise provided in section 70, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the tax year in which the transfer takes place.

(2) [SP-Pickton] charge for ULIP-based gain — see section 67 of new Act read with corresponding sub-clauses.

(3) Insurance moneys received on damage / destruction of capital asset — chargeable in year of receipt, with consideration deemed equal to insurance moneys.

(4) Conversion of capital asset into stock-in-trade (corresponding to old s. 45(2)) — capital gain in year of sale, with FMV on date of conversion as full value of consideration.

(5) Beneficial owner change in business trust units / certain conversions — see corresponding sub-section.

(6) Compulsory acquisition / enhanced compensation — chargeable in year of receipt.

(7) Joint development agreement (FA 2017 — old s. 45(5A)) — chargeable in year of completion certificate, full-value-of-consideration includes stamp duty value of share + cash component.

(8) Conversion of equity share into preference / vice versa, or stocks into shares — not transfer; cost-of-original-share carries forward.

(9) Conversion of unlisted equity / debt of a startup or a SPAC merger — specified rules.

(10) Receipt by partner of money / asset on dissolution / reconstitution (FA 2021 — old s. 45(4)) — partner-side capital gain on the difference between asset received and capital balance, computed under prescribed method (Rule 8AB).

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 45 of the 1961 Act — Capital gains

Section 45 — Capital gains: (1) charge on transfer of capital asset; (1A) insurance receipts; (1B) ULIP receipts (FA 2021); (2) conversion to stock-in-trade; (2A) conversion of receivable into capital asset (depository receipts); (3) member of co-operative society / company / AOP receipts; (4) firm-to-partner distributions (FA 1987 / FA 2021); (5) compulsory acquisition (5A) JDA; (5B) consideration in instalments; etc.

BLOCK 3 : COMMENTARY

Section 67 is the charging section for capital gains. The basic principle — gains on transfer of a capital asset are taxed in the year of transfer, with carve-outs in s. 70 — is preserved. The 10 sub-sections gather what was scattered across old s. 45(1) to (5B) in the 1961 Act.

The four-element test of charge. (i) There must be a capital asset (s. 2(22) of the new Act, old s. 2(14)). (ii) There must be a transfer (s. 2(109) of the new Act, old s. 2(47)). (iii) The transferor must be a chargeable assessee. (iv) The transfer must occur in the tax year. All four are preserved.

Transfer — wide definition. Section 2(109) of the new Act (corresponding to old s. 2(47)) includes sale, exchange, relinquishment, extinguishment of any rights, compulsory acquisition, conversion to stock-in-trade, JDA arrangements, and the Vodafone-counter Explanations on transfer of foreign companies whose value is substantially derived from Indian assets. The substantive content is preserved. Vodafone International Holdings BV v. UOI (2012) 341 ITR 1 (SC) and the legislative response (FA 2012 retrospective amendment, partly rolled back by FA 2021 / Taxation (Amendment) Act 2021) continue to govern.

JDA — sub-section (7). Inserted into s. 45 by FA 2017 as s. 45(5A); preserved here. The chargeable event is shifted from the date of execution of the JDA to the date of issue of the completion certificate by the local authority. Full-value-of-consideration is the stamp duty value of the share allotted to the landowner plus any cash component. This was a major taxpayer-friendly amendment for individuals / HUFs entering into joint development arrangements with builders. Continues unchanged.

Firm-to-partner distributions — sub-section (10). Inserted into s. 45 by FA 2021 as s. 45(4); preserved here. Companion provision to section 8 of the new Act (formerly s. 9B). Where a partner receives money or other asset on dissolution or reconstitution, capital gain is computed under prescribed method (Rule 8AB) on the difference between the asset received and the partner's capital balance.

Continuity of jurisprudence. Sanjeev Lal v. CIT (2014) 365 ITR 389 (SC) — date of transfer for s. 54 exemption purposes; CIT v. Balbir Singh Maini (2017) 398 ITR 531 (SC) — JDA pre-2017 jurisprudence; Vodafone (2012) — transfer of foreign company; and a vast body of case law on s. 47 carve-outs, all continue to apply. The renumbering does not affect substantive jurisprudence.

Sections 68 to 69 — Deemed Transfer for Buy-back, Reduction etc.

NEW ACT, 2025 — text (gist)

S. 68 — Deemed transfer in case of distribution of assets by a company to shareholders on its liquidation (corresponding to old s. 46) — chargeable in shareholder's hands as capital gain on the difference between FMV of assets received and cost of shares.

S. 69 — Deemed transfer on buy-back / reduction of capital / receipt of specified securities (corresponding to old s. 46A) — chargeable as capital gains on consideration less cost; FA 2024 amendment shifted incidence from company to shareholder for unlisted buybacks (preserved).

OLD ACT, 1961 — corresponding section

Section 46 — Liquidation — capital gains on receipt of assets / cash by shareholder. Section 46A — Buy-back of shares — taxability shifted from company to shareholder by FA 2024 (effective 1-10-2024) for unlisted shares; for listed it was already in shareholder's hands.

COMMENTARY

Sections 68-69 of the new Act re-state old ss. 46 and 46A. The post-FA 2024 buy-back regime — taxability in the shareholder's hands rather than the company's hands for unlisted share buy-backs (effective 1-10-2024) — is preserved. The earlier regime, where the company paid 23.296% buy-back distribution tax, has been abolished. Practitioners advising on unlisted buy-backs after 1-10-2024 must compute capital gain in the shareholder's hands (full consideration less cost; without indexation if STCG; with indexation if LTCG).

Section 70 — Transactions not regarded as Transfer

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Transactions not regarded as transfer.

70. (1) The provisions of section 67 shall not apply to transfer—

(a) of a capital asset under a gift, will, irrevocable trust [carve-out for ESOP shares — see prescribed exception];

(b) on partition of HUF;

(c) by parent company to its 100% subsidiary, where transferee is Indian company;

(d) by 100% subsidiary to its parent, where transferee is Indian company;

(e) in scheme of amalgamation by amalgamating company to amalgamated company being Indian company;

(f) by demerged to resulting company being Indian company under demerger;

(g) shares allotted by amalgamated / resulting company to shareholders of amalgamating / demerged company in lieu of cancelled shares;

(h) sukuk / specified bond conversions;

(i) conversion of bond / debenture into shares — not transfer (cost of debenture = cost of shares);

(j) conversion of preference share into equity share — not transfer;

(k) various international / cross-border carve-outs (e.g., merger of Indian wholly-owned subsidiary of foreign company with another foreign WOS);

(l) IPO of certain specified entities by Government of India;

(m) transfer by a person being a partner in a firm to firm by way of capital contribution (FA 2021 amendment limited the carve-out);

(n) other carve-outs — items (n) to (zb) covering specified securities, FII transfers, MF restructuring etc.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 47 of the 1961 Act — Transactions not regarded as transfer

Section 47 — Long enumerated list of transactions excluded from the meaning of "transfer" — covers gifts (with carve-outs), partition, parent-subsidiary, amalgamation, demerger, share-swap, debenture conversion, preference-equity conversion, international group restructuring, IPOs, and various other specific situations — extending to clauses (i) to (xx) etc.

BLOCK 3 : COMMENTARY

Section 70 is the principal carve-out provision — it lists transactions that are deemed NOT to be transfer for capital gains purposes. The substantive list of old s. 47 is preserved. Each carve-out has its own conditions, and failure to fulfil any of those conditions can trigger retrospective taxation under s. 71 of the new Act (corresponding to old s. 47A — withdrawal of exemption).

Most-used carve-outs in practice. (i) Gifts (clause (a)): individual-to-individual gifts (with the well-known carve-outs for specified relatives in s. 94 of the new Act, formerly s. 56(2)(x)) — no capital gains on the transfer; cost of the asset for the donee carries over from the donor under s. 73 (formerly s. 49(1)). (ii) Partition of HUF (clause (b)): no capital gains; cost carries over under s. 73. (iii) Parent / subsidiary transfers (clauses (c)-(d)): exempt provided transferee is Indian company and 100% holding is maintained for 8 years. (iv) Amalgamation / demerger (clauses (e)-(g)): exempt for amalgamating / demerged / resulting company and shareholders, provided amalgamated / resulting company is Indian. (v) Bond-to-share / debenture-to-share conversions (clause (i)): exempt; cost carries over.

Anti-abuse — withdrawal under s. 71. Section 71 of the new Act (formerly s. 47A) provides for withdrawal of the carve-out where conditions are subsequently violated — typically: (a) parent transfers shares of subsidiary within 8 years (clauses (c)-(d) carve-out lost); (b) amalgamated / resulting company ceases to be Indian / changes shareholding pattern within 5 years (clauses (e)-(f) carve-out lost); etc. Withdrawal results in deemed capital gain in the year of violation with the original transfer year as reference for STCG/LTCG.

Practical takeaways. (i) For HUF partitions: ensure the partition is recognised by the AO under s. 333 of the new Act (formerly s. 171); without recognition, the partition is not effective for tax purposes and the HUF continues to exist. (ii) For amalgamation / demerger: structure to satisfy the conditions of clauses (e)-(g) — particularly the requirement that the transferee be an Indian company. Cross-border mergers may need additional planning — the post-FA 2021 carve-outs for foreign mergers of Indian subsidiaries are fact-specific. (iii) For gifts of immovable property to spouse / minor: clubbing under s. 99 of the new Act (formerly s. 64) applies — the cost-carryover under s. 70(a) does not save the donee from clubbing of resultant income.

Sections 71 to 77 — Capital Gains: Method, Slump Sale, Specified Cost

NEW ACT, 2025 — text (gist)

S. 71 — Withdrawal of s. 70 exemption on subsequent breach of conditions (formerly s. 47A).

S. 72 — Mode of computation: Full value of consideration less (cost of acquisition + cost of improvement + transfer expenses) = capital gain. Indexation under s. 90 for long-term assets. Special rules for shares of an unlisted company / partnership interest.

S. 73 — Cost with reference to certain modes of acquisition (formerly s. 49) — cost-carryover from previous owner in 13 specified situations.

S. 74 — Period of holding for short-term vs long-term (formerly Explanations to s. 2(42A)).

S. 75 — Asset on which depreciation has been claimed — STCG even if held > 24 months (formerly s. 50).

S. 76 — Slump sale (formerly s. 50B) — net worth of undertaking deducted from sale consideration.

S. 77 — Capital gains on transfer of property by partner / member to firm / AOP and vice versa (formerly s. 45(3) / 45(4)).

OLD ACT, 1961 — corresponding section

Sections 47A, 48, 49, 50, 50B, 45(3), 45(4) — Computational and special-cost provisions. Sub-sections of s. 2(42A) for period of holding.

COMMENTARY

Sections 71-77 of the new Act consolidate the computational and special-cost provisions of capital gains. The 24-month / 12-month long-term / short-term thresholds are preserved (s. 74). The depreciation-claimed asset is treated as STCG even when held long-term (s. 75 — codifying old s. 50). Slump sale net-worth methodology (s. 76 — codifying old s. 50B) is preserved with the post-FA 2021 expansion (covering any "transfer" not just "sale"). The 13 cost-carryover situations under s. 73 (corresponding to old s. 49) — including amalgamation, demerger, gift, will, partition, HUF distribution, conversion of asset between heads — are preserved verbatim.

Sections 78 to 81 — Stamp Duty Value Deeming

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Stamp duty value deeming for transfer of immovable property and other assets.

S. 78 — Where consideration on transfer of land or building / both is less than the stamp duty value, full-value-of-consideration shall be deemed to be the stamp duty value. Tolerance band of 10% (FA 2020 amendment) preserved. Reference to Valuation Officer permitted.

S. 79 — Similar deeming for transfer of unlisted shares / partnership interest.

S. 80 — Reference to Valuation Officer (formerly s. 55A).

S. 81 — Repeated FMV reference: assessee may obtain FMV report once.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Sections 50C, 50CA, 50D, 55A of the 1961 Act

Sections 50C (immovable property — stamp duty value deeming, with 10% tolerance), 50CA (unlisted shares — FMV deeming), 50D (no consideration — FMV deeming), 55A (Reference to Valuation Officer).

BLOCK 3 : COMMENTARY

Sections 78-81 of the new Act preserve the stamp-duty-value / FMV deeming regime of old ss. 50C, 50CA, 50D, and 55A. The 10% tolerance band (FA 2020) under s. 78 is preserved; the seller may invoke the band where stamp duty value does not exceed 10% of the actual consideration — in such cases, no deeming arises.

Practical takeaways. (i) For sellers of immovable property: obtain stamp-duty registry value before signing the agreement; if stamp value > 110% of consideration, plan for the deeming consequence. (ii) For sellers of unlisted shares: obtain a fair market value certificate using the prescribed method (Rule 11UA — DCF or NAV) and use it as the floor; sub-FMV transfers attract s. 79 deeming. (iii) Reference to VO: time-bound (within 6 months of reference); use it where there is reasonable basis to challenge the stamp authority's valuation. (iv) The deeming does not affect the cost basis in the buyer's hands — the buyer takes cost = actual consideration paid; but the buyer is separately liable under s. 94(2)(b) for the stamp-vs-consideration differential as "income from other sources".

Sections 82 to 89 — Capital Gains Exemptions (s. 54 series)

NEW ACT, 2025 — text (gist)

S. 82 — Exemption for residential house gain re-invested in another residential house (corresponding to old s. 54) — limit of two houses where capital gain ≤ Rs 2 crore (FA 2019 amendment, preserved); investment within 1 year before / 2 years after / construction within 3 years.

S. 83 — Exemption for agricultural land transfer reinvested in agricultural land (old s. 54B) — investment within 2 years.

S. 84 — Industrial undertaking transfer for shifting from urban area (old s. 54D) — reinvestment in plant/machinery/land/building of industrial undertaking within 3 years; deposit before due date in CGAS.

S. 85 — Compulsory acquisition exemption (old s. 54G).

S. 86 — Capital gains bond exemption (old s. 54EC) — Rs 50 lakh cap; 5-year lock-in; investment within 6 months in NHAI / REC / specified bonds.

S. 87 — Long-term residential gain reinvestment (old s. 54F) — non-residential asset transfer; investment in residential house. Cap on capital gain re-investment of Rs 10 crore (FA 2023 amendment, preserved).

S. 88 — Long-term capital gains in eligible startup (old s. 54GB) — reinvestment in eligible startup company / fund.

S. 89 — Combination rules — overall framework for sequencing exemptions.

OLD ACT, 1961 — corresponding section

Sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA, 54GB — The capital gains exemption regime of the 1961 Act.

COMMENTARY

Sections 82-89 of the new Act consolidate the s. 54 exemption regime. Every exemption — for residential house, agricultural land, industrial undertaking, compulsory acquisition, capital gains bonds, non-residential to residential, eligible startup — is preserved with all the conditions, deposit-in-CGAS requirements, and time limits. The post-FA 2019 two-house option in s. 82 (formerly s. 54), the post-FA 2023 Rs 10 crore cap on s. 87 (formerly s. 54F), and the Rs 50 lakh annual cap on s. 86 (formerly s. 54EC) are preserved verbatim.

Practical practitioner notes. (i) Capital Gains Account Scheme (CGAS): mandatory deposit of unutilised exemption amount before the due date of return-filing under s. 263 of the new Act (formerly s. 139(1)); failure to do so disqualifies the exemption to the extent unutilised. (ii) Two-house option under s. 82: the assessee may exercise this option only once in a lifetime; subsequent claims are restricted to one house. (iii) Sequencing: the exemptions can be combined across heads in some cases (e.g., partial under s. 82 plus partial under s. 86) — but the total exemption claimed cannot exceed the LTCG. (iv) For 54F: the new asset must not be transferred within 3 years; otherwise the exempt gain is added back in the year of transfer.

Sections 90 to 91 — Cost of Acquisition / Improvement and FMV reference

NEW ACT, 2025 — text (gist)

S. 90 — Cost of acquisition / improvement: defines cost for various scenarios; provides for indexation of long-term capital assets using Cost Inflation Index notified by Central Government (formerly old s. 48 / 55).

S. 91 — FMV reference for assets where actual cost is not ascertainable (formerly old s. 55A / Rule 11UA).

OLD ACT, 1961 — corresponding section

Sections 48 (mode of computation, indexation), 55 (cost of acquisition for self-generated assets and various special cases), 55A (FMV reference).

COMMENTARY

Sections 90-91 of the new Act preserve the indexation and cost-determination regime of old ss. 48, 55, and 55A. The Cost Inflation Index (CII) notified by the CBDT continues — current base year 2001-02 with index 100. For long-term assets transferred on or after 23-7-2024, the FA 2024 amendment removed indexation benefit for property held by individual / HUF (with grandfathering option) — preserved through corresponding sub-section in the new Act. Practitioners advising on long-term property transfers must compute under both the old (with indexation) and the new (12.5% LTCG without indexation) regimes and recommend the lower.

PART F — INCOME FROM OTHER SOURCES (ss. 92-95)

Part F contains the four sections that govern the residual head "Income from Other Sources". Section 92 is the charge; section 93 sets out specific deductions; section 94 contains the elaborate rule on receipts without consideration / inadequate consideration (corresponding to the celebrated old s. 56(2)(x), formerly s. 56(2)(vii) and (viia)); section 95 cross-references PGBP rules for s. 38(1)-(4) treatment of certain receipts.

Section 92 — Charge of Income from Other Sources

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Income from other sources.

92. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 13(a) to (d).

(2) In particular, the following incomes shall be chargeable to income-tax under the head "Income from other sources":—

(a) dividends;

(b) winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting;

(c) any sum received under a Keyman insurance policy [with the carve-out for assigned policies — taxable as PGBP / Salaries];

(d) any sum received from a person being non-resident in respect of business connection in India — provided not chargeable under any other head;

(e) interest on securities — bond / debenture / Government bond interest;

(f) income from machinery, plant or furniture let — where letting is not the business of the assessee;

(g) sum received under specified pension schemes (where not chargeable under Salaries);

(h) compensation received in connection with termination of employment / modification of terms — if not Salaries;

(i) Family pension (with prescribed deduction);

(j) Compensation received by a person on termination of agency / managing agency — if not chargeable under PGBP.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 56 of the 1961 Act — Income from other sources

Section 56 — Income from other sources. The residual head. Specific inclusions: dividends; lottery / horse-race winnings; key-man insurance; interest on securities; family pension; income from letting plant / machinery / furniture; etc. Also Section 56(2)(x) — gifts and inadequate consideration receipts (FA 2017 expansion of erstwhile (vii) and (viia)).

BLOCK 3 : COMMENTARY

Section 92 is the charging provision for the residual head. Its function is two-fold: (i) it acts as the catch-all for income that does not fit any of the four named heads; (ii) it specifically charges certain enumerated incomes that, despite their possible classification under other heads, are taxed as Other Sources by statutory direction (e.g., dividends — even though they could be argued as PGBP for traders in shares).

Residual nature. Section 92(1) charges "income of every kind which is not to be excluded" from the total income. This wide language ensures that no income escapes the net by virtue of head-classification gaps. The rule is foundational — see Lord Russell in Stanton & Sons v. Commissioner (1907) AC 219 — the residual head is a positive provision, not a default.

Specific limbs. (a) Dividends — even after the 2020 abolition of DDT (FA 2020 — dividend now in shareholder's hands), dividends remain chargeable as Other Sources. The shift from DDT to classical taxation has made s. 92(2)(a) a high-volume head for individual investors. (b) Lottery / racing / gambling / betting — taxed at flat 30% under s. 197 of the new Act (formerly s. 115BB) without any deduction. (c) Keyman insurance — proceeds in the policyholder's hands taxed under PGBP if assignee is the employer; under Salaries if assigned to employee; under Other Sources if neither. (d) Interest on securities — historical migration from former head "B. Interest on Securities" (abolished 1988) to Other Sources.

Family pension — clause (i). Family pension paid to legal heirs is not Salaries (since it is not employer-employee relationship) but Other Sources, with a specific deduction of one-third of the amount or Rs 15,000 (whichever less) under s. 93. The 2025 Act preserves the deduction architecture.

Practical takeaways. (i) For high-net-worth individual investors: dividend income must now be reported in the return at marginal rates (no more DDT exemption); use of section 156 (s. 89) relief is not available for dividends. (ii) For legal heirs receiving family pension: claim the s. 93 deduction; structure recurring deposits / RBI-NRO accounts to coordinate with the family pension treatment. (iii) For lottery / online gaming winnings: track FA 2023 changes — online gaming winnings now taxed at 30% under s. 197 with TDS at 30% under s. 393E (formerly s. 194BA) on net winnings; s. 92 read with Schedule II ensures coordinated taxation.

Section 94 — Receipts Without Consideration / Inadequate Consideration

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Receipts without consideration / for inadequate consideration to be income.

94. (1) Where any sum of money, the aggregate value of which exceeds Rs 50,000, is received without consideration by an assessee from any person or persons, the whole of such sum shall be chargeable as Other Sources.

(2) Where any immovable property is received— (a) without consideration, the stamp duty value of which exceeds Rs 50,000, the stamp duty value shall be chargeable; (b) for a consideration which is less than the stamp duty value by more than the higher of (i) Rs 50,000 and (ii) 10% of consideration — the differential is chargeable.

(3) Where any specified property (other than immovable) is received— (a) without consideration, FMV of which exceeds Rs 50,000 — chargeable; (b) for inadequate consideration — differential chargeable.

(4) Carve-outs: gifts from relative; gifts on occasion of marriage; gifts under will / inheritance; gifts in contemplation of death; from specified institutions / funds; from local authority; etc.

(5) The differential in inadequate consideration cases is added to the cost of acquisition of the recipient for capital gains purposes.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 56(2)(x) of the 1961 Act — Receipts without consideration / inadequate consideration

Section 56(2)(x) — Where any person receives, on or after 1-4-2017, from any person or persons (a) any sum of money, without consideration, exceeding Rs 50,000 — chargeable; (b) any immovable property without consideration / for inadequate consideration with prescribed thresholds — chargeable; (c) any property other than immovable property without consideration / for inadequate consideration — chargeable. Carve-outs preserved through Provisos.

BLOCK 3 : COMMENTARY

Section 94 is the modern incarnation of the gift-tax-style provision in income tax. Originally limited to gifts received by individuals / HUF (s. 56(2)(v) — FA 2004; s. 56(2)(vi) — FA 2006; s. 56(2)(vii) — FA 2009), the provision was extended in stages to firms / private companies (s. 56(2)(viia) — FA 2010) and to all assessees (s. 56(2)(x) — FA 2017). The 2025 Act preserves the post-FA 2017 architecture — universal applicability — in section 94.

Three-fold structure. (i) Money — Rs 50,000 threshold; (ii) Immovable property — Rs 50,000 / 10% tolerance; (iii) Specified other property — FMV / consideration test. The list of "specified property" — covered in the corresponding rule — includes shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, art works, and the FA 2022 / FA 2023 inclusions (virtual digital assets — FA 2022).

Carve-outs (sub-section 4). The principal carve-outs are: (a) gifts from "relatives" — defined relatively narrowly in clause (e) of the carve-out to cover spouse, brother / sister of self / spouse, lineal ascendants / descendants, lineal ascendant / descendant of spouse, spouse of any of the above; (b) marriage gifts (must be on the occasion of marriage); (c) gifts by will / inheritance; (d) gifts from local authority / fund / institution. Note: friend-to-friend gifts above Rs 50,000 are taxable; the relationship of "friend" is not a recognised carve-out.

Stamp duty value tolerance. The 10% tolerance for immovable property purchases below stamp value (FA 2020 amendment) is preserved — same as s. 78 (formerly s. 50C) tolerance for the seller-side. The buyer's perspective (s. 94) and the seller's perspective (s. 78) thus operate with consistent tolerance.

Continuity of jurisprudence. ITO v. Smt. Manju Devi Sahu (2017) 84 taxmann.com 213 — clarification on "occasion of marriage"; CIT v. Mira Ahuja (2018) 90 taxmann.com 369 (Cal.) — gifts from non-relative friends taxable; CIT v. R. Jaganathan (2017) 393 ITR 36 (Mad.) — gifts received under will / inheritance exempt without monetary cap.

Practical takeaways. (i) For individuals / HUFs receiving gifts: document the relationship of donor (use blood-relationship / spouse-relationship / lineal-relationship certificates); for marriage gifts, document the occasion. (ii) For property purchases below stamp value: confirm whether the transaction falls within the 10% tolerance; otherwise, the buyer's books must record the differential as Other Sources income with correspondingly stepped-up cost for future capital gains. (iii) For NRI / OCI gifting structures: ensure the donor is a relative under sub-section (4); friend-to-friend NRI gifts are taxable. (iv) For VDA gifts: post-FA 2022, virtual digital assets are within the scope of "specified property"; gifts above Rs 50,000 are taxable in recipient's hands.

Sections 93 and 95 — Other Sources: Deductions and PGBP-rule application

NEW ACT, 2025 — text (gist)

S. 93 — Deductions in respect of certain incomes under s. 92: (a) family pension — one-third or Rs 15,000 whichever less; (b) commission for realising dividend or interest; (c) deduction of one-third of compensation on retirement etc. (where not Salary); (d) interest expenditure for dividend / interest income; (e) bank locker rent on movable assets; (f) other reasonable expenses.

S. 95 — Application of PGBP rules: provisions of section 38(1)-(4) shall apply in computing income chargeable under the head "Income from other sources" — meaning that deemed-receipt rules of PGBP (recoveries, write-backs, balancing charges) flow through to Other Sources where applicable.

OLD ACT, 1961 — corresponding section

Sections 57 (deductions from Other Sources), 58 (amounts not deductible from Other Sources), 59 (profits chargeable under s. 41 to apply to Other Sources).

COMMENTARY

Sections 93 and 95 of the new Act re-state the Other Sources deduction regime and the PGBP-rule cross-application of old ss. 57, 58, and 59. Substantive content unchanged.

Chapter IV — At a Glance (Mapping Tables)

Part A — Heads (ss. 13-14)

Part B — Salaries (ss. 15-19)

Part C — House Property (ss. 20-25)

Part D — PGBP (ss. 26-66)

Part E — Capital Gains (ss. 67-91)

Part F — Other Sources (ss. 92-95)

Practitioner notes for Chapter IV

• Update working-paper cross-references — every PGBP working from old s. 28-44DB to new s. 26-66; capital gains from old s. 45-55A to new s. 67-91; other sources from old s. 56-59 to new s. 92-95.
• Tax audit: the s. 63 thresholds and the audit forms (3CA, 3CB, 3CD) carry forward; expect re-issuance under the 2026 Rules.
• Presumptive taxation: new s. 58 unifies old ss. 44AD/44ADA/44AE; verify five-year lock-in compliance for clients already in the regime.
• Capital gains: post-FA 2024, indexation removed for individual / HUF transfers on or after 23-7-2024 — apply 12.5% LTCG rate; grandfathering option for property bought before 23-7-2024 — compute under both regimes and pick lower.
• Section 78 / 94 stamp-duty deeming: continuous monitoring of registry values; build the 10% tolerance into the negotiation strategy for sale of immovable property.
• Section 87 (formerly s. 54F): post-FA 2023 cap of Rs 10 crore on the qualifying capital gain — large LTCG plays on shares / unlisted-bond sales must be planned with this cap in mind.