Category: Income Tax

Sign-On Bonus Repaid to the Old Employer: Can You Deduct It From Salary? (ITAT Chennai)

Posted on by CA Meet Dhrangadhariya

Last updated: 03 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A sign-on bonus is salary and is taxed when you receive it.
  • In S.S.N. Ravi v ACIT (ITAT Chennai, 06/05/2016), an employee who repaid a ₹25 lakh sign-on bonus to his old employer on leaving early was not allowed to reduce his taxable salary by that amount.
  • The Tribunal held that the bonus was a revenue receipt, he left voluntarily, and the Act has no provision to deduct such a repayment from salary.
  • Section 19 of the Income-tax Act, 2025 lists the deductions from salary, and a repaid bonus is not one of them.

A sign-on bonus is a payment to attract you to a job. Most contracts add a clawback: if you leave within a year, you repay it. The tax question that follows is a hard one. You were taxed on the bonus when you got it. Can you reduce your taxable salary when you pay it back?

The tax position on receipt

A sign-on bonus is paid by the employer because of the employment. That makes it salary. Section 16 of the Income-tax Act, 2025 says salary includes wages, fees or commission, perquisites and profits in lieu of salary, and a joining bonus falls in these. The employer deducts TDS under section 392 when it pays the bonus.

The case: S.S.N. Ravi v ACIT

Forum and date: Income Tax Appellate Tribunal, Chennai, order dated 06/05/2016, I.T.A. No. 933/Mds/2015, assessment year 2008-09.

Facts

  • The taxpayer joined Barclays in November 2006 and received a sign-on bonus of ₹25 lakh in FY 2006-07, which he included in his income of that year.
  • The bonus was repayable if he left within one year.
  • He left on 31/10/2007, before the year was complete, and moved to Deutsche Bank. Deutsche Bank paid him ₹25 lakh, which he used to repay Barclays.
  • In his return for FY 2007-08 he reduced his salary by ₹25 lakh. The Assessing Officer added it back.

Decision. The Tribunal dismissed the appeal. In short:

  • The sign-on bonus is a revenue receipt of the nature of employment income.
  • The employee left voluntarily; he was not terminated.
  • Section 17(1) of the 1961 Act made no provision for reducing salary by a refund of the bonus.
  • The amount that the new employer paid to cover the repayment could not be treated as compensation for the lost bonus.
  • The ₹25 lakh could not be reduced from taxable income.

The position under the Income-tax Act, 2025

The 2025 Act has the same structure. Section 19(1) lists the deductions from salary: professional tax, the standard deduction, the retirement exemptions (gratuity, commutation of pension, leave encashment and similar) and compensation items. A repayment of a bonus is not in that list.

The ruling is a Tribunal order on its facts, in a case where the employee left voluntarily and a new employer paid the sum. Do not treat it as settling every repayment: a different fact pattern could be argued differently.

Practical points

  1. Read the clawback clause before you sign. Check the repayment period and whether the repayment is of the gross amount or of the amount net of tax.
  2. If your new employer reimburses the repayment, remember that the reimbursement is a payment from an employer, so expect it to be taxed as salary, with no deduction for the amount you repay.
  3. Take advice before claiming a deduction for a repaid bonus. If you claim it, keep the contract, the repayment proof and the old employer’s acknowledgement.

Frequently asked questions

Is a sign-on bonus taxable?

Yes. It is a payment from the employer in connection with employment, so it is salary under section 16 of the Income-tax Act, 2025 and taxed in the year you receive it, with TDS.

Can I deduct a sign-on bonus that I repay to my old employer?

The Chennai Tribunal held that you cannot reduce your taxable salary by a repaid sign-on bonus when the employee left voluntarily. The Act does not provide a deduction for the repayment.

Does it matter that my new employer reimbursed the repayment?

In S.S.N. Ravi the new employer paid the employee the amount to repay. The Tribunal treated it as a revenue receipt, not a capital receipt, and the employee was taxed on it as well.

Which case is this?

S.S.N. Ravi, Chennai v ACIT, ITAT Chennai, order dated 06/05/2016, I.T.A. No. 933/Mds/2015, assessment year 2008-09.

What should I do before signing a sign-on bonus clause?

Read the clawback terms and ask who bears the tax if you have to repay. If a new employer will reimburse the repayment, ask for advice on how that payment will be taxed in your hands.

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.

Income Tax Refund: How It Is Claimed, Interest on Refund, Set-Off and Tax on the Interest (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 25 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A refund is due when tax paid, including TDS, TCS and advance tax, is more than the tax properly chargeable (section 431), and it is claimed only by filing a return under section 263 (section 433).
  • The department pays simple interest at 0.5% for every month or part of a month (section 437): from 1 April of the next year if the return is filed by the due date, and from the date of filing if it is filed late.
  • No interest is paid if the refund is less than 10% of the tax determined on the return.
  • The refund is not income, but the interest on it is taxed as income from other sources.
  • The department can set the refund off against any tax still payable and may hold it for up to 60 days after a pending assessment is made.

A refund arises when you have paid, or had deducted, more tax than you owe. Chapter XX of the Income-tax Act, 2025 (sections 431 to 438) says who gets it, how it is claimed and what interest is paid. This post covers those rules for tax year 2026-27.

When a refund is due

Section 431: where the tax paid by you or on your behalf, or treated as paid by you, for a tax year exceeds the amount with which you are properly chargeable, you are entitled to a refund of the excess. The tax paid includes TDS, TCS, advance tax and self-assessment tax.

If the income of one person is included in another’s total income, only the latter can claim the refund for that income (section 432(1)). If a person cannot claim a refund because of death, incapacity, insolvency or liquidation, his legal representative, trustee, guardian or receiver can claim it for the benefit of the person or the estate (section 432(2)).

How to claim

Every claim for refund is made by furnishing a return under section 263 (section 433). A salaried person whose employer deducted more tax than needed, a person whose TDS is higher than tax, or a person who paid excess advance tax shows the excess as refund in the return. A return filed late can still claim a refund, subject to the time limits for returns (see our post on belated, revised and updated returns).

The refund is paid after the return is verified and processed. The department credits it to your bank account, so the bank details in your return must be correct. Track the status on the e-filing portal.

Interest on refund (section 437)

The department pays simple interest at 0.5% for every month or part of a month.

Refund out of Interest runs
TDS, TCS or advance tax paid in the financial year From 1 April of the year following the tax year to the date of refund, if the return was filed on or before the due date; from the date of filing the return to the date of refund, in any other case
Tax paid under section 266 (self-assessment tax) From the date of the return or of payment of tax, whichever is later, to the date of refund
Any other case (tax or penalty paid in excess of a notice of demand) From the date of excess payment to the date of refund

No interest is payable on a refund of TDS, TCS, advance tax or self-assessment tax if the refund is less than 10% of the tax determined on processing the return or on regular assessment (section 437(2)).

Example. Tax year 2026-27. Tax on your return is ₹60,000; TDS is ₹80,000, so the refund is ₹20,000, which is 33% of the tax. You file on time, and the refund is credited on 15/09/2027.

  • Interest runs from 1 April 2027 to 15 September 2027: April, May, June, July, August and part of September, which is 6 months.
  • Interest = 0.5% × 6 × ₹20,000 = ₹600.

If you file after the due date, interest runs only from the date of filing.

Is the refund taxable?

  • The refund of tax is not income. It is only a return of tax you had already paid.
  • The interest on the refund is income and is taxed under the head Income from other sources (section 92(1)), at your slab rate. Report it in the return for the year in which you receive it, as part of your interest income, and take credit for any TDS shown against it.

Example. The ₹600 interest above is added to your income. At a 30% slab with 4% cess, the tax is 600 × 30% × 1.04 = ₹187.

Set-off and withholding (section 438)

  • The department may, instead of paying the refund, set it off against any sum remaining payable by you under the 1961 Act or the 2025 Act. It must first give you written intimation of the proposed action. Reply to that intimation if you dispute the demand or have already paid it.
  • If a refund is due and an assessment or reassessment is pending, the Assessing Officer may withhold the refund, for reasons recorded in writing and with the previous approval of the Principal Commissioner or the Commissioner, up to 60 days from the date on which the assessment or reassessment is made.

Refund on appeal

If an appeal or other proceeding results in a refund, the Assessing Officer must refund it without your making a claim (section 435(1)), except in the cases in the section such as a fresh assessment being directed, where the refund becomes due only when the fresh assessment is made.

Why a refund may be late

Interest at 0.5% a month compensates for delay in paying a refund. Common reasons for delay:

  • the return is not e-verified, so it is not processed;
  • TDS shown in the return does not match the TDS statements, and the department adjusts it;
  • an outstanding demand for another year, which may be adjusted against the refund;
  • bank account details that do not match;
  • a pending assessment or scrutiny, which can hold the refund for up to 60 days after the assessment is made.

Check the intimation you receive after processing, and respond on the portal if you disagree. If a refund has been issued but not received because of a bank issue, you can ask for it to be re-issued through the portal.

Points to remember

  1. Claim a refund only by filing the return; there is no other route (section 433).
  2. File on time. A timely return earns interest from 1 April of the next year; a late one only from the date of filing.
  3. Interest on refund is taxable; the refund is not.
  4. A refund of less than 10% of the tax earns no interest.

Frequently asked questions

How do I claim an income tax refund?

File a return of income under section 263. A claim for refund can be made only by furnishing a return (section 433). If TDS, TCS or advance tax exceeds your liability, the excess is shown as refund in the return.

How much interest do I get on a refund?

Simple interest at 0.5% for every month or part of a month (section 437). For refund of TDS, TCS or advance tax, it runs from 1 April of the year after the tax year to the date of refund if you filed on time, or from the date of filing if you filed late.

When is no interest paid?

When the refund is less than 10% of the tax determined on processing the return or on regular assessment (section 437(2)), in the cases of TDS, TCS, advance tax and self-assessment tax refunds.

Is a refund taxable?

The refund of tax is not income. The interest you receive on it is taxable as income from other sources, at your slab rate (section 92).

Can the department keep my refund?

It can set off the refund against any tax still payable under the 1961 Act or the 2025 Act, after giving you written intimation (section 438(1) and (2)). If an assessment is pending it may withhold the refund for up to 60 days from the date the assessment is made, for recorded reasons and with approval (section 438(3)).

Who claims the refund of a person who has died?

The legal representative, trustee, guardian or receiver, for the benefit of the person or his estate (section 432(2)).

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.

Set-Off and Carry Forward of Losses: Business, House Property, Capital Gains and Depreciation (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 20 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A loss is set off first within the same head, then against income under other heads, then carried forward (sections 108 to 115 of the Income-tax Act, 2025).
  • House property loss: ₹2 lakh against other heads, balance for 8 years against house property income. Business loss: against any head except salary, then for 8 years against business profits. Speculation loss: 4 years, only against speculation profit. Capital loss: not against other heads; 8 years against capital gains.
  • Unabsorbed depreciation carries forward without any time limit (section 33(11)).
  • Business, capital gains and speculation losses can be carried forward only if the return of the loss year was filed by the due date (section 121); a company with a change of 51% or more in voting power loses its brought forward losses (section 119).

A loss reduces tax only if it can be set off or carried forward. The Income-tax Act, 2025 deals with this in Chapter VII (sections 108 to 121). The sections replace sections 70 to 80 of the 1961 Act.

Step 1: set off within the same head (section 108)

If the result from one source under a head (other than capital gains) is a loss, it is set off against income from any other source under the same head in the same tax year. For capital gains (section 108(2)):

  • a short-term capital loss is set off against any capital gain, short-term or long-term;
  • a long-term capital loss is set off only against long-term capital gains.

Step 2: set off against other heads (section 109)

If a head (other than capital gains) shows a loss after step 1, it is set off against income under any other head, including capital gains, with two limits:

  • a business or profession loss cannot be set off against salary (section 109(1)(a));
  • a house property loss can be set off against other heads only up to ₹2,00,000 (section 109(1)(b)).

A capital loss cannot be set off against any other head (section 109(2)).

Step 3: carry forward

Loss Carry forward Set off against Section
House property 8 tax years House property income only 110
Capital gains 8 tax years Capital gains, short-term loss against any gain, long-term loss against long-term gains 111
Business or profession (not speculation) 8 tax years Profits of any business or profession 112
Speculation business 4 tax years Profits of speculation business only 113
Specified business under section 46 Not limited in the text Profits of another specified business only 114
Specified activity (owning and maintaining race horses) 4 tax years Income from that activity only 115
Unabsorbed depreciation No time limit Added to the depreciation of the next year, effect first being given to the business loss under section 112(3) 33(11)

Order of set off: brought forward business loss is given effect first; any unabsorbed depreciation is then added to the next year’s depreciation (section 112(3)).

The eight years are counted from the year after the year in which the loss was first computed (“eight tax years immediately succeeding”).

Conditions

File the return on time (section 121)

Irrespective of anything contained in the Chapter, a loss that has not been determined in a return filed under section 263(1) cannot be carried forward and set off under sections 111(1), 112(1), 113(2), 114(2) or 115(2). That is, to carry forward a capital gains, business, speculation, specified business or specified activity loss, the return of the loss year must be filed by the due date, and the loss must be shown in it.

House property loss (section 110) and unabsorbed depreciation (section 33(11)) are not in the list of section 121.

Changes in constitution (section 119)

  • Partner leaves or dies: the firm cannot carry forward the portion of the loss proportionate to a retired or deceased partner’s share that exceeds his share of profits in the year (section 119(1)).
  • Succession of business: where a business or profession is taken over by another person other than by inheritance, only the person who incurred the loss can carry it forward (section 119(2)).
  • Change in shareholding of a company (a company in which the public are not substantially interested): the loss of an earlier year can be set off only if, on the last day of the tax year, shares carrying at least 51% of the voting power are beneficially held by the same persons who held at least 51% on the last day of the year in which the loss was incurred (section 119(3)(a)).
    - Eligible start-ups (section 140) can carry forward losses incurred in the first ten years from incorporation if all the shareholders on the last day of the loss year continue to hold their shares at the end of the current year (section 119(3)(b)).
    - The rule does not apply when the change is due to the death of a shareholder, a gift to a relative, certain amalgamations or demergers of a foreign parent, and the other cases in section 119(4).

Reorganisations

On amalgamation or demerger of specified companies, the accumulated losses and unabsorbed depreciation pass to the successor if the conditions of sections 116 to 118 are met (an industrial undertaking or a ship or hotel company amalgamated with another company, public sector company amalgamations, a firm or proprietorship succeeded by a company, and others).

New regimes and loss set-off

A person who is taxed under the new regime (section 202), or under the concessional rates for companies and co-operative societies (sections 200, 201, 203, 204), computes income without certain deductions and without set off of losses or depreciation attributable to them; those losses are deemed to have been given effect to and lapse. House property loss cannot be set off against other heads in the new regime (section 202(2)(b)(ii)). See our posts on the regime option and on corporate tax.

Examples

1. Order of set off. Tax year 2026-27, old regime. Salary ₹10,00,000, house property loss ₹2,50,000, business loss ₹3,00,000, no other income.

  • House property loss: only ₹2,00,000 can be set off against other heads, here against salary, leaving taxable salary of ₹8,00,000. The other ₹50,000 is carried forward for 8 years against house property income.
  • Business loss: cannot be set off against salary. The whole ₹3,00,000 is carried forward for 8 years against business profits, provided the return is filed by the due date.

2. Unabsorbed depreciation. Profit before depreciation ₹3,00,000, depreciation ₹5,00,000: ₹3,00,000 is allowed, ₹2,00,000 is carried forward with no time limit.

3. Late return. Business loss of ₹4,00,000 in tax year 2026-27, return filed on 15/12/2027 (belated). Under section 121, the loss cannot be carried forward, because the return was not under section 263(1). It could still have been set off in 2026-27 against other income (not salary).

Practical points

  • Always file the return on time in a loss year, even if no tax is due.
  • Show the loss in the loss schedules of the return, by year of origin.
  • Track expiry: the 8 year clock runs from the year the loss was computed.
  • A company should watch the 51% shareholding test at each change in ownership.

Frequently asked questions

In what order are losses set off?

First against other income under the same head in the same year (section 108), then against income under other heads, subject to the limits (section 109), and the balance is carried forward (sections 110 to 115).

Can a business loss be set off against salary?

No. A loss under Profits and gains of business or profession cannot be set off against salary income (section 109(1)(a)). It can be set off against other heads, such as house property, capital gains or other sources.

For how long can a business loss be carried forward?

For eight tax years immediately after the year in which it was first computed, against profits of any business or profession (section 112). A speculation loss can be carried forward for four years, only against speculation profits (section 113).

Does unabsorbed depreciation lapse?

No. It is added to the depreciation allowable in the next year and so on, without a time limit (section 33(11)).

Do I need to file the return on time to carry forward a loss?

For losses under sections 111, 112, 113, 114 and 115 (capital gains, business, speculation, specified business and specified activity), yes: a loss not determined in a return filed under section 263(1) by the due date cannot be carried forward and set off (section 121).

What happens to a company’s losses if the shareholding changes?

For a company in which the public are not substantially interested, a loss of an earlier year cannot be set off against the income of a year in which the shareholders holding 51% of the voting power on the last day of the loss year no longer hold that 51% on the last day of the current year. Eligible start-ups have an exception (section 119(3)).

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 Tax Rates for Tax Year 2026-27: 25%, 22%, 15% Regimes, MAT at 14% and AMT

Posted on by CA Meet Dhrangadhariya

Last updated: 25 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A domestic company pays 25% if its turnover in tax year 2024-25 was up to ₹400 crore and 30% otherwise (Finance Act, 2026), or can opt for 22% under section 200 (earlier 115BAA); a new manufacturing company set up from 1 October 2019 that began production by 31 March 2024 can pay 15% under section 201 (earlier 115BAB).
  • The option under sections 199 to 201 must be exercised by the return due date and cannot be withdrawn; these companies give up most deductions and the related carry forward losses.
  • Minimum alternate tax is now 14% of book profit (earlier 15%), does not apply to a company that opted for section 200 or 201, and from 1 April 2026 gives no new credit; old MAT credit can be used up to 25% of tax payable.
  • Non-corporate persons claiming certain deductions pay alternate minimum tax at 18.5% of adjusted total income, with credit carried forward for 15 years.

A company’s tax depends on which regime it is in. For tax year 2026-27, the Income-tax Act, 2025 and the Finance Act, 2026 give a base rate and three concessional options, plus minimum alternate tax for companies that pay little regular tax. This post summarises them.

Base rates (Finance Act, 2026)

Company Rate
Domestic company whose total turnover or gross receipts in tax year 2024-25 did not exceed ₹400 crore 25%
Other domestic company 30%
Company other than a domestic company (foreign company) 35% on the balance of income (50% on specified old royalty and technical fee agreements)
Firm and local authority 30%

Surcharge (companies): domestic company, 7% if total income exceeds ₹1 crore and does not exceed ₹10 crore, and 12% above ₹10 crore; a company that opts for section 200 or 201, a flat 10%; foreign company, 2% above ₹1 crore up to ₹10 crore and 5% above ₹10 crore; and a firm 12% above ₹1 crore. Cess is 4%.

The concessional options

Section 200 (earlier 115BAA): 22%

Any domestic company may opt to pay 22%, if its total income is computed:

  • without the deductions under Chapter VIII (other than section 146 for new employment and section 148 for inter-corporate dividends), section 45(2) or 47(1)(b), or the sections listed in section 205(1)(a) to (g); and
  • without set-off of brought forward loss or depreciation attributable to those deductions (section 200(1)).

Those losses and depreciation are treated as having been given full effect, so they lapse (section 200(3)). The option:

  • must be exercised on or before the due date for the first return the company must file (section 200(5));
  • cannot be withdrawn once exercised (section 200(6)); and
  • becomes invalid from the year in which the company fails to meet the conditions, after which the general rules apply (section 200(2)).

MAT does not apply to a company that has exercised this option (section 206(1)(q)(ii)).

Section 201 (earlier 115BAB): 15% for new manufacturing companies

A domestic company engaged in manufacture or production of an article or thing can opt for:

Income Rate
Total income other than the items below 15%
Income not derived from or incidental to manufacturing or production, with no specific rate under other provisions (no expenditure deduction) 22%
Short-term capital gains on assets on which no depreciation is allowable 22%
Income deemed under section 205(4) 30%

Conditions: the option is exercised on or before the due date for the first return; the company was set up and registered on or after 1 October 2019; it commenced manufacturing or production on or before 31 March 2024; total income is computed without the deductions as for section 200; and the conditions in section 201(5) and section 205(2) are fulfilled. Because of the cut-off date for starting production, this option is closed for new companies.

Section 199: 25% for companies set up from 1 March 2016

A domestic company set up and registered on or after 1 March 2016, engaged only in manufacture or production (and research and distribution of its own products), may opt for 25%, if income is computed without the specified deductions. Since the base rate is 25% for companies up to ₹400 crore turnover, this option is mainly of historical interest. An option under section 199 can be exchanged for section 200 (section 199(4)).

Minimum alternate tax (section 206(1))

Where the tax on a company’s total income is less than the minimum alternate tax (MAT), the book profit is deemed to be total income and the company pays MAT.

  • Rate: 14% of book profit (reduced from 15% by the Finance Act, 2026, from 1 April 2026); 9% for a unit in an International Financial Services Centre earning in foreign exchange.
  • Not applicable to a company that has exercised the option under section 200(5) or 201(2), and to a company with life insurance business income taxed under section 194(1), among others.
  • Book profit is the profit in the statement of profit and loss as prepared under Schedule III of the Companies Act (or the governing enactment), increased by income tax and provision, reserves, provisions for unascertained liabilities, dividends, depreciation, deferred tax and other items listed in section 206(1)(c), and reduced by items such as depreciation (excluding revaluation depreciation), brought forward loss or unabsorbed depreciation (whichever is less), and the other deductions listed there.
  • A report from an accountant certifying the book profit is required before the specified date in section 63.

No new MAT credit; old credit

  • From 1 April 2026, MAT paid gives no credit: the clauses allowing credit for the excess of MAT over regular tax and its carry forward were omitted by the Finance Act, 2026. MAT is effectively a final tax.
  • Credit brought forward from the 1961 Act (section 115JAA) as on 31 March 2026 survives only for a domestic company that opts under section 200(5) or 201(2) for a tax year beginning on or after 1 April 2026. The credit can be set off up to 25% of the tax payable on the total income of the year, and the balance carried forward, but not beyond the 15th tax year from the year the credit first arose (section 206(3)).
  • A foreign company can set off its brought forward credit in a year when its tax exceeds MAT, within the same 15 year limit (section 206(4)).

Alternate minimum tax for non-corporates (section 206(2))

An assessee who is not a company and who claims a deduction under Chapter VIII-C (other than section 149) or section 46 pays alternate minimum tax (AMT) if regular tax is lower:

  • Rate: 18.5% of the adjusted total income; 15% for a co-operative society; 9% for an IFSC unit.
  • Adjusted total income: total income plus the deductions claimed under Chapter VIII-C and under section 46 (reduced by the depreciation allowable on the assets).
  • Does not apply to a person who has opted under section 203(5) or 204(2), a person taxed under section 202(1) (the default new regime), an individual, HUF, AOP or BOI whose adjusted total income is ₹20 lakh or less, and a specified fund.
  • Credit: the excess of AMT over regular tax is carried forward and set off when regular tax exceeds AMT, up to the 15th year, without interest.
  • A report in the prescribed form from an accountant is required before the specified date in section 63.

Choosing a regime

Question Section 200 (22%) Base rate (25% or 30%)
Deductions (for example, Chapter VIII, section 45(2)) Largely not available Available
Losses and unabsorbed depreciation attributable to those deductions Lapse Carried forward
MAT Not applicable Applies if regular tax is lower than 14% of book profit
Reversal Not possible N/A

For most companies without significant deductions, section 200 reduces the rate and removes MAT. A company with large brought forward losses from claimed deductions, or with big incentives, should compare before opting, because the option is irreversible.

Frequently asked questions

What is the corporate tax rate for tax year 2026-27?

For a domestic company, 25% if its total turnover or gross receipts in tax year 2024-25 did not exceed ₹400 crore, otherwise 30%; 22% under section 200 if it opts in; and 15% under section 201 for a qualifying new manufacturing company. A company other than a domestic company pays 35% (Finance Act, 2026). Add surcharge and 4% cess.

Who can opt for the 22% rate under section 200?

Any domestic company, by exercising the option on or before the due date for the first return it must file. It computes income without most deductions and without set-off of losses attributable to them, and cannot later withdraw the option.

What is the 15% rate under section 201?

A domestic company engaged in manufacture or production, set up and registered on or after 1 October 2019, which commenced production by 31 March 2024, and which meets the other conditions in sections 201 and 205. Other income is taxed at 22%, and certain short-term gains and deemed income at special rates.

What is MAT now?

Minimum alternate tax is 14% of book profit (9% for an IFSC unit), reduced from 15% from 1 April 2026. It applies where the company’s regular tax is less than the MAT, and does not apply to a company that has opted for section 200 or 201 (section 206(1)).

Can MAT credit still be claimed?

No fresh MAT credit arises from 1 April 2026, because the credit clauses were omitted. Credit brought forward from the 1961 Act can be set off by a domestic company that has opted under section 200 or 201, up to 25% of the tax payable, and within 15 years of the year in which it arose (section 206(3)).

What is alternate minimum tax?

A tax of 18.5% (15% for a co-operative society, 9% for an IFSC unit) on adjusted total income of a person other than a company who has claimed deductions under Chapter VIII-C or section 46, where regular tax is lower. It does not apply to a person taxed under section 202(1) or whose adjusted total income is up to ₹20 lakh (section 206(2)).

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.

Deductions Allowed Only on Actual Payment: Section 37 (Earlier 43B) and Dues to Micro and Small Enterprises (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

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

Quick summary

  • Section 37 of the Income-tax Act, 2025 allows certain expenses only in the year they are actually paid, whatever the accounting method: taxes, duties and cess, employer’s contribution to provident, superannuation and gratuity funds, leave encashment, interest to specified financial entities, railway dues and dues to micro and small enterprises.
  • Most of these are allowed in the year of accrual if paid on or before the due date for filing the return (section 37(3)); the exception is the amount owed to a micro or small enterprise beyond the time limit in section 15 of the MSMED Act, which is allowed only when it is actually paid.
  • Interest converted into a loan or debenture is not treated as paid.
  • A deduction allowed in the year of accrual is not allowed again when it is paid (section 37(5)).

Many businesses account for expenses when they are incurred, but the Income-tax Act, 2025 allows a short list of expenses as deductions only when they are actually paid. This was section 43B of the 1961 Act, including the clause (h) added in 2023 for dues to micro and small enterprises. It is now section 37.

The rule (section 37(1) and (2))

The sums listed below, which are otherwise allowable as deductions, are allowed while computing business or professional income only in the tax year in which they are actually paid, irrespective of any contrary provision, the method of accounting regularly followed, or the year in which the liability was incurred:

  1. Tax, duty, cess, surcharge or fee, by whatever name called, levied under any law in force.
  2. The employer’s contribution to a provident fund, superannuation fund, gratuity fund or any fund for the welfare of employees.
  3. The amount payable by an employer in lieu of leave at the credit of an employee (leave encashment).
  4. Any sum referred to in section 32(a).
  5. Interest on loans, advances or borrowings from specified financial entities, as per the terms of the loan agreement.
  6. An amount payable to Indian Railways for use of railway assets.
  7. An amount payable to a micro or small enterprise beyond the time limit in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006.

Payment by the return due date (section 37(3))

For items 1 to 6, if the sum is paid after the end of the tax year but on or before the due date for filing the return under section 263(1) for that year, the deduction is allowed in the year in which the liability was incurred. Item 7 (MSME dues) is excluded from this relief.

Example. A company owes ₹4,00,000 as the employer’s PF contribution for March 2027 and pays it on 10 July 2027, before the return due date. The deduction is available for tax year 2026-27, since payment was made by the return due date. If it paid on 15 November 2027, after the due date, the deduction is allowed only in the year of payment, tax year 2027-28.

Dues to micro and small enterprises (item 7)

Under section 15 of the MSMED Act, 2006, a buyer must pay a micro or small enterprise by the agreed date, which cannot be more than 45 days from the day of acceptance of the goods or services, or within 15 days if there is no written agreement. The Income-tax Act adds a tax consequence: an amount that is payable to a micro or small enterprise beyond that time limit is deductible only in the year in which it is actually paid.

  • It applies to micro and small enterprises only, as classified under the MSMED Act (section 66(11) and (30) of the Income-tax Act refer to the classification under that Act). Medium enterprises are not covered.
  • No grace till the return due date. For MSME dues, payment after year end does not bring the deduction back to the earlier year (section 37(3)).
  • The disallowance relates to the amount payable beyond the limit. If the invoice is not yet beyond the limit on the last day of the year, we read the section as not applying to it at that date, but if it remains unpaid after the limit, it falls in the rule. Take advice on year end creditors.

Example. On 31 March 2027, a buyer owes a micro enterprise supplier ₹5,00,000 for an invoice accepted on 1 January 2027. With a 45 day agreement the due date was 15 February 2027, so the dues are beyond the limit at year end. If paid on 20 April 2027, the deduction is for tax year 2027-28, not 2026-27. Had the buyer paid before 31 March 2027, the deduction would be in 2026-27.

Other points

  • Interest converted into a loan (section 37(4)): if interest on a loan from a specified financial entity is converted into a loan, advance, debenture or any other instrument that defers the liability to a future date, it is not treated as paid.
  • No double deduction (section 37(5)): a sum deducted in the year the liability was incurred is not deducted again when paid.
  • Employee contributions (section 37(6)): the section does not apply to a sum received from an employee as a contribution to a fund. The employee’s contribution is dealt with separately in section 29(1)(e), which allows it if credited to the fund by the due date as prescribed.
  • Payment means actual payment. A journal entry or a provision is not payment. A payment by account payee cheque or electronic mode counts.

Practical steps for a business

  1. Keep a list of MSME creditors (check the supplier’s udyam registration), with invoice dates and payment due dates.
  2. Pay MSME dues within 45 days, or within the agreed shorter period, wherever possible.
  3. Pay statutory dues (GST, PF, ESI, professional tax, TDS) before the return due date.
  4. Reconcile year-end creditors and disclose the details in the tax audit report, where an audit is required (see our post on tax audit).
  5. Document the payment date with bank statements.

Frequently asked questions

Which expenses are allowed only on actual payment?

Tax, duty, cess, surcharge or fee levied under any law; the employer’s contribution to a provident, superannuation or gratuity fund or any fund for employees’ welfare; payment in lieu of leave at the credit of an employee; interest on loans from specified financial entities; amounts payable to Indian Railways for use of railway assets; and amounts owed to a micro or small enterprise beyond the time limit in section 15 of the MSMED Act (section 37(2)).

Does a late payment by the return due date still get the deduction?

For all items except dues to micro and small enterprises, payment on or before the due date for filing the return under section 263(1) for that year gives the deduction in the year the liability was incurred (section 37(3)).

What is the rule for MSME dues?

An amount payable to a micro or small enterprise beyond the time limit in section 15 of the MSMED Act is deductible only in the year it is actually paid. Paying it after year end but before the return due date does not bring it back to the earlier year (section 37(3) excludes clause (g)).

What is the time limit in the MSMED Act?

Section 15 requires payment by the agreed date, which cannot be more than 45 days from acceptance of the goods or services, or within 15 days if there is no agreement.

Does it apply to medium enterprises or traders?

The clause covers a micro or small enterprise supplier. It does not cover a medium enterprise.

What about interest converted into a loan?

If interest on a loan from a specified financial entity is converted into a loan, advance, debenture or similar instrument that defers payment, it is not treated as paid (section 37(4)).

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.

Depreciation Under the Income-tax Act 2025: Rates, Block of Assets, Additional Depreciation and Carry Forward (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 17 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Depreciation under section 33 is allowed on buildings, machinery, plant and furniture and on intangible assets such as patents and licences, at a percentage of the written down value (WDV) of the block of assets (Rule 25 and Appendix I).
  • Key rates: residential buildings 5%, other buildings 10%, furniture 10%, plant and machinery 15%, motor cars 15%, buses, lorries and taxis on hire 30%, computers and software 40%, intangibles 25%.
  • An asset put to use for less than 180 days in the year gets half the rate, and new plant and machinery for manufacture or power generation can get additional depreciation of 20% (section 33(8) and (9)), which the new regime for individuals does not allow.
  • Unabsorbed depreciation is carried forward without a time limit and added to the next year’s depreciation (section 33(11)); land and goodwill are not depreciable.

Depreciation is a deduction in computing business or professional income for the wear and tear of assets. It is governed by section 33 of the Income-tax Act, 2025 (earlier section 32), with the rates in Rule 25 and Appendix I of the Income-tax Rules, 2026. It is a tax calculation, separate from the depreciation in the company’s accounts.

What qualifies (section 33(1))

  • Tangible assets: buildings, machinery, plant and furniture.
  • Intangible assets: know-how, patents, copyrights, trademarks, licences, franchises or other similar business or commercial rights, acquired on or after 1 April 1998.
  • The asset must be owned (wholly or partly) by the assessee and used wholly and exclusively for the business or profession.

Not depreciable: land and goodwill of a business or profession. If an asset is used only partly for the business, depreciation is restricted to a fair proportion (section 33(3)(b)).

Depreciation is allowed whether or not you claim it, so the written down value is reduced by the depreciation allowable each year (section 33(7)).

Block of assets and written down value

Assets of the same class with the same rate form a block. Depreciation is a percentage of the written down value of the block (section 33(3)(a)):

WDV = opening WDV + cost of assets bought in the year - sale proceeds of assets sold - depreciation of the year.

Half rate (section 33(4)): if an asset is acquired during the year and used for less than 180 days in that year, the depreciation on it is 50% of the prescribed rate.

Renovation of a leased building (section 33(6)): capital expenditure on a structure or renovation of a leased or occupied building is treated as a building owned by the assessee.

Rates (Rule 25 and Appendix I)

Block Rate on WDV
Buildings mainly for residence (other than hotels and boarding houses) 5%
Other buildings 10%
Purely temporary erections such as wooden structures 40%
Furniture and fittings, including electrical fittings 10%
Machinery and plant (general) 15%
Motor cars (other than those used on hire) 15%
Motor buses, lorries and taxis used on hire 30%
Aeroplanes and aero engines 40%
Computers, including computer software 40%
Containers of glass or plastic used as refills 40%
Energy saving devices, pollution control equipment, certain life saving medical equipment and certain other listed items 40%
Know-how, patents, copyrights, trademarks, licences, franchises (intangibles) 25%

“Buildings” include roads, bridges, culverts, wells and tubewells. A building is “mainly residential” if at least two thirds of its built-up area is used for residence. Assets that the table does not list separately, such as air conditioners, televisions, inverters and mobile phones, fall in the general class of machinery and plant at 15%; a laptop or desktop is a computer at 40%. Check the specific entries for special equipment.

40% ceiling for the new regimes (Rule 25(2)): the depreciation on any block cannot exceed 40% of the WDV for a domestic company that opts for the concessional rate under section 199(3), 200(5) or 201(2), for an individual, HUF, AOP, BOI or artificial juridical person whose income is taxed under section 202(1), and for a co-operative society that has exercised an option under section 203(5) or 204(2).

Additional depreciation (section 33(8) and (9))

For a business of manufacture or production, or generation, transmission or distribution of power, new machinery or plant acquired and installed and first put to use by the assessee gets, in addition:

  • 20% of the actual cost in the year of acquisition and use; or
  • 10% in that year if used for less than 180 days, and 10% more in the next year.

It is not allowed for ships and aircraft, plant that was used by another person before, plant installed in office premises or residential accommodation (including a guest house), office appliances, road transport vehicles, or assets whose whole cost is allowed as a deduction. An individual or HUF in the new regime cannot claim it (section 202(2)(a)(vi)).

Unabsorbed depreciation (section 33(11))

If profits before depreciation are less than the depreciation allowable:

  • depreciation is allowed to the extent of the profits (if there is a loss, none is allowed);
  • the balance is carried forward and added to the depreciation allowable in the next year, and so on, without any time limit; and
  • effect is given first to the brought-forward business loss under section 112(3).

Examples

1. Plant block. Opening WDV ₹10,00,000. In the year you buy plant for ₹2,00,000 and use it for 100 days.

  • Opening block: 15% × 10,00,000 = ₹1,50,000
  • Addition (less than 180 days): 7.5% × 2,00,000 = ₹15,000
  • Depreciation: ₹1,65,000. Closing WDV = 10,00,000 + 2,00,000 - 1,65,000 = ₹10,35,000.
  • If the plant is new and for a manufacturing business, additional depreciation of 10% × 2,00,000 = ₹20,000 is allowed this year, and ₹20,000 next year, other than for individuals in the new regime.

2. Laptop. A laptop costing ₹60,000 is bought in June and used for the rest of the year (more than 180 days). Depreciation at 40% = ₹24,000. WDV = ₹36,000. If bought in January and used for 70 days, depreciation is 20% = ₹12,000.

3. Car. A car for the proprietor’s business costs ₹10,00,000, in use throughout the year. Depreciation at 15% = ₹1,50,000. Taxis used on hire are at 30%.

4. Unabsorbed depreciation. Profit before depreciation ₹3,00,000, depreciation due ₹5,00,000. Depreciation of ₹3,00,000 is allowed and ₹2,00,000 is carried forward, to be added to next year’s depreciation.

Presumptive taxpayers

A presumptive taxpayer under section 58 is deemed to have claimed depreciation every year, and the written down value is computed on that basis (section 58(6)). No separate depreciation is claimed (see our post on presumptive taxation).

Practical points

  1. Keep a fixed asset register by block, with the date of purchase and the date of first use (for the 180 day test).
  2. Do not mix tax depreciation with the book depreciation under the Companies Act, 2013. The tax is the block system above.
  3. Sale of an asset reduces the block’s WDV; if the sale price exceeds the block’s WDV plus additions, a short-term capital gain arises, as in our post on depreciable assets.

Frequently asked questions

What are the income tax depreciation rates?

Under Appendix I to Rule 25: residential buildings 5%, other buildings 10%, temporary erections 40%, furniture and fittings 10%, plant and machinery 15%, motor cars (not on hire) 15%, buses, lorries and taxis used on hire 30%, computers including software 40%, and know-how, patents, copyrights, trademarks, licences and franchises 25%, each on the written down value of the block.

Is depreciation allowed on land?

No. Section 33(1) covers buildings, machinery, plant and furniture, and specified intangible assets. Land and goodwill are not depreciable assets.

What if I use an asset for less than 180 days?

If the asset was acquired in the year and used for less than 180 days, the deduction is 50% of the prescribed rate (section 33(4)).

What is additional depreciation?

An extra 20% of the actual cost of new plant or machinery in the year it is acquired and put to use, for a business of manufacture or production, or generation, transmission or distribution of power; 10% in that year and 10% next year if used for less than 180 days (section 33(8) and (9)). Individuals taxed in the new regime cannot claim it (section 202(2)).

Can I skip claiming depreciation?

No. Section 33(7) says the section applies whether or not you claim depreciation, so the WDV is reduced by the depreciation allowable.

What is unabsorbed depreciation?

Depreciation that cannot be set off because profits are too low. It is added to the depreciation of the next year, with no time limit, after the business loss carry forward under section 112 is given effect (section 33(11)).

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.

Books of Account and Tax Audit: Sections 62 and 63, Form 26 and the New Fee (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 20 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A business must keep books of account if its income is more than ₹1,20,000 or turnover more than ₹10 lakh in any of the previous three years (₹2,50,000 and ₹25 lakh for an individual or HUF); a specified profession must keep prescribed books (section 62).
  • A tax audit is needed if business turnover exceeds ₹1 crore (₹10 crore if cash receipts and cash payments are each 5% or less), if professional receipts exceed ₹50 lakh, or if a presumptive taxpayer declares less than the presumptive profit (section 63).
  • The audit report goes in Form 26 and is due one month before the return due date; for audited cases that is 30 September.
  • The Finance Act, 2026 replaced the penalty for failing to get accounts audited with a fee of ₹75,000 for a delay up to one month and ₹1,50,000 thereafter (section 428(c)).

Two compliance duties apply to people with business or professional income: keeping books, and, above certain limits, getting the accounts audited by an accountant. They are in sections 62 and 63 of the Income-tax Act, 2025 (earlier 44AA and 44AB). The Finance Act, 2026 also changed the consequence of missing the audit.

Books of account (section 62)

Who must keep books (section 62(1) and (2))

Person Condition
A person carrying on a specified profession Always (subject to the exception in Rule 46(3) below)
Any other person carrying on business or profession Income from the business or profession exceeds ₹1,20,000, or turnover or gross receipts exceed ₹10 lakh, in any one of the three years before the tax year; or for a new business, the income or receipts are likely to exceed those figures
An individual or HUF The same, but with the limits of income ₹2,50,000 and turnover or gross receipts ₹25 lakh
A presumptive taxpayer under section 58 who claims a lower profit than the deemed profit Always

Specified professions (section 62(4)): legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology, company secretary, and others the Board notifies.

What books (Rule 46): books that enable the Assessing Officer to compute total income. A person carrying on a legal, medical, engineering or architectural profession, accountancy, technical consultancy, interior decoration, as authorised representative or as a film artist must keep:

  • a cash book;
  • a journal, if the accounts are on the mercantile system;
  • a ledger;
  • copies of bills or receipts issued for sums of ₹250 or more;
  • original bills and receipts for expenditure of ₹250 or more; and
  • payment vouchers for smaller expenditure, where the cash book lacks adequate particulars.

These specified books are not required if gross receipts in the profession did not exceed ₹1,50,000 in any of the three preceding years, or, for a new profession, are not likely to exceed that in the year (Rule 46(3)).

Tax audit (section 63)

A person carrying on business or profession must get his accounts audited by an accountant as defined in section 515(3)(b) before the specified date if:

Case Condition
Business Total sales, turnover or gross receipts exceed ₹1 crore in the tax year
Business, with low cash The limit is ₹10 crore instead of ₹1 crore if (i) cash receipts are not more than 5% of total receipts, and (ii) cash payments are not more than 5% of total payments
Profession Gross receipts exceed ₹50 lakh in the tax year
Presumptive taxpayer A person under section 58 (Table serial 1 or 3) whose profits are claimed to be lower than the presumptive profit

For these purposes, payments and receipts by a cheque or draft that is not an account payee instrument are treated as cash (section 63(5)(b)).

No audit if the presumptive profit is declared (section 63(2)). A presumptive taxpayer who declares profits as per section 58 does not need an audit.

Audit under another law (section 63(4)). If you must get the accounts audited under another law (a company, an LLP or a co-operative society, for example), it is enough to get it done under that law before the specified date and to furnish that report with the accountant’s report in the prescribed form.

The specified date and the form

  • Specified date (section 63(5)(a)): one month before the due date of the return under section 263(1). For an audited person, the due date is 31 October, so the specified date is 30 September. Where a transfer pricing report is needed and the due date is 30 November, it is 31 October.
  • Form (Rule 47): Form 26, Part A where the person is audited under another law, Part B otherwise, with the particulars required under section 63 in Parts C and D.
  • Revised report: the audit report can be revised by getting a revised report from the accountant, to be furnished before the end of the financial year following the tax year, if a payment made after the report requires the disallowance under section 35 or section 37 to be recalculated (Rule 47(3)).

Consequence of default: a fee (section 428(c))

For the failure to get accounts audited and furnish the report under section 63, the Finance Act, 2026 provides a fee, not a penalty, from 1 April 2026:

Delay Fee
Up to one month ₹75,000
Longer ₹1,50,000

Before 1 April 2026, the penalty was the lower of 0.5% of turnover and ₹1,50,000 (old section 446). The fee on a transfer pricing report (section 172) is ₹50,000 and ₹1,00,000 on the same pattern (section 428(d)).

Examples

1. Trader. Turnover is ₹1,80,00,000, cash receipts are 3% and cash payments are 2%. Because both are within 5%, the limit is ₹10 crore, so no audit is needed. If cash payments were 8%, the limit is ₹1 crore and an audit is required.

2. Doctor. Gross receipts are ₹55,00,000. They exceed ₹50 lakh, so an audit is required, unless the presumptive scheme at 50% is used and the profit declared is the presumptive profit (the limit under section 58 is ₹50 lakh, or ₹75 lakh with low cash, so he can use it if cash receipts are at most 5%).

3. Small trader on presumptive income with turnover of ₹90 lakh declaring 8%/6% profit: no audit and no books. If he declares 4% and his income is above the exemption limit, he needs books and an audit.

Practical points

  • Count turnover carefully. Include all sales and receipts of the business, not just those in the main ledger, and watch the 5% cash tests when you are close to the limit.
  • Appoint the auditor early. The report is due on 30 September for most audited persons, one month before the return, and the return depends on it.
  • Penalty and fee are different from interest. Late filing of the return has its own fee under section 428(a) and interest under section 423.

Frequently asked questions

Who must get a tax audit?

A person with business turnover above ₹1 crore in the tax year, or ₹10 crore if cash receipts and cash payments are each at most 5%; a professional with gross receipts above ₹50 lakh; and a presumptive taxpayer under section 58 who declares profit lower than the presumptive profit (section 63(1)).

What is the ₹10 crore condition?

The limit is ₹10 crore instead of ₹1 crore if the cash received (including for sales) is not more than 5% of the total received, and the cash paid is not more than 5% of total payments. A cheque or draft that is not account payee is treated as cash (section 63(5)(b)).

What is the due date for the audit report?

The specified date: one month before the due date of the return under section 263(1). Since the return of an audited person is due on 31 October, the report is due by 30 September (31 October if a transfer pricing report is needed and the return is due on 30 November).

What is the penalty for not getting accounts audited?

From 1 April 2026 there is a fee, not a penalty: ₹75,000 for a delay up to one month and ₹1,50,000 after that (section 428(c)). Earlier, the penalty was the lower of 0.5% of turnover and ₹1,50,000.

Which form is the audit report?

Form 26 of the Income-tax Rules, 2026: Part A where the person is audited under another law, and Part B otherwise; Parts C and D carry the particulars required under section 63 (Rule 47).

Who must keep books of account?

A person with a business or profession whose income exceeds ₹1,20,000 or turnover exceeds ₹10 lakh in any of the three preceding years (₹2,50,000 and ₹25 lakh for an individual or HUF), and every person carrying on a specified profession (section 62).

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.

Presumptive Taxation Under Section 58: Businesses, Goods Transporters and Professionals (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 22 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 58 of the Income-tax Act, 2025 combines the old sections 44AD, 44AE and 44ADA: a resident individual, HUF or firm (other than an LLP) can declare income at a fixed percentage of receipts instead of keeping full accounts.
  • For a business, income is 6% of receipts received in banking or online mode and 8% of the rest, if turnover is up to ₹2 crore (₹3 crore if cash receipts are at most 5%); for a specified profession, 50% of gross receipts up to ₹50 lakh (₹75 lakh if cash is at most 5%).
  • For goods carriages (up to ten vehicles), income is ₹1,000 a ton a month for heavy vehicles and ₹7,500 a month for others.
  • Declaring a lower profit than the presumptive figure means books and a tax audit if total income is above the exemption limit; opting out and in again locks you out for five years.

Small businesses and professionals can pay tax without keeping detailed accounts, by declaring a fixed share of their receipts as profit. In the 1961 Act these were three sections: 44AD (small business), 44AE (goods carriages) and 44ADA (professionals). The Income-tax Act, 2025 puts them in one section, section 58. The rules are the same in substance, except that the Finance Act, 2026 dropped one condition (that no deduction under section 144 is claimed).

The three presumptive cases (section 58(2))

Case Who Limit on receipts Income taken as
1. Any business other than goods carriage business Eligible assessee Up to ₹2 crore; or up to ₹3 crore if cash receipts are 5% or less of total turnover The higher of: (i) 6% of turnover received by specified banking or online mode during the tax year or before the due date for the return plus 8% of the remaining turnover; or (ii) the profit actually earned
2. Plying, hiring or leasing goods carriages A person who owns not more than ten goods carriages at any time in the year No turnover limit The higher of: (i) for a heavy goods vehicle, ₹1,000 per ton of gross vehicle weight or unladen weight per month or part of month, and for any other goods carriage ₹7,500 a month; or (ii) profit actually earned
3. Specified profession (section 62(4)) Specified assessee Up to ₹50 lakh; or up to ₹75 lakh if cash receipts are 5% or less of gross receipts The higher of 50% of gross receipts or the profit actually earned

A heavy goods vehicle is one with a gross vehicle weight above 12,000 kg. A person in possession of a goods carriage on hire purchase or instalments is treated as its owner (section 58(11)).

Who is eligible (section 58(11))

  • Eligible assessee (case 1): a resident individual, HUF or firm other than an LLP who has not claimed a deduction under Chapter VIII-C for the year, does not carry on a specified profession, does not earn commission or brokerage, and does not carry on an agency business.
  • Specified assessee (case 3): a resident individual or a firm other than an LLP.
  • A company, an LLP and a non-resident cannot use cases 1 and 3. Case 2 is open to any assessee who owns not more than ten goods carriages.

Specified professions (section 62(4)): legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology, company secretary, and any other profession notified by the Board.

Banking or online mode

Digital receipts are those by an account payee cheque or bank draft, by electronic clearing through a bank account, or by another prescribed electronic mode (section 66(32)). A cheque or draft that is not account payee is treated as cash (section 58(9)). Receipts up to the due date for the return count as digital if made by that date.

Other rules

  • No further deductions (section 58(4)): no loss, allowance or deduction is allowed against the presumptive income. All business expenses, including depreciation, interest and salaries, are deemed covered.
  • Firms (section 58(5)): for goods carriages, a firm deducts the salary and interest paid to its partners, within the limits of section 35(e).
  • Written down value (section 58(6)): the written down value of an asset used in the business is computed as if depreciation had been claimed and allowed each year, which matters if you leave the scheme or sell the asset.
  • Books and audit not needed (section 58(10)): sections 62 and 63 do not apply to the goods carriage business.

Declaring a lower profit

An assessee can claim that the profits actually earned are lower than the presumptive figures. If he does so and his total income exceeds the basic exemption limit, he must keep books of account under section 62 and get them audited under section 63 (section 58(3)). See our post on books of account and tax audit.

The five year lock-out (section 58(7) and (8))

If an eligible assessee declares presumptive profit for a year under case 1 and in any of the next five years declares profit lower than that, without following the section, he cannot use the section for five tax years after the year in which he did so. In those years, if his total income exceeds the exemption limit, he must keep books and get an audit.

Examples

1. Trader. Turnover ₹1,50,00,000, of which ₹1,20,00,000 was received by bank transfer and ₹30,00,000 in cash.

  • Digital receipts at 6% = ₹7,20,000
  • Other receipts at 8% = ₹2,40,000
  • Presumptive income = ₹9,60,000, unless actual profit is higher.
  • Turnover is within ₹2 crore, so the scheme applies. If cash were more than 5% of turnover and turnover above ₹2 crore, it would not.

2. Professional. A chartered accountant has gross receipts of ₹40,00,000. Presumptive income is 50% = ₹20,00,000. Where gross receipts are ₹60,00,000 with cash up to 5%, the scheme still applies (limit ₹75 lakh); with cash above 5% it does not (limit ₹50 lakh).

3. Transporter. Owns 2 heavy vehicles of 16 tons gross weight and 1 light goods vehicle, all for the whole year.

  • Heavy: 1,000 × 16 × 12 = ₹1,92,000 each, for two: ₹3,84,000
  • Light: 7,500 × 12 = ₹90,000
  • Presumptive income = ₹4,74,000, unless actual profit is higher.

Return form

A resident individual, HUF or a firm other than an LLP with presumptive income can file SUGAM (ITR-4) if they also meet the other conditions of Rule 164(6): no foreign assets or income, no directorship, no unlisted shares, total income up to ₹50 lakh, no more than two house properties, and no brought forward loss or loss to carry forward (see our post on which ITR form to file). The due date is 31 August if the accounts are not audited, and 31 October if they are audited.

Choosing: presumptive or full accounts

Point Presumptive Full accounts
Books Not required (unless you declare a lower profit) Required (section 62 conditions)
Audit Not required Required if turnover is above the limits
Expenses Not claimed Claimed in full
Loss Not available Can be carried forward
Best when Real margins are below the presumptive percentage Real margins are lower, or you want to claim losses

If your real profit is below the presumptive percentage and you have high expenses or losses, full accounts may reduce tax, but remember the books and audit costs.

Frequently asked questions

Who can opt for presumptive taxation?

A resident individual, HUF or firm other than an LLP (the “eligible assessee”), who has not claimed any deduction under Chapter VIII-C for the year, does not carry on a specified profession, and does not earn commission or brokerage or carry on any agency business. A “specified assessee” (resident individual or firm other than an LLP) can use the scheme for specified professions (section 58(11)).

What is the limit for business turnover?

₹2 crore, or ₹3 crore if cash receipts do not exceed 5% of total turnover. Receipts by a cheque or draft that is not account payee are treated as cash (section 58(9)).

How is business income worked out?

6% of the turnover received in specified banking or online mode during the year or before the return due date, plus 8% of the remaining turnover, or the profit actually earned if higher (section 58(2), Table serial 1).

How much do professionals declare?

50% of gross receipts, or the actual profit if higher, if gross receipts are up to ₹50 lakh (₹75 lakh if cash receipts are at most 5%). The scheme covers legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology and company secretary professions, and others notified (section 62(4)).

Can I claim a lower profit?

Yes, but you must then keep books of account and get them audited if your total income exceeds the basic exemption limit (section 58(3)).

What if I leave the scheme?

If you declare presumptive profit for a year and then, in any of the next five years, declare a lower profit without following the scheme, you cannot use the scheme for the five years after that year, and you must keep books and get an audit if income exceeds the exemption limit (section 58(7) and (8)).

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.

Income Tax Return of a Deceased Person: Legal Heir’s Duties, Liability and Refund (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 19 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • When a person dies, his legal representative is liable to pay any tax the deceased would have owed, and proceedings against the deceased continue against the legal representative (section 302 of the Income-tax Act, 2025).
  • The legal representative is deemed an assessee, so the return of the deceased must be furnished by the usual due date and a pending refund is claimed by the legal representative (section 432(2)).
  • Liability is limited to the estate, but a legal representative who creates a charge on or disposes of estate assets while the tax is unpaid becomes personally liable to the value of those assets.
  • Income earned by the heirs after the death is taxed in their own hands.

Death does not end a person’s tax obligations. A return may be due for the year of death and for earlier years, a refund may be waiting, and a notice may arrive months later. The Income-tax Act, 2025 deals with this through the legal representative (section 302).

Who is the legal representative

The person who in law represents the estate of the deceased, such as an executor, administrator or, where there is no will, the heirs who take the estate. A legal representative is deemed to be an assessee for the purposes of the Act (section 302(3)). A will with probate, a succession certificate or a legal heir certificate is the usual evidence of status.

What must be filed

  • The return of income of the deceased for the tax year of death, covering income up to the date of death, if the deceased was required to file under section 263 (for example, income above the exemption limit or foreign assets). The due dates are the same as for any person in that category.
  • Earlier years for which the deceased had not filed a required return.
  • Proceedings continue. Any assessment, reassessment or other proceeding started against the deceased before death is deemed to have been taken against the legal representative and continues from the same stage. A proceeding that could have been taken against the deceased may also be taken against the legal representative (section 302(2)).

The legal representative signs and verifies the return in that capacity. Give the date of death and your relationship in the return, and attach nothing; keep the death certificate, the legal heir certificate or the will and probate on file.

Liability limited to the estate

  • The legal representative is liable to pay any sum that the deceased would have been liable to pay, in the same manner and to the same extent (section 302(1)).
  • The liability is limited to the extent the estate is capable of meeting it (section 302(4)).
  • Exception: a legal representative is personally liable for any tax payable in that capacity if, while the liability remains unpaid, he creates a charge on, disposes of or parts with any asset of the estate that is or comes into his possession. The personal liability is limited to the value of that asset (section 302(5) and (6)).

Practical point: pay or provide for the deceased’s tax before distributing or selling estate assets.

Refund of a deceased person

A person who cannot claim or receive a refund because of death can have it claimed by his legal representative, trustee, guardian or receiver, for the benefit of the person or his estate (section 432(2)). The refund is claimed by furnishing the return (section 433).

What is taxed to the heirs

  • Income earned by the deceased up to the date of death is the deceased’s income and is assessed through the legal representative.
  • Income that accrues after the death (rent from an inherited house, interest on inherited deposits) belongs to whoever holds the asset, which is the heir, in proportion to the share, or the estate while it is not yet distributed.
  • Inheriting an asset is not income. If the heir later sells it, the cost of acquisition is the cost to the previous owner, the deceased (section 73, Table serial 1).

Example

A salaried person dies on 10 November 2026. His salary and interest up to that date, say ₹9,00,000, are taxed through a return for tax year 2026-27, due by 31 July 2027. The employer’s TDS and the advance tax paid are shown in the return. If the tax is less than the TDS, the legal heir claims the refund on behalf of the estate. If there is tax to pay, the estate pays it before assets are distributed.

Common mistakes

  • Treating the death as the end of the matter and ignoring a notice or a pending return.
  • Distributing the estate before the tax is cleared and becoming personally liable.
  • Taxing post-death income as the deceased’s income, or vice versa.

Before you file

  1. Collect the PAN of the deceased, the death certificate and the legal heir certificate or will.
  2. Check the annual information statement and TDS records for the deceased.
  3. File the return as legal representative of the deceased.
  4. Take advice if the estate includes foreign assets or business income.

Frequently asked questions

Who files the return of a person who has died?

His legal representative, who is deemed an assessee for this purpose (section 302(3)). The legal representative files the return the deceased would have had to file, and pays any tax due from the estate.

Does the deceased’s tax liability pass to the heirs?

The legal representative is liable to pay any sum the deceased would have owed, but only to the extent the estate of the deceased is capable of meeting it (section 302(1) and (4)).

Can a legal heir be personally liable?

Yes, if while the tax remains unpaid he creates a charge on, disposes of or parts with any assets of the estate that are or come into his possession. The liability is limited to the value of those assets (section 302(5) and (6)).

Who gets the refund of a deceased person?

The legal representative, trustee, guardian or receiver, who may claim or receive it for the benefit of the person or his estate (section 432(2)).

Is the deceased’s income taxed in the heirs’ hands?

Income of the deceased up to the date of death is taxed as his income and assessed through the legal representative. Income that arises from the estate after the death is the income of the heirs or of the estate, depending on the succession, and is taxed accordingly.

Do pending notices continue after death?

Yes. A proceeding taken against the deceased before death is deemed taken against the legal representative and continues from the stage it had reached, and any proceeding that could have been taken against the deceased may be taken against the legal representative (section 302(2)).

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.

Sale of Depreciable Assets: Capital Gains Under Sections 74 and 75 (Earlier 50 and 50A)

Posted on by CA Meet Dhrangadhariya

Last updated: 13 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • When an asset in a block of assets on which depreciation has been allowed is sold, a capital gain arises only if the sale price exceeds the opening written down value of the block plus additions of the year plus the expenses of transfer (section 74(2)).
  • The excess is a short-term capital gain, whatever the holding period; if the block ceases to exist because all its assets are sold, the net result is also a short-term gain or loss (section 74(3)).
  • Where depreciation was allowed on an asset in a particular year, its written down value is taken as the cost of acquisition (section 75).
  • The tax is at the assessee’s slab rate or at the short-term rate, not at 12.5%.

A business that sells machinery, a vehicle or a building on which it has claimed depreciation does not compute the gain asset by asset, as it would for shares. The Income-tax Act, 2025 treats such assets in blocks, and sections 74 and 75 (earlier sections 50 and 50A) provide the special rules.

What is a block of assets

Depreciation is allowed on a block of assets: assets of the same class with the same depreciation rate. The block has an opening written down value (WDV) each year, which is reduced by depreciation and by the sale proceeds of assets sold, and increased by the cost of assets acquired.

Section 74(2): gain when part of a block is sold

If, during the tax year, the full value of consideration received or accruing for the transfer of one or more assets in a block exceeds the total of:

  • (a) the expenditure incurred wholly and exclusively on the transfer;
  • (b) the written down value of the block at the start of the tax year; and
  • (c) the actual cost of any asset of the block acquired during the tax year,

then the excess is deemed to be a short-term capital gain, irrespective of how long the asset was held. The gain is charged in the year of the sale.

If the sale price is less than or equal to this total, there is no capital gain under this section, and the sale is dealt with under the depreciation provisions for the block.

Example. The WDV of a block of machinery at the start of the year is ₹10,00,000. During the year, you buy a machine of the same block for ₹2,00,000 and sell an old machine for ₹14,00,000 (expenses ₹20,000).

  • Total = 20,000 + 10,00,000 + 2,00,000 = ₹12,20,000
  • Sale price ₹14,00,000 is more than ₹12,20,000, so short-term capital gain = ₹1,80,000

Section 74(3): the block ceases to exist

If all the assets of a block are transferred in the year, so that the block ceases to exist:

  • the cost of acquisition of the block is the WDV at the beginning of the year plus the actual cost of any asset of the block acquired during the year; and
  • the amount received or accruing is deemed a short-term capital gain (or a short-term loss, if it is less than that cost less the expenses).

Example. A block has a WDV of ₹6,00,000 and is entirely sold for ₹4,50,000 with no additions. The result is a short-term capital loss of ₹1,50,000 (less expenses). The loss is a capital loss and is dealt with under the loss rules (see our post on capital loss), not as a business loss.

Section 75: where depreciation was obtained on an asset

If depreciation has been obtained under section 33(2) for a capital asset in any tax year, then sections 72 and 73 apply with the modification that the written down value of the asset, as defined in section 41 and adjusted, is its cost of acquisition. This avoids a double benefit: the depreciation already claimed is not allowed again as a cost.

Who these provisions affect

  • Businesses and professions that claim depreciation (plant, machinery, vehicles, furniture, buildings, intangible assets).
  • Goodwill: if you bought goodwill and claimed depreciation before the tax year commencing 1 April 2020, the depreciation reduces the purchase price for its cost of acquisition (section 90(4)).

Tax and reporting

  • The gain is short-term and is taxed at the slab rates (individuals), or the rates for the entity (company, firm).
  • Report the gain in the capital gains schedule under short-term gains, with the block details.
  • Advance tax applies to the gain as it arises.

Points to remember

  1. The holding period does not matter: the gain is short-term.
  2. A gain arises only when the sale price exceeds the whole block’s WDV plus additions plus expenses.
  3. When a block disappears, a loss on its sale is a short-term capital loss, which can be set off only against capital gains.
  4. Keep the depreciation schedule to prove the WDV.

Frequently asked questions

How is a gain on a depreciable asset computed?

If the sale price of one or more assets of a block exceeds the total of the expenses of transfer, the written down value of the block at the start of the year and the cost of assets of the block bought during the year, the excess is a short-term capital gain (section 74(2)).

Is the gain long-term if I held the machine for many years?

No. The excess is deemed to be a short-term capital gain irrespective of the holding period (section 74(2)).

What if all assets in the block are sold?

The block ceases to exist. Its cost of acquisition is the written down value at the start of the year plus the cost of assets of that block bought during the year, and the net result is a short-term capital gain or loss (section 74(3)).

What happens if the sale price is lower than the block’s written down value?

No capital gain arises under section 74(2). The sale is dealt with under the depreciation provisions for the block, unless the block ceases to exist, in which case section 74(3) gives a short-term loss.

Does section 75 apply to every asset?

It applies where depreciation was obtained under section 33(2) for a capital asset in any tax year: the written down value of the asset as defined in section 41, as adjusted, is its cost of acquisition for sections 72 and 73.

What tax rate applies?

Short-term capital gain rates. Since the transaction is not on a stock exchange with STT, the gain is taxed at the assessee’s slab rates (or the rate of the entity).

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.