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AI Hallucination in Court: ITAT Recalls Order Over Fake ChatGPT-Generated Case Laws in Buckeye Trust Tax Dispute

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A recent tax tribunal order, hastily withdrawn after citing non-existent court judgments, has sparked concerns over the possible use of generative AI—a groundbreaking technology reshaping the world but notorious for sometimes fabricating information.

In December, the Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) issued an order referencing three Supreme Court judgments and one Madras High Court ruling—none of which exist. Within a week, the order was swiftly withdrawn, citing “inadvertent errors.”

What is the Case?

The case in question is Buckeye Trust v. PCIT (ITA No. 1051/Bang/2024). Buckeye Trust, a private discretionary trust established in 2018, was settled with investments worth ₹669.27 crores, primarily through the transfer of interest in a partnership and unlisted shares. The trust filed its return for AY 2018-19, declaring nil income. The Assessing Officer (AO) accepted this in the assessment order under Section 143(3) of the Income Tax Act.

However, the Principal Commissioner of Income Tax (PCIT) reviewed the assessment order and found it erroneous and prejudicial to revenue. Typically, transfers without consideration exceeding ₹50,000 to non-relatives are taxable in the recipient’s hands. However, Buckeye’s lawyers argued that an interest in a partnership does not qualify as “property” under tax law, among other submissions.

After evaluating the arguments, the tribunal ruled that an interest in a partnership qualifies as a form of “share” and is therefore taxable. In its order, the tribunal cited precedents from the Supreme Court and various High Courts—later found to be non-existent or misattributed.

AI Hallucination: Fabricated Case Laws

Generative AI, while transformative, is prone to “hallucinations”—instances where AI tools like ChatGPT and Gemini generate responses that appear factual but are entirely fabricated. This flaw seemingly played a role in the tribunal’s now-revoked order.

The order cited the following three judgments:

  • K. Rukmani Ammal v. K. Balakrishnan (1973) 91 ITR 631 (Madras High Court)
  • S. Gurunarayana v. S. Narasinhulu (2004) 7 SCC 472 (Supreme Court of India)
  • Sudhir Gopi v. Usha Gopi (2018) 14 SCC 452 (Supreme Court of India)

However, the first two case citations do not exist, while the third citation actually refers to a different case—K. Subba Rao v. State of Telangana.

A fourth citation, 57 ITR 232 (SC), does correspond to an actual case—CIT vs. Raman Chettiar—but it pertains to a Hindu Undivided Family and is completely unrelated to the Buckeye Trust matter.

It appears that the tax department’s representative (DR) may have relied on a generative AI tool like ChatGPT to find judgments that favored the department and incorporated them into his arguments. Meanwhile, the tribunal appears to have copied and pasted the case laws from the DR’s submission without conducting proper due diligence.

ITAT Retraction and Re-examination

Legal experts uncovered the fabricated citations, prompting the ITAT to revoke the order under Section 254(2) of the Income Tax Act and schedule a fresh hearing for February 19, 2025. The tribunal moves to correct the error and uphold fairness, where both parties are expected to present new arguments in the case’s re-examination.

The Buckeye Trust case serves as a stark reminder of the risks associated with unverified AI-generated content in legal proceedings. While AI can be a valuable tool for legal research, its tendency to fabricate citations poses significant challenges if left unchecked.

As the ITAT re-evaluates the case, it highlights a broader lesson for legal professionals: technology should enhance, not replace, meticulous legal scrutiny. Moving forward, courts and practitioners must adopt stricter safeguards and verification protocols to prevent similar errors, ensuring that judicial decisions are based on authenticated precedents rather than AI-generated misinformation. As AI continues to integrate into legal research, regulatory bodies must also establish clear guidelines on its responsible use to prevent such mishaps in the future.

Advance Tax Payment

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Advance tax may seem tricky, but knowing the basics can help you manage your money. This knowledge can also prevent surprises at the end of the financial year. In this blog, we’ll cover advance tax. We’ll explain who must pay it, key deadlines, and the online payment process. We’ll also show you how to calculate your tax liability with a practical example.

What Is Advance Tax?

Advance tax is the income tax you pay in parts throughout the year. This way, you avoid a large payment all at once at the end. It’s a way of paying tax on your income as you earn it, ensuring that your tax liability is spread evenly throughout the year. This method works for different income sources, not just your salary. It includes rental income, capital gains, interest from fixed deposits, lottery winnings, and earnings from freelance or business work.

Who Needs to Pay Advance Tax?

The requirement to pay advance tax applies to a wide range of taxpayers:

  • Individuals, Freelancers, and Businesses: If your estimated tax liability (after adjusting for tax deducted at source) exceeds Rs 10,000 in a financial year, you are required to pay advance tax.
  • Presumptive Taxpayers: Professionals and businesses using the presumptive taxation schemes under sections 44AD or 44ADA must make their entire advance tax payment in one installment, typically by March 15 (with an option to extend to March 31).
  • Senior Citizens: Generally, individuals aged 60 years or more who do not have income from business or profession are exempt from paying advance tax. However, if they are engaged in business activities, the requirement applies.

Key Payment Deadlines

Calculating Your Advance Tax Liability

Calculating your advance tax liability involves several steps:

  1. Estimate Your Total Income: Sum up all income sources—salary, business or professional income, rental income, capital gains, interest, etc.
  2. Subtract Eligible Deductions: Deduct amounts available under sections such as 80C, 80D, and other applicable deductions.
  3. Compute the Taxable Income: Apply the relevant income tax slab rates to your net income.
  4. Adjust for TDS: Subtract any tax already deducted at source.
  5. Determine the Liability: If your net tax liability exceeds Rs 10,000. Then you must pay the advance tax in the prescribed installments.

Example: How Advance Tax is Calculated

Let’s illustrate the process with a practical example:

Meet Ajay – A Freelancer

INCOME ESTIMATION FOR ADVANCE TAXAMOUNT (Rs)AMOUNT (Rs)
Income from profession:  
Gross receipts20,00,000 
Less: Expenses12,00,0008,00,000
   
Income from other sources:  
Interest from fixed deposit 10,000
GROSS TOTAL INCOME 8,10,000
Less: Deduction under section 80C  
Contribution to PPF40,000 
   
LIC premium       25,000 
 65,000 
Deduction under section 80D12,000 
TOTAL INCOME 7,33,000
   
TAX PAYABLE 59,100
Add: Education cess @ 4% 2,364
  61,464
Less: TDS 30,000
TAX PAYABLE IN ADVANCE (as it exceeds Rs.10,000) 31,464
ADVANCE TAX PAYMENTS
Due dateAdvance tax payableAmount (Rs)
15th June15% of Advance tax4,700
15th September45% of Advance tax9,400 (14,100-4700)
15th December75% of Advance tax9,400 (23500-14100)
15th March100% of Advance tax7900 (31,400-23500)

How to Pay Advance Tax Online

The digital era has simplified the process of paying advance tax. Here’s a step-by-step guide to paying your advance tax online:

  1. Visit the e-Filing Portal: Navigate to the Income Tax Department’s e-filing website and click on the “e-Pay Tax” option.
  2. Enter Your Details: Provide your PAN and mobile number. Verify your mobile number by entering the OTP you receive.
  3. Select the Payment Type: Choose “Income Tax” and select the relevant Assessment Year (e.g., 2025-26). Then, opt for “Advance Tax (100)” as your payment type.
  4. Input Your Tax Details: Fill in your estimated tax details accurately.
  5. Choose Your Payment Method: Select your preferred payment method and bank.
  6. Review and Confirm: Verify all the details on your challan, then click “Pay Now.”
  7. Save Your Receipt: After payment, download and save your tax receipt. This receipt will include your BSR code and challan serial number—details you’ll need when filing your return.

Consequences of Missing Payment Deadlines

Timely payment of advance tax is crucial. Failing to adhere to the deadlines can result in interest penalties:

  • Section 234B: If you haven’t paid at least 90% of your tax liability by March 31, you will incur interest on the unpaid amount.
  • Section 234C: Delays in meeting the installment deadlines attract a monthly interest charge of 1% on the shortfall.

These penalties are designed to encourage taxpayers to make regular payments throughout the year.

Advance tax is more than just a statutory requirement. It’s a strategic financial tool that helps distribute your tax liability over the year. It will ease the burden of a year-end tax payment. Whether you’re a salaried employee, freelancer, or business owner, understanding and managing your advance tax payments can streamline your tax planning and help avoid unnecessary penalties.

Start early, plan ahead, and leverage online tools and calculators to ensure that your tax payments are accurate and timely. By staying proactive about your tax obligations, you’ll be better positioned to manage your finances throughout the year.

How Family Transfers Can Impact Your Tax Bill – Clubbing of Income

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Have you ever thought that gifting an asset to a family member might save you tax? Think again! The Income Tax Department has laid down rules—known as clubbing provisions—that could bring that “gift” back to you in the form of extra tax. In this post, we’ll explain clubbing of income. We’ll discuss why it happens and how transfers, even to your daughter-in-law, can raise your tax bill.

What Is Clubbing of Income?

Imagine you invest in a money-making asset and then transfer it to a relative. You might assume that since the asset is no longer in your name, you’re were not liable for the tax on that asset. However, the Income Tax Act has a safeguard: clubbing of income.Under certain conditions, the income generated by the asset you transferred still gets added back to your taxable income.

Why Does Clubbing of Income Exist?

The primary aim of these provisions is to prevent tax evasion. Taxpayers might be tempted to shift income-producing assets to family members in lower tax brackets to reduce their own tax liability. Clubbing rules ensure that:

  • Income isn’t artificially diverted.
  • Everyone pays their fair share of tax, regardless of who holds the asset.
  • Transparency is maintained in family financial affairs.

Key Provisions Under the Clubbing Rules

Section 60: Transfer of Income Without Transfer of Assets

If you transfer only the income generated from an asset (and not the asset itself) to someone else, you are still considered the owner of that asset.

Section 61: Revocable Transfer of Assets

If you transfer an asset to someone with the option to take it back (i.e., the transfer is revocable), the income generated by that asset is still attributed to you. Since the transfer isn’t permanent, any earnings from that asset are taxed as part of your income.

Section 64(1)(ii), 64(1)(iv), and 64(1)(vii):

When you transfer an asset to your spouse (such as gifting property or investing funds), you will generally have the income generated from that asset added back to your taxable income.

Exceptions: If the asset is transferred for adequate consideration or if there’s a formal agreement (for example, a separation agreement), then these rules may not apply.

Section 64(1)(vi) and 64(1)(viii):

If you give an asset to your daughter-in-law—either directly or indirectly—without receiving enough in return, you will still consider the income from that asset as your own income.

The rule applies only if the relationship (that of a daughter-in-law to you) exists at both the time of transfer and the time the income accrues. For example, if the asset is transferred before your son marries, then the clubbing provisions might not be triggered.

Section 64(1A): Clubbing of Minor Child’s Income

A parent with the higher earnings usually adds the income earned by a minor child to their own income.

Exceptions: There’s a limit on exemptions, like a specific amount per child. This lets you exclude some of the minor’s income from clubbing. If the minor earns income through their own skills (like a performance or creative activity), the parent may not have to club that income with their own.

Section 64(2): Clubbing of Income from Transfers to an HUF

Converting your property into a Hindu Undivided Family (HUF) or transferring an asset to an HUF without proper payment means the income from that asset will count as part of your taxable income. This prevents individuals from misusing attempts to reduce tax liability by shifting assets into an HUF.

Key Changes in Income Tax Bill 2025

The Income-Tax Bill 2025 plans to change the clubbing rules. It will remove one condition and add “qualification” next to knowledge and experience. This change allows taxpayers to claim income from using technical or professional skills. This applies even if they don’t have formal credentials. Currently, spouses with formal technical qualifications are exempt from clubbing if their income stems from their expertise. The new approach focuses on hands-on learning instead of formal education. This could change how families invest and their tax responsibilities. The interpretation and implementation of the rules will determine the actual effect.

Clubbing of income may seem like a tax trap, but with proper planning and a good understanding of the rules, you can navigate these waters safely. Remember, the goal of these provisions is to ensure fairness and curb tax evasion, not to penalize genuine family support. Stay informed, plan smartly, and never hesitate to seek professional advice.

Incorporating a Wholly Owned Company in India

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India is a lucrative destination for foreign investors looking to expand their business presence. One of the most popular ways for foreign entities to establish a business in India is by setting up a Wholly Owned Subsidiary. This article provides a step-by-step guide to incorporating a wholly owned company in India, covering the legal framework, required documents, and compliance procedures.

What is a Wholly Owned Subsidiary?

A Wholly Owned Subsidiary (WOS) is a company in which a foreign entity holds 100% of the share capital. Such companies operate as private limited companies under the Companies Act, 2013, and are treated as separate legal entities from their parent company.

Benefits of a Wholly Owned Subsidiary in India

Limited Liability: The liability of shareholders is limited to their share capital.
Independent Legal Entity: The WOS operates as a distinct legal entity.
Full Control: The parent company has complete control over operations and decision-making.
Tax Benefits: Eligible for various tax exemptions and incentives under Indian law.
Ease of Business: 100% repatriation of profits and investments is allowed subject to RBI regulations.

Steps to Incorporate a Wholly Owned Subsidiary in India

Step 1: Obtain Digital Signature Certificate (DSC)
A Digital Signature Certificate (DSC) is required for filing incorporation documents online. The directors and authorized signatories must obtain a DSC from a certified agency.

Step 2: Name Reservation
The company name must be unique and comply with MCA guidelines. The name approval application (RUN – Reserve Unique Name) is submitted through the MCA portal.

Step 3: Drafting and Filing Incorporation Documents
Key documents required for incorporation include:
Memorandum of Association (MOA)
Articles of Association (AOA)
Identity and Address Proof of Directors
Registered Office Address Proof These documents are submitted along with the SPICe+ (Simplified Proforma for Incorporating a Company Electronically) form.

Step 4: PAN and TAN Application
After incorporation, the company must obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.

Step 5: Opening a Bank Account
A corporate bank account must be opened in the name of the subsidiary for financial transactions.

Step 6: Compliance with RBI and FEMA Regulations
Foreign investment in India is governed by the Foreign Exchange Management Act (FEMA). A wholly owned subsidiary must report Foreign Direct Investment (FDI) to the Reserve Bank of India (RBI) through the FIRMS (Foreign Investment Reporting and Management System) portal.

Post-Incorporation Compliance

Once incorporated, a wholly owned subsidiary must adhere to ongoing compliance requirements, including:
Annual filings with the MCA
Income tax returns and audits
Annual General Meetings (AGMs)
Board meetings as per the Companies Act

Setting up a wholly owned company in India is a structured process that requires compliance with regulatory requirements. With the right legal and financial guidance, foreign entities can seamlessly establish and operate a business in India, leveraging its vast market potential and economic growth opportunities.

Section 139 of the Companies Act, 2013

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When it comes to running a company, transparency and accountability are key. One of the pillars supporting these values is the role of auditors. In India, Section 139 of the Companies Act, 2013 lays out the framework for appointing auditors—a process essential for ensuring that a company’s financial statements are accurate and reliable. Let’s break down this section in easy-to-understand language.

Appointment of Auditors under Section 139

a. Mandatory Appointment

Section 139 requires that almost every company must appoint an auditor at its very first Annual General Meeting(AGM) following incorporation. Once appointed, the auditor holds office until the end of the 6th AGM—meaning they serve a term of 5 years. If no new appointment or reappointment occurs at any AGM, the current auditor remains in office to prevent the position from being vacant.

b. Exceptions to Mandatory Appointment

Not all companies must appoint an auditor under Section 139. The main exceptions are:

Companies Covered by Other Statutes:

Companies audited under a separate, specific law—such as banks, insurance companies, or other entities governed by distinct financial regulations—fulfill the auditor appointment requirement under Section 139.

Special Statutory Provisions:

Companies established under specialized legislation may follow customized audit protocols. If these companies are already subject to a dedicated audit framework, they are exempt from following the general auditor appointment process outlined in Section 139.

The Appointment Process :

a. Initial Appointment

Board Meeting & Shortlisting:

The board of directors evaluates eligible auditors—either an individual Chartered Accountant or an audit firm—and shortlists candidates based on their qualifications, independence, and any potential conflicts of interest.

Written Consent & Documentation:

Before making an appointment, it is mandatory to obtain the auditor’s written consent. This consent must affirm that:

  • The candidate is not disqualified from being an auditor.
  • There are no pending proceedings against them.
  • The proposed appointment complies with the statutory limits.

The company must file a notice, along with the auditor’s consent and certificate, with the Registrar of Companies (RoC) within 15 days of the appointment.

AGM Ratification:

At the first AGM (or a subsequent general meeting if the initial appointment was delayed), shareholders vote to approve the auditor’s appointment. If no new auditor is appointed, the existing auditor continues in office.

b. Appointment for Government Companies

For companies owned or controlled by the government, the Comptroller and Auditor General (CAG) is the designated authority to appoint the auditor.

  • New Government Companies: The CAG must appoint the first auditor within 60 days of registration.
  • If CAG Fails: Should the CAG not act within the stipulated time, the company’s Board is empowered to appoint an auditor within the next 30 days. If the Board also fails to do so, the members will appoint one at an extraordinary general meeting (EGM).

Reappointment of Auditors

Section 139(2) also governs the reappointment of auditors. The rules vary for individual auditors versus audit firms, and certain rotation requirements apply especially for listed companies and other prescribed categories.

a. For Individual Auditors

Reappointment Restrictions:

An individual auditor, upon completing a five-year term, is generally ineligible for reappointment for the next 5 years. This safeguard—primarily applicable to listed companies and companies meeting prescribed thresholds—ensures fresh oversight and helps maintain auditor independence.

b. For Audit Firms

Reappointment Limit:

An audit firm can be appointed for a five-year term and reappointed for one additional consecutive five-year term, totaling two consecutive terms. After serving for two consecutive terms (each of 5 years), the audit firm becomes ineligible for further consecutive reappointment under the prescribed rules.

c. Regulatory Thresholds for Rotation

Section 139(2) and the Companies (Audit and Auditors) Rules, 2014, specify that rotation rules apply to:

  • All listed companies.
  • Unlisted companies with a paid-up share capital of Rs. 10 crores or more.
  • Private companies with a paid-up share capital of Rs. 20 crores or more.
  • Companies that have borrowed Rs. 50 crores or more from banks or financial institutions.
  • Companies that have accepted public deposits amounting to Rs. 50 crores or more.

Vacancies and Casual Vacancies

If an auditor’s position becomes empty—whether due to resignation, death, or disqualification—Section 139(8) outlines what should happen. The process is slightly different depending on who appoints the auditor.

For Companies Without a CAG-Appointed Auditor:

The Board of Directors must fill the vacancy within 30 days. If an auditor resigns, the Board must appoint a replacement, and the shareholders must approve the appointment at a general meeting within three months. The new auditor serves until the next Annual General Meeting.

For Companies With a CAG-Appointed Auditor:

The Comptroller and Auditor-General of India (CAG) should fill the vacancy within 30 days. If the CAG doesn’t act within that time, the Board of Directors can step in and fill the vacancy within the next 30 days.

This process ensures that there is no long gap without an auditor, keeping the company’s financial oversight continuous and effective.

Punishment for Non-Compliance

Non-compliance with Section 139 can result in penalties under Section 147(1) of the Act:

  • For the Company: A fine of up to Rs. 5 lakhs may be imposed, with a minimum fine of Rs. 25,000.
  • For Defaulting Officers: Officers responsible for the default can be fined up to Rs. 1 lakh, with a minimum of Rs. 10,000.

Section 139 of the Companies Act, 2013 is a cornerstone provision in India’s corporate governance framework. It not only mandates the appointment of auditors but also sets clear rules for reappointment, rotation, and removal—ensuring that companies maintain financial transparency and accountability.

1961 to 2025 : Tax Transformation

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Finance Minister Nirmala Sitharaman tabled the new Income Tax Bill, 2025, in Parliament on February 13, 2025. It aims to overhaul and modernize the existing framework of the 1961 Act by reducing complexity, removing outdated provisions, and streamlining compliance.

Structural Changes

Particulars1961 Act2025 Bill
Number of SectionsMore than 700536
Number of Chapters2323
Number of Schedules1416
Content (in terms of pages)823622
Effective DateCurrently applicableFrom 01st April, 2026

Removal of Redundant Provisions

  • The government has eliminated or merged over 1,200 Provisos and 900+ Explanations into simpler clauses.
  • The Bill eliminates the concept of separate “previous year” and “assessment year,” favoring a single tax year for clarity.

Modern Instruments & Income

  • Clarifies the taxation of digital assets (e.g., cryptocurrency, NFTs).
  • Streamlines the approach to new business models (e.g., e‑commerce) and addresses changing investment landscapes.

Definition of Accountant for Tax Audit

A key update in the new Bill is the redefinition of the term “accountant” for purposes of tax audit. Under the new provisions, only Chartered Accountants (CAs) are authorized to conduct tax audits. The roles of Company Management Accountants (CMAs) and Company Secretaries (CSs) are specifically excluded from performing tax audit functions. This change is intended to ensure that tax audits are conducted by professionals with the requisite expertise and training, thereby enhancing the quality and reliability of audit reports.

Comparison by Major Income Heads

Below is a summarized table contrasting the old law (1961–2024) with the new law (2025), along with notable key differences.

Source of IncomeOld Law (1961–2024)New Law (2025)Key Differences
Salary Income• Standard deduction ₹50,000 (typical).
• Several allowances, perquisite rules scattered in the Act.		• Consolidated salary structure with clearer definitions for allowances and perquisites.
• More focus on ESOPs, stock‑based compensation, and flexible benefits.		• Simplified tax treatment of various perks and allowances.
• Reduced scope for confusion or overlapping rules.
Income from House Property• Based on annual value, with allowances for municipal taxes, interest on borrowed capital, etc.• Similar structure but more streamlined computation.
• Clearer rules for co‑owned property and standard repairs deduction.		• More unified set of guidelines for computing notional rent and allowable deductions.
Profits & Gains of Business/Profession (PGBP)• Dispersed provisions for depreciation, expenses, presumptive taxation, etc.• Expanded scope for digital businesses (e‑commerce, gig workers).
• Additional deductions for R&D expenditure and certain start‑up costs.		• Special taxation for freelancers and gig workers.
• Clear rules on R&D incentives and modern business models.
Capital Gains• Categorized as Short‑Term (STCG) vs. Long‑Term (LTCG).
• Indexation benefits for certain assets.		• Market‑linked debentures and new financial instruments addressed specifically.
• Crypto and digital assets recognized with clearer tax provisions.		• No indexation for certain classes (e.g., digital assets).
• Modern instruments (like slump sales, MLDs) get separate treatment.
Income from Other Sources• Includes dividends, lottery winnings, etc. with varying rates and TDS norms.• Broader scope now includes cryptocurrency, NFTs, and online gaming winnings under a stricter regime.
• Updated rates for lottery and gaming.		• More stringent compliance for digital winnings and gifts.
• Clearer classification and reporting requirements.

Presumptive Taxation (Section 44AD Limit):

The new Income Tax Bill, 2025, revises the presumptive taxation scheme for eligible small businesses.

Previously, the scheme applied to businesses with a turnover or gross receipts of up to ₹2 crore. However, the new Bill increases the limit to ₹3 crore, provided that the aggregate cash receipts during the previous year do not exceed five per cent of the total turnover. This change aims to promote digital transactions and reduce the reliance on cash, aligning the scheme with modern business practices.

Agriculture‑Related & Other Specific Provisions

Below are additional highlights from the tables focusing on agricultural income and related areas:

CategoryOld Law (1961–2024)New Law (2025)Key Differences
Cultivation of LandIncome from crops fully exempt.Still exempt, but stricter documentation may be required to prove genuine farming activities.More stringent proof of farming activities to claim exemptions.
Rent or Revenue from Agricultural LandIncome from leasing agricultural land was fully exempt.Taxable if the land is located in an urban area.Urban land leasing no longer qualifies as purely agricultural income.
Processing of Agricultural ProduceExempt if only basic processes are employed to make produce marketable.Taxable if additional value‑adding steps are undertaken (e.g., packaging, branding).Focus on how much value is added beyond primary processing.
Income from Nursery OperationsOnly traditional nursery activities exempt; minimal clarifications.Large‑scale nursery operations or commercial nurseries taxed.Stricter criteria for commercial nursery income.
Income from Dairy FarmingConsidered agricultural income under certain conditions.Now primarily considered business income if run at scale, fully taxable.Dairy production at scale is reclassified, removing prior broad exemption.
Agro‑based IndustriesMany incentives were available; interpretations varied.Only small‑scale operations remain incentivized; large units subject to standard business taxation.High‑capacity agro industries lose broad‑based tax incentives; small operations still receive some benefits.

Conclusion

The Income Tax Bill, 2025 seeks to transform India’s tax framework by:

  • Simplifying compliance through fewer chapters, digital processes, and consolidated provisions.
  • Clarifying the computation and taxation of different heads of income—Salary, House Property, PGBP, Capital Gains, and Other Sources.
  • Updating agricultural income rules, especially when urbanization affects land or value-added processes apply.
  • Recognizing and taxing modern business models and digital assets (like cryptocurrency and NFTs) with dedicated provisions.
  • Reducing the overall size of the statute by nearly half, thanks to the removal of redundant provisos and explanations.

In contrast, the Income Tax Act, 1961 (amended by the Finance Act, 2024), has evolved over decades, making it more extensive, complex, and scattered. By merging, streamlining, and modernizing provisions, the new Bill aims to deliver a transparent, efficient, and future‑ready tax system for India.

For the complete details and all provisions of the new Income Tax Bill, 2025, click here to read the full bill.

Section 80TTB for Senior Citizens in India

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For many seniors, handling money in retirement is about smart planning and enjoying their golden years. One of the most beneficial provisions in the Indian Income Tax Act for this demographic is Section 80TTB. In this guide, we’ll cover Section 80TTB. We’ll discuss who can claim it, what types of income it covers, and how to make the most of this tax-saving chance.

What Is Section 80TTB?

Introduced in the Union Budget 2018, Section 80TTB was specifically designed to ease the tax burden on senior citizens by offering a higher deduction on interest income. Non-senior citizens can deduct up to ₹10,000 under Section 80TTA. This applies only to interest from savings bank accounts. Senior citizens benefit more with Section 80TTB, allowing a deduction of up to ₹50,000 on total interest income earned.

Senior citizens can enjoy a bigger tax benefit on interest from deposits. This helps them boost their income during retirement.

Who Is Eligible?

To claim the benefits under Section 80TTB, you need to meet the following criteria:

  • Age Requirement: The deduction is available only to resident individuals who are 60 years of age or older.
  • Residency: The individual must be a resident of India for tax purposes.
  • Type of Income: The deduction applies exclusively to interest income earned from deposits.

If you’re a senior citizen meeting these criteria, you could be eligible to reduce your taxable income substantially.

What Types of Interest Income Qualify?

Section 80TTB is quite inclusive when it comes to the types of interest income it covers. Eligible income includes:

  • Interest from Savings Bank Accounts: The interest earned on savings accounts contributes to the overall ₹50,000 deduction limit under Section 80TTB. This is different from Section 80TTA, which only allows a deduction of ₹10,000.
  • Interest from Fixed Deposits (FDs) and Recurring Deposits (RDs): Interest accrued from these deposits in banks and post offices is fully eligible.
  • Deposits with Cooperative Banks: Interest income from deposits held in cooperative banks is also covered.

In summary, any interest income you earn from these financial instruments can be aggregated, and you can claim a deduction up to the prescribed limit of ₹50,000.

How Does Section 80TTB Work?

Step-by-Step Process to Claim the Deduction

  1. Calculate Your Total Interest Income: Begin by adding up the interest earned from all eligible sources (savings accounts, FDs, RDs, etc.) during the financial year.
  2. Apply the Deduction Limit: If your total interest income exceeds ₹50,000, you can claim only up to ₹50,000 as a deduction under Section 80TTB. If it’s less than ₹50,000, the entire amount is deductible.
  3. File Your Tax Return: When filing your income tax return, ensure that you declare the interest income and claim the deduction under Section 80TTB in the appropriate section. Retain all relevant documents and statements for future reference.

By following these steps, you can effectively lower your taxable income, resulting in a reduced tax liability.

Comparing Section 80TTA and Section 80TTB

To help you understand which provision best suits your financial needs, here is a comparison between Section 80TTA and Section 80TTB in a table format:

CriteriaSection 80TTASection 80TTB
EligibilityAvailable to all individual taxpayers regardless of ageExclusively available to senior citizens (60 years and above)
Eligible IncomeInterest income from savings bank accounts onlyInterest income from savings accounts, FDs, RDs, and cooperative bank deposits
Deduction LimitUp to ₹10,000Up to ₹50,000
PurposeDesigned for individuals with modest interest earningsDesigned for senior citizens with potentially larger interest incomes

Section 80TTB offers senior citizens up to ₹50,000 in tax deductions on interest income, making it a valuable retirement planning tool. By understanding your eligibility, income types, and the claim process and knowing how it differs from Section 80TTA, you can maximize your benefits. Smart planning today paves the way for a worry-free tomorrow. Stay informed, keep your documents organized, and consult a professional if needed. Happy saving!

Budget 2025: Key Direct Tax Changes You Need to Know

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The Union Budget 2025 has introduced several direct tax changes aimed at reducing the tax burden and easing compliance for individuals and businesses. With higher rebate limits, revised TDS thresholds, and relaxed rules for property ownership, these updates benefit salaried employees, senior citizens, small investors, and professionals. Here are the key highlights.

1. Higher Tax Rebate – More Savings for Individual

The government has increased the tax rebate limit under Section 87A, bringing relief to middle-class taxpayers:

  • No income tax for individuals earning up to ₹12 lakh under the new regime, with a rebate of ₹60,000.
  • Salaried employees benefit from the standard deduction of ₹75,000, making their tax-free income ₹12.75 lakh.
  • The rebate is not applicable to special rate income, such as capital gains.
  • If income exceeds ₹12 lakh (₹12.75 lakh for salaried employees), tax is payable as per the revised slabs.

This move helps ease the tax burden and makes the new tax regime more attractive.

2. New Income Tax Slabs – Progressive Taxation Continues

The revised income tax slabs remain structured to ensure a gradual increase in tax rates with income levels:

Income Range (₹)New Tax Rate
0 – 4 lakhsNil
4 – 8 lakhs5%
8 – 12 lakhs10%
12 – 16 lakhs15%
16 – 20 lakhs20%
20 – 24 lakh25%
Above 24 lakh30%

These structured tax slabs aim to ensure fairness while benefiting different income groups.

3. Higher TDS Thresholds – Relief for Small Investors & Professionals

The government has raised TDS exemption limits across multiple categories to simplify compliance:

Interest on securities (Section 193): Increased from Nil to ₹10,000.

Interest from banks, post offices (Section 194A):

  • Senior citizens: ₹50,000 to ₹1,00,000.
  • Others: ₹40,000 to ₹50,000.

Dividend income (Section 194): Increased from ₹5,000 to ₹10,000.

Lottery winnings (Section 194B): TDS now applies per transaction exceeding ₹10,000, instead of aggregate annual winnings.

Rent payments (Section 194-I): Monthly rent above ₹50,000 now attracts TDS.

Professional/technical fees (Section 194J): Exemption limit increased from ₹30,000 to ₹50,000.

These changes reduce unnecessary TDS deductions, making tax compliance easier for small investors, professionals, and businesses.

4. Relief for Senior Citizens & Tenants

  • Tax-free interest income limit for senior citizens increased from ₹50,000 to ₹1 lakh.
  • TDS exemption limit on rent payments increased from ₹2.4 lakh per year to ₹6 lakh per year, offering relief to tenants and landlords.

5. Extended Time for Filing Updated Returns

The time limit for filing updated income tax returns (ITR-U) has been extended from two years to four years. This allows taxpayers more time to correct or update their income tax filings without facing penalties.

6. Claiming Two Self-Occupied Properties Now Easier

Previously, if you owned more than one house, only one property could be considered as self-occupied, meaning its annual value was treated as nil for tax purposes. The second home was deemed let-out, and you had to pay tax on an assumed rental income.

Now, under the new amendment, two properties can be treated as self-occupied, eliminating the tax burden on the second home.

How This Benefits You

  • No more tax on notional rent for a second home.
  • More flexibility for homeowners with properties in different cities.
  • Encourages homeownership, making it easier for families to invest in real estate.

The direct tax changes in Budget 2025 focus on taxpayer relief, reducing compliance burdens, and promoting a progressive tax structure. Increased rebate limits, revised TDS thresholds, and the ability to claim two self-occupied properties make tax management easier for individuals and businesses.

These updates provide more opportunities for taxpayers to save and plan their finances efficiently.

ICAI’s Key Suggestions for the Union Budget 2025

Team Counselvise
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With the Union Budget 2025 set to be presented by Finance Minister Nirmala Sitharaman on February 1, the Institute of Chartered Accountants of India (ICAI) has put forth a set of recommendations aimed at simplifying tax laws, reducing litigation, and easing compliance burdens. Among the most notable suggestions is the introduction of joint taxation for married couples, a move that could redefine how households file their taxes.

Let’s take a closer look at ICAI’s key proposals and what they mean for taxpayers.

1. Joint Taxation for Married Couples: A Game-Changer?

ICAI has proposed giving married couples the option to file taxes jointly as a single unit, similar to systems followed in countries like the United States and the United Kingdom. Currently, Indian tax laws treat spouses as separate taxable entities, often leading to higher tax outflows—especially in cases where one spouse earns significantly more than the other.

Proposed Tax Slabs for Joint Taxation

The suggested new tax structure for married couples includes:

  • Up to ₹6 lakh – No tax
  • ₹6 lakh – ₹14 lakh – 5% tax
  • ₹14 lakh – ₹20 lakh – 10% tax
  • ₹20 lakh – ₹24 lakh – 15% tax
  • ₹24 lakh – ₹30 lakh – 20% tax
  • Above ₹30 lakh – 30% tax

Additionally, the basic exemption limit would be doubled from ₹3 lakh to ₹6 lakh for those opting for joint filing. The surcharge threshold would also be revised, reducing the tax burden on high-income earners.

Why Does It Matter?

The current system works well for salaried couples who can claim deductions separately, but it disadvantages single-income families. Allowing joint taxation would help distribute tax liabilities more fairly among households.

2. Simplifying the Income-Tax Act, 1961: A Step Towards Clarity

As part of the comprehensive review of the Income-tax Act, 1961, ICAI has called for simplification of tax laws—not just in language but also in structure. The goal? To reduce ambiguity, cut down disputes, and make compliance easier for taxpayers.

Some key recommendations include:

  • Introduction of a special tax regime for firms/LLPs
  • Easier registration process for charitable trusts
  • Simplification of rules for determining residential status
  • Automatic inclusion in special tax regimes without the need for separate forms

These measures would ensure that tax laws are more accessible, predictable, and efficient.

3. Reducing Litigation: Easing the Burden on Taxpayers

Tax disputes have long been a pain point for both the government and taxpayers. ICAI has proposed several measures to reduce litigation, including:

  • Limiting tax adjustments under Section 143(1)(a) to arithmetical errors and clear miscalculations.
  • Periodic review of pending tax cases to ensure quicker resolution.
  • A mandatory time limit for disposing of appeals, preventing undue delays.
  • Stronger grievance redressal mechanisms to address taxpayer concerns effectively.

If implemented, these changes could make tax compliance less stressful and improve the efficiency of tax administration.

4. Lowering the Compliance Burden: Making Tax Filing Easier

Filing taxes in India can be an overwhelming process, but ICAI has suggested reforms to make it simpler, including:

  • A year-wise E-Ledger system for tracking TDS/TCS and advance tax payments, reducing manual effort.
  • Extension of the deadline for filing belated returns to March 31 of the assessment year.
  • Simplified income-tax return (ITR) forms to cater to different taxpayer needs.
  • Addressing concerns in the faceless assessment system to ensure fair evaluations.

These measures aim to cut down bureaucracy and allow taxpayers to focus on their finances rather than endless paperwork.

5. Pre-Budget Memorandum: Tax Reforms for Economic Growth & Sustainability

ICAI has also submitted its Pre-Budget Memorandum 2025, which highlights tax policies that can drive economic growth while encouraging sustainable business practices.

Some of the major suggestions include:

  • Tax incentives for climate change mitigation strategies, supporting India’s sustainability goals.
  • Promoting property ownership by women by reducing stamp duty and removing restrictive provisions.
  • Introducing a new category of income (“Income from Shares and Securities”) to simplify taxation on dividends, interest, and capital gains.
  • Aligning depreciation rates with the Companies Act, 2013, for better consistency.
  • Rationalizing capital gains provisions to remove unnecessary complications.

By addressing these areas, ICAI envisions a tax system that is growth-oriented, environmentally responsible, and easy to navigate.

ICAI’s recommendations for joint taxation, simplification of laws, reduced litigation, and lower compliance burdens could significantly reshape India’s tax landscape. If the government adopts these proposals, the Union Budget 2025 could mark a new era of fairness, efficiency, and taxpayer-friendly policies.

With Budget Day fast approaching, all eyes will be on how many of these recommendations make it to the final draft. Will India see a simpler, more equitable tax system? We’ll find out soon.

Stay Updated with all the changes at Counselvise.

Most Common Tax Disputes in Income Tax

Team Counselvise
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Income tax disputes are a recurring challenge for taxpayers and tax authorities worldwide, and 2024 has been no exception. As tax systems evolve and regulations grow complex, disputes arise. They stem from misunderstandings, different interpretations of tax laws, and compliance issues. So, here is the list of most common tax disputes and this includes:

1. Tax Deductions and Exemptions

Disputes over deductions and exemptions remain a prominent issue. Taxpayers often claim deductions under sections like 80C (investments), 80D (medical insurance), and 24(b) (home loan interest). However, errors in documentation or mismatches in claim amounts can lead to scrutiny and disputes.

Example:

Inadequate proof of investments or late submissions of tax-saving instruments often result in claims being disallowed.

Solution:

Ensure timely submission of accurate and complete documentation. Use digital platforms to upload and validate proofs for greater transparency.

2. Misreporting of Income

Income misreporting, whether accidental or intentional, causes disputes. This is especially true for professionals and small business owners. Issues often arise in:

  • Underreporting income from secondary sources (e.g., freelancing, rental income).
  • Overlooking foreign income in case of expatriates or NRIs.

Solution:

Keep a complete record of all income sources. Also, talk to a tax professional for accurate reporting, especially in tricky situations.

3. Capital Gains Taxation

Taxation of capital gains from investments in stocks, real estate, and mutual funds frequently sparks disputes. Common issues include:

  • Misclassification between short-term and long-term capital gains.
  • Incorrect calculations of indexation benefits.

Solution:

Use certified tax calculators or software to compute capital gains. For complex transactions, seek professional advice to avoid errors.

4. Taxation of Employee Benefits

Perks like bonuses, stock options, and allowances often lead to disputes regarding their taxability. Employers and employees sometimes disagree over tax withholdings. This includes exemptions under section 10(14) for special allowances.

Solution:

Employers should provide clear communication and tax breakdowns to employees. Employees must verify their Form 16 and cross-check with filed returns.

5. Transfer Pricing Adjustments

For multinational corporations, disputes regarding transfer pricing—the pricing of transactions between related entities—are common. Tax authorities scrutinize these transactions to ensure they comply with arm’s-length pricing.

Solution:

Maintain comprehensive transfer pricing documentation and benchmarks. Engage with tax consultants specializing in international taxation.

6. GST and Income Tax Interplay

With the Goods and Services Tax (GST) in place, its interplay with income tax often confuses taxpayers. Disputes arise when tax authorities cross-check GST filings with income tax returns and notice inconsistencies.

Solution:

Regularly reconcile GST returns (GSTR-1 and GSTR-3B) with income tax filings to prevent mismatches.

7. Retrospective Taxation

Retrospective amendments to tax laws have historically caused disputes, particularly for foreign companies operating in India. While efforts have been made to reduce retrospective tax provisions, their legacy issues persist.

Solution:

Monitor legislative updates and seek legal recourse when retrospective tax demands arise.

8. Tax Refund Delays

Tax refund disputes occur when discrepancies are found in filed returns, or claims are denied without proper explanation. This leads to frustration among taxpayers.

Solution:

File accurate returns, respond promptly to notices, and regularly check the refund status on the Income Tax Department portal.

9. Penalty and Interest Disputes

Non-compliance with tax deadlines often results in penalties and interest. Taxpayers frequently dispute these charges, citing reasons like:

  • Ignorance of deadlines.
  • Errors in the tax portal.

Solution:

Stay updated on tax deadlines and leverage reminders from online tax-filing platforms to avoid delays.

Income tax disputes are a part of tax administration. But, we can reduce them with better awareness, documentation, and compliance. Taxpayers must seek clarity on tax laws, use digital tools for accurate filings, and engage experts when needed. Governments, on the other hand, must focus on simplifying tax laws, improving grievance mechanisms, and fostering transparency.

Taxpayers can reduce disputes by staying informed and prepared. This helps create a smoother tax system.

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