Georgia’s Innovation Tax Overhaul: A Strategic Gateway for Global Startups and Indian IP-Led Businesses

By CA Surekha Ahuja | International Tax and Innovation Structuring Specialist

Executive Summary

In a transformative policy move, Georgia has introduced a structured, innovation-linked tax regime, effective from 27 September 2025. With phased tax incentives for startups, high-R&D SMEs, and research service providers, the country positions itself as a low-cost, high-substance destination for global intellectual property and technology development. This article examines the strategic implications of this development, especially for Indian founders, SMEs, and cross-border investors. For those building real innovation, Georgia offers a tax-aligned pathway to global expansion. For those seeking shortcuts, it may invite scrutiny. The distinction lies in structure and intent.

Introduction: A Small Country Makes a Big Statement

In an era where tax policy is increasingly tied to innovation, Georgia has taken a decisive leap forward. Through two newly enacted laws—Law No. 718-IIMS-XIMP (Innovation) and Law No. 719-IIMS-XIMP (Tax Code)—the country is offering one of the clearest and most accessible innovation tax frameworks globally.

Unlike traditional tax havens or IP boxes with rigid thresholds, Georgia’s model is tailored for early and mid-stage businesses seeking operational clarity, IP monetisation, and low effective tax rates. The message is clear: if you bring real innovation and comply with substance requirements, Georgia will reward you with a globally competitive tax regime.

A Three-Tier Innovation Regime: Eligibility and Tax Benefits

1. Innovative Startups
Eligibility: Georgian companies building innovative products, services, or processes, with at least GEL 100,000 in investment or GEL 150,000 in grant funding within the prior two years.
Phased tax benefits:

• Years 1 to 3: Salary tax exemption within specified limits

• Years 4 to 6: Profit and salary taxed at 5 percent

• Years 7 to 10: Profit and salary taxed at 10 percent

2. Innovative SMEs
Eligibility: Entities with R&D expenditure of at least 5 percent of revenue (minimum GEL 100,000), using patents or R&D partnerships.
Tax benefits:

• Profit tax base reduced by three times the previous year’s R&D spend

• Access to reinvestment support under government rules

3. R&D Service Providers
Eligibility: Companies deriving at least 80 percent of revenue from R&D (economic activity code 72.1), maintaining compliance and solvency.
Benefits:

• Flat 5 percent tax on both salary and profit

• Indefinite duration if conditions persist

Global Positioning: What Makes Georgia Stand Out

Georgia’s new regime is not simply about tax relief. It is a policy blueprint for building an innovation economy. While jurisdictions like Ireland and Singapore focus on mature enterprises and MNCs, Georgia targets lean, growth-ready ventures—startups, VC-backed innovators, and IP-driven SMEs.

Key differentiators include:

• Low-entry threshold for qualification

• Transparent, time-linked tax structure

• Strong alignment between innovation, investment, and tax outcomes

• Treaty access for global structuring

For Eastern Europe, Central Asia, and developing economies with underdeveloped IP infrastructure, Georgia now offers a compliant and cost-effective base for innovation.

Strategic Relevance for Indian Businesses

For Indian founders and businesses looking outward, Georgia presents an opportunity to expand and monetise global IP—without breaching domestic tax laws.

1. Startups with Global IP Ambitions

Indian startups building cross-border digital products or platforms can set up a Georgian subsidiary to:

• Book foreign license revenues in a low-tax jurisdiction

• Route international operations through a treaty-aligned structure

• Reduce effective global tax without affecting Indian compliance

Where substance is maintained, such structures can legitimately lower outbound tax friction.

2. SMEs with Consistent R&D Activity

Indian mid-sized firms in pharmaceuticals, electronics, automation, and agritech can:

• Shift part of their research activity to a Georgian entity

• Claim tax reliefs on three times their qualifying R&D cost

• Reinvest in product development under government-aided schemes

This creates a self-sustaining loop for innovation-led growth with tax optimisation.

3. Cross-Border VC Structures and HoldCos

Indian and international funds with IP-heavy portfolios can leverage Georgia for:

• Efficient IP holding structures

• Royalty monetisation with low leakage

• Capital gain planning on global exits

This model is especially viable where IP value is created across borders and future acquisition or licensing is anticipated.

Tax and Legal Considerations: Proceed with Caution, Not Evasion

While Georgia offers a favourable structure, Indian tax authorities are equipped to detect misuse.

1. GAAR and Transfer Pricing Scrutiny
Structures lacking commercial substance—such as shell companies or artificial intercompany transfers—may be exposed to:

• GAAR (General Anti-Avoidance Rule) disallowing tax benefit

• Transfer pricing adjustments under Indian regulations

• Reattribution of profits to Indian operations

Substance must include staff, decision-making, infrastructure, and actual control in Georgia.

2. Treaty Misuse under BEPS Principles
The India–Georgia Double Tax Avoidance Agreement (DTAA) offers benefits on withholding taxes. However, if arrangements violate BEPS Action 6 (treaty abuse), such benefits may be denied.
Key compliance points:

• Demonstrate beneficial ownership

• Establish genuine purpose beyond tax advantage

• Avoid circular or back-to-back routing of funds

Georgia Compared: A Jurisdictional Perspective

Jurisdiction	Tax on IP Income	Substance Requirement	India DTAA	Ideal Use Case
Georgia	0 to 10 percent (phased)	Moderate, real operations required	Yes	Startup IP, SME R&D
Singapore	17 percent (with incentives)	High	Yes	Global tech platforms
UAE (Free Zones)	0 percent (with ESR rules)	Medium	Yes	Digital service hubs
Ireland	12.5 percent (IP Box)	High	Yes	IP-rich multinationals
Estonia	0 percent on retained profits	Medium	Yes	Reinvestment vehicles

Georgia strikes a balance between accessibility and governance—especially relevant for companies in transition from domestic to international markets.

Strategic Conclusion: Georgia Is a Viable IP Gateway for the Right Profile

Georgia’s new regime opens a jurisdictional window that is neither artificial nor overly complex. It is designed for companies creating value, willing to establish operations, and looking to grow internationally.

For Indian businesses, Georgia offers a clean route to build global IP while managing tax exposure. But intent, structure, and execution must align with Indian and OECD standards.

In short, Georgia rewards innovation—not arbitrage.

 

The July 2025 IBBI Amendment: A Legal Firewall Against Fraud in Real Estate Insolvency

Introduction: A Systemic Rebalancing of Law, Justice, and Stakeholder Trust

In a long-overdue yet landmark reform, the Insolvency and Bankruptcy Board of India (IBBI) has fortified India’s corporate insolvency framework through the Fifth Amendment to the CIRP Regulations, notified on 4 July 2025.

This amendment strikes at the heart of one of the most misused vulnerabilities in insolvency proceedings — the concealment of fraudulent, preferential, and undervalued transactions by promoters, which left creditors and homebuyers powerless while defaulting real estate companies navigated CIRP with impunity.

Historically, defaulting builders routinely diverted buyer funds, transferred assets to group entities, or withheld critical title and encumbrance data — only to invoke IBC to seek immunity via resolution plans, often with collusion or through opaque Information Memoranda (IMs).

The July 2025 amendment corrects this misalignment. It mandates that:

• Avoidance transactions (under Sections 43 to 66 of IBC) be disclosed transparently in the IM;

• The IM be updated and shared periodically with CoC and resolution applicants; and

• No resolution plan extinguish or assign avoidance claims unless these were disclosed before submission deadlines.

This legal shift is not cosmetic — it marks a decisive turning point. It transforms CIRP from a mere procedural framework into a justice delivery mechanism — one that demands accountability, transparency, and equal access to facts for all stakeholders.

Part I: The Legal Framework — What Has Changed

1. Mandatory Disclosure of Avoidance Transactions in the IM

[Regulation 36(2)(l) & (m)]
The Resolution Professional (RP) must now mandatorily disclose in the Information Memorandum all transactions identified under:

• Section 43: Preferential transactions

• Section 45: Undervalued transactions

• Section 50: Extortionate credit

• Section 66: Fraudulent and wrongful trading

2. Periodic Updates of the IM and Equal Access to Stakeholders

[Regulation 36(5) and 35A(3A)]
The IM must be updated as avoidance transactions emerge and shared with the Committee of Creditors (CoC) and all prospective resolution applicants (PRAs). This ensures real-time transparency and equitable access to vital information.

3. Restriction on Assignment of Avoidance Claims

[Regulation 35A(4) and 38(1A)]
Resolution plans can no longer monetize, extinguish, or assign avoidance transactions unless they were:

• Disclosed in the IM; and

• Communicated to all PRAs before the plan submission deadline.

This closes a critical loophole often exploited to bury avoidance claims through collusive resolution proposals.

Part II: Real-Life Examples That Forced Legal Reform

1. Amrapali Group

Over ₹3,500 crore was diverted from homebuyers into shell entities and unrelated group firms. Forensic audit findings were not effectively utilized during CIRP. Ultimately, the Supreme Court had to step in to enforce promoter liability and asset recovery.

Why the amendment matters now:
Forensic findings are now required in the IM, enabling timely action under Section 66 and safeguarding buyer interests.

2. Supertech Ltd.

Over 25,000 buyers were impacted. The group created multiple layered entities to divert funds. Insolvency was admitted based on a single homebuyer’s petition, but core transactions remained hidden during CIRP.

Impact under new regime:
RP must disclose diversion trails. PRAs must structure plans acknowledging the fraudulent context. Buyers can oppose any resolution that conceals such history.

3. Jaypee Infratech

Land parcels were transferred to group companies at undervalue, compromising recovery for banks and buyers. These were not disclosed in early resolution proposals.

Reform effect:
Such undervalued transactions must now be reflected in the IM and factored into the resolution valuation.

4. Orior Developers (Karjat & Jaipur)

Buyers paid in full, but land titles were never transferred to the company. The land remained in the personal names of promoters, and buyers had no legal recourse during insolvency.

Under the amendment:
Such ownership mismatches must be disclosed. CoC and buyers can seek promoter liability under Section 66.

5. Ansal Buildwell (Gurgaon Projects)

Land sold to buyers was already mortgaged without disclosure. The IM remained silent on these encumbrances.

Post-amendment safeguard:
All encumbrances and red flags from forensic or title reports must be part of the IM and resolution strategy.

Part III: A Legal Firewall for Creditors and Plot Buyers

1. Empowering Creditors Through Information Symmetry

• Lenders and ARCs now have legal visibility over frauds, transfers, and undervalued dealings.

• CoC can challenge undervalued resolution plans that do not include avoidance recoveries.

• Avoidance actions can contribute to higher asset valuations and strategic recoveries.

2. Restoring Homebuyer Rights

• Plot and flat owners get informed participation via their ARs in CoC.

• They can demand forensic details, insist on Section 66 actions, and block whitewashing plans.

• Recovery from avoidance claims can now be ringfenced for project completion.

Part IV: Enabling Justice — From Disclosure to Accountability

1. Section 66: Personal Liability of Promoters

Directors and promoters can be held liable for:

• Fraudulent or wrongful trading;

• Misuse of company funds or deepening insolvency.

Disclosures in the IM form the basis for such personal liability proceedings before NCLT.

2. Section 68–70: Criminal Action for Evidence Tampering

Promoters who hide or destroy records, or falsify accounts, can be prosecuted.
Disclosures backed by forensic audits become admissible evidence, leading to criminal consequences.

3. Section 30(2)(e): Invalidating Plans That Conceal Fraud

Any resolution plan that suppresses material facts or violates laws can be rejected by NCLT.
CoC, homebuyers, or even public authorities can seek invalidation of collusive or compromised resolutions.

Part V: Strategic Use of the Amendment by Stakeholders

Creditors

• Insist on forensic audit summaries in the IM

• Demand resolution strategies on avoidance claims

• Reject undervalued plans or suspicious clean exits

Homebuyer Associations

• Use ARs to monitor disclosures

• File objections for omitted promoter frauds

• Seek allocation of recovered assets toward project completion

Resolution Applicants

• Must undertake due diligence on disclosed transactions

• Cannot extinguish claims unless pre-disclosed

• Must price resolution plans transparently to avoid rejection

Conclusion: A Justice-Oriented IBC Finally Emerges

The July 2025 IBBI Amendment represents a structural rebalancing — one that shifts the fulcrum of CIRP from procedural compromise to legal enforcement.

• Fraud will no longer be erased through secret settlements.

• Buyers and creditors will no longer be left uninformed.

• Promoters will no longer use insolvency as a shield against their own wrongdoing.

The amendment restores faith — not only in the letter of insolvency law, but in its moral spine.References

• Insolvency and Bankruptcy Code, 2016 — Sections 25, 29, 30(2)(e), 43–66

• IBBI CIRP Regulations (Fifth Amendment), 2025

• Key Judgments: Amrapali, Supertech, Jaypee Infratech, Essar Steel, Kolla Koteswara Rao

• Companies Act, 2013 — Sections 210–212 (SFIO Investigations)

Claiming HRA with Confidence: Legal and TDS Compliance Guide for Salaried Individuals in AY 2025–26

By CA Surekha Ahuja, Sandeep Ahuja & Co.

Introduction

As the income tax return (ITR) filing season for Assessment Year (AY) 2025–26 begins, salaried individuals intending to claim House Rent Allowance (HRA) exemption must take a legally sound and compliance-ready approach. While it is common to submit rent receipts, agreements, and landlord details for claiming exemption, recent assessment trends show that documentation alone does not guarantee acceptance.

With increased use of cross-verification tools such as AIS (Annual Information Statement), Form 26AS, and landlord PAN tracing, the Income Tax Department is likely to scrutinize HRA claims more rigorously—especially when the rent is paid in cash, to close relatives, or when the TDS obligation under Section 194-IB has been overlooked.

This article provides a comprehensive guide on claiming HRA confidently while meeting all related legal and procedural requirements under Sections 10(13A) and 194-IB of the Income-tax Act, 1961.

HRA Exemption under Section 10(13A)

Under Section 10(13A), a salaried employee receiving HRA as part of their salary can claim exemption, provided they pay rent for a residential accommodation that is not owned by them. The exemption is calculated as the least of the following three amounts:

1. Actual HRA received

2. 50 percent of salary (basic plus dearness allowance forming part of retirement benefits) if residing in a metro city (Delhi, Mumbai, Kolkata, Chennai); 40 percent for other cities

3. Actual rent paid minus 10 percent of salary (basic plus qualifying DA)

A written rent agreement, rent receipts, landlord PAN (if rent exceeds ₹1 lakh annually), and bank proof of payment are key supporting documents. However, they must also withstand legal and factual scrutiny.

Why HRA Claims Are Denied Despite Document Submission

Taxpayers often believe that submission of rent receipts or rent agreements suffices. However, several judicial precedents and scrutiny assessments reveal that claims can be disallowed where the arrangement appears contrived or unsubstantiated. Key risk factors include:

• Rent paid to spouse or parents: Transactions with close relatives attract higher scrutiny. Absence of genuine tenancy, independent rent payment trail, and rental income reporting by the recipient can result in disallowance.

• Cash payments without banking proof: Payments made in cash, even with receipts, are often disregarded unless supported by cash withdrawal trail or consistent monthly patterns.

• No registered agreement: Absence of a formal agreement reduces legal enforceability and raises doubts on the legitimacy of the arrangement.

• Address mismatch: Discrepancy in addresses across PAN, Aadhaar, employment records, and ITRs can lead to questions about the actual place of residence.

• Own house in the same city: If the taxpayer owns a house nearby, the rationale for staying on rent must be reasonable and supported by facts.

• Landlord not disclosing rent income: If the landlord’s AIS or ITR does not reflect rent income, the claim may be questioned during scrutiny.

Illustrative Judicial Precedents

Rent paid to spouse
In multiple scrutiny cases, even with rent receipts and agreements, HRA exemption has been denied where the spouse had no other income, the payments were made in cash, and no registered lease existed.

Rent paid to mother
In a notable ITAT case, a salaried taxpayer claimed ₹2.52 lakh as HRA paid to her mother. However, she also co-owned a flat nearby and claimed interest under Section 24(b). There was no lease deed, no bank payment, and her address in official documents did not match the claimed rental premises. The Tribunal held that the arrangement was fictitious and disallowed the exemption.

Compliance Requirements under Section 194-IB

Section 194-IB applies to individuals or HUFs who are not subject to tax audit under Section 44AB and who pay rent exceeding ₹50,000 per month to a resident landlord.

Key legal requirements include:

• TDS must be deducted once in a financial year at the time of paying rent for the last month (typically March) or at the time of vacating the property, whichever is earlier.

• TDS rate is 5 percent if rent is paid on or before 30 September 2024; and 2 percent if paid on or after 1 October 2024 (as amended by Finance Act, 2024).

• Deducted TDS must be deposited through Form 26QC within 30 days of deduction.

• Form 16C (TDS certificate) must be issued to the landlord within 15 days of filing Form 26QC.

• PAN of both tenant and landlord must be quoted. TAN is not required.

Illustration:

• Monthly rent: ₹60,000

• Annual rent: ₹7,20,000

• Deduction in March 2025

• TDS at 2%: ₹14,400

• Form 26QC due by: 30 April 2025

• Form 16C due by: 15 May 2025

Rent Paid to Co-owners: Threshold Applicability

As clarified by CBDT Circular No. 8/2017, the ₹50,000 per month threshold under Section 194-IB applies per payee, not per property.

• If rent is paid as ₹30,000 to each of two joint owners, 194-IB does not apply.

• If ₹55,000 is paid to one co-owner, the TDS obligation under 194-IB applies on that share.

Compliance Matrix: HRA vs Section 194-IB

Requirement	For HRA Exemption	For Rent TDS (Section 194-IB)
Valid Rent Agreement	Strongly Recommended	Recommended
Monthly Rent Receipts	Required	Preferable
PAN of Landlord	Required if rent > ₹1 lakh	Mandatory
Bank Proof of Rent Payment	Strongly Advised	Required
Form 26QC Filing	Not Applicable	Mandatory within 30 days
Form 16C Issuance	Not Applicable	Mandatory within 15 days
Address Consistency in Official Records	Important	Important
AIS or ITR Match of Rent Income	Strengthens Claim	Validates Deduction

Consequences of Non-Compliance

Default	Consequence
Weak documentation for HRA	Scrutiny, disallowance, tax demand
TDS not deducted under 194-IB	Assessee-in-default under Section 201
Delay in Form 26QC filing	Late fee ₹200 per day (Section 234E)
Delay in TDS deposit	Interest at 1.5% per month (Section 201A)
Mismatch in AIS/26AS	Automated scrutiny or notice
Landlord rent not disclosed	Disallowance due to credibility gap

Conclusion

For AY 2025–26, the Income Tax Department is expected to use advanced tools and cross-data validation to identify artificial or non-genuine HRA claims. While rent receipts and agreements are essential, taxpayers must also ensure financial credibility, documentation consistency, and statutory compliance—particularly under Section 194-IB for high-value rents.

A claim is only as good as its underlying evidence. To ensure your HRA exemption withstands scrutiny, the arrangement must be legally valid, financially transparent, and procedurally compliant.

 

ITR-2 and ITR-3 Excel Utilities Released for AY 2025–26: Key Updates, Download Links, and Filing Guide

The Income Tax Department has officially released the Excel-based utilities for ITR-2 and ITR-3 for AY 2025–26 (FY 2024–25), enabling individuals and HUFs with capital gains, business income, crypto transactions, or foreign assets to begin filing their returns through the offline mode.

Revised Due Date to File ITR for FY 2024–25 (Non-Audit Cases):

September 15, 2025

Until now, only ITR-1 and ITR-4 were available for filing. With the release of ITR-2 and ITR-3, a broader segment of taxpayers can now prepare and file their ITRs, especially those with complex incomes and disclosures.

Filing Mode and Software Update Timeline

• The Excel utilities for ITR-2 and ITR-3 are now live and functional.

• Online ITR filing for these forms is not yet enabled on the portal.

• Professional software vendors are expected to update their platforms to support these forms within 3–7 days.

Download ITR-2 and ITR-3 Utilities (Excel Format)

You can download the official utilities directly from the Income Tax Department’s portal:

• Download ITR-2 Utility

• Download ITR-3 Utility

To file using Excel Utility:

1. Download and extract the ZIP file

2. Fill all required schedules in the Excel file

3. Generate JSON and upload on the Income Tax e-Filing Portal

4. Verify your return within 30 days

Who Should File ITR-2?

ITR-2 is applicable for individuals or HUFs who:

• Are not eligible to file ITR-1 (Sahaj)

• Have capital gains, foreign assets, multiple properties, or clubbed income

• Do not have income from business or profession

• May have crypto income, foreign dividend, unlisted shares, or ESOPs from foreign employers

Who Should File ITR-3?

ITR-3 is for individuals or HUFs who:

• Have income from business or profession

• Earn from partnership firms, freelancing, consulting, or proprietorships

• Have capital gains, foreign assets, or crypto assets

• Hold directorships in Indian or foreign companies

Key Changes in ITR-2 and ITR-3 for AY 2025–26

Area of Change	ITR-2	ITR-3
Capital Gains Reporting	Gains split before/after 23.07.2024	Same
Buyback Loss Treatment	Allowed post 01.10.2024 if dividend income is shown	Same
Schedule AL (Assets & Liabilities)	Mandatory if total income exceeds ₹1 crore	Same
TDS Reporting	Mandatory to quote section codes in Schedule-TDS	Same
Deductions (80C, 10(13A), etc.)	Enhanced reporting fields	Enhanced reporting fields
Reference to Sec 44BBC (Cruise Business)	—	Added

 Filing Advice and Caution

• If using the Excel utility, you can file now

• If relying on software platforms, wait 3–7 days for updates

• Ensure all data is cross-verified from Form 26AS, AIS, TIS before submission

• Do not forget to verify the ITR within 30 days after uploading

 Summary for Taxpayers

The launch of ITR-2 and ITR-3 utilities marks a key milestone in the return filing calendar for FY 2024–25. While the portal-based filing is awaited, early filers, professionals, and taxpayers expecting refunds can proceed through the Excel route. Taxpayers are advised to review the updated forms closely, especially in view of changes introduced by the Finance Act, 2024.

GST on Forfeiture Now Judicially Clarified – AAR Reaffirms Non-Taxability in Absence of Supply

A Follow-up to Our Booking Advance Analysis: The Law Now Speaks with Authority

Introduction

Following our detailed legal analysis on the GST implications of booking advance forfeiture—especially in cases where the sale does not materialize—a crucial development has emerged. In a decisive ruling dated 28 April 2025, the Maharashtra Authority for Advance Ruling (AAR) has provided judicial clarity that strongly supports the CBIC’s position as laid out in Circular No. 178/10/2022-GST.

This post captures the key takeaways from the ruling in the case of Maharashtra State Electricity Transmission Company Ltd., connecting them to the broader statutory and compliance framework we previously discussed.

Key Ruling: Forfeiture and Penalties Are Not 'Supply' under GST

In this case, the AAR held that:

• Forfeiture of Security Deposits or Earnest Money, due to contractual default, is not consideration and not a supply of service.

• Liquidated damages or penalties recovered from vendors for breach of contract do not involve supply, and hence, are outside the scope of GST.

• Accounting write-backs of old unclaimed balances or forfeited deposits are mere adjustments, not linked to any deliverable or service, and hence, not taxable.

• Imposition of contractual penalties for non-performance does not involve any exchange or agreement to tolerate an act, unless specifically contracted.

This ruling gives legal backing to what was earlier a departmental clarification, making it highly relevant for businesses across sectors.

Consistency with CBIC Circular No. 178/10/2022-GST

The AAR ruling follows and strengthens the CBIC’s guidance, which laid down the following conditions for taxing forfeiture under Schedule II, Entry 5(e):

1. There must be a binding agreement or contract.

2. The forfeiture clause must be clearly mentioned and mutually accepted.

3. The forfeiture must be a consideration for tolerating cancellation or breach.

Absent these factors, forfeiture does not amount to a taxable supply. This is a vital relief for businesses making routine booking adjustments or writing back deposits.

Implications for Businesses – What You Need to Do Now

✅ When GST Is Not Applicable:

• No supply is made;

• No invoice is issued;

• There is no agreed contractual obligation to tolerate breach;

• Forfeiture is unilateral and without mutual consideration.

✅ When GST May Be Applicable:

• If your booking or contract explicitly states that forfeiture is in lieu of cancellation and the business is contractually agreeing to tolerate;

• In such cases, GST should be discharged under SAC 9997 (Other services).

Practical Action Points for Compliance

• Revisit and revise booking forms to avoid vague forfeiture clauses.

• Document non-performance and absence of tolerance obligations clearly.

• Avoid raising GST invoices unless a supply has occurred or an obligation to tolerate has been explicitly agreed.

• Classify forfeited income appropriately in your books to distinguish supply from adjustments.

Conclusion

The AAR ruling now decisively closes the ambiguity around GST liability on forfeitures where no real supply or contractual tolerance exists. The message is clear: not all forfeitures are taxable, and only those linked to a clearly defined supply obligation under the contract will attract GST.

This provides a much-needed framework for businesses, especially in sectors such as automobiles, real estate, and energy, where such transactions are frequent.

Related Reading

👉 Read the original article: GST on Booking Advance Forfeiture – Legal Framework and CBIC Circular Analysis

ROC Adjudication Trends in FY 2024–25: A Wake-Up Call for Business Compliance

Introduction: Compliance is No Longer Optional

The financial year 2024–25 witnessed a sharp shift in how the Ministry of Corporate Affairs (MCA) enforces the Companies Act, 2013. With the advent of MCA Version 3, the Registrar of Companies (ROC) now relies on technology to monitor and enforce compliance in real time.

During this period, over eleven hundred adjudication orders were issued across India—many of which penalised routine defaults that were previously overlooked. From missed filings to overlooked governance processes, the message is clear: the law expects timely, accurate, and complete compliance, not just intent.

This post analyses key trends in adjudication orders, real company examples, and practical lessons for business owners, company directors, and professionals.

The New Enforcement Landscape under MCA Version 3

In July 2025, the MCA migrated thirty-eight statutory forms—including those related to annual filings, share capital, director appointments, and CSR compliance—to Version 3 of its portal. This new system does more than accept forms. It validates data, flags inconsistencies, and automatically triggers scrutiny when rules are not followed.

In this environment, non-compliance is no longer dependent on departmental inspection or third-party complaints. The system detects delays, omissions, and sequencing errors on its own. The result is a new regulatory reality: even technical defaults now attract penalties, and past practices are no longer safe.

Notable Adjudication Cases: What Went Wrong and Why It Matters

Several orders passed during the year stand out not because of their severity, but because of how common the defaults were. These real cases illustrate the kind of oversights that companies of all sizes are now being penalised for.

Non-compliance with outdated Articles of Association
Reflektion Media Software (India) Private Limited failed to maintain the minimum paid-up capital of one lakh rupees as specified in its Articles, despite the statutory requirement having been removed in 2015. The ROC held that company documents must reflect current law, and outdated clauses cannot be used as defence.

Failure to update altered Memorandum and Articles
In the case of Feranbraj Toll and Highway Private Limited, the company passed resolutions but did not update all copies of its constitutional documents, as required under Section 15. This led to penalties despite the underlying alteration being approved.

Appointment of directors without compliance with databank rules
Banswara Syntex Limited appointed an independent director without verifying whether the individual’s name was registered in the MCA databank at the time of appointment. Although the lapse was later corrected, the penalty was imposed for the period of non-compliance.

Director residency rules overlooked
SML Isuzu Limited appointed a foreign national as Whole-time Director without obtaining prior approval from the Central Government, even though the individual had not satisfied the residential status criteria. Penalty was imposed not for the current appointment but for the earlier term when approval had not been obtained.

These cases reflect a critical shift: the law now penalises lapses in process, not just in substance.

Common Areas of Non-Compliance: Emerging Patterns

Analysis of over a thousand orders passed in FY 2024–25 reveals certain recurring issues. These highlight the need for stronger internal controls.

• Registered Office issues under Section 12

• Delay in Annual Return and Financial Statements under Sections 92 and 137

• Non-reporting of beneficial ownership under Section 89 and Section 90

• CSR defaults under Section 135

• Appointment lapses under Section 203

• Share capital actions without following process under Sections 42, 62, and 56

• Use of circular resolutions in matters requiring board meetings under Section 179

Integrated ROC Compliance Checklist for FY 2025

To help companies strengthen governance and reduce the risk of adjudication, here is a practical compliance checklist based on recent enforcement trends. This can be used as a boardroom or internal audit tool.

Corporate Records and Governance

• Articles and Memorandum are up to date with the latest provisions

• Changes to MOA and AOA are reflected in all circulated copies

• Director appointments are made only after DIN activation and databank registration (where applicable)

• Resolutions under Section 179 are passed in board meetings and not by circulation

• Board composition complies with mandatory requirements including woman and independent directors

• Director Identification Numbers are correctly quoted in all filings

Annual Filings and Disclosures

• MGT-7 and AOC-4 filed within the prescribed timelines

• Financial statements are signed and include the auditor’s report

• Website disclosures under Section 92 are complete and updated

• Auditor’s report and Board’s Report are aligned with Accounting Standards and statutory requirements

Shareholding and Capital Actions

• All private placements comply with Section 42 timelines, fund utilisation rules, and PAS-3 filing

• Rights issues and convertible loans follow Section 62 processes with special resolutions where required

• Share certificates are issued within prescribed timelines under Section 56

• All shares of public companies are in dematerialised form as per Section 29

CSR and Beneficial Ownership

• CSR Committee constituted (where required) and meetings held

• Unspent CSR funds transferred within six months to designated accounts

• BEN-2 filed for all significant beneficial owners

• BEN-4 notices issued by the company to trace unreported SBOs

• MGT-6 and declarations under Section 89 filed for all beneficial interest changes

Registered Office and Contact Details

• Signboard at registered office is in local language and English

• CIN and address are mentioned on letterheads and invoices

• Company receives official communication at the registered office and responds timely

Key Managerial Personnel

• Whole-time KMPs appointed under Section 203 where applicable

• Board and shareholders have approved the terms of appointment

• Foreign nationals as KMPs have residential status verified and approval obtained if required

Compliance Is a Boardroom Responsibility, Not a Back-Office Task

These adjudication trends reveal one undeniable truth: the board of directors and senior management can no longer treat compliance as a secretarial function. Filing delays, ineligible appointments, outdated clauses, and missing disclosures now result in penalties on both the company and its officers in default.

To avoid such risks, companies must adopt a proactive compliance culture. This means:

• Reviewing governance documents regularly

• Mapping each MCA requirement to an internal accountability system

• Implementing maker-checker and deadline tracking mechanisms

• Conducting voluntary internal compliance audits even when not legally mandated

• Training directors and senior executives on the practical implications of the Companies Act

Conclusion: The Cost of Inaction Is Too High

The ROC’s enforcement pattern in FY 2024–25 sends a clear message. Compliance is no longer triggered by exception. It is monitored by default. Errors, even small ones, are now caught quickly, and penalties are real.

For companies that value reputation, investor confidence, and uninterrupted growth, the time to act is now. The cost of proactive compliance is far lower than the cost of retrospective rectification.

A well-governed company is no longer just desirable. It is the only sustainable model in the evolving regulatory landscape of Indian corporate law.

Non-Resident Individuals Filing ITR in India for AY 2025–26: Key Legal Changes, Disclosures & Caution Points

With the Income-tax Department notifying Income Tax Return (ITR) forms for FY 2024–25 (AY 2025–26), Non-Resident Individuals (NRIs) must take note of significant changes impacting compliance, disclosure obligations, and return filing strategy.

While the ITR-1 and ITR-4 utilities have been released, the ITR-2 utility—relevant for most NRIs—remains awaited. However, the underlying legal framework and reporting expectations are now clear. This post outlines the four key changes and legal interpretations that NRIs must understand while filing returns for AY 2025–26.

1. Threshold for Reporting Indian Assets & Liabilities Increased to ₹1 Crore

As per the amended ITR-2 schema, Schedule AL (Assets and Liabilities) is now applicable only if the taxpayer’s gross total income exceeds ₹1 crore in FY 2024–25.

This marks a departure from the earlier threshold of ₹50 lakh.

Applicability for NRIs:

• Reporting is limited to Indian assets and liabilities (immovable property, deposits, securities, loans, etc.).

• Foreign assets and liabilities are not required to be disclosed by an NRI in ITR-2. Schedule FA is applicable only to residents.

Failure to report Indian assets when required under Schedule AL may lead to notices, penalty under Section 271FA, or rejection of refund claims due to “incomplete disclosure.”

2. Detailed Capital Gains Reporting & Indexation Compliance

Legal Background:

Under Section 45 read with Section 48, capital gains arising from the sale of capital assets in India are taxable for NRIs. Where applicable, indexation benefit is allowed, and DTAA relief can reduce the tax rate on capital gains.

For AY 2025–26, the Cost Inflation Index (CII) for FY 2024–25 is 363.

What’s New:

• The ITR-2 format requires:

  • ISIN-wise reporting for shares

  • Date-wise details of acquisition and transfer

  • Segregation between Section 112A, 111A, and 115E gains

 Caution:

• If the NRI claims treaty benefit (e.g., 10% flat rate on listed shares), ensure:

  • Valid TRC (Tax Residency Certificate) is obtained

  • Form 10F is furnished (manually, if utility unavailable)

  • The appropriate article of the DTAA is selected in the return

Incorrect or incomplete treaty claims can render the DTAA benefit inadmissible, and the capital gains may be taxed at standard rates.

 3. Clarification on Foreign Asset Reporting — Not Applicable to NRIs

Statutory Interpretation:

Schedule FA is mandatory under Rule 114H and Section 139(1) for residents and RNORs holding foreign assets.

Position for NRIs:

• NRIs are not required to report foreign bank accounts, shares, or properties under ITR-2.

• This position remains unchanged for AY 2025–26.

The distinction between NRI, RNOR, and Resident status is critical. If the residential status is misclassified (e.g., due to exceeding 120 or 182 days in India), Schedule FA will become applicable, along with consequences for misreporting.

4. Applicability of Special Provisions: Section 115E and Section 115AC

Legal Options:

NRIs are eligible to opt for special tax provisions under:

• Section 115E: Flat rate of 10%/20% on investment income or LTCG on specified foreign-currency assets.

• Section 115AC: Applicable to GDRs, bonds, and dividend income, with concessional tax treatment.

These provisions operate outside the normal slab regime and are often more tax-efficient.

Planning Implication:

• Many NRIs choose the old regime to claim deductions or to retain eligibility for these flat-rate provisions.

• The new regime under Section 115BAC, though default for residents, is not mandatory for NRIs.

 Caution:

• To claim Section 115E, a conscious selection must be made in the return.

• If no selection is made, regular slab-based taxation may apply, potentially resulting in higher tax outgo.

Summary Table: NRI Tax Filing Key Parameters – AY 2025–26

Parameter	Status for NRIs – AY 2025–26
ITR Form	ITR-2 (primarily)
Asset Reporting Threshold	Increased to ₹1 crore (Indian assets only)
Foreign Asset Reporting (Schedule FA)	Not applicable to NRIs
Capital Gains Reporting	Detailed disclosures with ISIN, indexed cost (CII = 363)
DTAA Claim	Form 10F, TRC, and correct treaty article
Tax Regime	Opt between old regime and Section 115E/115AC; 115BAC not compulsory

 Advisory Notes for NRIs

• Residential status must be determined first based on days of stay and past years’ history — the implications on disclosures are significant.

• Capital gains must be computed after indexation (if eligible), with due care on acquisition cost, FMV (as on 01.04.2001 if applicable), and CII.

• NRIs must maintain a paper trail of TRC, Form 10F, and property documents, especially when claiming DTAA relief or exemption under Section 54/54F.

• Where reinvestment is claimed for capital gains exemption, ensure correct deposit under CGAS (if property not yet acquired), and maintain records of usage within statutory timelines.

Strategic Compliance, Not Mere Filing

The ITR landscape for NRIs in AY 2025–26 reflects a broader policy of data-led, risk-sensitive tax enforcement. While certain thresholds have been liberalized, the expectation from NRIs in terms of:

• Accurate classification of residential status

• Proper capital gains and treaty disclosures

• Careful selection of special tax provisions

...has only increased.

Filing must be approached not just as a procedural task, but as a compliance strategy aligned with international tax standards and the Indian regulatory framework.

Capital Gains Tax Planning under Section 54 and 54F – Law, Logic & Exemption Blueprint for AY 2025–26

By CA Sandeep Ahuja

When a capital asset is sold—be it a house or land—the Income Tax Act offers relief from capital gains tax if the sale proceeds or capital gain is reinvested in a residential house under certain sections.

Section 54 and Section 54F are the two key exemption provisions. While both aim to promote reinvestment in housing, they differ in terms of:

• Nature of asset sold

• Base for exemption: indexed capital gain vs. net sale consideration

• Ownership conditions

• Proportionate vs. full exemption computation

This post explains the precise legal position, recent changes, and step-by-step logic for claiming exemption under each section.

Section 45, Section 48 – The Capital Gain Framework

Capital gains arise from Section 45, and their computation is governed by Section 48. Where the asset is held for more than 24 months (in case of immovable property), it qualifies as a long-term capital asset, and indexation benefits are available under Section 48.

Key Point: Exemption under Sections 54 and 54F applies to long-term capital gains only.

Section 54 – Exemption on Sale of Residential House

Applicability

• Assessee must be an Individual or HUF

• Asset sold: A long-term residential house property

• Reinvestment: In one residential house in India

Time Limits

• Purchase: 1 year before or 2 years after sale

• Construction: Within 3 years from sale

Exemption Base

Exemption is allowed only to the extent of the indexed long-term capital gain.

Law Language (Section 54(1)):

"... the capital gain shall not be charged to income-tax to the extent it is so invested in the new asset..."

➡️ This “capital gain” refers to the amount computed u/s 48, i.e., after indexation.

Section 54F – Exemption on Sale of Other Long-Term Assets

✅ Applicability

• Assessee must be an Individual or HUF

• Asset sold: Any other long-term capital asset (e.g. land, gold, shares, commercial property)

• Reinvestment: In one residential house in India

❌ Additional Ownership Condition

• On the date of transfer, the assessee must not own more than one residential house (excluding the new one)

Exemption Base

Exemption is proportionate to the amount of net sale consideration reinvested.

Law Language (Section 54F(1)):

"the capital gain shall not be charged to income-tax in the proportion that the amount invested bears to the net consideration"

➡️ You must invest entire net consideration for full exemption; else only partial relief applies.

Illustration – Section 54 vs Section 54F

Particulars	Section 54	Section 54F
Sale Value	₹2.5 Cr	₹2.5 Cr
Indexed Cost	₹1.9 Cr	₹1.9 Cr
Indexed LTCG	₹60 Lakhs	₹60 Lakhs
Amount Reinvested in House	₹60 Lakhs	₹60 Lakhs
Exemption	₹60 Lakhs (Full)	₹60L × ₹60L/₹2.5Cr = ₹14.4L
Taxable LTCG	Nil	₹45.6 Lakhs

Capital Gains Account Scheme (CGAS)

If the capital gain or consideration is not reinvested before the due date of ITR filing (usually 31 July 2025 for AY 2025–26), the unutilized portion must be deposited into a Capital Gains Account Scheme.

Failure to invest or deposit on time results in forfeiture of exemption.

Recent Amendments & Effective Dates

Budget Year	Change	Effective From
2014	Reinvestment must be in India only	AY 2015–16
2019	One-time benefit to invest in 2 houses under Section 54 if LTCG ≤ ₹2 crore	AY 2020–21
2023–24	No change in exemption computation; indexed gain remains base	AY 2025–26 applicable

Judicial Precedents & CBDT Clarifications

• CBDT Circular No. 667 (1993): Exemption u/s 54 applies to “capital gain” computed after indexation.

• ACIT v. Dr. P.S. Pasricha (ITAT Mumbai): Reinvestment of sale price beyond LTCG does not increase exemption.

• Vinod Kumar Jain v. CIT (344 ITR 501): Section 54F exemption is proportionate to investment in net consideration.

• ITO v. Saraswati Ramanathan (ITAT Chennai): Only indexed capital gain eligible under Section 54.

Visual Decision Tree

(See Image: “Which Section Applies – 54 or 54F?”)

The infographic clearly shows:

• Start with type of asset sold

• Branch into Section 54 or Section 54F

• Apply indexed capital gain or net sale consideration

• Determine if full or proportionate exemption applies

✅ This removes all confusion and ensures lawful claims.

Tax Planning Tips (For AY 2025–26)

•  Use indexed LTCG computation via Cost Inflation Index (CII for FY 2024–25 is 363)

•  Plan reinvestment in stages—land + construction both eligible

•  If timing is uncertain, open CGAS before return filing

•  Claim under Section 54EC (NHAI/REC bonds up to ₹50L) if real estate reinvestment is not viable

•  Avoid owning >1 house if targeting Section 54F

FAQs

Q1: I sold a house for ₹2.5 Cr. Indexed LTCG is ₹60L. How much should I reinvest for full exemption u/s 54?

✅ Answer: ₹60L — only the indexed LTCG. Not full sale price.

Q2: I sold a plot of land. Can I claim Section 54 exemption?

❌ Answer: No. Land is not a residential house. You must use Section 54F if conditions are met.

Q3: Under Section 54F, what happens if I reinvest ₹60L out of ₹2.5 Cr consideration?

Answer: You’ll get partial exemption:
₹60L ÷ ₹2.5 Cr = 24% → Exemption = 24% of LTCG

Q4: Can I invest in two houses under Section 54?

✅ Answer: Yes, only once in lifetime, and only if LTCG ≤ ₹2 Cr.

Q5: Is reinvestment outside India valid?

❌ Answer: No. Post AY 2015–16, only Indian residential properties qualify.

Conclusion: Stay Legally Aligned

Section	Asset Sold	Exemption Base	Reinvestment Requirement	Exemption Type
54	Residential House	Indexed LTCG	New residential house in India	Full or partial
54F	Any other LTCG asset	Net Sale Consideration	Same	Full or proportionate

 Incorrect base (e.g., using full sale price under Section 54) can cause denial of exemption and lead to full tax liability.