CHAPTER IV — PARTS B, C, F COMBINED EXPANDED

PART B — SALARIES (EXPANDED)

Section 18 — Profits in Lieu of Salary

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Profits in lieu of salary defined.

18. (1) For the purposes of this Part, '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 were 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 provident fund — to the extent of employer contribution + interest thereon;

(e) Any amount received before joining or after cessation of employment, in connection with employment;

(f) Keyman insurance policy proceeds (where assigned to employee — earlier interpretation post-CIT v. Rajan Nanda).

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 17(3) of the 1961 Act

Section 17(3) — Profits in lieu of salary. Substantively identical.

BLOCK 3 : COMMENTARY

Section 18 captures payments not strictly 'salary' but having salary-like character. Critical for VRS / golden handshake / termination compensation classification.

Compensation for termination. Most-litigated category. Lump-sum compensation paid on termination / VR / compulsory retirement — partially exempt under section 19 [Table Sl. No. 12 — Rs 5 lakh VRS] AND/OR section 19 [Table Sl. No. 10 — least of: actual / Rs 5 lakh / formula]. The non-exempt portion is 'profits in lieu of salary' under section 18 — taxable under Salaries.

Unrecognised PF withdrawal. (i) Employee's own contribution + interest thereon — exempt under Schedule II. (ii) Employer's contribution + interest thereon — taxable as 'profits in lieu of salary' under section 18. Critical distinction; payroll teams must compute correctly.

Keyman insurance assigned to employee. CIT v. Rajan Nanda (2012) 18 taxmann.com 98 (Del.) — assigned keyman policy retains 'salary' character; full proceeds taxable as 'profits in lieu of salary' in the year of receipt (not over policy term).

Practitioner takeaways. (i) For VRS / golden handshake: structure carefully to maximise s. 19 exemptions. (ii) For unrecognised PF settlement: bifurcate own + employer portions. (iii) For keyman insurance assigned: full taxability in year of receipt. (iv) Coordinate with section 157 (s. 89) salary arrears averaging — Form 33 (formerly 10E) for VRS / arrears payments.

Section 19 — Deductions from Salaries (Comprehensive Table)

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Deductions from salary income.

19. (1) The income chargeable under the head 'Salaries' shall be computed after making the deductions specified in the Table below — comprising 14 items including standard deduction, profession tax, gratuity exemption, leave encashment, retrenchment compensation, VRS, pension commutation, etc.

Table — Deductions and Exemptions:

Sl. No. 1 — Profession tax paid by employee — entire amount.

Sl. No. 2 — Standard deduction — Rs 75,000 OR salary, whichever less (FA 2024 new regime; Rs 50,000 old regime).

Sl. No. 3 — Death-cum-retirement gratuity (Government employees) — entire amount.

Sl. No. 4 — Retiring gratuity to Government employees — entire amount.

Sl. No. 5 — Gratuity covered under Payment of Gratuity Act — least of (i) actual, (ii) Rs 20 lakh, (iii) 15 days × last drawn salary × completed years.

Sl. No. 6 — Other gratuity — least of (i) actual, (ii) Rs 20 lakh, (iii) ½ × completed years × average salary of last 10 months.

Sl. No. 7 — Pension commutation (Government employees) — entire amount.

Sl. No. 8 — Pension commutation (others receiving gratuity) — 1/3 of full pension commuted value.

Sl. No. 9 — Pension commutation (others not receiving gratuity) — 1/2 of full pension commuted value.

Sl. No. 10 — Retrenchment compensation — least of (i) actual, (ii) Rs 5 lakh, (iii) 15 days × last drawn salary × completed years.

Sl. No. 11 — Compensation under Industrial Disputes Act / similar — actual.

Sl. No. 12 — VRS / Voluntary Separation Scheme — least of (i) actual, (ii) Rs 5 lakh, (iii) 3-month formula or balance-of-service formula.

Sl. No. 13 — Specified Government scheme payments — entire.

Sl. No. 14 — Other notified categories — formula-based.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 16 of the 1961 Act + Section 10(10), (10A), (10AA), (10B), (10C) of the 1961 Act

Section 16 — Standard deduction (Rs 50K originally; Rs 75K post-FA 2024 for new regime), profession tax, entertainment allowance (Govt employees only). Section 10(10) — Gratuity. Section 10(10A) — Pension commutation. Section 10(10AA) — Leave encashment. Section 10(10B) — Retrenchment. Section 10(10C) — VRS.

BLOCK 3 : COMMENTARY

Section 19 unifies into a single Table what was earlier scattered between section 16 (standard deduction etc.) and section 10 (gratuity / leave / retrenchment / VRS exemptions) of the 1961 Act. Major drafting innovation — single point of reference for salary computation.

Standard deduction. Rs 75,000 (post-FA 2024 new regime) vs Rs 50,000 (old regime). Available to all salaried employees with no further conditions.

Gratuity. Three categories: (a) Government — entire exempt; (b) Payment of Gratuity Act — Rs 20 lakh cap; (c) Other private — Rs 20 lakh cap with different formula. The Rs 20 lakh cap was last enhanced by FA 2017 (from Rs 10 lakh).

Pension commutation. Government employees — entire exempt; private employees — 1/3 (with gratuity) or 1/2 (without gratuity) of commuted value exempt; balance taxable.

Leave encashment (Sl. No. 14). Post-FA 2023, leave encashment for non-Government employees — Rs 25 lakh cap (up from Rs 3 lakh). Formula: least of (i) actual, (ii) Rs 25 lakh, (iii) 10-month formula based on average salary, (iv) un-availed leave × salary basis.

VRS exemption. Rs 5 lakh cap; formula based on completed years. Strict scheme conditions under Rule 20 — (i) workforce reduction, (ii) age 40+ / service 10+, (iii) post-VR vacancy not filled.

Practitioner takeaways. (i) For HR / payroll: implement Section 19 Table in payroll software; correctly identify each retirement / cessation payment. (ii) For employees: file Form 33 (formerly 10E) for arrears averaging; preserve all retirement-payment receipts. (iii) For senior executives: combine multiple exemption categories (gratuity + leave + VRS) — each within its own cap; aggregate can be substantial. (iv) For Government employees: most retirement benefits are entirely exempt; verify against the specific category.

PART C — HOUSE PROPERTY (EXPANDED)

Section 22 — Deductions from Income from House Property

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Deductions from income from house property.

22. (1) The income under the head 'Income from house property' shall be computed after making the deductions specified below from the annual value:

(a) A sum equal to 30% of the annual value (standard deduction);

(b) Where the property is acquired / constructed / repaired / renewed / reconstructed with borrowed capital — interest payable on such capital, with following limits:

(i) For self-occupied / vacant property — interest deductible up to Rs 2 lakh per tax year (FA 2017 cap; earlier Rs 1.5 lakh);

(ii) For let-out property — full interest deductible (no cap);

(iii) Pre-construction interest (interest paid before completion) — deductible in 5 equal instalments commencing year of completion, subject to overall Rs 2 lakh cap for self-occupied.

(2) No other deductions allowed — repairs / maintenance / insurance / rates / taxes are deemed covered by the 30% standard deduction (for let-out / annual-value-bearing properties).

(3) Annual value-NIL self-occupied properties — only interest deduction available; 30% standard deduction is on annual value (which is NIL); so effectively only interest.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 24 of the 1961 Act

Section 24 — Deductions from house property. (a) 30% standard deduction. (b) Interest on borrowed capital — uncapped for let-out; Rs 2 lakh for self-occupied (FA 2017).

BLOCK 3 : COMMENTARY

Section 22 governs the deductions from house property income. The 30% standard deduction is a flat deduction in lieu of all repairs / maintenance / insurance / municipal taxes (ignoring the slip-through of municipal taxes already deducted from gross to arrive at annual value).

30% standard deduction. Available on the annual value (after deduction of municipal taxes paid). For self-occupied properties with NIL annual value, this 30% is irrelevant; only interest deduction matters.

Interest on borrowed capital — let-out property. No cap. Full deductibility. Combined with 30% deduction, leveraged property investment can yield significant tax loss (interest > rent + 30% deduction = loss). Loss can be set off against other heads under section 109 — capped at Rs 2 lakh under section 109(2).

Interest on borrowed capital — self-occupied. Rs 2 lakh annual cap (FA 2017). Major change: pre-FA 2017, the cap was Rs 1.5 lakh for normal cases / Rs 1.5 lakh for self-occupied with old loan / unlimited for some scenarios.

Pre-construction interest. Interest paid during construction period (before completion / occupancy certificate) is deductible in 5 equal instalments starting from the year of completion. Critical for under-construction property buyers — pre-construction interest is a substantial amount that should not be missed.

Continuity of jurisprudence. CIT v. Sant Steel (2009) 313 ITR 132 (P&H) — interest treatment; CIT v. C. Madhava Reddy (1981) 132 ITR 555 (AP) — capitalisation vs deduction. Both apply.

Practitioner takeaways. (i) For self-occupied property — track Rs 2 lakh interest cap; pre-construction interest in 5-year tranches. (ii) For let-out property — full interest deductible; can yield section 109 loss for set-off (capped at Rs 2L against other heads). (iii) For multiple properties — section 21 self-occupied option (up to 2 properties NIL) + others as deemed-let-out; structure for tax efficiency. (iv) For housing loan documents — preserve EMI breakup (principal vs interest).

Section 23 — Arrears of Rent and Unrealised Rent

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Arrears of rent and unrealised rent.

23. (1) The amount of arrears of rent received by an assessee from a tenant, in respect of any tax year — shall be deemed to be income chargeable under the head 'Income from house property' in the tax year in which such rent is received, after deducting the 30% standard deduction.

(2) The amount of unrealised rent recovered by the assessee in any subsequent tax year — chargeable in the tax year of receipt; subject to 30% standard deduction.

(3) Unrealised rent (claim during tenancy) — see Rule 21 of the Income-tax Rules, 2026 — six-fold conditions for treating rent as unrealised.

(4) For both arrears and recovered unrealised rent — chargeable even if assessee no longer owns the property at the time of receipt.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Sections 25, 25A, 25B of the 1961 Act

Section 25 — Cessation of source. Section 25A — Deduction for unrealised rent (post-FA 2016 simplified). Section 25B — Arrears of rent.

BLOCK 3 : COMMENTARY

Section 23 of the new Act consolidates the treatment of arrears and unrealised rent. Substantively unchanged.

Arrears of rent. Arrears (rent for past years actually received in the current year) — chargeable in the year of receipt. The 30% standard deduction applies. The fact that assessee no longer owns the property at the time of recovery does not affect taxability.

Unrealised rent recovered. Where rent was treated as 'unrealised' (and reduced from annual value in the year of accrual under Rule 21), and is later recovered — taxable in year of recovery. Section 23 ensures the recovery is captured even if the property is sold / no longer held.

Unrealised rent claim — Rule 21 conditions. (i) Tenancy bona fide; (ii) Defaulting tenant has vacated or steps taken to compel; (iii) Defaulting tenant not occupying any other property of assessee; (iv) Reasonable steps taken for legal proceedings; (v) Rent not realised; (vi) Conditions established to AO's satisfaction. Documentary evidence — eviction notice, court filings, broker correspondence, bank statements.

Practitioner takeaways. (i) For property rentals — maintain tenant ledger; flag unrealised rent each year. (ii) For unrealised rent claim — file detailed Rule 21 evidence with return. (iii) For arrears recovery in later years — taxable; cannot escape merely by selling the property. (iv) For receivers / executors of deceased landlord — taxability transfers; preserve documentation.

Section 25 — Owner / Deemed Owner

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Owner / deemed owner of property for the purposes of sections 20-24.

25. For the purposes of sections 20 to 24, the 'owner' in relation to a property includes:

(a) Owner — legal owner under the registered sale deed / inheritance / decree.

(b) Deemed owners (irrespective of legal title) —

(i) An individual who has transferred the property to spouse OR minor child (other than married daughter) without adequate consideration — deemed owner of the transferor;

(ii) Holder of an impartible estate;

(iii) Member of a co-operative society / company / AOP allotted property under house-building scheme — deemed owner;

(iv) Person having a long-term lease in respect of the property — lease for a term not less than 12 years (other than month-to-month / yearly) — deemed owner;

(v) Holder under a power of attorney sale where consideration is paid and possession transferred (s. 53A of the Transfer of Property Act, 1882) — deemed owner (FA 1988 amendment);

(vi) Holder under any agreement / arrangement that effectively transfers title without registered conveyance.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 27 of the 1961 Act

Section 27 — Owner defined. Substantively identical.

BLOCK 3 : COMMENTARY

Section 25 expansively defines 'owner' to include deemed owners — preventing avoidance through informal title arrangements.

Spouse / minor child clubbing. Section 25(b)(i) — transfer to spouse / minor child without adequate consideration — the transferor remains the deemed owner. The income from property continues to be the transferor's even though the property is in the name of spouse / minor. Coordinated with section 99 (spouse / minor clubbing).

Power of attorney (PoA) sale — Section 25(b)(v). Major deeming provision inserted by FA 1988. Where consideration is paid and possession is transferred (the 'PoA sale' common in property markets) but no registered conveyance is executed — the buyer becomes deemed owner for tax purposes. CIT v. Podar Cement (1997) 226 ITR 625 (SC) endorsed this expansive interpretation.

Long-term lease (12+ years). Section 25(b)(iv) — lessee of long-term lease (12+ years not month-to-month / yearly) — deemed owner. Common in commercial leases / leasehold flats.

Practitioner takeaways. (i) For PoA sale buyers / sellers — ensure transparent treatment; deemed-owner buyer reports income; seller does not. (ii) For spouse / minor transfer — clubbing under s. 99 + deemed ownership under s. 25 = double anchor. (iii) For long-term lessees — verify 12-year threshold; commercial property tenants often deemed owners. (iv) For impartible estates — narrow application; mainly for old zamindari-style ancestral arrangements.

PART F — OTHER SOURCES (EXPANDED)

Section 93 — Specific Deductions from Other Sources

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Deductions from income from other sources.

93. (1) The income chargeable under the head 'Income from other sources' shall be computed after making the following deductions:

(a) Family pension — deduction of 1/3 of family pension OR Rs 15,000, whichever less;

(b) Commission / remuneration paid to banker / agent for realising dividend / interest;

(c) Repairs / maintenance / insurance / depreciation in respect of plant / machinery / furniture / building used for letting (where not assessable as House Property) — apportioned on commercial basis;

(d) Standard deduction of 33⅓% of 'compensation on retirement' received from ex-employer where not taxable under Salaries (legacy provision);

(e) Bank locker rent paid in respect of jewellery / movable assets earning income;

(f) Other reasonable expenditure laid out wholly and exclusively for earning the income.

(2) No deduction allowed for personal expenses / capital expenditure / expenses for purposes prohibited by law.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 57 of the 1961 Act

Section 57 — Deductions from Other Sources. Substantively identical.

BLOCK 3 : COMMENTARY

Section 93 governs deductions from Other Sources. The most-utilised items are family pension (Rs 15K cap) and locker rent.

Family pension. Pension paid to legal heirs of deceased employee / pensioner. Not 'salaries' (no employer-employee relationship for the heir). Taxable under Other Sources. Deduction of 1/3 of family pension or Rs 15,000 whichever less — providing limited relief.

Letting of plant / machinery / furniture. Where letting income is NOT assessable under House Property (no land/building) but is non-business letting — taxable under Other Sources. Deductions include repair, maintenance, insurance, depreciation — on commercial basis.

Practitioner takeaways. (i) For widows / heirs receiving family pension — claim Rs 15,000 / 1/3 deduction; coordinate with section 92 OS classification. (ii) For non-business movable property letting (e.g., wedding tent / equipment hire) — Other Sources head; commercial deductions allowed under s. 93(c). (iii) For senior citizens / retirees with locker rent — claim s. 93(e) deduction. (iv) For lottery / racing / gambling winnings (s. 197 30% rate) — NO deductions allowed; Section 93 doesn't apply.

Section 94 — Receipts Without Consideration / Inadequate Consideration

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Receipt of money / property without consideration / inadequate consideration.

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 — stamp duty value > Rs 50,000 — taxable;

(b) For consideration less than stamp duty value, AND the differential exceeds higher of (i) Rs 50,000 OR (ii) 10% of consideration — the differential is taxable.

(3) Where any specified property (other than immovable) is received — without consideration — FMV > Rs 50,000 — taxable; OR for inadequate consideration (FMV - consideration > Rs 50,000) — differential taxable. 'Specified property' includes shares, securities, jewellery, archaeological collection, drawings, paintings, sculptures, art works, virtual digital assets (post-FA 2022).

(4) Carve-outs (Rule 58 of new Rules):

(a) Money / property from a 'relative' (defined exhaustively — spouse, brother / sister of self / spouse, lineal ascendants / descendants, lineal ascendant / descendant of spouse, spouse of any of the above);

(b) On the occasion of marriage of the assessee;

(c) Under a will / by way of inheritance;

(d) In contemplation of death of donor;

(e) From a local authority / specified fund / institution;

(f) From any approved trust under Section 130 (s. 80G).

(5) The differential in inadequate consideration cases is added to the cost of acquisition for capital gains purposes (avoiding double taxation on subsequent sale).

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Section 56(2)(x) of the 1961 Act

Section 56(2)(x) — Gifts and inadequate consideration receipts. Inserted by FA 2017 to cover all assessees (earlier scattered across (v), (vi), (vii), (viia)). FA 2020 — 10% tolerance for immovable property. FA 2022 — VDA inclusion in specified property.

BLOCK 3 : COMMENTARY

Section 94 is the most-relevant gift-tax-style provision in modern Indian tax law. It captures gifts and below-FMV receipts in the recipient's hands as Other Sources income. Critical for HNI estate planning and family wealth transfers.

Three-fold structure. (a) Money — Rs 50,000 threshold per year per recipient. (b) Immovable property — stamp duty value vs consideration; 10% tolerance. (c) Specified property — FMV vs consideration; Rs 50,000 differential threshold.

Carve-outs (Rule 58). (i) Relative — defined exhaustively; friend-to-friend gifts above Rs 50,000 are TAXABLE (despite popular misconception). (ii) Marriage — MUST be on the occasion (gifts before / after marriage outside scope). (iii) Will / inheritance — exempt; major estate planning route. (iv) Contemplation of death — narrow; gifts made in expectation of imminent death by donor.

Stamp value tolerance (FA 2020). 10% tolerance preserved. Where stamp value <= 110% of consideration — no deeming. Above — full differential taxable.

Step-up in cost. Section 94(5) — the differential added to recipient's cost for future capital gains. Avoids double taxation: recipient pays Other Sources on differential; on subsequent sale, the same differential is part of cost (no second tax).

VDA inclusion (FA 2022). Virtual digital assets — cryptocurrency / NFT — are 'specified property'. Gifts of VDA above Rs 50,000 are taxable in recipient's hands.

Continuity of jurisprudence. ITO v. Smt. Manju Devi Sahu (2017) 84 taxmann.com 213 — 'occasion of marriage' interpretation; CIT v. Mira Ahuja (2018) 90 taxmann.com 369 (Cal.) — friend-to-friend gifts; CIT v. R. Jaganathan (2017) 393 ITR 36 (Mad.) — will / inheritance unlimited.

Practitioner takeaways. (i) For wedding gifts — document occasion (invitation card, photos); only on-occasion gifts qualify. (ii) For relative gifts — preserve relationship documentation; the exhaustive list of 'relatives' must be checked. (iii) For property purchases below stamp value — verify 10% tolerance; differential goes to Other Sources + step-up in cost. (iv) For HNI estate planning — will / inheritance is the favoured route; lifetime gifts to non-relatives are taxable. (v) For VDA gifts — careful documentation; FMV at receipt date.

Sections 15-25 + 92-95 — Comprehensive Mapping (Salaries + HP + OS Expanded)

Practitioner notes — Salaries / House Property / Other Sources expanded

• Section 18: profits-in-lieu-of-salary captures non-strict-salary payments; coordinate with s. 19 exemption table.
• Section 19: Rs 75K standard deduction (new regime); gratuity Rs 20L cap; leave encashment Rs 25L cap (FA 2023); VRS Rs 5L.
• Section 22: 30% standard + interest (uncapped let-out / Rs 2L self-occupied); pre-construction in 5 tranches.
• Section 23: arrears recovery in year of receipt; Rule 21 six-fold conditions for unrealised rent claim.
• Section 25: deemed ownership for spouse / minor transfer; PoA sale; long-term lease (12+ years).
• Section 93: family pension Rs 15K / 1/3 cap; locker rent for non-business movable property.
• Section 94: gifts above Rs 50K from non-relatives taxable; will / inheritance exempt; 10% tolerance for immovable property.
• Coordinate Section 18 / 19 / 23 with section 157 (s. 89) salary arrears averaging via Form 33 (formerly 10E).