Deemed accumulated income.

343(1)

The regular income, as reduced by the application of income and accumulated income under section 342, to the extent of 15% of regular income, shall be considered as deemed accumulated income and shall be invested or deposited in any of the modes permitted under section 350.

343(2)

The deemed accumulated income under this section shall not be considered as accumulated income for the purposes of section 342.

Explanation

Section Summary:

Section 343 of the new income tax law introduces the concept of "deemed accumulated income." It requires that a portion of a taxpayer's regular income (after accounting for the application of income and accumulated income under Section 342) be treated as deemed accumulated income. Specifically, 15% of the regular income must be invested or deposited in permitted modes under Section 350. Importantly, this deemed accumulated income is not treated as accumulated income for the purposes of Section 342.

Key Changes:

1. Introduction of Deemed Accumulated Income: This is a new provision that mandates a specific portion (15%) of regular income to be treated as deemed accumulated income.
2. Exclusion from Section 342: The deemed accumulated income under Section 343 is explicitly excluded from being considered as accumulated income under Section 342.

Practical Implications:

• For Taxpayers: Taxpayers must now set aside 15% of their regular income (after adjustments under Section 342) and invest or deposit it in permitted modes under Section 350. This could impact cash flow and financial planning.
• For Businesses: Businesses will need to ensure compliance by accurately calculating and allocating the deemed accumulated income. This may require adjustments to accounting practices.
• Compliance Processes: Taxpayers must ensure that the 15% deemed accumulated income is invested or deposited in the permitted modes, and this must be reflected in their financial records and tax filings.

Critical Concepts:

• Regular Income: This refers to the income that is subject to tax after allowable deductions and exemptions.
• Deemed Accumulated Income: A portion of regular income (15%) that is treated as if it has been accumulated, even if it has not been actually set aside.
• Permitted Modes under Section 350: These are specific investment or deposit options allowed by the tax law, which may include government securities, bonds, or other approved financial instruments.

Compliance Steps:

1. Calculate Regular Income: Determine the regular income after applying Section 342.
2. Compute 15% of Regular Income: Calculate 15% of this regular income to determine the deemed accumulated income.
3. Invest or Deposit: Ensure that the calculated amount is invested or deposited in one of the permitted modes under Section 350.
4. Document and Report: Maintain proper documentation of the investment or deposit and report it accurately in tax filings.

Examples:

• Scenario 1: A taxpayer has a regular income of ₹10,00,000 after applying Section 342. Under Section 343, 15% of this income (₹1,50,000) must be treated as deemed accumulated income and invested or deposited in permitted modes under Section 350.
• Scenario 2: A business with a regular income of ₹50,00,000 after Section 342 adjustments must set aside ₹7,50,000 (15%) as deemed accumulated income and ensure it is invested or deposited in accordance with Section 350.

This section ensures that a portion of income is effectively channeled into investments or deposits, promoting financial discipline and compliance with tax regulations.