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  • 1. INCOME-TAX ACT, 1961*[43 OF 1961][AS AMENDED BY FINANCE ACT, 2008]An Act to consolidate and amend the law relating toincome-tax and super-taxBE it enacted by Parliament in the Twelfth Year of the Republic ofIndia as follows :—CHAPTER IPRELIMINARYShort 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 the1st dayof April, 1962.Definitions.2. In this Act, unless the context otherwise requires,—3[(1) “advance tax” means the advance tax payable in accordance with theprovisions of Chapter XVII-C;]1. For applicability of the Act to State of Sikkim, see section 26 of theFinance Act, 1989.For extension of Act to Continental Shelf of India, see Notification No. GSR304(E), dated31-3-1983. 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 NotificationNo. SO 148(E), dated 23-2-1989. For details, see Taxmann‟s Master Guideto Income-taxAct.3. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.*Amendments made by the Finance Act, 2008 notwithstanding thedates from which theycome into effect, have been printed in italics enclosed with boldsquare brackets.Amendments made by the Finance Act, 2007 coming into force fromApril 1, 2008 have alsobeen printed in italics but enclosed within medium square brackets.1.14[5(1A)] 6“agricultural income”7 means8—9[(a) any rent10 or revenue derived from land10 which is situated inIndia 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 ofany process ordinarily employed by a cultivator or receiverof rent-in-kind to render the produce raised or received byhim fit to be taken to market10; or(iii) the sale by a cultivator or receiver of rent-in-kind of theproduce raised or received by him, in respect of which noprocess has been performed other than a process of thenature described in paragraph (ii) of this sub-clause ;(c) any income derived from any building owned and occupied by
  • 2. the receiver of the rent or revenue of any such land, or occupiedby the cultivator or the receiver of rent-in-kind, of any land withrespect to which, or the produce of which, any process mentionedin 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, andis a building which the receiver of the rent or revenue or thecultivator, or the receiver of rent-in-kind, by reason of hisconnection with the land, requires as a dwelling house, or asa store-house, or other out-building, and(ii) the land is either assessed to land revenue in India or issubject to a local rate assessed and collected by officers of theGovernment as such or where the land is not so assessed toland revenue or subject to a local rate, it is not situated—(A) in any area which is comprised within the jurisdictionof a municipality (whether known as a municipality,municipal corporation, notified area committee, townarea committee, town committee or by any other name)S. 2(1A) I.T. ACT, 1961 1.24. Renumbered as clause (1A) by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1989.5. For relevant case laws, see Taxmann‟s Master Guide to Income-tax Act.6. See rules 7 and 8 for manner of computation of income which is partiallyagricultural andpartially from business. See also rules 7A & 7B.7. The Finance Act, 1973 introduced for the first time a scheme of partiallyintegratedtaxation of non-agricultural income with incomes derived from agriculturefor thepurposes of determining the rate of income-tax that will apply to certainnon-corporateassessees. The scheme is since continued by the Annual Finance Acts.The provisionsapplicable for the assessment year 2008-09 are contained in section2(2)/2(13)(c) and PartIV of the First Schedule to the Finance Act, 2008.8. See also Circular No. 310, dated 29-7-1981 and Circular No. 5/2003,dated 22-5-2003. Fordetails, see Taxmann‟s Master Guide to Income-tax Act.9. Substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962.10. For meaning of the terms/expressions “rent”, “revenue”, “derived”,“revenue derived fromland”, “such land”, “agriculture” and “market”, see Taxmann‟s Direct TaxesManual, Vol. 3.or a cantonment board and which has a population ofnot less than ten thousand according to the last precedingcensus of which the relevant figures have beenpublished before the first day of the previous year ; or(B) in any area within such distance, not being more thaneight kilometres, from the local limits of any municipalityor cantonment board referred to in item (A), as the
  • 3. Central Government may, having regard to the extentof, and scope for, urbanisation of that area and otherrelevant considerations, specify in this behalf by notificationin the Official Gazette11.]12[13[Explanation 1.]—For the removal of doubts, it is hereby declaredthat revenue derived from land shall not include and shall be deemednever to have included any income arising from the transfer of anyland 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 declaredthat 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 anybusiness 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 2in 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 derivedfrom saplings or seedlings grown in a nursery shall be deemed to beagricultural income;15[16[(1B)] “amalgamation”, in relation to companies, means the merger ofoneor more companies with another company or the merger of two ormore companies to form one company (the company or companieswhich so merge being referred to as the amalgamating company orcompanies and the company with which they merge or which isformed as a result of the merger, as the amalgamated company) insuch a manner that—(i) all the property of the amalgamating company or companiesimmediately before the amalgamation becomes the property ofthe amalgamated company by virtue of the amalgamation ;(ii) all the liabilities of the amalgamating company or companiesimmediately before the amalgamation become the liabilities ofthe amalgamated company by virtue of the amalgamation ;1.3 CH. I - PRELIMINARY S. 2(1B)11. For specified urban areas, refer Taxmann‟s Direct Taxes Circulars.12. Inserted by the Finance Act, 1989, w.r.e.f. 1-4-1970.13. Explanation renumbered as Explanation 1 by the Finance Act, 2000,w.e.f. 1-4-2001.14. Inserted, ibid.15. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.16. Renumbered as clause (1B) by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1989.(iii) shareholders holding not less than 17[three-fourths] in value of theshares in the amalgamating company or companies (other thanshares already held therein immediately before the amalgamationby, or by a nominee for, the amalgamated company or itssubsidiary) become shareholders of the amalgamated companyby virtue of the amalgamation,otherwise than as a result of the acquisition of the property of onecompany by another company pursuant to the purchase of suchproperty by the other company or as a result of the distribution of
  • 4. such property to the other company after the winding up of thefirstmentionedcompany ;]18[(1C) “Additional Commissioner” means a person appointed to be anAdditionalCommissioner of Income-tax under sub-section (1) of section117;(1D) “Additional Director” means a person appointed to be an AdditionalDirector of Income-tax under sub-section (1) of section 117 ;](2) “annual value”, in relation to any property, means its annual value asdetermined under section 23 ;(3) 19[* * *](4) “Appellate Tribunal” means the Appellate Tribunal constituted undersection 252 ;(5) “approved gratuity fund” means a gratuity fund which has been andcontinues to be approved by the 20[Chief Commissioner or Commissioner]in accordance with the rules contained in Part C of the FourthSchedule ;(6) “approved superannuation fund” means a superannuation fund orany part of a superannuation fund which has been and continues tobe approved by the 20[Chief Commissioner or Commissioner] inaccordance 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 sumofmoney is payable under this Act, and includes—(a) every person in respect of whom any proceeding under this Acthas been taken for the assessment of his income 24[or assessmentof fringe benefits] or of the income of any other person in respectof which he is assessable, or of the loss sustained by him or bysuch other person, or of the amount of refund due to him or tosuch other person ;S. 2(7) I.T. ACT, 1961 1.417. Substituted for “nine-tenths” by the Finance Act, 1999, w.e.f. 1-4-2000.18. Clauses (1C) and (1D) inserted by the Finance Act, 2007, w.r.e.f. 1-6-1994.19. Clause (3) omitted by the Direct Tax Laws (Amendment) Act, 1987,w.e.f. 1-4-1988.20. Substituted for “Commissioner”, ibid.21. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.22. For meaning of the term “assessee”, see Taxmann‟s Direct TaxesManual, Vol. 3.23. Substituted for “income-tax or super-tax” by the Finance Act, 1965,w.e.f. 1-4-1965.24. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.(b) every person who is deemed to be an assessee under any provisionof this Act ;(c) every person who is deemed to be an assessee in default underany provision of this Act ;25[(7A) “Assessing Officer” means the Assistant Commissioner 26[orDeputyCommissioner] 27[or Assistant Director] 26[or Deputy Director] or the
  • 5. Income-tax Officer who is vested with the relevant jurisdiction byvirtue of directions or orders issued under sub-section (1) or subsection(2) of section 120 or any other provision of this Act, and the28[Additional Commissioner or] 29[Additional Director or] 30[JointCommissioner or Joint Director] who is directed under clause (b) ofsub-section (4) of that section to exercise or perform all or any of thepowers and functions conferred on, or assigned to, an AssessingOfficer under this Act ;](8) “assessment”31 includes reassessment ;(9) “assessment year” means the period of twelve months commencingon the 1st day of April every year ;32[(9A) “Assistant Commissioner” means a person appointed to be anAssistantCommissioner of Income-tax 33[or a Deputy Commissioner ofIncome-tax] under sub-section (1) of section 117 ;]34[(9B) “Assistant Director” means a person appointed to be an AssistantDirector of Income-tax under sub-section (1) of section 117;](10) “average rate of income-tax” means the rate arrived at by dividing theamount of income-tax calculated on the total income, by such totalincome ;35[(11) “block of assets” means a group of assets falling within a class ofassetscomprising—(a) tangible assets, being buildings, machinery, plant or furniture;1.5 CH. I - PRELIMINARY S. 2(11)25. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.26. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.27. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.28. Inserted by the Finance Act, 2007, w.r.e.f. 1-6-1994.29. Inserted, ibid., w.r.e.f. 1-10-1996.30. Substituted for “Deputy Commissioner or Deputy Director” by theFinance (No. 2) Act,1998, w.e.f. 1-10-1998. Earlier “or Deputy Director” was inserted by theFinance (No. 2) Act,1996, w.e.f. 1-10-1996.31. For the meaning of the term “assessment”, see Taxmann‟s DirectTaxes Manual, Vol. 3.32. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.33. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.34. Inserted by the Finance Act, 2007, w.r.e.f. 1-4-1988.35. Substituted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999. Prior toits substitution, clause(11), as inserted by the Taxation Laws (Amendment & MiscellaneousProvisions) Act, 1986,w.e.f. 1-4-1988, read as under :„(11) “block of assets” means a group of assets falling within a class ofassets, beingbuildings, machinery, plant or furniture, in respect of which the samepercentageof depreciation is prescribed ;‟
  • 6. Original clause was earlier omitted by the Finance Act, 1965, w.e.f. 1-4-1965.(b) intangible assets, being know-how, patents, copyrights, trademarks,licences, franchises or any other business or commercialrights of similar nature,in respect of which the same percentage of depreciation is prescribed;](12) “Board” means the 36[Central Board of Direct Taxes constitutedunder the Central Boards of Revenue Act, 1963 (54 of 1963)] ;37[(12A) “books or books of account” includes ledgers, day-books, cashbooks,account-books and other books, whether kept in the written form oras print-outs of data stored in a floppy, disc, tape or any other form ofelectro-magnetic data storage device;]38(13) “business”39 includes any trade39, commerce or manufacture oranyadventure39 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 doesnot include—(i) any stock-in-trade, consumable stores or raw materials held forthe purposes of his business or profession ;42[(ii) personal effects43, that is to say, movable property (includingwearing apparel and furniture) held for personal use 43 by theassessee or any member of his family dependent on him, butexcludes—(a) jewellery;(b) archaeological collections;S. 2(14) I.T. ACT, 1961 1.636. Substituted for “Central Board of Revenue constituted under the CentralBoard ofRevenue Act, 1924 (4 of 1924)” by the Central Boards of Revenue Act,1963, w.e.f. 1-1-1964.37. Inserted by the Finance Act, 2001, w.e.f. 1-6-2001.38. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.39. For the meaning of the terms/expressions “business”, “trade”,“adventure” and “in thenature of trade”, see Taxmann‟s Direct Taxes Manual, Vol. 3.40. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.41. For the meaning of the term “property”, see Taxmann‟s Direct TaxesManual, Vol. 3.42. Substituted by the Finance Act, 2007, w.e.f. 1-4-2008. Prior to itssubstitution, 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 wearingapparel andfurniture, but excluding jewellery) held for personal use by the assessee oranymember of his family dependent on him.
  • 7. Explanation.—For the purposes of this sub-clause, “jewellery” includes—(a) ornaments made of gold, silver, platinum or any other precious metal oranyalloy containing one or more of such precious metals, whether or notcontaining any precious or semi-precious stone, and whether or not workedor sewn into any wearing apparel ;(b) precious or semi-precious stones, whether or not set in any furniture,utensilor other article or worked or sewn into any wearing apparel ;”43. For the meaning of the expressions “personal effects” and “personaluse”, see Taxmann‟sDirect Taxes Manual, Vol. 3.(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 otherprecious metal or any alloy containing one or more of suchprecious metals, whether or not containing any precious orsemi-precious stone, and whether or not worked or sewn intoany wearing apparel;(b) precious or semi-precious stones, whether or not set in anyfurniture, utensil or other article or worked or sewn into anywearing apparel ;]44[(iii) agricultural land45 in India, not being land situate—(a) in any area which is comprised within the jurisdiction of amunicipality45 (whether known as a municipality, municipalcorporation, notified area committee, town area committee,town committee, or by any other name) or a cantonmentboard and which has a population45 of not less than tenthousand according to the last preceding census of which therelevant figures have been published before the first day ofthe previous year ; or(b) in any area within such distance, not being more than eightkilometres, from the local limits of any municipality orcantonment board referred to in item (a), as the CentralGovernment may, having regard to the extent of, and scopefor, urbanisation of that area and other relevant considerations,specify in this behalf by notification in the OfficialGazette46;]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 CentralGovernment ;]50[(v) Special Bearer Bonds, 1991, issued by the Central Government ;]1.7 CH. I - PRELIMINARY S. 2(14)44. Substituted for “(iii) agricultural land in India” by the Finance Act, 1970,w.e.f. 1-4-1970.45. For the meaning of the terms/expressions “agricultural land”,“municipality” and “population”,see Taxmann‟s Direct Taxes Manual, Vol. 3.46. For specified urban areas, refer Taxmann‟s Direct Taxes Circulars.
  • 8. 47. Inserted by the Taxation Laws (Amendment) Act, 1962, w.e.f. 13-12-1962.48. Inserted by the Finance (No. 2) Act, 1965, w.e.f. 1-4-1965.49. Inserted by the Taxation Laws (Amendment & MiscellaneousProvisions) Act, 1965, w.e.f.4-12-1965.50. Inserted by the Special Bearer Bonds (Immunities and Exemptions)Act, 1981, w.e.f.12-1-1981.51[(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999notified 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 generalpublic utility 55[* * *] ;The following clause (15) shall be substituted for clause (15) ofsection 2 by the Finance Act, 2008, w.e.f. 1-4-2009 :(15) “charitable purpose” includes relief of the poor, education, medicalrelief, and the advancement of any other object of general publicutility:Provided that the advancement of any other object of general publicutility shall not be a charitable purpose, if it involves the carrying onof any activity in the nature of trade, commerce or business, or anyactivity of rendering any service in relation to any trade, commerce orbusiness, for a cess or fee or any other consideration, irrespective of thenature of use or application, or retention, of the income from suchactivity;56[(15A) “Chief Commissioner” means a person appointed to be a ChiefCommissioner of Income-tax under sub-section (1) of section 117 ;]57[58[(15B)] “child”, in relation to an individual, includes a step-child and anadopted child of that individual ;]59[(16) “Commissioner” means a person appointed to be a CommissionerofIncome-tax under sub-section (1) of section 117 60[* * *] ;]61[(16A) “Commissioner (Appeals)” means a person appointed to be aCommissionerof 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 acountry outside India, or(iii) any institution, association or body which is or was assessable orwas assessed as a company for any assessment year under theS. 2(17) I.T. ACT, 1961 1.851. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.52. See also Circular No. 395, dated 24-9-1984. For details, seeTaxmann‟s Master Guide toIncome-tax Act.53. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.54. For the meaning of terms/expression “charitable purpose”, “education”and “object ofgeneral public utility”, see Taxmann‟s Direct Taxes Manual, Vol. 3.
  • 9. 55. “not involving the carrying on of any activity for profit” omitted by theFinance Act, 1983,w.e.f. 1-4-1984.56. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.57. Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.58. Renumbered by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.59. Substituted by the Finance Act, 1970, w.e.f. 1-4-1970.60. Words “, and includes a person appointed to be an AdditionalCommissioner of Incometaxunder that sub-section” omitted by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1988.61. Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978.62. Substituted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.Indian Income-tax Act, 1922 (11 of 1922), or which is or wasassessable or was assessed under this Act as a company for anyassessment year commencing on or before the 1st day of April,1970, or(iv) any institution, association or body, whether incorporated or notand whether Indian or non-Indian, which is declared by generalor special order of the Board to be a company :Provided that such institution, association or body shall be deemedto be a company only for such assessment year or assessmentyears (whether commencing before the 1st day of April, 1971, oron or after that date) as may be specified in the declaration ;](18) “company in which the public are substantially interested”—a companyis said to be a company in which the public63 are substantiallyinterested—64[(a) if it is a company owned by the Government or the Reserve Bankof India or in which not less than forty per cent of the shares areheld (whether singly or taken together) by the Government or theReserve 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 theCompanies Act, 1956 (1 of 1956)66 ; or(ab) if it is a company having no share capital and if, having regard toits objects, the nature and composition of its membership andother relevant considerations, it is declared by order of the Boardto be a company in which the public are substantially interested :Provided that such company shall be deemed to be a company inwhich the public are substantially interested only for such assessmentyear or assessment years (whether commencing before the1st day of April, 1971, or on or after that date) as may be specifiedin the declaration ; or]67[(ac) if it is a mutual benefit finance company, that is to say, a companywhich carries on, as its principal business, the business ofacceptance of deposits from its members and which is declaredby the Central Government under section 620A68 of the CompaniesAct, 1956 (1 of 1956), to be a Nidhi or Mutual BenefitSociety ; or]69[(ad) if it is a company, wherein shares (not being shares entitled to afixed rate of dividend whether with or without a further right
  • 10. to participate in profits) carrying not less than fifty per cent ofthe voting power have been allotted unconditionally to, or1.9 CH. I - PRELIMINARY S. 2(18)63. For the meaning of the term “public”, see Taxmann‟s Direct TaxesManual, Vol. 3.64. Substituted by the Finance Act, 1964, w.e.f. 1-4-1964.65. Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.66. For text of section 25 of the Companies Act, 1956, see Appendix.67. Inserted by the Finance Act, 1985, w.r.e.f. 1-4-1984.68. For text of section 620A of the Companies Act, 1956, and notifiedNidhi(s) thereunder, seeAppendix.69. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.acquired unconditionally by, and were throughout the relevantprevious year beneficially held by, one or more co-operativesocieties ;]70[(b) if it is a company which is not a 71private company as defined inthe Companies Act, 1956 (1 of 1956), and the conditions specifiedeither in item (A) or in item (B) are fulfilled, namely :—(A) shares in the company (not being shares entitled to afixed rate of dividend whether with or without a furtherright to participate in profits) were, as on the last day of therelevant previous year, listed in a recognised stock exchangein India in accordance with the Securities Contracts(Regulation) Act, 1956 (42 of 1956), and any rules madethereunder ;72[(B) shares in the company (not being shares entitled to afixed rate of dividend whether with or without a furtherright to participate in profits) carrying not less than fiftyper cent of the voting power have been allotted unconditionallyto, or acquired unconditionally by, and werethroughout the relevant previous year beneficially heldby—(a) the Government, or(b) a corporation established by a Central, State or ProvincialAct, or(c) any company to which this clause applies or anysubsidiary company of such company 73[if the whole ofthe share capital of such subsidiary company has beenheld by the parent company or by its nominees throughoutthe previous year.]Explanation.—In its application to an Indian company whosebusiness consists mainly in the construction of ships or in themanufacture or processing of goods or in mining or in thegeneration or distribution of electricity or any other form ofpower, item (B) shall have effect as if for the words “not lessthan fifty per cent”, the words “not less than forty per cent”had been substituted ;]](19) “co-operative society” means a co-operative society registered underthe Co-operative Societies Act, 1912 (2 of 1912), or under any otherlaw for the time being in force in any State for the registration ofcooperativesocieties ;
  • 11. S. 2(19) I.T. ACT, 1961 1.1070. 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. 1-4-1966.71. Clause (iii) of section 3(1) of the Companies Act, 1956, defines “privatecompany”. For textof section 3, see Appendix.72. Substituted by the Finance Act, 1983, w.e.f. 2-4-1983.73. Substituted for “where such subsidiary company fulfils the conditionslaid down in clause(b) of section 108” by the Finance Act, 1987, w.e.f. 1-4-1988.74[(19A) “Deputy Commissioner” means a person appointed to be aDeputyCommissioner of Income-tax 75[* * *] under sub-section (1) of section117 ;76[(19AA) “demerger”, in relation to companies, means the transfer,pursuant toa scheme of arrangement under sections 391 to 39477 of the CompaniesAct, 1956 (1 of 1956), by a demerged company of its one or moreundertakings to any resulting company in such a manner that—(i) all the property of the undertaking, being transferred by thedemerged company, immediately before the demerger, becomesthe property of the resulting company by virtue of the demerger;(ii) all the liabilities relatable to the undertaking, being transferred bythe demerged company, immediately before the demerger,become the liabilities of the resulting company by virtue of thedemerger;(iii) the property and the liabilities of the undertaking or undertakingsbeing transferred by the demerged company are transferred atvalues appearing in its books of account immediately before thedemerger;(iv) the resulting company issues, in consideration of the demerger,its shares to the shareholders of the demerged company on aproportionate basis;(v) the shareholders holding not less than three-fourths in value ofthe shares in the demerged company (other than shares alreadyheld therein immediately before the demerger, or by a nomineefor, the resulting company or, its subsidiary) become shareholdersof the resulting company or companies by virtue of thedemerger,otherwise than as a result of the acquisition of the property orassets of the demerged company or any undertaking thereof bythe 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, notifiedunder sub-section (5) of section 72A by the Central Governmentin this behalf.Explanation 1.—For the purposes of this clause, “undertaking” shallinclude any part of an undertaking, or a unit or division of anundertaking or a business activity taken as a whole, but does notinclude individual assets or liabilities or any combination thereof notconstituting a business activity.
  • 12. 1.11 CH. I - PRELIMINARY S. 2(19AA)74. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.75. Words “or an Additional Commissioner of Income-tax” omitted by theFinance (No. 2) Act,1998, w.e.f. 1-10-1998. Earlier the quoted words were inserted by theFinance Act, 1994,w.e.f. 1-6-1994.76. Clauses (19AA) and (19AAA) inserted by the Finance Act, 1999, w.e.f.1-4-2000.77. For text of sections 391 to 394 of the Companies Act, 1956, seeAppendix.Explanation 2.—For the purposes of this clause, the liabilities referredto in sub-clause (ii), shall include—(a) the liabilities which arise out of the activities or operations of theundertaking;(b) the specific loans or borrowings (including debentures) raised,incurred and utilised solely for the activities or operations of theundertaking; and(c) in cases, other than those referred to in clause (a) or clause (b), somuch of the amounts of general or multipurpose borrowings, ifany, of the demerged company as stand in the same proportionwhich the value of the assets transferred in a demerger bears tothe total value of the assets of such demerged company immediatelybefore the demerger.Explanation 3.—For determining the value of the property referred toin sub-clause (iii), any change in the value of assets consequent totheir revaluation shall be ignored.Explanation 4.—For the purposes of this clause, the splitting up or thereconstruction of any authority or a body constituted or establishedunder a Central, State or Provincial Act, or a local authority or a publicsector company, into separate authorities or bodies or local authoritiesor companies, as the case may be, shall be deemed to be ademerger if such split up or reconstruction fulfils 78[such conditionsas may be notified in the Official Gazette79, by the Central Government];(19AAA) “demerged company” means the company whose undertaking istransferred, pursuant to a demerger, to a resulting company;](19B) “Deputy Commissioner (Appeals)” means a person appointed to be aDeputy Commissioner of Income-tax (Appeals) 80[or an AdditionalCommissioner of Income-tax (Appeals)] under sub-section (1) ofsection 117 ;]81[(19C) “Deputy Director” means a person appointed to be a DeputyDirectorof Income-tax 82[* * *] under sub-section (1) of section 117 ;](20) 83“director”, “manager” and “managing agent”, in relation to acompany,have the meanings respectively assigned to them in the CompaniesAct, 1956 (1 of 1956) ;S. 2(20) I.T. ACT, 1961 1.1278. Substituted for “the conditions specified in sub-clauses (i) to (vii) of thisclause, to theextent applicable” by the Finance Act, 2000, w.e.f. 1-4-2000.79. For notified conditions, see Taxmann‟s Master Guide to Income-tax Act.
  • 13. 80. Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.81. Inserted, ibid.82. 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 ofprovisions, seeAppendix.84[(21) “Director General or Director” means a person appointed to be aDirector General of Income-tax or, as the case may be, a Director ofIncome-tax, under sub-section (1) of section 117, and includes aperson appointed under that sub-section to be 85[an AdditionalDirector of Income-tax or] a 86[Joint] Director of Income-tax or anAssistant Director 87[or Deputy Director] of Income-tax ;](22) 88“dividend”89 includes—(a) any distribution89 by a company of accumulated profits89, whethercapitalised or not, if such distribution entails the release by thecompany to its shareholders of all or any part of the assets of thecompany ;(b) any distribution89 to its shareholders by a company of debentures,debenture-stock, or deposit certificates in any form, whetherwith or without interest, and any distribution to its preferenceshareholders of shares by way of bonus, to the extent to which thecompany possesses accumulated profits89, whether capitalised ornot ;(c) any distribution89 made to the shareholders of a company on itsliquidation, to the extent to which the distribution is attributableto the accumulated profits of the company immediately before itsliquidation, whether capitalised or not ;(d) any distribution89 to its shareholders by a company on the reductionof its capital, to the extent to which the company possessesaccumulated profits89 which arose after the end of the previousyear ending next before the 1st day of April, 1933, whether suchaccumulated profits have been capitalised or not ;(e) any payment by a company, not being a company in which thepublic are substantially interested, of any sum (whether as representinga part of the assets of the company or otherwise)90[made after the 31st day of May, 1987, by way of advance or loanto a shareholder91, being a person who is the beneficial owner ofshares (not being shares entitled to a fixed rate of dividendwhether with or without a right to participate in profits) holdingnot less than ten per cent of the voting power, or to any concern1.13 CH. I - PRELIMINARY S. 2(22)84. Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.85. Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.86. Substituted for “Deputy” by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.87. Inserted, ibid.88. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.
  • 14. 89. For the meaning of the terms “dividend”, “distribution” and “profits”, seeTaxmann‟sDirect Taxes Manual, Vol. 3.90. Substituted for “by way of advance or loan to a shareholder, being aperson who has asubstantial interest in the company,” by the Finance Act, 1987, w.e.f. 1-4-1988.91. For the meaning of the term “shareholder”, see Taxmann‟s DirectTaxes Manual, Vol. 3.in which such shareholder is a member or a partner and in whichhe has a substantial interest (hereafter in this clause referred toas the said concern)] or any payment by any such company onbehalf, or for the individual benefit, of any such shareholder, tothe extent to which the company in either case possesses accumulatedprofits92 ;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 ofliquidation 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 thecapitalised profits of the company representing bonus sharesallotted 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 thelending of money is a substantial part of the business of thecompany ;(iii) any dividend paid by a company which is set off by the companyagainst the whole or any part of any sum previously paid by it andtreated as a dividend within the meaning of sub-clause (e), to theextent to which it is so set off;96[(iv) any payment made by a company on purchase of its own sharesfrom a shareholder in accordance with the provisions of section77A97 of the Companies Act, 1956 (1 of 1956);(v) any distribution of shares pursuant to a demerger by the resultingcompany to the shareholders of the demerged company (whetheror not there is a reduction of capital in the demerged company).]Explanation 1.—The expression “accumulated profits”, wherever itoccurs in this clause, shall not include capital gains arising before the1st day of April, 1946, or after the 31st day of March, 1948, and beforethe 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 dateof distribution or payment referred to in those sub-clauses, and insub-clause (c) shall include all profits of the company up to the date92. For the meaning of the terms “profits” and “distribution”, see Taxmann‟sDirect TaxesManual, Vol. 3.93. Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.94. Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.95. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.
  • 15. 96. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.97. For text of section 77A of the Companies Act, 1956, see Appendix.S. 2(22) I.T. ACT, 1961 1.14of liquidation, 98[but shall not, where the liquidation is consequent onthe compulsory acquisition of its undertaking by the Government ora corporation owned or controlled by the Government under any lawfor the time being in force, include any profits of the company priorto three successive previous years immediately preceding the previousyear 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 anassociation of persons or a body of individuals or a company ;(b) a person shall be deemed to have a substantial interest in aconcern, other than a company, if he is, at any time during theprevious year, beneficially entitled to not less than twenty percent of the income of such concern ;]1[(22A) “domestic company” means an Indian company, or any othercompanywhich, in respect of its income liable to tax under this Act, hasmade the prescribed arrangements for the declaration and payment,within India, of the dividends (including dividends on preferenceshares) payable out of such income ;]2[(22AA) “document” includes an electronic record as defined in clause (t)3ofsub-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 theopen 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 rulesmade under this Act ;](23) 6“firm”, “partner” and “partnership” have the meanings respectivelyassigned to them in the Indian Partnership Act, 1932 (9 of 1932) ; butthe expression “partner” shall also include any person who, being aminor, has been admitted to the benefits of partnership ;1.15 CH. I - PRELIMINARY S. 2(23)98. Inserted by the Direct Taxes (Amendment) Act, 1964, w.r.e.f. 1-4-1962.99. 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 InformationTechnology 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 :
  • 16. „ “Partnership” is the relation between persons who have agreed to sharethe profits of abusiness carried on by all or any of them acting for all.Persons who have entered into partnership with one another are calledindividually“partners” and collectively “a firm”, and the name under which theirbusiness is carried onis called the “firm name”.‟7[(23A) “foreign company” means a company which is not a domesticcompany ;]8[(23B) “fringe benefits” means any fringe benefits referred to in section115WB;]9(24) “income”10 includes10—(i) profits and gains10 ;(ii) dividend ;11[(iia) voluntary contributions received by a trust created wholly orpartly for charitable or religious purposes or by an institutionestablished wholly or partly for such purposes 12[or by an associationor institution referred to in clause (21) or clause (23), or by afund or trust or institution referred to in sub-clause (iv) or subclause(v) 13[or by any university or other educational institutionreferred to in sub-clause (iiiad) or sub-clause (vi) or by anyhospital 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 underclauses (2) and (3) of section 17 ;14[(iiia) any special allowance or benefit, other than perquisite includedunder sub-clause (iii), specifically granted to the assessee to meetexpenses wholly, necessarily and exclusively for the performanceof the duties of an office or employment of profit ;(iiib) any allowance granted to the assessee either to meet his personalexpenses at the place where the duties of his office or employmentof profit are ordinarily performed by him or at a placewhere he ordinarily resides or to compensate him for the increasedcost of living ;]S. 2(24) I.T. ACT, 1961 1.167. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.8. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.9. For relevant case laws, see Taxmann‟s Master Guide to Income-tax Act.10. For the meaning of the terms/expression “income”, “includes” and“profits and gains”, seeTaxmann‟s Direct Taxes Manual, Vol. 3.11. Inserted by the Finance Act, 1972, w.e.f. 1-4-1973.12. Substituted for “or by a trust or institution of national importancereferred 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 beingcontributions made
  • 17. with a specific direction that they shall form part of the corpus of the trust orinstitution”by the Direct Tax Laws (Amendment) Act, 1987, with effect from the samedate.13. Substituted for “or by any university or other educational institutionreferred to in subclause(vi) or by any hospital or other institution referred to in sub-clause (via)” bytheFinance Act, 2006, w.e.f. 1-4-2007. Earlier the quoted words were insertedby the FinanceAct, 2006, w.r.e.f. 1-4-1999.14. Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1962.(iv) the value of any benefit or perquisite15, whether convertible intomoney or not, obtained from a company either by a director or bya person who has a substantial interest in the company, or by arelative of the director or such person, and any sum paid by anysuch company in respect of any obligation which, but for suchpayment, would have been payable by the director or otherperson aforesaid ;16[(iva) the value of any benefit or perquisite15, whether convertible intomoney or not, obtained by any representative assessee mentionedin clause (iii) or clause (iv) of sub-section (1) of section 160or by any person on whose behalf or for whose benefit anyincome is receivable by the representative assessee (such personbeing hereafter in this sub-clause referred to as the “beneficiary”)and any sum paid by the representative assessee in respect of anyobligation which, but for such payment, would have been payableby the beneficiary ;](v) any sum chargeable to income-tax under clauses (ii) and (iii) ofsection 28 or section 41 or section 59 ;17[(va) any sum chargeable to income-tax under clause (iiia) of section28 ;]18[(vb) any sum chargeable to income-tax under clause (iiib) of section28 ;]19[(vc) any sum chargeable to income-tax under clause (iiic) of section28 ;]20[(vd)] the value of any benefit or perquisite taxable under clause (iv) ofsection 28 ;21[(ve) any sum chargeable to income-tax under clause (v) of section28 ;](vi) any capital gains chargeable under section 45 ;(vii) the profits and gains of any business of insurance carried on bya mutual insurance company or by a co-operative society, computedin accordance with section 44 or any surplus taken to besuch profits and gains by virtue of provisions contained in theFirst Schedule ;1.17 CH. I - PRELIMINARY S. 2(24)15. For the meaning of the expression “benefit or perquisite”, seeTaxmann‟s Direct TaxesManual, Vol. 3.16. Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980.17. Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1962.
  • 18. 18. Inserted, ibid., w.r.e.f. 1-4-1967.19. Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1972.20. Relettered by the Finance Act, 1990, w.r.e.f. 1-4-1962. Earlier theoriginal sub-clause (va)was inserted by the Finance Act, 1964, w.e.f. 1-4-1964.21. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.22[(viia) the profits and gains of any business of banking (includingproviding credit facilities) carried on by a co-operative societywith 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 includinghorse races, card games and other games of any sort or fromgambling 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 personby draw of lots or by chance or in any other mannerwhatsoever, under any scheme or arrangement by whatevername called ;(ii) “card game and other game of any sort” includes any gameshow, an entertainment programme on television or electronicmode, in which people compete to win prizes or any othersimilar game ;]26[(x) any sum received by the assessee from his employees ascontributions to any provident fund or superannuation fund orany fund set up under the provisions of the Employees‟ StateInsurance Act, 1948 (34 of 1948), or any other fund for the welfareof such employees ;]27[(xi) any sum received under a Keyman insurance policy including thesum 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 itin 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-taxOfficer under 32[* * *] section 117 ;S. 2(25) I.T. ACT, 1961 1.1822. Inserted by the Finance Act, 2006, w.e.f. 1-4-2007.23. Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.24. For the meaning of the term “lotteries”, see Taxmann‟s Direct TaxesManual, Vol. 3.25. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.26. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.27. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.28. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.29. Substituted for “clause (vii)” by the Finance Act, 2003, w.e.f. 1-4-2003.30. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005.31. Inserted by the Finance Act, 2007, w.e.f. 1-4-2007.32. Words “sub-section (1) of” omitted by the Direct Tax Laws(Amendment) Act, 1989, w.r.e.f.
  • 19. 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”.33[(25A) “India” means the territory of India as referred to in article 1 of theConstitution, its territorial waters, seabed and subsoil underlyingsuch waters, continental shelf, exclusive economic zone or any othermaritime zone as referred to in the Territorial Waters, ContinentalShelf, Exclusive Economic Zone and other Maritime Zones Act, 1976(80 of 1976), and the air space above its territory and territorialwaters;](26) “Indian company” means a company formed and registered underthe Companies Act, 1956 (1 of 1956), and includes—(i) a company formed and registered under any law relating tocompanies formerly in force in any part of India (other than theState of Jammu and Kashmir 34[and the Union territoriesspecified in sub-clause (iii) of this clause]) ;35[(ia) a corporation established by or under a Central, State orProvincial Act ;(ib) any institution, association or body which is declared by theBoard to be a company under clause (17) ;](ii) in the case of the State of Jammu and Kashmir, a companyformed and registered under any law for the time being in forcein that State ;36[(iii) in the case of any of the Union territories of Dadra and NagarHaveli, Goa†, Daman and Diu, and Pondicherry, a companyformed and registered under any law for the time being in forcein that Union territory :]Provided that the 37[registered or, as the case may be, principal officeof the company, corporation, institution, association or body] in allcases is in India ;38[(26A) “infrastructure capital company” means such company whichmakesinvestments by way of acquiring shares or providing long-termfinance to any enterprise or undertaking wholly engaged in the1.19 CH. I - PRELIMINARY S. 2(26A)33. Substituted by the Finance Act, 2007, w.r.e.f. 25-8-1976. Prior to itssubstitution, 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 andNagar 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 purposesofmaking any assessment for the assessment year commencing on the 1stdayof April, 1963, or for any subsequent year ;‟34. Inserted by the Taxation Laws (Extension to Union Territories)Regulation, 1963, w.e.f.1-4-1963.
  • 20. 35. Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.36. Inserted by the Taxation Laws (Extension to Union Territories)Regulation, 1963, w.e.f.1-4-1963.37. Substituted for “registered office of the company” by the Finance (No.2) Act, 1971, w.e.f.1-4-1971.38. Clauses (26A) and (26B) inserted by the Finance Act, 2006, w.e.f. 1-4-2006.†Now State of Goa.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 ahousing project referred to in sub-section (10) of section 80-IB or aproject for constructing a hotel of not less than three-star category asclassified by the Central Government or a project for constructing ahospital with at least one hundred beds for patients;(26B) “infrastructure capital fund” means such fund operating under a trustdeed registered under the provisions of the Registration Act, 1908 (16of 1908) established to raise monies by the trustees for investment byway of acquiring shares or providing long-term finance to anyenterprise or undertaking wholly engaged in the business referred toin sub-section (4) of section 80-IA or sub-section (1) of section 80-IABor an undertaking developing and building a housing project referredto in sub-section (10) of section 80-IB or a project for constructing ahotel of not less than three-star category as classified by the CentralGovernment or a project for constructing a hospital with at least onehundred beds for patients;](27) 39[* * *](28) “Inspector of Income-tax” means a person appointed to be anInspector of Income-tax under sub-section 40[(1)] of section 117 ;41[42(28A) “interest” means interest payable in any manner in respect ofanymoneys borrowed or debt incurred (including a deposit, claim orother similar right or obligation) and includes any service fee or othercharge in respect of the moneys borrowed or debt incurred or inrespect 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 StateGovernment ;(ii) interest on debentures or other securities for money issued by oron behalf of a local authority or a company or a corporationestablished by a Central, State or Provincial Act ;]44[(28BB) “insurer” means an insurer, being an Indian insurance company,asdefined under clause (7A) of section 245 of the Insurance Act, 1938 (4of 1938), which has been granted a certificate of registration undersection 3 of that Act;]46[(28C) “Joint Commissioner” means a person appointed to be a JointCommissionerof Income-tax or an Additional Commissioner of Incometaxunder sub-section (1) of section 117;S. 2(28C) I.T. ACT, 1961 1.20
  • 21. 39. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.40. Substituted for “(2)”, ibid.41. Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.42. See also Letter F. No. 164/18/77-IT(A-I), dated 13-7-1978. For details,see Taxmann‟sMaster Guide to Income-tax Act.43. Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.44. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.45. For text of section 2(7A) of the Insurance Act, see Appendix.46. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.(28D) “Joint Director” means a person appointed to be a Joint Director ofIncome-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) ofsection 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 ashorttermcapital asset ;(29B) “long-term capital gain” means capital gain arising from the transferof a long-term capital asset ;]49[(29C) “maximum marginal rate” means the rate of income-tax (includingsurcharge on income-tax, if any) applicable in relation to the highestslab of income in the case of an individual 50[, association of personsor, as the case may be, body of individuals] as specified in the FinanceAct of the relevant year ;]51[(29D) “National Tax Tribunal” means the National Tax Tribunalestablishedunder section 3 of the National Tax Tribunal Act, 2005;](30) “non-resident” means a person who is not a “resident” 52[, and for thepurposes of sections 92, 93 53[* * *] and 168, includes a person who isnot 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, whetherincorporated or not,(vi) a local authority, and(vii) every artificial juridical person, not falling within any of thepreceding sub-clauses.1.21 CH. I - PRELIMINARY S. 2(31)47. Clause (11) of section 2 of the Code of Civil Procedure defines “legalrepresentative” asfollows :„(11) “legal representative” means a person who in law represents theestate of a deceasedperson, and includes any person who intermeddles with the estate of thedeceasedand where a party sues or is sued in a representative character the personon whomthe estate devolves on the death of the party so suing or sued ;‟
  • 22. 48. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.49. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.50. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.51. Inserted by the National Tax Tribunal Act, 2005, with effect from a dateyet to be notified.52. Inserted by the Finance Act, 1999, w.e.f. 1-4-1999. Earlier these wordswere omitted by theFinance (No. 2) Act, 1998, w.e.f. 1-4-1999.53. “, 113” omitted by the Finance Act, 1965, w.e.f. 1-4-1965.54. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.55. For the meaning of the term/expression “individual” and “Hinduundivided family”, seeTaxmann‟s Direct Taxes Manual, Vol. 3.56. For the meaning of the term/expressions “firm”, “association of persons”and “body ofindividuals”, see Taxmann‟s Direct Taxes Manual, Vol. 3.57[Explanation.—For the purposes of this clause, an association ofpersons or a body of individuals or a local authority or an artificialjuridical person shall be deemed to be a person, whether or not suchperson or body or authority or juridical person was formed or establishedor incorporated with the object of deriving income, profits orgains;](32) “person who has a substantial interest in the company”, in relation toa company, means a person who is the beneficial owner of shares, notbeing shares entitled to a fixed rate of dividend whether with orwithout a right to participate in profits, carrying not less than twentyper 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 acompany or any other public body or any association of persons orany 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 ofthe local authority, company, association or body upon whom the59[Assessing] Officer has served a notice of his intention of treatinghim as the principal officer thereof ;60(36) “profession” includes vocation61 ;62[(36A) “public sector company” means any corporation established by orunder any Central, State or Provincial Act or a Government company63as 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 IndianPenal Code (45 of 1860) ;65[(37A) “rate or rates in force” or “rates in force”, in relation to anassessmentyear or financial year, means—S. 2(37A) I.T. ACT, 1961 1.2257. Inserted by the Finance Act, 2002, w.e.f. 1-4-2002.
  • 23. 58. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.59. Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1988.60. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.61. For the meaning of the term “vocation”, see Taxmann‟s Direct TaxesManual, Vol. 3.62. Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.63. Section 617 of the Companies Act, 1956, defines “Governmentcompany” as follows :„617. Definition of “Government company”.—For the purposes of this Act,Governmentcompany means any company in which not less than fifty-one per cent ofthe paid-up sharecapital is held by the Central Government, or by any State Government orGovernments,or partly by the Central Government and partly by one or more StateGovernments andincludes a company which is a subsidiary of a Government company asthus defined.‟64. Section 21 of the Indian Penal Code defines “public servant”. For text ofsection 21, seeAppendix.65. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.(i) for the purposes of calculating income-tax under the first provisoto sub-section (5) of section 132, or computing the income-taxchargeable under sub-section (4) of section 172 or sub-section (2)of section 174 or section 175 or sub-section (2) of section 176 ordeducting income-tax under section 192 from income chargeableunder the head “Salaries” 66[* * *] or 67[computation of the“advance tax” payable under Chapter XVII-C in a case not fallingunder 68[section 115A or section 115B 69[or section 115BB 70[orsection 115BBB] or section 115E] or] section 164 69[or section164A 71[* * *]] 72[or section 167B], the rate or rates of income-taxspecified in this behalf in the Finance Act of the relevant year, andfor the purposes of computation of the “advance tax” payableunder Chapter XVII-C 73[in a case falling under section 115A orsection 115B 74[or section 115BB 75[or section 115BBB] or section115E] or section 164 74[or section 164A 76[* * *]] 77[or section 167B],the rate or rates specified in section 115A or 78[section 115B orsection 115BB 79[or section 115BBB] or section 115E or section164 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 theFinance Act of the relevant year, whichever is applicable ;](ii) for the purposes of deduction of tax under sections 193, 194, 194A80[, 194B] 81[, 194BB] 82[and 194D], the rate or rates of income-taxspecified in this behalf in the Finance Act of the relevant year ;]1.23 CH. I - PRELIMINARY S. 2(37A)66. “or sub-section (9) of section 80E from any payment referred to therein”omitted by the
  • 24. Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Originally, thesaid expressionwas inserted by the Finance Act, 1968, w.e.f. 1-4-1968.67. Substituted for „computation of the “advance tax” payable underChapter XVII-C, the rateor rates of income-tax specified in this behalf in the Finance Act of therelevant year‟ bythe Finance Act, 1970, w.e.f. 1-4-1971.68. Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.69. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.70. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.71. “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.1-4-1988.72. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.73. Substituted for “in a case falling under section 164, the rate specified inthat section” bythe Finance Act, 1976, w.e.f. 1-6-1976.74. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.75. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.76. “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.1-4-1988.77. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.78. Substituted for “section 115B or, as the case may be, section 164” bythe Direct Tax Laws(Amendment) Act, 1987, w.e.f. 1-4-1988.79. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.80. Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.81. Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.82. Substituted for “, 194D and 195” by the Finance (No. 2) Act, 1991,w.e.f. 1-10-1991.83[(iii) for the purposes of deduction of tax under section 195, the rateor rates of income-tax specified in this behalf in the Finance Actof the relevant year or the rate or rates of income-tax specified in84[an agreement entered into by the Central Government undersection 90, or an agreement notified by the Central Governmentunder section 90A, whichever is applicable by virtue of theprovisions of section 90, or section 90A, as the case may be];85(38) “recognised provident fund” means a provident fund which has beenand continues to be recognised by the 86[Chief Commissioner orCommissioner] in accordance with the rules contained in Part A of theFourth Schedule, and includes a provident fund established under ascheme framed under the Employees‟ Provident Funds Act, 1952 (19of 1952) ;
  • 25. (39) 87[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;](40) “regular assessment” means the assessment made under88[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 thatindividual ;89[(41A) “resulting company” means one or more companies (including awholly owned subsidiary thereof) to which the undertaking of thedemerged company is transferred in a demerger and, the resultingcompany in consideration of such transfer of undertaking, issuesshares to the shareholders of the demerged company and includesany authority or body or local authority or public sector company ora company established, constituted or formed as a result of demerger;](42) “resident” means a person who is resident in India within the meaningof section 6 ;S. 2(42) I.T. ACT, 1961 1.2483. Substituted by the Finance Act, 1992, w.e.f. 1-6-1992. Prior to itssubstitution, 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 Governmentunder section 90,whichever is applicable by virtue of the provisions of section 90” by theFinance Act, 2006,w.e.f. 1-6-2006.85. See also Circular No. 153, dated 30-11-1974. For details, seeTaxmann‟s Master Guide toIncome-tax Act.86. Substituted for “Commissioner” by the Direct Tax Laws (Amendment)Act, 1987, w.e.f.1-4-1988.87. 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 DirectTax Laws(Amendment) Act, 1987, w.e.f. 1-4-1989 and was later reintroduced by theDirect Tax Laws(Amendment) Act, 1989, w.e.f. 1-4-1989.88. Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989.89. 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 anassesseefor not more than 93[thirty-six] months immediately preceding thedate of its transfer :]94[Provided that in the case of a share held in a company 95[or anyother security listed in a recognised stock exchange in India or a unitof 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 thisclause shall have effect as if for the words “thirty-six months”, thewords “twelve months” had been substituted.]97[Explanation 1].—(i) In determining the period for which any capital
  • 26. asset is held by the assessee—(a) in the case of a share held in a company in liquidation, there shallbe excluded the period subsequent to the date on which thecompany goes into liquidation ;(b) in the case of a capital asset which becomes the property of theassessee in the circumstances mentioned in 98[sub-section (1)] ofsection 49, there shall be included the period for which the assetwas 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 Indiancompany, which becomes the property of the assessee inconsideration of a transfer referred to in clause (vii) of section 47,there shall be included the period for which the share or sharesin 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) subscribedto by the assessee on the basis of his right to subscribe tosuch financial asset or subscribed to by the person in whosefavour the assessee has renounced his right to subscribe to suchfinancial asset, the period shall be reckoned from the date ofallotment of such financial asset ;(e) in the case of a capital asset, being the right to subscribe to anyfinancial asset, which is renounced in favour of any other person,the period shall be reckoned from the date of the offer of such90. Inserted by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962.91. See also Circular No. 415, dated 14-3-1985 and Circular No. 704,dated 28-4-1995. Fordetails and relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.92. Substituted for the portion beginning with “short-term capital asset” andending 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 andlater by the FinanceAct, 1968, w.e.f. 1-4-1969.93. Substituted for “sixty” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.94. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.95. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.96. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.97. Existing Explanation renumbered as Explanation 1 by the Finance Act,1994, w.e.f.1-4-1995.98. Substituted for “clauses (i) to (iii)” by the Finance (No. 2) Act, 1967,w.e.f. 1-4-1967.99. Inserted, ibid.1. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.right by the company or institution, as the case may be, makingsuch offer ;]2[(f) in the case of a capital asset, being a financial asset, allottedwithout any payment and on the basis of holding of any otherfinancial asset, the period shall be reckoned from the date of theallotment of such financial asset ;]3[(g) in the case of a capital asset, being a share or shares in an Indian
  • 27. company, which becomes the property of the assessee in considerationof a demerger, there shall be included the period forwhich the share or shares held in the demerged company wereheld by the assessee ;]4[(h) in the case of a capital asset, being trading or clearing rights of arecognised stock exchange in India acquired by a person pursuantto demutualisation or corporatisation of the recognised stockexchange in India as referred to in clause (xiii) of section 47, thereshall be included the period for which the person was a memberof the recognised stock exchange in India immediately prior tosuch demutualisation or corporatisation;(ha) in the case of a capital asset, being equity share or shares in acompany allotted pursuant to demutualisation or corporatisationof a recognised stock exchange in India as referred to in clause(xiii) of section 47, there shall be included the period for which theperson was a member of the recognised stock exchange in Indiaimmediately prior to such demutualisation or corporatisation;]5[(hb) in the case of a capital asset, being any specified security or sweatequity shares allotted or transferred, directly or indirectly, by theemployer free of cost or at concessional rate to his employees(including former employee or employees), the period shall bereckoned from the date of allotment or transfer of such specifiedsecurity or sweat equity shares;](ii) In respect of capital assets other than those mentioned inclause (i), the period for which any capital asset is held by the assesseeshall be determined subject to any rules which the Board may makein 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 section2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).]S. 2(42A) I.T. ACT, 1961 1.262. Inserted by the Finance Act, 1995, w.e.f. 1-4-1996.3. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.4. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.5. Inserted by the Finance Act, 2007, w.e.f. 1-4-2008.6. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.7. 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 othermarketablesecurities of a like nature in or of any incorporated company or otherbody corporate;(Contd. on p. 1.27)8[Explanation 3.—For the purposes of this clause, the expressions“specified security” and “sweat equity shares” shall have the meaningsrespectively 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 thetransferof a short-term capital asset ;]10[(42C) “slump sale” means the transfer of one or more undertakings as a
  • 28. result of the sale for a lump sum consideration without values beingassigned to the individual assets and liabilities in such sales.Explanation 1.—For the purposes of this clause, “undertaking” shallhave the meaning assigned to it in Explanation 1 to clause (19AA).Explanation 2.—For the removal of doubts, it is hereby declared thatthe determination of the value of an asset or liability for the solepurpose of payment of stamp duty, registration fees or other similartaxes or fees shall not be regarded as assignment of values toindividual assets or liabilities ; ]11[(43) “tax” in relation to the assessment year commencing on the 1st dayofApril, 1965, and any subsequent assessment year means income-taxchargeable under the provisions of this Act, and in relation to anyother assessment year income-tax and super-tax chargeable underthe provisions of this Act prior to the aforesaid date 12[and in relationto the assessment year commencing on the 1st day of April, 2006, andany subsequent assessment year includes the fringe benefit taxpayable under section 115WA] ;]13[(43A) “tax credit certificate” means a tax credit certificate granted to anyperson in accordance with the provisions of Chapter XXII-B14 and anyscheme made thereunder ;]1.27 CH. I - PRELIMINARY S. 2(43A)(Contd. from p. 1.26)(ia) derivative;(ib) units or any other instrument issued by any collective investmentscheme tothe investors in such schemes;(ic) security receipt as defined in clause (zg) of section 2 of theSecuritisation andReconstruction of Financial Assets and Enforcement of Security InterestAct, 2002;(id) units or any other such instrument issued to the investors under anymutualfund scheme;(ii) Government securities;(iia) such other instruments as may be declared by the Central Governmentto besecurities; and(iii) rights or interest in securities;‟8. Inserted by the Finance Act, 2007, w.e.f. 1-4-2008.9. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.10. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000. Earlier clause (42C)was inserted by theDirect Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990 and lateron omitted bythe Finance Act, 1990, w.e.f. 1-4-1990.11. Substituted by the Finance Act, 1965, w.e.f. 1-4-1965.12. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.13. Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.14. Chapter XXII-B was omitted by the Finance Act, 1990, w.e.f. 1-4-1990.(43B) 15[* * *]16[(44) “Tax Recovery Officer” means any Income-tax Officer who may beauthorised by the Chief Commissioner or Commissioner, by general
  • 29. or special order in writing, to exercise the powers of a Tax RecoveryOfficer 17[and also to exercise or perform such powers and functionswhich are conferred on, or assigned to, an Assessing Officer under thisAct and which may be prescribed];](45) “total income” means the total amount of income referred to insection 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 byhim, 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 anyimmovable property to be taken or retained in part performanceof a contract of the nature referred to in section 53A25 of theTransfer of Property Act, 1882 (4 of 1882) ; or(vi) any transaction (whether by way of becoming a member of, oracquiring shares in, a co-operative society, company or otherassociation of persons or by way of any agreement or anyarrangement or in any other manner whatsoever) which has theeffect of transferring, or enabling the enjoyment of, any immovableproperty.Explanation.—For the purposes of sub-clauses (v) and (vi),“immovable property” shall have the same meaning as in clause (d) ofsection 269UA;]S. 2(47) I.T. ACT, 1961 1.2815. 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. 1-1-1972.16. Substituted by the Direct Tax Laws (Amendment) Act, 1987 [asamended by the Direct TaxLaws (Amendment) Act, 1989], w.r.e.f. 1-4-1988. Prior to substitutionclause (44) wassubstituted by the Finance Act, 1963, w.r.e.f. 1-4-1962.17. Inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f. 13-7-2006.18. Omitted by the Finance Act, 1965, w.e.f. 1-4-1965.19. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct. For Letter F. No.34/11/65-IT(A-I), dated 15-1-1966, Circular No. 751, dated 10-2-1997 andCircular No.2/2008, dated 22-2-2008, see Taxmann‟s Master Guide to Income-tax Act.20. Substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.21. For the meaning of the terms/expression “transfer”, “sale”, “exchange”,“relinquishment”and “extinguishment of any rights therein”, see Taxmann‟s Direct TaxesManual, Vol. 3.22. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.23. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.
  • 30. 24. Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.25. For text of section 53A of the Transfer of Property Act, 1882, seeAppendix.26[(48) “zero coupon bond” means a bond—(a) issued by any infrastructure capital company or infrastructurecapital fund or public sector company on or after the 1st day ofJune, 2005;(b) in respect of which no payment and benefit is received orreceivable before maturity or redemption from infrastructurecapital company or infrastructure capital fund or public sectorcompany; and(c) which the Central Government may, by notification27 in theOfficial Gazette, specify in this behalf.28[***]]29[“Previous year” defined.3. For the purposes of this Act, “previous year” means the financial yearimmediatelypreceding the assessment year :Provided that, in the case of a business or profession newly set up, or asourceof income newly coming into existence, in the said financial year, thepreviousyear shall be the period beginning with the date of setting up of thebusiness orprofession or, as the case may be, the date on which the source of incomenewlycomes into existence and ending with the said financial year.]CHAPTER IIBASIS OF CHARGECharge of income-tax.304. 31(1) Where any Central Act enacts that income-tax32 shall becharged forany assessment year at any rate or rates, income-tax at that rate or thoserates shall be charged for that year in accordance with, and 33[subject tothe1.29 CH. II - BASIS OF CHARGE S. 426. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006. Earlier clause (48)was omitted by theDirect Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. It was later re-introduced by theDirect Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989 and againomitted by the FinanceAct, 1992, w.e.f. 1-4-1993.27. For specified bonds, see Taxmann‟s Master Guide to Income-tax Act.See also rules 8B &8C and Form No. 5B.28. Explanation omitted by the Finance Act, 2006, w.e.f. 1-4-2006. Prior toits omission,Explanation read as under :„Explanation.—For the purposes of this clause, the expressions“infrastructure capitalcompany” and “infrastructure capital fund” shall have the same meaningsrespectively
  • 31. assigned to them in clauses (a) and (b) of Explanation 1 to clause (23G) ofsection 10.‟29. Substituted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to itssubstitution, section 3 wasamended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989and the DirectTax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.30. See also Circular No. 142, dated 1-8-1974, Circular No. 447, dated 22-1-1986, CircularNo. 573, dated 21-8-1990, Circular No. 776, dated 8-6-1999 and InstructionNo. 747 [F. No.288/29/74-IT(A-II)], (relevant extracts), dated 30-8-1974. For details, seeTaxmann‟sMaster Guide to Income-tax Act.31. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.32. For the meaning of the term “income-tax”, see Taxmann‟s Direct TaxesManual, Vol. 3.33. Substituted for “subject to the provisions of this Act” by the Direct TaxLaws (Amendment)Act, 1987, w.e.f. 1-4-1989.provisions (including provisions for the levy of additional income-tax) of, thisAct]34 in respect of the total income34 of the previous year 35[* * *] ofevery person :Provided that where by virtue of any provision of this Act income-tax is tobecharged 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 shallbededucted at the source or paid in advance, where it is so deductible orpayableunder any provision of this Act.Scope of total income.365. 37(1) Subject to38 the provisions of this Act, the total income38 of anypreviousyear of a person who is a resident includes all income from whateversourcederived which—(a) is received39 or is deemed to be received39 in India in such year by oron behalf of such person ; or(b) accrues39 or arises39 or is deemed39 to accrue or arise to him in Indiaduring 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 Indiawithin the meaning of sub-section (6)* of section 6, the income whichaccrues or arises to him outside India shall not be so included unlessit is derived from a business controlled in or a profession set up inIndia.(2) Subject to38 the provisions of this Act, the total income38 of anyprevious yearof a person who is a non-resident includes all income from whatever sourcederived which—
  • 32. (a) is received39 or is deemed to be received39 in India in such year by oron behalf of such person ; or(b) accrues39 or arises39 or is deemed to accrue or arise to him in Indiaduring such year.Explanation 1.—Income accruing or arising outside India shall not bedeemed tobe received39 in India within the meaning of this section by reason only ofthe factthat it is taken into account in a balance sheet prepared in India.S. 5 I.T. ACT, 1961 1.3034. For the meaning of the expressions “in accordance with, and subject tothe provisions of,this Act” and “total income”, see Taxmann‟s Direct Taxes Manual, Vol. 3.35. “or previous years, as the case may be,” omitted by the Direct TaxLaws (Amendment) Act,1987, w.e.f. 1-4-1989.36. See also Circular No. 369, dated 17-9-1983. For details, seeTaxmann‟s Master Guide toIncome-tax Act.37. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.38. For the meaning of the terms/expressions “subject to” and “totalincome”, see Taxmann‟sDirect Taxes Manual, Vol. 3.39. For the meaning of the terms/expressions “is received”, “deemed to bereceived”, “accruesor arises”, “accrued or arisen” and “deemed to have accrued”, seeTaxmann‟s Direct TaxesManual, Vol. 3.*Should be read as „clause (6)‟.Explanation 2.—For the removal of doubts, it is hereby declared thatincomewhich has been included in the total income of a person on the basis that ithasaccrued40 or arisen40 or is deemed to have accrued40 or arisen40 to himshall notagain be so included on the basis that it is received or deemed to bereceived byhim in India.41[Apportionment of income between spouses governed byPortuguese Civil Code.5A. (1) Where the husband and wife are governed by the system ofcommunityof property (known under the Portuguese Civil Code of 1860as “COMMUNIAO DOS BENS”) in force in the State of Goa and in theUnionterritories of Dadra and Nagar Haveli and Daman and Diu, the income ofthe husband and of the wife under any head of income shall not beassessed asthat of such community of property (whether treated as an association ofpersons or a body of individuals), but such income of the husband and ofthe wifeunder each head of income (other than under the head “Salaries”) shall be
  • 33. apportioned equally between the husband and the wife and the income soapportioned shall be included separately in the total income of the husbandandof the wife respectively, and the remaining provisions of this Act shall applyaccordingly.(2) Where the husband or, as the case may be, the wife governed by theaforesaidsystem of community of property has any income under the head“Salaries”, suchincome shall be included in the total income of the spouse who has actuallyearned 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 toone hundred and eighty-two days or more ; or(b) 43[* * *](c) having within the four years preceding that year been in India fora period or periods amounting in all to three hundred and sixtyfivedays or more, is in India for a period or periods amountingin all to sixty days or more in that year.44[Explanation.—In the case of an individual,—1.31 CH. II - BASIS OF CHARGE S. 640. For the meaning of the terms/expressions “is received”, “deemed to bereceived”, “accruesor arises”, “accrued or arisen” and “deemed to have accrued or arisen”, seeTaxmann‟sDirect Taxes Manual, Vol. 3.41. Inserted by the Finance Act, 1994, w.r.e.f. 1-4-1963.42. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.43. Omitted by the Finance Act, 1982, w.e.f. 1-4-1983.44. 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. 1-4-1979and lateramended by the Finance Act, 1982, w.e.f. 1-4-1983.(a) being a citizen of India, who leaves India in any previous year45[as a member of the crew of an 46Indian ship as defined inclause (18) of section 3 of the Merchant Shipping Act, 1958 (44of 1958), or] for the purposes of employment outside India, theprovisions of sub-clause (c) shall apply in relation to that year asif for the words “sixty days”, occurring therein, the words “onehundred and eighty-two days” had been substituted ;(b) being a citizen of India, or a person of Indian origin within themeaning of Explanation to clause (e) of section 115C, who, beingoutside India, comes on a visit to India in any previous year, theprovisions of sub-clause (c) shall apply in relation to that year asif for the words “sixty days”, occurring therein, the words “onehundred and 47[eighty-two] days” had been substituted.](2) A Hindu undivided family, firm or other association of persons is saidto be resident in India in any previous year in every case except whereduring that year the control and management48 of its affairs48 is
  • 34. 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 issituated wholly48 in India.(4) Every other person is said to be resident in India in any previous yearin every case, except where during that year the control and managementof his affairs is situated wholly outside India.(5) If a person is resident in India in a previous year relevant toan assessment year in respect of any source of income, heshall be deemed to be resident in India in the previous year relevantto the assessment year in respect of each of his other sources ofincome.49[(6) A person is said to be “not ordinarily resident” in India in anypreviousyear if such person is—S. 6 I.T. ACT, 1961 1.3245. Inserted by the Finance Act, 1990, w.e.f. 1-4-1990.46. 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 andincludes any shipregistered at any port in India at the commencement of this Act which isrecognisedas an Indian ship under the proviso to sub-section (2) of section 22;‟47. Substituted for “fifty” by the Finance Act, 1994, w.e.f. 1-4-1995.48. For the meaning of the terms/expressions “control and management”,“affairs” and“wholly”, see Taxmann‟s Direct Taxes Manual, Vol. 3.49. Substituted by the Finance Act, 2003, w.e.f. 1-4-2004. Prior to itssubstitution, clause (6)read as under :„(6) A person is said to be “not ordinarily resident” in India in any previousyear if suchperson is—(Contd. on p. 1.33)(a) an individual who has been a non-resident in India in nine out ofthe ten previous years preceding that year, or has during theseven previous years preceding that year been in India for aperiod of, or periods amounting in all to, seven hundred andtwenty-nine days or less; or(b) a Hindu undivided family whose manager has been a nonresidentin India in nine out of the ten previous years precedingthat year, or has during the seven previous years preceding thatyear 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 previousyear :—(i) the annual accretion in the previous year to the balance at the creditof an employee participating in a recognised provident fund, to theextent provided in rule 6 of Part A of the Fourth Schedule ;
  • 35. (ii) the transferred balance in a recognised provident fund, to the extentprovided 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 otheremployer] in the previous year, to the account of an employee undera 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 itwithin 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 shallbe deemed to be the income of the previous year in which it is sodeclared, distributed or paid, as the case may be ;53[(b) any interim dividend shall be deemed to be the income of thepreviousyear in which the amount of such dividend is unconditionally madeavailable by the company to the member who is entitled to it.]1.33 CH. II - BASIS OF CHARGE S. 8(Contd. from p. 1.32)(a) an individual who has not been resident in India in nine out of the tenprevious years preceding that year, or has not during the seven previousyears preceding that year been in India for a period of, or periodsamountingin all to, seven hundred and thirty days or more ; or(b) a Hindu undivided family whose manager has not been resident in Indiainnine out of the ten previous years preceding that year, or has not during theseven previous years preceding that year been in India for a period of, orperiods amounting in all to, seven hundred and thirty days or more.‟50. Inserted by the Finance (No. 2) Act, 2004, w.r.e.f. 1-4-2004.51. Inserted by the Finance Act, 2007, w.r.e.f. 1-4-2004.52. Substituted for “For the purposes of inclusion in the total income of anassessee, anydividend” by the Finance Act, 1965, w.e.f. 1-4-1965.53. Inserted, ibid.Income deemed to accrue or arise in India.549. 55(1) The following incomes shall be deemed56 to accrue or arise inIndia :—57(i) all income accruing or arising, whether directly or indirectly, throughor from any business connection58 in India, or through or from anyproperty58 in India, or through or from any asset or source of incomein India, 59[* * *] or through the transfer of a capital asset situate inIndia.60[Explanation 1].—For the purposes of this clause—(a) in the case of a business of which all the operations61 are notcarried out in India, the income of the business deemed under thisclause to accrue or arise in India shall be only such part of theincome as is reasonably attributable to the operations61 carriedout in India ;(b) in the case of a non-resident, no income shall be deemed toaccrue or arise in India to him through or from operations whichare confined to the purchase of goods in India for the purpose ofexport ;62[* * *]
  • 36. 63[(c) in the case of a non-resident, being a person engaged in thebusiness of running a news agency or of publishing newspapers,magazines or journals, no income shall be deemed to accrue orarise in India to him through or from activities which are confinedto the collection of news and views in India for transmission outof 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 ofIndia or who is resident in India ; or(3) a company which does not have any shareholder who is acitizen of India or who is resident in India,S. 9 I.T. ACT, 1961 1.3454. See also Circular No. 23, dated 23-7-1969, Circular No. 163, dated 29-5-1975, CircularNo. 35(XXXIII-7) of 1956, dated 3-9-1956, Circular No. 4, dated 20-2-1969,CircularNo. 382, dated 4-5-1984, and Circular No. 5/2004, dated 28-9-2004. Fordetails, seeTaxmann‟s Master Guide to Income-tax Act.55. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.56. For the meaning of the term “deemed”, see Taxmann‟s Direct TaxesManual, Vol. 3.57. See rule 10 for manner of computation of income of non-residents incertain cases.58. For the meaning of the terms/expressions “business connection” and“property”, seeTaxmann‟s Direct Taxes Manual, Vol. 3.59. Words “or through or from any money lent at interest and brought intoIndia in cash orin kind” omitted by the Finance Act, 1976, w.e.f. 1-6-1976.60. Explanation renumbered as Explanation 1 by the Finance Act, 2003,w.e.f. 1-4-2004.61. For the meaning of the term “operations”, see Taxmann‟s Direct TaxesManual, Vol. 3.62. Proviso omitted by the Finance Act, 1964, w.e.f. 1-4-1964.63. Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1962.64. Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1982.no income shall be deemed to accrue or arise in India to suchindividual, firm or company through or from operations65 whichare confined to the shooting of any cinematograph film in India.]66[Explanation 2.—For the removal of doubts, it is hereby declaredthat “business connection” shall include any business activity carriedout through a person who, acting on behalf of the non-resident,—(a) has and habitually exercises in India, an authority to concludecontracts on behalf of the non-resident, unless his activities arelimited to the purchase of goods or merchandise for the nonresident;or(b) has no such authority, but habitually maintains in India a stock ofgoods or merchandise from which he regularly delivers goods ormerchandise on behalf of the non-resident; or
  • 37. (c) habitually secures orders in India, mainly or wholly for the nonresidentor for that non-resident and other non-residents controlling,controlled by, or subject to the same common control, as thatnon-resident:Provided that such business connection shall not include any businessactivity carried out through a broker, general commission agentor any other agent having an independent status, if such broker,general commission agent or any other agent having an independentstatus is acting in the ordinary course of his business :Provided further that where such broker, general commission agentor any other agent works mainly or wholly on behalf of a non-resident(hereafter in this proviso referred to as the principal non-resident) oron behalf of such non-resident and other non-residents which arecontrolled by the principal non-resident or have a controlling interestin the principal non-resident or are subject to the same commoncontrol as the principal non-resident, he shall not be deemed to be abroker, general commission agent or an agent of an independentstatus.Explanation 3.—Where a business is carried on in India through aperson referred to in clause (a) or clause (b) or clause (c) of Explanation2, only so much of income as is attributable to the operations carriedout 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 thatthe income of the nature referred to in this clause payable for—1.35 CH. II - BASIS OF CHARGE S. 965. For the meaning of the term “operations”, see Taxmann‟s Direct TaxesManual, Vol. 3.66. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.67. For the meaning of the term “earned”, see Taxmann‟s Direct TaxesManual, Vol. 3.68. Substituted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to itssubstitution, 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 incomeof the naturereferred to in this clause payable for service rendered in India shall beregarded as incomeearned in India ;”(a) service rendered in India; and(b) the rest period or leave period which is preceded and succeededby services rendered in India and forms part of the servicecontract of employment,shall be regarded as income earned in India ; ](iii) income chargeable under the head “Salaries” payable by theGovernmentto 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 inrespect of any debt incurred, or moneys borrowed and used, forthe purposes of a business or profession carried on by such
  • 38. person outside India or for the purposes of making or earning anyincome from any source outside India ; or(c) a person who is a non-resident, where the interest is payable inrespect of any debt incurred, or moneys borrowed and used, forthe purposes of a business or profession carried on by suchperson 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 inrespect of any right, property or information used or servicesutilised for the purposes of a business or profession carried on bysuch person outside India or for the purposes of making orearning any income from any source outside India ; or(c) a person who is a non-resident, where the royalty is payable inrespect of any right, property or information used or servicesutilised for the purposes of a business or profession carried on bysuch person in India or for the purposes of making or earning anyincome from any source in India :Provided that nothing contained in this clause shall apply in relationto so much of the income by way of royalty as consists of lump sumconsideration for the transfer outside India of, or the imparting ofinformation 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 beforethe 1st day of April, 1976, and the agreement is approved by theCentral Government :S. 9 I.T. ACT, 1961 1.3669. Clauses (v), (vi) and (vii) inserted by the Finance Act, 1976, w.e.f. 1-6-1976.70. For the meaning of the term “royalty”, see Taxmann‟s Direct TaxesManual, Vol. 3.71[Provided further that nothing contained in this clause shall apply inrelation to so much of the income by way of royalty as consists oflump sum payment made by a person, who is a resident, for thetransfer of all or any rights (including the granting of a licence) inrespect of computer software supplied by a non-resident manufactureralong with a computer or computer-based equipment underany scheme approved under the Policy on Computer SoftwareExport, Software Development and Training, 1986 of the Governmentof India.]Explanation 1.—For the purposes of the 72[first] proviso, an agreementmade on or after the 1st day of April, 1976, shall be deemed tohave been made before that date if the agreement is made inaccordance with proposals approved by the Central Governmentbefore that date; so, however, that, where the recipient of the incomeby way of royalty is a foreign company, the agreement shall not bedeemed to have been made before that date unless, before the expiryof the time allowed under sub-section (1) or sub-section (2) of section139 (whether fixed originally or on extension) for furnishing thereturn of income for the assessment year commencing on the 1st dayof April, 1977, or the assessment year in respect of which such incomefirst becomes chargeable to tax under this Act, whichever assessment
  • 39. year is later, the company exercises an option by furnishing adeclaration in writing to the 73[Assessing] Officer (such option beingfinal for that assessment year and for every subsequent assessmentyear) that the agreement may be regarded as an agreement madebefore the 1st day of April, 1976.Explanation 2.—For the purposes of this clause, “royalty” meansconsideration (including any lump sum consideration but excludingany consideration which would be the income of the recipientchargeable under the head “Capital gains”) for—(i) the transfer of all or any rights (including the granting of alicence) in respect of a patent, invention, model, design, secretformula or process or trade mark or similar property ;(ii) the imparting of any information concerning the working of, orthe use of, a patent, invention, model, design, secret formula orprocess or trade mark or similar property ;(iii) the use of any patent, invention, model, design, secret formula orprocess or trade mark or similar property ;(iv) the imparting of any information concerning technical,industrial, commercial or scientific knowledge, experience orskill ;1.37 CH. II - BASIS OF CHARGE S. 971. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.72. Substituted for “foregoing”, ibid.73. Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1988.S. 9 I.T. ACT, 1961 1.3874[(iva) the use or right to use any industrial, commercial or scientificequipment but not including the amounts referred to in section44BB;](v) the transfer of all or any rights (including the granting of alicence) in respect of any copyright, literary, artistic or scientificwork including films or video tapes for use in connection withtelevision or tapes for use in connection with radio broadcasting,but not including consideration for the sale, distribution orexhibition of cinematographic films ; or(vi) the rendering of any services in connection with the activitiesreferred 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 includesany 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 inrespect of services utilised in a business or profession carried onby such person outside India or for the purposes of making orearning any income from any source outside India ; or(c) a person who is a non-resident, where the fees are payable inrespect of services utilised in a business or profession carried onby such person in India or for the purposes of making or earningany income from any source in India :77[Provided that nothing contained in this clause shall apply in relation
  • 40. to any income by way of fees for technical services payable inpursuance 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, anagreement made on or after the 1st day of April, 1976, shall be deemedto have been made before that date if the agreement is made inaccordance with proposals approved by the Central Governmentbefore that date.]Explanation 77[2].—For the purposes of this clause, “fees for technicalservices” means any consideration (including any lump sum consi-74. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.75. Substituted by the Finance Act, 2000, w.e.f. 1-4-2001. Prior to itssubstitution, Explanation3, as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991, read asunder :„Explanation 3.—For the purposes of this clause, the expression “computersoftware”shall have the meaning assigned to it in clause (b) of the Explanation tosection 80HHE;‟76. For the meaning of the expression “fees for technical services payable”,see Taxmann‟sDirect Taxes Manual, Vol. 3.77. Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.deration) for the rendering of any managerial, technical or consultancyservices (including the provision of services of technical or otherpersonnel) but does not include consideration for any construction78,assembly, mining or like project undertaken by the recipient orconsideration which would be income of the recipient chargeableunder the head “Salaries”.](2) Notwithstanding anything contained in sub-section (1), any pensionpayableoutside India to a person residing permanently outside India shall not bedeemedto accrue or arise in India, if the pension is payable to a person referred toinarticle 314 of the Constitution or to a person who, having been appointedbeforethe 15th day of August, 1947, to be a Judge of the Federal Court or of aHigh Courtwithin the meaning of the Government of India Act, 1935, continues toserve onor after the commencement of the Constitution as a Judge in India.79[Explanation.—For the removal of doubts, it is hereby declared that forthepurposes of this section, where income is deemed to accrue or arise inIndiaunder clauses (v), (vi) and (vii) of sub-section (1), such income shall beincludedin the total income of the non-resident, whether or not the non-resident hasaresidence or place of business or business connection in India.]CHAPTER IIIINCOMES WHICH DO NOT FORM PART OF TOTAL INCOME
  • 41. Incomes not included in total income.10. In computing the total income of a previous year of any person, anyincomefalling 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 sumreceived 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, inthe case of any impartible estate, where such sum has been paid outof 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 separatelyassessed as such, his share in the total income of the firm.Explanation.—For the purposes of this clause, the share of a partnerin the total income of a firm separately assessed as such shall,notwithstanding anything contained in any other law, be an amountwhich bears to the total income of the firm the same proportion as theamount of his share in the profits of the firm in accordance with thepartnership deed bears to such profits ;]1.39 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(2A)78. For the meaning of the term “construction”, see Taxmann‟s DirectTaxes Manual, Vol. 3.79. Inserted by the Finance Act, 2007, w.r.e.f. 1-6-1976.80. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.81. Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.82. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, clause (2A)was inserted by theDirect Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and was omittedby the Direct TaxLaws (Amendment) Act, 1989, with effect from the same date.(3) 83[***]84[(4) (i) in the case of a non-resident, any income by way of intereston such securities or bonds as the Central Government may, bynotification in the Official Gazette85, specify in this behalf,including income by way of premium on the redemption of suchbonds :86[Provided that the Central Government shall not specify, for thepurposes of this sub-clause, such securities or bonds on or after the1st 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 asdefined in clause (q) of section 289 of the said Act or is a person whohas been permitted by the Reserve Bank of India to maintain theaforesaid Account ;]]83. Omitted by the Finance Act, 2002, w.e.f. 1-4-2003. Prior to its omission,clause (3), assubstituted by the Finance Act, 1972, w.e.f. 1-4-1972, and amended by theFinance Act,
  • 42. 1986, w.e.f. 1-4-1987, Finance (No. 2) Act, 1991, w.e.f. 1-10-1991 andFinance Act, 1992, w.e.f.1-4-1992, read as under :„(3) any receipts which are of a casual and non-recurring nature, to theextent suchreceipts do not exceed five thousand rupees in the aggregate :Provided that where such receipts relate to winnings from races includinghorseraces, the provisions of this clause shall have effect as if for the words “fivethousandrupees”, the words “two thousand five hundred rupees” had beensubstituted :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 oroccupation; 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 theFinance 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 andsubstituted by theFinance Act, 1982, w.e.f. 1-4-1982.85. For specified securities, see Notification No. SO 3331, dated 19-10-1965. For details, seeTaxmann‟s Master Guide to Income-tax Act.86. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.87. Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.88. See also Circular No. 592, dated 4-2-1991. For details, see Taxmann‟sMaster Guide toIncome-tax Act.89. Clause (q) of section 2 of the Foreign Exchange Regulation Act, 1973,defines “personresident outside India” as follows :„(q) “person resident outside India” means a person who is not resident inIndia ;‟For definition of the above term in FEMA, 1999, see Appendix.S. 10(4) I.T. ACT, 1961 1.4090[***]91[(4B) in the case of an individual, being a citizen of India or a person ofIndian origin, who is a non-resident, any income from interest on suchsavings certificates issued 92[before the 1st day of June, 2002] by theCentral Government as that Government may, by notification in theOfficial Gazette93, specify in this behalf :Provided that the individual has subscribed to such certificatesin convertible foreign exchange remitted from a country outsideIndia in accordance with the provisions of the ForeignExchange Regulation Act, 1973 (46 of 1973), and any rules madethereunder.
  • 43. Explanation.—For the purposes of this clause,—(a) a person shall be deemed to be of Indian origin if he, or either ofhis parents or any of his grandparents, was born in undividedIndia ;(b) “convertible foreign exchange” means foreign exchange which isfor the time being treated by the Reserve Bank of India asconvertible foreign exchange for the purposes of the ForeignExchange Regulation Act, 1973 (46 of 1973), and any rules madethereunder ;]94[(5) in the case of an individual, the value of any travel concession orassistance received by, or due to, him,—(a) from his employer for himself and his family, in connection withhis proceeding on leave to any place in India ;(b) from his employer or former employer for himself and hisfamily, in connection with his proceeding to any place in Indiaafter retirement from service or after the termination of hisservice,subject to such conditions as may be prescribed95 (including conditionsas to number of journeys and the amount which shall be exempt1.41 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(5)90. Omitted by the Finance Act, 2005, w.e.f. 1-4-2006. Prior to its omission,second proviso, asinserted 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 toany income byway of interest paid or credited on or after the 1st day of April, 2005 to theNon-Resident(External) Account of such individual;”91. Inserted by the Finance Act, 1982, w.e.f. 1-4-1983.92. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.93. For specified savings certificates, see Notification No. SO 653(E), dated8-9-1982. Fordetails, see Taxmann‟s Master Guide to Income-tax Act.94. Substituted by the Direct Tax Laws (Second Amendment) Act, 1989,w.e.f. 1-4-1989. Earlierclause (5) was amended by the Finance Act, 1975, w.e.f. 1-4-1975, theTaxation 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 1.42per head) having regard to the travel concession or assistance grantedto the employees of the Central Government :n Air economy fare of the national carrier(Indian Airlines or Air India) by the shortestroute to the place of destination.n Air-conditioned first class rail fare by theshortest route to the place of destination.
  • 44. n (i) Where a recognised public transportsystem exists, the first class or deluxe classfare on such transport by the shortestroute to the place of destination.(ii) Where no recognised public transportsystem exists, the air-conditioned first classrail fare, for the distance of the journey bythe shortest route, as if the journey hasbeen performed by rail.(Contd. from p. 1.41)u The exemption is admissible on the value of any travel concession orassistance receivedby or due to an assessee from his employer or former employer, as thecase may be, forhimself and his family, in connection with his proceeding (i) on leave to anyplace in India,or (ii) to any place in India after the retirement from service, or (iii) to anyplace in Indiaafter the termination of his service.u The exemption is admissible in respect of actual expenditure incurred forjourneysperformed, not only by the assessee but also by his family.For this purpose, „family‟ means (i) the spouse and children of theassessee, and (ii) theparents, brothers and sisters of the assessee provided that they are whollyor mainlydependent on the assessee. With effect from 1-10-1997, the Central CivilService LeaveTravel Concession Rules have been amended in this respect.u The exemption can be availed only in respect of two journeys performedin a block offour calendar years. For this purpose, the first four-year block commencedwith thecalendar year 1986. Thus, the four-year blocks will be 1986-89, 1990-93,1994-97, 1998-2001, 2002-05 and so on.u If an assessee has not availed travel concession or assistance during anyof the specifiedfour-year block periods on one of the two permitted occasions, or on bothoccasions,exemption can be claimed provided he avails the concession or assistancein the calendaryear immediately following that block. This is popularly known as the „carry-over‟concession. In such cases, the exemption so availed will not be counted forpurposes ofregulating the future exemptions allowable for the succeeding block of fouryears.Quantum of exemption.—The basic rule is that the quantum of exemptionwill be limitedto the actual expenses incurred on the journey. This pre-supposes that,without performingany journey and incurring expenses thereon, no exemption can be claimed.
  • 45. In addition to the above general limitation, the quantum of exemption willalso be subjectto the following maximum limits, depending upon the mode of transportused or available:JOURNEYS PERFORMED ON OR AFTER 1-10-1997n For journeys performed by Airn Where place of origin of journeyand destination are connected byrail and the journey is performed byany mode of transport other than byairn Where place of origin of journeyand destination or part thereof arenot connected by railRestricted concession for children.—Under sub-rule (4) of rule 2B, insertedwith effectfrom 1-10-1997, exemption on travel concession will not be admissible tomore than two(Contd. on p. 1.43)Provided that the amount exempt under this clause shall in no caseexceed the amount of expenses actually incurred for the purpose ofsuch travel.Explanation.—For the purposes of this clause, “family”, in relation toan individual, means—(i) the spouse and children of the individual ; and(ii) the parents, brothers and sisters of the individual or any ofthem, 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;]1.43 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(5B)surviving children of an individual born after 1-10-1998. This restriction willnot howeverapply in respect of children born before 1-10-1998, and also in cases wherean individual,after getting one child, begets multiple children (twins/triplets/quadruplets,etc.) on thesecond occasion. The implications of this restriction will be as follows :u In respect of journeys performed on or before 1-10-1998 exemption willbe admissiblein respect of all the surviving children of the individual.u 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 childrenborn onor after 1-10-1998. In reckoning this limit of two children, children born outofmultiple 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-childand an adopted child of the individual‟. Hence the aforesaid restrictions willoperate in
  • 46. respect of step-children and adopted children also provided they are bornon or after1-10-1998.96. 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, whocomes to India solely in connection with the shooting of a cinematographfilm inIndia by the individual, firm or company referred to in clause (d) of theExplanationto clause (i) of sub-section (1) of section 9, any remuneration received byhim forrendering 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, andlater 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 inthe employment(commencing from a date after the 31st day of March, 1993) of theGovernment orof a local authority or of any corporation set up under any special law or ofany suchinstitution or body established in India for carrying on scientific research asisapproved for the purposes of this clause by the prescribed authority or inany business carried on in India and the individual was not resident in Indiain anyof the four financial years immediately preceding the financial year in whichhearrived in India and the tax on his income for such services chargeableunder thehead “Salaries” is paid to the Central Government by the employer [whichtax, in thecase of an employer, being a company, may be paid notwithstandinganythingcontained in section 200 of the Companies Act, 1956 (1 of 1956)], the taxso paid bythe employer for a period not exceeding forty-eight months commencingfrom thedate of his arrival in India :(Contd. from p. 1.42)(Contd. on p. 1.44)(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 whatevername called, of an embassy, high commission, legation, commission,consulate or the trade representation of a foreign State, oras a member of the staff of any of these officials, for service insuch capacity :Provided that the remuneration received by him as trade commissioner
  • 47. or other official representative in India of the Governmentof a foreign State (not holding office as such in an honorarycapacity), or as a member of the staff of any of those officials,shall be exempt only if the remuneration of the correspondingofficials or, as the case may be, members of the staff, if any, of theGovernment resident for similar purposes in the country concernedenjoys a similar exemption in that country :Provided further that such members of the staff are subjects ofthe country represented and are not engaged in any business orprofession or employment in India otherwise than as members ofsuch staff ;]S. 10(6) I.T. ACT, 1961 1.44Provided that the Central Government may, if it considers it necessary orexpedientin the public interest so to do, waive the condition relating to non-residencein Indiaas specified in this clause in the case of any individual who is employed inIndia fordesigning, erection or commissioning of machinery or plant or supervisingactivitiesconnected with such designing, erection or commissioning.Explanation.—For the purposes of this clause, “technician” means a personhavingspecialised knowledge and experience in—(i) constructional or manufacturing operations, or in mining or in thegenerationof electricity or any other form of power, or(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or shipbuilding, or(iii) such other field as the Central Government may, having regard toavailabilityof Indians having specialised knowledge and experience therein, the needsofthe country and other relevant circumstances, by notification in the OfficialGazette, specify,who is employed in India in a capacity in which such specialised knowledgeandexperience are actually utilised ;‟98. Omitted by the Finance Act, 2002, w.e.f. 1-4-2003. Prior to its omission,sub-clause (i), assubstituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962and amendedby 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,passagemoneys or the value of any free or concessional passage received by ordue to suchindividual—(a) from his employer, for himself, his spouse and children, in connectionwithhis proceeding on home leave out of India ;
  • 48. (aa) [* * *](b) from his employer or former employer for himself, his spouse andchildren,in connection with his proceeding to his home country out of India afterretirement 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.(Contd. from p. 1.43)(iii) to (v) [Sub-clause (ii) substituted for sub-clauses (ii) to (v) by theFinanceAct, 1988, w.e.f. 1-4-1989;](vi) the remuneration received by him as an employee of a foreignenterprise 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 businessin India ;(b) his stay in India does not exceed in the aggregate a period ofninety days in such previous year ; and(c) such remuneration is not liable to be deducted from theincome 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;]1.45 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(6)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 consultantto, aninstitution or association or a body established or formed outside Indiasolely forphilanthropic purposes, for services rendered by him in India in connectionwithsuch purposes ; provided that such institution or association or body andthepurposes for which his services are rendered in India are approved by theCentralGovernment ;”2. 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.1-4-1971.3. 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 :
  • 49. „(viia) where such individual renders services as a technician in theemployment of theGovernment or of a local authority or of any corporation set up under anyspeciallaw or of any such institution or body established in India for carrying onscientificresearch as is approved for the purposes of this sub-clause by theprescribedauthority or in any business carried on in India and the individual was notresidentin India in any of the four financial years immediately preceding thefinancial yearin which he arrived in India,the remuneration for such services due to or received by him, which ischargeableunder the head “Salaries”, to the extent mentioned below, namely :—(I) where such services commence from a date after the 31st day of March,1971but before the 1st day of April, 1988,—(A) such remuneration due to or received by him during the period oftwenty-four months commencing from the date of his arrival in India,in so far as such remuneration does not exceed an amount calculatedat the rate of four thousand rupees per month, and where the tax on theexcess, if any, of such remuneration for the period aforesaid over theamount so calculated is paid to the Central Government by the employer[which tax, in the case of an employer, being a company, may bepaid notwithstanding anything contained in section 200 of the CompaniesAct, 1956 (1 of 1956)], also the tax so paid by the employer ; and(Contd. on p. 1.46)(viii) any income chargeable under the head “Salaries” received by ordue to any such individual being a non-resident as remunerationfor services rendered in connection with his employment on aforeign ship where his total stay in India does not exceed in theaggregate 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; ]S. 10(6) I.T. ACT, 1961 1.46(B) where he continues, with the approval of the Central Governmentobtained before the 1st day of October of the relevant assessment year,to remain in employment in India after the expiry of the period oftwenty-four months aforesaid and the tax on his income chargeableunder the head “Salaries” is paid to the Central Government by theemployer [which tax, in the case of an employer, being a company, maybe paid notwithstanding anything contained in section 200 of theCompanies Act, 1956 (1 of 1956)], the tax so paid by the employer for aperiod not exceeding twenty-four months next following the expiry ofthe first-mentioned twenty-four months ;(II) where such services commence from a date after the 31st day ofMarch, 1988but before the 1st day of April, 1993, and tax on his income chargeableunderthe head “Salaries” is paid to the Central Government by the employer[which
  • 50. tax, in the case of an employer, being a company, may be paidnotwithstandinganything contained in section 200 of the Companies Act, 1956 (1 of1956)], the tax so paid by the employer for a period not exceeding forty-eightmonths commencing from the date of his arrival in India :Provided that the Central Government may, if it considers it necessary orexpedientin the public interest so to do, waive the condition relating to non-residencein Indiaas specified in this sub-clause in the case of any individual who isemployed in Indiafor designing, erection or commissioning of machinery or plant orsupervisingactivities connected with such designing, erection or commissioning.Explanation.—For the purposes of this sub-clause, “technician” means apersonhaving specialised knowledge and experience in—(i) constructional or manufacturing operations, or in mining or in thegenerationof electricity or any other form of power, or(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or shipbuilding, or(iii) such other field as the Central Government may, having regard to theavailability of Indians having specialised knowledge and experiencetherein,the needs of the country and other relevant circumstances, by notificationinthe Official Gazette, specify,who is employed in India in a capacity in which such specialised knowledgeandexperience 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 tohim duringthe thirty-six months commencing from the date of his arrival in India forservicerendered as a professor or other teacher in a University or othereducationalinstitution, and where any such individual continues to remain inemployment inIndia after the expiry of the thirty-six months aforesaid and the tax on hisincomechargeable under the head “Salaries” is paid by the University or othereducationalinstitution concerned to the Central Government, the tax so paid for aperiod notexceeding twenty-four months following the expiry of the thirty-six monthsaforesaid, provided in either case the following conditions are fulfilled,namely :—(Contd. from p. 1.45)
  • 51. (Contd. on p. 1.47)1.47 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME 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 theGovernment of a foreign State during his stay in India inconnection with his training in any establishment or office of, orin any undertaking owned by,—(i) the Government ; or(ii) any company in which the entire paid-up share capital is heldby the Central Government, or any State Government orGovernments, or partly by the Central Government andpartly by one or more State Governments ; or(iii) any company which is a subsidiary of a company referred toin item (ii) ; or(iv) any corporation established by or under a Central, State orProvincial Act ; or(v) any society registered under the Societies Registration Act,1860 (14 of 1860), or under any other corresponding law forthe time being in force and wholly financed by the CentralGovernment, or any State Government or State Governments,or partly by the Central Government and partly by oneor more State Governments ;]7[(6A) where in the case of a foreign company deriving income by wayof royalty or fees for technical services received from Governmentor an Indian concern in pursuance of an agreement made bythe foreign company with Government or the Indian concern after(i) such individual was not resident in any of the four financial yearsimmediatelypreceding 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 orother teacher whose service commenced before the 1st day of April, 1964 ;(b) before the commencement of his service or within one year of suchcommencement, 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 monthscommencingfrom the date of his arrival in India, for undertaking any research work inIndia,provided the following conditions are fulfilled, namely :—(a) the research work is undertaken in connection with a research schemeapproved in this behalf by the Central Government on or before the 1st dayof October of the relevant assessment year ; and(b) such sum is payable or paid directly or indirectly by the Government ofaforeign State or any institution or association or other body establishedoutside India ;”6. Inserted by the Finance Act, 1976, w.e.f. 1-4-1976.7. Inserted by the Finance Act, 1983, w.e.f. 1-4-1984.(Contd. from p. 1.46)
  • 52. S. 10(6BB) I.T. ACT, 1961 1.48the 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 industrialpolicy, 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 CentralGovernment,the tax on such income is payable, under the terms of the agreement,by Government or the Indian concern to the Central Government, thetax so paid].Explanation.—For the purposes of this clause 10[and clause (6B)],—(a) “fees for technical services” shall have the same meaning as inExplanation 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 toclause (vi) of sub-section (1) of section 9;]10[(6B) where in the case of a non-resident (not being a company) or of aforeign company deriving income (not being salary, royalty or fees fortechnical services) from Government or an Indian concern in pursuanceof an agreement entered into 11[before the 1st day of June,2002] by the Central Government with the Government of a foreignState or an international organisation, the tax on such income ispayable by Government or the Indian concern to the Central Governmentunder the terms of that agreement or any other related agreementapproved 11[before that date] by the Central Government, thetax so paid ;]12[(6BB) where in the case of the Government of a foreign State or aforeignenterprise deriving income from an Indian company engaged in thebusiness of operation of aircraft, as a consideration of acquiring anaircraft or an aircraft engine (other than payment for providingspares, facilities or services in connection with the operation of leasedaircraft) on lease under 13[an agreement entered into after the 31stday of March, 1997 but before the 1st day of April, 1999, or entered8. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.9. Substituted for “and approved by the Central Government, the tax onsuch income ispayable, under the terms of such agreement, by Government or the Indianconcern to theCentral Government, the tax so paid” by the Finance Act, 1992, w.e.f. 1-6-1992.10. Inserted by the Finance Act, 1988, w.e.f. 1-4-1988.11. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.12. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.13. Substituted for “an agreement entered after the 31st day of March,1997 (but before the1st day of April, 1999) and approved by the Central Government in thisbehalf” by theFinance (No. 2) Act, 2004, w.e.f. 1-4-2006. Words “30th day of September,2005” substitutedfor “31st day of March, 2005” by the Finance Act, 2005, w.e.f. 1-4-2006.Earlier the
  • 53. 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 TOTALINCOME S. 10(8A)into after the 14[31st day of March, 15[2007]] and approved by theCentral Government in this behalf] and the tax on such income ispayable by such Indian company under the terms of that agreementto the Central Government, the tax so paid.Explanation.—For the purposes of this clause, the expression “foreignenterprise” means a person who is a non-resident;]16[(6C) any income arising to such foreign company, as the CentralGovernmentmay, by notification17 in the Official Gazette, specify in thisbehalf, by way of 18[royalty or] fees for technical services received inpursuance of an agreement entered into with that Government forproviding services in or outside India in projects connected withsecurity of India ;](7) any allowances or perquisites paid or allowed as such outside India bythe Government to a citizen of India for rendering service outsideIndia ;(8) in the case of an individual who is assigned to duties in India inconnection with any co-operative technical assistance programmesand projects in accordance with an agreement entered into bythe Central Government and the Government of a foreign State(the terms whereof provide for the exemption given by thisclause)—(a) the remuneration received by him directly or indirectly from theGovernment of that foreign State for such duties, and(b) any other income of such individual which accrues or arisesoutside India, and is not deemed to accrue or arise in India,in respect of which such individual is required to pay anyincome or social security tax to the Government of that foreignState ;19[(8A) in the case of a consultant—(a) any remuneration or fee received by him or it, directly orindirectly, out of the funds made available to an internationalorganisation [hereafter referred to in this clause and clause (8B)as the agency] under a technical assistance grant agreementbetween the agency and the Government of a foreign State ; and(b) any other income which accrues or arises to him or it outsideIndia, and is not deemed to accrue or arise in India, in respect ofwhich such consultant is required to pay any income or socialsecurity tax to the Government of the country of his or its origin.14. Substituted for “30th day of September, 2005” by the Taxation Laws(Amendment) Act,2005, w.e.f. 1-4-2006.15. Substituted for “2006” by the Finance Act, 2006, w.e.f. 1-4-2007.16. Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.17. For notified companies, see Taxmann‟s Master Guide to Income-taxAct.18. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.19. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.S. 10(9) I.T. ACT, 1961 1.50
  • 54. Explanation.—In this clause, “consultant” means—(i) any individual, who is either not a citizen of India or, being acitizen 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 inconnection with any technical assistance programme or project,provided the following conditions are fulfilled, namely :—(1) the technical assistance is in accordance with an agreemententered into by the Central Government and the agency ; and(2) the agreement relating to the engagement of the consultant isapproved by the prescribed authority20 for the purposes of thisclause ;(8B) in the case of an individual who is assigned to duties in India inconnection with any technical assistance programme and project inaccordance with an agreement entered into by the Central Governmentand the agency—(a) the remuneration received by him, directly or indirectly, for suchduties from any consultant referred to in clause (8A) ; and(b) any other income of such individual which accrues or arisesoutside India, and is not deemed to accrue or arise in India, inrespect of which such individual is required to pay any income orsocial security tax to the country of his origin, provided thefollowing conditions are fulfilled, namely :—(i) the individual is an employee of the consultant referredto 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 theprescribed authority20 before the commencement of hisservice ;](9) the income of any member of the family of any such individual as isreferred to in clause (8) 21[or clause (8A) or, as the case may be, clause(8B)] accompanying him to India, which accrues or arises outsideIndia, and is not deemed to accrue or arise in India, in respect of whichsuch member is required to pay any income or social security tax tothe Government of that foreign State 21[or, as the case may be,country of origin of such member];20. The prescribed authority under rule 16B is Additional Secretary,Department ofEconomic Affairs in Ministry of Finance, Government of India inconcurrence withMember (Income-tax), CBDT.21. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.22[23(10) 24(i) any death-cum-retirement gratuity received under therevisedPension Rules of the Central Government or, as the case may be, theCentral Civil Services (Pension) Rules, 1972, or under any similarscheme applicable to the members of the civil services of the Unionor holders of posts connected with defence or of civil posts under theUnion (such members or holders being persons not governed bythe said Rules) or to the members of the all-India services or to themembers of the civil services of a State or holders of civil posts undera State or to the employees of a local authority or any payment of
  • 55. retiring gratuity received under the Pension Code or Regulationsapplicable to the members of the defence services ;(ii) any gratuity received under the Payment of Gratuity Act, 1972 (39of 1972), to the extent it does not exceed an amount calculated inaccordance with the provisions of sub-sections (2) and (3) of section425 of that Act ;(iii) any other gratuity received by an employee on his retirement oron his becoming incapacitated prior to such retirement or on terminationof his employment, or any gratuity received by his widow,children or dependants on his death, to the extent it does not, in eithercase, exceed one-half month‟s salary for each year of completedservice26, 27[calculated on the basis of the average salary for the tenmonths immediately preceding the month in which any such eventoccurs, subject to such limit28 as the Central Government may, bynotification in the Official Gazette, specify in this behalf having regardto the limit applicable in this behalf to the employees of that Government]:Provided that where any gratuities referred to in this clause29 arereceived by an employee from more than one employer in the same1.51 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(10)22. Substituted by the Finance Act, 1974, w.e.f. 1-4-1975. Original clausewas amended firstby the Finance Act, 1972, w.e.f. 1-4-1973 and then by the Finance Act,1974, withretrospective effect from 1-6-1972/1-4-1962.23. 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 toIncome-tax Act.24. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.25. For text of sub-sections (2) and (3) of section 4 of the Payment ofGratuity Act, 1972, seeAppendix.The limit laid down under section 4(3) of the Payment of Gratuity Act, 1972[as amendedby the Payment of Gratuity (Amendment) Act, 1998, w.r.e.f. 24-9-1997] isRs. 3,50,000.26. For the meaning of the expression “each year of completed service”,see Taxmann‟s DirectTaxes Manual, Vol. 3.27. Substituted for “calculated on the basis of the average salary for thethree yearsimmediately preceding the year in which the gratuity is paid, subject to amaximum of*thirty-six thousand rupees or twenty months‟ salary so calculated,whichever is less” bythe 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.1-4-1982.28. Rs. 3,50,000 has been specified as the limit in case of retirement, etc.,on or after 24-9-1997
  • 56. vide Notification No. 10772 [F. No. 200/77/97-IT(A-I)], dated 20-1-1999. Fordetails, seeTaxmann‟s Master Guide to Income-tax Act.29. For meaning of the expression “this clause”, see Taxmann‟s DirectTaxes Manual, Vol. 3.previous year, the aggregate amount exempt from income-tax underthis 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[shallnot exceed the limit so specified] as reduced by the amount or, as thecase may be, the aggregate amount not included in the total incomeof 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 underthe CivilPensions (Commutation) Rules of the Central Government or underany similar scheme applicable 36[to the members of the civil servicesof the Union or holders of posts connected with defence or of civilposts under the Union (such members or holders being persons notgoverned by the said Rules) or to the members of the all-India servicesor to the members of the defence services or to the members of thecivil services of a State or holders of civil posts under a State or to theemployees of a local authority] or a corporation established by aCentral, State or Provincial Act ;(ii) any payment in commutation of pension received under anyscheme of any other employer, to the extent it does not exceed—(a) in a case where the employee receives any gratuity, the commutedvalue of one-third of the pension which he is normallyentitled to receive, and(b) in any other case, the commuted value of one-half of suchpension,S. 10(10A) I.T. ACT, 1961 1.5230. Substituted for “shall not exceed *thirty-six thousand rupees” by theDirect 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.1-4-1982.31. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original third andfourth provisos were inserted by the Finance Act, 1983, w.r.e.f. 1-4-1982.32. Substituted for “In this clause” by the Direct Tax Laws (Amendment)Act, 1987, w.e.f.1-4-1989.33. Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962.34. See also Circular No. 286, dated 17-11-1980 and Circular No. 623,dated 6-1-1992. Fordetails, see Taxmann‟s Master Guide to Income-tax Act.
  • 57. 35. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.36. Substituted for “to the members of the Defence Services or to theemployees of a StateGovernment, a local authority” by the Finance Act, 1974, w.r.e.f. 1-4-1962.such commuted value being determined having regard to the age ofthe recipient, the state of his health, the rate of interest and officiallyrecognised 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 CentralGovernmentor a State Government as the cash equivalent of the leave salary inrespect of the period of earned leave at his credit at the time of his41retirement 42[whether] on superannuation or otherwise ;(ii) any payment of the nature referred to in sub-clause (i) receivedby an employee, other than an employee of the Central Governmentor a State Government, in respect of so much of the period of earnedleave at his credit at the time of his retirement 42[whether] onsuperannuation 41or otherwise as does not exceed 43[ten] months,calculated on the basis of the average salary drawn by the employeeduring the period of ten months immediately preceding his retirement42[whether] on superannuation or otherwise, 44[subject to suchlimit as the Central Government may, by notification in the OfficialGazette, specify in this behalf having regard to the limit45 applicablein this behalf to the employees of that Government] :Provided that where any such payments are received by an employeefrom more than one employer in the same previous year, the aggregateamount exempt from income-tax under this sub-clause 46[shallnot exceed the limit so specified] :Provided further that where any such payment or payments was orwere received in any one or more earlier previous years also and thewhole or any part of the amount of such payment or payments was1.53 CH. III - INCOMES WHICHDO NOT FORM PART OF TOTALINCOME S. 10(10AA)37. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.38. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997.39. Inserted by the Finance Act, 1982, w.r.e.f. 1-4-1978.40. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.41. For the meaning of the terms “retirement”, and “or otherwise” seeTaxmann‟s Direct TaxesManual, Vol. 3.42. Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978.43. Substituted for “eight” by the Finance Act, 1999, w.r.e.f. 1-4-1998.Earlier “eight” wassubstituted for “six” by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f.1-7-1986.44. Substituted for “or thirty thousand rupees, whichever is less” by theDirect Tax Laws
  • 58. (Amendment) Act, 1987, w.r.e.f. 1-7-1986.45. Specified exemption limit applicable in relation to employees who retire,whether onsuperannuation or otherwise, after 1-4-1998 : Rs. 3,00,000 - NotificationNo. SO 588(E),dated 31-5-2002. For details, see Taxmann‟s Master Guide to Income-taxAct.46. Substituted for “shall not exceed thirty thousand rupees” by the DirectTax Laws(Amendment) Act, 1987, w.r.e.f. 1-7-1986.S. 10(10B) I.T. ACT, 1961 1.54or were not included in the total income of the assessee of suchprevious year or years, the amount exempt from income-tax underthis sub-clause 47[shall not exceed the limit so specified], as reducedby the amount or, as the case may be, the aggregate amount notincluded 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 exceedthirty days for every year of actual service rendered by him as anemployee of the employer from whose service he has retired ;50[* * *]51[(10B) any compensation received by a workman under the IndustrialDisputes Act, 1947 (14 of 1947), or under any other Act or Rules,orders or notifications issued thereunder or under any standingorders or under any award, contract of service or otherwise, 52[at thetime of his retrenchment :Provided that the amount exempt under this clause shall not exceed—(i) an amount calculated in accordance with the provisions of53clause (b) of section 25F of the Industrial Disputes Act, 1947 (14of 1947) ; or54[(ii) such amount, not being less than fifty thousand rupees, as theCentral Government may, by notification55 in the OfficialGazette, specify in this behalf,]whichever is less :47. Substituted for “shall not exceed thirty thousand rupees” by the DirectTax Laws(Amendment) Act, 1987, w.r.e.f. 1-7-1986.48. 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 wereamended by theTaxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978.49. “(i)” omitted by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986.50. Clause (ii) omitted, ibid.51. Inserted by the Finance Act, 1975, w.e.f. 1-4-1976.52. 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 notexceed—(i) an amount calculated in accordance with the provisions of clause (b) ofsection 25Fof the Industrial Disputes Act, 1947 (14 of 1947) ; or
  • 59. (ii) twenty thousand rupees,whichever is less.”53. Clause (b) of section 25F of the Industrial Disputes Act, 1947, read asfollows :“(b) the workman has been paid, at the time of retrenchment, compensationwhich shallbe equivalent to fifteen days‟ average pay for every completed year ofcontinuousservice or any part thereof in excess of six months ; and”54. Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.55. Maximum limit is Rs. 5,00,000 where retrenchment is on or after 1-1-1997 - NotificationNo. 10969 [F. No. 200/21/97-IT(A-I)], dated 25-6-1999.Provided further that the preceding proviso shall not apply in respectof any compensation received by a workman in accordance with anyscheme which the Central Government may, having regard to theneed for extending special protection to the workmen in the undertakingto 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 closingdown of the undertaking in which he is employed shall be deemedto 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 ownershipor management of the undertaking in which he is employed fromthe employer in relation to that undertaking to a new employer,shall be deemed to be compensation received at the time of hisretrenchment if—(i) the service of the workman has been interrupted by suchtransfer ; or(ii) the terms and conditions of service applicable to the workmanafter such transfer are in any way less favourable to theworkman than those applicable to him immediately beforethe transfer ; or(iii) the new employer is, under the terms of such transfer orotherwise, legally not liable to pay to the workman, in theevent of his retrenchment, compensation on the basis that hisservice has been continuous and has not been interrupted bythe transfer ;56(c) the expressions “employer” and “workman” shall have thesame meanings as in the Industrial Disputes Act, 1947 (14 of1947);]57[(10BB) any payments made under the Bhopal Gas Leak Disaster(Processingof Claims) Act, 1985 (21 of 1985), and any scheme framed thereunderexcept payment made to any assessee in connection with the BhopalGas Leak Disaster to the extent such assessee has been allowed adeduction under this Act on account of any loss or damage caused tohim by such disaster ;]58[(10BC) any amount received or receivable from the Central Governmentor
  • 60. a State Government or a local authority by an individual or his legalheir by way of compensation on account of any disaster, except theamount received or receivable to the extent such individual or his1.55 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(10BC)56. For text of clause (g) and clause (s) of section 2 of the IndustrialDisputes Act, 1947, defining“employer” and “workman”, respectively, see Appendix.57. Inserted by the Finance Act, 1992, w.e.f. 1-4-1992.58. Inserted by the Finance Act, 2007, w.r.e.f. 1-4-2005.legal heir has been allowed a deduction under this Act on account ofany 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 section259 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 aUniversity under section 3 of the University Grants CommissionAct, 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 of1961) ; or67[(viia) any State Government; or]68[(viib) the Central Government; or]69[(viic) an institution, having importance throughout India or in anyState or States, as the Central Government may, by notificationin 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,]S. 10(10C) I.T. ACT, 1961 1.5659. For the definition of term “disaster”, see Appendix.60. Substituted by the Finance Act, 1993, w.e.f. 1-4-1993. Prior tosubstitution, clause (10C) wasinserted by the Finance Act, 1987, w.e.f. 1-4-1987 and later substituted bythe Finance Act,1992, w.e.f. 1-4-1993.61. See also Circular No. 640, dated 26-11-1992 and Circular F. No.184/7/2003-ITAT, dated4-3-2004. For details, see Taxmann‟s Master Guide to Income-tax Act.62. For the meaning of expression “amount received”, see Taxmann‟sDirect Taxes Manual,Vol. 3.63. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.64. Substituted for “authority,” by the Finance Act, 1994, w.e.f. 1-4-1995.65. Inserted, ibid.
  • 61. 66. Clause (g) of section 3 of the Institutes of Technology Act, 1961,defines “Institute” asfollows :„(g) “Institute” means any of the Institutions mentioned in section 2 andincludes theIndian Institute of Technology, Kharagpur, incorporated under the IndianInstituteof Technology (Kharagpur) Act, 1956 (5 of 1956);‟67. Inserted by the Finance Act, 2001, w.e.f. 1-4-2001.68. Inserted, ibid., w.e.f. 1-4-2002.69. Inserted by the Finance Act, 2002, w.e.f. 1-4-2002.70. For notified institutions, see Taxmann‟s Master Guide to Income-taxAct.71. For notified Institutes of Management, see Taxmann‟s Master Guide toIncome-tax Act.1.57 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(10CC)72[on his] 73[voluntary retirement or termination of his service, inaccordance with any scheme or schemes of voluntary retirement orin the case of a public sector company referred to in sub-clause (i), ascheme of voluntary separation, to the extent such amount does notexceed five lakh rupees] :Provided that the schemes of the said companies or authorities 74[orsocieties or Universities or the Institutes referred to in sub-clauses(vii) and (viii)], as the case may be, governing the payment of suchamount are framed in accordance with such guidelines (includinginter alia criteria of economic viability) as may be 75prescribed76[***] :Provided further that where exemption has been allowed to anemployee under this clause for any assessment year, no exemptionthereunder shall be allowed to him in relation to any other assessmentyear ;]77[(10CC) in the case of an employee, being an individual deriving incomein thenature of a perquisite, not provided for by way of monetary payment,within the meaning of clause (2) of section 17, the tax on such incomeactually paid by his employer, at the option of the employer, on behalfof such employee, notwithstanding anything contained in section20078 of the Companies Act, 1956 (1 of 1956);]72. Substituted for “at the time of his” by the Finance Act, 2003, w.e.f. 1-4-2004.73. Substituted for “voluntary retirement, in accordance with any scheme orschemes ofvoluntary retirement, to the extent such amount does not exceed five lakhrupees” by theFinance Act, 2000, w.e.f. 1-4-2001.74. Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.75. Rule 2BA prescribes requirements for a Scheme of VoluntaryRetirement, which are asfollows :(1) It applies to an employee who has completed ten years of service orcompleted 40 years
  • 62. of age. This condition is not applicable in case of amount received by anemployee of apublic sector company under scheme of voluntary separation framed by thesaidcompany. (2) It applies to all employees (by whatever name called),including workers andexecutives of the company/authority/co-operative society exceptingdirectors of thecompany/co-operative society. (3) The scheme of voluntaryretirement/separation hasbeen drawn to result in overall reduction in the existing strength of theemployees. (4) Thevacancy caused by voluntary retirement/separation is not to be filled up,nor, the retiringemployee is to be employed in another company or concern belonging tothe samemanagement. (5) The amount receivable on account of voluntaryretirement/separationof the employees, does not exceed the amount equivalent to three months‟salary for eachcompleted year of service or salary at the time of retirement multiplied bythe balancemonths 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 cooperativesocieties referred to in sub-clause (v) are approved by the ChiefCommissioneror, as the case may be, Director-General in this behalf” omitted by theFinance Act, 2000,w.e.f. 1-4-2001. Earlier the quoted words were amended by the FinanceAct, 1994, w.e.f.1-4-1995.77. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.78. For text of section 200 of the Companies Act, 1956, see Appendix.79[(10D) any sum received under a life insurance policy, including the sumallocated 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 the1st day of April, 2003 in respect of which the premium payable forany of the years during the term of the policy exceeds twenty percent of the actual capital sum assured:Provided that the provisions of this sub-clause shall not apply toany sum received on the death of a person:Provided further that for the purpose of calculating the actualcapital sum assured under this sub-clause, effect shall be givento the 80[Explanation to sub-section (3) of section 80C or theExplanation to sub-section (2A) of section 88, as the case may be].Explanation.—For the purposes of this clause, “Keyman insurancepolicy” means a life insurance policy taken by a person on the life ofanother person who is or was the employee of the first-mentionedperson or is or was connected in any manner whatsoever with the
  • 63. business of the first-mentioned person;](11) any payment from a provident fund to which the Provident FundsAct, 1925 (19 of 1925), applies 81[or from any other provident fund setup by the Central Government and notified82 by it in this behalf in theOfficial Gazette];(12) the accumulated balance due and becoming payable to an employeeparticipating in a recognised provident fund, to the extent provided inrule 8 of Part A of the Fourth Schedule ;83[(13) any payment from an approved superannuation fund made—S. 10(13) I.T. ACT, 1961 1.5879. Substituted by the Finance Act, 2003, w.e.f. 1-4-2004. Prior to itssubstitution, clause (10D),as inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1962, and later onamended by theFinance Act, 1995, w.e.f. 1-4-1996 and Finance (No. 2) Act, 1996, w.e.f. 1-10-1996, read asunder :„(10D) any sum received under a life insurance policy, including the sumallocated byway 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”meansa life insurance policy taken by a person on the life of another person whois orwas the employee of the first mentioned person or is or was connected inanymanner whatsoever with the business of the first mentioned person;‟80. Substituted for “Explanation to sub-section (2A) of section 88” by theFinance Act, 2005,w.e.f. 1-4-2006.81. Inserted by the Finance Act, 1968, w.e.f. 1-4-1969.82. For notified public provident fund, see Notification No. SO 2430, dated2-7-1968. Fordetails, see Taxmann‟s Master Guide to Income-tax Act.83. 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 sections80DD & 80DDA.(i) on the death of a beneficiary ; or(ii) to an employee in lieu of or in commutation of an annuity on hisretirement at or after a specified age or on his becoming incapacitatedprior 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 leavingthe service in connection with which the fund is establishedotherwise than by retirement at or after a specified age or onhis becoming incapacitated prior to such retirement, to theextent to which such payment does not exceed the contributionsmade prior to the commencement of this Act and any interestthereon;]
  • 64. 84[85(13A) any special allowance specifically granted to an assessee byhisemployer to meet expenditure actually incurred on payment of rent(by whatever name called) in respect of residential accommodationoccupied by the assessee, to such extent 86[* * *] as may beprescribed87 having regard to the area or place in which suchaccommodationis situate and other relevant considerations.]88[Explanation.—For the removal of doubts, it is hereby declared thatnothing contained in this clause shall apply in a case where—1.59 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(13A)84. Inserted by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964.85. See also Circular No. 90, dated 26-6-1972, Letter F. No. 12/19/64-IT(A-I), dated2-1-1967 and Circular No. 9/2003, dated 18-11-2003. For details, seeTaxmann‟s MasterGuide to Income-tax Act.86. “(not exceeding four hundred rupees per month)” omitted by theFinance Act, 1986, w.e.f.1-4-1987. Earlier, in this omitted expression “four” was substituted for“three” by theFinance Act, 1975, w.e.f. 1-4-1975.87. Rule 2A prescribes the quantum of exemption available, which will bethe least of thefollowing :Bombay/Calcutta/Delhi/Madras Other Citiesn Allowance actually received n Allowance actually receivedn Rent paid in excess of 10% of salary n Rent paid in excess of 10% ofsalaryn 50 per cent of salary n 40 per cent of salary„Salary‟ for this purpose includes basic salary as well as dearnessallowance if the termsof employment so provide. It also includes commission based on a fixedpercentage ofturnover achieved by an employee as per terms of contract of employmentbut excludesall other allowances and perquisites. In view of Explanation (ii) to rule 2A,basic pay,dearness allowance and commission are determined on „due‟ basis inrespect of the periodduring which rental accommodation is occupied by the employee in theprevious year.Thus, emoluments of a period other than previous year are not to beconsidered, eventhough such amount is received (as well as taxed) during the previousyear. Again,emoluments of the period during which rental accommodation is notoccupied in theprevious year are left out of computation. It is important to note that whererent paid is10 per cent or less than 10 per cent of salary, no exemption will beadmissible. Again
  • 65. exemption is denied where an employee lives in his own house, or in ahouse for which hedoes not pay rent.88. Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1976.(a) the residential accommodation occupied by the assessee is ownedby him ; or(b) the assessee has not actually incurred expenditure on payment ofrent (by whatever name called) in respect of the residentialaccommodation occupied by him ;]89[(14) (i) any such special allowance or benefit, not being in the nature ofaperquisite within the meaning of clause (2) of section 17, specificallygranted to meet expenses wholly, necessarily and exclusivelyincurred90 in the performance of the duties of an office or employmentof profit91, 92[as may be prescribed], to the extent to which suchexpenses are actually incurred for that purpose ;(ii) any such allowance granted to the assessee either to meet hispersonal expenses at the place where the duties of his office oremployment of profit91 are ordinarily performed by him or at theplace where he ordinarily resides, or to compensate him for theincreased cost of living, 93[as may be prescribed and to the extent asmay be prescribed] :]94[Provided that nothing in sub-clause (ii) shall apply to any allowancein the nature of personal allowance granted to the assessee toremunerate or compensate him for performing duties of a specialnature relating to his office or employment unless such allowance isrelated to the place of his posting or residence ;](14A) 95[***]S. 10(14A) I.T. ACT, 1961 1.6089. Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to itssubstitution, clause (14) was amended by the Finance Act, 1975, w.r.e.f. 1-4-1962.90. For the meaning of the terms/expressions “incurred” and “office oremployment of profit”,see Taxmann‟s Direct Taxes Manual, Vol. 3.91. For the meaning of the expression “office or employment of profit”, seeTaxmann‟s DirectTaxes Manual, Vol. 3.92. Substituted for “as the Central Government may, by notification in theOfficial Gazette,specify” by the Finance Act, 1995, w.e.f. 1-7-1995.For prescribed allowances, see rule 2BB(1).93. Substituted for “as the Central Government may, by notification in theOfficial 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).94. Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f.1-4-1989.95. Omitted by the Finance Act, 2002, w.e.f. 1-4-2003. Prior to its omission,clause (14A), as
  • 66. 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 riskpremiumfrom any person borrowing foreign currency from such institution, providedtheamount of such premium is credited by such institution to a fund specifiedunderclause (23E).Explanation.—For the purposes of this clause,—(i) the expression “public financial institution” shall have the meaningassignedto it in section 4A of the Companies Act, 1956 (1 of 1956) ;(ii) the expression “exchange risk premium” means a premium paid by apersonborrowing foreign currency from a public financial institution to cover therisk which may be borne by such institution on account of fluctuations inexchange rate of foreign currencies borrowed by such institution ;‟(15) 96[(i) income by way of interest, premium on redemption or otherpayment on such securities, bonds, annuity certificates, savingscertificates, other certificates issued by the Central Government anddeposits as the Central Government may, by notification97 in theOfficial Gazette, specify in this behalf, subject to such conditions andlimits 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 Governmentmay, by notification1 in the Official Gazette, specify in this behalf :]2[Provided that the Central Government shall not specify, for thepurposes of this sub-clause, such Capital Investment Bonds on orafter the 1st day of June, 2002;]3[(iic) in the case of an individual or a Hindu undivided family, intereston such Relief Bonds4 as the Central Government may, by notificationin the Official Gazette, specify in this behalf ;]5[(iid) interest on such bonds, as the Central Government may, bynotification6 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 orsurvivor of the non-resident Indian ; or(c) any individual to whom the bonds have been gifted by the nonresidentIndian :Provided that the aforesaid bonds are purchased by a non-residentIndian in foreign exchange and the interest and principal received inrespect of such bonds, whether on their maturity or otherwise, is notallowable to be taken out of India :Provided further that where an individual, who is a non-residentIndian in any previous year in which the bonds are acquired, becomesa resident in India in any subsequent year, the provisions of this subclauseshall continue to apply in relation to such individual :1.61 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(15)96. Substituted for sub-clauses (i), (ia), (ib), (ii) and (iia) by the Direct TaxLaws (Amendment)Act, 1987, w.e.f. 1-4-1989. Original sub-clauses (ia) and (ib) were insertedby the Taxation
  • 67. Laws (Amendment & Miscellaneous Provisions) Act, 1965, w.e.f. 4-12-1965and SpecialBearer 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, theFinance Act,1979, w.e.f. 1-4-1980 and the Finance Act, 1987, w.r.e.f. 1-4-1983 ; andsub-clause (iia) wasinserted by the Finance Act, 1968, w.e.f. 1-4-1969.97. For notified securities, bonds, annuity certificates, savings certificates,etc., see Taxmann‟sMaster Guide to Income-tax Act.98. Inserted by the Finance Act, 1982, w.e.f. 1-4-1983.99. Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.1. For notified capital investment bonds, see Taxmann‟s Master Guide toIncome-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-taxAct.Provided also that in a case where the bonds are encashed in aprevious year prior to their maturity by an individual who is soentitled, the provisions of this sub-clause shall not apply to suchindividual in relation to the assessment year relevant to such previousyear :7[Provided also that the Central Government shall not specify, for thepurposes 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 CentralBank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;8[(iiia) interest payable to any bank incorporated in a country outsideIndia and authorised to perform central banking functions in thatcountry on any deposits made by it, with the approval of the ReserveBank of India, with any scheduled bank.Explanation.—For the purposes of this sub-clause, “scheduledbank” shall have the meaning assigned to it in 9[clause (ii) of theExplanation to clause (viia) of sub-section (1) of section 36];]10[(iiib) interest payable to the Nordic Investment Bank, being amultilateral financial institution constituted by the Governments ofDenmark, Finland, Iceland, Norway and Sweden, on a loan advancedby it to a project approved by the Central Government in terms of theMemorandum of Understanding entered into by the CentralGovernment with that Bank on the 25th day of November, 1986;]11[(iiic) interest payable to the European Investment Bank, on a loangranted by it in pursuance of the framework-agreement for financialco-operation entered into on the 25th day of November, 1993 by theCentral Government with that Bank;]
  • 68. (iv) interest payable—12[(a) by Government or a local authority on moneys borrowed byit before the 1st day of June, 2001 from, or debts owed by itbefore the 1st day of June, 2001 to, sources outside India;](b) by an industrial undertaking in India on moneys borrowedby it under 13[a loan agreement entered into before the 1st dayS. 10(15) I.T. ACT, 1961 1.627. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.8. Inserted by the Finance Act, 1985, w.e.f. 1-4-1985.9. Substituted for “the Explanation to clause (iii) of sub-section (5) ofsection 11” by the DirectTax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.10. Inserted by the Taxation Laws (Amendment) Act, 2003, w.r.e.f. 1-4-2001.11. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005.12. Substituted by the Finance Act, 2001, w.e.f. 1-4-2002. Prior to itssubstitution, item (a), asamended by the Finance Act, 1983, w.e.f. 1-4-1983, read as under :“(a) by Government or a local authority on moneys borrowed by it from, ordebts owedby it to, sources outside India ;”13. Substituted for “a loan agreement entered into with any such financialinstitution” by theFinance Act, 2001, w.e.f. 1-4-2002.of June, 2001 with any such financial institution] in a foreigncountry as may be approved14 in this behalf by the CentralGovernment by general or special order ;15(c) by an industrial undertaking in India on any moneysborrowed or debt incurred by it 16[before the 1st day of June,2001] in a foreign country in respect of the purchase outsideIndia of raw materials 17[or components] or capital plant andmachinery, 18[to the extent to which such interest does notexceed the amount of interest calculated at the rate approvedby the Central Government in this behalf19, having regard tothe terms of the loan or debt and its repayment.]20[21[Explanation 1.]—For the purposes of this item, “purchaseof capital plant and machinery” includes the purchase of suchcapital plant and machinery under a hire-purchase agreementor a lease agreement with an option to purchase suchplant and machinery.]22[Explanation 2.—For the removal of doubts, it is herebydeclared that the usance interest payable outside India by anundertaking engaged in the business of ship-breaking inrespect of purchase of a ship from outside India shall bedeemed to be the interest payable on a debt incurred in aforeign country in respect of the purchase outside India;]23[(d) by the Industrial Finance Corporation of India established bythe Industrial Finance Corporation Act, 1948 (15 of 1948), orthe Industrial Development Bank of India established underthe Industrial Development Bank of India Act, 1964 (18 of1964), 24[or the Export-Import Bank of India establishedunder the Export-Import Bank of India Act, 1981 (28 of1981),] 25[or the National Housing Bank established under
  • 69. section 3 of the National Housing Bank Act, 1987 (53 of 1987),]1.63 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(15)14. For approved institutions, see Taxmann‟s Master Guide to Income-taxAct.15. See also Letter [F. No. 21/221/64-IT(A-I)], dated 24-8-1964. For details,see Taxmann‟sMaster Guide to Income-tax Act. For form of application for obtainingexemption, referTaxmann‟s Direct Taxes Circulars.16. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.17. Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.18. Substituted for “in any case where the loan or debt is approved by theCentral Government,having regard to its terms generally and in particular to the terms of itsrepayment”by the Finance Act, 1964, w.e.f. 1-4-1964.19. For the meaning of the term “in this behalf”, see Taxmann‟s DirectTaxes Manual, Vol. 3.20. Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.21. Explanation renumbered as Explanation 1 by the Taxation Laws(Amendment) Act, 2003,w.r.e.f. 1-4-1962.22. Inserted, ibid.23. Inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-1973.24. Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.25. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.26[or the Small Industries Development Bank of India establishedunder section 3 of the Small Industries DevelopmentBank of India Act, 1989 (39 of 1989),] or the Industrial Creditand Investment Corporation of India [a company formed andregistered under the Indian Companies Act, 1913 (7 of 1913)],on any moneys borrowed by it from sources outside India27[before the 1st day of June, 2001], to the extent to which suchinterest does not exceed the amount of interest calculated atthe 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 abanking company to which the Banking Regulation Act, 1949(10 of 1949), applies (including any bank or banking institutionreferred to in section 51 of that Act), on any moneysborrowed by it from sources outside India 29[before the 1stday of June, 2001] under a loan agreement approved by theCentral Government where the moneys are borrowed eitherfor the purpose of advancing loans to industrial undertakingsin India for purchase outside India of raw materials or capitalplant and machinery or for the purpose of importing anygoods which the Central Government may consider necessaryto import in the public interest, to the extent to whichsuch interest does not exceed the amount of interest calculatedat the rate approved by the Central Government in thisbehalf, having regard to the terms of the loan and its repayment;]
  • 70. 30[(f) by an industrial undertaking in India on any moneysborrowed by it in foreign currency from sources outsideIndia under a loan agreement approved by the CentralGovernment 31[before the 1st day of June, 2001] havingregard to the need for industrial development in India, to theextent to which such interest does not exceed the amount ofinterest calculated at the rate approved by the Central Governmentin this behalf, having regard to the terms of the loan andits repayment;32[(fa) by a scheduled bank 33[***] 34[to a non-resident or to a personwho is not ordinarily resident within the meaning of sub-S. 10(15) I.T. ACT, 1961 1.6426. Inserted by the Finance Act, 1992, w.e.f. 1-4-1992.27. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.28. Inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-1973.29. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.30. Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.31. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.32. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.33. 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. 1-4-2006.34. Inserted by the Finance Act, 1993, w.e.f. 1-4-1993.section (6)† of section 6] on deposits in foreign currencywhere the acceptance of such deposits by the bank isapproved by the Reserve Bank of India.35[Explanation.—For the purposes of this item, the expression“scheduled bank” means the State Bank of India constitutedunder the State Bank of India Act, 1955 (23 of 1955), asubsidiary bank as defined in the State Bank of India (SubsidiaryBanks) Act, 1959 (38 of 1959), a corresponding newbank constituted under section 3 of the Banking Companies(Acquisition and Transfer of Undertakings) Act, 1970 (5 of1970), or under section 3 of the Banking Companies (Acquisitionand Transfer of Undertakings) Act, 1980 (40 of 1980), orany other bank being a bank included in the Second Scheduleto the Reserve Bank of India Act, 1934 (2 of 1934), but doesnot include a co-operative bank;]36[(g) by a public company formed and registered in India with themain object of carrying on the business of providing longtermfinance for construction or purchase of houses in Indiafor residential purposes, 37[being a company eligible fordeduction under clause (viii) of sub-section (1) of section 36]on any moneys borrowed by it in foreign currency fromsources outside India under a loan agreement approved bythe Central Government 38[before the 1st day of June, 2003],to the extent to which such interest does not exceed theamount of interest calculated at the rate approved by theCentral Government in this behalf, having regard to the termsof 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
  • 71. meaning assigned to it in the Foreign Exchange RegulationAct, 1973 (46 of 1973);]1.65 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(15)35. Substituted by the Finance Act, 2007, w.e.f. 1-4-2007. Prior to itssubstitution, the Explanationread as under :„Explanation.—For the purposes of this item, the expression “scheduledbank” shall havethe meaning assigned to it in clause (ii) of the Explanation to clause (viia) ofsub-section(1) of section 36;‟36. Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.37. Substituted for “being a company approved by the Central Governmentfor the purposesof clause (viii) of sub-section (1) of section 36” by the Finance Act, 2000,w.e.f. 1-4-2000.38. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.39. Substituted for “this item” by the Finance Act, 1983, w.e.f. 1-4-1983.40. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.41. Clause (g) of section 2 of the Foreign Exchange Regulation Act, 1973,defines “foreigncurrency” 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‟.42[(h) by any public sector company in respect of such bonds ordebentures and subject to such conditions, including thecondition that the holder of such bonds or debentures registershis name and the holding with that company, as theCentral Government may, by notification43 in the OfficialGazette, specify in this behalf;]44[(i) by Government on deposits made by an employee of theCentral Government or a State Government 45[or a publicsector company], in accordance with such scheme as theCentral Government may, by notification46 in the OfficialGazette, frame in this behalf, out of the moneys due to him onaccount of his retirement, whether on superannuation orotherwise.]47[48[Explanation 1].—For the purposes of this sub-clause, the expression“industrial undertaking” means any undertaking which isengaged in—(a) the manufacture or processing of goods; or49[(aa) the manufacture of computer software or recording of programmeon any disc, tape, perforated media or other information device; or](b) the business of generation or distribution of electricity or anyother form of power; or50[(ba) the business of providing telecommunication services; or](c) mining; or(d) the construction of ships; or51[(da) the business of ship-breaking; or]
  • 72. 52[(e) the operation of ships or aircrafts or construction or operation ofrail systems.]]S. 10(15) I.T. ACT, 1961 1.6642. Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.43. For specified bonds/debentures of public sector companies, seeTaxmann‟s Direct TaxesCirculars.44. Inserted by the Finance Act, 1989, w.e.f. 1-4-1990.45. Inserted by the Finance Act, 1990, w.e.f. 1-4-1991.46. For notified deposit schemes for retired Governmentemployees/employees of publicsector companies, refer Taxmann‟s Direct Taxes Circulars. No newaccount can be openedunder the Schemes, from the close of business on 9-7-2004. For details,see Taxmann‟sMaster Guide to Income-tax Act.47. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.48. Explanation renumbered as Explanation 1 by the Finance Act, 1999,w.e.f. 1-4-2000.49. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.50. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.51. Inserted by the Taxation Laws (Amendment) Act, 2003, w.r.e.f. 1-4-1991.52. Substituted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997. Prior toits substitution, clause(e), as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991, read asunder :“(e) the operation of ships or aircrafts;”53[Explanation 1A.—For the purposes of this sub-clause, the expression“interest” shall not include interest paid on delayed paymentof loan or on default if it is in excess of two per cent per annum overthe 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 ofcurrency fluctuation;]55[(v) interest on—(a) securities held by the Welfare Commissioner, BhopalGas 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 leakdisaster held in such account, with the Reserve Bank of Indiaor with a public sector bank, as the Central Government may,by notification56 in the Official Gazette, specify, whetherprospectively or retrospectively but in no case earlier thanthe 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 theExplanation 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
  • 73. (b) specified by the Central Government by notification59 in theOfficial Gazette.Explanation.—For the purposes of this sub-clause, the expression“State Pooled Finance Entity” shall mean such entity which is set up in1.67 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(15)53. Substituted by the Finance Act, 2001, w.e.f. 1-4-2002. Prior to itssubstitution, Explanation1A, 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 notinclude interest paid on delayed payment of loan or on default.‟54. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.55. Substituted by the Finance Act, 1995, w.e.f. 1-4-1995. Prior to itssubstitution, sub-clause(v), as inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989 and lateramended by the FinanceAct, 1993, w.r.e.f. 2-11-1992, read as under:“(v) interest on securities held by the Welfare Commissioner, Bhopal GasVictims,Bhopal, in Reserve Bank‟s SGL Account No. SL/DH 048;”56. For notified accounts, see Taxmann‟s Master Guide to Income-tax Act.57. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.58. Substituted by the Finance Act, 2007, w.e.f. 1-4-2008. Prior to itssubstitution, 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 OfficialGazette;”59. For notified bonds issued by local authorities, see Taxmann‟s MasterGuide to Income-taxAct.accordance with the guidelines for the Pooled Finance DevelopmentScheme notified by the Central Government in the Ministry of UrbanDevelopment;]60[(viii) any income by way of interest received by a non-resident ora person who is not ordinarily resident, in India on a deposit made onor after the 1st day of April, 2005, in an Offshore Banking Unit61referred to in clause (u) of section 2 of the Special Economic ZonesAct, 2005;]62[(15A) any payment made, by an Indian company engaged in thebusiness ofoperation of aircraft, to acquire an aircraft or an aircraft engine(other than a payment for providing spares, facilities or services inconnection with the operation of leased aircraft) on lease from theGovernment of a foreign State or a foreign enterprise under anagreement 63[64[, not being an agreement entered into between the 1stday of April, 1997 and the 31st day of March, 1999,] and] approved bythe Central Government in this behalf :65[Provided that nothing contained in this clause shall apply to anysuch agreement entered into on or after the 66[1st day of April,67[2007]].]
  • 74. 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;S. 10(16) I.T. ACT, 1961 1.6860. Inserted by the Special Economic Zones Act, 2005, w.e.f. 10-2-2006.61. For definition of “offshore banking unit”, see Appendix.62. Substituted by the Finance Act, 1995, w.e.f. 1-4-1996. Prior to itssubstitution, clause (15A),as inserted by the Income-tax (Amendment) Act, 1989, w.e.f. 24-1-1989,read as under :„(15A) any payment made, by an Indian company engaged in the businessof operationof aircraft, to acquire an aircraft on lease from the Government of a foreignStateor a foreign enterprise under an agreement approved by the CentralGovernmentin this behalf.Explanation.—For the purpose of this clause, “foreign enterprise” means apersonwho is a non-resident;‟63. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.64. Substituted for “entered before the 1st day of April, 1997” by theFinance Act, 1999, w.e.f.1-4-2000.65. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2006.66. 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 “1stday of April,2005” by the Finance Act, 2005, w.e.f. 1-4-2006.67. Substituted for “2006” by the Finance Act, 2006, w.e.f. 1-4-2007.68. 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)], dated12-2-1964,Letter [F. No. 24/34/62-IT(A-I)], dated 25-1-1963, Circular No. 3(XXIII-23),dated 12-1-1961, Circular No. 49 (XXIII-12), dated 13-12-1956, Income-tax Circulars,published byDirectorate of Inspection (Research, Statistics and Publication), 1968 edn.,p. 89 andCircular No. 11 (XXIII-24), dated 4-4-1961. For details, see Taxmann‟sMaster Guide toIncome-tax Act.69. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.70[(17) any income by way of—(i) daily allowance received by any person by reason of his membershipof Parliament or of any State Legislature or of any Committee
  • 75. thereof; 71[* * *]72[(ii) any allowance received by any person by reason of his membershipof Parliament under the Members of Parliament (ConstituencyAllowance) Rules, 1986;73[(iii) any constituency allowance received by any person by reason ofhis membership of any State Legislature under any Act or rulesmade 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 theCentral Government or any State Government or instituted byany other body and approved75 by the Central Government in thisbehalf; or(ii) as a reward by the Central Government or any State Governmentfor such purposes as may be approved75 by the Central Governmentin 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 ofthe Central Government or State Government and has beenawarded “Param Vir Chakra” or “Maha Vir Chakra” or “VirChakra” or such other gallantry award as the Central Governmentmay, by notification77 in the Official Gazette, specify in thisbehalf;(ii) family pension received by any member of the family of anindividual referred to in sub-clause (i).1.69 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(18)70. Substituted by the Taxation Laws (Amendment & MiscellaneousProvisions) Act, 1986,w.e.f. 1-4-1986. Prior to its substitution, clause (17) was amended by theFinance Act, 1976,w.e.f. 1-4-1976.71. Word “and” omitted by the Finance Act, 1987, w.r.e.f. 1-4-1986.72. Substituted by the Finance Act, 1987, w.r.e.f. 1-4-1986. Earlier sub-clause (ii) was amendedby the Taxation Laws (Amendment and Miscellaneous Provisions) Act,1986, w.e.f.1-4-1986.73. Substituted by the Finance Act, 2006, w.e.f. 1-4-2007. Prior to itssubstitution, 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 inthe aggregatereceived by any person by reason of his membership of any StateLegislature or ofany Committee thereof, which the Central Government may, by notification*in theOfficial Gazette, specify in this behalf;”*For notified allowances, see Taxmann‟s Master Guide to Income-tax Act.74. 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 bythe Direct Taxes
  • 76. (Amendment) Act, 1974, w.r.e.f. 1-4-1973. Clause (17A) was later onamended by theFinance Act, 1980, w.e.f. 1-4-1980.75. For notified awards/rewards, see Taxmann‟s Master Guide to Income-tax Act.76. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.77. For notified gallantry awards, see Taxmann‟s Master Guide to Income-tax Act.Explanation.—For the purposes of this clause, the expression“family” shall have the meaning assigned to it in the Explanation toclause (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 nominatedheirs,as the case may be, of a member of the armed forces (includingparamilitaryforces) of the Union, where the death of such member hasoccurred in the course of operational duties, in such circumstancesand subject to such conditions, as may be prescribed80;]81[(19A) the annual value of any one palace in the occupation of a Ruler,beinga palace, the annual value whereof was exempt from income-taxbefore 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 (TaxationConcessions) Order, 1950, or, as the case may be, the Jammu andKashmir (Taxation Concessions) Order, 1958:Provided that for the assessment year commencing on the 1st day ofApril, 1972, the annual value of every such palace in the occupation82of such Ruler during the relevant previous year shall be exempt fromincome-tax;]83(20) the income of a local authority which is chargeable under the head84[* * *] “Income from house property”, “Capital gains” or “Income fromother sources” or from a trade or business carried on by it whichaccrues or arises from the supply of a commodity or service 85[(notbeing water or electricity) within its own jurisdictional area or fromthe supply of water or electricity within or outside its own jurisdictionalarea].86[Explanation.—For the purposes of this clause, the expression “localauthority” means—(i) Panchayat as referred to in clause (d) of article 243 of theConstitution87; orS. 10(20) I.T. ACT, 1961 1.7078. Prior to its omission, clause (18A), as inserted by the Rulers of IndianStates (Abolition ofPrivileges) Act, 1972, w.e.f. 9-9-1972, read as under :“(18A) any ex gratia payments made by the Central Governmentconsequent on theabolition of privy purse;”79. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005. Earlieroriginal clause (19) wasomitted by the Rulers of Indian States (Abolition of Privileges) Act, 1972,w.e.f. 2-4-1973.
  • 77. 80. See rule 2BBA for prescribed circumstances and conditions.81. Inserted by the Rulers of Indian States (Abolition of Privileges) Act,1972, w.r.e.f.28-12-1971.82. For the meaning of the term “occupation”, see Taxmann‟s Direct TaxesManual, Vol. 3.83. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.84. „ “Interest on securities,” ‟ omitted by the Finance Act, 1988, w.e.f. 1-4-1989.85. Substituted for “within its own jurisdictional area” by the Finance (No. 2)Act, 1971, w.e.f.1-4-1972.86. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.87. See Appendix.(ii) Municipality as referred to in clause (e) of article 243P of theConstitution88; or(iii) Municipal Committee and District Board,legally entitled to, or entrusted by the Government with, thecontrol or management of a Municipal or local fund; or(iv) Cantonment Board as defined in section 389 of the CantonmentsAct, 1924 (2 of 1924);](20A) 89[***]90[91(21) 92any income of a scientific research association for the timebeingapproved 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 andexclusively to the objects for which it is established, and theprovisions of sub-section (2) and sub-section (3) of section 11 shallapply in relation to such accumulation subject to the followingmodifications, namely :—(i) in sub-section (2),—(1) the words, brackets, letters and figure “referred to inclause (a) or clause (b) of sub-section (1) read with theExplanation to that sub-section” shall be omitted;(2) for the words “to charitable or religious purposes”, thewords “for the purposes of scientific research” shall besubstituted;(3) the reference to “Assessing Officer” in clause (a) thereofshall be construed as a reference to the “prescribedauthority” referred to in clause (ii) of sub-section (1) ofsection 35;(ii) in sub-section (3), in clause (a), for the words “charitable orreligious purposes”, the words “the purposes of scientificresearch” shall be substituted; and1.71 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(21)88. See Appendix.89. Omitted by the Finance Act, 2002, w.e.f. 1-4-2003. Prior to its omission,clause (20A), asinserted by the Finance Act, 1970, w.r.e.f. 1-4-1962, read as under :
  • 78. “(20A) any income of an authority constituted in India by or under any lawenacted eitherfor the purpose of dealing with and satisfying the need for housingaccommodationor for the purpose of planning, development or improvement of cities, townsand villages, or for both;”90. 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 TaxLaws (Amendment)Act, 1987, w.e.f. 1-4-1989 and Direct Tax Laws (Amendment) Act, 1989,w.e.f. 1-4-1989.91. See also Circular No. 400, dated 19-10-1984 and Circular No. 584,dated 13-11-1990. Fordetails, see Taxmann‟s Master Guide to Income-tax Act.For relevant case laws, see Taxmann‟s Master Guide to Income-tax Act.92. See rule 17 and Form No. 10, for notice of accumulation of income bycharitable trust orinstitution [to be furnished before expiry of time allowed under section139(1)].93[(b) does not invest or deposit its funds, other than—(i) any assets held by the scientific research association wheresuch assets form part of the corpus of the fund of theassociation as on the 1st day of June, 1973;(ii) any assets (being debentures issued by, or on behalf of, anycompany or corporation), acquired by the scientific researchassociation before the 1st day of March, 1983;(iii) any accretion to the shares, forming part of the corpus of thefund mentioned in sub-clause (i), by way of bonus sharesallotted to the scientific research association;(iv) voluntary contributions received and maintained in the formof 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 oneor more of the forms or modes specified in sub-section (5) ofsection 11:]94[Provided further that the exemption under this clause shall not bedenied in relation to voluntary contribution, other than voluntarycontribution in cash or voluntary contribution of the nature referredto in clause (b) of the first proviso to this clause, subject to thecondition that such voluntary contribution is not held by the scientificresearch association, otherwise than in any one or more of the formsor modes specified in sub-section (5) of section 11, after the expiry ofone year from the end of the previous year in which such asset isacquired or the 31st day of March, 1992, whichever is later:Provided also] that nothing contained in this clause shall apply inrelation to any income of the scientific research association, beingprofits and gains of business, unless the business is incidental to theattainment of its objectives and separate books of account aremaintained by it in respect of such business:]95[Provided also that where the scientific research association isapproved by the Central Government and subsequently that Governmentis satisfied that—
  • 79. (i) the scientific research association has not applied its income inaccordance with the provisions contained in clause (a) of the firstproviso; or(ii) the scientific research association has not invested or depositedits 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;orS. 10(21) I.T. ACT, 1961 1.7293. Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1990.94. Substituted for the words “Provided further” by the Finance (No. 2) Act,1991, w.r.e.f.1-4-1990.95. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.1.73 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(22B)(iv) the activities of the scientific research association are not beingcarried out in accordance with all or any of the conditions subjectto which such association was approved,it may, at any time after giving a reasonable opportunity of showingcause against the proposed withdrawal to the concerned association,by order, withdraw the approval and forward a copy of the orderwithdrawing the approval to such association and to the AssessingOfficer;](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 forcollectionand distribution of news as the Central Government may, by notification99in the Official Gazette, specify in this behalf:Provided that the news agency applies its income or accumulates itfor application solely for collection and distribution of news and doesnot distribute its income in any manner to its members:Provided further that any notification issued by the Central Governmentunder this clause shall, at any one time, have effect for suchassessment year or years, not exceeding three assessment years(including an assessment year or years commencing before the dateon which such notification is issued) as may be specified in thenotification:]1[Provided also that where the news agency has been specified, bynotification, by the Central Government and subsequently thatGovernment is satisfied that such news agency has not applied oraccumulated or distributed its income in accordance with theprovisions contained in the first proviso, it may, at any time aftergiving a reasonable opportunity of showing cause, rescind thenotification and forward a copy of the order rescinding the notificationto such agency and to the Assessing Officer;]96. Prior to its omission, clause (22) read as under :“(22) any income of a university or other educational institution, existingsolely foreducational purposes and not for purposes of profit;”Clauses (22) and (22A) are now re-enacted in section 10(23C).
  • 80. 97. Prior to its omission, clause (22A), as inserted by the Finance Act,1970, w.e.f. 1-4-1970, readas under :“(22A) any income of a hospital or other institution for the reception andtreatment ofpersons suffering from illness or mental defectiveness or for the receptionandtreatment of persons during convalescence or of persons requiring medicalattention or rehabilitation, existing solely for philanthropic purposes and notforpurposes of profit;”98. Inserted by the Finance Act, 1994, w.e.f. 1-4-1994.99. 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 1.742. 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, substitutedby the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990 and furtheramended bythe 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 whichmay benotified by the Central Government in the Official Gazette having regard tothe factthat 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, bynotificationin the Official Gazette, specify in this behalf :Provided that the association or institution shall make an application in theprescribed form and manner to the prescribed authority for the purpose ofgrantof the exemption, or continuance thereof, under this clause:Provided further that the Central Government may, before notifying theassociationor institution under this clause, call for such documents (including auditedannual accounts) or information from the association or institution as itthinksnecessary in order to satisfy itself about the genuineness of the activities oftheassociation or institution and that Government may also make suchinquiries as itmay deem necessary in this behalf :Provided also that the association or institution,—(a) applies its income or accumulates it for application, wholly andexclusively
  • 81. 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 suchaccumulationsubject to the following modifications, namely :—(i) in sub-section (2),—(1) the words, brackets, letters and figure “referred to in clause (a) orclause (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 “forthe purposes of games or sports” shall be substituted;(3) the reference to “Assessing Officer” in clause (a) thereof shall beconstrued as a reference to the “prescribed authority” referred toin the first proviso to this clause;(ii) in sub-section (3), in clause (a), for the words “charitable or religiouspurposes”, the words “the purposes of games or sports” shall besubstituted;and(b) does not invest or deposit its funds, other than—(i) any assets held by the association or institution where such assets formpart of the corpus of the fund of the association or institution as on the1st day of June, 1973;(ii) any assets (being debentures issued by, or on behalf of, any companyorcorporation), acquired by the association or institution before the 1stday of March, 1983;(iii) any accretion to the shares, forming part of the corpus of the fundmentioned in sub-clause (i), by way of bonus shares allotted to theassociation 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 theOfficial Gazette, specify,for any period during the previous year otherwise than in any one or moreof the forms or modes specified in sub-section (5) of section 11; and(Contd. on p. 1.75)(23) 2[Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]1.75 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME 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 renderingany specific services or income by way of interest or dividendsderived from its investments) of an association or institutionestablished 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 profession6as the Central Government may specify in this behalf, from time totime, by notification in the Official Gazette:Provided that—(i) the association or institution applies its income, or accumulatesit 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
  • 82. 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 ofinfrastructurefor games or sports in India or for sponsoring of games and sports inIndia :Provided also that the exemption under this clause shall not be denied inrelationto any funds invested or deposited before the 1st day of April, 1989otherwise thanin any one or more of the forms or modes specified in sub-section (5) ofsection 11if such funds do not continue to remain so invested or deposited after the30th dayof March, 1993 :Provided also that the exemption under this clause shall not be denied inrelationto voluntary contribution, other than voluntary contribution in cash orvoluntarycontribution of the nature referred to in clause (b) of the third proviso to thisclause,subject to the condition that such voluntary contribution is not held by theassociation or institution, otherwise than in any one or more of the forms ormodesspecified in sub-section (5) of section 11, after the expiry of one year fromthe endof the previous year in which such asset is acquired or the 31st day ofMarch, 1992,whichever is later :Provided also that nothing contained in this clause shall apply in relationto anyincome of the association or institution, being profits and gains of business,unlessthe business is incidental to the attainment of its objectives and separatebooks ofaccount are maintained by it in respect of such business :Provided also that any notification issued by the Central Governmentunder thisclause in relation to any association or institution shall, at any one time,have effectfor such assessment year or years, not exceeding three assessment years(includingan assessment year or years commencing before the date on which suchnotificationis issued), as may be specified in the notification*;‟*For approved sports associations/institutions, see Taxmann‟s Direct TaxesCirculars.3. Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962.4. See also Circular No. 584, dated 13-11-1990. For details, seeTaxmann‟s Master Guide toIncome-tax Act.
  • 83. 5. „ “Interest on securities” or‟ omitted by the Finance Act, 1988, w.e.f. 1-4-1989.6. For specified professions, see Taxmann‟s Master Guide to Income-taxAct.S. 10(23AAA) I.T. ACT, 1961 1.76(ii) the association or institution is for the time being approved7 forthe purpose of this clause by the Central Government by generalor special order:]8[Provided further that where the association or institution has beenapproved by the Central Government and subsequently that Governmentis satisfied that—(i) such association or institution has not applied or accumulated itsincome in accordance with the provisions contained in the firstproviso; or(ii) the activities of the association or institution are not being carriedout in accordance with all or any of the conditions subject towhich such association or institution was approved,it may, at any time after giving a reasonable opportunity of showingcause against the proposed withdrawal to the concerned associationor institution, by order, withdraw the approval and forward a copyof the order withdrawing the approval to such association or institutionand to the Assessing Officer;]9[(23AA) any income received by any person on behalf of any RegimentalFundor Non-Public Fund established by the armed forces of the Union forthe welfare of the past and present members of such forces or theirdependants;]10[(23AAA) any income received by any person on behalf of a fundestablished,for such purposes as may be notified11 by the Board in the OfficialGazette, for the welfare of employees or their dependants and ofwhich fund such employees are members if such fund fulfils thefollowing conditions, namely :—(a) the fund—(i) applies its income or accumulates it for application, whollyand exclusively to the objects for which it is established;and(ii) invests its funds and contributions and other sums receivedby it in the forms or modes specified in sub-section (5) ofsection 11;(b) the fund is approved by the Commissioner in accordance with therules12 made in this behalf:Provided that any such approval shall at any one time have effect forsuch assessment year or years not exceeding three assessment yearsas may be specified in the order of approval;]7. For approved association/institution, see Taxmann‟s Master Guide toIncome-tax Act.8. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.9. Inserted by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1962.10. Inserted by the Finance Act, 1995, w.e.f. 1-4-1996.11. For notified purposes, see Taxmann‟s Master Guide to Income-tax Act.12. See rule 16C and Form No. 9.
  • 84. 1.77 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(23B)13[(23AAB) any income of a fund, by whatever name called, set up by theLifeInsurance Corporation of India on or after the 1st day of August, 199614[or any other insurer] under a pension scheme,—(i) to which contribution is made by any person for the purpose ofreceiving pension from such fund;(ii) which is approved by the Controller of Insurance 15[or the InsuranceRegulatory and Development Authority established undersub-section (1) of section 3 of the Insurance Regulatory andDevelopment Authority Act, 1999 (41 of 1999), as the case may be].Explanation.—For the purposes of this clause, the expression “Controllerof Insurance” shall have the meaning assigned to it in clause(5B) of section 2 of the Insurance Act, 1938 (4 of 1938)16;]17[(23B) any income of an institution constituted as a public charitable trustorregistered under the Societies Registration Act, 1860 (21 of 1860), orunder any law corresponding to that Act in force in any part of India,and existing solely for the development of khadi or village industriesor both, and not for purposes of profit, to the extent such income isattributable to the business of production, sale, or marketing, of khadior products of village industries:Provided that—(i) the institution applies its income, or accumulates it for application,solely for the development of khadi or village industries orboth; and(ii) the institution is, for the time being, approved for the purpose ofthis clause by the Khadi and Village Industries Commission:Provided further that the Commission shall not, at any one time, grantsuch approval for more than three assessment years beginning withthe assessment year next following the financial year in which it isgranted:18[Provided also that where the institution has been approved by theKhadi and Village Industries Commission and subsequently thatCommission is satisfied that—(i) the institution has not applied or accumulated its income inaccordance with the provisions contained in the first proviso; or(ii) the activities of the institution are not being carried out inaccordance with all or any of the conditions subject to which suchinstitution was approved,it may, at any time after giving a reasonable opportunity of showingcause against the proposed withdrawal to the concerned institution,13. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997.14. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.15. Inserted, ibid.16. For text of section 2(5B) of the Insurance Act, 1938, see Appendix.17. Inserted by the Finance Act, 1974, w.e.f. 1-6-1974.18. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.S. 10(23BBB) I.T. ACT, 1961 1.78by order, withdraw the approval and forward a copy of the orderwithdrawing the approval to such institution and to the AssessingOfficer.]
  • 85. Explanation.—For the purposes of this clause,—(i) “Khadi and Village Industries Commission” means the Khadi andVillage Industries Commission established under the Khadi andVillage Industries Commission Act, 1956 (61 of 1956);(ii) 19“khadi” and “village industries” have the meanings respectivelyassigned to them in that Act;]20[(23BB) any income of an authority (whether known as the Khadi andVillageIndustries Board or by any other name) established in a State by orunder a State or Provincial Act for the development of khadi or villageindustries in the State.Explanation.—For the purposes of this clause, 19“khadi” and “villageindustries” have the meanings respectively assigned to them in theKhadi and Village Industries Commission Act, 1956 (61 of 1956);]20[(23BBA) any income of any body or authority (whether or not a bodycorporateor corporation sole) established, constituted or appointed by or underany Central, State or Provincial Act which provides for the administrationof any one or more of the following, that is to say, publicreligious or charitable trusts or endowments (including maths,temples, gurdwaras, wakfs, churches, synagogues, agiaries or otherplaces of public religious worship) or societies for religious orcharitable purposes registered as such under the Societies RegistrationAct, 1860 (21 of 1860), or any other law for the time being in force:Provided that nothing in this clause shall be construed to exempt fromtax the income of any trust, endowment or society referred totherein;]21[(23BBB) any income of the European Economic Community derived inIndiaby way of interest, dividends or capital gains from investments madeout of its funds under such scheme22 as the Central Government may,by notification in the Official Gazette, specify in this behalf.Explanation.—For the purposes of this clause, “European EconomicCommunity” means the European Economic Community establishedby the Treaty of Rome of 25th March, 1957;]19. Clauses (d) and (h) of section 2 of the Khadi and Village IndustriesCommission Act, 1956,define “khadi” and “village industries” as follows :„(d) “khadi” means any cloth woven on handlooms in India from cotton, silkor woollenyarn handspun in India or from a mixture of any two or all of such yarns;(h) “village industries” means all or any of the industries specified in theSchedule andincludes any other industry deemed to be specified in the Schedule byreason of anotification under section 3.‟20. Inserted by the Finance Act, 1979, w.r.e.f. 1-4-1962.21. Inserted by the Finance Act, 1993, w.e.f. 1-4-1994.22. For notified scheme, see Taxmann‟s Master Guide to Income-tax Act.1.79 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(23BBG)23[(23BBC )any income of the SAARC Fund for Regional Projects set upby
  • 86. Colombo Declaration issued on the 21st day of December, 1991 by theHeads of State or Government of the Member Countries of SouthAsian Association for Regional Cooperation established on the 8thday of December, 1985 by the Charter of the South Asian Associationfor Regional Cooperation;]24[(23BBD) any income of the Secretariat of the Asian Organisation of theSupreme Audit Institutions registered as “ASOSAI-SECRETARIAT”under the Societies Registration Act, 1860 (21 of 1860) for 25[tenprevious years relevant to the assessment years beginning an the 1stday of April, 2001 and ending on the 31st day of March, 2011];(23BBE) any income of the Insurance Regulatory and DevelopmentAuthorityestablished under sub-section (1) of section 3 of the InsuranceRegulatory and Development Authority Act, 1999 (41 of 1999);]26[(23BBF) any income of the North-Eastern Development FinanceCorporationLimited, being a company formed and registered under the CompaniesAct, 1956 (1 of 1956) :Provided that in computing the total income of the North-EasternDevelopment Finance Corporation Limited, the amount to the extentof—(i) twenty per cent of the total income for assessment year beginningon the 1st day of April, 2006;(ii) forty per cent of the total income for assessment year beginningon the 1st day of April, 2007;(iii) sixty per cent of the total income for assessment year beginningon the 1st day of April, 2008;(iv) eighty per cent of the total income for assessment year beginningon the 1st day of April, 2009;(v) one hundred per cent of the total income for assessment yearbeginning on the 1st day of April, 2010 and any subsequentassessment year or years,shall be included in such total income;]27[(23BBG) any income of the Central Electricity Regulatory Commissionconstituted under sub-section (1) of section 76 of the Electricity Act,2003 (36 of 2003);]23. Inserted by the Finance (No. 2) Act, 1996, w.r.e.f. 1-4-1992.24. Inserted by the Finance Act, 2001, w.e.f. 1-4-2001.25. Substituted for “seven previous years relevant to the assessment yearsbeginning on the1st day of April, 2001 and ending on the 31st day of March, 2008” by theFinance Act, 2007,w.e.f. 1-4-2008. Earlier the quoted words were substituted for “threeprevious yearsrelevant to the assessment years beginning on the 1st day of April, 2001and ending on the31st day of March, 2004” by the Finance Act, 2003, w.e.f. 1-4-2004.26. Inserted by the Taxation Laws (Amendment) Act, 2006, w.r.e.f. 1-4-2006.27. Inserted by the Finance Act, 2007, w.e.f. 1-4-2008.S. 10(23C) I.T. ACT, 1961 1.8028[29(23C) any income received by any person on behalf of—(i) the Prime Minister‟s National Relief Fund; or
  • 87. (ii) the Prime Minister‟s Fund (Promotion of Folk Art); or(iii) the Prime Minister‟s Aid to Students Fund; 30[or]31[(iiia) the National Foundation for Communal Harmony; or]32[(iiiab) any university or other educational institution33 existing33solely33for educational purposes and not for purposes of profit, andwhich is wholly or substantially financed by the Government; or(iiiac) any hospital or other institution for the reception and treatmentof persons suffering from illness or mental defectiveness or forthe reception and treatment of persons during convalescence orof persons requiring medical attention or rehabilitation, existingsolely for philanthropic purposes and not for purposes of profit, andwhich is wholly or substantially financed by the Government; or(iiiad) any university or other educational institution33 existing33 solely33for educational purposes and not for purposes of profit if theaggregate annual receipts of such university or educationalinstitution do not exceed the amount of annual receipts as may beprescribed34; or(iiiae) any hospital or other institution for the reception and treatmentof persons suffering from illness or mental defectiveness or forthe reception and treatment of persons during convalescence orof persons requiring medical attention or rehabilitation, existingsolely for philanthropic purposes and not for purposes of profit,if the aggregate annual receipts of such hospital or institutiondo not exceed the amount of annual receipts as may beprescribed34; or]35[(iv) 36anyotherfundorinstitution established for charitable purposes37[which may be approved by the prescribed authority37a], having28. Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.29. See also Circular No. 557, dated 19-3-1990, Circular No. 580, dated14-9-1990 and CircularNo. 584, dated 13-11-1990. For details, see Taxmann‟s Master Guide toIncome-tax Act.30. Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, itwas omitted by the Direct Tax Laws (Amendment) Act, 1987, with effectfrom the samedate.31. Inserted by the Finance Act, 1993, w.e.f. 1-4-1993.32. Sub-clauses (iiiab) to (iiiae) inserted by the Finance (No. 2) Act, 1998,w.e.f. 1-4-1999.33. For the meaning of the terms/expressions “education”, “educationalinstitution”, “othereducational institution”, “existing” and “solely”, see Taxmann‟s Direct TaxesManual,Vol. 3.34. Amount prescribed is Rs. 1 crore vide rule 2BC.35. Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990. Earlier, subclauses(iv) and (v) were omitted by the Direct Tax Laws (Amendment) Act, 1987,w.e.f.1-4-1989 and later reintroduced by the Direct Tax Laws (Amendment) Act,1989, w.e.f.
  • 88. 1-4-1989.36. For complete list of approved funds/institutions, see Taxmann‟s DirectTaxes Circularsand Taxmann‟s Yearly Tax Digest & Referencer.37. Substituted for “which may be notified by the Central Government in theOfficial Gazette”by the Finance Act, 2007, w.e.f. 1-6-2007.37a. Prescribed authority is Chief Commissioner or Director General. Seerule 2C and FormNo. 56.regard to the objects of the fund or institution and its importancethroughout India or throughout any State or States; or(v) 38any trust (including any other legal obligation) or institutionwholly for public religious purposes or wholly for public religiousand charitable purposes, 39[which may be approved by the prescribedauthority39a], having regard to the manner in which theaffairs of the trust or institution are administered and supervisedfor ensuring that the income accruing thereto is properly appliedfor the objects thereof;40[(vi) any university or other educational institution41 existing41 solely41for educational purposes and not for purposes of profit, otherthan those mentioned in sub-clause (iiiab) or sub-clause (iiiad)and which may be approved42 by the prescribed authority43; or(via) any hospital or other institution for the reception and treatmentof persons suffering from illness or mental defectiveness or forthe reception and treatment of persons during convalescence orof persons requiring medical attention or rehabilitation, existingsolely for philanthropic purposes and not for purposes of profit,other than those mentioned in sub-clause (iiiac) or sub-clause(iiiae) and which may be approved44 by the prescribed authority45:]Provided that the fund or trust or institution 46[or any university orother educational institution47 or any hospital or other medical institution]referred to in sub-clause (iv) or sub-clause (v) 46[or sub-clause(vi) or sub-clause (via)] shall make an application in the prescribedform48 and manner to the prescribed authority49 for the purpose of1.81 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(23C)38. For complete list of approved trusts/institutions, see Taxmann‟s DirectTaxes Circularsand Taxmann‟s Yearly Tax Digest & Referencer.39. Substituted for “which may be notified by the Central Government in theOfficial Gazette”by the Finance Act, 2007, w.e.f. 1-6-2007.39a. Prescribed authority is Chief Commissioner or Director General. Seerule 2C and FormNo. 56.40. Sub-clauses (vi) and (via) inserted by the Finance (No. 2) Act, 1998,w.e.f. 1-4-1999.41. For the meaning of the terms/expressions “other educationalinstitution”, “existing” and“solely”, see Taxmann‟s Direct Taxes Manual, Vol. 3.
  • 89. 42. For notified university/educational institutions, see Taxmann‟s DirectTaxes Circularsand Taxmann‟s Yearly Tax Digest & Referencer.43. Prescribed authority is Chief Commissioner or Director General. Seerule 2CA and FormNo. 56D. See also Notification No. SO 852(E), dated 30-5-2007. Fordetails, see Taxmann‟sMaster Guide to Income-tax Act.44. For notified hospital/institution, see Taxmann‟s Direct Taxes Circulars.45. Prescribed authority is Chief Commissioner or Director General. Seerule 2CA and FormNo. 56D. See also Notification No. SO 852(E), dated 30-5-2007. Fordetails, see Taxmann‟sMaster Guide to Income-tax Act.46. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.47. For the meaning of the expression “other educational institution”, seeTaxmann‟s DirectTaxes Manual, Vol. 3.48. See rule 2C/Form No. 56 and rule 2CA/Form No. 56D.49. The prescribed authority for purposes of section 10(23C)(iv)/(v), underrule 2C, as well asfor purposes of section 10(23C)(vi)/(via), under rule 2CA, is ChiefCommissioner orDirector General.grant of the exemption, or continuance thereof, under sub-clause (iv)or sub-clause (v) 50[or sub-clause (vi) or sub-clause (via)] :51[Provided further that the prescribed authority, before approvingany fund or trust or institution or any university or other educationalinstitution or any hospital or other medical institution, under subclause(iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), maycall for such documents (including audited annual accounts) orinformation from the fund or trust or institution or any university orother educational institution or any hospital or other medical institution,as the case may be, as it thinks necessary in order to satisfy itselfabout the genuineness of the activities of such fund or trust orinstitution or any university or other educational institution or anyhospital or other medical institution, as the case may be, and theprescribed authority may also make such inquiries as it deemsnecessary in this behalf:]Provided also that the fund or trust or institution 52[or any universityor other educational institution53 or any hospital or other medicalinstitution] referred to in sub-clause (iv) or sub-clause (v) 52[or subclause(vi) or sub-clause (via)]—54[(a) applies its income, or accumulates it for application, whollyand exclusively to the objects for which it is established andin a case where more than fifteen per cent of its income isaccumulated on or after the 1st day of April, 2002, the periodof the accumulation of the amount exceeding fifteen per centof its income shall in no case exceed five years; and]S. 10(23C) I.T. ACT, 1961 1.8250. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.51. Substituted by the Finance Act, 2007, w.e.f. 1-6-2007. Prior to itssubstitution, the second
  • 90. proviso, as amended by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999 andlater onsubstituted by the Finance Act, 1999, w.e.f. 1-4-1999, read as under :“Provided further that the Central Government, before notifying the fundor trust orinstitution, or the prescribed authority, before approving any university orother educationalinstitution or any hospital or other medical institution, under sub-clause (iv)or subclause(v) or sub-clause (vi) or sub-clause (via), may call for such documents(includingaudited annual accounts) or information from the fund or trust or institutionor anyuniversity or other educational institution or any hospital or other medicalinstitution, asthe case may be, as it thinks necessary in order to satisfy itself about thegenuineness ofthe activities of the fund or trust or institution or any university or othereducationalinstitution or any hospital or other medical institution, as the case may be,and the CentralGovernment or the prescribed authority, as the case may be, may alsomake such inquiriesas it deems necessary in this behalf :”52. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.53. For the meaning of the expression “other educational institution”, seeTaxmann‟s DirectTaxes Manual, Vol. 3.54. Substituted by the Finance Act, 2002, w.e.f. 1-4-2003. Prior to itssubstitution, clause (a),as amended by the Finance Act, 2001, w.e.f. 1-4-2002, read as under :“(a) applies its income, or accumulates it for application, wholly andexclusively to theobjects for which it is established and in a case where more than twenty-five percent of its income is accumulated on or after the 1st day of April, 2001, theperiodof the accumulation of the amount exceeding twenty-five per cent of itsincomeshall in no case exceed five years; and”1.83 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(23C)55[(b) does not invest or deposit its funds, other than—(i) any assets held by the fund, trust or institution 56[or anyuniversity or other educational institution57 or any hospitalor other medical institution] where such assetsform part of the corpus of the fund, trust or institution58[or any university or other educational institution orany hospital or other medical institution] as on the 1stday of June, 1973;59[(ia) any asset, being equity shares of a public company, heldby any university or other educational institution or anyhospital or other medical institution where such assets
  • 91. form part of the corpus of any university or othereducational institution or any hospital or other medicalinstitution as on the 1st day of June, 1998;](ii) any assets (being debentures issued by, or on behalf of,any company or corporation), acquired by the fund,trust or institution 60[or any university or other educationalinstitution61 or any hospital or other medicalinstitution] before the 1st day of March, 1983;(iii) any accretion to the shares, forming part of the corpusmentioned in sub-clause (i) 62[and sub-clause (ia)], byway of bonus shares allotted to the fund, trust orinstitution 60[or any university or other educationalinstitution or any hospital or other medical institution] ;(iv) voluntary contributions received and maintained in theform of jewellery, furniture or any other article as theBoard may, by notification in the Official Gazette,specify,for any period during the previous year otherwise than inany one or more of the forms or modes specified in subsection(5) of section 11:]Provided also that the exemption under sub-clause (iv) or sub-clause(v) shall not be denied in relation to any funds invested or depositedbefore the 1st day of April, 1989, otherwise than in any one or moreof the forms or modes specified in sub-section (5) of section 11 if such55. Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1990.56. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.57. For the meaning of the expression “other educational institution”, seeTaxmann‟s DirectTaxes Manual, Vol. 3.58. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.59. Inserted by the Finance Act, 2001, w.e.f. 1-4-2001.60. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.61. For the meaning of the expression “other educational institution”, seeTaxmann‟s DirectTaxes Manual, Vol. 3.62. Inserted by the Finance Act, 2001, w.e.f. 1-4-2001.S. 10(23C) I.T. ACT, 1961 1.84funds do not continue to remain so invested or deposited after the30th day of March, 63[1993] :64[Provided also that the exemption under sub-clause (vi) or subclause(via) shall not be denied in relation to any funds invested ordeposited before the 1st day of June, 1998, otherwise than in any oneor more of the forms or modes specified in sub-section (5) of section11 if such funds do not continue to remain so invested or depositedafter the 30th day of March, 2001 :]65[Provided also that the exemption under sub-clause (iv) or subclause(v) 64[or sub-clause (vi) or sub-clause (via)] shall not be deniedin relation to voluntary contribution, other than voluntary contributionin cash or voluntary contribution of the nature referred to inclause (b) of the third proviso to this sub-clause, subject to thecondition that such voluntary contribution is not held by the trust orinstitution 66[or any university or other educational institution or anyhospital or other medical institution], otherwise than in any one or
  • 92. 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 whichsuch asset is acquired or the 31st day of March, 1992, whichever islater:]Provided also that nothing contained in sub-clause (iv) or sub-clause(v) 67[or sub-clause (vi) or sub-clause (via)] shall apply in relation to anyincome of the fund or trust or institution 67[or any university or othereducational institution or any hospital or other medical institution],being profits and gains of business, unless the business is incidental tothe attainment of its objectives and separate books of account aremaintained by it in respect of such business:Provided also that any 68[notification issued by the Central Governmentunder sub-clause (iv) or sub-clause (v), before the date on whichthe Taxation Laws (Amendment) Bill, 2006 receives the assent of thePresident*, shall, at any one time, have effect for such assessment yearor years, not exceeding three assessment years] (including an assessmentyear or years commencing before the date on which suchnotification is issued) as may be specified in the notification:]69[Provided also that where an application under the first proviso ismade on or after the date on which the Taxation Laws (Amendment)63. Substituted for “1992” by the Finance Act, 1992, w.e.f. 1-4-1992. Earlier“1992” wassubstituted for “1990” by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990.64. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.65. Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990.66. Inserted by the Finance Act, 1998, w.e.f. 1-4-1999.67. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.68. Substituted for “notification issued by the Central Government undersub-clause (iv) orsub-clause (v) shall, at any one time, have effect for such assessment yearor years, notexceeding three assessment years” by the Taxation Laws (Amendment)Act, 2006, w.r.e.f.1-4-2006.69. Inserted, ibid.*13-7-2006.Bill, 2006 receives the assent of the President,* every notificationunder sub-clause (iv) or sub-clause (v) shall be issued or approvalunder 70[sub-clause (iv) or sub-clause (v) or] sub-clause (vi) or subclause(via) shall be granted or an order rejecting the application shallbe passed within the period of twelve months from the end of themonth in which such application was received:Provided also that where the total income, of the fund or trust orinstitution or any university or other educational institution or anyhospital or other medical institution referred to in sub-clause (iv) orsub-clause (v) or sub-clause (vi) or sub-clause (via), without givingeffect to the provisions of the said sub-clauses, exceeds the maximumamount which is not chargeable to tax in any previous year, such trustor institution or any university or other educational institution or anyhospital or other medical institution shall get its accounts audited inrespect of that year by an accountant as defined in the Explanationbelow sub-section (2) of section 288 and furnish along with the returnof income for the relevant assessment year, the report of such audit
  • 93. in the prescribed form71 duly signed and verified by such accountantand setting forth such particulars as may be prescribed:]72[Provided also that any amount of donation received by the fund orinstitution in terms of clause (d) of sub-section (2) of section 80G 73[inrespect of which accounts of income and expenditure have not beenrendered to the authority prescribed under clause (v) of sub-section(5C) of that section, in the manner specified in that clause, or] whichhas been utilised for purposes other than providing relief to thevictims of earthquake in Gujarat or which remains unutilised in termsof sub-section (5C) of section 80G and not transferred to the PrimeMinister‟s National Relief Fund on or before the 31st day of March,74[2004] shall be deemed to be the income of the previous year andshall accordingly be charged to tax:]75[***]1.85 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(23C)70. Inserted by the Finance Act, 2007, w.e.f. 1-6-2007.71. See rule 16CC and Form No. 10BB.72. Inserted by the Taxation Laws (Amendment) Act, 2001, w.r.e.f. 3-2-2001.73. Inserted by the Finance Act, 2002, w.r.e.f. 3-2-2001.74. Substituted for “2003” by the Finance Act, 2003, w.r.e.f. 3-2-2001.Earlier “2003” wassubstituted for “2002” by the Finance Act, 2002, w.r.e.f. 3-2-2001.75. Omitted by the Finance Act, 2002, w.e.f. 1-4-2002. Prior to its omission,the proviso, asinserted by the Finance Act, 2001, w.e.f. 1-4-2002, read as under :“Provided also that where the total receipts of the fund or institutionreferred to in subclause(iv) or of any trust or institution referred to in sub-clause (v) or of anyUniversityor other educational institution referred to in sub-clause (vi) or of anyhospital or otherinstitution referred to in sub-clause (via) exceed one crore rupees in anypreceding year,the fund or trust or institution or University or other educational institution orhospitalor other institution, as the case may be, shall—(i) publish its accounts in a local newspaper; and(ii) furnish along with the application prescribed in the first proviso to thisclause, thecopy of the local newspaper in which such accounts have been published;”*13-7-2006.76[Provided also that where the fund or trust or institution or anyuniversity or other educational institution or any hospital or othermedical institution referred to in sub-clause (iv) or sub-clause (v) orsub-clause (vi) or sub-clause (via) does not apply its income during theyear of receipt and accumulates it, any payment or credit out of suchaccumulation to any trust or institution registered under section12AA or to any fund or trust or institution or any university or othereducational institution or any hospital or other medical institutionreferred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) orsub-clause (via) shall not be treated as application of income to the
  • 94. objects for which such fund or trust or institution or university oreducational institution or hospital or other medical institution, as thecase may be, is established :Provided also that where the fund or institution referred to in subclause(iv) or trust or institution referred to in sub-clause (v) is notifiedby the Central Government 77[or is approved by the prescribedauthority, as the case may be,] or any university or other educationalinstitution referred to in sub-clause (vi) or any hospital or othermedical institution referred to in sub-clause (via), is approved by theprescribed authority and subsequently that Government or the prescribedauthority is satisfied that—(i) such fund or institution or trust or any university or othereducational institution or any hospital or other medical institutionhas not—(A) applied its income in accordance with the provisions containedin clause (a) of the third proviso; or(B) invested or deposited its funds in accordance with the provisionscontained in clause (b) of the third proviso; or(ii) the activities of such fund or institution or trust or any universityor other educational institution or any hospital or other medicalinstitution—(A) are not genuine; or(B) are not being carried out in accordance with all or any of theconditions subject to which it was notified or approved,it may, at any time after giving a reasonable opportunity of showingcause against the proposed action to the concerned fund or institutionor trust or any university or other educational institution or anyhospital or other medical institution, rescind the notification or, byorder, withdraw the approval, as the case may be, and forward a copyof the order rescinding the notification or withdrawing the approvalto such fund or institution or trust or any university or other educationalinstitution or any hospital or other medical institution and to theAssessing Officer:]S. 10(23C) I.T. ACT, 1961 1.8676. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.77. Inserted by the Finance Act, 2007, w.e.f. 1-6-2007.1.87 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(23D)78[Provided also that in case the fund or trust or institution or anyuniversity or other educational institution or any hospital or othermedical institution referred to in the first proviso makes an applicationon or after the 1st day of June, 2006 for the purposes of grant ofexemption or continuance thereof, such application shall be made atany time during the financial year immediately preceding the assessmentyear from which the exemption is sought :]79[Provided also that any anonymous donation referred to in section115BBC on which tax is payable in accordance with the provisions ofthe said section shall be included in the total income :]80[Provided also that all pending applications, on which no notificationhas been issued under sub-clause (iv) or sub-clause (v) before the1st day of June, 2007, shall stand transferred on that day to theprescribed authority and the prescribed authority may proceed withsuch applications under those sub-clauses from the stage at which
  • 95. they were on that day;]81[(23D) 82[83[84[subject to the provisions of Chapter XII-E, any incomeof]—](i) a Mutual Fund registered under the Securities and ExchangeBoard of India Act, 1992 (15 of 1992) or regulations madethereunder;(ii) such other Mutual Fund set up by a public sector bank or a publicfinancial institution or authorised by the Reserve Bank of Indiaand subject to such conditions as the Central Government may,by notification85 in the Official Gazette, specify in this behalf.]Explanation.—For the purposes of this clause,—(a) the expression “public sector bank” means the State Bank ofIndia constituted under the State Bank of India Act, 1955 (23of 1955), a subsidiary bank as defined in the State Bank ofIndia (Subsidiary Banks) Act, 1959 (38 of 1959), a corres-78. Inserted by the Finance Act, 2006, w.e.f. 1-6-2006.79. Inserted, ibid., w.e.f. 1-4-2007.80. Inserted by the Finance Act, 2007, w.e.f. 1-6-2007.81. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.82. Substituted for the portion beginning with the words “any income ofsuch Mutual Fund”and ending with the words “specify in this behalf” by the Finance Act, 1995,w.e.f. 1-7-1995.Prior to substitution, the said portion, as amended by the Finance Act,1988, w.e.f. 1-4-1988,the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988 and theFinance Act, 1992,w.e.f. 1-4-1993, read as under :“any income of such Mutual Fund set up by a public sector bank or a publicfinancialinstitution or authorised by the Securities and Exchange Board of India orthe ReserveBank of India and subject to such conditions as the Central Governmentmay, bynotification in the Official Gazette, specify in this behalf.”83. Substituted for “any income of—” by the Finance Act, 1999, w.e.f. 1-4-2000.84. Substituted for “any income of” by the Finance Act, 2003, w.e.f. 1-4-2004. Earlier the words“subject to the provisions of Chapter XII-E,” were omitted by the FinanceAct, 2002, w.e.f.1-4-2003.85. For notified mutual funds, see Taxmann‟s Master Guide to Income-taxAct.ponding new Bank constituted under section 3 of theBanking Companies (Acquisition and Transfer of Undertakings)Act, 1970 (5 of 1970), or under section 3 of theBanking Companies (Acquisition and Transfer of Undertakings)Act, 1980 (40 of 1980);(b) the expression “public financial institution” shall have themeaning assigned to it in section 4A of the Companies Act,1956 (1 of 1956)86;]
  • 96. 87[(c) the expression 88“Securities and Exchange Board of India”shall have the meaning assigned to it in clause (a) of subsection(1) of section 2 of the Securities and Exchange Boardof India Act, 1992 (15 of 1992);](23E) 89[Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]90[(23EA) any income 91[, by way of contributions received fromrecognisedstock exchanges and the members thereof,] of such Investor ProtectionFund set up by recognised stock exchanges in India, either jointlyor separately, as the Central Government may, by notification92 in theOfficial Gazette, specify in this behalf:Provided that where any amount standing to the credit of the Fundand not charged to income-tax during any previous year is shared,either wholly or in part, with a recognised stock exchange, the wholeof the amount so shared shall be deemed to be the income of theprevious year in which such amount is so shared and shall accordinglybe chargeable to income-tax;]S. 10(23EA) I.T. ACT, 1961 1.8886. For text of section 4A of the Companies Act, 1956, and notifiedinstitutions thereunder, seeAppendix.87. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.88. Clause (a) of section 2(1) of the Securities and Exchange Board ofIndia Act, 1992, defines“Board” as follows:„(a) “Board” means the Securities and Exchange Board of India establishedundersection 3;‟89. Prior to its omission, clause (23E), as inserted by the Finance Act,1989, w.e.f. 1-4-1989, readas under :„(23E) any income of such Exchange Risk Administration Fund set up bypublic financialinstitutions, either jointly or separately, as the Central Government may, bynotification in the Official Gazette, specify in this behalf:Provided that where any amount standing to the credit of the Fund and notchargedto income-tax during any previous year is shared, either wholly or in part,with apublic financial institution, the whole of the amount so shared shall bedeemed tobe the income of the previous year in which such amount is so shared andshallaccordingly be chargeable to income-tax.Explanation.—For the purposes of this clause, the expression “publicfinancialinstitution” shall have the meaning assigned to it in section 4A of theCompanies Act,1956 (1 of 1956);‟90. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001.91. Inserted by the Finance Act, 2006, w.e.f. 1-4-2007.92. For notified Investor Protection Fund set up by recognised stockexchange, see Taxmann‟s
  • 97. Master Guide to Income-tax Act.93[(23EB) any income of the Credit Guarantee Fund Trust for Small 94[***]Industries, being a trust created by the Government of India and theSmall Industries Development Bank of India established under subsection(1) of section 3 of the Small Industries Development Bank ofIndia Act, 1989 (39 of 1989), for five previous years relevant to theassessment years beginning on the 1st day of April, 2002 and endingon the 31st day of March, 2007;]95[(23EC) any income, by way of contributions received from commodityexchangesand the members thereof, of such Investor Protection Fundset up by commodity exchanges in India, either jointly or separately, asthe Central Government may, by notification in the Official Gazette,specify in this behalf:Provided that where any amount standing to the credit of the saidFund and not charged to income-tax during any previous year isshared, either wholly or in part, with a commodity exchange, the wholeof the amount so shared shall be deemed to be the income of theprevious year in which such amount is so shared and shall accordinglybe chargeable to income-tax.Explanation.—For the purposes of this clause, “commodity exchange”shall mean a “registered association” as defined in clause (jj) ofsection 2 of the Forward Contracts (Regulation) Act, 1952 (74 of1952) 96;]97[(23F) any income by way of dividends or long-term capital gains ofa venture capital fund or a venture capital company frominvestments made by way of equity shares in a venture capitalundertaking :Provided that such venture capital fund or venture capital companyis approved for the purposes of this clause by the prescribed authority98in accordance with the rules99 made in this behalf and satisfiesthe prescribed conditions :Provided further that any approval by the prescribed authority shall,at any one time, have effect for such assessment year or years, notexceeding three assessment years, as may be specified in the order ofapproval :1[Provided also that nothing contained in this clause shall applyin respect of any investment made after the 31st day of March,1999.]1.89 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(23F)93. Inserted by the Finance Act, 2002, w.e.f. 1-4-2002.94. Word “Scale” omitted by the Finance Act, 2003, w.r.e.f. 1-4-2002.95. Inserted by the Finance Act, 2007, w.e.f. 1-4-2008.96. For definition of “Commodity exchange”, see Appendix.97. Inserted by the Finance Act, 1995, w.e.f. 1-4-1996.98. Prescribed authority is Director of Income-tax (Exemptions).99. See rule 2D and Form Nos. 56A, 56B and 56C.1. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.2[* * *]2[* * *]Explanation.—For the purposes of this clause,—(a) “venture capital fund” means such fund, operating under a trust
  • 98. deed registered under the provisions of the Registration Act, 1908(16 of 1908), established to raise monies by the trustees forinvestments mainly by way of acquiring equity shares of aventure capital undertaking in accordance with the prescribedguidelines;(b) “venture capital company” means such company as has madeinvestments by way of acquiring equity shares of venture capitalundertakings in accordance with the prescribed guidelines;3[(c) “venture capital undertaking” means such domestic companywhose shares are not listed in a recognised stock exchange inIndia and which is engaged in the business of generation orgeneration and distribution of electricity or any other form ofpower or engaged in the business of providing telecommunicationservices or in the business of developing, maintaining andoperating any infrastructure facility or engaged in the manufactureor production of such articles or things (including computersoftware) as may be notified4 by the Central Government in thisbehalf; and(d) “infrastructure facility” means a road, highway, bridge, airport,port, rail system, a water supply project, irrigation project, sanitationand sewerage system or any other public facility of aS. 10(23F) I.T. ACT, 1961 1.902. Third and fourth provisos omitted by the Finance (No. 2) Act, 1998, w.e.f.1-4-1999. Priorto their omission, the third and fourth provisos, as inserted by the FinanceAct, 1995, w.e.f.1-4-1996, read as under :“Provided also that if the aforesaid equity shares are transferred (otherthan in the eventof the said shares being listed in a recognised stock exchange in India) bya venture capitalfund or a venture capital company to any person at any time within a periodof three yearsfrom the date of their acquisition, the aggregate amount of income by wayof dividendson such equity shares which has not been included in the total income ofthe previous yearor years preceding the previous year in which such transfer has takenplace shall bedeemed to be the income of the venture capital fund or of the venturecapital companyof the previous year in which such transfer has taken place:Provided also that the exemption shall not be allowed in respect of thelong-term capitalgains, if any, arising on such transfer of equity shares as is mentioned inthe third proviso.”3. Clauses (c) and (d) substituted for clause (c) by the Finance (No. 2) Act,1998, w.e.f.1-4-1999. Prior to substitution, clause (c), as amended by the Finance Act,1997, w.e.f.1-4-1998, read as under :„(c) “venture capital undertaking” means such domestic company whoseshares are
  • 99. not listed in a recognised stock exchange in India and which is engaged inthebusiness of generation or generation and distribution of electricity or anyotherform of power or business of providing telecommunication services or in themanufacture or production of such articles or things (including computersoftware) as may be notified by the Central Government in this behalf;‟4. For notified articles or things, see Taxmann‟s Master Guide to Income-tax Act.1.91 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(23FA)similar nature as may be notified by the Board in this behalf in theOfficial Gazette and which fulfils the conditions specified in subsection(4A) of section 80-IA;]5[(23FA) any income by way of dividends 6[, other than dividends referredtoin section 115-O ], or long-term capital gains of a venture capital fundor a venture capital company from investments made by way ofequity shares in a venture capital undertaking :Provided that such venture capital fund or venture capital companyis approved, for the purposes of this clause, by the Central Governmenton an application made to it in accordance with the rules7 madein this behalf and which satisfies the prescribed conditions :Provided further that any approval by the Central Government shall,at any one time, have effect for such assessment year or years, notexceeding three assessment years, as may be specified in the order ofapproval :8[Provided also that nothing contained in this clause shall apply inrespect of any investment made after the 31st day of March, 2000.]Explanation.—For the purposes of this clause,—(a) “venture capital fund” means such fund, operating under a trustdeed registered under the provisions of the Registration Act, 1908(16 of 1908), established to raise monies by the trustees forinvestments mainly by way of acquiring equity shares of a venturecapital undertaking in accordance with the prescribed guidelines;(b) “venture capital company” means such company as has madeinvestments by way of acquiring equity shares of venture capitalundertakings in accordance with the prescribed guidelines; and(c) “venture capital undertaking” means such domestic companywhose shares are not listed in a recognised stock exchange inIndia and which is engaged in the—(i) business of—(A) software;(B) information technology;(C) production of basic drugs in the pharmaceutical sector;(D) bio-technology;(E) agriculture and allied sectors; or(F) such other sectors as may be notified9 by the CentralGovernment in this behalf; or5. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.6. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004. Earlier, it was omittedby the FinanceAct, 2002, w.e.f. 1-4-2003.
  • 100. 7. See rule 2DA and Form Nos. 56AA, 56BA and 56CA.8. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001.9. See also notification issued under section 10(23F). For details, seeTaxmann‟s MasterGuide to Income-tax Act.(ii) production or manufacture of any article or substance forwhich patent has been granted to the National ResearchLaboratory or any other scientific research institutionapproved by the Department of Science and Technology;]10[(23FB) any income of a venture capital company or venture capital fund11[from investment] in a venture capital undertaking.Explanation 12[1].—For the purposes of this clause,—(a) “venture capital company” means such company—(i) which has been granted a certificate of registrationunder the Securities and Exchange Board of India Act,1992 (15 of 1992), and regulations made thereunder;(ii) which fulfils the conditions as may be specified, with theapproval of the Central Government, by the Securitiesand Exchange Board of India, by notification in theOfficial Gazette, in this behalf;(b) “venture capital fund” means such fund—13[(i) operating under a trust deed registered under theprovisions of the Registration Act, 1908 (16 of 1908) oroperating as a venture capital scheme made by the UnitTrust of India established under the Unit Trust of IndiaAct, 1963 (52 of 1963);](ii) which has been granted a certificate of registrationunder the Securities and Exchange Board of India Act,1992 (15 of 1992), and regulations made thereunder;(iii) which fulfils the conditions as may be specified, with theapproval of the Central Government, by the Securitiesand Exchange Board of India, by notification in theOfficial Gazette, in this behalf; and14[(c) “venture capital undertaking” means such domestic companywhose shares are not listed in a recognised stock exchange inIndia and which is engaged in the—S. 10(23FB) I.T. ACT, 1961 1.9210. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001.11. Substituted for “set up to raise funds for investment” by the FinanceAct, 2007, w.e.f.1-4-2008.12. Explanation numbered as Explanation 1 by the Finance Act, 2001,w.e.f. 1-4-2001.13. Substituted by the Finance Act, 2001, w.e.f. 1-4-2001. Prior to itssubstitution, sub-clause(i) read as under :“(i) operating under a trust deed registered under the provisions of theRegistrationAct, 1908 (16 of 1908);”14. Substituted by the Finance Act, 2007, w.e.f. 1-4-2008. Prior to itssubstitution, clause (c)of Explanation 1, as substituted by the Finance (No. 2) Act, 2004, w.e.f. 1-10-2004, read as
  • 101. under:„(c) “venture capital undertaking” means a venture capital undertakingreferred to inthe Securities and Exchange Board of India (Venture Capital Funds)Regulations,1996 made under the Securities and Exchange Board of India Act, 1992(15 of 1992)and notified as such in the Official Gazette by the Board for the purposes ofthisclause;‟(i) business of—(A) nanotechnology;(B) information technology relating to hardware andsoftware development;(C) seed research and development;(D) bio-technology;(E) research and development of new chemical entitiesin the pharmaceutical sector;(F) production of bio-fuels;(G) building and operating composite hotel-cum-conventioncentre with seating capacity of more thanthree thousand; or(H) developing or operating and maintaining or developing,operating and maintaining any infrastructurefacility as defined in the Explanation to clause(i) of sub-section (4) of section 80-IA; or(ii) dairy or poultry industry;]15[***](23G) 16[Omitted by the Finance Act, 2006, w.e.f. 1-4-2007; ]1.93 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(23G)(Contd. on p. 1.94)15. Omitted by the Finance (No. 2) Act, 2004, w.e.f. 1-10-2004. Prior to itsomission, Explanation2, as inserted by the Finance Act, 2001, w.e.f. 1-4-2001, read as under :“Explanation 2.—For the removal of doubts it is hereby declared that theincome of aventure capital company or venture capital fund shall continue to beexempt if the sharesof the venture capital undertaking, in which the venture capital company orventurecapital fund has made the initial investment, are subsequently listed in arecognised stockexchange in India;”16. Prior to its omission, clause (23G), as inserted by the Finance (No. 2)Act, 1996, w.e.f. 1-4-1997 and later on amended by the Finance Act, 1997, w.e.f. 1-4-1998,substituted by theFinance (No. 2) Act, 1998, w.e.f. 1-4-1999 and further amended by theIncome-tax (SecondAmendment) Act, 1998, w.e.f. 1-4-1999, Finance Act, 1999, w.e.f. 1-4-2000, Finance Act,
  • 102. 2000, w.e.f. 1-4-2000/1-4-2001, Finance Act, 2001, w.e.f. 1-4-2002,Finance Act, 2002, w.e.f.1-4-2003, Finance Act, 2003, w.e.f. 1-4-2004/w.r.e.f. 1-4-2002, Finance(No. 2) Act, 2004,w.e.f. 1-4-2005 and Special Economic Zones Act, 2005, w.e.f. 10-2-2006,read as under :„(23G) any income by way of dividends, other than dividends referred to insection115-O, interest or long-term capital gains of an infrastructure capital fund oraninfrastructure capital company or a co-operative bank from investmentsmade onor after the 1st day of June, 1998 by way of shares or long-term finance inanyenterprise or undertaking wholly engaged in the business referred to insubsection(4) of section 80-IA or sub-section (3) of section 80-IAB or a housingprojectreferred to in sub-section (10) of section 80-IB or a hotel project or ahospitalproject and which has been approved by the Central Government on anapplicationmade by it in accordance with the rules made in this behalf and whichsatisfiesthe prescribed conditions :Provided that the income, by way of dividends, other than dividendsreferred toin section 115-O, interest or long-term capital gains of an infrastructurecapitalcompany, shall be taken into account in computing the book profit andincometaxpayable under section 115JB.S. 10(25) I.T. ACT, 1961 1.9417[18(24) any income chargeable under the heads “Income from houseproperty” and “Income from other sources” of—(a) a registered union within the meaning of the Trade Unions Act,1926 (16 of 1926), formed primarily for the purpose of regulatingthe relations between workmen and employers or between workmenand workmen;(b) an association of registered unions referred to in sub-clause (a);](25) (i) interest on securities which are held by, or are the property of, anyprovident fund to which the Provident Funds Act, 1925 (19 of 1925),applies, and any capital gains of the fund arising from the sale,exchange or transfer of such securities;Explanation 1.—For the purposes of this clause,—(a) “infrastructure capital company” means such company as has madeinvestmentsby way of acquiring shares or providing long-term finance to anenterprise wholly engaged in the business referred to in this clause;(b) “infrastructure capital fund” means such fund operating under a trustdeedregistered under the provisions of the Registration Act, 1908 (16 of 1908)established to raise monies by the trustees for investment by way of
  • 103. acquiring shares or providing long-term finance to an enterprise whollyengaged in the business referred to in this clause;(c) [***](d) “long-term finance” shall have the meaning assigned to it in clause (viii)ofsub-section (1) of section 36;(e) “co-operative bank” shall have the meaning assigned to it in clause (dd)ofsection 2 of the Deposit Insurance and Credit Guarantee Corporation Act,1961 (47 of 1961);(f) “interest” includes any fee or commission received by a financialinstitutionfor giving any guarantee to, or enhancing credit in respect of, an enterprisewhich has been approved by the Central Government for the purposes ofthisclause;(g) “hotel project” means a project for constructing a hotel of not less thanthreestarcategory as classified by the Central Government;(h) “hospital project” means a project for constructing a hospital with atleast onehundred beds for patients.Explanation 2.—For the removal of doubts, it is hereby declared that anyincomeby way of dividends, interest or long-term capital gains of an infrastructurecapital fund or an infrastructure capital company from investments madebeforethe 1st day of June, 1998 by way of shares or long-term finance in anyenterprisecarrying on the business of developing, maintaining and operating anyinfrastructurefacility shall not be included and the provisions of this clause as it stoodimmediately before its amendment by the Finance (No. 2) Act, 1998 (21 of1998)shall apply to such income;‟17. Substituted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997. Prior toits substitution, clause(24), as amended by the Finance Act, 1988, w.e.f. 1-4-1989, read as under:„(24) any income chargeable under the heads “Income from houseproperty” and“Income from other sources” of a registered union within the meaning of theIndianTrade Unions Act, 1926 (16 of 1926), formed primarily for the purpose ofregulatingthe relations between workmen and employers or between workmen andworkmen;‟18. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.(Contd. from p. 1.93)1.95 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(26)(ii) any income received by the trustees on behalf of a recognised
  • 104. provident fund;(iii) any income received by the trustees on behalf of an approvedsuperannuation fund;19[(iv) any income received by the trustees on behalf of an approvedgratuity fund;]20[(v) any income received—(a) by the Board of Trustees constituted under the Coal MinesProvident Funds and Miscellaneous Provisions Act, 1948 (46 of1948), on behalf of the Deposit-linked Insurance Fund establishedunder section 3G of that Act; or(b) by the Board of Trustees constituted under the Employees‟Provident Funds and Miscellaneous Provisions Act, 1952 (19 of1952), on behalf of the Deposit-linked Insurance Fund establishedunder section 6C of that Act;]21[(25A) any income of the Employees‟ State Insurance Fund set up underthe provisions of the Employees‟ State Insurance Act, 1948 (34 of1948);]22[(26) 23in the case of a member of a 24Scheduled Tribe as defined inclause (25) of article 366 of the Constitution, residing23a in any areaspecified in Part I or Part II of the Table appended to paragraph 20 ofthe Sixth Schedule to the Constitution or in the 25[States of ArunachalPradesh, Manipur, Mizoram, Nagaland and Tripura] or in the areascovered by notification No. TAD/R/35/50/109, dated the 23rd February,1951, issued by the Governor of Assam under the proviso tosub-paragraph (3) of the said paragraph 20 [as it stood immediatelybefore the commencement of the North-Eastern Areas (Reorganisation)Act, 1971 (81 of 1971)] 26[or in the Ladakh region of the State19. Inserted by the Finance Act, 1972, w.e.f. 1-4-1973.20. Inserted by the Labour Provident Fund Laws (Amendment) Act, 1976,w.e.f. 1-8-1976.21. Inserted by the Finance Act, 1995, w.r.e.f. 1-4-1962.22. Substituted by the North-Eastern Areas (Reorganisation) (Adaptation ofLaws on UnionSubjects) Order, 1974, with retrospective effect from 21-1-1972. Earlier,clause (26) wasamended first by the State of Nagaland (Adaptation of Laws on UnionSubjects) Order,1965, with retrospective effect from 1-12-1963 and then by the TaxationLaws (Amendment)Act, 1970, with retrospective effect from 1-4-1962.23. For relevant case laws, see Taxmann‟s Master Guide to Income-taxAct.23a. For the meaning of the term “residing”, see Taxmann‟s Direct TaxesManual, Vol. 3.24. Clause (25) of article 366 of the Constitution defines “Scheduled Tribes”as under :„(25) “Scheduled Tribes” means such tribes or tribal communities or parts ofor groupswithin such tribes or tribal communities as are deemed under article 342 tobeScheduled Tribes for the purposes of this Constitution;‟25. Substituted for “States of Nagaland, Manipur and Tripura or in theUnion territories of
  • 105. Arunachal Pradesh and Mizoram” by the Finance Act, 1994, w.e.f. 1-4-1995.26. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.of Jammu and Kashmir], any income which accrues or arises tohim,—(a) from any source in the areas 27[or States aforesaid], or(b) by way of dividend or interest on securities;]28[(26A) any income accruing or arising to any person 29[* * *] from anysourcein the district of Ladakh or outside India in any previous year relevantto any assessment year commencing before the 1st day of April,30[1989], where such person is resident in the said district in thatprevious year :Provided that this clause shall not apply in the case of any such personunless he was resident in that district in the previous year relevant tothe assessment year commencing on the 1st day of April, 1962.31[Explanation 1].—For the purposes of this clause, a person shall bedeemed to be resident in the district of Ladakh if he fulfils therequirements of sub-section (1)32 or sub-section (2) or sub-section (3)or sub-section (4) of section 6, as the case may be, subject to themodifications that—(i) references in those sub-sections to India shall be construed asreferences to the said district; and(ii) in clause (i) of sub-section (3), reference to Indian company shallbe construed as reference to a company formed and registeredunder any law for the time being in force in the State of Jammuand Kashmir and having its registered office in that district in thatyear.]33[Explanation 2.—In this clause, references to the district of Ladakhshall be construed as references to the areas comprised in the saiddistrict on the 30th day of June, 1979;](26AA) 34[* * *]S. 10(26AA) I.T. ACT, 1961 1.9627. Substituted for “, States or Union territories aforesaid” by the FinanceAct, 1994, w.e.f.1-4-1995.28. Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962.29. “(not being an individual who is in the service of Government)” omittedby the Finance(No. 2) Act, 1971, w.r.e.f. 1-4-1962.30. Substituted for “1986” by the Finance Act, 1985, w.e.f. 1-4-1985. Earlier“1986” wassubstituted for “1983” by the Finance Act, 1983, w.e.f. 1-4-1983, “1983”was substituted for“1980” by the Finance Act, 1980, w.e.f. 1-4-1980, “1980” was substitutedfor “1975” by theFinance (No. 2) Act, 1977, with retrospective effect from 1-4-1975 and“1975” wassubstituted for “1970” by the Finance (No. 2) Act, 1971, w.r.e.f. 1-4-1970.31. Existing Explanation renumbered as Explanation 1 by the Finance Act,1983, w.r.e.f.1-4-1980.32. Should be read as clause (1), etc.
  • 106. 33. Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1980.34. Omitted by the Finance Act, 1997, w.e.f. 1-4-1998. Prior to its omission,clause (26AA), asinserted by the Finance Act, 1989, w.e.f. 1-4-1990, read as under :“(26AA) any income of a person by way of winnings from any lottery, thedraw of whichis held in pursuance of any agreement entered into on or before the 28thdayof February, 1989 between the State Government of Sikkim and theorganisingagents of such lottery, where such person is resident in the State of Sikkiminany previous year.(Contd. on p. 1.97)1.97 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(26B)34a[(26AAA) in case of an individual, being a Sikkimese, any income whichaccruesor arises to him—(a) from any source in the State of Sikkim; or(b) by way of dividend or interest on securities:Provided that nothing contained in this clause shall apply to aSikkimese woman who, on or after the 1st day of April, 2008, marriesan individual who is not a Sikkimese.Explanation.—For the purposes of this clause, “Sikkimese” shall mean—(i) an individual, whose name is recorded in the register maintainedunder the Sikkim Subjects Regulation, 1961 read with the SikkimSubject Rules, 1961 (hereinafter referred to as the “Register ofSikkim Subjects”), immediately before the 26th day of April, 1975;or(ii) an individual, whose name is included in the Register of SikkimSubjects by virtue of the Government of India Order No. 26030/36/90-I.C.I., dated the 7th August, 1990 and Order of even numberdated the 8th April, 1991; or(iii) any other individual, whose name does not appear in the Registerof Sikkim Subjects, but it is established beyond doubt that thename of such individual‟s father or husband or paternal grandfatheror brother from the same father has been recorded in thatregister;]The following clause (26AAB) shall be inserted after clause (26AAA)of section 10 by the Finance Act, 2008, w.e.f. 1-4-2009 :(26AAB) any income of an agricultural produce market committee or boardconstituted under any law for the time being in force for the purposeof regulating the marketing of agricultural produce;35[(26B) any income of a corporation established by a Central, State orProvincial Act or of any other body, institution or association (beinga body, institution or association wholly financed by Government)where such corporation or other body or institution or association hasbeen established or formed for promoting the interests of the36[members of the Scheduled Castes or the Scheduled Tribes orbackward classes or of any two or all of them].(Contd. from p. 1.96)
  • 107. Explanation.—For the purposes of this clause, a person shall be deemed toberesident in the State of Sikkim if he fulfils the requirements of clause (1) orclause (2) or clause (3) or clause (4) of section 6, as the case may be,subject tothe modifications that—(i) references in those clauses to India shall be construed as references totheState of Sikkim; and(ii) in sub-clause (i) of clause (3), reference to Indian company shall beconstrued as reference to a company formed and registered under anylaw for the time being in force in the State of Sikkim and having itsregistered office in that State in that year;”34a. Inserted by the Finance Act, 2008, w.r.e.f. 1-4-1990.35. Inserted by the Finance Act, 1980, w.r.e.f. 1-4-1972.36. Substituted for “members of either the Scheduled Castes or theScheduled Tribes or ofboth” by the Finance Act, 1994, w.r.e.f. 1-4-1993.37[Explanation.—For the purposes of this clause,—(a) 38Scheduled Castes” and 39“Scheduled Tribes” shall have themeanings respectively assigned to them in clauses (24) and (25) ofarticle 366 of the Constitution;(b) “backward classes” means such classes of citizens, other thanthe Scheduled Castes and the Scheduled Tribes, as may benotified—(i) by the Central Government; or(ii) by any State Government,as the case may be, from time to time;]40[(26BB) any income of a corporation established by the CentralGovernmentor any State Government for promoting the interests of the membersof a minority community.Explanation.—For the purposes of this clause, “minority community”means a community notified41 as such by the Central Government inthe Official Gazette in this behalf;]42[(26BBB) any income of a corporation established by a Central, State orProvincial Act for the welfare and economic upliftment of ex-servicemenbeing the citizens of India.Explanation.—For the purposes of this clause, “ex-serviceman” meansa person who has served in any rank, whether as combatant ornoncombatant,in the armed forces of the Union or armed forces of theIndian States before the commencement of the Constitution (butexcluding the Assam Rifles, Defence Security Corps, General ReserveEngineering Force, Lok Sahayak Sena, Jammu and Kashmir Militiaand Territorial Army) for a continuous period of not less than sixmonths after attestation and has been released, otherwise than byway of dismissal or discharge on account of misconduct or inefficiency,and in the case of a deceased or incapacitated ex-serviceman includeshis wife, children, father, mother, minor brother, widowed daughterand widowed sister, wholly dependant upon such ex-servicemanimmediately before his death or incapacitation;]43[(27) any income of a co-operative society formed for promoting the
  • 108. interests of the members of either the Scheduled Castes or ScheduledTribes or both referred to in clause (26B) :S. 10(27) I.T. ACT, 1961 1.9837. Substituted by the Finance Act, 1994, w.r.e.f. 1-4-1993. EarlierExplanation, as inserted bythe Finance Act, 1980, w.r.e.f. 1-4-1972.38. Clause (24) of article 366 of the Constitution defines “ScheduledCastes” as under:„(24) “Scheduled Castes” means such castes, races or tribes or parts of orgroups withinsuch castes, races or tribes as are deemed under article 341 to beScheduled Castesfor the purposes of this Constitution;‟39. For definition of “Scheduled Tribes”, see footnote 24 on p. 1.95 ante.40. Inserted by the Finance Act, 1995, w.e.f. 1-4-1995.41. For notified minority communities, see Taxmann‟s Master Guide toIncome-tax Act.42. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.43. Inserted by the Finance Act, 1992, w.r.e.f. 1-4-1989. Earlier clause (27)was omitted by theFinance Act, 1975, w.e.f. 1-4-1976 and re-enacted in section 80JJ withmodification.Originally, clause (27) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and later onamended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.Provided that the membership of the co-operative society consists ofonly other co-operative societies formed for similar purposes and thefinances of the society are provided by the Government and suchother societies;](28) 44[* * *](29) 45[Omitted by the Finance Act, 2002, w.e.f. 1-4-2003;]46[(29A) any income accruing or arising to—(a) the Coffee Board constituted under section 4 of the Coffee Act,1942 (7 of 1942) in any previous year relevant to any assessmentyear commencing on or after the 1st day of April, 1962 or theprevious year in which such Board was constituted, whichever islater;(b) the Rubber Board constituted under sub-section (1) of section 4of the Rubber Board Act, 1947 (24 of 1947) in any previous yearrelevant to any assessment year commencing on or after the 1stday of April, 1962 or the previous year in which such Board wasconstituted, whichever is later;(c) the Tea Board established under section 4 of the Tea Act, 1953 (29of 1953) in any previous year relevant to any assessment yearcommencing on or after the 1st day of April, 1962 or the previousyear in which such Board was constituted, whichever is later;(d) the Tobacco Board constituted under the Tobacco Board Act,1975 (4 of 1975) in any previous year relevant to any assessmentyear commencing on or after the 1st day of April, 1975 or theprevious year in which such Board was constituted, whichever islater;(e) the Marine Products Export Development Authority establishedunder section 4 of the Marine Products Export Development
  • 109. Authority Act, 1972 (13 of 1972) in any previous year relevant toany assessment year commencing on or after the 1st day of April,1972 or the previous year in which such Authority was constituted,whichever is later;(f) the Agricultural and Processed Food Products Export DevelopmentAuthority established under section 4 of the Agriculturaland Processed Food Products Export Development Act, 1985 (2of 1986) in any previous year relevant to any assessment yearcommencing on or after the 1st day of April, 1985 or the previousyear in which such Authority was constituted, whichever is later;(g) the Spices Board constituted under sub-section (1) of section 3 ofthe Spices Board Act, 1986 (10 of 1986) in any previous yearrelevant to any assessment year commencing on or after the 1stday of April, 1986 or the previous year in which such Board wasconstituted, whichever is later;]1.99 CH. III - INCOMES WHICH DO NOT FORMPART OF TOTALINCOME S. 10(29A)44. Omitted by the Finance Act, 1997, w.e.f. 1-4-1998. Prior to its omission,clause (28) wasinserted by the Finance Act, 1965, w.e.f. 1-4-1965 and substituted by theFinance (No. 2)Act, 1965, w.e.f. 11-9-1965.45. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.46. Inserted by the Finance Act, 1999, w.e.f. 11-5-1999.S. 10(31) I.T. ACT, 1961 1.10046a[(h) the Coir Board established under section 4 of the Coir Industry Act,1953 (45 of 1953);]47[(30) 48in the case of an assessee who carries on the business ofgrowing andmanufacturing tea in India, the amount of any subsidy received fromor through the Tea Board under any such scheme49 for replantationor replacement of tea bushes 50[or for rejuvenation or consolidationof areas used for cultivation of tea] as the Central Government may,by notification in the Official Gazette, specify:Provided that the assessee furnishes to the 51[Assessing] Officer,along with his return of income51a for the assessment year concernedor within such further time as the 51[Assessing] Officer may allow, acertificate from the Tea Board as to the amount of such subsidy paidto the assessee during the previous year.Explanation.—In this clause, “Tea Board” means the Tea Boardestablished under section 4 of the Tea Act, 1953 (29 of 1953);]52[(31) in the case of an assessee who carries on the business of growingandmanufacturing rubber, coffee, cardamom or such other commodityin India, as the Central Government may, by notification in the OfficialGazette, specify in this behalf, the amount of any subsidy receivedfrom or through the concerned Board under any such scheme forreplantation or replacement of rubber plants, coffee plants, cardamomplants or plants for the growing of such other commodity or forrejuvenation or consolidation of areas used for cultivation of rubber,coffee, cardamom or such other commodity as the Central Governmentmay, by notification in the Official Gazette, specify:Provided that the assessee furnishes to the Assessing Officer, along
  • 110. with his return of income51a for the assessment year concerned orwithin such further time as the Assessing Officer may allow, acertificate from the concerned Board, as to the amount of suchsubsidy paid to the assessee during the previous year.Explanation.—In this clause, “concerned Board” means,—(i) in relation to rubber, the Rubber Board constituted under section4 of the Rubber Act, 1947 (24 of 1947),(ii) in relation to coffee, the Coffee Board constituted under section4 of the Coffee Act, 1942 (7 of 1942),(iii) in relation to cardamom, the Spices Board constituted undersection 3 of the Spices Board Act, 1986 (10 of 1986),46a. Inserted by the Finance Act, 2008, w.r.e.f. 1-4-2002.47. Inserted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1969.48. See rule 8(2).49. For specified schemes, see Taxmann‟s Master Guide to Income-taxAct.50. Inserted by the Finance Act, 1984, w.e.f. 1-4-1985.51. Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act,1987, w.e.f.1-4-1988.51a. Rule 12 provides that the return of income shall not be accompaniedby any document orcopy of any account or form or report of audit required to be attached withreturn ofincome under any of the provisions of the Act.52. Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.1.101 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(35)(iv) in relation to any other commodity specified under this clause,any Board or other authority established under any law for thetime being in force which the Central Government may, bynotification in the Official Gazette, specify in this behalf;]53[(32) in the case of an assessee referred to in sub-section (1A) of section64,any income includible in his total income under that sub-section,to the extent such income does not exceed one thousand fivehundred rupees in respect of each minor child whose income is soincludible;]54[(33) any income arising from the transfer of a capital asset, being a unitofthe Unit Scheme, 1964 referred to in Schedule I to the Unit Trust ofIndia (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002)55and where the transfer of such asset takes place on or after the 1st dayof April, 2002;]56[(34) any income by way of dividends referred to in section 115-O.57[Explanation.—For the removal of doubts, it is hereby declared thatthe dividend referred to in section 115-O shall not be included in thetotal income of the assessee, being a Developer or entrepreneur ;](35) any income by way of,—(a) income received in respect of the units of a Mutual Fund specifiedunder clause (23D); or(b) income received in respect of units from the Administrator of the
  • 111. specified undertaking; or(c) income received in respect of units from the specified company:Provided that this clause shall not apply to any income arising fromtransfer of units of the Administrator of the specified undertaking orof the specified company or of a mutual fund, as the case may be.Explanation.—For the purposes of this clause,—(a) “Administrator” means the Administrator as referred to in clause(a) of section 2 of the Unit Trust of India (Transfer of Undertakingand Repeal) Act, 2002 (58 of 2002)58;53. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.54. Inserted by the Finance Act, 2003, w.e.f. 1-4-2003. Earlier clause (33)was inserted by theFinance Act, 1997, w.e.f. 1-4-1998, substituted by the Finance Act, 1999,w.e.f. 1-4-2000,amended by the Finance Act, 2001, w.r.e.f. 1-4-2000 and later on omittedby the FinanceAct, 2002, w.e.f. 1-4-2003. Prior to omission, clause (33) read as under :“(33) any income by way of—(i) dividends referred to in section 115-O; or(ii) income received in respect of units from the Unit Trust of Indiaestablishedunder the Unit Trust of India Act, 1963 (52 of 1963); or(iii) income received in respect of the units of a mutual fund specified underclause(23D) :Provided that this clause shall not apply to any income arising fromtransfer of unitsof the Unit Trust of India or of a mutual fund, as the case may be.”55. For text of the Unit Trust of India (Transfer of Undertaking & Repeal)Act, 2002, seeDirect Taxes Manual, Vol. 3.56. Clauses (34), (35) and (36) inserted by the Finance Act, 2003, w.e.f. 1-4-2004.57. Inserted by the Special Economic Zones Act, 2005, w.e.f. 10-2-2006.58. For text of the Unit Trust of India (Transfer of Undertaking & Repeal)Act, 2002, seeDirect Taxes Manual, Vol. 3.S. 10(38) I.T. ACT, 1961 1.102(b) “specified company” means a company as referred to in clause (h)of section 2 of the Unit Trust of India (Transfer of Undertakingand Repeal) Act, 2002 (58 of 2002)58a;(36) any income arising from the transfer of a long-term capital asset,being an eligible equity share in a company purchased on or after the1st day of March, 2003 and before the 1st day of March, 2004 and heldfor a period of twelve months or more.Explanation.—For the purposes of this clause, “eligible equity share”means,—(i) any equity share in a company being a constituent of BSE-500Index of the Stock Exchange, Mumbai as on the 1st day of March,2003 and the transactions of purchase and sale of such equityshare are entered into on a recognised stock exchange in India;(ii) any equity share in a company allotted through a public issue onor after the 1st day of March, 2003 and listed in a recognised stock
  • 112. exchange in India before the 1st day of March, 2004 and thetransaction of sale of such share is entered into on a recognisedstock exchange in India;]59[(37) in the case of an assessee, being an individual or a Hinduundividedfamily, any income chargeable under the head “Capital gains” arisingfrom the transfer of agricultural land, where—(i) such land is situate in any area referred to in item (a) or item (b)of sub-clause (iii) of clause (14) of section 2;(ii) such land, during the period of two years immediately precedingthe date of transfer, was being used for agricultural purposes bysuch Hindu undivided family or individual or a parent of his;(iii) such transfer is by way of compulsory acquisition under any law,or a transfer the consideration for which is determined or approvedby the Central Government or the Reserve Bank of India;(iv) such income has arisen from the compensation or considerationfor such transfer received by such assessee on or after the 1st dayof April, 2004.Explanation.—For the purposes of this clause, the expression“compensationor consideration” includes the compensation or considerationenhanced or further enhanced by any court, Tribunal orother authority;(38) any income arising from the transfer of a long-term capital asset,being an equity share in a company or a unit of an equity orientedfund where—(a) the transaction of sale of such equity share or unit is entered intoon or after the date on which Chapter VII of the Finance (No. 2)Act, 2004 comes into force; and(b) such transaction is chargeable to securities transaction tax underthat Chapter :58a. For text of the Unit Trust of India (Transfer of Undertaking & Repeal)Act, 2002, seeDirect Taxes Manual, Vol. 3.59. Clauses (37) and (38) inserted by the Finance (No. 2) Act, 2004, w.e.f.1-4-2005.1.103 CH. III - INCOMES WHICH DO NOT FORM PART OF TOTALINCOME S. 10(42)60[Provided that the income by way of long-term capital gain of acompany shall be taken into account in computing the book profit andincome-tax payable under section 115JB.]Explanation.—For the purposes of this clause, “equity oriented fund”means a fund—(i) where the investible funds are invested by way of equity sharesin domestic companies to the extent of more than 61[sixty-five] percent of the total proceeds of such fund; and(ii) which has been set up under a scheme of a Mutual Fund specifiedunder clause (23D) :Provided that the percentage of equity shareholding of the fund shallbe computed with reference to the annual average of the monthlyaverages of the opening and closing figures;]62[(39) any specified income, arising from any international sportingevent held in India, to the person or persons notified63 by the Central
  • 113. Government in the Official Gazette, if such international sportingevent—(a) is approved by the international body regulating the internationalsport relating to such event;(b) has participation by more than two countries;(c) is notified63 by the Central Government in the Official Gazette forthe purposes of this clause.Explanation.—For the purposes of this clause, “the specified income”means the income, of the nature and to the extent, arising from theinternational sporting event, which the Central Government maynotify63 in this behalf;(40) any income of any subsidiary company by way of grant or otherwisereceived from an Indian company, being its holding company engagedin the business of generation or transmission or distribution ofpower if receipt of such income is for settlement of dues in connectionwith reconstruction or revival of an existing business of powergeneration:Provided that the provisions of this clause shall apply if reconstructionor revival of any existing business of power generation is byway of transfer of such business to the Indian company notified undersub-clause (a) of clause (v) of sub-section (4) of section 80-IA;(41) any income arising from transfer of a capital asset, being an asset ofan undertaking engaged in the business of generation or transmissionor distribution of power where such transfer is effected on or beforethe 31st day of March, 2006, to the Indian company notified undersub-clause (a) of clause (v) of sub-section (4) of section 80-IA;]64[(42) any specified income arising to a body or authority which—60. Inserted by the Finance Act, 2006, w.e.f. 1-4-2007.61. Substituted for “fifty”, ibid., w.e.f. 1-6-2006.62. Clauses (39) to (41) inserted by the Taxation Laws (Amendment) Act,2005, w.e.f. 1-4-2006.63. For notified persons, notified sporting events and specified income, seeTaxmann‟s MasterGuide to Income-tax Act.64. Inserted by the Finance Act, 2006, w.e.f. 1-4-2006.S. 10A I.T. ACT, 1961 1.104(a) has been established or constituted or appointed under a treatyor an agreement entered into by the Central Government withtwo or more countries or a convention signed by the CentralGovernment;(b) is established or constituted or appointed not for the purposes ofprofit;(c) is notified by the Central Government in the Official Gazette65 forthe purposes of this clause.Explanation.—For the purposes of this clause, “specified income”means the income, of the nature and to the extent, arising to the bodyor authority referred to in this clause, which the Central Governmentmay notify65 in this behalf;]65a[(43) any amount received by an individual as a loan, either in lumpsum orin instalment, in a transaction of reverse mortgage referred to in clause(xvi) of section 47.]
  • 114. 66[Special provision in respect of newly established undertakings infree tradezone, etc.6710A. (1) Subject to the provisions of this section, a deduction of such profitsand gains as are derived by an undertaking from the export of articles orthings or computer software for a period of ten consecutive assessmentyearsbeginning with the assessment year relevant to the previous year in whichtheundertaking begins to manufacture or produce such articles or things orcomputer software, as the case may be, shall be allowed from the totalincomeof the assessee :Provided that where in computing the total income of the undertaking foranyassessment year, its profits and gains had not been included by applicationof theprovisions of this section as it stood immediately before its substitution bytheFinance Act, 2000, the undertaking shall be entitled to deduction referred tointhis sub-section only for the unexpired period of the aforesaid tenconsecutiveassessment years :Provided further that where an undertaking initially located in any freetradezone or export processing zone is subsequently located in a specialeconomiczone by reason of conversion of such free trade zone or export processingzoneinto a special economic zone, the period of ten consecutive assessmentyearsreferred to in this sub-section shall be reckoned from the assessment yearrelevant to the previous year in which the 68[undertaking began tomanufacture65. For notified authority, see Taxmann‟s Master Guide to Income-tax Act.65a. Inserted by the Finance Act, 2008, w.e.f. 1-4-2008.66. Substituted by the Finance Act, 2000, w.e.f. 1-4-2001. Prior to itssubstitution, section 10Awas inserted by the Finance Act, 1981, w.e.f. 1-4-1981, and later onamended by theTaxation Laws (Amendment and Miscellaneous Provisions) Act, 1986,w.e.f. 1-4-1987,Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988/1-4-1989,Finance Act, 1987,w.r.e.f. 1-4-1981/w.e.f. 1-4-1988, Finance Act, 1988, w.e.f. 1-4-1989,Finance Act, 1993, w.e.f.1-4-1994/w.r.e.f. 1-4-1991, Finance Act, 1995, w.e.f. 1-4-1996, Income-tax(Second Amendment)Act, 1998, w.e.f. 1-4-1999 and Finance Act, 1999, w.e.f. 1-4-2000.67. See Instruction No. 1/2006, dated 31-3-2006. For details, seeTaxmann‟s Master Guide toIncome-tax Act.