The key provision is Section 56(2) of the Act, which deals with transfers of property (including money) where consideration is not received or is less than the fair market value. The main points from this section include: Threshold Limit:If the aggregate value of gifts (money or property) received bRead more
The key provision is Section 56(2) of the Act, which deals with transfers of property (including money) where consideration is not received or is less than the fair market value. The main points from this section include:
Threshold Limit: If the aggregate value of gifts (money or property) received by an individual or a Hindu Undivided Family (HUF) in a financial year exceeds ₹50,000, the entire amount is taxable as income under “Income from Other Sources.”
Exemptions: The Act provides specific exemptions in this regard. For instance:
Gifts from Specified Relatives: Any gift, whether in money or property, received from a relative is fully exempt from tax.
Gifts on the Occasion of Marriage: Money or property received on marriage is exempt, with no upper limit.
Inheritance or Will: Any property or money received as inheritance, by way of a will, or in contemplation of death is not taxable.
Other Notified Exemptions: Certain gifts received from local authorities, approved trusts, or other specified entities may also be exempt depending on the conditions notified by the Government.
As per Section 56(2)): “Where any person receives any money, movable property or immovable property without consideration, or where the consideration is less than the fair market value, if the aggregate amount exceeds ₹50,000 in a financial year, then such amount is chargeable to tax under the head ‘Income from Other Sources’, subject to the exemptions provided…”
Under the Income Tax Act, 1961, any amount received on the issue of shares over and above their face value is credited to the Securities Premium Account. As a general principle, share premium is treated as a capital receipt and is exempt from tax under Section 10(34) of the Act. The entire share preRead more
Under the Income Tax Act, 1961, any amount received on the issue of shares over and above their face value is credited to the Securities Premium Account. As a general principle, share premium is treated as a capital receipt and is exempt from tax under Section 10(34) of the Act. The entire share premium—regardless of its quantum—is not included in the taxable income, provided it relates to the issue of shares and is properly credited in the accounts.
Section 10(34), Income Tax Act, 1961 (paraphrased): “Any amount received by a company as share premium in respect of the issue of shares shall not form part of the total income of the company.”
What Happens When Share Premium Exceeds Market Value?
Although the exemption under Section 10(34) covers the share premium in its entirety, issues arise when the premium received is significantly in excess of the fair market value of the shares. In such situations, tax authorities may examine the transaction under the following considerations:
Genuineness of the Premium: The premium must reflect a genuine valuation based on the company’s prospects, underlying asset values, or market conditions. If the premium is inflated beyond the fair market value, it raises the possibility that the excess amount is not a true capital receipt but a means of channeling funds that should otherwise be treated as revenue.
Recharacterization Risk: If it is found that the excess premium does not have a genuine capital character, the assessing authorities have the discretion to reclassify that portion as a revenue receipt. Depending on the facts and circumstances, such reclassification might result in the excess being treated as taxable income in the hands of the company. In extreme cases, if the inflated premium is used to disguise a dividend or to avoid dividend distribution tax, further tax implications under the concept of “deemed dividend” may arise.
Accounting and Disclosure: The entire amount received under share premium must be maintained in a designated securities premium account. Any diversion of these funds to non-capital accounts (or expenditures not allowed as a set-off against capital receipt) might also trigger reclassification and taxation.
Section 40(b) specifies that the remuneration to a partner may be allowed as a deduction if: It is provided for in the partnership deed or fixed as per a prior arrangement. It is calculated on a predetermined basis irrespective of the profits or turnover of the firm. The payment is made in advance oRead more
Section 40(b) specifies that the remuneration to a partner may be allowed as a deduction if:
It is provided for in the partnership deed or fixed as per a prior arrangement.
It is calculated on a predetermined basis irrespective of the profits or turnover of the firm.
The payment is made in advance or sanctioned for the relevant assessment year.
When Is Salary to a Partner Not Allowed?
The salary (or any form of remuneration) to a partner will be disallowed as a deduction under the following circumstances:
Not Provided for in the Partnership Deed: If the partnership deed does not expressly authorize or specify the payment of salary to the partner, any such payment made by the firm is not in line with the agreed terms and, therefore, will not be treated as an allowable deduction.
Excessive or Arbitrary Payment: Even if a salary is mentioned in the partnership deed, if the firm pays an amount that exceeds the rate or limits fixed by the deed (or as per the conditions prescribed under Section 40(b)), the excess portion of the salary will be disallowed. The Act expects the remuneration to be predetermined and not subject to arbitrary increases.
Non-Compliance with the Prescribed Formula: The Act mandates that the salary should be computed on a fixed formula (or rate) as stipulated in the deed, without being linked to the fluctuating profits of the firm. If the payment deviates from this method – for example, if it is linked directly to profits, thereby possibly distorting the firm’s taxable income – the deduction may be disallowed to the extent of the deviation.
Formula for Taxable Income: Taxable Income=50%×Gross Receipts ✅ No deductions for expenses like rent, salaries, depreciation, etc.✅ Deductions under Chapter VI-A (like 80C, 80D, 80G) are allowed. Additional Considerations ✅ No Need to Maintain Books of Account (if 50% or more is declared).✅ AdvanceRead more
Formula for Taxable Income:
Taxable Income=50%×Gross Receipts
✅ No deductions for expenses like rent, salaries, depreciation, etc. ✅ Deductions under Chapter VI-A (like 80C, 80D, 80G) are allowed.
Additional Considerations
✅ No Need to Maintain Books of Account (if 50% or more is declared). ✅ Advance Tax to be Paid in One Installment by March 15. ✅ ITR-4 (Sugam) Must Be Filed.
🚫 If declaring income below 50%, books of account must be maintained & audit may be required.
No, you cannot claim additional deductions for business expenses like rent, salary, office expenses, etc., when opting for the presumptive taxation scheme under Section 44ADA. ✅ As per Section 44ADA(2), the 50% of gross receipts deemed as income already accounts for all expenses related to the profeRead more
No, you cannot claim additional deductions for business expenses like rent, salary, office expenses, etc., when opting for the presumptive taxation scheme under Section 44ADA.
✅ As per Section 44ADA(2), the 50% of gross receipts deemed as income already accounts for all expenses related to the profession.
🚫 Depreciation under Section 32 is NOT allowed separately. ✅ However, the written-down value (WDV) of assets will be considered after reducing deemed depreciation.
What Deductions Are Still Allowed?
✅ Deductions under Chapter VI-A (like 80C, 80D, 80G, etc.) CAN be claimed.
✅ Some common deductions that can be claimed separately:
Section 80C: Investments in PPF, ELSS, Life Insurance Premium, EPF, etc. (Max ₹1.5 lakh)
Section 80D: Medical insurance premium paid for self & family (up to ₹25,000/₹50,000 for senior citizens)
Section 80E: Interest on education loan
Section 80G: Donations to charitable institutions
Section 80TTA: Interest on savings bank account (up to ₹10,000)
Yes, a taxpayer opting for the presumptive taxation scheme under Section 44ADA is required to pay advance tax. However, the payment schedule is different from regular taxpayers. Advance Tax Rule for Section 44ADA (Special Provision - Section 211(1)(b)) Entire advance tax (100%) must be paid in a sinRead more
Yes, a taxpayer opting for the presumptive taxation scheme under Section 44ADA is required to pay advance tax. However, the payment schedule is different from regular taxpayers.
Requirement to Maintain Books of Account & Audit 📌 Case 1: If Income Declared is 50% or More✅ No requirement to maintain books of account under Section 44AA.✅ No requirement for tax audit under Section 44AB. 📌 Case 2: If Income Declared is Less Than 50%❌ Books of account must be maintained as peRead more
Requirement to Maintain Books of Account & Audit
📌 Case 1: If Income Declared is 50% or More ✅ No requirement to maintain books of account under Section 44AA. ✅ No requirement for tax audit under Section 44AB.
📌 Case 2: If Income Declared is Less Than 50% ❌ Books of account must be maintained as per Section 44AA. ❌ Audit under Section 44AB is required if total income exceeds the basic exemption limit (₹2.5 lakh/₹3 lakh/₹5 lakh as per age category).
"If an assessee declares income lower than 50% of gross receipts, and his total income exceeds the basic exemption limit, he shall be required to:(a) Maintain books of account as per Section 44AA, and(b) Get his accounts audited under Section 44AB."
“If an assessee declares income lower than 50% of gross receipts, and his total income exceeds the basic exemption limit, he shall be required to: (a) Maintain books of account as per Section 44AA, and (b) Get his accounts audited under Section 44AB.”
1. Who Can Opt for Section 44AE? As per Section 44AE(1) of the Income Tax Act, 1961, the presumptive taxation scheme applies to: ✅ Eligible Assessees: Individuals Hindu Undivided Families (HUFs) Partnership firms (excluding LLPs) Companies ✅ Eligible Business: The assessee must be engaged in the busRead more
1. Who Can Opt for Section 44AE?
As per Section 44AE(1) of the Income Tax Act, 1961, the presumptive taxation scheme applies to:
✅ Eligible Assessees:
Individuals
Hindu Undivided Families (HUFs)
Partnership firms (excluding LLPs)
Companies
✅ Eligible Business:
The assessee must be engaged in the business of plying, hiring, or leasing goods carriages.
✅ Vehicle Ownership Limit:
The taxpayer must not own more than 10 goods vehicles at any time during the previous year.
2. Who is NOT Eligible for Section 44AE?
🚫 The following categories are NOT eligible for Section 44AE:
Persons owning more than 10 goods vehicles at any time during the financial year.
Limited Liability Partnerships (LLPs) – Since Section 44AE applies only to individuals, HUFs, firms (excluding LLPs), and companies, LLPs cannot opt for this scheme.
Businesses other than plying, hiring, or leasing goods carriages.
Taxpayers who wish to declare lower income than the prescribed presumptive income – They must maintain books of account under Section 44AA and get an audit under Section 44AB, if applicable.
A person who owns more than 10 goods vehicles at any time during the year CANNOT opt for Section 44AE.✅ If ownership is within the 10-vehicle limit, the taxpayer can use Section 44AE.❌ If the limit is exceeded, books of account must be maintained, and actual profit/loss must be computed.
A person who owns more than 10 goods vehicles at any time during the year CANNOT opt for Section 44AE. ✅ If ownership is within the 10-vehicle limit, the taxpayer can use Section 44AE. ❌ If the limit is exceeded, books of account must be maintained, and actual profit/loss must be computed.
Is money/property received without consideration chargeable to tax?
The key provision is Section 56(2) of the Act, which deals with transfers of property (including money) where consideration is not received or is less than the fair market value. The main points from this section include: Threshold Limit:If the aggregate value of gifts (money or property) received bRead more
The key provision is Section 56(2) of the Act, which deals with transfers of property (including money) where consideration is not received or is less than the fair market value. The main points from this section include:
Threshold Limit:
If the aggregate value of gifts (money or property) received by an individual or a Hindu Undivided Family (HUF) in a financial year exceeds ₹50,000, the entire amount is taxable as income under “Income from Other Sources.”
Exemptions:
The Act provides specific exemptions in this regard. For instance:
Gifts from Specified Relatives: Any gift, whether in money or property, received from a relative is fully exempt from tax.
Gifts on the Occasion of Marriage: Money or property received on marriage is exempt, with no upper limit.
Inheritance or Will: Any property or money received as inheritance, by way of a will, or in contemplation of death is not taxable.
Other Notified Exemptions: Certain gifts received from local authorities, approved trusts, or other specified entities may also be exempt depending on the conditions notified by the Government.
See less
What is the tax treatment of share premium received in excess of market value?
Under the Income Tax Act, 1961, any amount received on the issue of shares over and above their face value is credited to the Securities Premium Account. As a general principle, share premium is treated as a capital receipt and is exempt from tax under Section 10(34) of the Act. The entire share preRead more
Under the Income Tax Act, 1961, any amount received on the issue of shares over and above their face value is credited to the Securities Premium Account. As a general principle, share premium is treated as a capital receipt and is exempt from tax under Section 10(34) of the Act. The entire share premium—regardless of its quantum—is not included in the taxable income, provided it relates to the issue of shares and is properly credited in the accounts.
What Happens When Share Premium Exceeds Market Value?
Although the exemption under Section 10(34) covers the share premium in its entirety, issues arise when the premium received is significantly in excess of the fair market value of the shares. In such situations, tax authorities may examine the transaction under the following considerations:
-
-
-
See lessGenuineness of the Premium:
The premium must reflect a genuine valuation based on the company’s prospects, underlying asset values, or market conditions. If the premium is inflated beyond the fair market value, it raises the possibility that the excess amount is not a true capital receipt but a means of channeling funds that should otherwise be treated as revenue.
Recharacterization Risk:
If it is found that the excess premium does not have a genuine capital character, the assessing authorities have the discretion to reclassify that portion as a revenue receipt. Depending on the facts and circumstances, such reclassification might result in the excess being treated as taxable income in the hands of the company. In extreme cases, if the inflated premium is used to disguise a dividend or to avoid dividend distribution tax, further tax implications under the concept of “deemed dividend” may arise.
Accounting and Disclosure:
The entire amount received under share premium must be maintained in a designated securities premium account. Any diversion of these funds to non-capital accounts (or expenditures not allowed as a set-off against capital receipt) might also trigger reclassification and taxation.
When salary to a partner is not allowed as deduction under the Income Tax Act?
Section 40(b) specifies that the remuneration to a partner may be allowed as a deduction if: It is provided for in the partnership deed or fixed as per a prior arrangement. It is calculated on a predetermined basis irrespective of the profits or turnover of the firm. The payment is made in advance oRead more
Section 40(b) specifies that the remuneration to a partner may be allowed as a deduction if:
It is provided for in the partnership deed or fixed as per a prior arrangement.
It is calculated on a predetermined basis irrespective of the profits or turnover of the firm.
The payment is made in advance or sanctioned for the relevant assessment year.
When Is Salary to a Partner Not Allowed?
The salary (or any form of remuneration) to a partner will be disallowed as a deduction under the following circumstances:
-
-
-
-
See lessNot Provided for in the Partnership Deed:
If the partnership deed does not expressly authorize or specify the payment of salary to the partner, any such payment made by the firm is not in line with the agreed terms and, therefore, will not be treated as an allowable deduction.
Excessive or Arbitrary Payment:
Even if a salary is mentioned in the partnership deed, if the firm pays an amount that exceeds the rate or limits fixed by the deed (or as per the conditions prescribed under Section 40(b)), the excess portion of the salary will be disallowed. The Act expects the remuneration to be predetermined and not subject to arbitrary increases.
Non-Compliance with the Prescribed Formula:
The Act mandates that the salary should be computed on a fixed formula (or rate) as stipulated in the deed, without being linked to the fluctuating profits of the firm. If the payment deviates from this method – for example, if it is linked directly to profits, thereby possibly distorting the firm’s taxable income – the deduction may be disallowed to the extent of the deviation.
How to calculate taxable income in case of a person adopting the presumptive taxation scheme of section 44ADA?
Formula for Taxable Income: Taxable Income=50%×Gross Receipts ✅ No deductions for expenses like rent, salaries, depreciation, etc.✅ Deductions under Chapter VI-A (like 80C, 80D, 80G) are allowed. Additional Considerations ✅ No Need to Maintain Books of Account (if 50% or more is declared).✅ AdvanceRead more
Formula for Taxable Income:
Taxable Income=50%×Gross Receipts
✅ No deductions for expenses like rent, salaries, depreciation, etc.
✅ Deductions under Chapter VI-A (like 80C, 80D, 80G) are allowed.
Additional Considerations
✅ No Need to Maintain Books of Account (if 50% or more is declared).
✅ Advance Tax to be Paid in One Installment by March 15.
✅ ITR-4 (Sugam) Must Be Filed.
🚫 If declaring income below 50%, books of account must be maintained & audit may be required.
See lessCan we claim further deduction of expenses when we have adopted section 44ADA?
No, you cannot claim additional deductions for business expenses like rent, salary, office expenses, etc., when opting for the presumptive taxation scheme under Section 44ADA. ✅ As per Section 44ADA(2), the 50% of gross receipts deemed as income already accounts for all expenses related to the profeRead more
No, you cannot claim additional deductions for business expenses like rent, salary, office expenses, etc., when opting for the presumptive taxation scheme under Section 44ADA.
✅ As per Section 44ADA(2), the 50% of gross receipts deemed as income already accounts for all expenses related to the profession.
🚫 Depreciation under Section 32 is NOT allowed separately.
✅ However, the written-down value (WDV) of assets will be considered after reducing deemed depreciation.
What Deductions Are Still Allowed?
✅ Deductions under Chapter VI-A (like 80C, 80D, 80G, etc.) CAN be claimed.
✅ Some common deductions that can be claimed separately:
-
-
-
-
-
See lessSection 80C: Investments in PPF, ELSS, Life Insurance Premium, EPF, etc. (Max ₹1.5 lakh)
Section 80D: Medical insurance premium paid for self & family (up to ₹25,000/₹50,000 for senior citizens)
Section 80E: Interest on education loan
Section 80G: Donations to charitable institutions
Section 80TTA: Interest on savings bank account (up to ₹10,000)
Is advance Tax is need to be paid if we have adopted the presumptive taxation scheme of section 44ADA?
Yes, a taxpayer opting for the presumptive taxation scheme under Section 44ADA is required to pay advance tax. However, the payment schedule is different from regular taxpayers. Advance Tax Rule for Section 44ADA (Special Provision - Section 211(1)(b)) Entire advance tax (100%) must be paid in a sinRead more
Yes, a taxpayer opting for the presumptive taxation scheme under Section 44ADA is required to pay advance tax. However, the payment schedule is different from regular taxpayers.
Advance Tax Rule for Section 44ADA (Special Provision – Section 211(1)(b))
-
-
See lessEntire advance tax (100%) must be paid in a single installment on or before March 15 of the financial year.
If advance tax is not paid by March 15, interest under Sections 234B & 234C will be levied.
If a person adopts the presumptive taxation scheme of section 44ADA, then he is required to maintain books of account as per section 44AA?
Requirement to Maintain Books of Account & Audit 📌 Case 1: If Income Declared is 50% or More✅ No requirement to maintain books of account under Section 44AA.✅ No requirement for tax audit under Section 44AB. 📌 Case 2: If Income Declared is Less Than 50%❌ Books of account must be maintained as peRead more
Requirement to Maintain Books of Account & Audit
📌 Case 1: If Income Declared is 50% or More
✅ No requirement to maintain books of account under Section 44AA.
✅ No requirement for tax audit under Section 44AB.
📌 Case 2: If Income Declared is Less Than 50%
See less❌ Books of account must be maintained as per Section 44AA.
❌ Audit under Section 44AB is required if total income exceeds the basic exemption limit (₹2.5 lakh/₹3 lakh/₹5 lakh as per age category).
What provision will apply if a person opt for the presumptive taxation scheme of section 44ADA and declares his income from profession at lower rate (i.e. less than50%)?
"If an assessee declares income lower than 50% of gross receipts, and his total income exceeds the basic exemption limit, he shall be required to:(a) Maintain books of account as per Section 44AA, and(b) Get his accounts audited under Section 44AB."
“If an assessee declares income lower than 50% of gross receipts, and his total income exceeds the basic exemption limit, he shall be required to:
See less(a) Maintain books of account as per Section 44AA, and
(b) Get his accounts audited under Section 44AB.”
Who is eligible for presumptive taxation scheme of section 44AE?
1. Who Can Opt for Section 44AE? As per Section 44AE(1) of the Income Tax Act, 1961, the presumptive taxation scheme applies to: ✅ Eligible Assessees: Individuals Hindu Undivided Families (HUFs) Partnership firms (excluding LLPs) Companies ✅ Eligible Business: The assessee must be engaged in the busRead more
1. Who Can Opt for Section 44AE?
As per Section 44AE(1) of the Income Tax Act, 1961, the presumptive taxation scheme applies to:
✅ Eligible Assessees:
Individuals
Hindu Undivided Families (HUFs)
Partnership firms (excluding LLPs)
Companies
✅ Eligible Business:
The assessee must be engaged in the business of plying, hiring, or leasing goods carriages.
✅ Vehicle Ownership Limit:
The taxpayer must not own more than 10 goods vehicles at any time during the previous year.
2. Who is NOT Eligible for Section 44AE?
🚫 The following categories are NOT eligible for Section 44AE:
-
-
-
-
See lessPersons owning more than 10 goods vehicles at any time during the financial year.
Limited Liability Partnerships (LLPs) – Since Section 44AE applies only to individuals, HUFs, firms (excluding LLPs), and companies, LLPs cannot opt for this scheme.
Businesses other than plying, hiring, or leasing goods carriages.
Taxpayers who wish to declare lower income than the prescribed presumptive income – They must maintain books of account under Section 44AA and get an audit under Section 44AB, if applicable.
Can a person who owns more than 10 goods vehicles adopt the presumptive taxation scheme of section 44AE?
A person who owns more than 10 goods vehicles at any time during the year CANNOT opt for Section 44AE.✅ If ownership is within the 10-vehicle limit, the taxpayer can use Section 44AE.❌ If the limit is exceeded, books of account must be maintained, and actual profit/loss must be computed.
A person who owns more than 10 goods vehicles at any time during the year CANNOT opt for Section 44AE.
See less✅ If ownership is within the 10-vehicle limit, the taxpayer can use Section 44AE.
❌ If the limit is exceeded, books of account must be maintained, and actual profit/loss must be computed.