INCOME-TAX ACT, 1961*

[43 OF 1961]
[AS AMENDED BY FINANCE ACT, 2008]

An Act to consolidate and amend the law relating to income-tax and super-tax

BE it enacted by Parliament in the Twelfth Year of the Republic of India as follows :—

CHAPTER I

PRELIMINARY

Short title, extent and commencement.

11. 2(1) This Act may be called the Income-tax Act, 1961.

(2)
It extends to the whole of India.
(3)
Save as otherwise provided in this Act, it shall come into force on the 1st day of April, 1962.

Definitions.

2. In this Act, unless the context otherwise requires,—

3[(1) “advance tax” means the advance tax payable in accordance with the provisions of Chapter XVII-C;]

  1. For applicability of the Act to State of Sikkim, see section 26 of the Finance Act, 1989. For extension of Act to Continental Shelf of India, see Notification No. GSR 304(E), dated 31-3-1983. For details, see Taxmann’s Master Guide to Income-tax Act.
  2. For effective date for the applicability of the Act in the State of Sikkim, see Notification No. SO 148(E), dated 23-2-1989. For details, see Taxmann’s Master Guide to Income-tax Act.

3. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. *Amendments made by the Finance Act, 2008 notwithstanding the dates from which they come into effect, have been printed in italics enclosed with bold square brackets. Amendments made by the Finance Act, 2007 coming into force from April 1, 2008 have also been printed in italics but enclosed within medium square brackets.

1.1

S. 2(1A) I.T. ACT, 1961

4[5(1A)] 6“agricultural income”7 means89[(a) any rent10 or revenue derived from land10 which is situated in India and is used for agricultural purposes;]

(b)
any income derived from such land10 by—
(i)
agriculture10; or
(ii)
the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market10; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause ;

(c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on :

9[Provided that—

(i)
the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and
(ii)
the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated—

(A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name)

  1. Renumbered as clause (1A) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  2. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  3. See rules 7 and 8 for manner of computation of income which is partially agricultural and partially from business. See also rules 7A & 7B.
  4. The Finance Act, 1973 introduced for the first time a scheme of partially integrated taxation of non-agricultural income with incomes derived from agriculture for the purposes of determining the rate of income-tax that will apply to certain non-corporate assessees. The scheme is since continued by the Annual Finance Acts. The provisions applicable for the assessment year 2008-09 are contained in section 2(2)/2(13)(c) and Part IV of the First Schedule to the Finance Act, 2008.
  5. See also Circular No. 310, dated 29-7-1981 and Circular No. 5/2003, dated 22-5-2003. For details, see Taxmann’s Master Guide to Income-tax Act.
  6. Substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962.
  7. For meaning of the terms/expressions “rent”, “revenue”, “derived”, “revenue derived from land”, “such land”, “agriculture” and “market”, see Taxmann’s Direct Taxes Manual, Vol. 3.
1.3 CH. I - PRELIMINARY S. 2(1B)

or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or

(B) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (A), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette11.]

12[13[Explanation 1.]—For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section.]

14[Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any building or land referred to in subclause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under subclause (a) or sub-clause (b) shall not be agricultural income;]

The following Explanation 3 shall be inserted after Explanation 2 in clause (1A) of section 2 by the Finance Act, 2008, w.e.f. 1-4-2009 :

Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income;

15[16[(1B)] “amalgamation”, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that—

(i)
all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation ;
(ii)
all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation ;
  1. For specified urban areas, refer Taxmann’s Direct Taxes Circulars.
  2. Inserted by the Finance Act, 1989, w.r.e.f. 1-4-1970.
  3. Explanation renumbered as Explanation 1 by the Finance Act, 2000, w.e.f. 1-4-2001.
  4. Inserted, ibid.
  5. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.
  6. Renumbered as clause (1B) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

S. 2(7) I.T. ACT, 1961

(iii) shareholders holding not less than 17[three-fourths] in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation,

otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company ;]

18[(1C) “Additional Commissioner” means a person appointed to be an Additional Commissioner of Income-tax under sub-section (1) of section 117;

(1D) “Additional Director” means a person appointed to be an Additional Director of Income-tax under sub-section (1) of section 117 ;]

(2)
“annual value”, in relation to any property, means its annual value as determined under section 23 ;
(3)
19[* * *]
(4)
“Appellate Tribunal” means the Appellate Tribunal constituted under section 252 ;
(5)
“approved gratuity fund” means a gratuity fund which has been and continues to be approved by the 20[Chief Commissioner or Commissioner] in accordance with the rules contained in Part C of the Fourth Schedule ;
(6)
“approved superannuation fund” means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the 20[Chief Commissioner or Commissioner] in accordance with the rules contained in Part B of the Fourth Schedule ;

21(7) “assessee”22 means a person by whom 23[any tax] or any other sum of money is payable under this Act, and includes—

(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income24[or assessment of fringe benefits] or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person ;

Substituted for “nine-tenths” by the Finance Act, 1999, w.e.f. 1-4-2000.Clauses (1C) and (1D) inserted by the Finance Act, 2007, w.r.e.f. 1-6-1994.Clause (3) omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.Substituted for “Commissioner”, ibid.For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.For meaning of the term “assessee”, see Taxmann’s Direct Taxes Manual, Vol. 3.Substituted for “income-tax or super-tax” by the Finance Act, 1965, w.e.f. 1-4-1965.Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.

1.5 CH. I - PRELIMINARY S. 2(11)
(b)
every person who is deemed to be an assessee under any provision of this Act ;
(c)
every person who is deemed to be an assessee in default under any provision of this Act ;

25[(7A) “Assessing Officer” means the Assistant Commissioner 26[or Deputy Commissioner] 27[or Assistant Director]26[or Deputy Director] or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or subsection (2) of section 120 or any other provision of this Act, and the 28[Additional Commissioner or] 29[Additional Director or] 30[Joint Commissioner or Joint Director] who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act ;]

(8)
“assessment”31 includes reassessment ;
(9)
“assessment year” means the period of twelve months commencing on the 1st day of April every year ;

32[(9A) “Assistant Commissioner” means a person appointed to be an Assistant Commissioner of Income-tax 33[or a Deputy Commissioner of Income-tax] under sub-section (1) of section 117 ;]

34[(9B) “Assistant Director” means a person appointed to be an Assistant Director of Income-tax under sub-section (1) of section 117;]

(10) “average rate of income-tax” means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income ;

35[(11) “block of assets” means a group of assets falling within a class of assets comprising—

(a) tangible assets, being buildings, machinery, plant or furniture;

  1. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  2. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.
  3. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.
  4. Inserted by the Finance Act, 2007, w.r.e.f. 1-6-1994.
  5. Inserted, ibid., w.r.e.f. 1-10-1996.
  6. Substituted for “Deputy Commissioner or Deputy Director” by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998. Earlier “or Deputy Director” was inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.
  7. For the meaning of the term “assessment”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  8. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  9. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.
  10. Inserted by the Finance Act, 2007, w.r.e.f. 1-4-1988.
  11. Substituted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999. Prior to its substitution, clause (11), as inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986,

w.e.f. 1-4-1988, read as under :

‘(11) “block of assets” means a group of assets falling within a class of assets, being buildings, machinery, plant or furniture, in respect of which the same percentage of depreciation is prescribed ;’

Original clause was earlier omitted by the Finance Act, 1965, w.e.f. 1-4-1965.

S. 2(14) I.T. ACT, 1961

(b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature,

in respect of which the same percentage of depreciation is prescribed ;]

(12) “Board” means the 36[Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963)] ;

37[(12A) “books or books of account” includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device;]

38(13) “business”39 includes any trade39, commerce or manufacture or any adventure39 or concern in the nature of trade39, commerce or manufacture ;

40(14) “capital asset” means property41 of any kind held by an assessee, whether or not connected with his business or profession, but does not include—

(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ;

42[(ii) personal effects43, that is to say, movable property (including wearing apparel and furniture) held for personal use 43 by the assessee or any member of his family dependent on him, but excludes—

(a)
jewellery;
(b)
archaeological collections;
  1. Substituted for “Central Board of Revenue constituted under the Central Board of Revenue Act, 1924 (4 of 1924)” by the Central Boards of Revenue Act, 1963, w.e.f. 1-1-1964.
  2. Inserted by the Finance Act, 2001, w.e.f. 1-6-2001.
  3. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  4. For the meaning of the terms/expressions “business”, “trade”, “adventure” and “in the nature of trade”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  5. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  6. For the meaning of the term “property”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  7. Substituted by the Finance Act, 2007, w.e.f. 1-4-2008. Prior to its substitution, sub-clause (ii), as substituted by the Finance Act, 1972, w.e.f. 1-4-1973, read as under :

“(ii) personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him. Explanation.—For the purposes of this sub-clause, “jewellery” includes—

(a)
ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel ;
(b)
precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel ;”

43. For the meaning of the expressions “personal effects” and “personal use”, see Taxmann’s Direct Taxes Manual, Vol. 3.

1.7 CH. I - PRELIMINARY S. 2(14)
(c)
drawings;
(d)
paintings;
(e)
sculptures; or
(f)
any work of art.

Explanation.—For the purposes of this sub-clause, “jewellery” includes—

(a)
ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;
(b)
precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;]

44[(iii) agricultural land45 in India, not being land situate—

(a)
in any area which is comprised within the jurisdiction of a municipality45 (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population45 of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or
(b)
in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette46;]

47[(iv) 6½ per cent Gold Bonds, 1977,48[or 7 per cent Gold Bonds, 1980,] 49[or National Defence Gold Bonds, 1980,] issued by the Central Government ;]

50[(v) Special Bearer Bonds, 1991, issued by the Central Government ;]

  1. Substituted for “(iii) agricultural land in India” by the Finance Act, 1970, w.e.f. 1-4-1970.
  2. For the meaning of the terms/expressions “agricultural land”, “municipality” and “population”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  3. For specified urban areas, refer Taxmann’s Direct Taxes Circulars.
  4. Inserted by the Taxation Laws (Amendment) Act, 1962, w.e.f. 13-12-1962.
  5. Inserted by the Finance (No. 2) Act, 1965, w.e.f. 1-4-1965.
  6. Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1965, w.e.f. 4-12-1965.
  7. Inserted by the Special Bearer Bonds (Immunities and Exemptions) Act, 1981, w.e.f. 12-1-1981.

S. 2(17) I.T. ACT, 1961

51[(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government ;]

52(15)53“charitable purpose”54 includes relief of the poor, education54, medical relief, and the advancement of any other 54object of general public utility 55[* * *] ;

The following clause (15) shall be substituted for clause (15) of section 2 by the Finance Act, 2008, w.e.f. 1-4-2009 :

(15) “charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;

56[(15A) “Chief Commissioner” means a person appointed to be a Chief Commissioner of Income-tax under sub-section (1) of section 117 ;] 57[58[(15B)] “child”, in relation to an individual, includes a step-child and an adopted child of that individual ;] 59[(16) “Commissioner” means a person appointed to be a Commissioner of Income-tax under sub-section (1) of section 117 60[* * *] ;] 61[(16A) “Commissioner (Appeals)” means a person appointed to be a Commissioner of Income-tax (Appeals) under sub-section (1) of section 117 ;] 62[(17) “company” means—

(i)
any Indian company, or
(ii)
any body corporate incorporated by or under the laws of a country outside India, or

(iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the

  1. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.
  2. See also Circular No. 395, dated 24-9-1984. For details, see Taxmann’s Master Guide to Income-tax Act.
  3. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  4. For the meaning of terms/expression “charitable purpose”, “education” and “object of general public utility”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  5. “not involving the carrying on of any activity for profit” omitted by the Finance Act, 1983,

w.e.f. 1-4-1984.

  1. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  2. Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.
  3. Renumbered by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  4. Substituted by the Finance Act, 1970, w.e.f. 1-4-1970.
  5. Words “, and includes a person appointed to be an Additional Commissioner of Income-tax under that sub-section” omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  6. Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978.
  7. Substituted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.

CH. I - PRELIMINARY S. 2(18)

Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or

(iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company :

Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration ;]

(18) “company in which the public are substantially interested”—a company is said to be a company in which the public63 are substantially interested—

64[(a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank ; or]

65[(aa) if it is a company which is registered under section 25 of the Companies Act, 1956 (1 of 1956)66 ; or

(ab) if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, it is declared by order of the Board to be a company in which the public are substantially interested :

Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration ; or]

67[(ac) if it is a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A68 of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society ; or]

69[(ad) if it is a company, wherein shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or

For the meaning of the term “public”, see Taxmann’s Direct Taxes Manual, Vol. 3.Substituted by the Finance Act, 1964, w.e.f. 1-4-1964.Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.For text of section 25 of the Companies Act, 1956, see Appendix.Inserted by the Finance Act, 1985, w.r.e.f. 1-4-1984.For text of section 620A of the Companies Act, 1956, and notified Nidhi(s) thereunder, see

Appendix.

Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

S. 2(19) I.T. ACT, 1961

acquired unconditionally by, and were throughout the relevant previous year beneficially held by, one or more co-operative societies ;]

70[(b) if it is a company which is not a 71private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :—

(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ;

72[(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by—

(a)
the Government, or
(b)
a corporation established by a Central, State or Provincial Act, or
(c)
any company to which this clause applies or any subsidiary company of such company 73[if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.]

Explanation.—In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words “not less than fifty per cent”, the words “not less than forty per cent” had been substituted ;]]

(19) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of cooperative societies ;

Substituted by the Finance Act, 1969, w.e.f. 1-4-1970. Earlier, clause (b) was amended firstby the Finance Act, 1965, w.e.f. 1-4-1965 and then by the Finance Act, 1966, w.e.f. 1-4-1966.Clause (iii) of section 3(1) of the Companies Act, 1956, defines “private company”. For textof section 3, see Appendix.Substituted by the Finance Act, 1983, w.e.f. 2-4-1983.Substituted for “where such subsidiary company fulfils the conditions laid down in clause

(b) of section 108” by the Finance Act, 1987, w.e.f. 1-4-1988.

1.11 CH. I - PRELIMINARY S. 2(19AA)

74[(19A) “Deputy Commissioner” means a person appointed to be a Deputy Commissioner of Income-tax 75[* * *] under sub-section (1) of section 117 ;

76[(19AA) “demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 39477 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that—

(i)
all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger;
(ii)
all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger;

(iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger;

(iv)
the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis;
(v)
the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger,

otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company;

(vi) the transfer of the undertaking is on a going concern basis;

(vii) the demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf.

Explanation 1.—For the purposes of this clause, “undertaking” shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity.

  1. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  2. Words “or an Additional Commissioner of Income-tax” omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998. Earlier the quoted words were inserted by the Finance Act, 1994,

w.e.f. 1-6-1994.

  1. Clauses (19AA) and (19AAA) inserted by the Finance Act, 1999, w.e.f. 1-4-2000.
  2. For text of sections 391 to 394 of the Companies Act, 1956, see Appendix.

S. 2(20) I.T. ACT, 1961

Explanation 2.—For the purposes of this clause, the liabilities referred to in sub-clause (ii), shall include—

(a)
the liabilities which arise out of the activities or operations of the undertaking;
(b)
the specific loans or borrowings (including debentures) raised, incurred and utilised solely for the activities or operations of the undertaking; and
(c)
in cases, other than those referred to in clause (a) or clause (b), so much of the amounts of general or multipurpose borrowings, if any, of the demerged company as stand in the same proportion which the value of the assets transferred in a demerger bears to the total value of the assets of such demerged company immediately before the demerger.

Explanation 3.—For determining the value of the property referred to in sub-clause (iii), any change in the value of assets consequent to their revaluation shall be ignored.

Explanation 4.—For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils 78[such conditions as may be notified in the Official Gazette79, by the Central Government];

(19AAA) “demerged company” means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company;]

(19B) “Deputy Commissioner (Appeals)” means a person appointed to be a Deputy Commissioner of Income-tax (Appeals) 80[or an Additional Commissioner of Income-tax (Appeals)] under sub-section (1) of section 117 ;]

81[(19C) “Deputy Director” means a person appointed to be a Deputy Director of Income-tax 82[* * *] under sub-section (1) of section 117 ;]

(20) 83“director”, “manager” and “managing agent”, in relation to a company, have the meanings respectively assigned to them in the Companies Act, 1956 (1 of 1956) ;

  1. Substituted for “the conditions specified in sub-clauses (i) to (vii) of this clause, to the extent applicable” by the Finance Act, 2000, w.e.f. 1-4-2000.
  2. For notified conditions, see Taxmann’s Master Guide to Income-tax Act.
  3. Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.
  4. Inserted, ibid.
  5. Words “or an Additional Director of Income-tax” omitted by the Finance (No. 2) Act, 1998,

w.e.f. 1-10-1998.

83. Clauses (13), (24) and (25) of section 2 of the Companies Act, 1956, define expressions “director”, “manager” and “managing agent”, respectively. For text of provisions, see

Appendix.

1.13 CH. I - PRELIMINARY S. 2(22)

84[(21) “Director General or Director” means a person appointed to be a Director General of Income-tax or, as the case may be, a Director of Income-tax, under sub-section (1) of section 117, and includes a person appointed under that sub-section to be 85[an Additional Director of Income-tax or] a 86[Joint] Director of Income-tax or an Assistant Director 87[or Deputy Director] of Income-tax ;]

(22)
88“dividend”89 includes—
(a)
any distribution89 by a company of accumulated profits89, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ;
(b)
any distribution89 to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits89, whether capitalised or not ;
(c)
any distribution89 made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not ;
(d)
any distribution89 to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits89 which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not ;
(e)
any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) 90[made after the 31st day of May, 1987, by way of advance or loan to a shareholder91, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern
  1. Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  2. Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.
  3. Substituted for “Deputy” by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.
  4. Inserted, ibid.
  5. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  6. For the meaning of the terms “dividend”, “distribution” and “profits”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  7. Substituted for “by way of advance or loan to a shareholder, being a person who has a substantial interest in the company,” by the Finance Act, 1987, w.e.f. 1-4-1988.
  8. For the meaning of the term “shareholder”, see Taxmann’s Direct Taxes Manual, Vol. 3.

S. 2(22) I.T. ACT, 1961

in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits92 ;

but “dividend” does not include—

(i) a distribution made in accordance with sub-clause (c) or subclause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ;

93[(ia) a distribution made in accordance with sub-clause (c) or subclause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, 94[and before the 1st day of April, 1965] ;]

(ii) any advance or loan made to a shareholder 95[or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ;

(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off;

96[(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A 97 of the Companies Act, 1956 (1 of 1956);

(v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).]

Explanation 1.—The expression “accumulated profits”, wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956.

Explanation 2.—The expression “accumulated profits” in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date

  1. For the meaning of the terms “profits” and “distribution”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  2. Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.
  3. Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.
  4. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
  5. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.
  6. For text of section 77A of the Companies Act, 1956, see Appendix.
1.15 CH. I - PRELIMINARY S. 2(23)

of liquidation, 98[but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place].

99[Explanation 3.—For the purposes of this clause,—

(a)
“concern” means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ;
(b)
a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ;]

1[(22A) “domestic company” means an Indian company, or any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income ;]

2[(22AA) “document” includes an electronic record as defined in clause (t)3 of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000);]

4[5[(22B)] “fair market value”, in relation to a capital asset, means—

(i)
the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date ; and
(ii)
where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act ;]
(23)
6“firm”, “partner” and “partnership” have the meanings respectively assigned to them in the Indian Partnership Act, 1932 (9 of 1932) ; but the expression “partner” shall also include any person who, being a minor, has been admitted to the benefits of partnership ;
  1. Inserted by the Direct Taxes (Amendment) Act, 1964, w.r.e.f. 1-4-1962.
  2. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
  1. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  2. Inserted by the Finance Act, 2001, w.e.f. 1-6-2001.
  3. For definition of “document” under section 2(1)(t) of the Information Technology Act, 2000, see Appendix.
  4. Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.
  5. Renumbered as clause (22B) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  6. Section 4 of the Indian Partnership Act, 1932, defines expressions “firm”, “partner” and

“partnership” as follows :
‘ “Partnership” is the relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called individually
“partners” and collectively “a firm”, and the name under which their business is carried on
is called the “firm name”.’

S. 2(24) I.T. ACT, 1961

7[(23A) “foreign company” means a company which is not a domestic company ;] 8[(23B) “fringe benefits” means any fringe benefits referred to in section 115WB;] 9(24) “income”10 includes10

(i)
profits and gains10 ;
(ii)
dividend ; 11[(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes 12[or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or subclause (v) 13[or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any

hospital or other institution referred to in sub-clause (iiiae) or subclause (via)] of clause (23C) of section 10].Explanation.—For the purposes of this sub-clause, “trust

includes any other legal obligation ;]

(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17 ;

14[(iiia) any special allowance or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit ;

(iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living ;]

  1. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  2. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.
  3. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  4. For the meaning of the terms/expression “income”, “includes” and “profits and gains”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  5. Inserted by the Finance Act, 1972, w.e.f. 1-4-1973.
  6. Substituted for “or by a trust or institution of national importance referred to in clause

(d) of sub-section (1) of section 80F” by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, the said expression was substituted for “, not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution” by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.

  1. Substituted for “or by any university or other educational institution referred to in subclause (vi) or by any hospital or other institution referred to in sub-clause (via)” by the Finance Act, 2006, w.e.f. 1-4-2007. Earlier the quoted words were inserted by the Finance Act, 2006, w.r.e.f. 1-4-1999.
  2. Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1962.
1.17 CH. I - PRELIMINARY S. 2(24)

(iv) the value of any benefit or perquisite15, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid ;

16[(iva) the value of any benefit or perquisite15, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the “beneficiary”) and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary ;]

(v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59 ; 17[(va) any sum chargeable to income-tax under clause (iiia) of section 28 ;] 18[(vb) any sum chargeable to income-tax under clause (iiib) of section 28 ;] 19[(vc) any sum chargeable to income-tax under clause (iiic) of section 28 ;] 20[(vd )] the value of any benefit or perquisite taxable under clause (iv) of section 28 ;

21[(ve) any sum chargeable to income-tax under clause (v) of section 28 ;]

(vi) any capital gains chargeable under section 45 ;

(vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule ;

  1. For the meaning of the expression “benefit or perquisite”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  2. Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980.
  3. Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1962.
  4. Inserted, ibid., w.r.e.f. 1-4-1967.
  5. Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1972.
  6. Relettered by the Finance Act, 1990, w.r.e.f. 1-4-1962. Earlier the original sub-clause (va) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964.
  7. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

S. 2(25) I.T. ACT, 1961

22[(viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;]

(viii)[Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original subclause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;]

23[(ix) any winnings from lotteries24, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.]

25[Explanation.—For the purposes of this sub-clause,—

(i)
“lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called ;
(ii)
“card game and other game of any sort” includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game ;]

26[(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ;]

27[(xi) any sum received under a Keyman insurance policy including the

sum allocated by way of bonus on such policy. Explanation.—For the purposes of this clause*, the expression “Keyman insurance policy” shall have the meaning assigned to it in the Explanation to clause (10D) of section 10 ;]

28[(xii) any sum referred to in 29[clause (va)] of section 28;] 30[(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;] 31[(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;]

(25) “Income-tax Officer” means a person appointed to be an Income-tax Officer under 32[* * *] section 117 ;

  1. Inserted by the Finance Act, 2006, w.e.f. 1-4-2007.
  2. Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.
  3. For the meaning of the term “lotteries”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  4. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.
  5. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
  6. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.
  7. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  8. Substituted for “clause (vii)” by the Finance Act, 2003, w.e.f. 1-4-2003.
  9. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005.
  10. Inserted by the Finance Act, 2007, w.e.f. 1-4-2007.
  11. Words “sub-section (1) of” omitted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. Earlier, that expression was inserted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.

*Should be read as “sub-clause”.

1.19 CH. I - PRELIMINARY S. 2(26A)

33[(25A) “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters;]

(26)
“Indian company” means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes—
(i)
a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir 34[and the Union territories specified in sub-clause (iii) of this clause]) ;

35[(ia) a corporation established by or under a Central, State or Provincial Act ; (ib) any institution, association or body which is declared by the Board to be a company under clause (17) ;]

(ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State ;

36[(iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa†, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory :]

Provided that the 37[registered or, as the case may be, principal office of the company, corporation, institution, association or body] in all cases is in India ;

38[(26A) “infrastructure capital company” means such company which makes investments by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the

33. Substituted by the Finance Act, 2007, w.r.e.f. 25-8-1976. Prior to its substitution, clause (25A), as inserted by the Taxation Laws (Extension to Union Territories) Regulation, 1963,

w.e.f. 1-4-1963, read as under :

‘(25A) “India” shall be deemed to include the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry,—

(a)
as respects any period, for the purposes of section 6 ; and
(b)
as respects any period included in the previous year, for the purposes of making any assessment for the assessment year commencing on the 1st day of April, 1963, or for any subsequent year ;’
  1. Inserted by the Taxation Laws (Extension to Union Territories) Regulation, 1963, w.e.f. 1-4-1963.
  2. Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.
  3. Inserted by the Taxation Laws (Extension to Union Territories) Regulation, 1963, w.e.f. 1-4-1963.
  4. Substituted for “registered office of the company” by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.
  5. Clauses (26A) and (26B) inserted by the Finance Act, 2006, w.e.f. 1-4-2006.
Now State of Goa.
S.
2(28C) I.T. ACT, 1961

business referred to in sub-section (4) of section 80-IA or sub-section

(1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three-star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients;

(26B) “infrastructure capital fund” means such fund operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908) established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three-star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients;]

(27)
39[* * *]
(28)
“Inspector of Income-tax” means a person appointed to be an Inspector of Income-tax under sub-section 40[(1)] of section 117 ;

41[42(28A) “interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ;]

43[(28B) “interest on securities” means,—

(i)
interest on any security of the Central Government or a State Government ;
(ii)
interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act ;]

44[(28BB) “insurer” means an insurer, being an Indian insurance company, as defined under clause (7A) of section 245 of the Insurance Act, 1938 (4 of 1938), which has been granted a certificate of registration under section 3 of that Act;]

46[(28C) “Joint Commissioner” means a person appointed to be a Joint Commissioner of Income-tax or an Additional Commissioner of Income-tax under sub-section (1) of section 117;

  1. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  2. Substituted for “(2)”, ibid.
  3. Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.
  4. See also Letter F. No. 164/18/77-IT(A-I), dated 13-7-1978. For details, see Taxmann’s Master Guide to Income-tax Act.
  5. Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.
  6. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.
  7. For text of section 2(7A) of the Insurance Act, see Appendix.
  8. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.
1.21 CH. I - PRELIMINARY S. 2(31)

(28D) “Joint Director” means a person appointed to be a Joint Director of Income-tax or an Additional Director of Income-tax under subsection (1) of section 117;]

(29) “legal representative” has the meaning assigned to it in clause (11) of section 2 of the Code of Civil Procedure, 1908 (5 of 1908)47 ; 48[(29A) “long-term capital asset” means a capital asset which is not a short-term capital asset ; (29B) “long-term capital gain” means capital gain arising from the transfer of a long-term capital asset ;]

49[(29C) “maximum marginal rate” means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual 50[, association of persons or, as the case may be, body of individuals] as specified in the Finance Act of the relevant year ;]

51[(29D) “National Tax Tribunal” means the National Tax Tribunal established under section 3 of the National Tax Tribunal Act, 2005;]

(30) “non-resident” means a person who is not a “resident” 52[, and for the purposes of sections 92, 93 53[* * *] and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6] ;

54(31) “person” includes—

(i)
an individual55,
(ii)
a Hindu undivided family55,

(iii) a company,

(iv)
a firm56,
(v)
an association of persons56 or a body of individuals56, whether incorporated or not,
(vi)
a local authority, and

(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.

    1. Clause (11) of section 2 of the Code of Civil Procedure defines “legal representative” as follows :
    2. ‘(11) “legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in a representative character the person on whom the estate devolves on the death of the party so suing or sued ;’
  1. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
  2. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  3. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
  4. Inserted by the National Tax Tribunal Act, 2005, with effect from a date yet to be notified.
  5. Inserted by the Finance Act, 1999, w.e.f. 1-4-1999. Earlier these words were omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.
  6. “, 113” omitted by the Finance Act, 1965, w.e.f. 1-4-1965.
  7. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  8. For the meaning of the term/expression “individual” and “Hindu undivided family”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  9. For the meaning of the term/expressions “firm”, “association of persons” and “body of individuals”, see Taxmann’s Direct Taxes Manual, Vol. 3.

S. 2(37A) I.T. ACT, 1961

57[Explanation.—For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;]

(32)
“person who has a substantial interest in the company”, in relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power ;
(33)
“prescribed” means prescribed by rules made under this Act ;
(34)
“previous year” means the previous year as defined in section 3 ; 58(35) “principal officer”, used with reference to a local authority or a

company or any other public body or any association of persons or any body of individuals, means—

(a)
the secretary, treasurer, manager or agent of the authority, company, association or body, or
(b)
any person connected with the management or administration of the local authority, company, association or body upon whom the 59[Assessing] Officer has served a notice of his intention of treating him as the principal officer thereof ;

60(36) “profession” includes vocation61 ; 62[(36A) “public sector company” means any corporation established by or under any Central, State or Provincial Act or a Government company63 as defined in section 617 of the Companies Act, 1956 (1 of 1956) ;]

(37) 64“public servant” has the same meaning as in section 21 of the Indian Penal Code (45 of 1860) ;

65[(37A) “rate or rates in force” or “rates in force”, in relation to an assessment year or financial year, means—

  1. Inserted by the Finance Act, 2002, w.e.f. 1-4-2002.
  2. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  3. Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  4. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  5. For the meaning of the term “vocation”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  6. Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.
  7. Section 617 of the Companies Act, 1956, defines “Government company” as follows : ‘617. Definition of “Government company”.—For the purposes of this Act, Government company means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company as thus defined.’
  8. Section 21 of the Indian Penal Code defines “public servant”. For text of section 21, see Appendix.
  9. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.
1.23 CH. I - PRELIMINARY S. 2(37A)
(i)
for the purposes of calculating income-tax under the first proviso to sub-section (5) of section 132, or computing the income-tax chargeable under sub-section (4) of section 172 or sub-section (2) of section 174 or section 175 or sub-section (2) of section 176 or deducting income-tax under section 192 from income chargeable under the head “Salaries” 66[* * *] or 67[computation of the “advance tax” payable under Chapter XVII-C in a case not falling under 68[section 115A or section 115B 69[or section 115BB 70[or section 115BBB] or section 115E] or] section 164 69[or section 164A 71[* * *]] 72[or section 167B], the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, and for the purposes of computation of the “advance tax” payable under Chapter XVII-C 73[in a case falling under section 115A or section 115B 74[or section 115BB 75[or section 115BBB] or section 115E] or section 16474[or section 164A76[* * *]]77[or section 167B], the rate or rates specified in section 115A or 78[section 115B or section 115BB 79[or section 115BBB] or section 115E or section 164 or section 164A 76[* * *] 77[or section 167B], as the case may be,] or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, whichever is applicable ;]
(ii)
for the purposes of deduction of tax under sections 193, 194, 194A 80[, 194B] 81[, 194BB] 82[and 194D], the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year ;]
  1. “or sub-section (9) of section 80E from any payment referred to therein” omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Originally, the said expression was inserted by the Finance Act, 1968, w.e.f. 1-4-1968.
  2. Substituted for ‘computation of the “advance tax” payable under Chapter XVII-C, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year’ by the Finance Act, 1970, w.e.f. 1-4-1971.
  3. Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.
  4. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  5. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  6. “or section 167A” omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier this expression was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  7. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  8. Substituted for “in a case falling under section 164, the rate specified in that section” by the Finance Act, 1976, w.e.f. 1-6-1976.
  9. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  10. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  11. “or section 167A” omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier this expression was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  12. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  13. Substituted for “section 115B or, as the case may be, section 164” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  14. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  15. Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.
  16. Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.
  17. Substituted for “, 194D and 195” by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.

S. 2(42) I.T. ACT, 1961

83[(iii) for the purposes of deduction of tax under section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in 84[an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government under section 90A, whichever is applicable by virtue of the provisions of section 90, or section 90A, as the case may be];

85(38) “recognised provident fund” means a provident fund which has been and continues to be recognised by the 86[Chief Commissioner or Commissioner] in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (19 of 1952) ;

(39)
87[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;]
(40)
“regular assessment” means the assessment made under 88[subsection (3) of] section 143 or section 144 ;
(41)
“relative”, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual ;

89[(41A) “resulting company” means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger;]

(42) “resident” means a person who is resident in India within the meaning of section 6 ;

83. Substituted by the Finance Act, 1992, w.e.f. 1-6-1992. Prior to its substitution, sub-clause

(iii) was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.

84. Substituted for “an agreement entered into by the Central Government under section 90, whichever is applicable by virtue of the provisions of section 90” by the Finance Act, 2006,

w.e.f. 1-6-2006.

  1. See also Circular No. 153, dated 30-11-1974. For details, see Taxmann’s Master Guide to Income-tax Act.
  2. Substituted for “Commissioner” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
  3. Prior to omission, clause (39) was substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier clause (39) was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and was later reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.
  4. Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989.
  5. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.
1.25 CH. I - PRELIMINARY S. 2(42A)

90[91(42A)92[“short-term capital asset” means a capital asset held by an assessee for not more than 93[thirty-six] months immediately preceding the date of its transfer :]

94[Provided that in the case of a share held in a company 95[or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of a Mutual Fund specified under clause (23D) of section 10] 96[or a zero coupon bond], the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twelve months” had been substituted.]

97[Explanation 1].—(i) In determining the period for which any capital asset is held by the assessee—

(a)
in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation ;
(b)
in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in 98[sub-section (1)] of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section ;

99[(c) in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee ;]

1[(d) in the case of a capital asset, being a share or any other security (hereafter in this clause referred to as the financial asset) subscribed to by the assessee on the basis of his right to subscribe to such financial asset or subscribed to by the person in whose favour the assessee has renounced his right to subscribe to such financial asset, the period shall be reckoned from the date of allotment of such financial asset ;

(e) in the case of a capital asset, being the right to subscribe to any financial asset, which is renounced in favour of any other person, the period shall be reckoned from the date of the offer of such

  1. Inserted by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962.
  2. See also Circular No. 415, dated 14-3-1985 and Circular No. 704, dated 28-4-1995. For details and relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  3. Substituted for the portion beginning with “short-term capital asset” and ending with “preceding the date of its transfer ;” by the Finance Act, 1973, w.e.f. 1-4-1974. Earlier clause (42A) was first amended by the Finance Act, 1966, w.e.f. 1-4-1966 and later by the Finance Act, 1968, w.e.f. 1-4-1969.
  4. Substituted for “sixty” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.
  5. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
  6. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.
  7. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.
  8. Existing Explanation renumbered as Explanation 1 by the Finance Act, 1994, w.e.f. 1-4-1995.
  9. Substituted for “clauses (i) to (iii)” by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.
  10. Inserted, ibid.

1. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.

S. 2(42A) I.T. ACT, 1961

right by the company or institution, as the case may be, making such offer ;]

2[(f) in the case of a capital asset, being a financial asset, allotted without any payment and on the basis of holding of any other financial asset, the period shall be reckoned from the date of the allotment of such financial asset ;]

3[(g) in the case of a capital asset, being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a demerger, there shall be included the period for which the share or shares held in the demerged company were held by the assessee ;]

4[(h) in the case of a capital asset, being trading or clearing rights of a recognised stock exchange in India acquired by a person pursuant to demutualisation or corporatisation of the recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation;

(ha) in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualisation or corporatisation of a recognised stock exchange in India as referred to in clause

(xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation;]

5[(hb) in the case of a capital asset, being any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees), the period shall be reckoned from the date of allotment or transfer of such specified security or sweat equity shares;]

(ii) In respect of capital assets other than those mentioned in clause (i), the period for which any capital asset is held by the assessee shall be determined subject to any rules which the Board may make in this behalf.]

6[Explanation 2.—For the purposes of this clause, the expression “security”7 shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).]

  1. Inserted by the Finance Act, 1995, w.e.f. 1-4-1996.
  2. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.
  3. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.
  4. Inserted by the Finance Act, 2007, w.e.f. 1-4-2008.
  5. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.
  6. Clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, defines

“securities” as follows :‘(h) “securities” include

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(Contd. on p. 1.27)

1.27 CH. I - PRELIMINARY S. 2(43A)

8[Explanation 3.—For the purposes of this clause, the expressions “specified security” and “sweat equity shares” shall have the meanings respectively assigned to them in the Explanation to clause (d) of subsection (1) of section 115WB;]

9[(42B) “short-term capital gain” means capital gain arising from the transfer of a short-term capital asset ;]

10[(42C) “slump sale” means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

Explanation 1.—For the purposes of this clause, “undertaking” shall

have the meaning assigned to it in Explanation 1 to clause (19AA). Explanation 2.—For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities ; ]

11[(43) “tax” in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date 12[and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under section 115WA] ;]

13[(43A) “tax credit certificate” means a tax credit certificate granted to any person in accordance with the provisions of Chapter XXII-B14 and any scheme made thereunder ;]

(Contd. from p. 1.26) (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to

the investors in such schemes;

(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(id) units or any other such instrument issued to the investors under any mutual fund scheme;

(ii)Government securities;

(iia) such other instruments as may be declared by the Central Government to be securities; and

(iii) rights or interest in securities;’

  1. Inserted by the Finance Act, 2007, w.e.f. 1-4-2008.
  2. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
  3. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000. Earlier clause (42C) was inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990 and later on omitted by the Finance Act, 1990, w.e.f. 1-4-1990.
  4. Substituted by the Finance Act, 1965, w.e.f. 1-4-1965.
  5. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.
  6. Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.
  7. Chapter XXII-B was omitted by the Finance Act, 1990, w.e.f. 1-4-1990.

S. 2(47) I.T. ACT, 1961

(43B) 15[* * *] 16[(44) “Tax Recovery Officer” means any Income-tax Officer who may be authorised by the Chief Commissioner or Commissioner, by general or special order in writing, to exercise the powers of a Tax Recovery Officer 17[and also to exercise or perform such powers and functions which are conferred on, or assigned to, an Assessing Officer under this Act and which may be prescribed];]

(45)
“total income” means the total amount of income referred to in section 5, computed in the manner laid down in this Act ;
(46)
18[* * *]
19(47) 20[“transfer”21, in relation to a capital asset, includes,—
(i)
the sale21, exchange21 or relinquishment21 of the asset ; or
(ii)
the extinguishment of any rights therein21 ; or

(iii) the compulsory acquisition thereof under any law ; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ;] 22[or]

23[(iva) the maturity or redemption of a zero coupon bond; or] 24[(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A25 of the Transfer of Property Act, 1882 (4 of 1882) ; or

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Explanation.—For the purposes of sub-clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA;]

  1. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original clause (43B) was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972.
  2. Substituted by the Direct Tax Laws (Amendment) Act, 1987 [as amended by the Direct Tax Laws (Amendment) Act, 1989], w.r.e.f. 1-4-1988. Prior to substitution clause (44) was substituted by the Finance Act, 1963, w.r.e.f. 1-4-1962.
  3. Inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f. 13-7-2006.
  4. Omitted by the Finance Act, 1965, w.e.f. 1-4-1965.
  5. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act. For Letter F. No. 34/11/65-IT(A-I), dated 15-1-1966, Circular No. 751, dated 10-2-1997 and Circular No. 2/2008, dated 22-2-2008, see Taxmann’s Master Guide to Income-tax Act.
  6. Substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.
  7. For the meaning of the terms/expression “transfer”, “sale”, “exchange”, “relinquishment” and “extinguishment of any rights therein”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  8. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
  9. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.
  10. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
  11. For text of section 53A of the Transfer of Property Act, 1882, see Appendix.
1.29 CH. II - BASIS OF CHARGE S. 4

26[(48) “zero coupon bond” means a bond—

(a)
issued by any infrastructure capital company or infrastructure capital fund or public sector company on or after the 1st day of June, 2005;
(b)
in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company or infrastructure capital fund or public sector company; and
(c)
which the Central Government may, by notification27 in the Official Gazette, specify in this behalf.

28[***]] 29[“Previous year” defined.

3. For the purposes of this Act, “previous year” means the financial year imme

diately preceding the assessment year : Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.]

CHAPTER II

BASIS OF CHARGE

Charge of income-tax.

304. 31(1) Where any Central Act enacts that income-tax32 shall be charged for

any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and 33[subject to the

  1. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006. Earlier clause (48) was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. It was later re-introduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989 and again omitted by the Finance Act, 1992, w.e.f. 1-4-1993.
  2. For specified bonds, see Taxmann’s Master Guide to Income-tax Act. See also rules 8B & 8C and Form No. 5B.
  3. Explanation omitted by the Finance Act, 2006, w.e.f. 1-4-2006. Prior to its omission, Explanation read as under : ‘Explanation.—For the purposes of this clause, the expressions “infrastructure capital company” and “infrastructure capital fund” shall have the same meanings respectively assigned to them in clauses (a) and (b) of Explanation 1 to clause (23G) of section 10.’
  4. Substituted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to its substitution, section 3 was amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.
  5. See also Circular No. 142, dated 1-8-1974, Circular No. 447, dated 22-1-1986, Circular No. 573, dated 21-8-1990, Circular No. 776, dated 8-6-1999 and Instruction No. 747 [F. No. 288/29/74-IT(A-II)], (relevant extracts), dated 30-8-1974. For details, see Taxmann’s Master Guide to Income-tax Act.
  6. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  7. For the meaning of the term “income-tax”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  8. Substituted for “subject to the provisions of this Act” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

S. 5 I.T. ACT, 1961

provisions (including provisions for the levy of additional income-tax) of, this

Act]34 in respect of the total income34 of the previous year 35[* * *] of every person : Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.

(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.

Scope of total income.

365. 37(1) Subject to38 the provisions of this Act, the total income38 of any previous

year of a person who is a resident includes all income from whatever source derived which—

(a)
is received39 or is deemed to be received39 in India in such year by or on behalf of such person ; or
(b)
accrues39 or arises39 or is deemed39 to accrue or arise to him in India during such year ; or
(c)
accrues39 or arises39 to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6)* of section 6, the income which accrues or arises to him outside India shall not be so included unless

it is derived from a business controlled in or a profession set up in India.

(2)
Subject to38 the provisions of this Act, the total income38 of any previous year of a person who is a non-resident includes all income from whatever source derived which—
(a)
is received39 or is deemed to be received39 in India in such year by or on behalf of such person ; or
(b)
accrues39 or arises39 or is deemed to accrue or arise to him in India

during such year. Explanation 1.—Income accruing or arising outside India shall not be deemed to be received39 in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.

  1. For the meaning of the expressions “in accordance with, and subject to the provisions of, this Act” and “total income”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  2. “or previous years, as the case may be,” omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  3. See also Circular No. 369, dated 17-9-1983. For details, see Taxmann’s Master Guide to Income-tax Act.
  4. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  5. For the meaning of the terms/expressions “subject to” and “total income”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  6. For the meaning of the terms/expressions “is received”, “deemed to be received”, “accrues or arises”, “accrued or arisen” and “deemed to have accrued”, see Taxmann’s Direct Taxes Manual, Vol. 3.

*Should be read as ‘clause (6)’.

1.31 CH. II - BASIS OF CHARGE S. 6

Explanation 2.—For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued40 or arisen40 or is deemed to have accrued40 or arisen40 to him shall not again be so included on the basis that it is received or deemed to be received by him in India.

41[Apportionment of income between spouses governed by Portuguese Civil Code.

5A. (1) Where the husband and wife are governed by the system of commu

nity of property (known under the Portuguese Civil Code of 1860 as “COMMUNIAO DOS BENS”) in force in the State of Goa and in the Union territories of Dadra and Nagar Haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of persons or a body of individuals), but such income of the husband and of the wife under each head of income (other than under the head “Salaries”) shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively, and the remaining provisions of this Act shall apply accordingly.

(2) Where the husband or, as the case may be, the wife governed by the aforesaid system of community of property has any income under the head “Salaries”, such income shall be included in the total income of the spouse who has actually earned it.]

Residence in India.

426. For the purposes of this Act,—

(1)
An individual is said to be resident in India in any previous year, if he—
(a)
is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more ; or
(b)
43[* * *]
(c)
having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

44[Explanation.—In the case of an individual,—

  1. For the meaning of the terms/expressions “is received”, “deemed to be received”, “accrues or arises”, “accrued or arisen” and “deemed to have accrued or arisen”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  2. Inserted by the Finance Act, 1994, w.r.e.f. 1-4-1963.
  3. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  4. Omitted by the Finance Act, 1982, w.e.f. 1-4-1983.
  5. Substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. Original Explanation was inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and later amended by the Finance Act, 1982, w.e.f. 1-4-1983.
S. 6

I.T. ACT, 1961 1.32

(a)
being a citizen of India, who leaves India in any previous year 45[as a member of the crew of an 46Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted ;
(b)
being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and 47[eighty-two] days” had been substituted.]
(2)
A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management48 of its affairs48 is situated wholly48 outside India.
(3)
A company is said to be resident in India in any previous year, if—
(i)
it is an Indian company ; or
(ii)
during that year, the control and management48 of its affairs48 is situated wholly48 in India.
(4)
Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India.
(5)
If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.

49[(6) A person is said to be “not ordinarily resident” in India in any previous year if such person is—

Inserted by the Finance Act, 1990, w.e.f. 1-4-1990.Clause (18) of section 3 of the Merchant Shipping Act, 1958, defines “Indian ship” asfollows :

‘(18) “Indian ship” means a ship registered as such under this Act and includes any ship registered at any port in India at the commencement of this Act which is recognised as an Indian ship under the proviso to sub-section (2) of section 22;’

Substituted for “fifty” by the Finance Act, 1994, w.e.f. 1-4-1995.For the meaning of the terms/expressions “control and management”, “affairs” and“wholly”, see Taxmann’s Direct Taxes Manual, Vol. 3.Substituted by the Finance Act, 2003, w.e.f. 1-4-2004. Prior to its substitution, clause (6)read as under :

‘(6) A person is said to be “not ordinarily resident” in India in any previous year if such person is—

(Contd. on p. 1.33)

1.33 CH. II - BASIS OF CHARGE S. 8
(a)
an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or
(b)
a Hindu undivided family whose manager has been a nonresident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.]

Income deemed to be received.

7. The following incomes shall be deemed to be received in the previous year :—

(i)
the annual accretion in the previous year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in rule 6 of Part A of the Fourth Schedule ;
(ii)
the transferred balance in a recognised provident fund, to the extent provided in sub-rule (4) of rule 11 of Part A of the Fourth Schedule ;

50[(iii) the contribution made, by the Central Government 51[or any other employer] in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD.]

Dividend income.

8. 52[For the purposes of inclusion in the total income of an assessee,—

(a)
any dividend] declared by a company or distributed or paid by it within the meaning of sub-clause (a) or sub-clause (b) or sub-clause
(c)
or sub-clause (d) or sub-clause (e) of clause (22) of section 2 shall be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the case may be ;

53[(b) any interim dividend shall be deemed to be the income of the previous year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it.]

(Contd. from p. 1.32)

(a)
an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more ; or
(b)
a Hindu undivided family whose manager has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more.’
  1. Inserted by the Finance (No. 2) Act, 2004, w.r.e.f. 1-4-2004.
  2. Inserted by the Finance Act, 2007, w.r.e.f. 1-4-2004.
  3. Substituted for “For the purposes of inclusion in the total income of an assessee, any dividend” by the Finance Act, 1965, w.e.f. 1-4-1965.
  4. Inserted, ibid.

S. 9 I.T. ACT, 1961

Income deemed to accrue or arise in India.

549. 55(1) The following incomes shall be deemed56 to accrue or arise in India :— 57(i) all income accruing or arising, whether directly or indirectly, through or from any business connection58 in India, or through or from any property58 in India, or through or from any asset or source of income

in India, 59[* * *] or through the transfer of a capital asset situate in
India.
60[Explanation 1].—For the purposes of this clause

(a)
in the case of a business of which all the operations61 are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations61 carried out in India ;
(b)
in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ;

62[* * *] 63[(c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India ;] 64[(d) in the case of a non-resident, being—

(1)
an individual who is not a citizen of India ; or
(2)
a firm which does not have any partner who is a citizen of India or who is resident in India ; or
(3)
a company which does not have any shareholder who is a citizen of India or who is resident in India,
  1. See also Circular No. 23, dated 23-7-1969, Circular No. 163, dated 29-5-1975, Circular No. 35(XXXIII-7) of 1956, dated 3-9-1956, Circular No. 4, dated 20-2-1969, Circular No. 382, dated 4-5-1984, and Circular No. 5/2004, dated 28-9-2004. For details, see Taxmann’s Master Guide to Income-tax Act.
  2. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  3. For the meaning of the term “deemed”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  4. See rule 10 for manner of computation of income of non-residents in certain cases.
  5. For the meaning of the terms/expressions “business connection” and “property”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  6. Words “or through or from any money lent at interest and brought into India in cash or in kind” omitted by the Finance Act, 1976, w.e.f. 1-6-1976.
  7. Explanation renumbered as Explanation 1 by the Finance Act, 2003, w.e.f. 1-4-2004.
  8. For the meaning of the term “operations”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  9. Proviso omitted by the Finance Act, 1964, w.e.f. 1-4-1964.
  10. Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1962.
  11. Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1982.
1.35 CH. II - BASIS OF CHARGE S. 9

no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations65 which are confined to the shooting of any cinematograph film in India.]

66[Explanation 2.—For the removal of doubts, it is hereby declared that “business connection” shall include any business activity carried out through a person who, acting on behalf of the non-resident,—

(a)
has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the nonresident; or
(b)
has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or
(c)
habitually secures orders in India, mainly or wholly for the nonresident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:

Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business :

Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.

Explanation 3.—Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India;]

(ii) income which falls under the head “Salaries”, if it is earned67 in India.

68[Explanation.—For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for—

For the meaning of the term “operations”, see Taxmann’s Direct Taxes Manual, Vol. 3.Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.For the meaning of the term “earned”, see Taxmann’s Direct Taxes Manual, Vol. 3.Substituted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to its substitution, Explanation,

as inserted by the Finance Act, 1983, w.r.e.f. 1-4-1979, read as under :Explanation.—For the removal of doubts, it is hereby declared that income of the naturereferred to in this clause payable for service rendered in India shall be regarded as incomeearned in India ;

S. 9 I.T. ACT, 1961

(a)
service rendered in India; and
(b)
the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment,

shall be regarded as income earned in India ;]

(iii) income chargeable under the head “Salaries” payable by the Government to a citizen of India for service outside India ;

(iv)
a dividend paid by an Indian company outside India ;
69[(v) income by way of interest payable by
(a)
the Government ; or
(b)
a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c)
a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India ;
(vi)
income by way of royalty70 payable by—
(a)
the Government ; or
(b)
a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c)
a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :

Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government :

  1. Clauses (v), (vi) and (vii) inserted by the Finance Act, 1976, w.e.f. 1-6-1976.
  2. For the meaning of the term “royalty”, see Taxmann’s Direct Taxes Manual, Vol. 3.
1.37 CH. II - BASIS OF CHARGE S. 9

71[Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.]

Explanation 1.—For the purposes of the 72[first] proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the 73[Assessing] Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976.

Explanation 2.—For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—

(i)
the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(ii)
the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;

(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;

(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;

  1. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
  2. Substituted for “foregoing”, ibid.
  3. Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

S. 9 I.T. ACT, 1961

74[(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;]

(v)
the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or
(vi)
the rendering of any services in connection with the activities

referred to in sub-clauses (i) to 74[(iv), (iva) and] (v). 75[Explanation 3.—For the purposes of this clause, “computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data;]

(vii) income by way of fees for technical services payable76 by—

(a)
the Government ; or
(b)
a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c)
a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :

77[Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.]

77[Explanation 1.—For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.]

Explanation 77[2].—For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consi

  1. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.
    1. Substituted by the Finance Act, 2000, w.e.f. 1-4-2001. Prior to its substitution, Explanation
    2. 3, as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991, read as under : ‘Explanation 3.—For the purposes of this clause, the expression “computer software” shall have the meaning assigned to it in clause (b) of the Explanation to section 80HHE;’
  2. For the meaning of the expression “fees for technical services payable”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  3. Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.
1.39 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(2A)

deration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction78, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.]

(2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India.

79[Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1), such income shall be included in the total income of the non-resident, whether or not the non-resident has a residence or place of business or business connection in India.]

CHAPTER III

INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

Incomes not included in total income.

10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—

(1) agricultural income ; 80(2) 81[subject to the provisions of sub-section (2) of section 64,] any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family ;

82[(2A) in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. Explanation.—For the purposes of this clause, the share of a partner

in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits ;]

  1. For the meaning of the term “construction”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  2. Inserted by the Finance Act, 2007, w.r.e.f. 1-6-1976.
  3. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  4. Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.
  5. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, clause (2A) was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and was omitted by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date.

S. 10(4) I.T. ACT, 1961

(3) 83[***] 84[(4)(i) in the case of a non-resident, any income by way of interest on such securities or bonds as the Central Government may, by notification in the Official Gazette85, specify in this behalf,

including income by way of premium on the redemption of such bonds : 86[Provided that the Central Government shall not specify, for the

purposes of this sub-clause, such securities or bonds on or after the

1st day of June, 2002;]
87[88(ii) in the case of an individual, any income by way of intereston moneys standing to his credit in a Non-Resident (External)Account in any bank in India in accordance with the ForeignExchange Regulation Act, 1973 (46 of 1973), and the rules madethereunder :

Provided that such individual is a person resident outside India as defined in clause (q) of section 289 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account ;]]

83. Omitted by the Finance Act, 2002, w.e.f. 1-4-2003. Prior to its omission, clause (3), as substituted by the Finance Act, 1972, w.e.f. 1-4-1972, and amended by the Finance Act, 1986, w.e.f. 1-4-1987, Finance (No. 2) Act, 1991, w.e.f. 1-10-1991 and Finance Act, 1992, w.e.f. 1-4-1992, read as under :

‘(3) any receipts which are of a casual and non-recurring nature, to the extent such receipts do not exceed five thousand rupees in the aggregate : Provided that where such receipts relate to winnings from races including horse races, the provisions of this clause shall have effect as if for the words “five thousand rupees”, the words “two thousand five hundred rupees” had been substituted : Provided further that this clause shall not apply to—

(i)
capital gains chargeable under the provisions of section 45 ; or
(ii)
receipts arising from business or the exercise of a profession or occupation ; or

(iii) receipts by way of addition to the remuneration of an employee ;’

84. Substituted for clauses (4) and (4A) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to their substitution, clause (4) was amended by the Finance Act, 1964,

w.e.f. 1-4-1964. Clause (4A) was inserted by the Finance Act, 1964, w.e.f. 1-4-1965, subsequently amended by the Finance Act, 1968, w.e.f. 1-4-1969 and substituted by the Finance Act, 1982, w.e.f. 1-4-1982.

  1. For specified securities, see Notification No. SO 3331, dated 19-10-1965. For details, see Taxmann’s Master Guide to Income-tax Act.
  2. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  3. Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
  4. See also Circular No. 592, dated 4-2-1991. For details, see Taxmann’s Master Guide to Income-tax Act.
  5. Clause (q) of section 2 of the Foreign Exchange Regulation Act, 1973, defines “person resident outside India” as follows :

‘(q) “person resident outside India” means a person who is not resident in India ;’ For definition of the above term in FEMA, 1999, see Appendix.

1.41 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(5)

90[***]

91[(4B) in the case of an individual, being a citizen of India or a person of Indian origin, who is a non-resident, any income from interest on such savings certificates issued 92[before the 1st day of June, 2002] by the

Central Government as that Government may, by notification in the Official Gazette93, specify in this behalf : Provided that the individual has subscribed to such certificates

in convertible foreign exchange remitted from a country outside India in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder.

Explanation.—For the purposes of this clause,—

(a)
a person shall be deemed to be of Indian origin if he, or either of his parents or any of his grandparents, was born in undivided India ;
(b)
“convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder ;]

94[(5) in the case of an individual, the value of any travel concession or assistance received by, or due to, him,—

(a)
from his employer for himself and his family, in connection with his proceeding on leave to any place in India ;
(b)
from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service,

subject to such conditions as may be prescribed95 (including conditions as to number of journeys and the amount which shall be exempt

  1. Omitted by the Finance Act, 2005, w.e.f. 1-4-2006. Prior to its omission, second proviso, as inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2006, read as under : “Provided further that nothing contained in this sub-clause shall apply to any income by way of interest paid or credited on or after the 1st day of April, 2005 to the Non-Resident (External) Account of such individual;”
  2. Inserted by the Finance Act, 1982, w.e.f. 1-4-1983.
  3. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  4. For specified savings certificates, see Notification No. SO 653(E), dated 8-9-1982. For details, see Taxmann’s Master Guide to Income-tax Act.
  5. Substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier clause (5) was amended by the Finance Act, 1975, w.e.f. 1-4-1975, the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962 and the Direct Tax Laws (Amendment) Act, 1987,

w.e.f. 1-4-1989.

95. Rule 2B prescribes the conditions as well as quantum of exemption, which are as follows :

Conditions to be satisfied - Conditions to be satisfied are as under : (Contd. on p. 1.42)

S. 10(5) I.T. ACT, 1961

per head) having regard to the travel concession or assistance granted to the employees of the Central Government :

(Contd. from p. 1.41)

  • The exemption is admissible on the value of any travel concession or assistance received by or due to an assessee from his employer or former employer, as the case may be, for himself and his family, in connection with his proceeding (i) on leave to any place in India, or (ii) to any place in India after the retirement from service, or (iii) to any place in India after the termination of his service.
    • The exemption is admissible in respect of actual expenditure incurred for journeys
    • performed, not only by the assessee but also by his family. For this purpose, ‘family’ means (i) the spouse and children of the assessee, and (ii) the parents, brothers and sisters of the assessee provided that they are wholly or mainly dependent on the assessee. With effect from 1-10-1997, the Central Civil Service Leave Travel Concession Rules have been amended in this respect.
  • The exemption can be availed only in respect of two journeys performed in a block of four calendar years. For this purpose, the first four-year block commenced with the calendar year 1986. Thus, the four-year blocks will be 1986-89, 1990-93, 1994-97, 19982001, 2002-05 and so on.
  • If an assessee has not availed travel concession or assistance during any of the specified four-year block periods on one of the two permitted occasions, or on both occasions, exemption can be claimed provided he avails the concession or assistance in the calendar year immediately following that block. This is popularly known as the ‘carry-over’ concession. In such cases, the exemption so availed will not be counted for purposes of regulating the future exemptions allowable for the succeeding block of four years. Quantum of exemption.—The basic rule is that the quantum of exemption will be limited to the actual expenses incurred on the journey. This pre-supposes that, without performing any journey and incurring expenses thereon, no exemption can be claimed. In addition to the above general limitation, the quantum of exemption will also be subject to the following maximum limits, depending upon the mode of transport used or available:

Restricted concession for children.—Under sub-rule (4) of rule 2B, inserted with effect from 1-10-1997, exemption on travel concession will not be admissible to more than two

(Contd. on p. 1.43)

1.43 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(5B)

Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.

Explanation.—For the purposes of this clause, “family”, in relation to an individual, means—

(i)
the spouse and children of the individual ; and
(ii)
the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual; ]

(5A) 96[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;] (5B) 97[Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]

(Contd. from p. 1.42)

surviving children of an individual born after 1-10-1998. This restriction will not however apply in respect of children born before 1-10-1998, and also in cases where an individual, after getting one child, begets multiple children (twins/triplets/quadruplets, etc.) on the second occasion. The implications of this restriction will be as follows :

  • In respect of journeys performed on or before 1-10-1998 exemption will be admissible in respect of all the surviving children of the individual.
  • In respect of journeys performed after 1-10-1998 -the exemption will be admissible to all surviving children born before 1-10-1998; -in addition, the exemption will be admissible to only two surviving children born on

or after 1-10-1998. In reckoning this limit of two children, children born out of

multiple birth after the first child will be treated as ‘one child’ only. It may be noted that section 2(15B) of the Act defines a ‘child’ as includes ‘a step-child and an adopted child of the individual’. Hence the aforesaid restrictions will operate in respect of step-children and adopted children also provided they are born on or after 1-10-1998.

96. Prior to its omission, clause (5A), as inserted by the Taxation Laws (Amendment) Act, 1984,

w.r.e.f. 1-4-1982, read as under :

“(5A) in the case of an individual who is not a citizen of India and is a non-resident, who comes to India solely in connection with the shooting of a cinematograph film in India by the individual, firm or company referred to in clause (d) of the Explanation to clause (i) of sub-section (1) of section 9, any remuneration received by him for rendering any service in connection with such shooting ;”

97. Prior to its omission, clause (5B), as inserted by the Finance Act, 1993, w.e.f. 1-4-1994, and later on amended by the Finance Act, 1999, w.e.f. 1-4-1999, read as under : ‘(5B) in the case of an individual who renders services as a technician in the employment

(commencing from a date after the 31st day of March, 1993) of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this clause by the prescribed authority or in any business carried on in India and the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India and the tax on his income for such services chargeable under the head “Salaries” is paid to the Central Government by the employer [which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956)], the tax so paid by the employer for a period not exceeding forty-eight months commencing from the date of his arrival in India :

(Contd. on p. 1.44)

S. 10(6) I.T. ACT, 1961

(6)
in the case of an individual who is not a citizen of India,—
(i)
98[***] 99[(ii) the remuneration received by him as an official, by whatever name called, of an embassy, high commission, legation, commission, consulate or the trade representation of a foreign State, or

as a member of the staff of any of these officials, for service in such capacity : Providedthat the remuneration received by him as trade commis

sioner or other official representative in India of the Government of a foreign State (not holding office as such in an honorary capacity), or as a member of the staff of any of those officials, shall be exempt only if the remuneration of the corresponding officials or, as the case may be, members of the staff, if any, of the Government resident for similar purposes in the country concerned enjoys a similar exemption in that country :

Provided further that such members of the staff are subjects of the country represented and are not engaged in any business or profession or employment in India otherwise than as members of such staff ;]

(Contd. from p. 1.43)

Provided that the Central Government may, if it considers it necessary or expedient in the public interest so to do, waive the condition relating to non-residence in India as specified in this clause in the case of any individual who is employed in India for designing, erection or commissioning of machinery or plant or supervising activities connected with such designing, erection or commissioning. Explanation.—For the purposes of this clause, “technician” means a person having specialised knowledge and experience in—

(i)
constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or
(ii)
agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, or

(iii) such other field as the Central Government may, having regard to availability of Indians having specialised knowledge and experience therein, the needs of the country and other relevant circumstances, by notification in the Official Gazette, specify,

who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised ;’

98. Omitted by the Finance Act, 2002, w.e.f. 1-4-2003. Prior to its omission, sub-clause (i), as substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962 and amended by the Finance (No. 2) Act, 1977, w.r.e.f. 1-4-1972 and the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999, read as under :

“(i) subject to such conditions as the Central Government may prescribe, passage moneys or the value of any free or concessional passage received by or due to such individual—

(a) from his employer, for himself, his spouse and children, in connection with

his proceeding on home leave out of India ;(aa) [* * *]

(b) from his employer or former employer for himself, his spouse and children, in connection with his proceeding to his home country out of India after retirement from service in India or after the termination of such service ;”

99. Substituted for sub-clauses (ii) to (v) by the Finance Act, 1988, w.e.f. 1-4-1989.

1.45 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(6)

(iii) to (v)[Sub-clause (ii) substituted for sub-clauses (ii) to (v) by the Finance Act, 1988, w.e.f. 1-4-1989;]

(vi)
the remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India, provided the following conditions are fulfilled—
(a)
the foreign enterprise is not engaged in any trade or business in India ;
(b)
his stay in India does not exceed in the aggregate a period of ninety days in such previous year ; and
(c)
such remuneration is not liable to be deducted from the

income of the employer chargeable under this Act ; (via) 1[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

(vii) 2[Omitted by the Finance Act, 1993, w.e.f. 1-4-1993;] (viia) 3[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;]

    1. Prior to its omission, sub-clause (via), as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975, read as under : “(via) the remuneration received by him as an employee of, or a consultant to, an
    2. institution or association or a body established or formed outside India solely for philanthropic purposes, for services rendered by him in India in connection with such purposes ; provided that such institution or association or body and the purposes for which his services are rendered in India are approved by the Central Government ;”
  1. Prior to omission, sub-clause (vii) was amended by the Finance Act, 1964, w.e.f. 1-4-1964, Finance Act, 1965, w.e.f. 1-4-1965 and Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.
  2. Prior to its omission, sub-clause (viia), as inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971 and later on amended by the Direct Taxes (Amendment) Act, 1974,

w.r.e.f. 1-4-1973, Finance Act, 1979, w.e.f. 1-6-1979, Finance Act, 1988, w.e.f. 1-4-1988, Finance Act, 1992, w.e.f. 1-6-1992 and Finance Act, 1993, w.e.f. 1-4-1993, read as under : ‘(viia) where such individual renders services as a technician in the employment of the

Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this sub-clause by the prescribed authority or in any business carried on in India and the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India, the remuneration for such services due to or received by him, which is chargeable under the head “Salaries”, to the extent mentioned below, namely :—

(I)
where such services commence from a date after the 31st day of March, 1971 but before the 1st day of April, 1988,—
(A)
such remuneration due to or received by him during the period of twenty-four months commencing from the date of his arrival in India, in so far as such remuneration does not exceed an amount calculated at the rate of four thousand rupees per month, and where the tax on the excess, if any, of such remuneration for the period aforesaid over the amount so calculated is paid to the Central Government by the employer [which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956)], also the tax so paid by the employer ; and
S.
10(6) I.T. ACT, 1961

(Contd. on p. 1.46)

(viii) any income chargeable under the head “Salaries” received by or due to any such individual being a non-resident as remuneration for services rendered in connection with his employment on a foreign ship where his total stay in India does not exceed in the aggregate a period of ninety days in the previous year ;

(ix) 4[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999; ]

(Contd. from p. 1.45)

(B)
where he continues, with the approval of the Central Government obtained before the 1st day of October of the relevant assessment year, to remain in employment in India after the expiry of the period of twenty-four months aforesaid and the tax on his income chargeable under the head “Salaries” is paid to the Central Government by the employer [which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956)], the tax so paid by the employer for a period not exceeding twenty-four months next following the expiry of the first-mentioned twenty-four months ;
(II)
where such services commence from a date after the 31st day of March, 1988 but before the 1st day of April, 1993, and tax on his income chargeable under the head “Salaries” is paid to the Central Government by the employer [which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956)], the tax so paid by the employer for a period not exceeding forty-eight months commencing from the date of his arrival in India :

Provided that the Central Government may, if it considers it necessary or expedient in the public interest so to do, waive the condition relating to non-residence in India as specified in this sub-clause in the case of any individual who is employed in India for designing, erection or commissioning of machinery or plant or supervising activities connected with such designing, erection or commissioning. Explanation.—For the purposes of this sub-clause, “technician” means a person having specialised knowledge and experience in—

(i)
constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or
(ii)
agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, or

(iii) such other field as the Central Government may, having regard to the availability of Indians having specialised knowledge and experience therein, the needs of the country and other relevant circumstances, by notification in the Official Gazette, specify,

who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised ;’

4. Prior to its omission, sub-clause (ix), as inserted by the Finance Act, 1964, w.e.f. 1-4-1964, read as under :

‘(ix) any income chargeable under the head “Salaries” received by or due to him during the thirty-six months commencing from the date of his arrival in India for service rendered as a professor or other teacher in a University or other educational institution, and where any such individual continues to remain in employment in India after the expiry of the thirty-six months aforesaid and the tax on his income chargeable under the head “Salaries” is paid by the University or other educational institution concerned to the Central Government, the tax so paid for a period not exceeding twenty-four months following the expiry of the thirty-six months aforesaid, provided in either case the following conditions are fulfilled, namely :—

(Contd. on p. 1.47)

1.47 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(6A)

(x) 5[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999; ] 6[(xi) the remuneration received by him as an employee of the Government of a foreign State during his stay in India in

connection with his training in any establishment or office of, or in any undertaking owned by,—

(i)
the Government ; or
(ii)
any company in which the entire paid-up share capital is held by the Central Government, or any State Government or Governments, or partly by the Central Government and partly by one or more State Governments ; or

(iii) any company which is a subsidiary of a company referred to in item (ii) ; or

(iv)
any corporation established by or under a Central, State or Provincial Act ; or
(v)
any society registered under the Societies Registration Act, 1860 (14 of 1860), or under any other corresponding law for the time being in force and wholly financed by the Central Government, or any State Government or State Governments, or partly by the Central Government and partly by one or more State Governments ;]

7[(6A) where in the case of a foreign company deriving income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after

(Contd. from p. 1.46)

(i)
such individual was not resident in any of the four financial years immediately preceding the financial year in which he arrived in India ; and
(ii)
his contract of service is approved by the Central Government—
(a)
on or before the 1st day of October, 1964, in the case of a professor or other teacher whose service commenced before the 1st day of April, 1964 ;
(b)
before the commencement of his service or within one year of such commencement, in any other case ;’

5. Prior to its omission, sub-clause (x), as inserted by the Finance Act, 1964, w.e.f. 1-4-1964, read as under :

“(x) any sum due to or received by him, during the twenty-four months commencing from the date of his arrival in India, for undertaking any research work in India, provided the following conditions are fulfilled, namely :—

(a)
the research work is undertaken in connection with a research scheme approved in this behalf by the Central Government on or before the 1st day of October of the relevant assessment year ; and
(b)
such sum is payable or paid directly or indirectly by the Government of a foreign State or any institution or association or other body established outside India ;”
  1. Inserted by the Finance Act, 1976, w.e.f. 1-4-1976.
  2. Inserted by the Finance Act, 1983, w.e.f. 1-4-1984.

S. 10(6BB) I.T. ACT, 1961

the 31st day of March, 1976 8[but before the 1st day of June, 2002] 9[and,—

(a)
where the agreement relates to a matter included in the industrial policy, for the time being in force, of the Government of India, such agreement is in accordance with that policy ; and
(b)
in any other case, the agreement is approved by the Central

Government,

the tax on such income is payable, under the terms of the agreement,

by Government or the Indian concern to the Central Government, the

tax so paid].

Explanation.—For the purposes of this clause 10[and clause (6B)],—

(a)
“fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ;
(b)
“foreign company” shall have the same meaning as in section 80B ;
(c)
“royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;]

10[(6B) where in the case of a non-resident (not being a company) or of a foreign company deriving income (not being salary, royalty or fees for technical services) from Government or an Indian concern in pursuance of an agreement entered into 11[before the 1st day of June, 2002] by the Central Government with the Government of a foreign State or an international organisation, the tax on such income is payable by Government or the Indian concern to the Central Government under the terms of that agreement or any other related agreement approved 11[before that date] by the Central Government, the tax so paid ;]

12[(6BB) where in the case of the Government of a foreign State or a foreign enterprise deriving income from an Indian company engaged in the business of operation of aircraft, as a consideration of acquiring an aircraft or an aircraft engine (other than payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease under 13[an agreement entered into after the 31st day of March, 1997 but before the 1st day of April, 1999, or entered

  1. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  2. Substituted for “and approved by the Central Government, the tax on such income is payable, under the terms of such agreement, by Government or the Indian concern to the Central Government, the tax so paid” by the Finance Act, 1992, w.e.f. 1-6-1992.
  3. Inserted by the Finance Act, 1988, w.e.f. 1-4-1988.
  4. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  5. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.
  6. Substituted for “an agreement entered after the 31st day of March, 1997 (but before the 1st day of April, 1999) and approved by the Central Government in this behalf” by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2006. Words “30th day of September, 2005” substituted for “31st day of March, 2005” by the Finance Act, 2005, w.e.f. 1-4-2006. Earlier the bracketed words were amended by the Finance Act, 1999, w.e.f. 1-4-2000.
1.49 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(8A)

into after the 14[31st day of March, 15[2007]] and approved by the Central Government in this behalf] and the tax on such income is payable by such Indian company under the terms of that agreement to the Central Government, the tax so paid.

Explanation.—For the purposes of this clause, the expression “foreign enterprise” means a person who is a non-resident;]

16[(6C) any income arising to such foreign company, as the Central Government may, by notification17 in the Official Gazette, specify in this behalf, by way of 18[royalty or]fees for technical services received in pursuance of an agreement entered into with that Government for providing services in or outside India in projects connected with security of India ;]

(7)
any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India ;
(8)
in the case of an individual who is assigned to duties in India in connection with any co-operative technical assistance programmes and projects in accordance with an agreement entered into by the Central Government and the Government of a foreign State (the terms whereof provide for the exemption given by this clause)—
(a)
the remuneration received by him directly or indirectly from the Government of that foreign State for such duties, and
(b)
any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the Government of that foreign State ;

19[(8A) in the case of a consultant—

(a)
any remuneration or fee received by him or it, directly or indirectly, out of the funds made available to an international organisation [hereafter referred to in this clause and clause (8B) as the agency] under a technical assistance grant agreement between the agency and the Government of a foreign State ; and
(b)
any other income which accrues or arises to him or it outside India, and is not deemed to accrue or arise in India, in respect of which such consultant is required to pay any income or social security tax to the Government of the country of his or its origin.
  1. Substituted for “30th day of September, 2005” by the Taxation Laws (Amendment) Act, 2005, w.e.f. 1-4-2006.
  2. Substituted for “2006” by the Finance Act, 2006, w.e.f. 1-4-2007.
  3. Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.
  4. For notified companies, see Taxmann’s Master Guide to Income-tax Act.
  5. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.
  6. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.

S. 10(9) I.T. ACT, 1961

Explanation.—In this clause, “consultant” means—

(i)
any individual, who is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India ; or
(ii)
any other person, being a non-resident,
engaged by the agency for rendering technical services in India in
connection with any technical assistance programme or project, provided the following conditions are fulfilled, namely :—
(1)
the technical assistance is in accordance with an agreement entered into by the Central Government and the agency ; and
(2)
the agreement relating to the engagement of the consultant is approved by the prescribed authority20 for the purposes of this clause ;

(8B) in the case of an individual who is assigned to duties in India in connection with any technical assistance programme and project in accordance with an agreement entered into by the Central Government and the agency—

(a)
the remuneration received by him, directly or indirectly, for such duties from any consultant referred to in clause (8A) ; and
(b)
any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the country of his origin, provided the following conditions are fulfilled, namely :—
(i)
the individual is an employee of the consultant referred to in clause (8A) and is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India ; and
(ii)
the contract of service of such individual is approved by the prescribed authority20 before the commencement of his service ;]
(9)
the income of any member of the family of any such individual as is referred to in clause (8) 21[or clause (8A) or, as the case may be, clause (8B)] accompanying him to India, which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such member is required to pay any income or social security tax to the Government of that foreign State 21[or, as the case may be, country of origin of such member];
  1. The prescribed authority under rule 16B is Additional Secretary, Department of Economic Affairs in Ministry of Finance, Government of India in concurrence with Member (Income-tax), CBDT.
  2. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
1.51 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(10)

22[23(10)24(i) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services ;

(ii) any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 425 of that Act ;

(iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, to the extent it does not, in either case, exceed one-half month’s salary for each year of completed service26, 27[calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit28 as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government] :

Provided that where any gratuities referred to in this clause29 are received by an employee from more than one employer in the same

  1. Substituted by the Finance Act, 1974, w.e.f. 1-4-1975. Original clause was amended first by the Finance Act, 1972, w.e.f. 1-4-1973 and then by the Finance Act, 1974, with retrospective effect from 1-6-1972/1-4-1962.
  2. See also Letter F. No. 1(179)-62/TPL, dated 13-12-1962 and Letter F. No. 194/6/73-IT (A-I), dated 19-6-1973. For details, see Taxmann’s Master Guide to Income-tax Act.
  3. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  4. For text of sub-sections (2) and (3) of section 4 of the Payment of Gratuity Act, 1972, see

Appendix.

The limit laid down under section 4(3) of the Payment of Gratuity Act, 1972 [as amended by the Payment of Gratuity (Amendment) Act, 1998, w.r.e.f. 24-9-1997] is Rs. 3,50,000.

  1. For the meaning of the expression “each year of completed service”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  2. Substituted for “calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid, subject to a maximum of *thirty-six thousand rupees or twenty months’ salary so calculated, whichever is less” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. *Substituted for “thirty thousand rupees” by the Finance Act, 1983, w.r.e.f. 1-4-1982.
  3. Rs. 3,50,000 has been specified as the limit in case of retirement, etc., on or after 24-9-1997 vide Notification No. 10772 [F. No. 200/77/97-IT(A-I)], dated 20-1-1999. For details, see Taxmann’s Master Guide to Income-tax Act.
  4. For meaning of the expression “this clause”, see Taxmann’s Direct Taxes Manual, Vol. 3.

S. 10(10A) I.T. ACT, 1961

previous year, the aggregate amount exempt from income-tax under

this clause 30[shall not exceed the limit so specified] :Provided further that where any such gratuity or gratuities was orwere received in any one or more earlier previous years also and thewhole or any part of the amount of such gratuity or gratuities was notincluded in the total income of the assessee of such previous year oryears, the amount exempt from income-tax under this clause 30[shall
not exceed the limit so specified] as reduced by the amount or, as the
case may be, the aggregate amount not included in the total income
of any such previous year or years.

31[* * *]Explanation.32[In this clause, and in clause (10AA)], “salary” shallhave the meaning assigned to it in clause (h) of rule 2 of Part A of theFourth Schedule ;]

33[34(10A)35(i) any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable 36[to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority] or a corporation established by a Central, State or Provincial Act ;

(ii)
any payment in commutation of pension received under any scheme of any other employer, to the extent it does not exceed—
(a)
in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive, and
(b)
in any other case, the commuted value of one-half of such pension,
  1. Substituted for “shall not exceed *thirty-six thousand rupees” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. *Substituted for “thirty thousand rupees” by the Finance Act, 1983, w.r.e.f. 1-4-1982.
  2. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original third and fourth provisos were inserted by the Finance Act, 1983, w.r.e.f. 1-4-1982.
  3. Substituted for “In this clause” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  4. Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962.
  5. See also Circular No. 286, dated 17-11-1980 and Circular No. 623, dated 6-1-1992. For details, see Taxmann’s Master Guide to Income-tax Act.
  6. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  7. Substituted for “to the members of the Defence Services or to the employees of a State Government, a local authority” by the Finance Act, 1974, w.r.e.f. 1-4-1962.
1.53 CH. III -INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(10AA)

such commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality ;

37[* * *]
38[(iii) any payment in commutation of pension received from a fundunder clause (23AAB) ;]

39[40(10AA)(i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his 41retirement 42[whether] on superannuation or otherwise ;

(ii) any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement 42[whether] on superannuation 41or otherwise as does not exceed 43[ten] months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement 42[whether] on superannuation or otherwise, 44[subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit45 applicable in this behalf to the employees of that Government] :

Provided that where any such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this sub-clause 46[shall not exceed the limit so specified] :

Provided further that where any such payment or payments was or were received in any one or more earlier previous years also and the whole or any part of the amount of such payment or payments was

  1. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  2. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997.
  3. Inserted by the Finance Act, 1982, w.r.e.f. 1-4-1978.
  4. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  5. For the meaning of the terms “retirement”, and “or otherwise” see Taxmann’s Direct Taxes Manual, Vol. 3.
  6. Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978.
  7. Substituted for “eight” by the Finance Act, 1999, w.r.e.f. 1-4-1998. Earlier “eight” was substituted for “six” by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986.
  8. Substituted for “or thirty thousand rupees, whichever is less” by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986.
  9. Specified exemption limit applicable in relation to employees who retire, whether on superannuation or otherwise, after 1-4-1998 : Rs. 3,00,000 - Notification No. SO 588(E), dated 31-5-2002. For details, see Taxmann’s Master Guide to Income-tax Act.
  10. Substituted for “shall not exceed thirty thousand rupees” by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986.

S. 10(10B) I.T. ACT, 1961

or were not included in the total income of the assessee of such
previous year or years, the amount exempt from income-tax under
this sub-clause
47[shall not exceed the limit so specified], as reduced
by the amount or, as the case may be, the aggregate amount not
included in the total income of any such previous year or years.

48[* * *]Explanation.—For the purposes of sub-clause (ii),49[* * *] the entitlement to earned leave of an employee shall not exceed

thirty days for every year of actual service rendered by him as an
employee of the employer from whose service he has retired ;
50[* * *]

51[(10B) any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947), or under any other Act or Rules, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise, 52[at the time of his retrenchment :

Provided that the amount exempt under this clause shall not exceed—

(i) an amount calculated in accordance with the provisions of 53clause (b) of section 25F of the Industrial Disputes Act, 1947 (14 of 1947) ; or

54[(ii) such amount, not being less than fifty thousand rupees, as the Central Government may, by notification55 in the Official Gazette, specify in this behalf,]

whichever is less :

  1. Substituted for “shall not exceed thirty thousand rupees” by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986.
  2. Third and fourth provisos omitted by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. Prior to their omission, the third and fourth provisos were amended by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978.
  3. “(i)” omitted by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986.
  4. Clause (ii) omitted, ibid.
  5. Inserted by the Finance Act, 1975, w.e.f. 1-4-1976.
  6. Substituted for the following by the Finance Act, 1985, w.e.f. 1-4-1986 : “at the time of his retrenchment, to the extent such compensation does not exceed—
(i)
an amount calculated in accordance with the provisions of clause (b) of section 25F of the Industrial Disputes Act, 1947 (14 of 1947) ; or
(ii)
twenty thousand rupees,
whichever is less.”
    1. Clause (b) of section 25F of the Industrial Disputes Act, 1947, read as follows :
    2. “(b) the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days’ average pay for every completed year of continuous service or any part thereof in excess of six months ; and”
  1. Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  2. Maximum limit is Rs. 5,00,000 where retrenchment is on or after 1-1-1997 - Notification No. 10969 [F. No. 200/21/97-IT(A-I)], dated 25-6-1999.
1.55 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(10BC)

Provided further that the preceding proviso shall not apply in respect of any compensation received by a workman in accordance with any scheme which the Central Government may, having regard to the need for extending special protection to the workmen in the undertaking to which such scheme applies and other relevant circumstances, approve in this behalf.]

Explanation.—For the purposes of this clause—

(a)
compensation received by a workman at the time of the closing down of the undertaking in which he is employed shall be deemed to be compensation received at the time of his retrenchment ;
(b)
compensation received by a workman, at the time of the transfer (whether by agreement or by operation of law) of the ownership or management of the undertaking in which he is employed from the employer in relation to that undertaking to a new employer, shall be deemed to be compensation received at the time of his retrenchment if—
(i)
the service of the workman has been interrupted by such transfer ; or
(ii)
the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer ; or

(iii) the new employer is, under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer ;

56(c) the expressions “employer” and “workman” shall have the same meanings as in the Industrial Disputes Act, 1947 (14 of 1947);]

57[(10BB) any payments made under the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 (21 of 1985), and any scheme framed thereunder except payment made to any assessee in connection with the Bhopal Gas Leak Disaster to the extent such assessee has been allowed a deduction under this Act on account of any loss or damage caused to him by such disaster ;]

58[(10BC) any amount received or receivable from the Central Government or a State Government or a local authority by an individual or his legal heir by way of compensation on account of any disaster, except the amount received or receivable to the extent such individual or his

  1. For text of clause (g) and clause (s) of section 2 of the Industrial Disputes Act, 1947, defining “employer” and “workman”, respectively, see Appendix.
  2. Inserted by the Finance Act, 1992, w.e.f. 1-4-1992.
  3. Inserted by the Finance Act, 2007, w.r.e.f. 1-4-2005.

S. 10(10C) I.T. ACT, 1961

legal heir has been allowed a deduction under this Act on account of

any loss or damage caused by such disaster.Explanation.—For the purposes of this clause, the expression “disaster” shall have the meaning assigned to it under clause (d) of section 259 of the Disaster Management Act, 2005 (53 of 2005);]

60[(10C) 61any amount received62 63[or receivable] by an employee of—

(i)
a public sector company ; or
(ii)
any other company ; or

(iii) an authority established under a Central, State or Provincial Act ; or

(iv)
a local 64[authority ; or]
65[(v) a co-operative society ; or
(vi)
a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956) ; or

(vii) an Indian Institute of Technology within the meaning of clause

(g) of section 366 of the Institutes of Technology Act, 1961 (59 of 1961) ; or 67[(viia) any State Government; or] 68[(viib) the Central Government; or]

69[(viic) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette70, specify in this behalf; or]

(viii) such institute of management as the Central Government may, by notification71 in the Official Gazette, specify in this behalf,]

  1. For the definition of term “disaster”, see Appendix.
  2. Substituted by the Finance Act, 1993, w.e.f. 1-4-1993. Prior to substitution, clause (10C) was inserted by the Finance Act, 1987, w.e.f. 1-4-1987 and later substituted by the Finance Act, 1992, w.e.f. 1-4-1993.
  3. See also Circular No. 640, dated 26-11-1992 and Circular F. No. 184/7/2003-ITAT, dated 4-3-2004. For details, see Taxmann’s Master Guide to Income-tax Act.
  4. For the meaning of expression “amount received”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  5. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.
  6. Substituted for “authority,” by the Finance Act, 1994, w.e.f. 1-4-1995.
  7. Inserted, ibid.
    1. Clause (g) of section 3 of the Institutes of Technology Act, 1961, defines “Institute” as follows : ‘(g) “Institute” means any of the Institutions mentioned in section 2 and includes the
    2. Indian Institute of Technology, Kharagpur, incorporated under the Indian Institute of Technology (Kharagpur) Act, 1956 (5 of 1956);’
  8. Inserted by the Finance Act, 2001, w.e.f. 1-4-2001.
  9. Inserted, ibid., w.e.f. 1-4-2002.
  10. Inserted by the Finance Act, 2002, w.e.f. 1-4-2002.
  11. For notified institutions, see Taxmann’s Master Guide to Income-tax Act.
  12. For notified Institutes of Management, see Taxmann’s Master Guide to Income-tax Act.
1.57 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(10CC)

72[on his] 73[voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i), a scheme of voluntary separation, to the extent such amount does not exceed five lakh rupees] :

Provided that the schemes of the said companies or authorities 74[or societies or Universities or the Institutes referred to in sub-clauses

(vii) and (viii)], as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be 75prescribed 76[***] :

Provided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year ;]

77[(10CC) in the case of an employee, being an individual deriving income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of clause (2) of section 17, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee, notwithstanding anything contained in section 20078 of the Companies Act, 1956 (1 of 1956);]

  1. Substituted for “at the time of his” by the Finance Act, 2003, w.e.f. 1-4-2004.
  2. Substituted for “voluntary retirement, in accordance with any scheme or schemes of voluntary retirement, to the extent such amount does not exceed five lakh rupees” by the Finance Act, 2000, w.e.f. 1-4-2001.
  3. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.
  4. Rule 2BA prescribes requirements for a Scheme of Voluntary Retirement, which are as follows :

(1) It applies to an employee who has completed ten years of service or completed 40 years of age. This condition is not applicable in case of amount received by an employee of a public sector company under scheme of voluntary separation framed by the said company. (2) It applies to all employees (by whatever name called), including workers and executives of the company/authority/co-operative society excepting directors of the company/co-operative society. (3) The scheme of voluntary retirement/separation has been drawn to result in overall reduction in the existing strength of the employees. (4) The vacancy caused by voluntary retirement/separation is not to be filled up, nor, the retiring employee is to be employed in another company or concern belonging to the same management. (5) The amount receivable on account of voluntary retirement/separation of the employees, does not exceed the amount equivalent to three months’ salary for each completed year of service or salary at the time of retirement multiplied by the balance months of service left before the date of his retirement on superannuation.

76. Words “and such schemes in relation to companies referred to in sub-clause (ii) or cooperative societies referred to in sub-clause (v) are approved by the Chief Commissioner or, as the case may be, Director-General in this behalf” omitted by the Finance Act, 2000,

w.e.f. 1-4-2001. Earlier the quoted words were amended by the Finance Act, 1994, w.e.f. 1-4-1995.

  1. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  2. For text of section 200 of the Companies Act, 1956, see Appendix.

S. 10(13) I.T. ACT, 1961

79[(10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than—

(a)
any sum received under sub-section (3) of section 80DD or subsection (3) of section 80DDA*; or
(b)
any sum received under a Keyman insurance policy; or
(c)
any sum received under an insurance policy issued on or after the 1st day of April, 2003 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured:

Provided that the provisions of this sub-clause shall not apply to

any sum received on the death of a person: Provided further that for the purpose of calculating the actual capital sum assured under this sub-clause, effect shall be given to the 80[Explanation to sub-section (3) of section 80C or the Explanation to sub-section (2A) of section 88, as the case may be].

Explanation.—For the purposes of this clause, “Keyman insurance policy” means a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person;]

(11)
any payment from a provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies 81[or from any other provident fund set up by the Central Government and notified82 by it in this behalf in the Official Gazette];
(12)
the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule ;

83[(13) any payment from an approved superannuation fund made—

    1. Substituted by the Finance Act, 2003, w.e.f. 1-4-2004. Prior to its substitution, clause (10D), as inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1962, and later on amended by the Finance Act, 1995, w.e.f. 1-4-1996 and Finance (No. 2) Act, 1996, w.e.f. 1-10-1996, read as under :
    2. ‘(10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy other than any sum received under sub-section (3) of section 80DDA or under a Keyman insurance policy. Explanation.—For the purposes of this clause, “Keyman insurance policy” means a life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with the business of the first mentioned person;’
  1. Substituted for “Explanation to sub-section (2A) of section 88” by the Finance Act, 2005,

w.e.f. 1-4-2006.

  1. Inserted by the Finance Act, 1968, w.e.f. 1-4-1969.
  2. For notified public provident fund, see Notification No. SO 2430, dated 2-7-1968. For details, see Taxmann’s Master Guide to Income-tax Act.
  3. Substituted by the Finance Act, 1965, w.r.e.f. 1-4-1962.
    *With effect from 1-4-2004, section 80DD has been substituted for sections 80DD & 80DDA.
1.59 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(13A)
(i)
on the death of a beneficiary ; or
(ii)
to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement ; or

(iii) by way of refund of contributions on the death of a beneficiary ; or

(iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon;]

84[85(13A) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent 86[* * *] as may be prescribed87 having regard to the area or place in which such accommodation is situate and other relevant considerations.]

88[Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where—

  1. Inserted by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964.
  2. See also Circular No. 90, dated 26-6-1972, Letter F. No. 12/19/64-IT (A-I), dated 2-1-1967 and Circular No. 9/2003, dated 18-11-2003. For details, see Taxmann’s Master Guide to Income-tax Act.
  3. “(not exceeding four hundred rupees per month)” omitted by the Finance Act, 1986, w.e.f. 1-4-1987. Earlier, in this omitted expression “four” was substituted for “three” by the Finance Act, 1975, w.e.f. 1-4-1975.
    1. Rule 2A prescribes the quantum of exemption available, which will be the least of the following :
    2. ‘Salary’ for this purpose includes basic salary as well as dearness allowance if the terms of employment so provide. It also includes commission based on a fixed percentage of turnover achieved by an employee as per terms of contract of employment but excludes all other allowances and perquisites. In view of Explanation (ii) to rule 2A, basic pay, dearness allowance and commission are determined on ‘due’ basis in respect of the period during which rental accommodation is occupied by the employee in the previous year. Thus, emoluments of a period other than previous year are not to be considered, even though such amount is received (as well as taxed) during the previous year. Again, emoluments of the period during which rental accommodation is not occupied in the previous year are left out of computation. It is important to note that where rent paid is 10 per cent or less than 10 per cent of salary, no exemption will be admissible. Again exemption is denied where an employee lives in his own house, or in a house for which he does not pay rent.
  4. Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1976.

S. 10(14A) I.T. ACT, 1961

(a)
the residential accommodation occupied by the assessee is owned by him ; or
(b)
the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him ;]

89[(14)(i) any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred90 in the performance of the duties of an office or employment of profit91, 92[as may be prescribed], to the extent to which such expenses are actually incurred for that purpose ;

(ii) any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit91 are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, 93[as may be prescribed and to the extent as may be prescribed] :]

94[Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence ;]

(14A) 95[***]

  1. Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to its substitution, clause (14) was amended by the Finance Act, 1975, w.r.e.f. 1-4-1962.
  2. For the meaning of the terms/expressions “incurred” and “office or employment of profit”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  3. For the meaning of the expression “office or employment of profit”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  4. Substituted for “as the Central Government may, by notification in the Official Gazette, specify” by the Finance Act, 1995, w.e.f. 1-7-1995. For prescribed allowances, see rule 2BB(1).
  5. Substituted for “as the Central Government may, by notification in the Official Gazette, specify, to the extent specified in the notification” by the Finance Act, 1995, w.e.f. 1-7-1995. For prescribed allowances, see rule 2BB(2).
  6. Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989.
  7. Omitted by the Finance Act, 2002, w.e.f. 1-4-2003. Prior to its omission, clause (14A), as inserted by the Finance Act, 1989, w.e.f. 1-4-1989, read as under : ‘(14A) any income received by a public financial institution as exchange risk premium

from any person borrowing foreign currency from such institution, provided theamount of such premium is credited by such institution to a fund specified underclause (23E).Explanation.—For the purposes of this clause,

(i)
the expression “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956) ;
(ii)
the expression “exchange risk premium” means a premium paid by a person borrowing foreign currency from a public financial institution to cover the risk which may be borne by such institution on account of fluctuations in exchange rate of foreign currencies borrowed by such institution ;’
1.61 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(15)

(15) 96[(i) income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification97 in the Official Gazette, specify in this behalf, subject to such conditions and limits as may be specified in the said notification ;]

98[(iib) 99[in the case of an individual or a Hindu undivided family,] interest on such Capital Investment Bonds as the Central Government may, by notification1 in the Official Gazette, specify in this behalf :]

2[Provided that the Central Government shall not specify, for the purposes of this sub-clause, such Capital Investment Bonds on or after the 1st day of June, 2002;]

3[(iic) in the case of an individual or a Hindu undivided family, interest on such Relief Bonds4 as the Central Government may, by notification in the Official Gazette, specify in this behalf ;]

5[(iid) interest on such bonds, as the Central Government may, by notification6 in the Official Gazette, specify, arising to—

(a)
a non-resident Indian, being an individual owning the bonds ; or
(b)
any individual owning the bonds by virtue of being a nominee or survivor of the non-resident Indian ; or
(c)
any individual to whom the bonds have been gifted by the non

resident Indian :

Provided that the aforesaid bonds are purchased by a non-resident

Indian in foreign exchange and the interest and principal received in

respect of such bonds, whether on their maturity or otherwise, is not

allowable to be taken out of India :

Provided further that where an individual, who is a non-resident Indian in any previous year in which the bonds are acquired, becomes a resident in India in any subsequent year, the provisions of this subclause shall continue to apply in relation to such individual :

  1. Substituted for sub-clauses (i), (ia), (ib), (ii) and (iia) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original sub-clauses (ia) and (ib) were inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1965, w.e.f. 4-12-1965 and Special Bearer Bonds (Immunities & Exemptions) Act, 1981, w.e.f. 12-1-1981, respectively ; subclause (ii) was amended by the Finance (No. 2) Act, 1965, w.e.f. 11-9-1965, the Finance Act, 1979, w.e.f. 1-4-1980 and the Finance Act, 1987, w.r.e.f. 1-4-1983 ; and sub-clause (iia) was inserted by the Finance Act, 1968, w.e.f. 1-4-1969.
  2. For notified securities, bonds, annuity certificates, savings certificates, etc., see Taxmann’s Master Guide to Income-tax Act.
  3. Inserted by the Finance Act, 1982, w.e.f. 1-4-1983.
  4. Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.
  1. For notified capital investment bonds, see Taxmann’s Master Guide to Income-tax Act.
  2. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  3. Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.
  4. For details see Taxmann’s Master Guide to Income-tax Act.
  5. Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.
  6. For specified NRI bonds, see Taxmann’s Master Guide to Income-tax Act.

S. 10(15) I.T. ACT, 1961

Provided also that in a case where the bonds are encashed in a previous year prior to their maturity by an individual who is so entitled, the provisions of this sub-clause shall not apply to such individual in relation to the assessment year relevant to such previous year :

7[Provided also that the Central Government shall not specify, for the purposes of this sub-clause, such bonds on or after the 1st day of June, 2002.]

Explanation.—For the purposes of this sub-clause, the expression “non-resident Indian” shall have the meaning assigned to it in clause

(e) of section 115C;]

(iii) interest on securities held by the Issue Department of the Central

Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949; 8[(iiia) interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India, with any scheduled bank.

Explanation.—For the purposes of this sub-clause, “scheduled bank” shall have the meaning assigned to it in 9[clause (ii) of the Explanation to clause (viia) of sub-section (1) of section 36];]

10[(iiib) interest payable to the Nordic Investment Bank, being a multilateral financial institution constituted by the Governments of Denmark, Finland, Iceland, Norway and Sweden, on a loan advanced by it to a project approved by the Central Government in terms of the Memorandum of Understanding entered into by the Central Government with that Bank on the 25th day of November, 1986;]

11[(iiic) interest payable to the European Investment Bank, on a loan granted by it in pursuance of the framework-agreement for financial co-operation entered into on the 25th day of November, 1993 by the Central Government with that Bank;]

(iv) interest payable— 12[(a) by Government or a local authority on moneys borrowed by

it before the 1st day of June, 2001 from, or debts owed by it before the 1st day of June, 2001 to, sources outside India;]

(b) by an industrial undertaking in India on moneys borrowed by it under 13[a loan agreement entered into before the 1st day

  1. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  2. Inserted by the Finance Act, 1985, w.e.f. 1-4-1985.
  3. Substituted for “the Explanation to clause (iii) of sub-section (5) of section 11” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
  4. Inserted by the Taxation Laws (Amendment) Act, 2003, w.r.e.f. 1-4-2001.
  5. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005.
    1. Substituted by the Finance Act, 2001, w.e.f. 1-4-2002. Prior to its substitution, item (a), as amended by the Finance Act, 1983, w.e.f. 1-4-1983, read as under :
    2. “(a) by Government or a local authority on moneys borrowed by it from, or debts owed by it to, sources outside India ;”
  6. Substituted for “a loan agreement entered into with any such financial institution” by the Finance Act, 2001, w.e.f. 1-4-2002.
1.63 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(15)

of June, 2001 with any such financial institution] in a foreign country as may be approved14 in this behalf by the Central Government by general or special order ;

15(c) by an industrial undertaking in India on any moneys borrowed or debt incurred by it 16[before the 1st day of June, 2001] in a foreign country in respect of the purchase outside India of raw materials 17[or components] or capital plant and machinery, 18[to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf19, having regard to the terms of the loan or debt and its repayment.]

20[21[Explanation 1.]—For the purposes of this item, “purchase of capital plant and machinery” includes the purchase of such capital plant and machinery under a hire-purchase agreement or a lease agreement with an option to purchase such plant and machinery.]

22[Explanation 2.—For the removal of doubts, it is hereby declared that the usance interest payable outside India by an undertaking engaged in the business of ship-breaking in respect of purchase of a ship from outside India shall be deemed to be the interest payable on a debt incurred in a foreign country in respect of the purchase outside India;]

23[(d) by the Industrial Finance Corporation of India established by the Industrial Finance Corporation Act, 1948 (15 of 1948), or the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964), 24[or the Export-Import Bank of India established under the Export-Import Bank of India Act, 1981 (28 of 1981),] 25[or the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987),]

  1. For approved institutions, see Taxmann’s Master Guide to Income-tax Act.
  2. See also Letter [F. No. 21/221/64-IT(A-I)], dated 24-8-1964. For details, see Taxmann’s Master Guide to Income-tax Act. For form of application for obtaining exemption, refer Taxmann’s Direct Taxes Circulars.
  3. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.
  4. Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.
  5. Substituted for “in any case where the loan or debt is approved by the Central Government, having regard to its terms generally and in particular to the terms of its repayment” by the Finance Act, 1964, w.e.f. 1-4-1964.
  6. For the meaning of the term “in this behalf”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  7. Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.
  8. Explanation renumbered as Explanation 1 by the Taxation Laws (Amendment) Act, 2003,

w.r.e.f. 1-4-1962.

  1. Inserted, ibid.
  2. Inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-1973.
  3. Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.
  4. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.

S. 10(15) I.T. ACT, 1961

26[or the Small Industries Development Bank of India established under section 3 of the Small Industries Development Bank of India Act, 1989 (39 of 1989),] or the Industrial Credit and Investment Corporation of India [a company formed and registered under the Indian Companies Act, 1913 (7 of 1913)], on any moneys borrowed by it from sources outside India 27[before the 1st day of June, 2001],to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;]

28[(e) by any other financial institution established in India or a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act), on any moneys borrowed by it from sources outside India 29[before the 1st day of June, 2001] under a loan agreement approved by the Central Government where the moneys are borrowed either for the purpose of advancing loans to industrial undertakings in India for purchase outside India of raw materials or capital plant and machinery or for the purpose of importing any goods which the Central Government may consider necessary to import in the public interest, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;]

30[(f) by an industrial undertaking in India on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government 31[before the 1st day of June, 2001] having regard to the need for industrial development in India, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;

32[(fa) by a scheduled bank 33[***] 34[to a non-resident or to a person who is not ordinarily resident within the meaning of sub

  1. Inserted by the Finance Act, 1992, w.e.f. 1-4-1992.
  2. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.
  3. Inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-1973.
  4. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.
  5. Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.
  6. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.
  7. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
  8. Words “before the 1st day of April, 2005” omitted by the Finance Act, 2005, w.e.f. 1-4-2006. Earlier the quoted words were inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2006.
  9. Inserted by the Finance Act, 1993, w.e.f. 1-4-1993.
1.65 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(15)

section (6)† of section 6] on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India.

35[Explanation.—For the purposes of this item, the expression “scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank;]

36[(g) by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, 37[being a company eligible for deduction under clause (viii) of sub-section (1) of section 36] on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government 38[before the 1st day of June, 2003], to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment.]

Explanation.—For the purposes of 39[items (f) 40[, (fa)] and (g)], the expression 41“foreign currency” shall have the meaning assigned to it in the Foreign Exchange Regulation Act, 1973 (46 of 1973);]

35. Substituted by the Finance Act, 2007, w.e.f. 1-4-2007. Prior to its substitution, the Explanation read as under : ‘Explanation.—For the purposes of this item, the expression “scheduled bank” shall have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of sub-section

(1) of section 36;’

  1. Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.
  2. Substituted for “being a company approved by the Central Government for the purposes of clause (viii) of sub-section (1) of section 36” by the Finance Act, 2000, w.e.f. 1-4-2000.
  3. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.
  4. Substituted for “this item” by the Finance Act, 1983, w.e.f. 1-4-1983.
  5. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
  6. Clause (g) of section 2 of the Foreign Exchange Regulation Act, 1973, defines “foreign

currency” as follows:‘(g) “foreign currency” means any currency other than *Indian currency;*“Indian currency” has been defined in clause (k), see footnote 42 on p. 1.432 post.For definitions of above terms under FEMA, 1999, see Appendix.

Should be read as ‘clause’.
S.
10(15) I.T. ACT, 1961

42[(h) by any public sector company in respect of such bonds or debentures and subject to such conditions, including the condition that the holder of such bonds or debentures registers his name and the holding with that company, as the Central Government may, by notification43 in the Official Gazette, specify in this behalf;]

44[(i) by Government on deposits made by an employee of the Central Government or a State Government 45[or a public sector company], in accordance with such scheme as the Central Government may, by notification46 in the Official Gazette, frame in this behalf, out of the moneys due to him on account of his retirement, whether on superannuation or otherwise.]

47[48[Explanation 1].—For the purposes of this sub-clause, the expression “industrial undertaking” means any undertaking which is engaged in—

(a) the manufacture or processing of goods; or

49[(aa) the manufacture of computer software or recording of programme on any disc, tape, perforated media or other information device; or]

(b) the business of generation or distribution of electricity or any

other form of power; or 50[(ba) the business of providing telecommunication services; or]

(c)
mining; or
(d)
the construction of ships; or
51[(da) the business of ship-breaking; or]

52[(e) the operation of ships or aircrafts or construction or operation of rail systems.]]

  1. Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.
  2. For specified bonds/debentures of public sector companies, see Taxmann’s Direct Taxes Circulars.
  3. Inserted by the Finance Act, 1989, w.e.f. 1-4-1990.
  4. Inserted by the Finance Act, 1990, w.e.f. 1-4-1991.
  5. For notified deposit schemes for retired Government employees/employees of public sector companies, refer Taxmann’s Direct Taxes Circulars. No new account can be opened under the Schemes, from the close of business on 9-7-2004. For details, see Taxmann’s Master Guide to Income-tax Act.
  6. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
  7. Explanation renumbered as Explanation 1 by the Finance Act, 1999, w.e.f. 1-4-2000.
  8. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.
  9. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.
  10. Inserted by the Taxation Laws (Amendment) Act, 2003, w.r.e.f. 1-4-1991.
  11. Substituted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997. Prior to its substitution, clause

(e), as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991, read as under : “(e) the operation of ships or aircrafts;”

1.67 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(15)

53[Explanation 1A.—For the purposes of this sub-clause, the expression “interest” shall not include interest paid on delayed payment of loan or on default if it is in excess of two per cent per annum over the rate of interest payable in terms of such loan.]

54[Explanation 2.—For the purposes of this clause, the expression “interest” includes hedging transaction charges on account of currency fluctuation;]

55[(v) interest on—

(a)
securities held by the Welfare Commissioner, Bhopal Gas Victims, Bhopal, in the Reserve Bank’s SGL Account No. SL/DH 048;
(b)
deposits for the benefit of the victims of the Bhopal gas leak disaster held in such account, with the Reserve Bank of India or with a public sector bank, as the Central Government may, by notification56 in the Official Gazette, specify, whether prospectively or retrospectively but in no case earlier than the 1st day of April, 1994 in this behalf.

Explanation.—For the purposes of this sub-clause, the expression “public sector bank” shall have the meaning assigned to it in the Explanation to clause (23D);]

57[(vi) interest on Gold Deposit Bonds issued under the Gold DepositScheme, 1999 notified by the Central Government;]58[(vii) interest on bonds

(a)
issued by a local authority or by a State Pooled Finance Entity; and
(b)
specified by the Central Government by notification59 in the

Official Gazette. Explanation.—For the purposes of this sub-clause, the expression “State Pooled Finance Entity” shall mean such entity which is set up in

  1. Substituted by the Finance Act, 2001, w.e.f. 1-4-2002. Prior to its substitution, Explanation 1A, as inserted by the Finance Act, 2000, w.e.f. 1-4-2001, read as under : ‘Explanation 1A.—For the purposes of this sub-clause, the expression “interest” shall not include interest paid on delayed payment of loan or on default.’
  2. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.
    1. Substituted by the Finance Act, 1995, w.e.f. 1-4-1995. Prior to its substitution, sub-clause (v), as inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989 and later amended by the Finance Act, 1993, w.r.e.f. 2-11-1992, read as under:
    2. “(v) interest on securities held by the Welfare Commissioner, Bhopal Gas Victims, Bhopal, in Reserve Bank’s SGL Account No. SL/DH 048;”
  3. For notified accounts, see Taxmann’s Master Guide to Income-tax Act.
  4. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.
  5. Substituted by the Finance Act, 2007, w.e.f. 1-4-2008. Prior to its substitution, sub-clause

(vii), as inserted by the Finance Act, 2000, w.e.f. 1-4-2001, read as under :“(vii) interest on bonds

(a)
issued by a local authority; and
(b)
specified by the Central Government by notification in the Official Gazette;”

59. For notified bonds issued by local authorities, see Taxmann’s Master Guide to Income-tax Act.

S. 10(16) I.T. ACT, 1961

accordance with the guidelines for the Pooled Finance Development Scheme notified by the Central Government in the Ministry of Urban Development;]

60[(viii) any income by way of interest received by a non-resident or a person who is not ordinarily resident, in India on a deposit made on or after the 1st day of April, 2005, in an Offshore Banking Unit61 referred to in clause (u) of section 2 of the Special Economic Zones Act, 2005;]

62[(15A) any payment made, by an Indian company engaged in the business of operation of aircraft, to acquire an aircraft or an aircraft engine (other than a payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease from the Government of a foreign State or a foreign enterprise under an agreement 63[64[, not being an agreement entered into between the 1st day of April, 1997 and the 31st day of March, 1999,] and] approved by the Central Government in this behalf :

65[Provided that nothing contained in this clause shall apply to any such agreement entered into on or after the 66[1st day of April, 67[2007]].]

Explanation.—For the purposes of this clause, the expression “foreign enterprise” means a person who is a non-resident;] 68(16) 69scholarships granted to meet the cost of education;

  1. Inserted by the Special Economic Zones Act, 2005, w.e.f. 10-2-2006.
  2. For definition of “offshore banking unit”, see Appendix.
    1. Substituted by the Finance Act, 1995, w.e.f. 1-4-1996. Prior to its substitution, clause (15A), as inserted by the Income-tax (Amendment) Act, 1989, w.e.f. 24-1-1989, read as under :
    2. ‘(15A) any payment made, by an Indian company engaged in the business of operation of aircraft, to acquire an aircraft on lease from the Government of a foreign State or a foreign enterprise under an agreement approved by the Central Government in this behalf. Explanation.—For the purpose of this clause, “foreign enterprise” means a person who is a non-resident;’
  3. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.
  4. Substituted for “entered before the 1st day of April, 1997” by the Finance Act, 1999, w.e.f. 1-4-2000.
  5. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2006.
  6. Substituted for “1st day of October, 2005” by the Taxation Laws (Amendment) Act, 2005,

w.e.f. 1-4-2006. Earlier “1st day of October, 2005” was substituted for “1st day of April, 2005” by the Finance Act, 2005, w.e.f. 1-4-2006.

  1. Substituted for “2006” by the Finance Act, 2006, w.e.f. 1-4-2007.
  2. See also Letter [F. No. 24/35/66-IT(A-I)], dated 4-10-1966, Letter [F. No. 24/2/69-IT (A-I)], dated 14-1-1968, Letter [F. No. 24/25/68-IT(A-I)], dated 18-9-1966, Letter [F. No. 24/ 22/67-IT(A-I)], dated 7-7-1967, Letter [F. No. 25/37/66-IT(A-I)], dated 2-12-1966, Letter [F. No. 24/7/64-IT(A-I)], dated 24-3-1964, Letter [F. No. 24/4/64-IT(A-I)], dated 12-2-1964, Letter [F. No. 24/34/62-IT(A-I)], dated 25-1-1963, Circular No. 3(XXIII-23), dated 12-11961, Circular No. 49 (XXIII-12), dated 13-12-1956, Income-tax Circulars, published by Directorate of Inspection (Research, Statistics and Publication), 1968 edn., p. 89 and Circular No. 11 (XXIII-24), dated 4-4-1961. For details, see Taxmann’s Master Guide to Income-tax Act.
  3. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
1.69 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(18)

70[(17) any income by way of—

(i) daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof; 71[* * *]

72[(ii) any allowance received by any person by reason of his membership of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986;

73[(iii) any constituency allowance received by any person by reason of his membership of any State Legislature under any Act or rules made by that State Legislature;]]]

74[(17A) any payment made, whether in cash or in kind,—

(i)
in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body and approved75 by the Central Government in this behalf; or
(ii)
as a reward by the Central Government or any State Government for such purposes as may be approved75 by the Central Government in this behalf in the public interest;]

76[(18) any income by way of—

(i)
pension received by an individual who has been in the service of the Central Government or State Government and has been awarded “Param Vir Chakra” or “Maha Vir Chakra” or “Vir Chakra” or such other gallantry award as the Central Government may, by notification77 in the Official Gazette, specify in this behalf;
(ii)
family pension received by any member of the family of an individual referred to in sub-clause (i).

70. Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986,

w.e.f.
1-4-1986. Prior to its substitution, clause (17) was amended by the Finance Act, 1976,
w.e.f.
1-4-1976.
  1. Word “and” omitted by the Finance Act, 1987, w.r.e.f. 1-4-1986.
  2. Substituted by the Finance Act, 1987, w.r.e.f. 1-4-1986. Earlier sub-clause (ii) was amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1986.
  3. Substituted by the Finance Act, 2006, w.e.f. 1-4-2007. Prior to its substitution, sub-clause (iii), as amended by the Finance Act, 1997, w.e.f. 1-4-1998, read as under :

“(iii) all other allowances not exceeding two thousand rupees per month in the aggregate received by any person by reason of his membership of any State Legislature or of any Committee thereof, which the Central Government may, by notification* in the Official Gazette, specify in this behalf;”

*For notified allowances, see Taxmann’s Master Guide to Income-tax Act.

  1. Substituted for clauses (17A), (17B) and (18) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original clauses (17A) and (17B) were inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-1973. Clause (17A) was later on amended by the Finance Act, 1980, w.e.f. 1-4-1980.
  2. For notified awards/rewards, see Taxmann’s Master Guide to Income-tax Act.
  3. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.
  4. For notified gallantry awards, see Taxmann’s Master Guide to Income-tax Act.

S. 10(20) I.T. ACT, 1961

Explanation.—For the purposes of this clause, the expression “family” shall have the meaning assigned to it in the Explanation to clause (5);]

(18A) 78[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;] 79[(19) family pension received by the widow or children or nominated heirs, as the case may be, of a member of the armed forces (including paramilitary forces) of the Union, where the death of such member has occurred in the course of operational duties, in such circumstances and subject to such conditions, as may be prescribed80;] 81[(19A) the annual value of any one palace in the occupation of a Ruler, being a palace, the annual value whereof was exempt from income-tax before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, by virtue of the provisions of the Merged States (Taxation Concessions) Order, 1949, or the Part B States (Taxation

Concessions) Order, 1950, or, as the case may be, the Jammu and Kashmir (Taxation Concessions) Order, 1958: Provided that for the assessment year commencing on the 1st day of

April, 1972, the annual value of every such palace in the occupation82 of such Ruler during the relevant previous year shall be exempt from income-tax;]

83(20) the income of a local authority which is chargeable under the head 84[* * *] “Income from house property”, “Capital gains” or “Income from other sources” or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service 85[(not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area].

86[Explanation.—For the purposes of this clause, the expression “local authority” means—

(i) Panchayat as referred to in clause (d) of article 243 of the Constitution87; or

    1. Prior to its omission, clause (18A), as inserted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, w.e.f. 9-9-1972, read as under : “(18A) any ex gratia payments made by the Central Government consequent on the
    2. abolition of privy purse;”
  1. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005. Earlier original clause (19) was omitted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, w.e.f. 2-4-1973.
  2. See rule 2BBA for prescribed circumstances and conditions.
  3. Inserted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, w.r.e.f. 28-12-1971.
  4. For the meaning of the term “occupation”, see Taxmann’s Direct Taxes Manual, Vol. 3.
  5. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  6. ‘ “Interest on securities,” ’ omitted by the Finance Act, 1988, w.e.f. 1-4-1989.
  7. Substituted for “within its own jurisdictional area” by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972.
  8. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
  9. See Appendix.
1.71 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(21)

(ii) Municipality as referred to in clause (e) of article 243P of the Constitution88; or

(iii) Municipal Committee and District Board,

legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or

(iv) Cantonment Board as defined in section 389 of the Cantonments Act, 1924 (2 of 1924);] (20A) 89[***] 90[91(21) 92any income of a scientific research association for the time being

approved for the purpose of clause (ii) of sub-section (1) of section 35: Provided that the scientific research association—

(a)
applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established, and the provisions of sub-section (2) and sub-section (3) of section 11 shall apply in relation to such accumulation subject to the following modifications, namely :—
(i)
in sub-section (2),—
(1)
the words, brackets, letters and figure “referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section” shall be omitted;
(2)
for the words “to charitable or religious purposes”, the words “for the purposes of scientific research” shall be substituted;
(3)
the reference to “Assessing Officer” in clause (a) thereof shall be construed as a reference to the “prescribed authority” referred to in clause (ii) of sub-section (1) of section 35;
(ii)
in sub-section (3), in clause (a), for the words “charitable or religious purposes”, the words “the purposes of scientific research” shall be substituted; and
  1. See Appendix.
    1. Omitted by the Finance Act, 2002, w.e.f. 1-4-2003. Prior to its omission, clause (20A), as inserted by the Finance Act, 1970, w.r.e.f. 1-4-1962, read as under : “(20A) any income of an authority constituted in India by or under any law enacted either
    2. for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;”
  2. Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990. Earlier clause (21), was amended by the Finance Act, 1983, w.e.f. 1-4-1984, Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.
  3. See also Circular No. 400, dated 19-10-1984 and Circular No. 584, dated 13-11-1990. For details, see Taxmann’s Master Guide to Income-tax Act. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
  4. See rule 17 and Form No. 10, for notice of accumulation of income by charitable trust or institution [to be furnished before expiry of time allowed under section 139(1)].

S. 10(21) I.T. ACT, 1961

93[(b) does not invest or deposit its funds, other than—

(i)
any assets held by the scientific research association where such assets form part of the corpus of the fund of the association as on the 1st day of June, 1973;
(ii)
any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the scientific research association before the 1st day of March, 1983;

(iii) any accretion to the shares, forming part of the corpus of the fund mentioned in sub-clause (i), by way of bonus shares allotted to the scientific research association;

(iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify,

for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11:]

94[Provided further that the exemption under this clause shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the first proviso to this clause, subject to the condition that such voluntary contribution is not held by the scientific research association, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:

Provided also] that nothing contained in this clause shall apply in relation to any income of the scientific research association, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business:]

95[Provided also that where the scientific research association is approved by the Central Government and subsequently that Government is satisfied that—

(i)
the scientific research association has not applied its income in accordance with the provisions contained in clause (a) of the first proviso; or
(ii)
the scientific research association has not invested or deposited its funds in accordance with the provisions contained in clause (b) of the first proviso; or

(iii) the activities of the scientific research association are not genuine; or

  1. Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1990.
  2. Substituted for the words “Provided further” by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990.
  3. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.
1.73 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(22B)

(iv) the activities of the scientific research association are not being carried out in accordance with all or any of the conditions subject to which such association was approved,

it may, at any time after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association, by order, withdraw the approval and forward a copy of the order withdrawing the approval to such association and to the Assessing Officer;]

(22) 96[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;] (22A) 97[Omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999;] 98[(22B) any income of such news agency set up in India solely for collection

and distribution of news as the Central Government may, by notification99 in the Official Gazette, specify in this behalf: Provided that the news agency applies its income or accumulates it

for application solely for collection and distribution of news and does

not distribute its income in any manner to its members: Provided further that any notification issued by the Central Government under this clause shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification:]

1[Provided also that where the news agency has been specified, by notification, by the Central Government and subsequently that Government is satisfied that such news agency has not applied or accumulated or distributed its income in accordance with the provisions contained in the first proviso, it may, at any time after giving a reasonable opportunity of showing cause, rescind the notification and forward a copy of the order rescinding the notification to such agency and to the Assessing Officer;]

    1. Prior to its omission, clause (22) read as under : “(22) any income of a university or other educational institution, existing solely for
    2. educational purposes and not for purposes of profit;Clauses (22) and (22A) are now re-enacted in section 10(23C).
    1. Prior to its omission, clause (22A), as inserted by the Finance Act, 1970, w.e.f. 1-4-1970, read as under :
    2. “(22A) any income of a hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit;”
  1. Inserted by the Finance Act, 1994, w.e.f. 1-4-1994.
  2. For notified news agencies, see Taxmann’s Master Guide to Income-tax Act.

1. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.

S. 10(23) I.T. ACT, 1961

(23) 2[Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]

2. Prior to its omission, clause (23), as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989, Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990 and further amended by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990, Finance Act, 1992, w.r.e.f. 1-4-1990/w.e.f. 1-4-1992 and Finance Act, 2000, w.e.f. 1-4-2001, read as under :

‘(23) any income of an association or institution established in India which may be notified by the Central Government in the Official Gazette having regard to the fact that the association or institution has as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as the Central Government may, by notification in the Official Gazette, specify in this behalf : Provided that the association or institution shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under this clause: Provided further that the Central Government may, before notifying the association or institution under this clause, call for such documents (including audited annual accounts) or information from the association or institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the association or institution and that Government may also make such inquiries as it may deem necessary in this behalf : Provided also that the association or institution,—

(a)
applies its income or accumulates it for application, wholly and exclusively to the objects for which it is established and the provisions of sub-section (2) and sub-section (3) of section 11 shall apply in relation to such accumulation subject to the following modifications, namely :—
(i)
in sub-section (2),—
(1)
the words, brackets, letters and figure “referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that subsection” shall be omitted;
(2)
for the words “to charitable or religious purposes”, the words “for the purposes of games or sports” shall be substituted;
(3)
the reference to “Assessing Officer” in clause (a) thereof shall be construed as a reference to the “prescribed authority” referred to in the first proviso to this clause;
(ii)
in sub-section (3), in clause (a), for the words “charitable or religious purposes”, the words “the purposes of games or sports” shall be substituted; and
(b)
does not invest or deposit its funds, other than—
(i)
any assets held by the association or institution where such assets form part of the corpus of the fund of the association or institution as on the 1st day of June, 1973;
(ii)
any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the association or institution before the 1st day of March, 1983;

(iii) any accretion to the shares, forming part of the corpus of the fund mentioned in sub-clause (i), by way of bonus shares allotted to the association or institution;

(iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify,

for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; and

(Contd. on p. 1.75)

1.75 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME S. 10(23A)

3[4(23A) any income (other than income chargeable under the head 5[* * *] “Income from house property” or any income received for rendering any specific services or income by way of interest or dividends derived from its investments) of an association or institution established in India having as its object the control, supervision, regulation or encouragement of the profession of law, medicine, accountancy, engineering or architecture or such other profession6 as the Central Government may specify in this behalf, from time to time, by notification in the Official Gazette:

Provided that—

(i) the association or institution applies its income, or accumulates it for application, solely to the objects for which it is established; and

(Contd. from p. 1.74)

(c)
does not distribute any part of its income in any manner to its members except as grants to any association or institution affiliated to it;
(d)
applies the amount received by way of donations referred to in clause (c) of sub-section (2) of section 80G for purposes of development of infrastructure for games or sports in India or for sponsoring of games and sports in India :

Provided also that the exemption under this clause shall not be denied in relation to any funds invested or deposited before the 1st day of April, 1989 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 1993 :

Provided also that the exemption under this clause shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this clause, subject to the condition that such voluntary contribution is not held by the association or institution, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later : Provided also that nothing contained in this clause shall apply in relation to any income of the association or institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business : Provided also that any notification issued by the Central Government under this clause in relation to any association or institution shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued), as may be specified in the notification*;*For approved sports associations/institutions, see Taxmann’s Direct Taxes Circulars.

  1. Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962.
  2. See also Circular No. 584, dated 13-11-1990. For details, see Taxmann’s Master Guide to Income-tax Act.
  3. ‘ “Interest on securities” or’ omitted by the Finance Act, 1988, w.e.f. 1-4-1989.
  4. For specified professions, see Taxmann’s Master Guide to Income-tax Act.

S. 10(23AAA) I.T. ACT, 1961

(ii) the association or institution is for the time being approved7 for the purpose of this clause by the Central Government by general or special order:]

8[Provided further that where the association or institution has been approved by the Central Government and subsequently that Government is satisfied that—

(i