CONTENTS
DIVISION ONE
Commentary on Finance Act, 2025
TAX RATES
1.1 Overview of amendments made by Finance Act, 2025 1.3
1.2 The threshold of total income for eligibility to claim the rebate and the amount of rebate has been increased [Section 87A] 1.3
1.3 Changes in the new tax regime [Section 115BAC] 1.13
2
PROFITS AND GAINS FROM BUSINESS AND PROFESSION
2.1 A new scheme for non-residents engaged in the business of providing services or technology
2.2 Presumptive taxation regime
2.3 The non obstante clause overriding sections 28 to 43A
2.4 Non-resident is engaged in the specified business 1.23
2.5 Services or technology provided for the specified business 1.31
2.6 Provided to a resident company for the specified business 1.38
2.7 Presumptive business income
2.8 Specified Amount
2.9 No set off of unabsorbed depreciation and brought forward loss
2.10 Comprehensive illustration
3
TAXATION OF NON-RESIDENTS AND INVESTMENT FUNDS
3.1 Overview of amendments made by Finance Act, 2025 1.55
3.2 Export of goods will not constitute significant economic presence [Second Proviso to Explanation 2A to Section 9(1)(i)]
3.3 Exemption to foreign funds investing in Indian infrastructure entities [Section 10(23FE)]
4
SALARY AND HOUSE PROPERTY
4.1 Overview of amendments made by Finance Act, 2025
4.2 Powers given to the board to specify the employee’s salary for classifying him as a specified employee for taxability of certain perquisites [Section 17(2)(iii)]
4.3 Powers given to the board to specify the employee’s salary for taxation of travel expenses incurred in connection with medical treatment outside India [First Proviso to Section 17(2)]
4.4 Annual value of two house properties shall be taken as nil even if the owner cannot occupy it due to any reason [Section 23(2)] 1.66
5
CAPITAL GAINS
5.1 Overview of amendments made by Finance Act, 2025 1.71
5.2 ULIPs, which are not exempt from tax, shall be taxable under the head of capital gains [Sections 2(14), 45(1B) and 112A] 1.71
5.3 Removal of inconsistency in tax rates on long-term capital gains applicable to FIIs and specified funds [Section 115AD] 1.79
5.4 Removal of inconsistency in tax rates on income of business trusts covered under section 112A [Section 115UA]
5.5 Securities held by Category I or II AIFs to be treated as a capital asset 1.82
6
DEDUCTIONS AND EXEMPTIONS
6.1 Overview of amendments made by Finance Act, 2025 1.86
6.2 Deduction to be allowed for the contribution made to NPS Vatsalya Scheme [Section 80CCD] 1.86
6.3 Partial withdrawal from NPS Vatsalya to be exempt from tax [Section 10(12BA)] 1.90
6.4 Withdrawal from NSS on or after 29th August 2024 to be exempt from tax [Section 80CCA]
6.5 Extension in the outer date for incorporation of start-ups for deduction [Section 80-IAC]
7
TDS AND TCS
7.1 Overview of amendments made by Finance Act, 2025 1.93
7.2 Increase in the threshold limit for tax deduction under various sections 1.94
7.3 TDS rate on income payable by a securitisation trust to a resident investor is reduced [Section 194LBC] 1.95
7.4 Provisions related to deduction/collection of tax at higher rates in case of non-filers of return are omitted [Section 206AB and Section 206CCA] 1.95
7.5 TCS on ‘Forest Produce’ and rate thereof are rationalized [Section 206C(1)]
7.6 TCS on remittance under liberal remittance scheme has been rationalised [Section 206C(1G)] 1.98
7.7 TCS on the sale of goods is withdrawn [Section 206C(1H)] 1.101
7.8 Certain periods to be excluded while calculating the time limit to pass an order treating the tax collector as assessee-in-default [Section 206C(7A)]
8
TONNAGE TAX SCHEME
8.1 Background
8.2 About Inland Vessels Act, 2021
8.3 Conditions to be fulfilled to claim tonnage tax scheme
8.4 Amendment by the Finance Act, 2025 1.109
9
TRANSFER PRICING
9.1 Overview of amendments made by Finance Act, 2025 1.114
9.2 Background
9.3 Global Practice
9.4 Block TP assessment of two subsequent years [Section 92CA(3B)] 1.116
9.5 Insertion of the new provisos to validate block TP assessment [Section 92CA(1)]
9.6 Determination of ALP of two consecutive years [Section 92CA(4A)] 1.123
9.7 Power to issue guidelines [Section 92CA(11) & 92CA(12)] 1.123
9.8 Recomputation of total income of two subsequent years [Section 155(21)]
9.9 Other issues
10
VIRTUAL DIGITAL ASSETS
10.1 Overview of amendments made by Finance Act, 2025 1.126
10.2 Meaning of virtual digital assets has been expanded [Section 2(47A)] 1.126
10.3 Obligations of the reporting entity to furnish information on the crypto asset transactions [Section 285BAA] 1.131
11
SEARCH AND SEIZURE
11.1 Overview of amendments made by Finance Act, 2025
11.2 Extension in the time limit to retain books of account or documents post-assessment [Section 132(8)]
11.3 In the meaning of the “last of authorisation”, the word “authorisation” is replaced with “authorisations” [Explanation 1 to Section 132] 1.137
11.4 Reference given to Section 158B for the meaning of “execution of an authorisation for search or requisition” [Section 132B]
11.5 ‘Virtual Digital Assets’ added in the definition of undisclosed income [Section 158B]
11.6 Substitution of the term “total income” with “total undisclosed income”
11.7 Sequential handling of multiple searches if the block assessment is required to be made [Section 158BA(4)]
11.8 Revival of all proceedings abated if block assessment is annulled [Section 158BA(5)]
11.9 Computation of undisclosed income [Section 158BB] 1.140
11.10 Powers given to the AO to extend the period allowed by the notice to file the return of income for the block period [Section 158BC]
11.11 Block period of the other person is aligned with that of the person searched [Section 158BD]
11.12 Change in the limitation period for completion of block assessment [Section 158BE]
11.13 Change in the limitation period to levy penalty on undisclosed income [Section 158BFA]
11.14 Omission of Section 158BI
11.15 Comprehensive illustration
12
TAXATION OF CHARITABLE AND RELIGIOUS TRUSTS
12.1 Overview of changes in provisions relating to Charitable & Religious Trusts
12.2 Extension in the period of registration of small charitable trusts or institutions [Proviso to Section 12AB]
12.3 Incomplete application shall not be considered as ‘Specified Violation’ for cancellation of registration [Section 12AB(4)]
12.4 Rationalisation in the meaning of ‘substantial contributor’ [Section 13(3)] 1.166
13
PENALTIES AND PROSECUTIONS
13.1 Overview of amendments made by Finance Act, 2025
13.2 Time limit to accept or reject the application seeking immunity from penalty and prosecution is increased to 3 months [Section 270AA]
13.3 No penalty to be imposed under section 271AAB if the search is initiated on or after 01-09-2024 [Section 271AAB]
13.4 Omission of penalty provision for failure to subscribe to the eligible issue of capital [Section 271BB]
13.5 Assessing Officer is empowered to levy penalties under Sections 271C, 271CA, 271D, 271DA, 271DB and 271E
13.6 Provision providing for the period of limitation for imposing penalties is substituted [Section 275]
13.7 Consequential amendment to Section 246A
13.8 Offence of non-payment of TCS is decriminalised if it is paid before the due date to file the TCS Statement [Section 276BB] 1.177
MISCELLANEOUS
14.1 Overview of amendments made by Finance Act, 2025 1.179
14.2 Losses can be set off and carried forward by the demerged or amalgamation Co. for the original number of years [Sections 72A and 72AA]
14.3 Updated Return 1.183
14.4 Omission of the end date to issue directions for implementing a faceless regime 1.187
14.5 Computation of the period to be excluded during which the Courts grant an injunction or stay on proceeding
14.6 Amendments in provisions relating to IFSC
14.7 Authorities have been empowered to make adjustments in the income or loss due to inconsistencies in ITRs filed over the years [Section 143(1)(a)]
14.8 Removal of equalisation levy on the sum received or receivable by a non-resident for online advertisement services [Sections 163 and 165 of Finance Act, 2016 and section 10(50) of ITA] 1.196
DIVISION TWO
DIVISION THREE
Circulars, Clarifications & Notifications [1961 - February 2025]
Circulars, Clarifications and Notifications [1961 - February 2025] 3.3
DIVISION FOUR
Landmark Rulings of Supreme Court/High Courts [1922February 2025]
Landmark Rulings of Supreme Court/High Courts [1922 - February 2025] 4.3
PROFITS AND GAINS FROM BUSINESS AND PROFESSION*
“Special provision for computing profits and gains of non-residents engaged in business of providing services or technology for setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India.
44BBD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43A, where an assessee, being a non-resident, engaged in the business of providing services or technology in India, for the purposes of setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India––to a resident company which is establishing or operating electronics manufacturing facility or a connected facility for manufacturing or producing electronic goods, article or thing in India, under a scheme notified by the Central Government in the Ministry of Electronics and Information Technology; and the resident company satisfies the conditions prescribed in this behalf, a sum equal to twenty-five per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business of the non-resident assessee chargeable to tax under the head “Profits and gains of business or profession”.
(2) The amounts referred to in sub-section (1) shall be the following: ––the amount paid or payable to the non-resident assessee or to any person on his behalf on account of providing services or technology; and the amount received or deemed to be received by the non-resident assessee or on behalf of non-resident assessee on account of providing services or technology.
*SECTION 44BBD.
1.18
1.19
Para 2.2
(3) Notwithstanding anything in sub-section (2) of section 32 and sub-section (1) of section 72, where a non-resident assessee declares profits and gains of business for any previous year under sub-section (1), no set off of unabsorbed depreciation and brought forward loss shall be allowed to the assessee for such previous year.”
a see Para 2.1
b see Para 2.2
c
d
see Para 2.3
see Para 2.4
e see Paras 2.5 and 2.6]
f see Para 2.7
g see Para 2.8
h see Para 2.9
Para 2.10
2.1 A new scheme for non-residents engaged in the business of providing services or technology
2.2 Presumptive taxation regime
Scheme of presumptive taxation extended for non-resident providing services for electronics manufacturing facility
“The term presumptive taxation covers a number of procedures under which the ‘desired’ base for taxation (direct or indirect) is not itself measured but is inferred from some simple indicators which are more easily measured than the base itself.”
Presumptive taxation involves the use of indirect means to ascertain tax liability, which differ from the usual rules based on the taxpayer’s accounts. The term ‘presumptive’ is used to indicate that there is a legal presumption that the taxpayer’s income is not less than the amount resulting from the application of the indirect method.
2.3 The non obstante clause overriding sections 28 to 43A
2.3-1 Applicability of ICDS
Question 3: Does ICDS apply to non-corporate taxpayers who are not required to maintain books of account and/or those who are covered by the presumptive scheme of taxation, like sections 44AD, 44AE, 44ADA, 44B, 44BB, 44BBA, etc. of the Act?
Answer: ICDS is applicable to specified persons having income chargeable under the head ‘Profits and gains of business or profession’ or ‘Income from other sources’. Therefore, the relevant provisions of ICDS shall also apply to the persons computing
Income under the relevant presumptive taxation scheme. For example, for computing the presumptive income of a partnership firm under section 44AD of the Act, the provisions of ICDS on Construction Contract or Revenue recognition shall apply for determining the receipts or turnover, as the case may be.
2.3-2 Would other disallowance provisions apply?
non obstante Notwithstanding anything to the contrary contained in sections 28 to 43A…
38. It should be noted that the new section 44B overrides the provisions of sections 28 to 43A only and, accordingly, other provisions (including those relating to aggregation of income and set off or carry forward and set off of losses) will continue to apply in the case of non-residents deriving profits from shipping business. In this connection, it may be mentioned that unabsorbed depreciation allowance is carried forward under section 32(2) and the unabsorbed depreciation allowance of earlier years is treated as part of the depreciation allowance admissible in the relevant previous year. Since the provisions of section 32 are specifically overridden by the new section 44B, the unabsorbed depreciation for earlier years will not be allowed in determining the profits and gains for the assessment year 1976-77 and subsequent years. Losses incurred in earlier years, other than the losses due to depreciation will, however, be allowed to be set off against the profits for the assessment year 1976-77 and subsequent years subject to the fulfilment of the existing conditions in this behalf.
non obstante
Explanations
2.3-3 Would the provisions of tax audit under section 44AB apply?
“17.1 Compulsory audit of accounts of certain persons carrying on business or profession - Accounts maintained by companies are required to be audited under the Companies Act, 1956. Accounts maintained by co-operative societies are also required to be audited under the Co-operative Societies Act, 1912. There is, however, no obligation on other categories of taxpayers to get their accounts audited.
17.2 A proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the
taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and considerably saving the time of Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched or not. The time of the Assessing Officers thus saved could be utilised for attending to more important investigational aspects of a case.”
second proviso
inter alia
T.K. Aboobacker Union of India A. Sanyasi Rao Government of Andhra Pradesh and in K.M. Joseph Binoy (No. 1) Union of India P. Kunhammed Kutty Haji Union of India
2.3-4 Will section 44BBD override DTAA?
vice versa
1.23
Para 2.4
see Para 2.8-9
2.3-5 No exemption from payment of advance tax and return filing i.e.,
2.4 Non-resident is engaged in the specified business
a see Para 2.4-1
b see Para 2.4-2
c see Para 2.5
2.4-1 Non-resident
a
b
c
d i.e.,
2.4-2 Engaged in the business of providing services or technology -
a see Paras 2.4-2a to 2.4-2c
b see Para 2.4-2d
c see Paras 2.4-2e to 2.4-2f
d see Para 2.4-2g
2.4-2a Engaged in the business - ‘engaged in the business
2.4-2b Business - 13
a Systematic and Organized activity
b Profit motive not essential
c Business includes trade, commerce and manufacture -
Remington Rand of India Ltd Tahil Ali
Regional Provident Fund Commissioner, Bombay Shri Krishna Metal Manufacturing Co. National Projects Construction Corporation Ltd. CWT
CIT KBD Sugars & Distillers Ltd Formerly Karnataka Breweries & Distilleries Pvt. Ltd.)
National Projects Construction Corporation Ltd. CWT
Barandra Prashad Ray ITD
State of Andhra Pradesh H. Abdul Bakshi and Bros. ( CIT Best Chem and Limestone Industries Pvt. Ltd.
d Business includes Adventure in Nature of Trade
2.4-2c Business v. Profession -
a Personal Qualification
b Profession includes Vocation
c Distinction between business and profession is of no importance
2.4-2d Providing - Provide
Sole Trustee, Loka Shikshana Trust CIT
Barendra Prasad Ray ITO CIT PVG Raju
K. Ramaswami Gounder CIT
To make, procure or furnish for future use; obtain so as to have ready on hand when needed;
To furnish supplies or prerequisites; put into a state of preparation.
to make ready for future use,” “to furnish,” “to supply,” “to make suitable,” “furnishing a thing suitable for the use of another,” “to prepare,” “to furnish with things proper or necessary
CIT
“Generally speaking, technology will be considered “made available” when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4( ). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available.”
International Management Group (UK) Ltd.
“The make available prescription bids us to make a conscious distinction between a mere service provision and the impartation of lasting expertise. The offer of service or advise does not fundamentally alter the recipient’s capabilities. These services, while potentially valuable, do not endow the recipient with new skills or knowledge which could be independently deployed in the future. The kernel of “make available” must therefore be recognised to be a transfer of technology or skills rather than a temporary reliance on external support.”
International Management Group (UK) Ltd. CIT
US Technology Resources (P.) Ltd. CIT
2.4-2e Services -
“Services” means anything other than goods “goods” includes all materials, commodities and articles i ii
inter alia
a -
Lucknow Development Authority M.K. Gupta,
b
S.R.F. Finance Ltd. CBDT,
c Gitanjali Exports Corporation Ltd. ADCIT15
d Bosch Ltd ITO,