Tag: Section 92

Transfer Pricing under the Income-tax Act, 2025: Arm’s Length Price, Documentation, Form 48 Report and Fee (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

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

Quick summary

  • Transfer pricing rules (sections 161 to 173 of the Income-tax Act, 2025, old sections 92 to 92F) require income, expense and interest from an international transaction or a specified domestic transaction to be worked out at the arm’s length price.
  • Associated enterprises are linked by shareholding of 26% or more of the voting power, a loan of 51% or more of total assets, guarantees of 10% or more of borrowings, control of the board, dependence on intangibles or raw materials, and similar tests (section 162).
  • The method is chosen from comparable uncontrolled price, resale price, cost plus, profit split, transactional net margin or a prescribed method (section 165); a variation of up to 3% (as notified) from the arm’s length price is tolerated when one price is determined.
  • The accountant’s report goes in Form 48 at least one month before the return due date (Rule 85); late filing now attracts a fee of ₹50,000 (up to one month) or ₹1,00,000 (section 428(d)), since the penalty in section 447 was omitted by Finance Act 2026, and a penalty of 2% of the transaction value applies for failing to keep documents (section 442).

When two related businesses deal with each other, the price they charge may not be the price independent parties would have agreed. Transfer pricing rules make sure the profit is not shifted out of India by such pricing. In the Income-tax Act, 2025 (from 01/04/2026) they are in Chapter X, sections 161 to 173 (old sections 92 to 92F), and the Rules in Rules 84 and 85.

Section map

Old New Subject
92 161 Income and expense at arm’s length price
92A 162 Associated enterprise
92B 163 International transaction
92BA 164 Specified domestic transaction
92C 165 Determination of arm’s length price
92CA 166 Reference to Transfer Pricing Officer
92CB 167 Safe harbour
92CC, 92CD 168, 169 Advance pricing agreement
92CE 170 Secondary adjustment
92D 171 Information and documents
92E 172 Accountant’s report
92F 173 Definitions
3CEB Form 48 Accountant’s report

Who is an associated enterprise (section 162)

Two enterprises are associated if, for example:

  • the same persons take part in the management, control or capital of both;
  • one holds 26% or more of the voting power of the other, or a person holds 26% or more in each;
  • one has lent a loan that is 51% or more of the book value of the other’s total assets, or guarantees 10% or more of its total borrowings;
  • one appoints more than half of the other’s board or an executive director;
  • one depends wholly on intangibles owned by the other, or 90% or more of its raw materials come from the other on influenced terms, or its goods are sold to the other on influenced terms;
  • common control by an individual or relatives, or a HUF and a member;
  • one is a firm, association or body of individuals and the other holds 10% or more interest in it; or
  • they have a prescribed relationship of mutual interest.

International and specified domestic transactions

An international transaction (section 163) is a transaction between associated enterprises, one of which is necessarily a non-resident, covering tangible and intangible property, capital financing (borrowing, lending, guarantee, marketable securities, advances), services (market research, management, technical, legal, accounting and others), business restructuring, cost-sharing arrangements and any other transaction having a bearing on profits, income, losses or assets. A transaction with an outsider is deemed an international transaction if a prior agreement exists with an associated enterprise, or its terms are determined in substance between the outsider and the associated enterprise (section 163(2)).

A specified domestic transaction (section 164) includes certain transactions between the assessee and related persons (for example those covered by sections 122, 140(9), 140(13) and 205(4)) and prescribed ones, where the aggregate of such transactions in the tax year exceeds ₹20 crore.

Determining the arm’s length price (section 165)

  1. Choose the most appropriate method from: comparable uncontrolled price, resale price, cost plus, profit split, transactional net margin, or another method the Board prescribes (section 165(1) and (2)).
  2. If one price results, it is the arm’s length price; but the price actually charged is accepted if it differs by no more than a notified percentage, not exceeding 3% (section 165(3)(a)). If more than one price results, the price is determined as prescribed (section 165(3)(b)).
  3. The Assessing Officer can determine the arm’s length price if the price was not determined correctly, documents were not kept, the data used is unreliable or information was not furnished in time, after giving a show-cause notice (section 165(4) and (5)). No deduction under Chapter VIII is allowed on the income that is increased (section 165(7)).
  4. Where the AO makes the adjustment on a payment from which tax was deducted, the other associated enterprise’s income is not recomputed (section 165(8)).
  5. The Assessing Officer can refer the case to the Transfer Pricing Officer (section 166), and a secondary adjustment can be required to align the books with the transfer price (section 170).

Safe harbour rules (section 167) and advance pricing agreements (sections 168 and 169) can give certainty in advance.

Documentation (section 171, Rule 84)

Every person who has entered into an international or specified domestic transaction, and every constituent entity of an international group, must keep and maintain information and documents as prescribed. Rule 84(1) lists them: ownership structure, group profile, business description, terms of each transaction, functional analysis (functions, risks, assets), forecasts, comparability analysis, methods considered, the reasons for the method chosen, and the computation of the arm’s length price.

  • Exemption: the list does not apply to international transactions whose aggregate value in the books for the year does not exceed ₹1 crore, but the assessee must substantiate that the income from them was computed at arm’s length (Rule 84(2) and (3)).
  • Retention: nine years from the end of the relevant tax year (Rule 84(8)).
  • On request: documents must be furnished within ten days of a notice, extendable by up to thirty days on application (section 171(2) and (3)).

The accountant’s report: Form 48 (section 172, Rule 85)

Every person who entered into an international or specified domestic transaction in the tax year must obtain a report from an accountant and furnish it in Form 48, at least one month before the due date of the return (Rule 85). “Specified date” is one month before the due date for the return under section 263(1) (section 173(d)). For a company or an audited assessee with a return due date of 31 October, that is 30 September (and one month before 30 November where the return is due on 30 November).

Consequences of default

Default Consequence Section
Report not furnished by the specified date Fee of ₹50,000 (up to one month) or ₹1,00,000 thereafter 428(d)
Failure to keep documents, to report a transaction or incorrect information Penalty of 2% of the value of each transaction 442(1)
Failure to furnish information required for an international group Penalty of ₹5,00,000 442(2)
Adjustment of income Assessed after notice and the AO’s determination 165(4) to (6)

The old penalty of ₹1,00,000 for not furnishing the report (section 447) was omitted by Finance Act 2026 from 01/04/2026 and replaced by the fee under section 428(d).

Practical points

  1. Build the transfer pricing file during the year, not at filing time.
  2. Check whether the 26%, 51% or 10% tests apply to every group company, since a small shareholding can still make two companies associated.
  3. Treat management fees, royalties, loans to subsidiaries and guarantees as international transactions.
  4. Keep the Form 48 date in the compliance calendar, one month before the return.

How CSM & Co LLP can help

We prepare transfer pricing documentation, benchmarking studies and the accountant’s report in Form 48 for businesses with related party dealings. Please reach out to our team and we will be happy to assist.

Frequently asked questions

Which sections of the 2025 Act deal with transfer pricing?

Sections 161 to 173 in Chapter X: section 161 (income at arm’s length price), 162 (associated enterprise), 163 (international transaction), 164 (specified domestic transaction), 165 (determination of arm’s length price), 166 (reference to the Transfer Pricing Officer), 167 (safe harbour), 168 and 169 (advance pricing agreements), 170 (secondary adjustment), 171 (information and documents), 172 (accountant’s report) and 173 (definitions).

Who is an associated enterprise?

An enterprise that participates in the management, control or capital of the other, or in which the same persons do; or one holding 26% or more of the voting power of the other (or a person holding 26% in both); or one that has lent 51% or more of the other’s total assets (book value); or guarantees 10% or more of its borrowings; or appoints more than half its board; or the business of which depends wholly on the other’s intangibles or on 90% or more of raw materials supplied by the other; and certain cases of common control by an individual or HUF (section 162).

What is an international transaction?

A transaction between two or more associated enterprises, one of which is necessarily a non-resident, covering the purchase, sale or use of tangible or intangible property, lending and borrowing, provision of services, business restructuring, cost sharing and any other transaction affecting profits, income, losses or assets (section 163). A transaction with an outsider can be deemed an international transaction if there is a prior agreement with an associated enterprise, or its terms are in substance determined with it (section 163(2)).

Is there a minimum value for documentation?

Rule 84(2) says the detailed documentation list does not apply to an international transaction where the aggregate value recorded in the books for the tax year does not exceed ₹1 crore, but the assessee must substantiate that income from them was computed at arm’s length. Specified domestic transactions count only where the aggregate in the year exceeds ₹20 crore (section 164). Documents are kept for nine years from the end of the tax year (Rule 84(8)).

What is the tolerance for the arm’s length price?

Where one price is determined by the most appropriate method, the price actually charged is accepted if the difference from that price is not more than a percentage, not exceeding 3%, notified by the Central Government (section 165(3)(a)(ii)).

What if the accountant’s report is late?

A fee of ₹50,000 for a delay up to one month and ₹1,00,000 thereafter (section 428(d)). The separate penalty of ₹1,00,000 in section 447 was omitted by Finance Act 2026 from 01/04/2026. A penalty of 2% of the value of each transaction applies for failure to keep and maintain documents, to report a transaction, or for incorrect information (section 442(1)).

Official sources

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Disclaimer

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

Dividend and Deemed Dividend under the Income-tax Act, 2025: Meaning, Tax, TDS and Section 2(40) (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

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

Quick summary

  • Dividend is taxed in the shareholder’s hands as income from other sources (section 92(2)(a)) at the normal rates, and no expense, including interest, can be deducted against it from 01/04/2026 (section 93(2) as substituted by Finance Act 2026).
  • The Act’s meaning of dividend (section 2(40)) is wider than the cash dividend a company declares: it includes distribution of accumulated profits, debentures, payments on liquidation or capital reduction, and loans or advances by a closely held company to a shareholder with 10% or more voting power, or to a concern in which that shareholder has a substantial interest (deemed dividend).
  • From 01/04/2026 a payment by a company on buy-back of its own shares is no longer within the dividend definition; it is dealt with under the capital gains provisions.
  • A domestic company deducts TDS of 10% on dividend (section 393(1), Table Sl. No. 7); there is no deduction from an individual’s dividend paid by a mode other than cash if the total in the year does not exceed ₹10,000 (section 393(4)).

A dividend is a share of a company’s profits paid to its shareholders. For tax, the Income-tax Act, 2025 (in force from 01/04/2026) uses a wider meaning in section 2(40) and then taxes it as income from other sources under section 92(2)(a). The old Dividend Distribution Tax was abolished long ago, so the tax is on the shareholder.

What counts as dividend (section 2(40))

Dividend includes:

  1. Any distribution by a company of accumulated profits, whether capitalised or not, that releases assets of the company to its shareholders.
  2. A distribution of debentures, debenture-stock or deposit certificates to shareholders, and a distribution of bonus shares to preference shareholders, to the extent of accumulated profits.
  3. A distribution on liquidation, to the extent attributable to accumulated profits just before liquidation.
  4. A distribution on reduction of capital, to the extent of accumulated profits.
  5. Deemed dividend (section 2(40)(e)), described next.

“Accumulated profits” includes all profits of the company up to the date of the distribution or payment (up to liquidation in case 3). For an amalgamated company, the accumulated profits of the amalgamating company on the date of amalgamation are added.

Buy-back is no longer dividend

Before 01/04/2026, sub-clause (f) treated a payment by a company on the purchase of its own shares as dividend. Finance Act 2026 omitted it. A buy-back is now taxed as a transfer under the capital gains provisions (section 69 of the 2025 Act as amended, which also has a higher tax for promoters).

Deemed dividend: loans to shareholders

If a company in which the public is not substantially interested (a closely held company) pays any sum, to the extent it has accumulated profits, as:

  • an advance or loan to a shareholder who is the beneficial owner of shares carrying at least 10% of the voting power (not shares with a fixed rate of dividend); or
  • an advance or loan to a concern (a HUF, firm, association of persons, body of individuals or company) in which that shareholder is a member or partner and has a substantial interest; or
  • a payment on behalf of, or for the individual benefit of, such a shareholder,

the amount is treated as dividend. A person has a substantial interest in a concern other than a company if beneficially entitled to 20% or more of its income at any time in the tax year (section 2(40), explanation (D)).

Example. X Pvt Ltd (closely held) has accumulated profits of ₹40 lakh. It lends ₹25 lakh to Mr S, who holds 12% of the voting power. The ₹25 lakh is treated as dividend in Mr S’s hands because the loan is within the accumulated profits. Had the loan been ₹60 lakh, only ₹40 lakh would be deemed dividend.

What is not dividend

  • A loan or advance in the ordinary course of business, where lending money is a substantial part of the company’s business.
  • A dividend paid by the company that is set off against an earlier amount already treated as deemed dividend, to that extent.
  • A distribution of shares by the resulting company in a demerger.
  • Certain advances or loans between two group entities, where one is an IFSC finance company or finance unit, the other is located outside India, and the parent is listed outside India in a country notified by the Central Government.
  • A distribution on liquidation or capital reduction in respect of shares issued for full cash consideration where the holder cannot take part in surplus assets on liquidation.

How dividend is taxed

  • Head: income from other sources (section 92(2)(a)).
  • Rate: the normal rates on the shareholder’s total income. There is no separate flat rate for a resident.
  • When: a dividend is the income of the tax year in which it is declared, distributed or paid; an interim dividend is the income of the year in which it is unconditionally made available to the shareholder entitled to it (section 7(2)).
  • Deductions: none. Section 93(2), as substituted by Finance Act 2026, says no deduction is allowed against dividend income or income from units of specified mutual funds and UTI units. Earlier, interest expense up to 20% of the dividend was allowed. Section 93(1)(a), which allows commission paid for realising interest on securities, no longer mentions dividend either.

TDS on dividend

A domestic company deducts 10% of any dividend (including on preference shares) before paying it, and the table shows no threshold (section 393(1), Table Sl. No. 7). No tax is deducted in these cases (section 393(4), Table Sl. No. 10):

  • dividend paid to LIC, GIC and the other specified insurance bodies, and to other notified persons; and
  • dividend to an individual shareholder paid by a mode other than cash, if the total dividend paid or likely to be paid in the tax year does not exceed ₹10,000.

A shareholder who qualifies can give the declaration allowed under section 393(6) in the cases listed there. The TDS is credited against your tax, so claim it in the return using your tax statement.

Practical points

  1. Loans from your own company. A shareholder-director who borrows from a closely held company should check the 10% voting power test and accumulated profits before drawing the money, because the loan can become taxable dividend.
  2. Review buy-back plans. Since 01/04/2026 they are taxed as capital gains.
  3. Financing shares by borrowing. The interest is no longer deductible against dividend income. Whether it can be claimed anywhere else was not examined for this post.
  4. Foreign and non-resident dividends have separate rates and treaty rules and are not covered here.

How CSM & Co LLP can help

We advise closely held companies on loans to shareholders and directors, reporting of dividend income and TDS compliance on dividend. Please reach out to our team and we will be happy to assist.

Frequently asked questions

What is deemed dividend?

Deemed dividend arises when a company in which the public is not substantially interested pays money, to the extent of its accumulated profits, as a loan or advance to a shareholder who is the beneficial owner of shares carrying 10% or more of the voting power, or to a concern in which that shareholder is a member or partner and has a substantial interest, or pays on behalf of or for the individual benefit of such a shareholder (section 2(40)(e)). The amount is taxed as the shareholder’s dividend income.

What does “substantial interest” mean for a concern that is not a company?

A person has a substantial interest in a concern, other than a company, if at any time in the tax year the person is beneficially entitled to not less than 20% of the income of the concern (section 2(40), explanation (D)).

Which loans are not deemed dividend?

An advance or loan made to a shareholder or the concern by a company in the ordinary course of its business, where lending money is a substantial part of the company’s business; a dividend that is set off against an amount earlier treated as deemed dividend; a distribution of shares by the resulting company in a demerger; and certain loans between group entities involving an IFSC finance company or finance unit and a foreign-listed group (section 2(40), exclusions (i) to (v)).

Is the company’s buy-back payment still a dividend?

No, from 01/04/2026. The sub-clause that treated a payment by a company on purchase of its own shares as dividend was omitted by Finance Act 2026. Buy-back proceeds are taxed under the capital gains provisions (see section 69).

Can I deduct interest paid on a loan used to buy shares?

No. Section 93(2), as substituted by Finance Act 2026, allows no deduction against dividend income or income from units of specified mutual funds and UTI units. Earlier, interest up to 20% of the dividend could be deducted.

Is there TDS on dividend?

Yes. A domestic company deducts 10% before paying any dividend (section 393(1), Table Sl. No. 7), with no threshold in the table. The deduction is not made on an individual shareholder’s dividend if it is paid by a mode other than cash and the total during the tax year does not exceed ₹10,000, and for certain shareholders such as LIC, GIC and other specified institutions (section 393(4), Table Sl. No. 10).

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 from Other Sources under the Income-tax Act, 2025: Section 92 Gifts, Interest, Lottery Winnings and Compensation (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 07 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 92 of the Income-tax Act, 2025 (old section 56) taxes every kind of income that does not fit another head, and lists specific items: dividend, lottery and game winnings, interest on securities, forfeited advance, employment termination compensation, insurance maturity above premiums, interest on enhanced compensation, and gifts above ₹50,000 in a year.
  • Gifts of money, land, building, shares, jewellery and other listed property above ₹50,000 are taxed unless they come from a relative, at marriage, by will or inheritance, in contemplation of death, or fall in the other exceptions of section 92(3); a property bought below stamp duty value is taxed only if the gap exceeds the higher of ₹50,000 or 10% of the price.
  • Lottery, game show, card game, gambling and race winnings are taxed at a flat 30% with no deduction (sections 194(1) and 94(4)); net online game winnings are also at 30%.
  • Interest on enhanced compensation is taxed in the year of receipt, with 50% deducted (sections 278(1) and 93(1)(f)); family pension gets the lower of one-third or ₹25,000 (₹15,000 in the old regime) (section 93(1)(d)).

“Income from other sources” is the last of the five heads of income. Under the Income-tax Act, 2025, which applies from 01/04/2026, section 92 says income of every kind that is not exempt and does not fall under salary, house property, business or profession, or capital gains is taxed here (section 92(1)). Section 92(2) then lists specific items. Section 93 allows deductions, section 94 bars some deductions, and section 95 applies the business-profits rules in section 38(1) to (4) to computations under section 92.

This replaces sections 56 to 59 of the 1961 Act. One item in the old section 56 is gone: the tax on a closely held company’s share issue above fair value (56(2)(viib), “angel tax”) does not appear in the 2025 Act’s list.

What section 92(2) lists

Item Clause Notes
Dividend (a) Taxed here; no deduction against it (section 93(2))
Winnings from lottery, crossword puzzle, races, card games, other games, gambling, betting (b) 30% flat (section 194(1))
Employees’ contributions to PF, superannuation, ESI or other welfare funds received by the employer (c) If not taxed as business income (late deposit)
Keyman insurance receipts, including bonus (d) If not taxed as business income or salary
Interest on securities (e) If not taxed as business income
Income from hiring out machinery, plant or furniture (f), (g) Also buildings if letting is inseparable
Advance received in negotiations for transfer of a capital asset, forfeited when the deal fails (h)
Interest on compensation or enhanced compensation (section 278(1)) (i) 50% deduction
Compensation on termination of employment or change in its terms (j)
Specified sum received by a unit holder from a business trust (k) Formula A less B less C
Life insurance receipts above premiums not claimed as deduction (not ULIP, not keyman) (l) If not exempt under Schedule II, Sl. No. 2
Sums or property received without or for inadequate consideration (m) Gifts, see below

Interest on savings accounts, fixed deposits, recurring deposits and bonds and rent that is not business or property income are taxed under section 92(1) or (2)(e), as before.

Gifts above ₹50,000 (section 92(2)(m))

A person who receives, from any person or persons in the tax year:

  1. Money without consideration totalling more than ₹50,000: the whole sum is taxed.
  2. Immovable property without consideration whose stamp duty value exceeds ₹50,000: the stamp duty value is taxed.
  3. Immovable property for a consideration: the stamp duty value that exceeds the consideration is taxed if that excess is more than the higher of ₹50,000 and 10% of the consideration.
  4. Other property without consideration (shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, works of art, bullion, virtual digital assets) whose aggregate fair market value exceeds ₹50,000: the whole fair market value is taxed.
  5. Other property for a consideration that is less than its fair market value by more than ₹50,000: the excess of fair market value over the consideration is taxed.

Example. A buys a flat for ₹50,00,000. If the stamp duty value is ₹54,00,000, the excess of ₹4,00,000 is less than 10% of the price (₹5,00,000), so nothing is taxed. If the stamp duty value is ₹60,00,000, the excess of ₹10,00,000 is more than ₹5,00,000, so ₹10,00,000 is taxed as income from other sources.

If the agreement date and the registration date differ, the stamp duty value on the date of the agreement can be used, provided the consideration was paid in whole or in part by a specified banking or online mode on or before the date of the agreement (section 92(4)(a)). If the stamp duty value is disputed, the Assessing Officer can refer it to a Valuation Officer (section 92(4)(b)).

When a gift is not taxed (section 92(3))

  • From any relative (definition above and in section 92(5)(g)).
  • On the occasion of the marriage of the individual.
  • Under a will or by inheritance.
  • In contemplation of death of the payer or donor.
  • From a local authority.
  • From or by a registered non-profit organisation, except when received by a “related person” of it (section 355(h)).
  • In a transaction that is not regarded as a transfer under section 70(1) (the exact clauses of section 70(1) are listed in section 92(3)(g)).
  • From an individual by a trust created solely for the benefit of the individual’s relative.
  • From a class of persons prescribed by the Rules.

Remember clubbing: income that later arises from a gift to a spouse or a daughter-in-law is taxed in the donor’s hands (section 99), even though the gift itself is exempt as a gift from a relative.

Winnings from lotteries, games and betting

  • Tax rate: 30% flat on winnings from a lottery, crossword puzzle, race (including horse races, but not the business of owning and maintaining race horses), card game or any other game, gambling or betting (section 194(1), Table Sl. No. 1). Net winnings from an online game (computed as prescribed) are also at 30% (Table Sl. No. 5).
  • No deduction: no expenditure or allowance can be set against these winnings (section 94(4)). The exception is a race horse owner’s own business income (section 94(5)).
  • Meaning: “lottery” includes prizes by draw of lots, by chance or otherwise under any scheme; “card game and other game of any sort” includes a game show or entertainment programme on television or electronic mode where people compete to win prizes (section 92(5)(b) and (e)).
  • TDS: the payer deducts tax at the rates in force when the winnings in a single transaction exceed ₹10,000 (section 393(1), Table Sl. Nos. 1 and 3). A person who stocks, sells or distributes lottery tickets suffers 2% TDS on commission or prize above ₹20,000 (Table Sl. No. 4).
  • Computation: the 30% is charged on the winnings alone, and the tax on the rest of the income is worked out as if the winnings were not part of the total income (section 194(1)(a) and (b)).

Interest on compensation (section 92(2)(i) and 278(1))

Interest on compensation or enhanced compensation (for example, on land acquisition) is taxed in the tax year in which it is received, whatever the year to which it relates (section 278(1)). Half of it is deducted and no other deduction is allowed (section 93(1)(f)). The enhanced compensation itself is dealt with under the capital gains provisions (section 67).

Deductions allowed (section 93) and not allowed (section 94)

  • Commission or remuneration to a banker or other person for collecting interest on securities (section 93(1)(a), as substituted by Finance Act 2026, which dropped the reference to dividend).
  • For employees’ contributions: the deduction allowed for them under the business rules (section 93(1)(b)).
  • For hire of machinery, plant, furniture (and buildings): depreciation and expenses as for business (section 93(1)(c)).
  • Family pension: one-third of the pension or ₹25,000, whichever is less, where the tax is computed under section 202(1) (the new regime); one-third or ₹15,000, whichever is less, otherwise (section 93(1)(d)).
  • Interest on enhanced compensation: 50% of the income (section 93(1)(f)).
  • Commutation of pension from a specified fund, and gratuity on the death of an employee: the whole amount (section 93(1)(g) and (h)).
  • Any other expense that is not capital and is laid out wholly and exclusively for making the income (section 93(1)(e)).
  • Not allowed: personal expenses, interest payable outside India on which tax has not been paid or deducted, and salary payable outside India unless tax was paid or deducted (section 94(1)). No deduction at all is allowed against dividend income or against income from units of specified mutual funds and UTI units (section 93(2)).

How CSM & Co LLP can help

We help with gift documentation, valuation questions on property purchases, reporting winnings and compensation interest, and replies to notices about unexplained receipts. Please reach out to our team and we will be happy to assist.

Frequently asked questions

Which section of the 2025 Act replaces section 56?

Section 92 (what is taxed), section 93 (deductions), section 94 (amounts not deductible) and section 95 (profits chargeable) of the Income-tax Act, 2025.

Is a gift of more than ₹50,000 taxable?

Yes, if it is money (total above ₹50,000 in the tax year, then the whole sum), or immovable or other property given free of cost, whose stamp duty value or fair market value exceeds ₹50,000 (section 92(2)(m)). It is not taxed if it comes from a relative, on the occasion of the individual’s marriage, under a will or inheritance, in contemplation of death, from a local authority, from a registered non-profit organisation in the cases listed, in a transaction that is not a transfer under section 70(1), or from an individual to a trust for the benefit of the individual’s relative (section 92(3)).

Who is a relative for the gift rules?

For an individual: spouse; brother or sister; brother or sister of the spouse; brother or sister of either parent; any lineal ascendant or descendant; any lineal ascendant or descendant of the spouse; and the spouse of any of those persons listed from brother or sister onwards. For a HUF, any member (section 92(5)(g)).

How is lottery or game show income taxed?

At a flat 30% on the winnings (section 194(1), Table Sl. No. 1), with no deduction for expenditure or allowance (section 94(4)). A game show or an entertainment programme where people compete to win prizes counts as a card game or other game (section 92(5)(b)). TDS applies where a single payment exceeds ₹10,000 (section 393(1), Table Sl. No. 1).

Is interest on enhanced compensation taxable in the year it is awarded?

No. It is taxed in the tax year in which it is received (section 278(1)), under section 92(2)(i), after a deduction of 50% of the income (section 93(1)(f)), and no other deduction is allowed against it.

Can I deduct expenses against dividend income?

No. From 01/04/2026 section 93(2), as substituted by Finance Act 2026, allows no deduction against dividend income or income from specified mutual fund and UTI units. The earlier limit of interest expense up to 20% of the dividend no longer applies.

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.