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TMI BlogCapital Gains Taxation: The Role of Advance Payments in Clause 81 of the Income Tax Bill, 2025 vs. Section 51 of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... clause aims to clarify how such advances should be treated when calculating the cost of acquisition for capital gains purposes. In comparison, Section 51 of the Income-tax Act, 1961, serves a similar purpose. It provides guidance on how advance money received during negotiations for the transfer of a capital asset should be treated in the computation of the cost of acquisition. This commentary will delve into the intricacies of Clause 81, analyze its implications, and compare it with the existing Section 51 to understand the legislative intent and the practical impact on taxpayers. Objective and Purpose Clause 81 of the Income Tax Bill, 2025: The primary objective of Clause 81 is to provide a clear and unambiguous framework for the treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be deducted from the cost of acquisition. This ensures that taxpayers cannot claim a deduction for amounts that have already been accounted for as income, thereby preventing potential tax base erosion. Section 51: 1. Advance Money Deduction: * Like Clause 81, Section 51 mandates that advance money retained from negotiations for the transfer of a capital asset should be deducted from the cost of acquisition. This is intended to adjust the capital gains computation to reflect the reality of the transaction. 2. Proviso for Taxed Advances: * The proviso added in 2014 specifies that if the advance money has been included in the total income under clause (ix) of sub-section (2) of section 56, it should not be deducted from the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not claiming undue deductions. This will require tax authorities to scrutinize tax returns and supporting documentation closely. Comparative Analysis Similarities: * Both Clause 81 and Section 51 address the treatment of advance money received during negotiations for the transfer of a capital asset. * Both provisions aim to adjust the cost of acquisition for capital gains computation to reflect the financial reality of the transaction. Differences: * Clause 81 introduces a reference to section 92(2)(h) for determining when an advance should not be deducted, whereas Section 51 refers to clause (ix) of sub-section (2) of section 56. * The legislative language in Clause 81 is more streamlined, possibly reflecting an effort to mode ..... X X X X Extracts X X X X X X X X Extracts X X X X
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