BUDGETARY CHANGES IN PART D OF CHAPTER IV OF INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Chapter IV of the Income Tax Act, 1961 (‘Act’ for short) provides the procedure for computation of total income. This chapter contains 6 parts, namely-

• Part A – Salaries;
• Part B – omitted
• Part C – Income from House Property;
• Part D – Profits and gains of business or profession;
• Part E- Capital gains;
• Part F – Income from other sources.

Recently Finance Minister submitted the budget for FY 2024 – 25 along with Finance Bill.  In this article we may see the budgetary changes in Part D of Chapter IV of Income Tax Act, 1961 which deals with profits and gains of business or profession.  This part contains sections from 38 to Section 44DB.

Amendment of section 28

Section 28 provides the list of income that are chargeable to profits of business or profession.  The Finance Bill inserted Explanation 3 to this section.  The said explanation clarifies that any income from letting out of a residential house or a part of the house by the owner shall not be chargeable under the head “Profits and gains of business or profession” and shall be chargeable under the head “Income from house property”.

Amendment of section 36

Section 36 provides the list of deductions that shall be allowed in computing the income.  Section 36 (1) (iva) provides that any sum paid by the assessee as an employer by way of contribution towards a pension scheme, as referred to in section 80CCD, on account of an employee to the extent it does not exceed 10% of the salary of the employee in the previous year.

Clause 12 of the Finance Bill substituted 14% in place of 10% of the salary of the employee in the previous year.

Amendment of section 37

Explanation 3 to Section 37 of the Act clarifies that the expression “expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law” under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee, -

1. for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; o
2. to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person; or
3. to compound an offence under any law for the time being in force, in India or outside India.

Clause 13 of the Finance Bill substituted the words-

outside India; or

4. to settle proceedings initiated in relation to contravention under such law as may be notified by the Central Government in the Official Gazette in this behalf.

for the words ‘outside India’.  This amendment comes into effect from 01.04.2025.

Amendment of Section 40

Section 40 of the Act provides the list of amounts that are not deductible.  Section 40b(v)(a) of the Act provides that any payment of remuneration to any partner who is a working partner, which is authorized by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount - on the first Rs.3,00,000 of the book-profit or in case of a loss – Rs. 1,50,000 or at the rate of 90% of the book-profit, whichever is more.

Clause 38 of the Finance Bill increases the limit of remuneration to working partners, which is allowable as deduction such that on the first Rs 6,00,000 of the book-profit or in case of a loss, the limit of remuneration is increased to Rs 3,00,000 or at the rate of 90% of the book- profit, whichever is more.

This amendment will take effect from 01.04.2025 and will, accordingly, apply in relation to the assessment year 2025-2026 and subsequent years.

Amendment of Section 43D

The Finance Bill omitted the marginal heading for Section 43D – ‘public companies’.  The Finance Bill also omitted clause (b) of section 43D.  It also omitted the clause (a) and (b) of the Explanation to the said section.  This amendment will come into effect from 01.04.2025.

Amendment of Section 44B

Clause 16 of the Finance Bill substituted the words ‘Special provision for computing profits and gains of shipping business other than cruise shipping in case of non-residents’ for the present’ in the present marginal heading Special provision for computing profits and gains of shipping business in the case of non-residents. 

This amendment will come into effect from 01.04.2025.

Insertion of Section 44BBC

Clause 17 of the Finance Bill introduces a new section 44BBC.  The newly introduced Section 44BBC (1) provides that notwithstanding anything to the contrary contained in sections 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of cruise ships subject to such conditions as may be prescribed, a sum equal to twenty per cent. of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession.

Section 44BBC (2) provides that the amounts referred to in sub-section (1) shall be the following, namely-

1. the amount paid or payable to the assessee or to any person on his behalf on account of the carriage of passengers; and
2. the amount received or deemed to be received by or on behalf of the assessee on account of the carriage of passengers.

This amendment will come into effect from 01.04.2025.