Income Tax 2025

Appearance

Power to make rules. ​

533(1) ​

The Board may, subject to the control of the Central Government, by notification, make rules for carrying out the purposes of this Act.

533(2) ​

In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters:—

  • (a) the ascertainment and determination of any class of income;
  • (b) the manner in which and the procedure by which the income shall be arrived at in the case of— (i) income derived in part from agriculture and in part from business; (ii) persons residing outside India; (iii) operations carried out in India by a non-resident; (iv) transactions or activities of a non-resident; (v) an individual who is liable to be assessed under section 99(3) and (4);
  • (c) the determination of the value of any perquisite chargeable to tax under this Act in such manner and on such basis as appears to the Board to be proper and reasonable;
  • (d) the percentage on the written down value which may be allowed as depreciation for buildings, machinery, plant or furniture;
  • (e) the matters specified in section 62;
  • (f) the conditions or limitations subject to which any payment of rent made by an assessee shall be deducted under section 134;
  • (g) the matters specified in Chapter XI;
  • (h) the time within which any person may apply for the allotment of a Permanent Account Number, the form and the manner in which such application may be made and the particulars which such application shall contain and the transactions with respect to which Permanent Account Number shall be quoted on documents relating to such transactions under section 262;
  • (i) the documents, statements, receipts, certificates or audited reports which may not be furnished along with the return but shall be produced before the Assessing Officer on demand under section 263(2)(a);
  • (j) the class or classes of persons who shall be required to furnish the return of income in electronic form; the form and the manner of furnishing the said return in electronic form; documents, statements, receipts, certificates or reports which shall not be furnished with the return in electronic form and the computer resource or electronic record to which such return may be transmitted under section 263(2)(a);
  • (k) the cases, the nature and value of assets, the limits and heads of expenditure and the outgoings, which are required to be prescribed under section 263(2)(b);
  • (l) the form of the report of audit or inventory valuation and the particulars which such report shall contain under section 268(5);
  • (m) remuneration of Chairperson and members of the Approving Panel under section 274(21) and procedure and manner for constitution of, functioning and disposal of references by, the Approving Panel under section 274(24);
  • (n) the form and manner in which the information relating to payment of any sum may be furnished under section 397(3)(d);
  • (o) the authority to be prescribed for any of the purposes of this Act;
  • (p) the procedure for giving effect to any agreement for the granting of relief in respect of double taxation or for the avoidance of double taxation entered into by the Central Government under this Act;
  • (q) the procedure for granting of relief or deduction, of any income-tax paid in any country or specified territory outside India, under section 159 or 160, against the income-tax payable under this Act;
  • (r) the form and manner in which any application, claim, return or information may be made or furnished and the fees that may be levied in respect of any application or claim;
  • (s) the manner in which any document required to be filed under this Act may be verified;
  • (t) the procedure to be followed on applications for refunds;
  • (u) the procedure for calculating interest payable by assessees or by the Government to assessees under this Act, including the rounding off of periods when a fraction of a month is involved, and specifying the circumstances under which and the extent to which petty amounts of interest payable by assessees may be ignored;
  • (v) the regulation of any matter for which provision is made in section 420;
  • (w) the form and manner in which any appeal or cross-objection may be filed under this Act, the fee payable in respect thereof and the manner in which intimation referred to in section 358(3)(b) may be served;
  • (x) the circumstances, conditions and the manner in which, the Joint Commissioner (Appeals) or the Commissioner (Appeals) may permit an appellant to produce evidence which he did not produce or which he was not allowed to produce before the Assessing Officer;
  • (y) the form in which the statement under section 507 shall be delivered to the Assessing Officer;
  • (z) the maintenance of a register of persons other than legal practitioners or accountants practising before income-tax authorities and for the constitution of and the procedure to be followed by the authority referred to in section 515(5);
  • (za) the issue of certificate verifying the payment of tax by assessees;
  • (zb) any other matter which by this Act is to be, or may be, prescribed.

533(3) ​

In cases, where the income liable to tax cannot be definitely ascertained, or can be ascertained only with an amount of trouble and expense to the assessee, which is unreasonable, the rules made under this section may—

  • (a) prescribe methods by which an estimate of such income may be made; and
  • (b) in cases of income derived in part from agriculture and in part from business, specify the proportion of the income which shall be considered to be income liable to tax, and an assessment based on such estimate or proportion shall be considered to be duly made as per this Act.

533(4) ​

The power to make rules conferred by this section shall include the power to give retrospective effect, from a date not earlier than the date of commencement of this Act, to the rules or any of them and, unless the contrary is permitted (whether expressly or by necessary implication), no retrospective effect shall be given to any rule so as to prejudicially affect the interests of assessees.

Explanation

Section Summary: ​

Section 533 grants the Central Board of Direct Taxes (CBDT) the authority to create rules for implementing the provisions of the Income Tax Act. These rules can cover a wide range of matters, including income determination, tax procedures, compliance requirements, and administrative processes. The section also allows for retrospective application of rules, provided it does not negatively impact taxpayers.

Key Changes: ​

  1. Expanded Rule-Making Authority: The section explicitly lists specific areas where the CBDT can create rules, such as income determination for non-residents, agricultural income, and tax procedures. This provides clarity on the scope of the CBDT's authority.
  2. Retrospective Rule-Making: The CBDT can issue rules with retrospective effect, but only if it does not harm taxpayers' interests. This is a significant addition, as it balances administrative flexibility with taxpayer protection.
  3. Focus on Digital Compliance: The section emphasizes electronic filing of returns and digital processes, reflecting the government's push toward digitization in tax administration.

Practical Implications: ​

  1. For Taxpayers:
    • Taxpayers must stay updated on new rules issued by the CBDT, as these rules can impact income computation, deductions, and compliance procedures.
    • Non-residents and individuals with mixed income (agricultural and business) may face specific rules for income determination.
  2. For Businesses:
    • Businesses, especially those with international operations, need to comply with rules governing non-resident transactions and cross-border income.
    • Companies must ensure proper documentation and adherence to prescribed formats for audits, returns, and other filings.
  3. For Compliance Processes:
    • The section streamlines processes like refund applications, interest calculations, and appeal filings by providing clear guidelines.
    • Tax authorities gain flexibility in handling complex cases, such as estimating income when exact computation is impractical.

Critical Concepts: ​

  1. Retrospective Effect: Rules can apply to past periods, but only if they do not disadvantage taxpayers. For example, a rule clarifying a deduction cannot retroactively deny a deduction already claimed.
  2. Mixed Income (Agriculture and Business): The CBDT can prescribe methods to allocate income between taxable business income and exempt agricultural income.
  3. Non-Resident Transactions: Rules may specify how income from operations or transactions by non-residents in India is taxed.
  4. Electronic Filing: Certain taxpayers may be required to file returns electronically, with specific formats and documentation.

Compliance Steps: ​

  1. Stay Informed: Regularly check for notifications from the CBDT regarding new rules or amendments.
  2. Maintain Documentation: Ensure all records, such as audit reports, income statements, and supporting documents, are readily available for submission if required.
  3. Adopt Digital Tools: Use approved electronic platforms for filing returns and transmitting data as per the prescribed formats.
  4. Verify Retrospective Rules: If a rule is applied retrospectively, assess its impact on your tax liability and ensure it does not adversely affect your interests.

Examples: ​

  1. Mixed Income Scenario: A farmer also runs a small business. The CBDT issues a rule specifying that 40% of the combined income is taxable business income, while 60% is exempt agricultural income. The farmer uses this rule to compute taxable income.
  2. Non-Resident Operations: A foreign company operates in India. The CBDT prescribes a method to determine the taxable portion of its income derived from Indian operations, simplifying compliance.
  3. Retrospective Rule: The CBDT issues a rule clarifying the depreciation rate for machinery, effective from the previous financial year. A taxpayer who had claimed depreciation at a higher rate must adjust their tax liability accordingly, but only if the rule does not increase their tax burden.

This section ensures the tax system remains adaptable while safeguarding taxpayer rights.

Explanation

Section Summary: ​

Section 533 grants the Central Board of Direct Taxes (CBDT) the authority to create rules for implementing the provisions of the Income Tax Act. These rules can cover a wide range of matters, including income determination, tax procedures, compliance requirements, and administrative processes. The section also allows for retrospective application of rules, provided they do not adversely affect taxpayers.

Key Changes: ​

  1. Expanded Rule-Making Authority: The section explicitly lists specific areas where the CBDT can create rules, such as income determination for non-residents, agricultural income, and depreciation rates. This provides clarity on the scope of the CBDT's rule-making powers.
  2. Retrospective Application: The section explicitly allows the CBDT to give retrospective effect to rules, but only if it does not harm taxpayers' interests. This is a significant addition, as it balances administrative flexibility with taxpayer protection.
  3. Simplified Procedures: The section introduces provisions for simplifying compliance, such as estimating income in cases where exact determination is impractical or costly.

Practical Implications: ​

  1. Taxpayers: Taxpayers must stay updated on new rules issued by the CBDT, as these rules can impact income computation, deductions, and compliance procedures.
  2. Non-Residents: Rules for determining income from operations or transactions in India by non-residents will affect how such income is taxed.
  3. Businesses: Depreciation rates and methods for calculating income from mixed sources (e.g., agriculture and business) may change, impacting tax liabilities.
  4. Compliance Processes: Taxpayers may need to adapt to new forms, electronic filing requirements, or documentation standards as per the rules issued under this section.

Critical Concepts: ​

  1. Retrospective Effect: Rules can be applied retroactively, but only if they do not harm taxpayers. This means that while the CBDT can clarify or modify rules for past periods, it cannot impose new liabilities on taxpayers retrospectively.
  2. Income Estimation: In cases where income cannot be precisely determined, the CBDT can prescribe estimation methods. For example, income from mixed sources (agriculture and business) may be apportioned based on prescribed proportions.
  3. Depreciation Rules: The CBDT can specify the percentage of written-down value allowed as depreciation for assets like buildings, machinery, and furniture.

Compliance Steps: ​

  1. Monitor Notifications: Regularly check for CBDT notifications to stay informed about new rules or changes to existing ones.
  2. Documentation: Maintain records and documentation as required by the rules, especially for income from mixed sources or non-resident operations.
  3. Adhere to Filing Requirements: Follow the prescribed forms, electronic filing procedures, and deadlines for returns, appeals, and other submissions.
  4. Verify Retrospective Rules: If a rule is applied retrospectively, ensure it does not adversely affect your tax position.

Examples: ​

  1. Mixed Income (Agriculture and Business): A taxpayer earns ₹10 lakh, with 40% from agriculture and 60% from business. The CBDT may prescribe that 50% of the total income is taxable. The taxpayer would then compute tax on ₹5 lakh (50% of ₹10 lakh).
  2. Non-Resident Operations: A non-resident company earns ₹50 lakh from operations in India. The CBDT may issue rules specifying how to allocate expenses and compute taxable income, ensuring consistency in tax treatment.
  3. Retrospective Rule: The CBDT issues a rule in 2024 clarifying the depreciation rate for a specific asset class, effective from 2022. Taxpayers can apply this rate for past filings, but only if it does not increase their tax liability for those years.

This section ensures that the CBDT has the flexibility to address practical challenges in tax administration while safeguarding taxpayer interests.