CHAPTER VIII
DEDUCTIONS TO BE MADE IN COMPUTING TOTAL INCOME
A.—General
Deductions to be made in computing total income.
122(1)
In computing the total income of an assessee, the deductions specified in this Chapter shall be allowed from his gross total income, as per and subject to the provisions of this Chapter.
122(2)
The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee.
122(3)
If the deduction under section 133 or 135 or 137 or 138 or 141 or 142 or 143 is admissible in computing the total income of an association of persons or a body of individuals, no deduction under the same provision shall be made in relation to the share of income of a member of such association of persons or body of individuals while computing the total income of such member.
122(4)
Irrespective of anything to the contrary contained in any of the provisions of this Chapter under the heading “Deductions in respect of certain incomes”, where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under those provisions for any tax year,––
- (a) deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provision of this Act for such tax year; and
- (b) shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business.
122(5)
Deduction under the provisions of Part C of this Chapter shall not be allowed to an assessee, who fails to—
- (a) furnish a return of income on or before the due date specified under section 263(1); or
- (b) make a claim of deduction in return furnished under section 263(1).
122(6)
For the purposes of any deduction under this Chapter, irrespective of anything to the contrary contained in Part C of this Chapter, if any goods or services held for the purposes of––
- (a) the undertaking, unit, enterprise or eligible business carried on by the assessee are transferred to any other business carried on by the assessee; or
- (b) any other business carried on by the assessee are transferred to the undertaking or unit or enterprise or eligible business of the assessee; and
- (c) the consideration, if any, for such transfer as recorded in the accounts of the undertaking or unit or enterprise or eligible business does not correspond to the market value of such goods or services as on the date of transfer, the profits and gains of such undertaking or unit or enterprise or eligible business carried on by the assessee, shall be computed as if the transfer in clause (a) or (b), had been made at the market value of such goods or services as on that date.
122(7)
For the purposes of sub-section (6), “market value”,—
- (a) in relation to any goods or services sold or supplied, means the price that such goods or services would fetch, if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any;
- (b) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any; and
- (c) in relation to any goods or services sold, supplied or acquired means the arms length price of such goods or services as defined in section 173(a), if it is a specified domestic transaction referred to in section 164.
122(8)
Where a deduction under Part C of this Chapter, is claimed and allowed in respect of profits of a specified business as referred to in section 46(11)(d) for any tax year, no deduction shall be allowed for such specified business under section 46 for the same or any other tax year.
122(9)
Where any deduction is required to be made or allowed under Part C of this Chapter, in respect of any income of the nature specified in that section and included in the gross total income of the assessee, then, irrespective of anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed under the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.
122(10)
In this Chapter, “gross total income” means the total income computed as per the provisions of this Act, before making deduction under this Chapter.
Section Summary:
Section 122 of the new income tax law outlines the rules for deductions that can be claimed while computing the total income of an assessee (taxpayer). It specifies the conditions and limitations under which deductions under Chapter VIII can be claimed, ensuring that deductions do not exceed the gross total income and that certain provisions are not double-counted. The section also addresses specific scenarios, such as transfers of goods or services between businesses, and defines key terms like "market value."
Key Changes:
- Aggregate Deduction Limit: The total deductions under this chapter cannot exceed the gross total income of the assessee (Section 122(2)).
- No Double Deduction: If a deduction is claimed for profits and gains of an undertaking or business under one provision, it cannot be claimed again under any other provision (Section 122(4)).
- Compliance for Deductions: Deductions under Part C of the chapter are disallowed if the taxpayer fails to file a return on time or does not claim the deduction in the return (Section 122(5)).
- Market Value for Transfers: If goods or services are transferred between businesses, the profits and gains must be computed based on the market value of the goods or services, not the recorded value (Section 122(6) and (7)).
- No Overlapping Deductions: If a deduction is claimed for a specified business under Part C, no deduction can be claimed under Section 46 for the same business (Section 122(8)).
Practical Implications:
- Taxpayers: Taxpayers must ensure that their deductions do not exceed their gross total income. They must also avoid claiming the same deduction under multiple provisions.
- Businesses: Businesses transferring goods or services between units or undertakings must account for these transfers at market value to avoid penalties or disallowed deductions.
- Compliance: Filing returns on time and correctly claiming deductions in the return is critical to avoid losing eligibility for deductions under Part C.
- Specific Groups: Associations of persons or bodies of individuals must ensure that deductions claimed at the entity level are not duplicated at the member level.
Critical Concepts:
- Gross Total Income: This is the total income computed before applying any deductions under Chapter VIII (Section 122(10)).
- Market Value: The price goods or services would fetch in the open market, or the arms-length price in case of specified domestic transactions (Section 122(7)).
- Specified Business: A business referred to in Section 46(11)(d), for which specific deductions are available under Part C.
- Double Deduction Prevention: Deductions for profits and gains of an undertaking or business cannot be claimed under multiple provisions (Section 122(4)).
Compliance Steps:
- Compute Gross Total Income: Calculate total income as per the provisions of the Act before applying deductions under Chapter VIII.
- Claim Deductions Appropriately: Ensure deductions are claimed only under the relevant provisions and do not exceed gross total income.
- File Returns on Time: Submit the income tax return by the due date specified under Section 263(1) and include all deduction claims in the return.
- Account for Transfers at Market Value: If goods or services are transferred between businesses, ensure the transfer is recorded at market value.
- Avoid Double Claims: Do not claim deductions for the same income under multiple provisions.
Examples:
- Example 1: A taxpayer has a gross total income of ₹10 lakh and claims deductions totaling ₹12 lakh under Chapter VIII. As per Section 122(2), the deductions cannot exceed ₹10 lakh, so only ₹10 lakh can be claimed.
- Example 2: A business transfers goods worth ₹5 lakh from one unit to another but records the transfer at ₹3 lakh. As per Section 122(6), the profits and gains must be computed as if the transfer was made at the market value of ₹5 lakh.
- Example 3: An association of persons claims a deduction under Section 133. The members of the association cannot claim the same deduction on their share of income (Section 122(3)).
This section ensures clarity and fairness in claiming deductions while preventing misuse or double-counting of benefits.