Missed 31 July 2026 ITR Filing Deadline? Can Business Income or Partnership Status Legally Extend Your Due Date

 By CA Surekha Ahuja

“Under tax law, the due date is not a matter of convenience or choice. It is a consequence of the taxpayer’s actual facts, income character and statutory conditions.”

The 31 July 2026 deadline for filing Income Tax Returns for Assessment Year 2026–27 has passed.

After missing the due date, many taxpayers are exploring whether they can legally fall under a different filing category by:

• Reporting business income;
• Starting or showing business activity;
• Becoming a partner in a partnership firm;
• Selecting a different ITR form.

This requires a careful understanding of the law.

The issue is not:

“How can the due date be extended?”

The correct question is:

“Based on the facts existing during the relevant financial year, what due date applies under the Income-tax Act?”

The Golden Principle: Due Date Follows Facts, Not Strategy

The due date under Section 139(1) of the Income-tax Act, 1961 is determined by the statutory conditions applicable to the taxpayer.

The relevant factors include:

• Nature of income;
• Whether business or profession is genuinely carried on;
• Applicability of tax audit provisions under Section 44AB;
• Applicable return form and legal category.

A taxpayer cannot first select a preferred due date and then modify income classification to achieve that result.

The correct sequence is:  Actual Facts → Correct Income Classification → Applicable Law → Filing Due Date

Can Business Income Without Audit Provide a Different Filing Timeline

A taxpayer may genuinely have business or professional income without being liable for tax audit under Section 44AB.

Examples may include:

• Small business activities;
• Professional services;
• Eligible presumptive taxation cases.

However, a very important clarification:

Mere existence of business income does not automatically provide an extended filing deadline.

The taxpayer must establish that:

• A real business or profession existed during FY 2025–26;
• Income was genuinely taxable under the head “Profits and Gains of Business or Profession”;
• The applicable conditions under Section 139(1) are satisfied.

Business income is a commercial reality, not a return filing arrangement.

What Establishes Genuine Business Activity

A professional evaluation would consider:

Parameter	What Should Exist
Business purpose	Real commercial intention
Activity	Actual operations carried out
Revenue	Genuine customers/sales/professional receipts
Documentation	Agreements, invoices, contracts and records
Financial trail	Banking and accounting evidence
Consistency	Alignment with GST, TDS, AIS and other disclosures

A token entry of business income without underlying activity may not create a legally sustainable position.

Partnership Firm: The Most Misunderstood Area

Becoming a partner in a partnership firm requires separate analysis. Under the Income-tax Act:

(a) Share of Profit from Firm

The partner’s share of profit is exempt under:  Section 10(2A)

It is not taxable business income in the hands of the partner.

(b) Remuneration, Interest or Other Payments

Amounts received by a partner, including:

• Salary/remuneration;
• Bonus;
• Commission;
• Interest on capital,

are taxable as business income under: Section 28(v) subject to the conditions of Section 40(b).

Partner Without Remuneration or Interest — Key Legal Position

If an individual:

• Becomes a partner;
• Does not receive remuneration;
• Does not receive interest;
• Receives only share of profit,

then mere partnership status does not automatically create taxable business income in the individual’s hands. The important distinction is:

Being a partner in a firm is not always the same as personally carrying on a business.

The facts must determine the tax treatment.

Can a Partnership Be Created After the Due Date to Obtain More Time

This is the most critical caution point.

The relevant facts are those existing during the previous year relevant to AY 2026–27.

A partnership created after 31 July 2026 cannot ordinarily rewrite the taxpayer’s income character for FY 2025–26.

A genuine partnership requires:

✅ Valid partnership agreement
✅ Genuine business purpose
✅ Commercial substance
✅ Intention to carry on business
✅ Real participation and relationship between partners

A partnership created only to obtain a filing advantage may invite examination regarding:

• Commercial rationale;
• Timing;
• Substance of transactions;
• Supporting evidence.

Tax Planning vs Creating a Compliance Advantage

Legitimate Tax Planning

✔ Structuring genuine business activities properly
✔ Entering into genuine partnerships
✔ Maintaining documentation
✔ Claiming benefits provided by law

Not Legally Sustainable

❌ Creating artificial business income
❌ Introducing a partnership without commercial purpose
❌ Selecting ITR form only to obtain additional time
❌ Making disclosures inconsistent with actual transactions

Tax law respects genuine arrangements but does not support arrangements created only for procedural benefits.

Professional Checklist Before Taking Any Position

Before relying on business income or partnership status, evaluate:

Question	Why It Matters
Did business/profession actually exist during FY 2025–26?	Determines income character
Was taxable business income earned?	Determines applicability of provisions
Was the partnership existing during the relevant year?	Determines legal relevance
Was remuneration/interest received?	Determines Section 28(v) impact
Are supporting records available?	Determines defensibility

Correct Course of Action After Missing 31 July 2026

The professional approach is:

Step 1 — Review the actual facts  Identify all sources and nature of income.

Step 2 — Determine the correct legal category Do not decide the ITR form first.

Step 3 — Compute consequences Consider: Late filing fee under Section 234F; Applicable interest; Impact on loss carry forward; Refund implications.

Step 4 — File a correct and defensible return

Final Professional View

A genuine business activity or genuine partnership arrangement has full recognition under tax law.

However:  Business income cannot be introduced merely to obtain additional time for filing an ITR.

A partnership cannot be used as a post-deadline mechanism to alter compliance obligations.

The principle is simple: “The due date follows genuine facts. Genuine facts cannot be created to follow a desired due date.”

New Tax Regime FY 2026-27: Standard Deduction, Section 10(14) Allowances, Leave Encashment & Gratuity Exemption — Tax Planning Framework for Salaried Employees

By CA Surekha Ahuja

"The new tax regime has not ended tax planning. It has changed the art of tax planning from investment selection to intelligent salary structuring and benefit optimisation."

In Part 1 of this series, we examined the misconception that the new tax regime has eliminated all tax-saving opportunities.

In Part 2, we discussed Section 80CCD(2) — Employer Contribution to NPS, which has become one of the most powerful tax planning tools available to salaried employees.

However, employer NPS contribution is not the only benefit that survives under the new tax regime.

Several other important provisions continue to provide tax relief, including:

• Standard Deduction under Section 16(ia)
• Duty-related allowances under Section 10(14)
• Leave Encashment exemption under Section 10(10AA)
• Gratuity exemption under Section 10(10)
• Rebate under Section 87A subject to applicable conditions

The key is to understand that the new tax regime does not reward traditional investment-based tax saving.

Instead, it rewards:

Genuine employment benefits + retirement planning + proper salary design.

1. Standard Deduction: The Simplest Benefit Available to Every Salaried Employee

The standard deduction remains one of the most important benefits under the new tax regime because:

• It is automatic
• No investment is required
• No proof or documentation is required
• It is available to eligible salaried taxpayers

Section 16(ia): Standard Deduction

For Financial Year 2026-27:

Standard Deduction: ₹75,000

This means salary income is reduced by ₹75,000 before calculating taxable income.

Example:

Particulars	Amount
Gross Salary	₹15,00,000
Less: Standard Deduction	₹75,000
Taxable Salary	₹14,25,000

The importance of standard deduction increases under the new regime because several other deductions are no longer available.

2. Section 10(14): Duty-Related Allowances — A Frequently Misunderstood Benefit

A common misconception among employees is:

"All allowances are taxable under the new tax regime."

This is incorrect.

Certain allowances granted for performing official duties continue to receive exemption under Section 10(14), subject to prescribed conditions.

The principle is simple:

Where an allowance is provided to meet expenses incurred wholly, necessarily and exclusively for official duties, tax exemption may continue.

Types of Duty-Related Allowances Covered Under Section 10(14)

Examples include:

Allowance	Tax Treatment
Travel allowance for official duties	Exempt subject to conditions
Conveyance allowance for official duties	Exempt subject to conditions
Helper allowance	Exempt to the extent of eligible expenditure
Academic/research allowance	Exempt subject to conditions
Uniform allowance	Exempt to the extent utilised

The exemption is generally linked to:

• Actual expenditure incurred
• Purpose of allowance
• Prescribed limits
• Employer records

Documentation is Critical

Employees often lose legitimate tax benefits because of poor documentation.

Important records include:

✓ Employer policy
✓ Salary structure details
✓ Bills and supporting documents wherever required
✓ Proof of official purpose
✓ Internal reimbursement records

A genuine business-related expense should be properly supported.

3. Leave Encashment Exemption Under Section 10(10AA)

Leave encashment is an important retirement-related benefit for salaried employees.

Under the new tax regime, eligible leave encashment exemption continues to be available.

For employees other than Government employees, exemption is subject to prescribed conditions and limits.

The exemption is calculated based on the prescribed formula involving:

• Actual leave encashment received
• Average salary
• Unutilised earned leave
• Statutory ceiling

Maximum Exemption Limit

For eligible non-government employees:

₹25 lakh (lifetime limit)

subject to fulfilment of conditions.

Important Point for Employees Changing Jobs

In today's employment environment, many employees change jobs multiple times during their career.

Employees should remember:

Leave encashment exemption is subject to lifetime limits.

Therefore, employees should maintain records of exemptions already claimed from earlier employers.

Failure to track earlier claims may result in incorrect tax calculations.

4. Gratuity Exemption Under Section 10(10)

Gratuity is a statutory retirement benefit provided to employees who complete the prescribed period of service.

The tax treatment depends upon the category of employee.

Broadly:

Employee Category	Tax Treatment
Government employees	Exempt subject to conditions
Employees covered under Payment of Gratuity Act	Exemption subject to statutory formula
Other employees	Exemption subject to prescribed conditions

For eligible employees, the maximum exemption limit is:

₹25 lakh

subject to applicable conditions.

Gratuity Planning in the New Employment Era

Earlier, gratuity was generally associated only with retirement.

Today, employees frequently:

• Change organisations
• Move between sectors
• Receive gratuity after completing eligibility periods

Therefore, understanding gratuity taxation has become important even for younger professionals.

Employees should maintain:

• Previous employment records
• Gratuity received details
• Service period details

5. Section 87A Rebate: The Zero Tax Possibility

The new tax regime provides rebate benefits under Section 87A subject to applicable income limits and conditions.

For eligible taxpayers, proper utilisation of:

• Standard deduction
• Employer NPS contribution
• Section 10(14) exemptions
• Retirement benefit exemptions

can significantly reduce taxable income.

In suitable cases, this may result in:

Tax liability becoming zero.

However, taxpayers must carefully examine eligibility conditions before planning.

Complete New Tax Regime Salary Planning Framework

A practical salary planning approach should consider the following:

Benefit	Planning Approach
Standard Deduction	Automatically available
Employer NPS Contribution	Request inclusion in salary structure
Duty Allowances	Ensure genuine business purpose and documentation
Leave Encashment	Track lifetime exemption utilisation
Gratuity	Maintain employment records
Section 87A Rebate	Check eligibility before planning

New Tax Regime: What Employees Should Stop Doing

Many employees continue following old tax planning habits.

They should reconsider:

❌ Making unnecessary investments only for tax saving
❌ Ignoring employer-provided benefits
❌ Choosing salary structure without tax analysis
❌ Comparing regimes only on the basis of deductions

What Employees Should Start Doing

The new approach should be:

✓ Review salary structure annually
✓ Evaluate employer NPS option
✓ Understand exempt allowances
✓ Maintain proper documentation
✓ Compare old and new regimes before final selection

Final Takeaway

The new tax regime does not say:

"Tax planning is over."

It says:

"Tax planning must become smarter."

The era of blindly investing ₹1.5 lakh under Section 80C to save tax is changing.

The future of salary tax planning lies in:

Smart compensation design + retirement planning + understanding surviving exemptions.

For salaried employees, the biggest opportunity is not hidden in tax-saving investments.

It is hidden inside their salary structure.

New Tax Regime FY 2026-27: What Still Saves Tax for Salaried Employees? The Benefits You Cannot Afford to Miss | Part 1

 By CA Surekha Ahuja

Part 1 – What Still Saves Tax Under the New Regime? The Truth Every Salaried Employee Should Know

"The new tax regime has removed many deductions. It has not removed tax planning."

That is perhaps the biggest misconception among salaried taxpayers today.

Ever since the new tax regime became the default tax regime, many employees have assumed that tax planning is no longer possible because deductions such as Section 80C, 80D, HRA and LTA are no longer available in most cases.

Unfortunately, this misunderstanding has resulted in thousands of employees paying significantly higher taxes than necessary or missing valuable retirement benefits simply because they were unaware of the provisions that continue to be available.

The reality is very different.

The Government has consciously shifted the focus from encouraging personal tax-saving investments to promoting retirement planning, genuine employment-related reimbursements and a simpler tax structure. Consequently, while several traditional deductions have been withdrawn, some of the most valuable tax benefits have been retained under the new regime.

For many salaried employees, these surviving provisions can still reduce taxable income substantially. In suitable cases, they may even help bring taxable income within the limit eligible for rebate under Section 87A, resulting in nil tax liability.

Understanding these provisions is therefore no longer optional. It is an essential part of salary structuring and financial planning.

In this comprehensive guide, we shall examine the important deductions, exemptions and planning opportunities that continue under the new tax regime, with special emphasis on:

• Employer's contribution to the National Pension System under Section 80CCD(2)
• Duty-related allowances exempt under Section 10(14)
• Standard deduction
• Leave encashment and gratuity exemptions
• The ₹7.5 lakh aggregate employer contribution ceiling
• Practical salary restructuring strategies
• The zero-tax planning framework for eligible employees
• Important considerations for employees changing jobs during the year

Before discussing each provision in detail, it is useful to understand what actually survives under the new tax regime.

What Still Survives Under the New Tax Regime?

One of the biggest myths surrounding the new tax regime is that "there are no deductions left."

This statement is incorrect.

Although several popular deductions have been withdrawn, Parliament has consciously retained provisions that encourage long-term retirement savings, reimburse genuine official expenses and protect important retirement benefits.

The following table provides a complete snapshot of the principal deductions and exemptions that continue to be available under the new tax regime.

Table 1 – Major Deductions and Exemptions Available Under the New Tax Regime (FY 2026–27)

Section	Nature of Benefit	Maximum Benefit / Condition	Status
Section 16(ia)	Standard Deduction	₹75,000	Available
Section 80CCD(2)	Employer's contribution to NPS Tier I	Up to 14% of Basic Salary plus Dearness Allowance, subject to overall limits	Available
Section 10(10AA)	Leave Encashment	Exemption up to ₹25 lakh (lifetime limit subject to law)	Available
Section 10(10)	Gratuity	Exemption up to ₹25 lakh (subject to applicable conditions)	Available
Section 10(14)(i)	Duty-related allowances	Exempt to the extent of actual expenditure incurred	Available
Section 10(14)(ii)	Specified prescribed allowances	Exemption subject to prescribed monetary limits	Available
Section 17(2)(vii)	Aggregate employer contribution to retirement funds	Excess over ₹7.5 lakh taxable as perquisite	Restriction
Section 87A	Rebate	Subject to prescribed taxable income limit	Available

What Has Actually Changed?

The philosophy of the new tax regime is fundamentally different from the earlier regime.

Earlier, the tax law rewarded taxpayers who invested in specified financial products such as LIC policies, PPF, ELSS, tax-saving fixed deposits and medical insurance.

The new regime, on the other hand, rewards taxpayers who build long-term retirement savings through employer-sponsored retirement schemes and who receive genuine reimbursements for expenses incurred in the course of employment.

In simple words,

Personal tax-saving investments have largely disappeared.

Retirement-oriented employer contributions continue to enjoy significant tax benefits.

Official duty-related reimbursements continue to receive tax exemption.

This distinction is extremely important because many employees continue making investment decisions based on the old regime without reviewing whether their salary structure itself can be made more tax efficient.

The Four Biggest Tax Benefits Still Available

Even after the introduction of the new tax regime, four provisions continue to play a central role in tax planning.

1. Standard Deduction

Every eligible salaried employee continues to receive the standard deduction without making any investment or incurring any expenditure.

This deduction directly reduces taxable salary.

2. Employer's Contribution to NPS under Section 80CCD(2)

This is arguably the single most powerful tax-saving provision available under the new tax regime.

Where the employer contributes to the employee's Tier I NPS account, the employee may claim deduction under Section 80CCD(2), subject to the prescribed conditions.

Unlike many deductions under the old regime, this benefit can substantially reduce taxable income while simultaneously creating a retirement corpus.

We shall discuss this provision in detail in the next part of this guide.

3. Duty-Related Allowances under Section 10(14)

Many taxpayers incorrectly assume that every allowance has become taxable.

That is not correct.

Allowances granted exclusively for the performance of official duties, such as specified conveyance, travel, helper, uniform and similar allowances, continue to enjoy exemption to the extent of actual expenditure incurred, subject to the statutory conditions.

Proper documentation, bills and employer policies become extremely important while claiming these exemptions.

4. Retirement Benefits

Certain retirement-related receipts continue to enjoy substantial tax exemptions even under the new regime, including:

• Leave encashment
• Gratuity
• Other eligible retirement benefits subject to the respective statutory provisions

These exemptions often become relevant not only on retirement but also when employees change jobs during their careers.

Key Takeaway

The new tax regime should not be viewed as a regime without deductions.

Instead, it should be viewed as a regime that rewards structured salary planning rather than investment-driven tax planning.

Employees who understand employer NPS contributions, official reimbursements, retirement exemptions and salary structuring can still achieve significant tax efficiency without relying on traditional deductions such as Section 80C or Section 80D.

The most important of these surviving provisions is Section 80CCD(2), which has become the cornerstone of tax planning for salaried employees under the new regime.

In the next part, we shall examine this provision in detail, including eligibility, conditions, salary definition, employer obligations, practical illustrations and common mistakes that employees and HR departments frequently make.

Resignation, Retirement, VRS & Lay-Off Tax Rules: Gratuity, Leave Encashment and Exit Benefits Guide AY 2026-27

 By CA Surekha S Ahuja

Your exit from employment is not just a career decision; it is also a financial decision. Understanding the tax treatment of resignation, retirement, VRS and lay-off benefits can help you protect your hard-earned money.

Understand tax rules for resignation, retirement, VRS and layoffs. Complete guide on gratuity exemption, leave encashment under Section 10(10AA), VRS compensation under Section 10(10C) and retrenchment compensation under Section 10(10B).

Introduction: Why Understanding Job Exit Tax Rules Matters

With frequent job changes, corporate restructuring and layoffs becoming common, employees must understand the difference between:

• Resignation
• Retirement
• Voluntary Retirement Scheme (VRS)
• Termination
• Lay-off and Retrenchment

The mode of separation determines the treatment of important benefits such as:

✔ Gratuity
✔ Leave encashment
✔ VRS compensation
✔ Retrenchment compensation
✔ Provident Fund
✔ Pension benefits

A simple difference in terminology used in your relieving letter or settlement document can impact your tax position.

Resignation vs Retirement vs VRS vs Lay-Off: Key Differences

Type of Exit	Meaning	Who Initiates	Tax & Benefit Impact
Resignation	Employee voluntarily leaves service before retirement age	Employee	Normal exit benefits; no VRS exemption
Retirement	Exit on attaining retirement age or under service rules	Employer/Employee as per rules	Retirement benefits become payable
VRS	Early retirement under an employer-approved scheme	Employee under employer scheme	Section 10(10C) benefit may apply
Termination	Employer ends employment	Employer	Depends on reason and settlement terms
Lay-off/Retrenchment	Job loss due to business restructuring	Employer	Retrenchment compensation provisions may apply

Leave Encashment Tax Exemption under Section 10(10AA)

One of the Most Misunderstood Employee Benefits

Many employees believe that leave encashment exemption is available only on retirement.

However, Section 10(10AA) covers leave encashment received:

• On retirement,
• On resignation,
• Or on other cessation of employment.

Therefore, leave encashment received at the time of resignation may also qualify for exemption, subject to the conditions and limits prescribed under the Income-tax Act.

Tax Treatment of Leave Encashment

Category of Employee	Tax Treatment under Section 10(10AA)
Government employee	Fully exempt
Non-government employee	Exempt up to the prescribed limit; balance taxable

For non-government employees, exemption is restricted to the least of the prescribed conditions, including:

• Actual leave encashment received,
• Prescribed monetary ceiling,
• Salary-based calculation,
• Value of eligible accumulated leave.

Any amount exceeding the exemption limit is taxable under the head Income from Salary.

Gratuity Tax Exemption under Section 10(10)

Gratuity is payable to eligible employees who satisfy the conditions under the applicable gratuity law or employer scheme.

The exemption under Section 10(10) depends upon:

• Whether the employee is covered under the Payment of Gratuity Act,
• Type of employer,
• Salary and service period,
• Statutory limits applicable at the time of payment.

Employees should obtain a proper gratuity calculation before accepting the final settlement.

VRS Compensation Tax Benefit under Section 10(10C)

A genuine Voluntary Retirement Scheme (VRS) can provide a specific tax benefit.

Compensation received under a qualifying VRS may be exempt up to ₹5 lakh under Section 10(10C), provided the scheme satisfies the conditions prescribed under Rule 2BA of the Income-tax Rules.

Important:

A voluntary resignation with an ex-gratia payment is not automatically a VRS.

Employees should check:

✔ Whether a formal VRS scheme exists
✔ Whether Rule 2BA conditions are fulfilled
✔ Whether the payment is correctly described in settlement documents

Retrenchment Compensation and Lay-Off Benefits

When an employee loses a job due to:

• Business restructuring,
• Role elimination,
• Workforce reduction,

the payment may be treated as retrenchment compensation.

Eligible retrenchment compensation may qualify for exemption under Section 10(10B), subject to applicable conditions.

The reason mentioned in the termination letter is extremely important.

Exit Benefits Tax Comparison

Benefit	Resignation	Retirement	VRS	Lay-Off/Retrenchment
Gratuity	Subject to eligibility	Available	Available	Available if eligible
Leave Encashment	Section 10(10AA) subject to limits	Section 10(10AA)	Section 10(10AA)	Section 10(10AA)
VRS Compensation	Not available	Not applicable	Section 10(10C) possible	Not available
Retrenchment Compensation	Not applicable	Not applicable	Not applicable	Section 10(10B) possible

Common Mistakes Employees Make During Job Exit

❌ Treating voluntary separation as VRS without checking conditions

❌ Accepting settlement documents without checking tax treatment

❌ Ignoring leave encashment exemption under Section 10(10AA)

❌ Not preserving relieving letters and settlement documents

❌ Withdrawing PF/superannuation benefits without tax planning

Checklist Before Leaving Your Job

Before signing your exit documents, collect:

✅ Resignation acceptance / retirement order / VRS approval letter
✅ Full and final settlement statement
✅ Form 16
✅ Gratuity calculation
✅ Leave encashment calculation
✅ VRS scheme document (if applicable)
✅ PF and pension transfer details

Key Takeaways

✔ Resignation, retirement, VRS and lay-off are not the same under tax law.

✔ Section 10(10AA) provides an important exemption for leave encashment, including cases of resignation, subject to limits.

✔ Section 10(10C) applies only to genuine qualifying VRS schemes.

✔ Section 10(10B) may provide relief for eligible retrenchment compensation.

✔ Correct documentation is as important as correct computation.

Final Thought

A career exit is not merely the end of employment; it is a financial transaction involving your accumulated rights and benefits.

Before signing your resignation, retirement or separation papers, understand the tax implications of every component of your settlement. The right classification of your exit can protect your benefits and reduce avoidable tax costs.

Form 10BE & Form 10BD (Forms 114 & 113): Complete Guide for Donors and NGOs (FY 2025–26 & FY 2026–27)

 By CA Surekha Ahuja

Donation Certificates, 80G Deduction, NGO Compliance, Due Dates and Practical Solutions

A Donation Is More Than a Receipt

A donation represents trust.

A donor trusts a charitable institution to use the contribution for a meaningful purpose. At the same time, the donor expects that the tax benefit available under the Income-tax law is properly supported.

A common question asked by taxpayers is:

"I have made a donation and received a receipt. Can I claim the deduction in my Income-tax Return?"

The answer is:

Not always.

A donation receipt confirms that the institution has received the contribution. However, for claiming deduction under the Income-tax law, the donor should also ensure that the prescribed reporting and certification requirements are completed.

For eligible institutions:

• Form 10BD is the statement filed with the Income-tax Department reporting donations received.
• Form 10BE is the certificate issued to the donor supporting the deduction claim.

Under the Income-tax Act, 2025, the corresponding forms are:

• Form 113 replacing Form 10BD; and
• Form 114 replacing Form 10BE.

The objective remains unchanged:

The institution reports the donation. The donor receives the certificate required to support the tax deduction.

This guide explains the practical compliance requirements for donors, NGOs, trusts, institutions and tax professionals for FY 2025–26 and FY 2026–27 onwards.

Quick Summary: What You Need to Know

If you are	What you should do
Individual donor	Obtain Form 10BE/Form 114 and preserve payment proof.
Company/HUF donor	Ensure the donation claim is supported by proper documentation and reconciliation.
NGO/Trust/Institution	File Form 10BD/Form 113 and issue Form 10BE/Form 114 within the prescribed time.
Tax professional	Reconcile donation records, certificates and return disclosures before filing.

Form 10BE and Form 10BD: The Basic Difference

Many donors and institutions confuse these two forms.

The easiest way to remember:

Form 10BD goes to the Income-tax Department.

Form 10BE goes to the donor.

Particular	Form 10BE	Form 10BD
Meaning	Donation certificate	Statement of donations received
Purpose	Supports donor's deduction claim	Reports donations to the Income-tax Department
Prepared by	NGO/Trust/Institution	NGO/Trust/Institution
Filed with Department	No	Yes
Issued to donor	Yes	No
Responsibility	Donee institution	Donee institution

Forms 113 and 114 Under Income-tax Act, 2025

The Income-tax Act, 2025 introduces a new structure and renumbering of provisions and forms.

For FY 2026–27 onwards:

Existing Form	Corresponding Form under Income-tax Act, 2025	Purpose
Form 10BD	Form 113	Statement of donations received by the institution
Form 10BE	Form 114	Certificate issued to the donor

For practical understanding, taxpayers may continue to search for Form 10BE and Form 10BD, as these terms remain widely used. However, professionals and institutions should refer to the applicable forms prescribed for the relevant financial year.

CA Surekha's Practical Insight

During transition periods, the biggest compliance risk is not the law itself but using an outdated form or process. Institutions should always verify the applicable form before filing for the relevant financial year.

Who Has to Comply?

The responsibility is primarily on the donee institution.

Responsibilities of NGOs / Trusts / Institutions

They must:

✓ Maintain complete donor records.
✓ File Form 10BD/Form 113 with donor-wise details.
✓ Issue Form 10BE/Form 114 to eligible donors.
✓ Maintain supporting documents.

Responsibilities of Donors

They must:

✓ Donate to eligible institutions.
✓ Provide correct PAN and personal details.
✓ Obtain Form 10BE/Form 114.
✓ Preserve payment proof.
✓ Claim deduction correctly in the Income-tax Return.

A donor does not file Form 10BE, Form 10BD, Form 113 or Form 114.

Who Is Required to File Form 10BD / Form 113?

The reporting obligation applies to eligible institutions receiving donations that qualify for deduction claims.

These may include:

• charitable trusts;
• institutions approved under section 80G;
• universities and educational institutions eligible under the Income-tax law;
• research institutions eligible under section 35; and
• other approved entities covered by the applicable provisions.

Before issuing certificates, institutions should ensure that their approval or registration remains valid.

Due Date for Filing and Issuing Certificates

The institution is generally required to complete both compliance steps:

1. Filing the donation statement; and
2. Issuing the donation certificate to donors.

The general due date is:

31 May following the end of the relevant financial year.

Financial Year	Due Date
FY 2025–26	31 May 2026
FY 2026–27	31 May 2027*

*Subject to any extension or notification issued by the Government.

CA Surekha's Practical Insight

NGOs should not treat 31 May as the starting point of compliance. The reconciliation process should ideally begin immediately after the financial year closes. Most errors arise due to incomplete donor details collected during the year.

Practical Compliance Guide for NGOs

A systematic approach can prevent most compliance issues.

Step 1: Maintain Proper Donor Records

Every institution should maintain:

• donor name;
• PAN;
• address;
• date of donation;
• amount donated;
• mode of payment;
• receipt number; and
• bank reference.

The quality of Form 10BD/Form 113 depends entirely on the quality of donor data maintained during the year.

Step 2: Verify Donor Details

Before issuing certificates, verify:

✓ Correct spelling of donor name.
✓ Correct PAN.
✓ Correct donation amount.
✓ Correct financial year.
✓ Correct payment details.

A small spelling mistake or wrong PAN can create unnecessary difficulty for the donor.

Step 3: Reconcile Before Filing

Before filing Form 10BD/Form 113:

Compare:

• donation register;
• books of account;
• bank statements;
• donation receipts; and
• donor details.

Special attention should be given to:

• March donations;
• large-value donations;
• donations received near year-end; and
• donations where donor information is incomplete.

Step 4: File Statement and Issue Certificates

After reconciliation:

• file Form 10BD/Form 113 within the due date;
• issue Form 10BE/Form 114 to donors;
• retain acknowledgement and supporting records.

Practical Compliance Guide for Donors

For donors, compliance is simple but important.

Before Making Donation

✔ Verify that the institution is eligible to issue donation certificates.
✔ Provide your name exactly as per PAN records.
✔ Provide correct PAN details.

At the Time of Donation

Prefer payment modes that create a clear trail:

• bank transfer;
• UPI;
• cheque; or
• other traceable banking channels.

Obtain: donation receipt; and Form 10BE/Form 114.

While Filing Income-tax Return

Remember:

• Do not upload Form 10BE/Form 114 with the ITR.
• Enter donation details in the relevant schedule.
• Preserve documents for future reference.

Practical Example

Situation:

Mr A donated ₹1,00,000 to an approved charitable institution during FY 2025–26.

The institution issued a donation receipt immediately. However, while filing Form 10BD, the PAN was entered incorrectly.

Result: Mr A may have made a genuine donation, but the mismatch can create unnecessary questions while processing or assessing the deduction claim.

Solution: Verify details before filing:

• donor name;
• PAN;
• donation amount; and
• payment records.

A two-minute verification can prevent months of follow-up.

Is a Manual Form 10BE Valid?

A manually prepared Form 10BE may be acceptable where permitted, provided the information is accurate and matches the reported details.

The important requirement is consistency between:

1. Form 10BE/Form 114 issued to donor;
2. Form 10BD/Form 113 filed by the institution; and
3. Actual payment records.

The format matters less than accuracy and reconciliation.

Common Mistakes by NGOs and Donors

Common Mistake	Impact	Better Practice
Incorrect PAN	Certificate mismatch	Verify PAN before issuing
Wrong donation amount	Deduction issue	Reconcile with bank records
Delay in filing	Late fee and penalty exposure	Complete compliance early
Missing Form 10BE	Donor difficulty	Issue certificates promptly
Incorrect financial year	Wrong reporting	Verify donation date

Key Takeaways

✓ Form 10BD/Form 113 is filed by the institution, not the donor.
✓ Form 10BE/Form 114 is issued to the donor by the institution.
✓ Donation receipts alone may not be sufficient for claiming deduction.
✓ Accurate PAN, amount and donor details are critical.
✓ Proper compliance protects both NGOs and donors.

Continued in Part 2

Part 2 will cover:

• Claiming donation deduction in the Income-tax Return.
• Penalties and consequences.
• What happens if Form 10BE and Form 10BD do not match.
• Correction mechanism.
• Detailed FAQs.
• Donor and NGO compliance checklists.
• Final professional guidance.

Special Incomes Under the Income-Tax Act, 2025: Tax Rates, Taxable Base, Permitted Deductions & Loss Set-Off Rules

 By CA Surekha Ahuja

A Complete Guide to Cryptocurrency, Online Gaming Winnings, Lottery Income, Patent Royalty, Carbon Credits, Unexplained Income and Other Special Tax Regimes

AY 2025–26 | Sections 190 to 195 of the Income-Tax Act, 2025

Most taxpayers focus on the tax rate. However, for special income categories under the Income-Tax Act, 2025, the rate is only one part of the computation. Equally important is determining the taxable base and understanding whether any deduction, allowance, expense claim, or loss set-off is permitted.

A taxpayer may know that a particular income is taxable at 30%, but the more important questions often are:

• 30% of what amount?
• Is any deduction permitted?
• Can losses be adjusted?
• Does TDS discharge the entire tax obligation?

The Income-Tax Act, 2025 answers these questions differently for different categories of special income. In most cases, the law not only prescribes a fixed tax rate but also restricts or completely prohibits deductions and loss adjustments.

As return filing for AY 2025–26 gathers pace and AIS, TDS and TCS reporting become increasingly data-driven, understanding these provisions correctly is critical to avoiding computation errors, notices and future tax disputes.

What Makes These Incomes Special?

Unlike salary, business income, house property income or most investment income that are generally taxed under normal slab rates, certain categories of income are subject to special taxation provisions.

These provisions generally prescribe:

• A fixed tax rate;
• A specific taxable base;
• Restrictions on deductions; and
• Restrictions on loss set-off and carry forward.

Accordingly, taxpayers should always follow the following sequence:

The Four-Step Rule

Step 1 – Identify the applicable section

Step 2 – Determine the taxable base

Step 3 – Allow only deductions specifically permitted

Step 4 – Apply the prescribed tax rate

Most computational errors arise at Steps 2 and 3.

Quick Reference Table: Special Income Tax Rates, Taxable Base, Deductions and Loss Rules

Section	Income Category	Tax Rate	Taxable Base	Deduction Allowed	Loss Set-Off
194(4)	Virtual Digital Assets (Crypto, NFTs)	30%	Sale consideration less cost of acquisition	Cost of acquisition only	Not permitted
194(5)	Online Gaming Winnings	30%	Net winnings as prescribed	None	Not permitted
194(1)	Lottery, Gambling and Betting	30%	Gross winnings	None	Not permitted
194(2)	Patent Royalty	10%	Eligible royalty income	None	Not applicable
194(3)	Carbon Credit Transfers	10%	Gross consideration	None	Not permitted
194(6)	Life Insurance Business Profits	12.5%	Profits of life insurance business	As provided	As applicable
195	Unexplained Income	60% plus surcharge	Entire unexplained amount	None	Not permitted
192	Block Assessment Income	60% plus surcharge	Undisclosed income assessed	None	Not permitted
193	GDR Income	10% / 12.5% / Slab	As specified	As specified	As applicable
191	Taxable RPF Balance	Special computation	Schedule XI mechanism	Special rules	As applicable
190	Average Rate Relief	Rate mechanism	For rate purposes	Not applicable	Not applicable

---

Virtual Digital Assets (Crypto, NFTs & Other VDAs) – Sec.194(4)

(Corresponding to earlier Section 115BBH)

Particulars	Position
Tax Rate	30%
Taxable Base	Sale consideration less cost of acquisition
Deduction Allowed	Cost of acquisition only
Loss Set-Off	Not permitted
Carry Forward	Not permitted

The VDA taxation regime remains one of the strictest provisions under the Act.

Only the cost of acquisition is deductible. No deduction is available for exchange charges, gas fees, wallet fees, mining expenses, platform charges or other incidental expenditure.

Further, losses from VDA transactions cannot be adjusted against any other VDA gains or any other head of income and cannot be carried forward.

Online Gaming Winnings – Section 194(5)

(Corresponding to earlier Section 115BBJ)

Particulars	Position
Tax Rate	30%
Taxable Base	Net winnings as prescribed
Deduction Allowed	None
Loss Set-Off	Not permitted
Carry Forward	Not permitted

The taxable amount is the net winnings computed under the prescribed rules.

No deduction is available for entry fees, participation costs, subscriptions or platform charges.

TDS deducted by the gaming platform does not remove the obligation to disclose the income in the return.

Lottery, Gambling and Betting Winnings – Section 194(1)

(Corresponding to earlier Section 115BB)

Particulars	Position
Tax Rate	30%
Taxable Base	Gross winnings
Deduction Allowed	None
Loss Set-Off	Not permitted
Carry Forward	Not permitted

This provision taxes winnings on a gross basis.

No deduction is permitted for lottery tickets, betting stakes or participation expenses.

Patent Royalty – Section 194(2)

(Corresponding to earlier Section 115BBF)

Particulars	Position
Tax Rate	10%
Taxable Base	Eligible royalty income
Deduction Allowed	None
Option Requirement	Before return due date

The concessional rate substitutes the benefit of claiming related expenditure.

To qualify, the patent should generally be registered in India, developed in India and belong to the true and first inventor.

Carbon Credit Transfers – Section 194(3)

(Corresponding to earlier Section 115BBG)

Particulars	Position
Tax Rate	10%
Taxable Base	Gross consideration
Deduction Allowed	None
Loss Set-Off	Not permitted

The transfer of carbon credits is taxable on a gross basis and no expenditure is deductible.

Life Insurance Business Profits – Section 194(6)

Particulars	Position
Tax Rate	12.5%
Taxable Base	Profits of life insurance business
Applicability	Life insurance companies
Deduction Position	As provided under the section

This provision applies to life insurance companies and not to policyholders.

Unexplained Income – Section 195

(Corresponding to earlier Section 115BBE)

Particulars	Position
Tax Rate	60% plus surcharge
Taxable Base	Entire unexplained amount
Deduction Allowed	None
Loss Set-Off	Not permitted
Carry Forward	Not permitted

This provision generally covers:

• Unexplained cash credits;
• Unexplained investments;
• Unexplained money;
• Unexplained assets;
• Unexplained expenditure; and
• Certain hundi-related transactions.

The burden of explaining the nature and source lies on the taxpayer.

Other Important Special Provisions

Section 192 – Block Assessment of Undisclosed Income

• Tax Rate: 60% plus surcharge
• No deductions
• No loss set-off
• No carry-forward benefit

Section 191 – Taxable Recognised Provident Fund Balance

Taxation is governed by the special mechanism contained in Schedule XI.

Section 193 – GDR Income of Knowledge Sector Employees

• Dividend Income – 10%
• Long-Term Capital Gains – 12.5%
• Other Income – Slab Rates

Section 190 – Average Rate Relief

Provides a rate-computation mechanism where exempt income is considered for determining the applicable tax rate.

The Expense Question: Why Most Computation Errors Occur

The most common error is assuming that a genuine expense automatically becomes deductible.

That assumption is incorrect for special-income provisions.

Where the Act expressly prohibits deduction of expenditure or allowance, the restriction is absolute. Commercial necessity, actual payment or business purpose cannot override an express statutory prohibition.

This principle is particularly important for Virtual Digital Assets; Online Gaming Winnings; Lottery and Betting Income; and Unexplained Income.

Before Filing Your Return: Practical Compliance Checklist

Before filing the return, taxpayers should verify:

✓ Correct identification of the applicable provision.

✓ Correct determination of the taxable base.

✓ Whether any deduction is specifically permitted.

✓ Restrictions on loss set-off and carry forward.

✓ TDS and TCS credits reflected in AIS and Form 26AS.

✓ Proper disclosure of the income in the return.

Remember: TDS credit reduces tax payable. It does not eliminate the obligation to disclose the income.

Final Takeaway

For special incomes, the tax rate is often only the beginning of the analysis.

The more important questions are:

• What amount is taxable?
• What deductions are permitted?
• Can losses be adjusted?
• What compliance obligations remain despite TDS deduction?

The correct sequence remains:

Identify the income → Determine the taxable base → Allow only statutory deductions → Apply the prescribed rate → Report the income → Claim the TDS credit separately.

For AY 2025–26, following this sequence may be the most effective way to avoid notices, adjustments and future tax disputes.

“Do Not Reply” Tax Notices — Can Such Service Really Be Treated as Valid and can be challenged in Appeal

 By CA Surekha Ahuja

A serious natural justice battle is now emerging in India’s faceless tax regime.

Thousands of taxpayers are receiving scrutiny and penalty notices from:

donotreply@incometax.gov.in

And appellate forums may soon have to confront a critical question:

Can the Income Tax Department legally claim proper service of notice when the communication itself is designed to look ignorable?

The Law Permits Electronic Service — But That Is Not the End of the Matter

Section 282 of the Income-tax Act and Rule 127 recognise electronic service of notices through registered email IDs and e-filing systems.

Technically, the department may argue:

once the email reaches the registered inbox, service stands completed.

But Indian jurisprudence on natural justice goes far beyond technical dispatch.

Courts have repeatedly held that:

• opportunity of hearing must be real and meaningful,
• procedural compliance cannot become empty formality,
• and fairness cannot be sacrificed at the altar of technicality.

That principle becomes even more important in faceless proceedings.

The Real Controversy Is the Communication Design Itself

The issue is not merely the sender address.

The issue is the communication architecture.

Today, many actionable notices:

• come from automated “Do Not Reply” IDs,
• carry generic subject lines,
• resemble routine compliance alerts,
• and hide critical response deadlines inside PDF attachments.

The taxpayer often realises the seriousness only after opening what appears to be another background system-generated email.

And that is precisely where the appellate challenge begins.

The Emerging Legal Argument

The argument is becoming increasingly powerful:

a notice may be technically delivered, yet procedurally ineffective if the very structure of communication materially increases the likelihood of the notice being overlooked.

This becomes even stronger where:

• the assessee had already participated earlier,
• replies were already on record,
• yet the subsequent penalty-stage notice arrived through the same automated no-reply format.

Prior participation destroys the allegation of deliberate non-compliance and significantly strengthens the plea of:

• defective or ineffective service,
• denial of meaningful opportunity,
• procedural prejudice,
• and reasonable cause under Section 273B.

Judicial Principles Strongly Support the Challenge

Indian courts have consistently protected the doctrine of:

audi alteram partem — the right to a fair hearing.

The Supreme Court has repeatedly emphasised that natural justice is not a technical ritual but a substantive safeguard against arbitrary action.

Where procedural defects cause genuine prejudice, courts have not hesitated to strike down proceedings.

And in the faceless era, communication design itself has now become part of the hearing process.

Because in digital adjudication:

a notice hidden behind automated communication architecture may satisfy server records…

…and still fail the test of meaningful opportunity.

The Larger Constitutional Concern

Faceless assessment was introduced to increase:

• transparency,
• efficiency,
• and accountability.

But digitisation cannot dilute Article 14 fairness.

Technology may change the mode of service.

It cannot reduce the quality of hearing rights guaranteed under law.

And that may become one of the defining litigation issues of India’s faceless tax administration system.

The future question before appellate forums may no longer be merely whether a notice was sent…

…but whether it was reasonably designed to be noticed.

RIA Consultancy Fees under Section 34, Income-tax Act 2025

By CA Surekha Ahuja 

Deductibility, Nexus Doctrine, Judicial Principles, Compliance Framework and Penalty Risk Analysis

With increasing engagement of Securities and Exchange Board of India-registered Investment Advisers (RIAs) for treasury deployment, portfolio restructuring, and institutional investment governance, a recurring legal issue arises under Section 34 of the Income-tax Act, 2025:

Whether RIA consultancy fees are deductible as business expenditure or fall within the scope of personal expenditure.

The determination is not driven by contract or nomenclature. It is governed by a strict statutory and judicial test of business nexus, dominant purpose, and contemporaneous evidence of application.

Legal Framework under Section 34

Section 34 of the Income-tax Act, 2025 permits deduction of expenditure if it is:

• not capital in nature
• not personal in character
• incurred wholly and exclusively for business purposes

This provision continues the settled jurisprudence of erstwhile Section 37(1), where business nexus, not commercial desirability or contractual arrangement, is the controlling test.

Statutory Interpretation Principles

The provision is applied using the following doctrines:

• Dominant purpose test
• Business nexus doctrine
• Substance over form principle
• Exclusion of personal expenditure rule

Core Legal Principle: Nexus is the Determinant, Not Agreement

The tax character of RIA consultancy fees is not determined by the existence of an agreement or SEBI registration alone.

The decisive question is:

Whether there exists a demonstrable and contemporaneous nexus between the expenditure and business operations or business-owned assets.

An agreement only evidences arrangement. It does not establish application.

Deduction arises from actual usage, business integration, and measurable commercial benefit, not contractual drafting.

Allowability vs Disallowability Framework

Nature of Advisory	Tax Treatment	Legal Basis
Treasury deployment of business surplus	Allowable	Business financial function
Liquidity and cash flow optimisation	Allowable	Operational necessity
Debt and investment allocation for business funds	Allowable	Treasury management
Portfolio optimisation of corporate assets	Allowable	Business asset governance
Promoter or director personal investments	Disallowable	Personal expenditure
Family wealth structuring	Disallowable	Non-business purpose
Succession or estate planning	Disallowable	Personal/family domain
Retirement corpus planning	Disallowable	Outside business scope

Judicial Principles Governing Deduction

Courts have consistently upheld deduction where commercial expediency and business nexus are established in substance.

• Sassoon J. David & Co. Pvt. Ltd. v. CIT – incidental personal benefit does not defeat deduction if business purpose dominates
• S.A. Builders Ltd. v. CIT – revenue cannot substitute taxpayer’s commercial wisdom
• CIT v. Walchand & Co. Pvt. Ltd. – business expediency must be judged from businessman’s perspective

Judicial Limitation

Protection applies only where:

• expenditure is genuine, and
• nexus with business is demonstrable through contemporaneous evidence

It does not extend to personal expenditure routed through corporate books.

Key Risk Factors Leading to Disallowance

Risk Factor	Tax Impact
Absence of demonstrable business nexus	Disallowance
Generic invoices without functional clarity	Weakens claim
Mixed personal and business advisory	Partial or full disallowance
Absence of board approval or treasury policy	Governance failure
Lack of contemporaneous documentation	Evidentiary failure
Personal reimbursement through company	High scrutiny exposure

Tax authorities consistently apply substance over form doctrine, examining real purpose over contractual language.

TDS and Compliance Framework

RIA consultancy fees must comply with applicable withholding tax provisions depending on:

• nature of advisory service
• residential status of adviser
• domestic or cross-border structure
• treaty applicability (where relevant)

Compliance Consequences

Default	Exposure
Non-deduction of TDS	Disallowance risk + interest
Late deposit	Interest + penalty
Misclassification	Scrutiny escalation
Reporting mismatch	Compliance penalty

TDS compliance is a co-condition for sustaining deduction in assessment proceedings.

Documentation and Audit Defence Framework

A robust deduction claim must be supported by contemporaneous evidence:

• advisory agreement defining scope
• SEBI registration certificate
• board resolution or treasury mandate
• treasury policy document
• advisory reports and deliverables
• properly classified invoices
• TDS compliance records
• banking trail of payments

Documentation supports nexus, but does not replace it.

Evidentiary Standard in Tax Jurisprudence

The consistent judicial principle is:

Deduction is sustained only where business nexus is demonstrable through contemporaneous conduct and records.

Post-facto justification is generally insufficient unless strongly corroborated by objective evidence.

The controlling principle remains:

Deduction follows nexus — not agreement.

Penalty and Litigation Exposure

Incorrect classification of RIA consultancy fees may result in:

• disallowance of expenditure
• interest liability
• penalty for misreporting or concealment (where intent is inferred)
• increased scrutiny in subsequent assessment years
• prolonged appellate litigation

Penalty exposure arises where:

• absence of bona fide explanation
• inconsistent documentation
• deliberate or negligent mischaracterisation of personal expenditure as business expense

Final Legal Position

RIA consultancy fees under Section 34 are governed by a strict nexus-based and evidentiary framework.

They are deductible only where:

• expenditure is linked to business treasury or financial management,
• dominant purpose is commercial expediency,
• nexus is demonstrable through contemporaneous conduct, and
• TDS and regulatory compliance obligations are fully satisfied

Where advisory relates to personal or family wealth management, deduction is not sustainable under Section 34.

Tax deductibility of RIA consultancy fees is determined not by agreement or adviser status, but by demonstrable business nexus established through actual use, conduct, governance approval, and contemporaneous evidence under Section 34 of the Income-tax Act, 2025.

“In tax law, agreement creates structure — but nexus creates deduction.”