Author: Infinite On Tax

With effect from 1^st April 2025 i.e. new financial year FY 2025-26, there are several changes including changes in income tax slabs. These changes must be kept in mind by all categories of taxpayers such as salaried persons, businesses, professionals etc. Let us understand the 10 important changes effective from 1^st April 2025 for the new financial year 2025-26.

New Tax Regime – Changes in Income Tax Slabs and Tax Rates

For the FY 2025-26, the revised income tax slabs and tax rates for assessees opting for the New Tax Regime i.e. the default tax regime u/s 115BAC are as under:-

Income Tax Slabs	Rate of Tax
Upto Rs. 4 lacs	Nil
Rs. 4 lacs to Rs. 8 lacs	5%
Rs. 8 lacs to Rs. 12 lacs	10%
Rs. 12 lacs to Rs. 16 lacs	15%
Rs. 16 lacs to Rs. 20 lacs	20%
Rs. 20 lacs to Rs. 24 lacs	25%
Above Rs. 24 lacs	30%

It is pertinent to remember that for assessees opting for the Old Tax Regime, the income tax slabs and tax rates will remain unchanged.

No Tax Payable upto Rs. 12 lacs wef 1st April 2025

The Income Tax Act, 1961 allows rebate u/s 87A which was earlier capped at Rs. 25,000. However, this limit has now been increased to Rs. 60,000 thereby ensuring that there is no tax liability for incomes upto Rs. 12 lacs filed under the New Tax Regime. However, this limit has only been increased for taxpayers filing returns under the new tax regime and the earlier limit of Rs. 25,000 will be applicable under the old tax regime.

Changes in House Property Taxation wef New Financial Year

Under the head ‘Income from House Property’, earlier only one house could be treated as self-occupied, unless the taxpayer had to reside in another city for work, in which case two properties could be considered. However, the rules have now been relaxed for the new financial year — up to two properties can be treated as self-occupied, and their annual value will be considered nil, without any specific conditions wef 1st April 2025.

Deduction allowed for remuneration to partner

Section 40(b) of the Income Tax Act sets a limit on the amount of salary and interest on capital that can be paid to partners in a firm. Any payment beyond this limit cannot be claimed as a tax deduction. These limits apply to the combined salary of all partners, not individually.

For Financial Year 2024-25:

• On the first ₹3,00,000 of book profit or in case of a loss:
  Deduction allowed is ₹1,50,000 or 90% of book profit, whichever is higher.
• On the remaining book profit:
  Deduction allowed is 60% of the remaining profit.

From New Financial Year 2025-26 i.e. wef 1st April 2025 onwards:

• On the first ₹6,00,000 of book profit or in case of a loss:
  Deduction allowed is ₹3,00,000 or 90% of book profit, whichever is higher.
• On the remaining book profit:
  Deduction allowed is 60% of the remaining profit.

Exemptions for Start Ups Extended

• Current Rule: Start-ups can claim a 100% tax deduction on profits for 3 out of 10 years after incorporation.
• Eligibility:
  • Incorporated between April 1, 2016, and March 31, 2025
  • Turnover must be under ₹100 crore
  • Must be certified by the Inter-Ministerial Board
• Proposed Change:
  • Extend the eligibility period to March 31, 2030
• Effective Date:
  • The change will apply from 1st April 2025.

Extended Tax Holiday Period for IFSC

With effect from 1^st April 2025, the deadline for commencing operations in IFSC for availing the benefits of tax holiday has been extended upto 31^st March, 2030 thereby increasing the tenure of the sunset clause by 5 years. Moreover, the non-residents availing life insurance policies issued by IFSC units will be eligible for full tax exemption u/s 10(10D), regardless of the size of the premium.

Time limit for filing updated returns

The government has extended the time period for filing updated income tax returns from the existing 2 years to 4 years from the end of the relevant assessment year wef 1st April 2025. This change is intended to encourage voluntary tax compliance by giving taxpayers a longer window to review and correct any omissions or errors in their original filings. By allowing more time for individuals and businesses to file or update their returns, the revised timeline aims to reduce litigation, improve accuracy in tax reporting, and create a more transparent and taxpayer-friendly system. This move is expected to make the process of rectifying genuine mistakes in income declarations easier and promote a more efficient and cleaner tax administration.

Reporting and Disclosures regarding Cryptocurrencies

A new provision, Section 285BAA, has been introduced in the Income Tax Act to strengthen the regulatory framework around cryptocurrency and other digital asset transactions in the new financial year This section makes it compulsory for all crypto exchanges and intermediaries to report details of transactions involving virtual digital assets (VDAs) to the Income Tax Department. The move is aimed at enhancing transparency and ensuring accurate tracking of crypto-related activities.

Scope of Undisclosed Income includes VDA

The scope of undisclosed income under Section 158B has been expanded to include virtual digital assets, making it clear that unreported holdings or gains from such assets will be treated as concealed income wef new financial year i.e. 1st April 2025 onwards. These changes reflect the government’s intent to bring digital assets under stricter tax compliance and reduce the chances of tax evasion in the rapidly growing crypto space.

Changes in carry forward period in case of amalgamation

Previously, sections 72A and 72AA of the Income Tax Act allowed the successor company, in cases of amalgamation or business reorganisation, to carry forward the accumulated losses of the predecessor company for a fresh period of eight years starting from the year of amalgamation. This created a loophole where companies could bypass the standard 8-year limitation under section 72 by repeatedly restructuring, allowing them to continue setting off losses indefinitely through successive amalgamations—a practice often referred to as “evergreening” of losses.

To address this and bring consistency across the tax framework, in the new financial year wef 1st April 2025, the amended provisions under sections 72A and 72AA now restrict the carry forward of such losses to a maximum of eight years from the date they were originally determined by the predecessor entity. This change aims to prevent misuse of the provision while still supporting legitimate business restructurings.

The New Income Tax Bill 2025 was introduced by the Finance Minister Nirmala Sitharaman in the Parliament on 13^th February, 2025 to replace the six decades old Income Tax Act of 1961. The bill has now been sent to the Standing Committee for review and a report on the bill is expected to be presented by the committee on the 1^st day of the next session. Let us now understand the 10 major changes introduced in the new Income Tax Bill 2025 in comparison to the existing direct tax law contained in the Income Tax Act, 1961.

Concept of Tax Year introduced

In the existing Income Tax Act, 1961, the terms “previous year” and “assessment year” were used to denote the period for which the income tax was being computed. However, in the new Income Tax Bill 2025, the concept of “tax year” has been introduced to replace the terms “previous year” and “assessment year”. The term “tax year” has been defined in Clause 3 of the Income Tax Bill 2025 as –

“(1) For the purposes of this Act, “tax year” means the twelve months period of the financial year commencing on the 1st April.

(2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with—

(a) the date of setting up of such business or profession; or

(b) the date on which such source of income newly comes into existence, and,

ending with the said financial year.”

Change in determination of residential status

Clause 6 of the new Income Tax Bill 2025 deals with the rules for determination of residential status. An important change in the new law as compared to the existing law is stated in Clause 6 sub-clause 3 i.e.

“(3) The provisions of sub-section (2)(b) shall not apply in the case of an individual who is a citizen of India and leaves India in any tax year––

(a) as a member of the crew of an Indian ship, as defined in section 3(18) of the Merchant Shipping Act, 1958; or

(b) for employment outside India.”

Previously, individuals leaving India “for the purpose of employment” benefited from a relaxed residency requirement—they were classified as non-residents if they spent less than 182 days in India during the financial year, compared to the 60-day rule applicable to others. However, under the new bill, this phrase has been revised to “for employment outside India.” Individuals planning to move abroad may need to strategize their relocation carefully and ensure they have official employment proof before leaving India. Without this, they could unexpectedly fall under India’s tax residency laws despite spending most of their time overseas.

Certain transfers removed for capital gains

Since the existing Income Tax Act, 1961 is a six decades old law, there were certain redundant concepts in the law that have now been removed completely from the new Income Tax Bill, 2025. Two such changes are the removal of the transfer of land of an industrially sick company and the removal of transfer in course of demutualisation or corporatisation of a recognized stock exchange from the purview of transactions eligible for capital gains. This has been done to remove redundant provisions to simplify and streamline the law.

Deduction of 80C and 80CCD now covered in Schedule XV

As per the new Income Tax Bill, 2025, Schedule XV contains the deductions with respect to the following:-

• Life insurance premium
• Contribution to Provident Fund
• Subscription to certain equity shares

amongst other deductions that were primarily covered u/s 80C and 80CCD in the existing Income Tax Act, 1961.

Deduction for Entertainment allowance not allowed

As per the existing Income Tax Act, 1961, Section 16 includes deduction for entertainment allowance to be deducted from income from salary for government employees. However, as per the new Income Tax Bill, 2025, no such entertainment allowance deduction will be available for government employees.

Tax exemption in case of receipt of gifts

Under Section 56(2)(x) of the existing Income Tax Act, gifts received by an individual from their direct ancestors or descendants, including those related to their spouse, are exempt from income tax. However, the proposed Income Tax Bill, 2025, has now clarified that these lineal relatives may belong to either the maternal or paternal side of the family as per the definition of relative in Clause 92(5)(g) of the new Income Tax Bill, 2025.

Deduction of TDS/TCS at lower rates

As per Clause 395 of the new Income Tax Bill, 2025 the assessee can apply for a lower rate of deduction of TDS/TCS to the Assessing Officer and the AO can issue a certificate for such low/nil deduction of TDS/TCS. Clause 395 states that –

 “(1) Where tax is required to be deducted on any income or sum under this Chapter, then subject to the rules made under this Act,—

(a) the payee may make an application before the Assessing Officer for deduction of tax at a lower rate; and

(b) the Assessing Officer on being satisfied that the total income of the payee justifies a lower deduction, shall issue a certificate as appropriate; and

(c) when a certificate is issued under clause (b), the person responsible for paying the income or amount shall deduct the tax at the rate specified in such certificate till its validity.”

Under Section 197 of the existing Income Tax Act, 1961 a taxpayer can apply to the Assessing Officer for a certificate allowing nil or reduced TDS deduction. However, this benefit is only available for specific types of payments outlined in the section. The Income Tax Bill, 2025 extends this provision, enabling individuals to request a lower TDS certificate for all payment categories.

Definition of books of accounts – Search and Seizure cases

The new Income Tax Bill, 2025, has revised the phrase “any books of account or other documents” to now include “any books of account, other documents, or any information stored in electronic media or a computer system.” This change broadens the scope to cover digital records in addition to physical documents.

Access in case of search and seizure

Section 132 of the Income Tax Act grants an authorized officer the power to act when there is reason to believe that books of accounts or assets are stored in a building, vehicle, vessel, aircraft, or other locations. Among these powers is the authority to break open locks on doors, safes, lockers, or any secured storage if the keys are unavailable. The new Income Tax Bill,2025 expands this provision by allowing officials to bypass access codes to computer systems or virtual digital spaces when the required credentials are not accessible.

“Virtual Digital Asset” Introduced

As per Clause 2 sub-clause 111 of the new Income Tax Bill, 2025, a new term “virtual digital asset” has been introduced and defined as –

“Virtual digital asset” means—

• any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, called by any name, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;
• a non-fungible token or any other token of similar nature, bywhatever name called;
• any other digital asset, as the Central Government may, bynotification, specify,
• any crypto-asset being a digital representation of value thatrelies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions, whether or not such asset is included in sub-clause (a) or (b) or (c),”

Thus, Virtual Digital Assets (VDAs) include cryptocurrencies, NFTs and other digital currencies that will now be categorised as assets such as paintings, jewellery and shares for taxation purposes.

The New Income Tax Bill introduced in the Lok Sabha by the Finance Minister Nirmala Sitharaman on 13^th February, 2025 to replace the Income Tax Act, 1961. The motion to introduce the bill was passed and the Finance Minister requested the Speaker of the Lok Sabha to send the income tax bill to the Parliamentary Standing Committee for their suggestions and the report of the committee may be given on the 1^st day of the next session.

The new Income Tax Bill introduced is a 622 pages document, with 536 sections, 23 chapters and 16 schedules. Before the new income tax could be introduced, there were certain arguments made by some opposition members that were then answered by the Finance Minister in her introductory remarks.

Objections raised by Members of Parliament

Certain objections were raised in the Lok Sabha today by Manish Tiwari (INC), N. Premachandran (RSP) and Saugota Roy (TMC) primarily on the grounds that the contention of the Finance Ministry was to simplify the direct tax law however, since the number of sections has increased from 298 to 536 in the new Income Tax Bill introduced, this objective of the bill requires clarity.

FM’s arguments for 536 sections

As elaborated above, it was argued by the opposition members in the Parliament that the Income Tax Act, 1961 had only 298 sections however, the new income tax bill introduced by the Finance Minister has 536 sections. In response to this argument, the Finance Minister Nirmala Sitharaman stated that in the Income Tax Act, 1961 there were effectively 819 sections that have now been substantially reduced to 536 sections.

Accommodation of amendments

The Finance Minister Nirmala Sitharaman highlighted that in the Income Tax Act, 1961, there were over 4000 amendments that had been introduced from 1961 to 2024. In the new Income Tax Bill introduced, the focus has been on accommodating these amendments in a simple language.

Bill sent to Committee for review

The motion to introduce the bill was passed and the Finance Minister requested the Speaker of the Lok Sabha to send the income tax bill to the Parliamentary Standing Committee for their suggestions and the report of the committee may be given on the 1^st day of the next session i.e. 10^th March, 2025. The introduced new law will be called the Income Tax Act, 2025 and is expected to be implemented from 1^st April, 2026.

No change in the heads of income

There has been no change in the heads of income in the new Income Tax Bill introduced and the heads of income are – salary, income from house property, profits and gains from business or profession, capital gains and income from other sources.

Click here to read details about the Highlights of the New Income Tax Bill 2025.

Click here to view the official document of the New Income Tax Bill 2025 introduced.

The draft new Income Tax Bill 2025 PDF that is being circulated in public domain is a 622 pages document constituting 536 clauses, 23 chapters and 16 schedules. This new law is proposed to be effective from 1^st April, 2026. The Government is likely to table this bill in the Parliament on 13^th February, 2025. The key points of the proposed new income tax bill 2025 are elaborated as under:-

Applicability and Tax Regime

The new direct tax law is proposed to be effective from 1^st April, 2026. The new tax regime will be applicable on all individuals.

Change in terminology of PY and AY

The proposed bill suggests that the terms – ‘Previous Year’, ‘Financial Year’ and ‘Assessment Year’ will be replaced with the concept of ‘Tax Year’.

Definition of Accountants

As per Section 515(3)(b) of the proposed new income tax bill 2025, there will be no change in the definition of accountants. As per Section 63 of the proposed new income tax bill, Chartered Accountants retain the sole power to conduct tax audits.

Deductions under the New Tax Regime

Section 19(1) of the proposed new income tax bill 2025 contains list of deductions which will be permitted under the new tax regime.

Tax audit applicability

As per the propose new income tax bill, where the profits declared are lower than the profit to be declared as per Section 44AD, the taxpayer will be liable for tax audit.

No change in STCG

As per the proposed new income tax bill 2025, there will be no change in the tax rate and tenure for computation of short term capital gains. The period will be 12 months and 20% will be the STCG rate of tax.

Benefit of presumptive taxation

In the existing Income Tax Act, 1961, the benefit of presumptive taxation was limited to certain businesses and professions. However, as per the proposed new income tax bill, this benefit will be available across more categories including digital businesses for ease to the small businesses.

TDS and TCS

In the existing Income Tax Act, 1961, there were various rates for different heads of income for deduction of TDS and TCS. In the proposed new income tax bill, there will be a unified and simplified structure for TDS and TCS.

New Digital Economy Taxation

The proposed new income tax bill 2025 will include specific provisions for taxation of digital economy including crypto currency and e-commerce with penalties for lapses in reporting of crypto currency transactions.

Residential Status

In the existing Income Tax Act, 1961, the determination of residential status was based on number of days. However, in the new proposed income tax bill, there will be new definitions for NRIs and tax residency to curb instances of tax avoidance.

Scope of GAAR (General Anti-Avoidance Rules)

In the proposed new income tax bill, the scope of GAAR (General Anti-Avoidance Rules) will be strengthened to ensure stricter ant-avoidance measures and reduce tax evasion.

No new taxes introduced

The proposed new income tax bill does not introduce any new taxes and focuses on simplifying the existing direct tax law.

Click here to read more about the Focus areas of the New Income Tax Bill 2025.

Click here to read about the Highlights of the Union Budget 2025.

The Finance Minister Nirmala Sitharaman during her Union Budget speech on 01^st February, 2025 announced that the New Income Tax Bill 2025 will be introduced in the Parliament next week. The Union Cabinet has approved the new income tax bill on Friday. Once the bill is introduced in the Parliament, it will be sent to the Standing Committee on Finance for their review. The New Income Tax Bill 2025 will be a replacement to the existing Income Tax Act, 1961 which is almost 6 decades old and has undergone several amendments over the last few decades. The key focus of the New Income Tax Bill is to simplify the direct tax laws in the country.

Key Focus Areas of the New Income Tax Bill 2025

Ever since the FM in her Union Budget Speech 2025 has mentioned that the New Income Tax Bill aims to streamline and simplify the direct tax law, there are certain expectations that various sections of the society are hoping for. The Finance Ministry has also mentioned certain focus areas for change on various platforms.

Simplification of Direct Tax Laws

The New Income Tax Bill focuses on simplifying the direct tax law which is currently consisting of 298 sections with several provisos and amendments.

Concise language

The Income Tax Act, 1961 is often difficult to comprehend for the common man owing to the complexity and cross-referencing of sections. The Finance Ministry has mentioned that the focus will be on shorter sentences and easy to comprehend language.

Minimizing litigation

The Finance Minister Nirmala Sitharaman has highlighted that the spirit of the new law will be “Nyaya” and with the simplified provisions, the disputes and litigations will be reduced.

Unified tax rates

The focus will be on introducing unified tax rates in accordance with the global standards.

Simplified rules for residential status

The Finance Ministry is aiming to streamline and simplify the provisions regarding residential status in the New Income Tax Bill.

Concise Structure

Currently the Income Tax Act, 1961 has 298 sections and several provisos and explanations, the focus of the New Income Tax Bill will be to reduce the redundant sections and provide a more concise structure to the direct tax law.

Incorporating public suggestions

The Finance Ministry had invited suggestions from the public on the following four areas – simplification of language, reduction of litigation, redundant provisions and reducing compliance burden. The public expects that since the Finance Ministry had invited these suggestions, they will be considered while compiling the New Income Tax Bill.

Issues regarding interpretation resolved

There were several issues regarding interpretation of the direct tax law by various courts of law. With the introduction the simplified new law, the disputes arising from such interpretation issues will be resolved.

Removal of outdated provisions

Since the Income Tax Act, 1961 is a 6 decades old law, there are certain provisions that require review and may be removed since they are outdated.

Reducing procedural formalities

The existing Income Tax act was introduced at a time when there was no technology being used however, with time, the same has improved and today we are filing forms that have a huge portion of pre-filled data from various sources due to the integration of various platforms owing to the technological advancements, thus the aim of the New Income Tax Bill will be to reduce the procedural formalities and facilitate the procedure for the taxpayers.

Avoid cross-referencing

The existing Income Tax Act has been an ever-evolving law and has undergone several amendments often leading to cross-referencing with different sections and provisos to interpret a common point. The aim of the New Income Tax Bill will be to avoid such cross-referencing of sections thereby simplifying the interpretation of each section.

The Union Budget Speech 2025 live updates available here.

Click here to get the Highlights of the Budget 2025.

CBDT has notified the forms and rules for the Direct Tax Vivad se Vishwas Scheme (DTVSV 2.0) which will be effective from 1^st October, 2024. This has come in pursuance of the announcement made by the Hon’ble Finance Minister Smt. Nirmala Sitharaman in the Union Budget 2024-25 to resolve the bulk of the pending appeals for various income tax disputes.

The DTVSV Scheme offers reduced settlement amounts for ‘new appellants’ compared to ‘old appellants.’ Additionally, it provides lower settlement amounts for taxpayers who submit their declaration on or before December 31, 2024, as opposed to those who file after that date.

Applicability of Vivad Se Vishwas Scheme 2024

The Direct Tax Vivad se Vishwas Scheme 2024 is applicable on any disputes or appeals, including writs and special leave petitions (Appeals), submitted by taxpayers or tax authorities, still pending as of 22^nd July, 2024 before the following bodies:

• The Supreme Court, High Court, Income Tax Appellate Tribunal, or Commissioner/Joint Commissioner (Appeals)
• The Dispute Resolution Panel (DRP), or cases where the DRP has issued directions but the final assessment order is yet to be passed
• Revision petitions under review by the Commissioner of Income Tax.

Amount payable to opt for the Vivad se Vishwas Scheme 2024 –

If the appeal is filed after 31/01/2020:

For tax arrears including: (i) Disputed tax, (ii) Interest charged or chargeable, and (iii) Penalty levied or leviable.	Amount due before or on 31.12.2024: The amount of the disputed tax. Amount due from 1.01.2025 to the final date: The amount of the disputed tax plus an additional 10%.
For tax arrears concerning: (i) Disputed interest, (ii) Disputed penalty, or (iii) Disputed fee.	Amount due before or on 31.12.2024: 25% of the disputed amount. Amount due from 1.01.2025 to the final date: 30% of the disputed amount.

If the appeal is filed before 31/01/2020:

For tax arrears including: (i) Disputed tax, (ii) Interest charged or chargeable, and (iii) Penalty levied or leviable.	Amount due before or on 31.12.2024: The amount of the disputed tax plus an additional 10%. Amount due from 1.01.2025 to the final date: The amount of the disputed tax plus an additional 20%.
For tax arrears concerning: (i) Disputed interest, (ii) Disputed penalty, or (iii) Disputed fee.	Amount due before or on 31.12.2024: 30% of the disputed amount. Amount due from 1.01.2025 to the final date: 35% of the disputed amount.

If the appeal or writ petition is initiated by the Income Tax Department rather than the taxpayer, the taxpayer is required to pay only 50% of the amounts outlined in the table.

Additionally, if the appellant files an appeal before the Commissioner (Appeals) or Joint Commissioner (Appeals), or raises objections with the Dispute Resolution Panel on an issue where they have already obtained a favorable ruling from the Income Tax Appellate Tribunal (ITAT) or the High Court (and the ruling has not been overturned by a higher court), the amount payable will be reduced to 50% of the amount calculated as per the table.

Similarly, if an appeal is brought before the ITAT on an issue where the appellant has previously received a favorable ruling from the High Court (and it has not been reversed by the Supreme Court), the amount payable will also be reduced to 50% of the amount specified in the table.

CBDT has notified Forms for DTVSV Scheme 2024

On 20^th September, 2024, CBDT has notified the following 4 forms for opting for the Direct Tax Vivad se Vishwas Scheme 2024:-

• Form – 1 – A declaration and undertaking to be filed by the applicant, separately for each dispute. The contents of this form include general details and information about tax payable. The applicant has to provide an undertaking to voluntarily waive all rights, whether direct or indirect, to seek or pursue any remedy or claim in relation to the tax arrear.
• Form – 2- Form for certificate to be issued by the Designated Authority including details of tax arrears and amount payable by the applicant for the full and final settlement of the said tax arrear.
• Form – 3 – Form for intimation of payment by the declarant that includes details of payments such as BSR code of the bank, date of deposit, serial number of challan and the amount deposited. The form also includes proof of withdrawal of any appeal, objection, writ, application, special leave petition or claim.
• Form – 4 – Final Order issued by the Designated Authority for the full and final settlement of tax arrears by the Designated Authority including details of the tax dispute, nature and amount of tax arrear.

The declarant must submit Forms 1 and 3 electronically. These forms will be accessible on the Income Tax Department’s e-filing portal at www.incometax.gov.in.

Procedure to be followed

The declaration must be submitted in the prescribed form, providing details of the tax arrears, including disputed tax, interest, penalty, or fees.

After the declaration is submitted, any ongoing appeals or petitions before tax authorities will be treated as withdrawn. If writ petitions or special leave petitions have been filed in higher courts, the declarant must withdraw these after receiving approval under the scheme. Following the submission of the declaration, the designated authority will assess the amount payable within 15 days and issue a certificate containing the relevant details. The declarant is then required to make the payment within 15 days of receiving the certificate and notify the designated authority. All connected cases will be closed, with no further action taken on those matters.

Cases where Vivad se Vishwas Scheme 2024 is not applicable

In the following cases, the Direct Tax Vivad se Vishwas Scheme 2024 will not be applicable:-

• Search and seizure cases
• In cases where assessment or reassessment is conducted following a search, this scheme differs from the VSV 2020, which permitted applications for search-related cases with disputed tax up to ₹5 crores. Under the current scheme, such search cases are entirely excluded from eligibility.
• Any cases outside the purview of Income Tax Act, 1961, for example, GST cases, benami property transactions, money laundering
• Cases of undisclosed foreign income or assets
• Taxpayers under specific legal restrictions or serious offences.

Benefits of the DTVSV 2024 Scheme

• The pending litigation issues will be resolved
• It offers settlements without penalties or interest
• Assessees can get relief from pending demands
• No prosecution will be initiated for cases resolved under this scheme
• Taxpayers can resolve their disputes efficiently within a time frame.

Depreciation is an allowable deduction for actual use of assets in a business or profession. Under Section 32 of the Income tax Act, 1961, the writing off of the cost of assets over its useful life has been allowed as a deduction and the depreciation rates as per Income Tax have been defined for categories of assets separately. As per accounting standards, there are two widely adopted methods of computation – Straight Line Method (SLM) and Written Down Value method (WDV).

However, as per the Income Tax Act, the method of depreciation is written down value method, except in case of generation and distribution of power where SLM method is adopted. Another provision for additional depreciation has been provided u/s 32(1)(iia) for new plant and machinery acquired and installed by an assessee engaged in the business of manufacturing or production.

Section 32 – Depreciation

Depreciation is allowed on the written down value of the block of assets at the depreciation rates as per Income Tax Act on both tangible as well as intangible assets except goodwill of a business or profession. Tangible assets include factory, equipment, plant, machinery while intangible assets include patents, trademarks, copyright and franchise. Depreciation is calculated on the block of assets basis and thus individual assets lose their identity.

Method of depreciation

As per Companies Act, 2013	As per Income Tax Act, 1961
Straight Line Method (SLM)	Straight Line Method (SLM) in case of generation and distribution of power
Written Down Value Method (WDV)
Unit of Production Method	Written Down Value Method (WDV)

Block of Assets

Depreciation under Income Tax follows the block of assets principle where each block is a selection of assets belonging to the same asset class, has similar life and similar use case. The depreciation rates as per Income Tax Act for each such class of assets have been defined in the rules.

Conditions to be fulfilled for claiming depreciation

There are certain conditions that have to be fulfilled for claiming deduction as explained below:-

• The asset must be wholly or partly owned by the assessee. Registration of the same under the Registration act is not determinative of ownership. The assessee for claiming dedecution is decided on the basis of beneficial ownership.
• Depreciation is allowed when the asset is actually put to use and not if the asset was ready to use and not put to actual use.
• The asset must be used for business or profession purposes, if the asset is put to use for both personal as well as business purposes, the amount be will be proportionately allowed to the extent it was used for business purposes.
• It is mandatory for the assessee to claim deduction of depreciation while computing his taxable income except if he is opting for presumptive taxation, where it is assumed that the impact of depreciation has already been considered.
• Revaluation of assets does not have any impact on depreciation computation as per the Income Tax Act i.e. the revaluation amount is ignored for computation.

Proviso to Section 32(1)

An important proviso to Section 32(1) is that when an asset is put to use for less than 180 days, the deduction amount on such asset will be restricted to 50% in the year of acquisition i.e. since the actual put to use date is less than half the year, therefore, full depreciation for that year cannot be allowed on the asset. This can be checked using the Income Tax Calculator.

Depreciation Rates as per Income Tax – Tangible Assets

Buildings: The rate varies based on the building’s use:

• Residential buildings (excluding hotels/boarding houses): 5%
• Boarding houses and hotels: 10%
• Temporary constructions (e.g., wooden structures): 40%
• Buildings used for water treatment or supply projects in infrastructure facilities: 40%

Furniture and Fittings: Includes items like furniture and electrical fittings, with a depreciation rate of 10%.

Plant and Machinery: Rates differ based on the type and use of the equipment:

• General plant and machinery: 15%
• Motor cars (excluding hire businesses): 15%, with a higher rate of 30% for cars acquired between August 23, 2019, and April 1, 2020.
• Vehicles used for hire (e.g., taxis, buses) have a rate of 30%, increasing to 45% if purchased within the same date range.

Special Equipment: Items such as computers, medical equipment, air pollution control devices, and energy-saving devices have varying rates, often 40% for faster write-offs.

Books: Books owned by professionals or businesses (like lending libraries) may be depreciated at rates between 60% and 100% depending on whether they are annual or not.

Depreciation Rates as per Income Tax – Intangible Assets

This section includes assets like trademarks, patents, licenses, and other business rights, which are depreciated at a uniform rate of 25%.

Depreciation in case of transfer of assets

In case of succession, amalgamation and demerger, the depreciation is allowed to both the parties in the ratio of the number of days for which the assets were used by them, however, the amount is computed assuming that no such succession, amalgamation or demerger has taken place.

Section 32(1)(iia) – Additional Depreciation

In case of any new plant or machinery other than ships and aircrafts which has been acquired and installed by an assessee engaged in the business of manufacture or production of any article or in the business of generation, transmission or distribution of power, an additional depreciation of 20% shall be allowed as deduction. However, there are certain restrictions for such deduction:-

• The deduction will not be allowed for second hand goods whether Indian or imported.
• If the asset is installed in the office premises or residential space, then no deduction will be allowed.
• If the deduction for the asset is provided for the complete amount already under any other section like for scientific research (100%), no deduction will be available here.

Usage determines depreciation rate

The end user of the asset is the deciding factor for depreciation rate. For example, if the assessee is in the business of leasing out vehicles, then the rate will be higher i.e. 30% instead of 15% on plant and machinery.

Assets acquired on hire purchase

Under the hire purchase agreement, the hired asset shall eventually become the property of the hirer, or give the hirer an option to purchase the asset. Accordingly, the periodical payments made by the hirer would be broken into interest (to be allowed as deduction to the hirer) and payment on account of capital cost of the asset. Depreciation is thus, allowed to the hirer on the initial value of the asset, i.e., the amount for which the hired item would have been sold for cash at the date of agreement.