Author: CA Meet Dhrangadhariya

Types Of Taxes In India: Direct Tax And Indirect Tax

Posted on by CA Meet Dhrangadhariya

Last updated: 28 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Taxes in India are direct (income tax, Securities Transaction Tax) or indirect (GST, customs duty, limited central excise, state VAT on petroleum and alcohol).
  • Direct taxes are borne by the person on whom they are levied; indirect taxes are passed on to the final consumer.
  • Wealth tax, gift tax and fringe benefit tax no longer exist, and GST replaced service tax, sales tax, state VAT on most goods and octroi.
  • The note compares both kinds with advantages, disadvantages and a difference table.

Taxes in India are broadly classified into direct taxes, such as income tax, and indirect taxes, such as GST and customs duty. Direct taxes are paid by the person on whom they are levied. Indirect taxes are included in the price of goods and services, and the burden passes to the final consumer. Knowing the types of taxes helps taxpayers comply with the law and plan their finances.

Types Of Taxes In India

Direct taxes are administered by the Central Board of Direct Taxes (CBDT). Indirect taxes (GST, customs and central excise) are administered by the Central Board of Indirect Taxes and Customs (CBIC).

Direct Taxes

A direct tax is levied on the income or profits of a person, who has to bear it and cannot pass it on to someone else. The main direct taxes in force are:

  • Income tax: charged on the income of individuals, HUFs, firms, companies and other persons. Capital gains tax is part of income tax. Surcharge and the 4% health and education cess are added on top of income tax.
  • Securities Transaction Tax (STT): charged on specified transactions in listed securities. It is a direct tax collected at the time of the transaction.

Several direct taxes that older books still list no longer exist: wealth tax (abolished from AY 2016-17), gift tax (abolished in 1998; gifts above the prescribed limit are now taxed as income) and fringe benefit tax (abolished from AY 2010-11).

Indirect Taxes

An indirect tax is charged on goods and services. It is collected by the seller and the burden is passed on to the end consumer. The main indirect taxes in force are:

  • Goods and Services Tax (GST): a single tax on the supply of goods and services, in force since 1 July 2017. It replaced service tax, central excise on most goods, state VAT on most goods, central sales tax, octroi and entry tax, and removed the cascading effect.
  • Customs duty: charged on goods imported into India.
  • Central excise duty: now limited to a small set of goods, mainly petroleum products.
  • State VAT: still levied by states on petrol, diesel and alcohol for human consumption.

Other levies

Some levies are neither central direct nor indirect taxes: property tax (local municipal), stamp duty and registration fees (state), and professional tax (state, capped at Rs 2,500 a year under the Constitution). A toll is a fee for using a road, not a tax.

Direct taxes Indirect taxes Other levies
Income tax (including capital gains) GST Property tax
Securities Transaction Tax Customs duty Stamp duty and registration fees
Central excise (limited goods) Professional tax
State VAT (petroleum, alcohol) Toll (a fee)

Advantages And Disadvantages Of Direct Tax

Advantages Disadvantages
Progressive in nature: people with lower incomes pay less tax than people with higher incomes. Some taxpayers evade or avoid tax.
Helps reduce income inequality. Compliance and documentation can be complex and time-consuming.
Certainty: the government and the taxpayer both know what is to be paid and when. The burden cannot be transferred to anyone else.

Advantages And Disadvantages Of Indirect Tax

Advantages Disadvantages
Everyone who spends contributes to nation-building. Raises the overall price of goods and services.
Easy to collect from the end consumer. Consumers often do not know how much tax they pay.
Lower rates can be applied to essential goods and higher rates to luxury goods. Regressive in nature, as it takes a larger share of low incomes.
The burden can be passed to the end consumer. Revenue is hard to predict because it depends on what people buy.

Difference Between Direct Tax And Indirect Tax

Basis Direct Tax Indirect Tax
Definition Tax levied directly on the income or profits of a person. Tax levied on the supply of goods and services.
Burden of Tax Cannot be shifted; borne by the person on whom it is imposed. Can be shifted; ultimately borne by the end consumer.
Governing Body Central Board of Direct Taxes (CBDT). Central Board of Indirect Taxes and Customs (CBIC).
Examples Income tax, Securities Transaction Tax. GST, customs duty, central excise.
Impact on Prices Does not directly affect the price of goods and services. Forms part of the price of goods and services.
Payment Paid directly to the government by the taxpayer. Collected by the seller or service provider and paid to the government.

Now that you know the main types of taxes in India, it is easier to see which ones apply to you.

Frequently asked questions

What are the two main types of taxes in India?

Direct taxes, such as income tax, which are paid by the person on whom they are levied, and indirect taxes, such as GST and customs duty, which are passed on to the final consumer.

Is wealth tax still charged in India?

No. Wealth tax was abolished with effect from AY 2016-17. Gift tax was abolished in 1998 and gifts above the prescribed limit are now taxed as income.

Which taxes did GST replace?

GST replaced service tax, central excise on most goods, state VAT on most goods, central sales tax, octroi and entry tax.

Who administers direct and indirect taxes?

Direct taxes are administered by the Central Board of Direct Taxes (CBDT) and indirect taxes such as GST, customs and central excise by the Central Board of Indirect Taxes and Customs (CBIC).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Dividend under the Companies Act, 2013: Sources, Interim Dividend, Payment, Unpaid Dividend Account and IEPF (Sections 123, 124, 127)

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A company can pay dividend only out of profits of the year (after depreciation under Schedule II), undistributed profits of earlier years, both, or money provided by a Government under a guarantee. Unrealised and notional gains are excluded, and past losses and unprovided depreciation must be set off first.
  • The Board can declare an interim dividend. The dividend amount must be deposited in a separate scheduled bank account within five days of declaration, and paid within 30 days.
  • Dividend unpaid or unclaimed for 30 days goes to the Unpaid Dividend Account within seven days; after seven years it goes to the Investor Education and Protection Fund, along with shares on which no dividend was claimed for seven consecutive years.
  • Failure to pay within 30 days attracts 18% simple interest on the company and imprisonment up to two years for a director who knowingly is party to the default.

A dividend is a share of the profits paid to members, so the Companies Act, 2013 allows it only from specific sources, requires the money to be put aside promptly, and protects shareholders who have not collected it.

Where dividend can come from (section 123(1))

A company can declare or pay dividend for a financial year only:

  • (a) out of the profits of that year after providing for depreciation under Schedule II, or out of undistributed profits of previous years after providing for depreciation, or out of both; or
  • (b) out of money provided by the Central or a State Government for the payment of dividend under a guarantee given by that Government.

In computing profits, any amount representing unrealised gains, notional gains or revaluation of assets, and any change in the carrying amount of an asset or liability on fair value measurement, is excluded.

Other conditions

  • Before declaring dividend for a year, the company may transfer such percentage of the year’s profits to its reserves as it considers appropriate.
  • Where profits are inadequate or absent and the company proposes to pay from accumulated profits earlier transferred to free reserves, it must follow the prescribed rules.
  • No dividend may be declared or paid from reserves other than free reserves.
  • No dividend can be declared unless previous losses carried over and depreciation not provided in earlier years are set off against the current year’s profit.
  • A company that fails to comply with sections 73 and 74 (deposits) cannot declare dividend on its equity shares while the failure continues.

Interim dividend (section 123(3))

The Board can declare an interim dividend during any financial year, or at any time from the closing of the year until the AGM, out of the surplus in the profit and loss account, or out of the profits of the year for which it is declared, or out of profits generated up to the quarter before the date of declaration. If the company has incurred a loss in the current year up to that quarter, the interim dividend cannot be at a rate higher than the average dividends declared in the preceding three financial years.

Payment (section 123(4) and (5))

  • The amount of the dividend, including interim dividend, must be deposited in a separate account in a scheduled bank within five days from the date of declaration.
  • Dividend is paid only to the registered shareholder, or to his order or his banker, and not otherwise than in cash. It may be paid by cheque, warrant or in any electronic mode. Issuing fully paid bonus shares by capitalising profits or reserves is not prohibited.

Unpaid or unclaimed dividend (section 124)

  1. A dividend that is not paid or claimed within 30 days of declaration is transferred, within seven days after those 30 days, to a special account called the Unpaid Dividend Account in a scheduled bank.
  2. Within 90 days of the transfer, the company prepares and places on its website (and a website approved by the Central Government) a statement of names, last known addresses and amounts.
  3. If the company defaults in the transfer, it pays interest at 12% a year on the amount not transferred, for the benefit of the members in proportion.
  4. A person entitled can apply to the company for payment of the money.
  5. Money that remains unpaid or unclaimed for seven years from the date of transfer goes, with accrued interest, to the Investor Education and Protection Fund (section 125).
  6. Shares on which dividend has not been paid or claimed for seven consecutive years or more are transferred to the IEPF. A claimant can claim them back from the IEPF by the prescribed procedure. If a dividend is paid or claimed in any year within the seven years, the shares are not transferred.
  7. Penalty (section 124(7)): the company is liable to a penalty of Rs 1 lakh and a further Rs 500 a day (maximum Rs 10 lakh), and every officer in default to Rs 25,000 and a further Rs 100 a day (maximum Rs 2 lakh).

Failure to pay a declared dividend (section 127)

If a declared dividend is not paid, or the warrant is not posted, within 30 days of declaration to a shareholder entitled to it:

  • every director who is knowingly a party to the default is punishable with imprisonment up to two years and a fine of not less than Rs 1,000 for every day the default continues; and
  • the company is liable to pay simple interest at 18% a year during the default.

No offence is committed where the dividend could not be paid by reason of the operation of any law; where a shareholder’s directions cannot be complied with and this has been communicated to him; where there is a dispute about the right to receive it; where it has been lawfully adjusted against a sum the shareholder owes the company; or where for any other reason the failure was not due to the company’s default.

A short dividend checklist

  1. Compute distributable profits: current year profit after Schedule II depreciation, less past losses and unprovided depreciation, excluding unrealised and notional gains.
  2. Board recommends (or declares an interim) dividend; members approve the final dividend at the AGM.
  3. Deposit the amount in a separate scheduled bank account within five days of declaration.
  4. Pay within 30 days, electronically where possible, to registered holders.
  5. Move unclaimed amounts to the Unpaid Dividend Account on time, publish the statement within 90 days, and track the seven year clock for IEPF transfer of money and shares.

Points to check

  • This post follows the Companies Act as published on India Code, including its amendments up to the footnotes in that edition. The Rules on dividend out of accumulated profits (the conditions for paying when profits are inadequate), the form of the unpaid dividend statement, and the IEPF Rules for transfer and claim were not reviewed.
  • Tax on dividend in the hands of the shareholder and TDS on dividend are governed by the Income-tax law and are not covered here.
  • Listed companies also follow SEBI’s listing regulations on dividend policy and record dates.

Frequently asked questions

Out of what can a company pay dividend?

Out of the profits of the current year after providing for depreciation as per Schedule II, out of undistributed profits of previous years after depreciation, out of both, or out of money provided by the Central or a State Government under a guarantee. Unrealised gains, notional gains and revaluation gains are excluded when computing profits.

Can dividend be paid out of reserves?

Not from reserves other than free reserves. Where profits are inadequate or absent and the company proposes to pay from accumulated profits transferred to free reserves, it must follow the prescribed rules. No dividend can be declared unless carried over previous losses and unprovided depreciation have been set off against the current year’s profit.

What is an interim dividend?

A dividend the Board declares during the financial year, or between the year end and the AGM, out of the surplus in the profit and loss account, the profits of that year, or profits up to the quarter before the declaration. If the company has a loss up to the previous quarter, the interim dividend rate cannot exceed the average of the dividends in the preceding three financial years.

When must the dividend be paid?

The amount must be deposited in a separate account in a scheduled bank within five days of declaration, and paid, or the warrant posted, within 30 days from the date of declaration. It is paid only to the registered shareholder or to his order or banker, in cash, by cheque or warrant, or electronically.

What happens to dividend not claimed?

Within seven days after the 30 day period, the unpaid or unclaimed amount is transferred to the Unpaid Dividend Account. Within 90 days a statement of names, addresses and amounts is placed on the company’s website. After seven years the amount goes to the Investor Education and Protection Fund, and shares on which dividend has not been paid or claimed for seven consecutive years are transferred to the IEPF as well.

What if the company cannot pay dividend because of a deposit default?

A company that fails to comply with sections 73 and 74 on deposits cannot declare any dividend on its equity shares while the failure continues.

What is the penalty for not paying a declared dividend?

Under section 127, every director who is knowingly a party to the default is punishable with imprisonment up to two years and a fine of not less than Rs 1,000 for each day of default, and the company pays simple interest at 18% a year during the default. Exceptions apply, for example where payment is prevented by law, there is a dispute about the right to the dividend or the shareholder’s directions cannot be complied with.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Landlord’s PAN for HRA Exemption: When It Is Mandatory

Posted on by CA Meet Dhrangadhariya

Last updated: 06 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • You must give your landlord’s PAN to your employer if the rent you pay in the year is more than ₹1,00,000 (about ₹8,333 a month).
  • If the landlord has no PAN, a declaration from the landlord with name and address is accepted.
  • Form 124 (earlier Form 12BB) asks for the landlord’s name, address, PAN, Aadhaar, relationship and rent paid; Aadhaar is not mandatory unless your employer asks.
  • The HRA exemption is only for the old tax regime. Rent paid to a spouse is not accepted, and rent to parents needs them to report the income.

If you claim the HRA exemption and pay a high rent, you must give your employer the landlord’s PAN. The rule is meant to make sure the rent is real and that the landlord reports it as income.

The rule

  • If the rent you pay in the year is more than ₹1,00,000 (about ₹8,333 a month), the landlord’s PAN must be given. The Income Tax Department’s FAQ on Form 124 says the PAN must be furnished if the annual rent exceeds ₹1,00,000.
  • If the rent is ₹1,00,000 or less, the PAN is not required, but you still give the landlord’s name and address.
  • Aadhaar is not mandatory unless your employer specifically asks for it.

If the landlord has no PAN

Get a declaration from the landlord that they do not have a PAN, stating their name and address, as allowed by CBDT Circular 8/2013 dated 10/10/2013. Give it to your employer with your other documents. The declaration should be from the landlord, not from you.

Where do you give it?

In Form 124, the statement to your employer. Up to FY 2025-26 this was Form 12BB. For HRA it asks for:

  1. Name of the landlord.
  2. Address.
  3. PAN.
  4. Aadhaar number.
  5. Relationship with the landlord, if any.
  6. Rent paid to the landlord.

A copy of the rent agreement is the supporting document. Form 124 is given to your employer. It is not uploaded on the income tax portal.

Other conditions for the HRA exemption

  • You must be getting HRA from your employer and be in the old tax regime.
  • You must actually pay rent for a house that you do not own.
  • Rent paid to your spouse is not accepted. If you pay rent to your parents, they must own the house and show the rent as income in their return.
  • The exemption is the lowest of the HRA received, 50% (eight metro cities) or 40% of salary, and rent paid less 10% of salary.

Documents to keep

  • Rent agreement.
  • Rent receipts or, better, bank proof of payment each month.
  • Landlord’s PAN or the landlord’s no-PAN declaration.
  • Salary slips showing HRA.

If you do not give the proof

  • Your employer can refuse the exemption and deduct higher TDS.
  • You can still claim the exemption in your return if you have the proof, and get a refund of the excess TDS.
  • A claim without proof may be questioned by the department.

TDS on rent is a separate matter

The tenant’s own duty to deduct tax at source on rent is different from the HRA rule. Under the Income-tax Act, 2025 (section 393, Table Sl. No. 2), a tenant who is not a specified person, such as an individual or HUF who is not liable to a tax audit, deducts tax at 2% on rent where it is ₹50,000 or more for a month or part of a month. A specified person (an audited individual or HUF, or other person) deducts 2% for machinery, plant or equipment and 10% for land, building or furniture, on the same threshold. The 1961 Act equivalents are sections 194-IB and 194-I. Check your own status with a professional.

Frequently asked questions

When is landlord PAN required for HRA?

When the rent you pay in the year is more than ₹1,00,000, that is above about ₹8,333 a month.

What if the landlord does not have a PAN?

Give your employer a declaration from the landlord that they do not have a PAN, along with their name and address.

Is Aadhaar required?

Form 124 asks for the landlord’s Aadhaar, but it is not mandatory unless your employer specifically asks for it.

Can I claim HRA without giving rent proof?

Your employer may refuse the exemption and deduct more TDS. You can still claim it in your return if you have the proof.

Is the HRA exemption available in the new tax regime?

No. It is available only in the old tax regime.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Can You Claim Both HRA and Home Loan Interest Deduction?

Posted on by CA Meet Dhrangadhariya

Last updated: 31 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Yes, you can claim the HRA exemption and home loan interest together if you pay rent for a house you do not own and also have a home loan on another house.
  • The HRA rule needs that the house you live in is not owned by you and that you actually pay rent for it. It does not stop you owning a different house.
  • Interest on a self-occupied house is limited to ₹2 lakh; interest on a let-out house has no such cap on the interest itself.
  • Both claims need genuine proof and, for HRA, the old tax regime. In the new regime, HRA and self-occupied house interest are not allowed.

Many people think they must choose between HRA and a home loan. They do not. The two work on different houses and different heads of income, so they can be claimed together if you meet the conditions of each. Both are claimed in the old tax regime.

The HRA conditions

The HRA exemption is in section 10(13A) of the Income-tax Act, 1961 up to FY 2025-26, and in Schedule III (Table Sl. No. 11) of the Income-tax Act, 2025 from Tax Year 2026-27. It needs:

  • an HRA granted to you by your employer for rent,
  • the house you occupy is not owned by you, and
  • you actually pay rent for that house.

The exemption is the lowest of the HRA received, 50% (eight metro cities) or 40% of salary, and rent paid less 10% of salary (Rule 279 of the Income-tax Rules, 2026).

Nothing in these conditions stops you owning another house elsewhere.

The home loan conditions

Interest on a loan taken to buy or build a house is a deduction from house property income: section 24(b) of the 1961 Act, section 22(1)(b) of the 2025 Act.

  • For a self-occupied house the interest is limited to ₹2 lakh a year, if the house is bought or built within five years from the end of the year in which the loan was taken. Otherwise the limit is ₹30,000.
  • Interest paid before the house is completed is claimed in five equal parts from the year of completion.
  • For a let-out house the interest is deducted in full, but the loss from house property that you can set off against other income is limited to ₹2 lakh a year.
  • Principal repaid is a separate section 80C (section 123) deduction.

Four common situations

Situation HRA and interest together? Note
Own a house in another city and rent a house where you work Yes The usual case.
Own a house in the same city but rent another for a genuine reason, such as distance to work or a school Yes, if genuine Keep full proof of both.
Bought an under-construction flat and live on rent Yes Pre-completion interest is claimed in five equal parts after completion.
Rent out your own loan-financed house and live in a rented house elsewhere Yes The rent you receive is taxed as house property income, and the interest is deducted against it.

A house kept vacant, or used by your family, is generally treated as self-occupied for the interest limit.

Example

Aryan works in Gurgaon, pays rent of ₹10,000 a month and gets an HRA of ₹15,000 a month. His basic salary is ₹40,000 a month. He has a home loan for a house in Bengaluru where his parents live, with interest of ₹20,000 a month.

HRA exemption (monthly): the lowest of ₹15,000 (HRA received), ₹16,000 (40% of basic, as Gurgaon is not one of the eight metro cities) and ₹6,000 (rent ₹10,000 less ₹4,000, which is 10% of basic). So ₹6,000 a month, ₹72,000 a year, is exempt and ₹9,000 a month is taxable.

Interest: ₹2,40,000 a year, but for a self-occupied house the deduction is limited to ₹2,00,000.

New tax regime

In the new regime neither HRA nor interest on a self-occupied house is allowed. Interest on a let-out house is still allowed against the rent received.

Proof you need

  • Rent agreement, rent receipts or bank proof, and the landlord’s PAN if rent is above ₹1,00,000 a year.
  • The lender’s interest certificate, the loan agreement and the possession or completion papers.
  • The declaration to your employer in Form 124 (earlier Form 12BB).

Frequently asked questions

Can I claim HRA and home loan interest together?

Yes, if you live in a rented house that you do not own, pay rent, and have a home loan on a different house, in the old tax regime.

Can I claim both if the loan house is in the same city?

The law does not bar it, but the claim must be genuine, for example because the house is let out, too far from work or under construction. Keep full proof.

What is the limit on home loan interest?

₹2 lakh a year for a self-occupied house, if construction or purchase is completed within five years of the year the loan was taken. Otherwise ₹30,000.

Is this available in the new tax regime?

No. HRA and the interest on a self-occupied house are not allowed in the new regime. Interest on a let-out house is allowed.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Telephone and Internet Allowance: Is It Taxable?

Posted on by CA Meet Dhrangadhariya

Last updated: 28 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • When the employer reimburses or pays your telephone and mobile phone expenses, the payment is not taxed as a perquisite.
  • A fixed telephone or internet allowance paid in your salary, without bills, is part of salary and is taxable.
  • There is no separate rupee limit for the reimbursement in the rule, but it should be for official use and reasonable for your role.
  • The perquisite rule is the same in the old and new tax regimes.

With work from home and hybrid working, many employers pay for telephone and internet. Whether the payment is taxable depends on how it is paid: as a fixed allowance in your salary, or as a reimbursement of the bills you submit.

Reimbursement of bills

When the employer pays or reimburses the actual cost of your telephone or mobile phone bills, the benefit is not taxed as a perquisite. The perquisite valuation rules (rule 3 of the Income-tax Rules, 1962, and the corresponding rule in the Income-tax Rules, 2026) value “any other benefit or amenity” provided by the employer but exclude expenses on telephones, including a mobile phone.

  • Keep the bills in your own name, or as your employer asks.
  • The use should be for official work.
  • There is no limit in the rule on the reimbursement amount, but your employer will usually fix a reasonable cap by your role.

Fixed allowance

If the employer pays a fixed amount every month, for example ₹1,500 as “telephone and internet allowance”, with no bills, it is part of your salary and is taxed at your slab rate. The exemption for reimbursement is not available.

What about internet and broadband?

The rule is worded around telephones, including mobile phones. Employers commonly extend the same treatment to broadband and mobile data used for work. If you get a reimbursement for broadband, follow your employer’s policy and keep the bills and the employer’s certificate that it was for official use.

Old or new regime?

The same treatment applies in both regimes, because it is a perquisite valuation rule and not an exemption that the new regime withdraws.

Example

Ms K gets ₹1,200 a month fixed as “mobile and internet allowance”. It is taxable salary of ₹14,400 a year. Her colleague submits his actual mobile bills of ₹1,200 a month to the company, which reimburses them. The reimbursement is not taxed.

Tips

  • Prefer a reimbursement structure if your employer offers it, as it is the more tax-efficient route.
  • Do not claim a reimbursement for personal use or for bills you did not pay.
  • Keep copies of bills, as the employer or the department may ask for them.

Frequently asked questions

Is a telephone allowance taxable?

A fixed telephone allowance paid with your salary is taxable. A reimbursement of your actual phone bills by the employer is not taxed as a perquisite.

Is there a limit on tax-free reimbursement?

The rules do not set a rupee limit. It should be for official use and reasonable for your job.

Is internet or broadband covered?

The rules refer to expenses on telephones, including a mobile phone. Many employers treat broadband used for work in the same way, so check how your employer treats it and keep the bills.

Does it depend on the tax regime?

No. Perquisite valuation applies to both the old and the new regime.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Uniform Allowance: Tax Exemption, Limit and Rules

Posted on by CA Meet Dhrangadhariya

Last updated: 15 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Uniform allowance is exempt up to the amount you actually spend on buying or maintaining uniforms for official duties.
  • The unspent part is taxable as salary.
  • It is available only in the old tax regime; the new regime does not exempt it.
  • From Tax Year 2026-27 it is in Schedule III of the Income-tax Act, 2025 and Rule 280(1)(g) of the Income-tax Rules, 2026.

A uniform allowance is paid by an employer to meet the cost of uniforms that employees must wear while working, as in the police, defence, hospitals, airlines and banks. The allowance is part of salary, but the part you spend on the uniform is exempt from tax if you are in the old tax regime.

Where is this in the law?

Up to FY 2025-26 it was section 10(14)(i) of the Income-tax Act, 1961 and Rule 2BB(1)(g). From Tax Year 2026-27 it is in Schedule III (Table Sl. No. 12) of the Income-tax Act, 2025, with Rule 280(1)(g) of the Income-tax Rules, 2026, which covers an allowance granted to meet the expenditure incurred on the purchase or maintenance of uniform worn during the performance of duties of an office or employment of profit.

How much is exempt?

The lower of:

  • the uniform allowance you receive, and
  • the amount you actually spend on the uniform.

Any unspent part is taxable as salary.

What counts as uniform expenditure?

  • Buying uniforms.
  • Tailoring or alteration.
  • Laundry and maintenance.
  • Accessories that are part of the uniform.

Example

Mr P gets a uniform allowance of ₹24,000 a year but spends only ₹18,000 on uniforms and laundry. In the old regime ₹18,000 is exempt and ₹6,000 is taxable. In the new regime the whole ₹24,000 is taxable.

Old regime or new regime?

Under section 202 of the Income-tax Act, 2025 the new regime does not exempt this allowance. Rule 280(3) keeps in the new regime only the allowances for travel on tour or transfer, daily charges, conveyance in duties, and the disabled employee’s transport allowance. Uniform allowance is not on that list, so you need the old regime.

How to claim

Give your employer proof of expense or the declaration the employer asks for, so the exemption is allowed in Form 16. If it was not, you can claim it in the salary schedule when you file your return, but keep the bills in case of a query.

Frequently asked questions

How much of uniform allowance is exempt?

The amount you actually spend on the purchase or maintenance of uniform for official duties, up to the allowance you receive. The balance is taxable.

Is uniform allowance exempt in the new tax regime?

No. It is exempt only in the old regime.

What expenses are covered?

Buying uniforms, tailoring and alteration, laundry and upkeep, and accessories that are part of the uniform.

Do I need bills?

Keep bills or a declaration as your employer asks. The exemption is based on actual expense.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Children Education Allowance, Hostel Allowance and Tuition Fee Tax Benefits

Posted on by CA Meet Dhrangadhariya

Last updated: 11 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • From 01/04/2026 children education allowance is exempt up to ₹3,000 a month per child and hostel allowance up to ₹9,000 a month per child, for up to two children, in the old tax regime only.
  • Up to FY 2025-26 the limits were only ₹100 and ₹300 a month per child.
  • Separately, tuition fees for up to two children can be claimed under section 80C (section 123 of the Income-tax Act, 2025), within the ₹1.5 lakh limit, in the old regime.
  • Neither benefit is available in the new tax regime.

Salaried parents can get two separate tax benefits for their children’s education: an exemption on the children education allowance and hostel allowance their employer pays, and a deduction for tuition fees under section 80C. Both need the old tax regime.

Children education and hostel allowance

Up to FY 2025-26 these were exempt under section 10(14)(ii) of the Income-tax Act, 1961 and Rule 2BB. From Tax Year 2026-27 they are in Schedule III (Table Sl. No. 13) of the Income-tax Act, 2025, with the amounts in Rule 280(2) of the Income-tax Rules, 2026.

Allowance Up to FY 2025-26 From 01/04/2026
Children education allowance, per child per month ₹100 ₹3,000
Hostel expenditure allowance, per child per month ₹300 ₹9,000
Number of children Two Two

So for two children, the annual exemption from 01/04/2026 is up to ₹72,000 for education allowance and up to ₹2,16,000 for hostel allowance. Both apply across India and need the allowance to be actually paid by the employer. The exemption is not more than the allowance received.

The new limits apply only to the old tax regime. Under section 202 of the Income-tax Act, 2025 and Rule 280(3), the new regime does not allow these exemptions.

Tuition fees under section 80C

  • Tuition fees paid to a university, college, school or other educational institution in India for the full-time education of up to two children qualify under section 80C, within the overall ₹1.5 lakh limit. From Tax Year 2026-27 this is section 123 of the Income-tax Act, 2025.
  • Development fees, donations, transport, uniform, stationery and similar charges do not qualify.
  • Part-time courses and fees paid for yourself, your spouse or other relatives do not qualify. Fees paid to an institution outside India do not qualify.
  • The fee must have been paid in the year.

Example

Ms R has two children, one in a day school and one in a hostel. Her employer pays children education allowance of ₹3,000 a month for each child, and a hostel allowance of ₹9,000 a month for one child. In FY 2026-27 she can exempt ₹72,000 education allowance and ₹1,08,000 hostel allowance in the old regime. If she also pays ₹40,000 as tuition fees, she can claim that under section 123 along with her other 80C investments.

How to claim

  • Give your employer the fee receipts and the declaration in Form 124 (earlier Form 12BB) so the exemption and deduction are allowed while calculating TDS.
  • If you could not, claim them when you file your return. Salaried parents claim the allowance in the salary schedule and the tuition fees in the deductions schedule.
  • Non-salaried parents can claim only the tuition fee deduction.

Frequently asked questions

What is the children education allowance exemption now?

From 01/04/2026, ₹3,000 a month per child, up to two children, in the old tax regime. Up to FY 2025-26 it was ₹100 a month per child.

What is the hostel allowance exemption?

From 01/04/2026, ₹9,000 a month per child, up to two children. Up to FY 2025-26 it was ₹300 a month per child.

Can I claim both the allowance and tuition fees under 80C?

Yes. They are separate benefits: the allowance is an exemption on salary, and the tuition fees are a section 80C deduction.

Does 80C cover school development fees or donations?

No. Only tuition fees for full time education in India, for up to two children.

Are these available in the new tax regime?

No. Both the allowances and the 80C deduction need the old regime.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

What is House Rent Allowance (HRA): Exemption, Calculation and New Rules 2026

Posted on by CA Meet Dhrangadhariya

Last updated: 29 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • HRA is partly or fully tax-free for a salaried employee who pays rent, but only in the old tax regime.
  • The exemption is the lowest of actual HRA, 50% (metro) or 40% (non-metro) of salary, and rent paid minus 10% of salary.
  • From 01/04/2026 the 50% limit applies to eight cities: Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad and Ahmedabad.
  • Landlord PAN is needed if yearly rent exceeds ₹1 lakh. Without HRA, rent can be claimed under section 80GG (section 134 in the new Act), up to ₹60,000 a year.

How to calculate the HRA exemption

1. Take the actual HRA received in the year
↓
2. Take 50% (8 metro cities) or 40% (other cities) of salary
↓
3. Take rent paid minus 10% of salary
↓
4. The lowest of the three is the exempt HRA
↓
5. The rest of the HRA is taxable as salary

House Rent Allowance (HRA) is a part of salary paid by the employer to meet the cost of rented accommodation. A part of it is exempt from tax if you live in a rented house and pay rent, provided you file under the old tax regime. It cannot be claimed in the new regime.

HRA eligibility: who can claim?

Person HRA exemption?
Salaried, with HRA in the salary Yes, in the old regime
Self-employed No, but section 80GG may apply
Salaried without an HRA component No, but section 80GG may apply
Paying rent to parents Yes, with conditions
Paying rent to spouse No
New tax regime No

How is the HRA exemption calculated?

The exempt amount is the lowest of:

  1. The actual HRA received.
  2. 50% of salary if you live in one of the eight metro cities, or 40% of salary elsewhere.
  3. Rent paid minus 10% of salary.

Salary here means basic pay plus dearness allowance, but dearness allowance counts only if the terms of employment provide for it. All other allowances and perquisites are left out. Rent and salary are taken only for the months you actually lived in the rented house. The part of HRA that is not exempt is taxed as salary.

New rules from 01/04/2026

The Income-tax Rules, 2026 (notified on 20/03/2026) apply from 01/04/2026. HRA limits are now in Rule 279, which replaces Rule 2A. Two changes matter for HRA:

  • The 50% limit, earlier given only to Delhi, Mumbai, Chennai and Kolkata, now also covers Bengaluru, Pune, Hyderabad and Ahmedabad, so eight cities in all.
  • The declaration to the employer now asks for the landlord’s relationship to you and other landlord details, The declaration form that replaces Form 12BB is Form 124 (Rule 205 of the 2026 Rules). It asks for the landlord’s name, address, PAN, Aadhaar, relationship with you, if any, and the rent paid.

HRA in the Income-tax Act, 2025

For FY 2025-26 (assessment year 2026-27) HRA is exempt under section 10(13A) of the 1961 Act. From Tax Year 2026-27 it falls under section 11 read with Schedule III of the Income-tax Act, 2025, and the rent deduction for those without HRA (section 80GG) moves to section 134.

Example of HRA calculation

Mr Anwar pays rent of ₹18,000 a month in FY 2025-26. His basic salary is ₹27,000 a month (₹3,24,000 a year) and his HRA is ₹1,62,000 a year. He is under the old regime. The calculation below uses the metro (50%) limit and the non-metro (40%) limit.

Particulars Metro city Other city
Actual HRA ₹1,62,000 ₹1,62,000
50% or 40% of salary (₹3,24,000) ₹1,62,000 ₹1,29,600
Rent paid (₹2,16,000) less 10% of salary (₹32,400) ₹1,83,600 ₹1,83,600
Exempt HRA (lowest) ₹1,62,000 ₹1,29,600
Taxable HRA Nil ₹32,400

If Mr Anwar opts for the new regime, the whole HRA of ₹1,62,000 is taxed at slab rates.

Old regime or new regime?

Choose the old regime only if the total of HRA, 80C, 80D, home loan interest and other deductions is large enough to beat the lower slabs of the new regime. High rent in a metro city and a high HRA make the old regime more attractive. Low rent and few deductions usually favour the new regime.

Documents for HRA

You need not file proofs with the return, but keep them for your employer and for any notice from the department:

  1. Rent receipts.
  2. Rent agreement.
  3. Bank proof of rent payment.
  4. The rent declaration given to your employer (Form 12BB until 31/03/2026).
  5. Salary slip showing HRA.
  6. Landlord’s PAN, if the rent in the year is more than ₹1,00,000.

If the landlord has no PAN, get a declaration to that effect from the landlord, as provided in CBDT Circular 8/2013 dated 10/10/2013.

Special cases

Rent paid to parents

You can claim HRA for rent paid to your parents if you genuinely pay it, for example by bank transfer, and your parents declare it as rental income in their return. Rent paid to a spouse is not allowed.

HRA and home loan together

If you own a house in one city and pay rent in another, for example because of a job transfer, you can claim both the HRA exemption and home loan interest. Conditions apply if both are in the same city, so take advice.

Rent deduction if you do not get HRA: section 80GG

Self-employed persons and employees who get no HRA can claim rent paid under section 80GG (section 134 from Tax Year 2026-27), in the old regime only. The deduction is the lowest of:

  • ₹5,000 a month, that is ₹60,000 a year,
  • 25% of adjusted total income, or
  • rent paid minus 10% of adjusted total income.

You (and your spouse and minor children) must not own a residential house at the place where you live or work, and you must file Form 10BA (Form 31 under the 2026 Rules from 01/04/2026) as a declaration.

Frequently asked questions

Is HRA available in the new tax regime?

No. The HRA exemption can be claimed only under the old tax regime.

Which cities get the 50% HRA limit?

From 01/04/2026: Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad and Ahmedabad.

Is landlord PAN required?

Yes, if the rent paid in the year is more than ₹1,00,000. If the landlord has no PAN, a declaration to that effect from the landlord is needed.

Can I claim HRA for rent paid to my parents?

Yes, if you actually pay the rent and your parents show it as income in their return. Rent paid to a spouse is not allowed.

Can I claim HRA and home loan interest together?

Yes, if the conditions are met, for example when you live in a rented house in one city and own a house in another.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Special Allowance in Salary: How It Is Taxed and Which Allowances Are Exempt

Posted on by CA Meet Dhrangadhariya

Last updated: 29 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A “special allowance” shown in a salary slip is taxable as salary unless it is one of the allowances the law names as exempt.
  • Exempt allowances include travel on tour or transfer, daily charges, conveyance in duties, helper, research and uniform allowances, up to actual expenditure, and fixed-limit allowances such as children’s education (₹3,000 a month per child from 01/04/2026).
  • In the new tax regime only the travel, daily charge and conveyance allowances (and the disabled employee transport allowance) stay exempt; the rest need the old regime.
  • The list is in Schedule III of the Income-tax Act, 2025 and Rule 280 of the Income-tax Rules, 2026.

Many salary slips show a line called “special allowance”. It is usually a balancing amount that the employer adds to reach the agreed total pay. For tax, the name does not matter. The allowance is taxable as salary unless the law specifically names it as exempt.

Which allowances are exempt?

Until FY 2025-26 the exemptions were under section 10(14) of the Income-tax Act, 1961 and Rule 2BB. From Tax Year 2026-27 they are in Schedule III (Table Sl. Nos. 12 and 13) of the Income-tax Act, 2025, and Rule 280 of the Income-tax Rules, 2026.

Exempt up to the actual expenditure (Schedule III, Sl. No. 12)

Allowance Exempt up to
Travel on tour or transfer, and transfer, packing and transportation of personal effects Actual expense
Daily charges while away from the normal place of duty on tour or transfer Actual expense
Conveyance in the performance of duties (no free conveyance from the employer) Actual expense
Helper engaged for the performance of duties Actual expense
Academic, research and training pursuits in educational and research institutions Actual expense
Purchase or maintenance of uniform Actual expense

Exempt up to a fixed limit (Schedule III, Sl. No. 13), from 01/04/2026

Allowance Exempt amount
Children education allowance ₹3,000 a month per child, up to two children
Hostel expenditure allowance ₹9,000 a month per child, up to two children
Transport allowance for a blind, deaf and dumb or orthopaedically disabled employee ₹15,000 a month plus dearness allowance (metro cities) or ₹8,000 plus dearness allowance (other cities)
Transport business employee (no daily allowance) 70% of the allowance, up to ₹25,000 a month
Underground mine allowance 15% of basic pay
Special compensatory (remote locality), tough location allowances ₹1,500, ₹4,500 or ₹7,000 a month, depending on the place
Compensatory field area allowance ₹13,500 a month in notified areas
Compensatory modified field area allowance ₹8,000 a month in notified areas
Island duty allowance (Andaman and Nicobar, Lakshadweep) 10%, 16% or 20% of basic pay, depending on the area
Armed forces allowances: counter-insurgency, highly active field area, high altitude, Siachen ₹22,000, ₹22,000, ₹4,500 to ₹30,000 and ₹42,500 a month

Up to FY 2025-26 the old limits applied, for example ₹100 a month per child for education, ₹300 for hostel, ₹3,200 for the disabled employee’s transport allowance and 70% up to ₹10,000 for transport business employees.

What stays exempt in the new tax regime?

Under section 202 of the Income-tax Act, 2025 the new regime does not give most exemptions under Schedule III Sl. Nos. 12 and 13, except those prescribed. Rule 280(3) prescribes the allowances for travel on tour or transfer, packing and transport of effects, daily charges, conveyance in duties, and the disabled employee’s transport allowance. Helper, research, uniform, children education, hostel and the other fixed-limit allowances need the old regime.

When is a special allowance taxable?

  • A plain “special allowance”, a fixed allowance, a city compensatory allowance, dearness allowance and an allowance that you can spend as you wish are all taxable.
  • An exempt allowance becomes taxable if it does not meet the conditions of the rule, for example conveyance allowance when the employer gives a free car.
  • HRA has its own rules under the HRA exemption.

Does restructuring your salary help?

Under the old regime, if your employer pays genuine exempt allowances (for example uniform or children education), the exempt part reduces taxable salary. Moving amounts from taxable special allowance to exempt allowances you do not actually qualify for gives no benefit and can create a tax demand. Work out your tax under both regimes before you decide.

Examples

  1. Ms V has a “special allowance” of ₹10,000 a month in her slip. It is not named in the rule, so it is fully taxable.
  2. Mr C is a public sector doctor posted at a tribal area medical camp and gets a notified special compensatory allowance. It is exempt up to the limit for that place, in the old regime.
  3. Ms S gets children education allowance for two children. From 01/04/2026, up to ₹3,000 a month per child (₹72,000 a year for two) is exempt in the old regime, and ₹9,000 a month per child (₹2,16,000 a year for two) for hostel allowance.

Frequently asked questions

Is special allowance taxable?

Yes, a general special allowance shown in the salary slip is taxable as salary. It is exempt only if it matches one of the allowances listed in the rules and you meet the conditions.

Can I save tax by increasing allowances in my salary?

Only if the allowances are genuinely exempt and you spend them (or fall within a fixed limit) and you are in the old regime. A plain special allowance does not save tax.

Which allowances stay exempt in the new regime?

Allowances for travel on tour or transfer, daily charges while travelling, conveyance in the performance of duties, and the transport allowance of a disabled employee.

Where is the list of exempt allowances?

In Schedule III (Sl. Nos. 12 and 13) of the Income-tax Act, 2025 and Rule 280 of the Income-tax Rules, 2026.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Corporate Social Responsibility under Section 135 of the Companies Act, 2013: Applicability, CSR Committee, 2% Spend, Unspent Amount and Penalty

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • CSR applies to a company with a net worth of Rs 500 crore or more, turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more in the immediately preceding financial year.
  • Such a company has a CSR Committee of three or more directors (at least one independent, or two or more directors where no independent director is required), unless its CSR obligation is up to Rs 50 lakh, in which case the Board does the committee’s work.
  • The Board must ensure that at least 2% of the average net profits of the three preceding financial years is spent under the CSR policy, with preference to the local area.
  • Unspent amounts go to a Schedule VII fund within six months, or, for an ongoing project, to the Unspent CSR Account within 30 days of year end and be spent within three years. Penalty is twice the amount or Rs 1 crore (company) and one-tenth or Rs 2 lakh (officer), whichever is less.

Section 135 of the Companies Act, 2013 makes corporate social responsibility (CSR) a legal obligation for larger companies. It tells you who is covered, who in the company must decide, how much must be spent, and what happens to money that is not spent.

Who is covered (section 135(1))

Every company having, during the immediately preceding financial year:

  • a net worth of Rs 500 crore or more, or
  • a turnover of Rs 1,000 crore or more, or
  • a net profit of Rs 5 crore or more.

Meeting any one of the three tests is enough.

CSR Committee (section 135(1), (2), (9))

  • A CSR Committee of the Board of three or more directors, of whom at least one is an independent director. A company that is not required to appoint an independent director under section 149(4) has two or more directors on it.
  • The Board’s report discloses the composition of the Committee.
  • If the amount the company must spend does not exceed Rs 50 lakh, the company need not constitute the Committee, and the Board of Directors performs its functions.

What the Committee and the Board do (section 135(3) and (4))

The Committee formulates and recommends to the Board a CSR Policy indicating the activities to be undertaken in the areas or subjects specified in Schedule VII, recommends the amount of expenditure, and monitors the policy from time to time.

The Board, after considering the Committee’s recommendations, approves the CSR Policy, discloses its contents in its report and places it on the company’s website, and ensures that the activities in the policy are undertaken.

How much must be spent (section 135(5))

The Board ensures that the company spends in every financial year at least 2% of the average net profits made during the three immediately preceding financial years (or, if the company has not completed three years since incorporation, during the immediately preceding years), in pursuance of its CSR Policy.

  • “Net profit” is calculated as per section 198, and does not include such sums as are prescribed.
  • Preference is given to the local area and areas around it where the company operates.
  • Set-off: if a company spends more than required, it can set off the excess against the requirement for succeeding financial years, in the prescribed number of years and manner.

Unspent amount

Situation What the company must do
Amount not spent and not related to an ongoing project State the reasons in the Board’s report, and transfer the unspent amount to a Fund specified in Schedule VII within six months of the end of the financial year
Amount unspent for an ongoing project meeting the prescribed conditions Transfer it within 30 days from the end of the financial year to a special account called the Unspent Corporate Social Responsibility Account in a scheduled bank, and spend it within three financial years from the date of the transfer
Ongoing project amount still unspent after three financial years Transfer it to a Schedule VII Fund within 30 days from the completion of the third financial year

Penalty (section 135(7))

If the company defaults in complying with section 135(5) or (6):

  • the company is liable to a penalty of twice the amount required to be transferred to the Fund or the Unspent CSR Account, or Rs 1 crore, whichever is less; and
  • every officer in default is liable to a penalty of one-tenth of that amount, or Rs 2 lakh, whichever is less.

The Central Government may give general or special directions to a company or class of companies to ensure compliance (section 135(8)).

A short checklist

  1. Test the three thresholds on the previous year’s financials every year.
  2. Constitute the CSR Committee (or let the Board act if the obligation is Rs 50 lakh or less), and approve the CSR Policy.
  3. Work out the obligation: 2% of the average net profit of the last three years, with net profit computed under section 198.
  4. Plan projects under Schedule VII areas, with preference for the local area, and decide which are ongoing projects.
  5. Before year end, estimate unspent amounts. Transfer to the Unspent CSR Account (30 days) or the Schedule VII Fund (six months) on time.
  6. Report the policy, the composition of the Committee, the amount spent, and the reasons for any shortfall in the Board’s report.

Points to check

  • This post follows the Companies Act as published on India Code, including its amendments up to the footnotes in that edition. The Companies (Corporate Social Responsibility Policy) Rules, 2014 as amended contain the definition of “ongoing project”, the sums excluded from net profit, the set-off period, impact assessment requirements for larger spenders, the CSR-1 registration and annual action plan, and Schedule VII lists the permitted activities. These were not reviewed for this post.
  • The statutory auditor reports on CSR transfers under clause (xx) of the Companies (Auditor’s Report) Order, 2020.
  • The tax treatment of CSR expenditure and of dividend under the Income-tax law is not covered in this post.

Frequently asked questions

Which companies must do CSR?

Every company having, during the immediately preceding financial year, a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more.

How much must be spent?

At least 2% of the average net profits of the company made during the three immediately preceding financial years (or the immediately preceding years, if the company is younger than three years), in pursuance of its CSR Policy. Net profit is calculated as per section 198, excluding the sums prescribed.

Is a CSR Committee compulsory?

A company covered by section 135(1) constitutes a CSR Committee of three or more directors, with at least one independent director (a company not required to have an independent director has two or more directors on it). Where the amount to be spent does not exceed Rs 50 lakh, the committee is not required and the Board of Directors performs its functions.

What are the Committee and Board responsible for?

The Committee formulates the CSR Policy (activities in the areas in Schedule VII), recommends the expenditure and monitors the policy. The Board approves the policy, discloses its contents in its report and on the website, and ensures the activities are undertaken.

What if the amount is not fully spent?

If it does not relate to an ongoing project, the unspent amount is transferred to a Fund specified in Schedule VII within six months of the end of the financial year, and the Board’s report gives the reasons for not spending. If it relates to an ongoing project, it is transferred within 30 days from the year end to the Unspent CSR Account and must be spent within three financial years, failing which it goes to a Schedule VII fund within 30 days after the third year.

Can excess spending be carried forward?

Yes. If a company spends more than required, it may set off the excess against the requirement for the succeeding financial years in the prescribed manner and number of years.

What is the penalty for default?

The company is liable to a penalty of twice the amount required to be transferred to the Fund or the Unspent CSR Account, or Rs 1 crore, whichever is less. Every officer in default is liable to one-tenth of that amount or Rs 2 lakh, whichever is less.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.