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Slump Sale: Capital Gains Under Section 77 (Earlier 50B), Net Worth and Form 28 (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 23 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A slump sale is the transfer of one or more undertakings for a lump sum without values for the individual assets and liabilities (section 2(103)). The profit is a long-term capital gain if the undertaking was held for more than 36 months, and a short-term gain otherwise (section 77).
  • The cost of acquisition and of improvement is the net worth of the undertaking, which is its total assets less liabilities as in the books, ignoring revaluation; the sale price is the fair market value of the capital assets worked out under Rule 53.
  • An accountant’s report in Form 28 must be furnished before the specified date in section 63 (section 77(4) and Rule 54).
  • The long-term gain is taxed at 12.5% without indexation.

When a business is sold as a whole, the tax follows special rules. Instead of valuing every asset, the law taxes the profit on the sale of the undertaking as a slump sale. The rules are in section 77 of the Income-tax Act, 2025 (earlier section 50B), with the details of valuation in Rule 53 and the accountant’s report in Rule 54.

What is a slump sale

Section 2(103): the transfer of one or more undertakings, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities. Fixing a value of an asset or liability only for stamp duty, registration fees or similar taxes is not assigning values.

An undertaking includes any part of an undertaking, or a unit or division, or a business activity taken as a whole, but not individual assets or liabilities or any combination of them that is not a business activity (section 2(35)).

Two points follow:

  • A sale of individual assets, even many of them, is not a slump sale.
  • A sale of a business with a price allocated to each asset is also not a slump sale. That is an itemised sale, taxed asset by asset.

Long-term or short-term (section 77(1) and (2))

  • The profit or gain is chargeable as long-term capital gain in the year of the transfer.
  • If the undertaking or division was owned and held for 36 months or less before the transfer, the gain is short-term.

Computing the gain (section 77(3) and (5))

  • Full value of consideration: the fair market value of the capital assets on the date of transfer, calculated as prescribed (Rule 53).
  • Cost of acquisition and cost of improvement: the net worth of the undertaking or division.

Net worth = the aggregate value of total assets of the undertaking, less the value of its liabilities as appearing in the books, with any revaluation of assets ignored. In the aggregate value of total assets:

  • depreciable assets are taken at the written down value of the block of assets (as in section 41(1)(c));
  • goodwill not acquired by purchase from a previous owner is nil;
  • assets whose entire expenditure has been or can be deducted under section 46 are nil; and
  • other assets are at their book value.

There is no indexation. Because the cost is the net worth, which is based on the books, the gain is largely the amount by which the price exceeds the book value of the net assets.

Rule 53: fair market value

Rule 53 gives the fair market value as the higher of two figures:

  • FMV1, the asset-based value: A + B + C + D - L, where A is the book value of assets other than jewellery, artistic work, shares, securities and immovable property (less income-tax paid net of refunds and unamortised deferred expenditure), B the open market price of jewellery and artistic work on a registered valuer’s report, C the fair market value of shares and securities as determined under Rule 57, D the stamp duty value of immovable property, and L the book value of liabilities excluding paid-up capital, proposed dividends, reserves and surplus, provisions for tax beyond tax paid and other provisions and contingent liabilities (as listed in the Rule); or
  • FMV2, the consideration-based value: the monetary consideration received plus the fair market value of non-monetary consideration, determined in the manner in the Rule.

Report of an accountant (section 77(4); Rule 54)

Every assessee must furnish, before the specified date referred to in section 63, a report of an accountant in Form 28. It must include the computation of the net worth of the undertaking or division and certify that the net worth has been correctly arrived at. The specified date in section 63 is the date by which the tax audit report must be filed, so the report is due before that.

Tax rate

A long-term slump sale gain is taxed at 12.5% without indexation (section 197), because the undertaking is not listed equity. A short-term gain is taxed at the rates for the assessee. The surcharge on the long-term gain is capped at 15% (Finance Act, 2026).

Example

A company sells its manufacturing division, held for five years, for a lump sum of ₹5 crore. The aggregate value of total assets of the division, taking depreciable assets at the written down value and other assets at book value, is ₹3 crore, and its liabilities are ₹1 crore.

  • Net worth = 3,00,00,000 - 1,00,00,000 = ₹2,00,00,000
  • Full value of consideration = the higher of FMV1 and FMV2 under Rule 53; suppose it is ₹5,00,00,000 (the consideration)
  • Long-term capital gain = 5,00,00,000 - 2,00,00,000 = ₹3,00,00,000
  • Tax at 12.5% = ₹37,50,000, plus surcharge (capped at 15% on this gain) and cess.

Practical points

  • Do not allocate the price to the assets. If the agreement fixes values for individual assets, the transaction can fail the slump sale test, and each asset is taxed separately, including depreciable assets, under section 74.
  • A demerger or amalgamation that satisfies the Act’s conditions is not a transfer at all (section 70), and has no capital gain.
  • Keep the valuation reports, the net worth working and the Form 28 on file for the return.

Frequently asked questions

What is a slump sale?

The transfer of one or more undertakings, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities (section 2(103)). Fixing values for stamp duty or registration purposes does not count as assigning values.

Is the gain long-term or short-term?

Long-term if the undertaking or division was owned and held for more than 36 months immediately before the transfer; otherwise short-term (section 77(1) and (2)).

How is the gain computed?

Full value of consideration is the fair market value of the capital assets on the transfer date, worked out under Rule 53; the cost of acquisition and improvement is the net worth of the undertaking (section 77(3)).

What is net worth?

The aggregate value of total assets of the undertaking, less its liabilities as shown in the books, ignoring any revaluation. Depreciable assets are taken at the written down value of the block, self-generated goodwill at nil, and assets whose cost was fully deductible at nil (section 77(5)).

Which report is needed?

An accountant’s report in Form 28 computing and certifying the net worth, furnished before the specified date in section 63, that is the date by which the tax audit report is due (Rule 54).

What is the tax rate on a long-term slump sale gain?

12.5% without indexation (section 197), plus surcharge (at most 15% on this gain) and 4% cess.

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.

Crossed Cheque under the Negotiable Instruments Act: General Crossing, Special Crossing, Not Negotiable and Account Payee

Posted on by CA Meet Dhrangadhariya

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

Quick summary

  • A cheque with two parallel transverse lines across its face (with or without “and company” or “not negotiable”) is crossed generally, and a bank on which it is drawn can pay it only to another banker, not over the counter.
  • A cheque with the name of a banker across its face is crossed specially, and can be paid only to that banker or its agent for collection.
  • “Not negotiable” does not stop transfer, but the person taking the cheque gets no better title than the person from whom he took it.
  • “Account payee” is a banking practice and is not defined in the Act. It tells the collecting bank to credit only the payee’s account.

Crossing a cheque is the oldest anti-fraud device in banking. The Negotiable Instruments Act, 1881 deals with it in sections 123 to 131A (Chapter XIII, “Of crossed cheques”). The idea is simple: a crossed cheque cannot be paid in cash across the counter, so the money has to pass through a bank account where it can be traced.

General crossing (section 123)

A cheque that bears across its face either:

  • the words “and company” (or an abbreviation) between two parallel transverse lines, or
  • two parallel transverse lines simply,

with or without the words “not negotiable”, is crossed generally.

Special crossing (section 124)

A cheque that bears across its face the name of a banker, with or without the words “not negotiable”, is crossed specially, and crossed to that banker.

Who can cross, and when (section 125)

  • The holder of an uncrossed cheque may cross it generally or specially.
  • The holder of a cheque crossed generally may cross it specially, or add the words “not negotiable”.
  • A banker to whom a cheque is crossed specially may cross it again specially to another banker, his agent, for collection.

How the paying bank must act

Crossing The drawee bank may pay
General Only to a banker (section 126)
Special Only to the banker to whom it is crossed, or his agent for collection (section 126)
Special to more than one banker (other than an agent for collection) The bank must refuse payment (section 127)

Consequences for the banks and the parties

  • Payment in due course (section 128): if the drawee bank has paid a crossed cheque in due course, both the bank, and the drawer (where the cheque has reached the payee), are placed in the same position as if the amount had been paid to and received by the true owner.
  • Payment out of due course (section 129): a bank that pays a generally crossed cheque otherwise than to a banker, or a specially crossed cheque otherwise than to the banker named or its collecting agent, is liable to the true owner for any loss he sustains.
  • Collecting bank (section 131): a banker who in good faith and without negligence receives payment for a customer of a crossed cheque, crossed to itself, is not liable to the true owner merely because the customer’s title turns out to be defective. A banker is treated as receiving payment even if it credits the customer’s account before receiving payment. Where the payment is based on an electronic image of a truncated cheque, the collecting banker must verify the prima facie genuineness of the cheque and any fraud, forgery or tampering apparent on its face, with due diligence and ordinary care.
  • Drafts (section 131A): the same chapter applies to a draft as if it were a cheque.

“Not negotiable” (section 130)

The words do not make the cheque non-transferable. What they do is take away the usual protection of a person who takes a negotiable instrument in good faith for value: someone who takes a crossed cheque marked “not negotiable” does not have, and cannot give, a better title than the person from whom he took it. If the cheque was stolen, no later holder gets good title, however innocent.

“Account payee”

The words “account payee” or “A/c payee only” written between the lines are not in the Act. They are a banking practice, understood as an instruction to the collecting bank to credit only the account of the named payee. How a bank treats them is a matter of its own rules and RBI instructions, so ask your bank before relying on them for a large payment.

Practical points

  • To protect a cheque you send by post or courier, cross it, and add the payee’s name and “account payee only”.
  • To pay a person who has no bank account, do not cross the cheque, or use a bearer cheque with caution, since an uncrossed cheque can be paid in cash to whoever presents it.
  • Where a crossed cheque has been paid to the wrong person, tell the bank in writing at once and keep a copy of the cheque and the statement.
  • A crossed cheque that is returned unpaid for insufficiency of funds still falls under section 138 if all other conditions are met (see our post on cheque bounce).

Points to check

  • This post follows the Act as published on India Code. The truncated-cheque explanation to section 131 was added by amendment and applies where payment is based on an electronic image.
  • Practice for “account payee” and bank procedures varies; check the bank’s own rules and RBI instructions for the cheque truncation system.

Frequently asked questions

What is a crossed cheque?

A cheque with an addition across its face that restricts how the drawee bank may pay it. Under section 123, two parallel transverse lines (with or without the words and company or not negotiable) make it crossed generally. Under section 124, the name of a banker across its face makes it crossed specially.

Can a crossed cheque be encashed over the counter?

No. A cheque crossed generally can be paid only to a banker, and a cheque crossed specially only to the banker named or to his agent for collection (section 126). It has to go through a bank account.

Can the holder cross an uncrossed cheque?

Yes. The holder may cross it generally or specially. The holder of a generally crossed cheque may cross it specially or add not negotiable (section 125).

What does not negotiable mean on a cheque?

The cheque can still be transferred, but a person who takes it gets no better title than the person from whom he took it, and cannot give a better title (section 130). A thief or finder cannot pass on good title.

What happens if a bank pays a crossed cheque wrongly?

A banker who pays a generally crossed cheque otherwise than to a banker, or a specially crossed cheque otherwise than to the named banker or its agent, is liable to the true owner for any loss (section 129).

Is account payee in the Act?

No. The Act deals with general and special crossing and not negotiable. Account payee is a banking practice of writing the words across the cheque so that the proceeds are credited only to the payee’s account.

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.

Sovereign Gold Bonds: Capital Gains Tax on Redemption and Sale from 1 April 2026

Posted on by CA Meet Dhrangadhariya

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

Quick summary

  • From 1 April 2026, redemption of a Sovereign Gold Bond is not a taxable transfer only if the bond is held by an individual from the date of original issue until maturity (section 70(1)(x) of the Income-tax Act, 2025, as amended by the Finance Act, 2026).
  • A bond bought in the secondary market is taxed on redemption: the gain is a capital gain, long-term at 12.5% if held for more than 12 months, short-term at slab rates otherwise.
  • A bond sold on the stock exchange before maturity is taxed in the same way, for every holder.
  • The 2.5% annual interest is taxable as income from other sources at slab rates.

Sovereign Gold Bonds (SGBs) were popular because the gain on redemption was tax free. The Finance Act, 2026 narrowed that relief from 1 April 2026. This post explains who still gets it, who pays tax and how much.

What the Act now says

Section 70(1) lists transactions that are not a transfer, so no capital gains tax arises on them. Clause (x), as amended by the Finance Act, 2026 with effect from 1 April 2026, covers:

redemption of a Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015 or any subsequent Sovereign Gold Bond Scheme, if held by an individual from the date of original issue till maturity.

Before the amendment, the clause covered redemption of a bond under the 2015 scheme by an individual, whether he had subscribed to it or bought it later. The amendment adds two conditions: the original issue and till maturity, and it extends to later schemes.

Who pays tax

Holder On redemption at maturity On sale on the exchange before maturity
Individual who subscribed at issue and holds till maturity No tax Not applicable
Individual who subscribed at issue but sells before maturity Not applicable Capital gain taxed
Anyone who bought the bond in the secondary market Capital gain taxed on redemption Capital gain taxed
HUF, company or trust Capital gain taxed (the clause covers individuals only) Capital gain taxed

How the gain is taxed

Where the exemption does not apply, the gain is the redemption or sale price less your cost of acquisition (the price you paid, with the expenses of the transfer).

  • SGBs are listed securities, so the holding period is 12 months: more than 12 months is long-term, 12 months or less is short-term (section 2(101)).
  • Long-term gain: 12.5% without indexation (section 197). The ₹1,25,000 exemption in section 198 does not apply, because it is only for equity shares and equity-oriented fund units.
  • Short-term gain: added to your income and taxed at slab rates.
  • The surcharge on this long-term gain is capped at 15%, and cess is 4%.

Example. You bought an SGB from the stock exchange for ₹7,000 a unit and held it for two years. It is redeemed at maturity at ₹12,000 a unit (a figure for illustration). The gain per unit is ₹5,000, long-term. Tax at 12.5% is ₹625 a unit, plus 4% cess = ₹650. For an original subscriber who held to maturity, the tax is nil.

Interest

SGBs pay interest of 2.5% a year (as set by the scheme). It is income from other sources (section 92) at your slab rate, in the year it is received or due, whichever your method of accounting is.

What to do if you hold SGBs

  1. Check how you acquired each bond: original issue (the allotment letter or demat statement shows the date) or secondary market.
  2. If you are an original holder, hold to maturity if you want the exemption. An early sale or a premature redemption may be taxed.
  3. For secondary market bonds, plan for tax on redemption and keep the purchase contract note, which fixes your cost and holding period.
  4. Report the interest every year and the capital gain in the capital gains schedule of the return. See our post on capital gains tax for the rates and the way to set off losses.

Frequently asked questions

Is SGB redemption tax free?

Yes, but only if you are an individual who has held the bond from the date of its original issue until maturity. The redemption is then not treated as a transfer (section 70(1)(x)).

What if I bought the SGB from the stock exchange?

The exemption on redemption does not apply to you. The redemption is a transfer, and the gain over your purchase cost is a capital gain.

What is the tax rate on SGB gains?

Long-term (held for more than 12 months, since SGBs are listed securities): 12.5% without indexation. Short-term: your slab rate (sections 2(101) and 197).

Is the interest on SGB taxable?

Yes. The 2.5% a year interest is income from other sources at your slab rate (section 92).

What about premature redemption after five years?

The exemption in section 70(1)(x) speaks of redemption of a bond held from original issue until maturity. A premature redemption is not clearly covered, so take advice before treating it as tax free.

Does the new rule apply to bonds already bought?

It applies from 1 April 2026, to redemptions and transfers from that date, whenever the bond was bought. A bond held by an original subscriber to maturity remains exempt.

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.

Capital Gains on Shares and Mutual Funds: STCG, LTCG, STT Conditions and Special Rules (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 21 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Listed equity shares and equity-oriented mutual fund units sold on an exchange with STT paid: short-term gain at 20% (section 196), long-term gain (over 12 months) at 12.5% on the amount above ₹1,25,000 a year (section 198).
  • Debt mutual fund units bought on or after 1 April 2023 and market linked debentures always give short-term gains taxed at slab rates (section 76).
  • Gains on demat shares use first-in-first-out for cost and holding period (section 67(7)); shares bought before 1 February 2018 get a grandfathered cost (section 90(7)).
  • A loss on shares bought just before a dividend record date and sold soon after can be ignored (section 175), and buyback proceeds are now taxed as capital gains in the shareholder’s hands (section 69).

For most investors, shares and mutual funds are the biggest source of capital gains. The tax rate depends on three things: the holding period, whether securities transaction tax (STT) was paid, and what the fund invests in. This post explains each for tax year 2026-27 under the Income-tax Act, 2025.

Holding period (section 2(101))

Asset Short-term if held for
Listed shares, UTI units, units of an equity-oriented fund, zero coupon bonds 12 months or less
Unlisted shares, foreign shares, units of debt funds and other assets 24 months or less

Listed equity shares and equity-oriented funds

Short-term (section 196): if the asset is an equity share, a unit of an equity-oriented fund or a unit of a business trust, and the sale is chargeable to STT, the short-term gain is taxed at 20%.

Long-term (section 198): if the gain is on an equity share, a unit of an equity-oriented fund or a unit of a business trust, and STT has been paid:

  • on acquisition and on transfer, for an equity share; and
  • on transfer, for a fund or business trust unit,

the tax is 12.5% on the long-term gain above ₹1,25,000 in the tax year. The Central Government may notify types of acquisition for which the STT-on-acquisition condition does not apply (section 198(5)).

For a resident individual or HUF, any shortfall in the basic exemption limit is first set against the gain (sections 196(2) and 198(3)). Deductions under section 123 and other Chapter VIII deductions are allowed only from income other than these gains. Surcharge on this tax is capped at 15%.

What is an equity-oriented fund (section 198(8))

A fund set up under a mutual fund scheme (or an insurance unit-linked scheme that does not enjoy the exemption in Schedule II, serial 2) that invests a minimum of 65% of its total proceeds in equity shares of domestic companies listed on a recognised stock exchange (the percentage is averaged over the year); or, for a fund of funds investing in another listed fund, at least 90% of proceeds in that fund, which itself invests at least 90% in listed domestic equity.

When STT is not paid

If the conditions for section 196 or 198 are not met (for example an off-market sale of shares, or an unlisted share), the long-term gain is taxed at 12.5% without the ₹1,25,000 exemption (section 197) and the short-term gain at slab rates.

Debt mutual funds, bonds and market linked debentures (section 76)

The gain on transfer, redemption or maturity of the following is always a short-term capital gain, whatever the holding period, taxed at slab rates:

  • a unit of a Specified Mutual Fund acquired on or after 1 April 2023, being a mutual fund that invests more than 65% of its proceeds in debt and money market instruments (or a fund that invests 65% or more in units of such a fund);
  • a market linked debenture; and
  • an unlisted bond or debenture transferred, redeemed or maturing on or after 23 July 2024.

STT is not deducted in computing these gains. Debt fund units bought before 1 April 2023 are ordinary capital assets: short-term if held for 24 months or less, and long-term gains taxed at 12.5% without indexation.

How cost and holding period are fixed

  • First-in-first-out (section 67(7)(c)): for securities held in demat form, if you buy the same security at different times and sell part of the holding, the earliest purchases are treated as sold first, for both the cost of acquisition and the period of holding.
  • Grandfathering (section 90(7)): for long-term equity shares and units covered by section 198 that you bought before 1 February 2018, the cost is the higher of the actual cost and the lower of the value on 31 January 2018 and the sale price.
  • Bonus shares have a nil cost and their holding period runs from the allotment; rights shares cost what you paid (section 90(5) and (6)).
  • STT paid is not deductible (section 72(3)). Brokerage and other expenses incurred wholly and exclusively on the transfer are deducted (section 72(1)(a)).

Special rules

Buyback (section 69): when a company buys back its own shares, the consideration you receive is taxed in your hands as capital gains: the difference between the cost and the amount received. Before the Finance Act, 2026 the buyback consideration was treated as a dividend and was taken as nil for capital gains; from 1 April 2026 it is capital gains. If the shareholder is a promoter, an additional tax applies: 2% (short-term gain) or 9.5% (long-term gain) for a domestic company promoter, and 10% or 17.5% for other promoters (section 69(2)).

Dividend stripping (section 175(8)): if you buy securities within three months before a record date and sell them within three months after it (for units, within nine months), and the dividend or income is exempt, the loss on that purchase and sale is ignored to the extent of the dividend or income. Under section 175(9), a loss on securities bought within three months before the record date and sold within nine months after, while you continue to hold bonus securities allotted on that holding, is ignored and added to the cost of the bonus securities.

Intraday and F&O: a sale without delivery is a speculative transaction (section 66(31)), and a derivative transaction in the exchange is a business transaction. Both give business income and not capital gains. Delivery-based trades by an investor are capital gains.

Dividends: dividend is taxed at slab rates as income from other sources (section 92(2)(a)).

Example

A resident individual during tax year 2026-27, all on a stock exchange with STT paid:

  • Sold shares bought two years ago: long-term gain ₹1,90,000.
  • Sold units of an equity fund bought four months ago: short-term gain ₹60,000.
  • Sold shares bought in November 2016 for ₹1,00,000, worth ₹2,50,000 on 31 January 2018, sold for ₹4,00,000: cost = higher of 1,00,000 and the lower of 2,50,000 and 4,00,000 = ₹2,50,000; long-term gain ₹1,50,000.
  • Long-term gains total ₹3,40,000. Less ₹1,25,000 = ₹2,15,000 at 12.5% = ₹26,875.
  • Short-term gain ₹60,000 at 20% = ₹12,000.
  • Total ₹38,875, plus 4% cess = ₹40,430.

Before you file

  1. Download the capital gains statement from your broker or mutual fund registrar and check it against your own contract notes.
  2. Report each sale with the correct buy date and cost, in the capital gains schedule of ITR-2 or ITR-3. ITR-1 can be used only if the long-term gains under section 198 are no more than ₹1,25,000 and there is no other capital gain (see our post on which ITR form to file).
  3. Pay advance tax on gains as they arise.
  4. Set off losses as explained in our post on capital loss.

Frequently asked questions

What are the tax rates on shares and equity mutual funds?

Short-term gain (held for 12 months or less) on a sale on a stock exchange with STT paid: 20%. Long-term gain (more than 12 months): 12.5% on the gain above ₹1,25,000 in the tax year (sections 196 and 198).

When does the 12.5% rate with the ₹1.25 lakh exemption apply?

When the long-term gain is on an equity share or a unit of an equity-oriented fund or a business trust, and STT was paid on the transfer (and, for an equity share, also on acquisition, unless the Central Government has notified the type of acquisition). Otherwise long-term gains are at 12.5% without the exemption (section 197).

How are debt mutual funds taxed?

If the fund invests more than 65% in debt and money market instruments (a specified mutual fund) and the units were bought on or after 1 April 2023, the gain is a short-term gain taxed at slab rates, however long you hold them (section 76).

How is the cost worked out when I buy the same share at different times?

By first-in-first-out for securities held in demat form: the earliest bought shares are treated as sold first, for both cost and holding period (section 67(7)(c)).

Is intraday trading a capital gain?

No. A transaction settled without delivery is a speculative transaction (section 66(31)) and the profit is business income, not a capital gain, unless it is an exempt derivative transaction.

What is dividend stripping?

Buying shares or units shortly before a dividend record date and selling soon after, to book a loss against exempt dividend. The loss is ignored up to the dividend received if you buy within three months before the record date and sell within three months after (nine months for units) (section 175).

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.

Senior Citizens Aged 75 or More: When No Income Tax Return Is Needed (Form 125, 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

  • A resident aged 75 or more whose only income is pension and interest from the same specified bank, and who gives the bank a declaration in Form 125, need not file a return for a year in which the bank deducts tax (section 263(8)(b), earlier section 194P).
  • The bank works out the tax on the total income after Chapter VIII deductions and the section 156 rebate, and deducts it at the rates in force (Rule 208).
  • The relief is lost if there is any other income, such as rent or interest from another bank, or if the bank does not deduct tax under the provision.
  • Higher TDS and TCS for non-filers (old sections 206AB and 206CCA) were omitted from 1 April 2025 and are not in the 2025 Act.

A retired person whose income is only a pension and the interest on the account into which the pension is paid can be spared the trouble of a return. The rule was section 194P of the 1961 Act; in the Income-tax Act, 2025 it is split between the definition of a “specified senior citizen” (section 402(39)), the relief from filing a return (section 263(8)(b)) and the bank’s duty to deduct tax (section 393(1), Table serial 8(iii)).

Who is a “specified senior citizen”

An individual who is:

  1. a resident in India;
  2. aged 75 years or more at any time during the tax year;
  3. having pension income and no other income except interest received or receivable from an account kept in the same specified bank in which the pension is received; and
  4. someone who has furnished a declaration to that specified bank, in the prescribed form and manner.

A specified bank is a banking company that the Central Government has notified for the purpose (section 402(35)).

What the relief is

Section 263 is the section that requires a return. Section 263(8)(b) says it does not apply to a specified senior citizen for the tax year in which tax has been deducted at source by the specified bank under section 393(1), Table serial 8(iii). So no return is needed for that year. The section on updated returns (section 263(6)) also does not apply to such a person for that year.

How the bank deducts tax (Rule 208)

  • You give the bank a declaration in Form 125. It asks for your PAN, date of birth, the pension payer and pension payment order number, your accounts with the bank, and whether you opt out of the new regime under section 202. In the declaration you state that you have no income other than pension and interest in the accounts with that bank.
  • The bank computes your total income for the year after giving effect to the deductions under Chapter VIII, on the evidence you furnish during the year, and the rebate under section 156.
  • It deducts income-tax at the rates in force on that total income (Rule 208(2)).
  • The bank keeps the declaration and the evidence and must make them available to the Chief Commissioner when required (Rule 208(4)).

This means the bank, not you, finishes the tax computation for the year.

When the relief does not apply

  • You have other income, for example rent, interest from a deposit with another bank, capital gains or dividends. You are then not a specified senior citizen and must file a return if your income exceeds the exemption limit.
  • You did not give the declaration to the bank or it is not a specified bank.
  • Your age is below 75 in the whole tax year.
  • You are a non-resident.

If any of these happens, file the return, using the TDS deducted by the bank as credit.

Example

A resident aged 78 receives a pension of ₹6,00,000 a year through a specified bank and gets ₹1,20,000 interest on his savings and fixed deposit accounts in the same bank. He has no other income. He gives Form 125 to the bank at the start of the year, and the bank works out his total income after the deductions and the rebate that apply and deducts tax if any is due. He need not file a return for that year.

If he also had ₹30,000 of rent, he would not qualify, and he would have to file a return, with credit for the tax the bank deducted.

Higher TDS for non-filers is gone

Sections 206AB and 206CCA of the 1961 Act required higher TDS and TCS from a person who had not filed returns. The Finance Act, 2025 omitted them from 1 April 2025, and the Income-tax Act, 2025 has no such provision. Deductors no longer need to check whether a person has filed before deducting tax. The late fee and interest for a missed return still apply.

Practical advice for pensioners

  1. Give Form 125 to the bank at the beginning of the year, not the end.
  2. Keep all savings and deposits in the one specified bank if you rely on this relief.
  3. If your income changes, for example a rent receipt starts, tell the bank and file a return.
  4. Check your Form 130 and the pension TDS for the year, and the annual information statement, for any other income reported against your PAN.

Frequently asked questions

Who need not file an ITR at age 75?

A resident individual aged 75 or more at any time in the tax year whose only income is pension, plus interest from an account in the same specified bank that pays the pension, who has furnished the declaration in Form 125 to that bank, and from whose income the bank has deducted tax (section 402(39) and section 263(8)(b)).

What if I have rent or interest from another bank?

Then you are not a specified senior citizen for that year. You must file a return if your income exceeds the exemption limit, and the bank cannot give you the benefit of this provision.

Who calculates the tax?

The specified bank. It computes your total income after the deductions under Chapter VIII (on the evidence you give during the year) and the rebate under section 156, and deducts tax at the rates in force (section 393(1), Table serial 8(iii), and Rule 208).

Which tax regime applies?

The new regime is the default. Form 125 asks whether you opt out of the new regime under section 202.

Is any bank allowed to do this?

Only a banking company notified by the Central Government as a specified bank (section 402(35)).

Are higher TDS rates for non-filers still there?

No. Sections 206AB and 206CCA of the 1961 Act were omitted from 1 April 2025 and the 2025 Act has no such provision.

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.

Capital Loss: Set-Off and Carry Forward Rules (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 16 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A short-term capital loss can be set off against any capital gain of the year, short-term or long-term; a long-term capital loss only against long-term gains (section 108(2)).
  • A capital loss cannot be set off against income under any other head, such as salary or house property (section 109(2)).
  • The unabsorbed loss carries forward for eight tax years, against capital gains of the matching kind, but only if the loss was determined in a return filed by the due date (sections 111 and 121).
  • A loss that you could not use because you filed late is lost.

Selling an asset at a loss gives you a capital loss. It reduces tax only if you use it correctly: against the right kind of gain, in the right year, and in a return filed on time. The rules are in sections 108 to 111 and 121 of the Income-tax Act, 2025.

Set-off in the same year (section 108(2))

The net result of each capital asset is computed under sections 72 to 90. Then:

Loss Can be set off against
Short-term capital loss The income computed on any other capital asset, short-term or long-term
Long-term capital loss Only the income on other long-term capital assets

A short-term loss is usually best set off first against short-term gains, which are taxed at higher rates (20% or slab rates), and then against long-term gains.

No set-off against other heads (section 109(2))

For any tax year, the loss under the head Capital gains cannot be set off against income under any other head: not salary, house property, business or other sources. The reverse is allowed: a loss under another head can be set off against capital gains (section 109(1)).

Carry forward (section 111)

If a capital loss cannot be wholly set off in the year, it is carried forward to the following tax years:

  • a short-term loss is set off against the income under the head Capital gains of the next year in respect of any other capital asset;
  • a long-term loss is set off only against long-term capital gains of the next year; and
  • the balance moves on, and no loss is carried forward for more than eight tax years immediately following the year in which it was first computed (section 111(2)).

You must file on time (section 121)

Irrespective of anything else, no loss that has not been determined in pursuance of a return filed under section 263(1) can be carried forward and set off. In practice, you must file the return by the due date and report the loss in it, even if you owe no tax. A belated return (filed after the due date) cannot be used to carry the loss forward; the loss of that year is lost, though it can still be set off against gains of the same year if the return is filed.

Examples

1. Same year. In tax year 2026-27 you have:

  • short-term gain on shares: ₹60,000
  • short-term loss on other shares: ₹1,00,000
  • long-term gain on listed shares: ₹3,00,000

Set off the short-term loss first against the short-term gain (₹60,000), leaving ₹40,000 of the loss. That is set off against the long-term gain, giving net long-term gain ₹2,60,000. The ₹1,25,000 exemption is applied, so ₹1,35,000 is taxed at 12.5% = ₹16,875.

2. Long-term loss. Long-term loss ₹2,00,000 on unlisted shares; short-term gains ₹1,50,000 on listed shares. The long-term loss cannot be set off against the short-term gains. It is carried forward for up to eight years against long-term gains, provided you filed on time.

3. Carry forward. You have a short-term loss of ₹80,000 in 2026-27 and no gains. You file on time. In 2027-28 you have a long-term gain of ₹3,00,000 from the sale of a flat and a short-term gain of ₹20,000. The carried forward short-term loss is set off against both: first the short-term gain (₹20,000) and ₹60,000 against the long-term gain.

4. Salary and capital loss. Salary income ₹12,00,000 and long-term capital loss ₹1,50,000. The loss cannot reduce salary. It is carried forward against future long-term gains.

Practical points

  • Report the loss in the return in the capital gains and carry forward schedules, with the year it arose, and file by the due date.
  • Where the loss is on shares you hold as business stock (a trader), it is a business loss, not a capital loss, and different rules apply (section 112).

Checklist

  1. List all sales of the year with gain or loss, short-term or long-term.
  2. Set off within the year as the table shows.
  3. Carry forward the balance with the year of origin.
  4. File by the due date.

Frequently asked questions

Can I set off a capital loss against salary?

No. Under section 109(2), a loss under the head Capital gains cannot be set off against income under any other head.

How is a short-term loss set off?

Against any capital gain of the same year, whether short-term or long-term (section 108(2)(a)).

How is a long-term loss set off?

Only against long-term capital gains of the same year (section 108(2)(b)).

For how long can I carry forward a loss?

For eight tax years immediately after the year in which it first arose. A short-term loss carried forward can be set off against any capital gain; a long-term loss only against long-term gains (section 111).

Do I have to file my return on time to carry forward a loss?

Yes. A loss not determined in a return filed under section 263(1), that is by the due date, cannot be carried forward (section 121).

Does a capital loss reduce the ₹1,25,000 exempt amount?

The long-term gain on listed equity is computed after set-off of losses, and the ₹1,25,000 is then deducted from the net gain (section 198(2)). A loss set off against a long-term gain reduces the net gain on which the exemption works.

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.

Cost of Acquisition for Capital Gains: Gifted, Inherited and Pre-2001 Assets (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 16 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A gift, will or inheritance is not a transfer, so the giver pays no capital gains tax. The receiver takes over the previous owner’s cost of acquisition and counts his holding period (section 70, section 73 Table serial 1, section 2(101)).
  • For assets acquired before 1 April 2001, the cost is the actual cost or the fair market value on that date, at your option; for land or building the fair market value is capped at the stamp duty value (section 90(9) and (10)).
  • For listed equity shares and equity-oriented fund units bought before 1 February 2018, the cost is the higher of actual cost and the lower of the value on 31 January 2018 and the sale price (section 90(7)).
  • If the previous owner’s cost cannot be found, his cost is the fair market value on the date he acquired it (section 90(11)).

To compute a capital gain you subtract the cost of acquisition from the sale price. For an asset you bought, that is simple. For an asset you received as a gift or inheritance, or that has been in the family since before 2001, the Income-tax Act, 2025 has specific rules. They are in sections 73 and 90.

Gifts and inheritance: no tax on receipt of the asset

  • A transfer by gift, will or irrevocable trust by an individual or HUF is not a transfer for capital gains (section 70(1)(b)), and a partition of a HUF is also outside it (section 70(1)(a)). The giver does not pay capital gains tax.
  • The receiver is not taxed on a gift of money or property received from a relative, on the occasion of marriage, under a will or by way of inheritance, or in contemplation of death (section 92(3)). A gift from a non-relative above ₹50,000 in a year, in cash or property, is taxed as income from other sources (section 92(2)(m)). “Relative” includes the spouse, brothers and sisters, and lineal ascendants and descendants and their spouses (section 92(5)(g)).
  • Income from an asset you gift to your spouse or minor child is generally added to your own income (section 99, income of other persons included), and a house gifted to a spouse or minor child remains yours for house property tax (section 25).

The receiver’s cost and holding period

When the receiver sells the asset:

  • Cost of acquisition is the cost for which the previous owner acquired it, increased by the cost of improvement borne by the previous owner or by the receiver (section 73(1), Table serial 1).
  • Previous owner means the last owner who acquired the asset in a way other than gift, will, inheritance, trust transfer, distribution on liquidation and the other modes in that serial (section 73(2)(a)).
  • Holding period includes the period the previous owner held the asset (section 2(101)(c)(B)(I)).
  • If the cost to the previous owner cannot be found, it is taken as the fair market value on the date he acquired the asset (section 90(11)).
  • Cost of improvement covers capital expenditure on additions and alterations. For an asset that came to the previous owner before 1 April 2001, only expenditure on or after 1 April 2001 counts (section 90(1)(b)(i)). It excludes expenditure already claimed against house property, business or other sources income (section 90(2)).

Assets held since before 1 April 2001

For an asset that became yours, or the previous owner’s, before 1 April 2001, the cost of acquisition is the actual cost or the fair market value on 1 April 2001, at your option (section 90(9)(a) and (b)). For land or building the fair market value on 1 April 2001 cannot exceed the stamp duty value on that date, where it is available (section 90(10)).

Shares and units bought before 1 February 2018 (grandfathering)

For long-term equity shares of a company, units of an equity-oriented fund or units of a business trust that are covered by section 198 and were acquired before 1 February 2018, the cost of acquisition is the higher of:

  • (a) the actual cost; and
  • (b) the lower of (i) the fair market value, and (ii) the sale price.

The fair market value is the highest quoted price on 31 January 2018 for a listed asset, the highest price on the nearest earlier trading day if there was no trade that day, and the net asset value for an unlisted unit (section 90(8)). For shares not listed on 31 January 2018 but listed on the transfer date, the Act gives an indexed cost formula.

Other cost rules

Asset Cost of acquisition
Bonus shares or other financial assets allotted without payment on the basis of holding Nil (section 90(6)(d))
Rights shares you subscribe for The amount you paid (section 90(6)(c))
The right to subscribe, if you renounce it Nil (section 90(6)(b))
Shares you buy from the person who renounced the right The price paid to him plus the amount paid to the company (section 90(6)(e))
Shares after consolidation, sub-division or conversion Cost worked out from the original shares (section 90(9)(d))
Shares on distribution of assets in liquidation Fair market value on the date of distribution (section 90(9)(c))
Shares allotted under an ESOP or RSU The fair market value taxed as a perquisite (section 73, serial 4)
Goodwill, brand, tenancy rights and other rights The purchase price, or nil in other cases (section 90(3))

Examples

1. Inherited house. Your father bought a house in 1990 for ₹2,00,000. Its fair market value on 1 April 2001 was ₹10,00,000, below the stamp duty value on that date. You inherit it in 2018 and sell it in September 2026 for ₹80,00,000. You can choose the cost: ₹2,00,000 (actual) or ₹10,00,000 (value on 1 April 2001). Choose ₹10,00,000, which gives the lower gain. The holding period includes your father’s, so the gain is long-term: 80,00,000 - 10,00,000 = ₹70,00,000. Tax is at 12.5% without indexation, or, as the house was acquired before 23 July 2024, the lower of that and 20% with indexation, if you are a resident individual (section 197).

2. Gifted shares. Your father gives you listed shares he bought in 2015 for ₹1,00,000. They were worth ₹3,00,000 on 31 January 2018. You sell them in 2026 for ₹5,00,000. The cost is the higher of ₹1,00,000 and the lower of ₹3,00,000 and ₹5,00,000, that is ₹3,00,000. The gain is ₹2,00,000, long-term, and taxable above ₹1,25,000 at 12.5%.

3. Gift from a friend. If a friend (not a relative) gives you land with a stamp duty value of ₹20,00,000, you are taxed on ₹20,00,000 as income from other sources in the year you receive it (section 92(2)(m)). That value is then your cost of acquisition if you sell the land later (section 73, serial 17).

Points to keep in mind

  • Keep the documents of the previous owner’s cost and any improvements. For old assets, a registered valuer’s report for the value on 1 April 2001 supports the option.
  • The cost of acquisition cannot include interest you claimed as a deduction elsewhere (section 72(3)).
  • For ESOP shares and shares of a foreign company, see our posts on ESOP taxation and on capital gains.
  • If the property was inherited, check whether the heir needs a will or legal heir certificate to prove the mode of acquisition.

Frequently asked questions

Is there capital gains tax when I gift or inherit an asset?

No. A transfer by gift, will or inheritance is not a transfer for capital gains (section 70(1)(b)), and the receiver is not taxed on a gift from a relative or on an inheritance (section 92(3)). Tax arises when the receiver later sells the asset.

What is the cost of an inherited or gifted asset?

The cost for which the previous owner acquired it, plus any cost of improvement borne by the previous owner or by you (section 73(1), Table serial 1). “Previous owner” is the last owner who acquired it other than by gift, will, inheritance or one of the other modes in that serial.

Does the holding period of the giver count?

Yes. The period for which the previous owner held the asset is included in your holding period (section 2(101)(c)), so an asset held by the giver for a long time is long-term in your hands even if you sell soon after receiving it.

What if the asset was bought before 1 April 2001?

You may take either the actual cost or its fair market value on 1 April 2001. For land or building the fair market value cannot exceed the stamp duty value on that date (section 90(9) and (10)). The same applies where the previous owner held it before that date.

How are shares bought before 1 February 2018 treated?

For long-term listed equity shares, units of an equity-oriented fund or a business trust, the cost is the higher of the actual cost and the lower of (i) the highest quoted price on 31 January 2018 (or net asset value for unlisted units) and (ii) the sale price (section 90(7) and (8)).

What is the cost of bonus and rights shares?

Bonus shares: nil. Rights shares: the amount you paid for them. A right to subscribe that you renounce: nil (section 90(5) and (6)).

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.

Section 85 (Earlier 54EC) Capital Gain Bonds, and Sections 83 and 84 (Earlier 54B and 54D) (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

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

Quick summary

  • Section 85 (earlier 54EC) exempts the long-term gain on land or building if the gain is invested within six months in NHAI or REC bonds redeemable after five years, up to ₹50 lakh.
  • The bonds must not be sold, converted into money or pledged for a loan within five years, or the exempted gain is taxed in that year (section 85(3) and (4)).
  • Section 83 (earlier 54B) exempts the gain on agricultural land if you buy other agricultural land within two years; section 84 (earlier 54D) exempts gain on compulsory acquisition of industrial land or building if you buy or build a replacement within three years.
  • Gains not used by the return due date go to the capital gains deposit scheme, except for section 85, where the investment must be within six months.

If you sell land or a building, investing the long-term gain in specified bonds can save tax on it. Two other sections give similar relief for agricultural land and for land taken by the government. This post covers sections 83 to 85 of the Income-tax Act, 2025.

Section 85 (earlier 54EC): investment in specified bonds

Original asset: land or building, or both, with a long-term capital gain. Gain on shares, gold or other assets does not qualify.

Who: any assessee, not only individuals.

Investment: all or part of the capital gain, within six months after the date of transfer, in a long-term specified asset: a bond redeemable after five years, issued on or after 1 April 2018 by the National Highways Authority of India or Rural Electrification Corporation Limited, or another bond notified by the Central Government.

Limit (section 85(2)): the investment from the gain on one or more original assets cannot exceed ₹50 lakh, either in a tax year, or in the year of the transfer and the next tax year taken together.

Exemption (section 85(1)):

  • If the gain is more than the investment, the excess is taxed under section 67.
  • If the gain is equal to or less than the investment, the whole gain is exempt.

Lock-in (section 85(3) and (4)): if you transfer the bonds, or convert them into money, within five years of acquiring them, the exempted gain is treated as long-term capital gain of that year. Taking a loan or advance on the security of the bonds is treated as converting them into money on that date.

No double benefit (section 85(5)): if you use the investment for this exemption, you cannot also claim a section 123 deduction for it.

Example. A plot held for six years is sold on 20/08/2026 for a long-term gain of ₹60,00,000. Within six months, by 19/02/2027, you invest ₹50,00,000 in NHAI bonds. Exempt: ₹50,00,000. Taxed: ₹10,00,000 at 12.5%, i.e. ₹1,25,000 plus cess. If you also sell another plot in the same year, the ₹50 lakh limit is shared.

Points to watch:

  • The six months run from the date of transfer, not the end of the year, and there is no deposit scheme alternative for this section. The bond must be bought in time, even if the return is not yet due.
  • If the sale price for a compulsory acquisition is not received on the date of transfer, the period for investment is counted from the date the compensation is received (section 89).
  • Interest on the bonds is taxable; the exemption is only for the capital gain.
  • The investment limit is for the gain from land or building, not the sale price. Invest no more than the gain.

Section 83 (earlier 54B): agricultural land

Who: an individual or HUF.

Original asset: land used for agricultural purposes by the assessee, his parent or the HUF in the two years immediately before the transfer. (The land must be a capital asset: urban land, as explained in our post on property sales.)

New asset: other land bought within two years after the transfer, for use for agriculture.

  • If the gain exceeds the cost of the new land, the excess is taxed, and the cost of the new land is nil if it is sold within three years of purchase.
  • If the gain is less than or equal to the cost, nothing is taxed, and the cost of the new land is reduced by the gain if it is sold within three years.

Deposit: if the gain is not used by the date of filing the return, deposit it in a specified bank under the capital gains deposit scheme before the due date and attach proof (section 83(2)). Any unused amount is taxed as income of the year in which two years from the transfer expire (section 83(4)).

Section 84 (earlier 54D): compulsory acquisition of an industrial undertaking’s land or building

Original asset: land, building or a right in them, belonging to an industrial undertaking and used by the assessee for its business in the two years before the transfer, compulsorily acquired under any law.

New asset: other land, building or a right, bought within three years after the transfer, or a building constructed in that period, for shifting or re-establishing the undertaking or setting up another industrial undertaking.

The same two-way rule applies: the gain above the cost of the new asset is taxed, and the cost of the new asset is nil or reduced if it is transferred within three years. The unused gain goes into the capital gains deposit scheme before the return due date, and any amount not used within three years of the transfer is taxed in the year those three years expire (section 84(4)).

Which section for which gain

Asset sold Residential house Land or building (not a house) Agricultural land Shares and other assets
Reinvest in a house Section 82 Section 86 Section 86 Section 86
Reinvest in NHAI or REC bonds Section 85 Section 85 Section 85 Not available
Reinvest in agricultural land Not available Not available Section 83 Not available

Our post on sections 82 and 86 explains the house exemptions, and the post on capital gains on property compares them with the bond route.

Before you invest

  1. Count six months from the date of transfer, and invest earlier than that if you want a margin.
  2. Keep the bond certificate and the allotment letter, and a note of the five-year date.
  3. Do not borrow against the bonds.
  4. Report the bonds and exemption in the capital gains schedule of the return.

Frequently asked questions

Who can claim the section 85 (earlier 54EC) exemption?

Anyone, including a company, with a long-term capital gain from the transfer of land or building or both who invests the gain, or part of it, within six months after the transfer in a long-term specified asset. Only gain on land or building qualifies.

What is a long-term specified asset?

A bond redeemable after five years issued on or after 1 April 2018 by the National Highways Authority of India or by Rural Electrification Corporation Limited, or any other bond notified by the Central Government (section 85(6)).

How much can I invest?

Not more than ₹50 lakh from the gain on one or more original assets in a tax year, or in the year of transfer and the next tax year together (section 85(2)).

How long must I hold the bonds?

Five years. If you transfer them, convert them into money or take a loan or advance against them within five years, the exempted gain is taxed as long-term gain in that year (section 85(3) and (4)).

Can I also claim section 123 on the same investment?

No. If the investment is used for section 85, no deduction under section 123 is allowed for it (section 85(5)).

When does section 83 apply?

When an individual or HUF sells agricultural land that was used for agriculture by the assessee, his parent or the HUF in the two preceding years, and buys other agricultural land within two years.

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.

Which ITR Form to File: ITR-1 to ITR-7 and ITR-UN Under Rule 164 (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 23 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Rule 164 of the Income-tax Rules, 2026 fixes the return form by taxpayer: SAHAJ (ITR-1) for simple resident individual income up to ₹50 lakh, ITR-2 for other individuals and HUFs without business income, SUGAM (ITR-4) for presumptive business income, ITR-3 for other business or profession income, ITR-5, 6 and 7 for other entities, and ITR-UN for updated returns.
  • ITR-1 is no longer limited to one house property: it now allows up to two, with no loss to carry forward, and long-term capital gains up to ₹1,25,000 under section 198.
  • Foreign assets, foreign income, directorship, unlisted equity shares held at any time in the year, agricultural income above ₹5,000 or total income above ₹50 lakh take you out of ITR-1 and ITR-4.
  • Return forms for tax year 2025-26 and earlier are those of that year (Rule 164(14)).

Filing on the wrong form can make the return defective or invalid. For tax year 2026-27, Rule 164 of the Income-tax Rules, 2026 lays out which form each type of taxpayer must use. This post summarises it. A return of tax year 2025-26 or earlier uses the form that applied in that year (Rule 164(14)).

The forms at a glance

Form For
SAHAJ (ITR-1) A resident individual (other than not ordinarily resident) with income from salary or family pension, house property (up to two), other sources, or small long-term capital gains, within the limits below
ITR-2 Individuals and HUFs with no income from business or profession who cannot use ITR-1
SUGAM (ITR-4) A resident individual, HUF or firm (other than an LLP) with presumptive business or professional income under section 58, and the other ITR-1-type conditions
ITR-3 Individuals and HUFs with business or professional income who cannot use ITR-1, ITR-2 or ITR-4
ITR-5 A person who is not an individual, HUF or company, and not covered by ITR-7: for example a firm, LLP, AOP or BOI
ITR-6 A company that is not required to use ITR-7
ITR-7 Persons including companies required to file under section 349 or Schedule VIII (trusts and institutions) or section 263(1)(a)(iv) or (v)
ITR-UN An updated return under section 263(6)

ITR-1 (SAHAJ): who can use it

A resident individual who is not a not ordinarily resident, whose total income includes income under:

  • Salaries, or family pension (section 93(1)(d)); or
  • House property, where he owns not more than two house properties and has no brought forward loss or loss to be carried forward under the head; or
  • Other sources, except winnings from lottery or income from race horses, and with no loss under the head; or
  • Capital gains, only if the gains are long-term gains under section 198 (listed equity with securities transaction tax) of not more than ₹1,25,000, with no brought forward loss or loss to carry forward.

Who cannot use ITR-1 (Rule 164(3))

  • anyone with assets (including a financial interest in an entity) located outside India, or signing authority in an account abroad, or income from any source outside India;
  • anyone with income to be apportioned under section 10;
  • a person who claims a deduction under section 93 other than under section 93(1)(d);
  • a director in a company;
  • a person who held any unlisted equity share at any time in the tax year;
  • a person assessable on income on which tax was deducted in the hands of another person;
  • a person who claims relief under section 159 or deduction under section 160 (foreign tax);
  • agricultural income above ₹5,000;
  • total income above ₹50 lakh;
  • a person on whom tax has been deducted under section 393(3) (Table serial 5);
  • a person whose tax payment or deduction has been deferred under section 391(2) or 392(3) (the ESOP of a start-up);
  • anyone with income on which tax is determined under Part A of Chapter XIII of the Act.

ITR-2

For an individual or HUF who is not eligible for ITR-1 and whose total income does not include business or professional income. It suits you if you have capital gains beyond the ITR-1 limit, more than two house properties, foreign assets or income, are a non-resident or a not ordinarily resident, are a director or hold unlisted shares, or have income above ₹50 lakh.

SUGAM (ITR-4)

For a resident (other than not ordinarily resident) individual or HUF, or a firm other than an LLP, who:

  • earns income from business or profession computed under the presumptive provisions of section 58; and
  • has capital gains, if any, only of long-term gains under section 198 up to ₹1,25,000.

A person cannot use ITR-4 if he has any of the exclusions in Rule 164(6): foreign assets, income or signing authority, a directorship, unlisted shares, total income above ₹50 lakh, more than two house properties, any brought forward loss or loss to carry forward under any head, agricultural income above ₹5,000, income of the nature in section 17(1)(d) on which tax is deferred (start-up ESOPs), relief or deduction for foreign tax, or income on which tax is determined under Part A of Chapter XIII.

ITR-3

For an individual or HUF with business or professional income who is not covered by the ITR-1, ITR-2 or ITR-4 rules. This includes presumptive taxpayers who do not meet the ITR-4 conditions, and professionals and traders who keep books of account.

ITR-5, ITR-6 and ITR-7

  • ITR-5: persons other than individuals, HUFs and companies who do not fall under ITR-7.
  • ITR-6: companies that do not fall under ITR-7.
  • ITR-7: trusts, institutions, companies registered under section 8 of the Companies Act, 2013 and others who must file under section 349 or Schedule VIII (Table serial 1.D(f)) or section 263(1)(a)(iv) or (v).

ITR-UN: the updated return

A person eligible to file an updated return under section 263(6) uses Form ITR-UN (Rule 165). See our post on late, revised and updated returns for the time limits and additional tax.

Examples

Taxpayer Form
Salaried, one house with a home loan, bank interest ITR-1
Salaried, sold listed shares and made long-term gain of ₹1,80,000 ITR-2 (the gain exceeds ₹1,25,000)
Salaried with RSUs of a foreign parent ITR-2 (foreign asset)
Salaried with three house properties ITR-2
Freelancer on presumptive income, income ₹18 lakh, no foreign assets ITR-4
Freelancer with a business loss carried forward ITR-3
Director of a private company ITR-2 or ITR-3
Firm or LLP ITR-5 (ITR-4 for a firm that is not an LLP and meets the presumptive conditions)
Company ITR-6
Charitable trust ITR-7

How to furnish and verify the return (Rule 164(11) and (12))

  • Nothing is attached to the return: no tax computation, proof of TDS or TCS or advance tax, or accounts or audit reports are to accompany it; keep them to produce on demand.
  • A company files electronically under digital signature.
  • A person whose accounts are audited files electronically under digital signature or transmits the data under an electronic verification code.
  • Any other person files electronically under digital signature, or with an electronic verification code, or transmits the data and then submits the verification in Form ITR-V.
  • An individual aged 80 or more filing ITR-1 or ITR-4 may also use the paper form.

Before you file

  1. List every source of income, every foreign asset and every unlisted share you held at any time in the year.
  2. Check the ITR-1 exclusions first, because most mistakes come from missing a foreign asset, an unlisted share or a directorship.
  3. Use the form that the department has notified for your year, as the utility may include details not in this summary.

Frequently asked questions

Who can file ITR-1 (SAHAJ)?

A resident other than not ordinarily resident individual whose total income does not exceed ₹50 lakh and includes salary or family pension, income from up to two house properties with no loss to carry forward, other sources (but not lottery or race horse income) with no loss, or long-term capital gains under section 198 up to ₹1,25,000, and who has none of the exclusions in Rule 164(3).

Who cannot file ITR-1?

Anyone with assets or signing authority outside India, foreign income, a directorship, unlisted equity shares held at any time in the tax year, agricultural income above ₹5,000, total income above ₹50 lakh, a non-resident or not ordinarily resident status, or income assessable in the hands of another person on which tax was deducted from that person.

Which form for capital gains?

ITR-1 only if the gains are long-term gains under section 198 of up to ₹1,25,000 and there is no brought forward loss. Short-term gains, gains above that figure or other types need ITR-2 (no business income) or ITR-3.

Which form for a freelancer or small business?

SUGAM (ITR-4) if you are a resident individual, HUF or firm (other than an LLP) with presumptive income under section 58, with none of the exclusions in Rule 164(6). Otherwise ITR-3.

Which form for a company or a trust?

ITR-6 for a company other than one that must use ITR-7. ITR-7 for persons who must file under the provisions for trusts and institutions (section 349, Schedule VIII and section 263(1)(a)(iv) or (v)). ITR-5 for firms, LLPs, AOPs, BOIs and other persons.

How is the return verified?

Electronically under a digital signature or by an electronic verification code, or, for most individuals, by sending the ITR-V after transmitting the data. An individual aged 80 or more filing ITR-1 or ITR-4 may also file on paper (Rule 164(12)).

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.

Cheque Bounce under Section 138 of the Negotiable Instruments Act: Notice, Time Limits, Penalty, Interim Compensation and Appeal

Posted on by CA Meet Dhrangadhariya

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

Quick summary

  • A cheque returned unpaid for insufficient funds, or because it exceeds the arrangement with the bank, is an offence under section 138 if it was issued for a legally enforceable debt or liability. Punishment is imprisonment up to two years, or fine up to twice the cheque amount, or both.
  • Three steps in time: present the cheque within six months of its date or its validity, whichever is earlier; send a written demand notice within 30 days of the bank’s return information; the drawer has 15 days from receipt of the notice to pay.
  • The complaint must be filed within one month after the 15 days end, in the court of the branch where the payee holds the account (if the cheque was deposited through an account).
  • The court may order interim compensation up to 20% of the cheque amount, and an appellant against conviction may be asked to deposit at least 20% of the fine or compensation.

A bounced cheque is not always a crime, but one returned for want of funds can be. Section 138 of the Negotiable Instruments Act, 1881 turns the dishonour of a cheque issued to discharge a debt into a criminal offence, subject to a strict timetable. Missing any step in that timetable ends the complaint, so the dates matter more than the amount.

When section 138 applies

A cheque drawn by a person on an account maintained by him with a banker, for payment of an amount to another person from that account, for the discharge in whole or in part of any debt or other liability, is returned by the bank unpaid either because:

  • the money standing to the credit of the account is insufficient to honour the cheque, or
  • the cheque exceeds the amount arranged to be paid from that account by an agreement with the bank.

“Debt or other liability” means a legally enforceable debt or liability. A cheque given as a gift, or for a time-barred or illegal debt, falls outside the section.

The three conditions in the proviso

  1. Presentation: the cheque is presented to the bank within six months from the date on which it is drawn, or within the period of its validity, whichever is earlier. (The RBI has fixed the validity of a cheque at three months from its date, so in practice the cheque must be presented within three months.)
  2. Demand notice: the payee or holder in due course gives a written notice to the drawer demanding the amount, within 30 days of receiving information from the bank that the cheque was returned unpaid.
  3. Drawer’s chance to pay: the drawer fails to pay the amount within 15 days of receiving the notice.

Only when all three are met is the offence complete.

Filing the complaint (section 142)

  • Only on a written complaint by the payee or the holder in due course.
  • Within one month from the date the cause of action arises, which is the day after the 15 days to pay have ended. The court may take a late complaint if the complainant shows sufficient cause.
  • The court must be not lower than a Metropolitan Magistrate or Judicial Magistrate of the first class.
  • Territorial jurisdiction: if the cheque was delivered for collection through an account, the court where the payee’s (or holder’s) branch is situated; if it was presented for payment otherwise than through an account, the court where the drawer’s branch is situated. A cheque delivered to any branch of the payee’s bank is treated as delivered to the branch where the payee holds the account.
  • Later complaints against the same drawer for other cheques go to the same court as an earlier pending complaint (section 142A).

Example timeline

Step Date
Cheque dated 01/06/2026
Presented to the bank 15/06/2026 (within validity)
Bank return memo received 17/06/2026
Last day to send the notice (30 days from receipt of information) 17/07/2026
Notice sent and received 05/07/2026
Drawer’s 15 days end 20/07/2026
File the complaint by (one month after the cause of action arises; do not leave it to the last day) 20/08/2026

Count the days from the date the notice was received, not the date it was posted, and keep the postal proof.

Presumptions and what the drawer cannot say

  • It is presumed, unless the contrary is proved, that the holder received the cheque for the discharge of a debt or liability (section 139).
  • It is not a defence that the drawer had no reason to believe the cheque would be dishonoured (section 140).
  • On production of the bank’s slip or memo showing the official mark of dishonour, the court presumes the fact of dishonour until it is disproved (section 146).
  • The complainant’s evidence can be given on affidavit (section 145), and summons can be served by speed post or approved courier (section 144).

Punishment

Imprisonment which may extend to two years, or a fine which may extend to twice the amount of the cheque, or both.

Companies (section 141): where the drawer is a company, every person in charge of and responsible for the conduct of its business at the time of the offence, as well as the company, is deemed guilty, unless the person proves the offence was committed without knowledge or that he exercised all due diligence. A nominee director from the Government or a government financial institution is not liable. A director, manager or other officer is also liable where the offence was committed with consent or connivance or is attributable to neglect on his part. For this section, “company” includes a firm or other association of individuals, and “director” means a partner in a firm.

Trial, interim compensation and appeal

  • Summary trial (section 143): trials are by a Judicial Magistrate of the first class or Metropolitan Magistrate and follow the summary procedure, with a sentence of up to one year in a summary trial, and the court endeavours to conclude the trial within six months of the complaint.
  • Interim compensation (section 143A, from 01/09/2018): the court may order the drawer to pay the complainant up to 20% of the cheque amount, when the drawer pleads not guilty in a summary trial or summons case, or after charge is framed in other cases. It is payable within 60 days (extendable by up to 30 days) and is refunded, with interest at the RBI bank rate, if the drawer is acquitted.
  • Appeal deposit (section 148): in an appeal by the drawer against conviction, the appellate court may order a deposit of at least 20% of the fine or compensation awarded, in addition to any interim compensation, within 60 days (extendable by 30 days). The amount can be released to the complainant during the appeal and is repaid with interest if the appellant is acquitted.
  • Settlement: every offence under the Act is compoundable (section 147).

What to do if your cheque bounces

  1. Ask the bank for the return memo and note the date you received it.
  2. Send a written notice, by a method that gives proof of delivery, within 30 days, stating the cheque number, date, amount and the reason for return.
  3. Wait for the 15 days to end, then file the complaint within the next month.
  4. Keep the bank slips, the notice, the postal receipts and proof of the underlying debt (invoice, ledger, agreement).

If you are the drawer, reply to the notice, pay within 15 days where the debt is genuine, and keep proof of payment.

Points to check

  • This post follows the Act as published on India Code. That copy still refers to the Code of Criminal Procedure, 1973; the Bharatiya Nagarik Suraksha Sanhita, 2023 has replaced it from 01/07/2024, so check the equivalent BNSS provisions for procedure.
  • The three month validity of a cheque is an RBI instruction, not stated in the Act.
  • The facts of each case (the debt, defences, jurisdiction) decide the outcome; take legal advice before sending a notice or replying to one.

Frequently asked questions

Is every bounced cheque a criminal offence?

No. Section 138 applies when a cheque issued for a legally enforceable debt or liability is returned unpaid because the account has insufficient money, or the cheque exceeds the amount arranged with the bank. Other reasons, such as signature mismatch or account closed, are dealt with by courts on their own facts.

What is the punishment?

Imprisonment for a term which may extend to two years, or a fine which may extend to twice the amount of the cheque, or both.

Within what time must the cheque be presented?

Within six months from the date on which it was drawn, or within its validity period, whichever is earlier.

What is the time limit for the legal notice?

A written demand must be given to the drawer within 30 days of receiving information from the bank that the cheque was returned unpaid.

How long does the drawer have to pay after the notice?

15 days from the receipt of the notice. If the drawer does not pay, the cause of action arises.

By when must the complaint be filed?

Within one month from the date the cause of action arises, that is, after the 15 days end. The court can take a late complaint if the complainant shows sufficient cause for the delay.

Which court has jurisdiction?

The court where the payee’s or holder’s bank branch is situated, if the cheque was delivered for collection through an account; otherwise the court where the drawer’s bank branch is situated.

Can the case be settled?

Yes. Every offence under the Act is compoundable under section 147.

What is interim compensation?

Under section 143A, the court trying the case may order the drawer to pay up to 20% of the cheque amount to the complainant when the drawer pleads not guilty (or after charge is framed), payable within 60 days, and refundable with interest if the drawer is acquitted.

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.