Income Tax Act

Official PDF pages 256–260

SOURCE PDF PAGE 256
(2) For the purposes of this section,—
( a )   “carbon credit”, in respect of one unit, means reduction of one tonne
of carbon dioxide emissions or emissions of its equivalent gases which
is validated by the United Nations Framework on Climate Change and
which can be traded in market at its prevailing market price;
( b )   “computer resource” shall have the same meaning as assigned to it in
section 2(1)( k ) of the Information Technology Act, 2000 (21 of 2000);
( c )   “developed” means at least 75% of the expenditure incurred in India
by the eligible assessee for any invention in respect of which patent is
granted under the Patents Act, 1970 (39 of 1970) (herein referred to as
the Patents Act);
( d )   “horse race” shall have the meaning assigned to it in section 94(6);
( e )   “internet” means the combination of computer facilities and electro -
magnetic transmission media including related equipment and software,
comprising the interconnected worldwide network of computer networks
that transmits information based on a protocol for controlling such
transmission;
( f )   “invention” shall have the same meaning as assigned to it in section
2(1)( j ) of the Patents Act;
( g )   “lump sum” includes an advance payment on account of such royalties
which is not returnable;
( h )   “online game” means a game that is offered on the internet and is accessible
by a user through a computer resource including any telecommunication
device;
( i )   “patent” shall have the same meaning as assigned to it in section 2(1)( m )
of the Patents Act;
( j )   “patented article” and “patented process” shall have the same meanings
as respectively assigned to them in section 2(1)( o ) of the Patents Act;
( k )   “patentee” means the person, being the true and first inventor of the
invention, whose name is entered in the patent register as the patentee,
as per the Patents Act, and includes every such person, being the true and
first inventor of the invention, where more than one person is registered
as patentee under that Act in respect of that patent;
( l )   “royalty”, in respect of a patent, means consideration (including any lump
sum consideration but excluding any consideration which would be the
income of the recipient chargeable under the head “Capital gains” or
consideration for sale of product manufactured with the use of patented
process or the patented article for commercial use) for the—
( i )   transfer of all or any rights (including the granting of a licence) in
respect of a patent; or
( ii )   imparting of any information concerning the working of, or the
use of, a patent; or

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( iii )   use of any patent; or
( iv )   rendering of any services in connection with the activities referred
to in sub-clauses ( i ) to ( iii );
( m )   “true and first inventor” shall have the same meaning as assigned to it
in section 2(1)( y ) of the Patents Act; and
( n )   for the purposes of sub-section (1) (Table: Sl. No. 4), the term “transfer” as
defined in section 2( 109 ), shall apply to any virtual digital asset, whether
capital asset or not.
Tax on income referred to in sections 102 to 106.
195.   (1) Where the total income of an assessee—
( a )   includes any income referred to in section 102 or 103 or 104 or 105 or
106 and reflected in the return of income furnished under section 263;
or
( b )   determined by the Assessing Officer includes any income referred to in
any of the said section 102 or 103 or 104 or 105 or 106
53
, if such income
is not covered under clause ( a ),
the income-tax payable shall be the aggregate of—
( i )   income-tax calculated on the income referred to in clauses ( a ) and ( b ),
at the rate of  
24
[ 30% ] ; and
( ii )   income-tax with which the assessee would have been chargeable had his
total income been reduced by income referred to in clause ( i ).
(2) Irrespective of anything contained in this Act, no deduction in respect of any
expenditure or allowance or set off of any loss shall be allowed to the assessee
under any provision of this Act in computing his income referred to in sub-section
(1)( a ) and ( b ).
B.—Special provisions relating to tax on capital gains
Tax on short-term capital gains in certain cases.
196.   (1) Where the total income of an assessee includes any income chargeable
under the head “Capital gains”, arising from the transfer of a short-term capital
asset—
( a )   being an equity share in a company or a unit of an equity oriented fund
or a unit of a business trust; and
( b )   the transaction of sale of such equity share or unit is chargeable to secu -
rities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004
(23 of 2004), then,
the tax payable by the assessee on the total income, subject to the provisions of
sub-section (2), shall be the aggregate of—
24.   Substituted for “60%” by the Finance Act, 2026, w.e.f.   1-4-2026 .

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( i )   income-tax calculated on such short-term capital gains at the rate of
20%;
( ii )   income-tax payable on the balance amount of the total income as if such
balance amount were the total income of the assessee.
(2) In the case of an individual or a Hindu undivided family, being a resident, where
the total income, as reduced by short-term capital gains computed under sub-section
(1), is below the maximum amount which is not chargeable to income-tax, then,—
( a )   such short-term capital gains shall be reduced by the amount by which
the total income as so reduced falls short of the maximum amount which
is not chargeable to income-tax; and
( b )   the tax on the balance of such short-term capital gains shall be computed
at the rate as applicable in sub-section (1)( i ).
(3) The provisions of sub-section (1)( b ) shall not apply to a transaction undertaken
on a recognised stock exchange located in any International Financial Services
Centre and where the consideration for such transaction is paid or payable in for -
eign currency.
(4) Where the gross total income of an assessee includes any short-term capital gains
referred to in sub-section (1), the deduction under Chapter VIII shall be allowed
from the gross total income as reduced by such capital gains.
(5) For the purposes of this section, the expression “equity oriented fund” shall have
the meaning assigned to it in section 198.
Tax on long-term capital gains.
197.   (1) Where the total income of an assessee includes any income arising
from the transfer of a long-term capital asset which is chargeable under the
head “Capital gains”, the tax payable by the assessee on the total income, subject
to sub-sections (2), (3) and (4), shall be the aggregate of—
( a )   income-tax payable on the total income as reduced by such long-term
capital gains, had the total income, as so reduced, been his total income;
and
( b )   income-tax calculated on such long-term capital gains at the rate of
12.5%.
(2) In the case of an individual or a Hindu undivided family, being a resident, where
the total income as reduced by long-term capital gains computed under sub-section
(1) is below the maximum amount which is not chargeable to income-tax, then,—
( a )   such long-term capital gains shall be reduced by the amount by which
the total income as so reduced falls short of the maximum amount which
is not chargeable to income-tax; and
( b )   the tax on the balance of such long-term capital gains shall be computed
at the rate as referred in sub-section (1).
(3) In the case of an individual or a Hindu undivided family, being a resident, in the
case of transfer of a long-term capital asset, being land or building, or both, which

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was acquired before the 23rd July, 2024, the excess income-tax computed as per the
following formula shall be ignored:—
E = A – B
where—
E =   excess income-tax to be ignored;
A =   income-tax computed under sub-section (1)( b );
B =   income-tax computed under sub-section (1)( b ) taking the rate as 20%
and the capital gains is computed by taking the cost of acquisition as
“indexed cost of acquisition” and the cost of improvement as “indexed
cost of improvement”.
(4) In the case of an assessee being a non-resident (not being a company) or a foreign
company, the long-term capital gains arising from the transfer of a capital asset,
being unlisted securities or shares of a company not being a company in which the
public are substantially interested, shall be computed without giving effect to the
provisions under section 72(6).
(5) Where the gross total income of an assessee includes any income arising from
the transfer of a long-term capital asset, the gross total income shall be reduced by
such income and the deduction under Chapter VIII shall be allowed as if the gross
total income as so reduced were the gross total income of the assessee.
(6) For the purposes of this section,—
( a )   “securities” shall have the same meaning as assigned to it in section
2( h ) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
( b )   “listed securities” means the securities which are listed on any recognised
stock exchange in India;
( c )   “unlisted securities” means securities other than listed securities;
( d )   “indexed cost of acquisition” and “indexed cost of improvement” shall
have the meanings respectively assigned to them in section 72.
Tax on long-term capital gains in certain cases.
198.   (1) Irrespective of anything contained in section 197, the tax payable by an
assessee on his total income shall be determined as per the provisions of
sub-section (2), if—
( a )   the total income includes any income chargeable under the head “Capital
gains”;
( b )   the capital gains arise from the transfer of a long-term capital asset being
an equity share in a company or a unit of an equity oriented fund or a
unit of a business trust;
( c )   securities transaction tax under Chapter VII of the Finance (No. 2) Act,
2004 (23 of 2004) has—
( i )   in a case where the long-term capital asset is in the nature of an
equity share in a company, been paid on acquisition and transfer
of such capital asset; or

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( ii )   in a case where the long-term capital asset is in the nature of a unit
of an equity oriented fund or a unit of a business trust, been paid
on transfer of such capital asset.
(2) The tax payable by the assessee on the total income referred to in sub-section
(1) shall be the aggregate of—
( a )   income-tax calculated on such long-term capital gains exceeding
`   125000 at the rate of 12.5%; and
( b )   income-tax payable on the total income as reduced by long-term capital
gains referred to in sub-section (1) as if the total income so reduced were
the total income of the assessee.
(3) In the case of an individual or a Hindu undivided family, being a resident, where
the total income as reduced by long-term capital gains computed under sub-section
(1) is below the maximum amount which is not chargeable to income-tax, then,—
( a )   such long-term capital gains shall be reduced by the amount by which
the total income as so reduced falls short of the maximum amount which
is not chargeable to income-tax; and
( b )   the tax on the balance of such long-term capital gains shall be computed
at the rate as referred to in sub-section (2).
(4) The condition specified in sub-section (1)( c ) shall not apply to a transfer under -
taken on a recognised stock exchange located in any International Financial Services
Centre and where the consideration for such transfer is received or receivable in
foreign currency.
(5) The Central Government may, by notification, specify the nature of acquisition
in respect of which the provisions of sub-section (1)( c )( i ) shall not apply.
(6) Where the gross total income of an assessee includes any long-term capital gains
referred to in sub-section (1), the deduction under Chapter VIII shall be allowed
from the gross total income as reduced by such capital gains.
(7) Where the total income of an assessee includes any long-term capital gains
referred to in sub-section (1), the rebate under section 156 shall be allowed from
the income-tax on the total income as reduced by tax payable on such capital gains.
(8) For the purposes of this section, the expression “equity oriented fund” means a
fund set up under a scheme of a mutual fund specified in Schedule VII (Table: Sl.
No. 20 or 21) or under a scheme of an insurance company comprising unit linked
insurance policies to which exemption in Schedule II (Table: Sl. No. 2) does not
apply and—
( i )   in a case where the fund invests in the units of another fund which is
traded on a recognised stock exchange,—
( A )   a minimum of 90% of the total proceeds of such fund is invested
in the units of such other fund; and
( B )   such other fund also invests a minimum of 90% of its total proceeds
in the equity shares of domestic companies listed on a recognised
stock exchange; and