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CONTENTS*
Table showing sections of Income-tax Act, 1961 and corresponding sections of Income-tax Act, 2025 I-7
Table showing sections of Income-tax Act, 2025 and corresponding sections of Income-tax Act, 1961 I-97
Comprehensive table showing sections/sub-sections/clauses of Income-tax Act, 2025 (‘2025 Act’) and corresponding sections/subsections/clauses of Income-tax Act, 1961 (‘1961 Act’) I-169
DIVISION ONE 1
DIVISION TWO 2
Finance Act, 2026
*For detailed as well as textual Comparative Study of the provisions of 1961 Act & 2025 Act, see Taxmann’s Comparative Study of Provisions of Income-tax Act, 2025 & Income-tax Act, 1961.
DIVISION THREE
DIVISION FOUR
DIVISION FIVE
INCOME-TAX ACT, 2025
*[30 OF 2025]† [AS AMENDED BY FINANCE ACT, 2026]
An Act to consolidate and amend the law relating to income-tax
BE it enacted by Parliament in the Seventy-sixth Year of the Republic of India as follows:—
CHAPTER I PRELIMINARY
Short title, extent and commencement.
1. 1(1) This Act may be called the Income-tax Act, 2025.
(2)It extends to the whole of India.
[S. 1 of the 1961 Act]
(3)Save as otherwise provided in this Act, it shall come into force on the 1st April, 2026.
Definitions. [S. 2 of the 1961 Act]
2. In this Act, unless the context otherwise requires,—
(1) “accountant” shall have the meaning assigned to it in section 515(3)(b)2; Corresponding Provision: Sections 44AB, Explanation (i), 92F(i), 115JF(a), 115VW, Explanation, 201, Explanation, 206C, Explanation (a), 271J, Explanation (a) of the 1961 Act.
(
2) “Additional Commissioner” means a person appointed to be an Additional Commissioner of Income-tax under section 237(1)3;
1. For extension of Act to Continental Shelf of India and Exclusive Economic Zone, see Notification No. GSR 304(E), dated 31-3-1983. For details and relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
2. Corresponds to section 288(2), Explanation of the 1961 Act.
3. Corresponds to section 117(1) of the 1961 Act.
*Assented by the President of India on 21-8-2025.
†Note: Section 536(2)(j) of the Income-tax Act, 2025 provides as under: Repeal & savings
“(2) Irrespective of the repeal of the Income-tax Act, 1961 (43 of 1961) (herein referred to as the repealed Income-tax Act), and subject to sub-section (3)—
(j) any agreement entered into, appointment made, approval given, recognition granted, circular, direction, instruction, notification, order or rule or any scheme framed therein issued under any provision of the repealed Income-tax Act shall, so far as it is not inconsistent with the corresponding provisions of this Act, be deemed to have been entered into, made, granted, given or issued under the corresponding provision of this Act and shall continue in force accordingly;”
S. 2(5) [S. 2(1A) of 1961 Act]
I.T. ACT, 2025 1.30
Corresponding Provision : Section 2(1C) of the 1961 Act.
(3) “Additional Director” means a person appointed to be an Additional Director of Income-tax under section 237(1)4;
Corresponding Provision : Section 2(1D) of the 1961 Act.
(4) “advance tax” means the advance tax payable as per Chapter XIX-C;
Corresponding Provision : Section 2(1) of the 1961 Act.
5(5)6 “agricultural income” means—
(
a) any rent7 or revenue7 derived7 from a land7 which is situated in India and is used for agricultural purposes7;
(b) any income derived from such land7 by—
(i) agriculture7; or
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in item (ii);
(
c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any such land with respect to which, or the produce of which, any process mentioned in sub-clause (b)(ii) and (iii) is carried on, where such building— (i) is on or in the immediate vicinity7 of such land and that land is assessed to land revenue in India, or is subject to a local rate assessed and collected by officers of the Government as such, or where the land is not so assessed to land revenue or subject to a local rate it is not situated in any area as specified in clause (22)(iii)(A) or (B)8; and (ii) is required as a dwelling house, or as a store-house, or other out-building, by the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land;
(d) any income derived from saplings or seedlings grown in a nursery, but shall not include—
(i) the income derived from any building or land referred to in subclause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose
4. Corresponds to section 117(1) of the 1961 Act.
5. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
6. See also Circular No. 310, dated 29-7-1981 (Income from Tea) and Circular No. 17/2015, dated 6-10-2015 [Applicability of measurement of aerial distance for purpose of section 2(5)(c)(i)/2(22)(iii)(B)]. For details, see Taxmann’s Master Guide to Income-tax Act.
7. For the meaning of the terms/expressions “rent”, “revenue”, “derived”, “revenue derived from land”, “agricultural purposes”, “such land”, “agriculture” and “immediate vicinity”, see Taxmann’s Direct Taxes Manual, Vol. 3.
8. Corresponds to section 2(1A)(c)(A) & (B) of the 1961 Act.
1.31
CH. I - PRELIMINARY
S. 2(9) [S. 2(5) of 1961 Act]
of any business or profession) other than agriculture falling under sub-clause (a) or (b); or
(ii) any income arising from the transfer of any land referred to in clause (22)(iii)(A) or (B)9;
Corresponding Provision : Section 2(1A) of 1961 Act.
10(6) “amalgamation”11, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of such merger being referred to as the amalgamated company) in such a manner that—
(
a) all the property of the amalgamating company or companies immediately before the amalgamation become the property of the amalgamated company by virtue of the amalgamation;
(
b) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation;
(
c) the shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company;
Corresponding Provision : Section 2(1B) of the 1961 Act.
(7) “annual value”, in relation to any property, means its annual value as determined under section 2112;
Corresponding Provision : Section 2(2) of the 1961 Act.
(8) “Appellate Tribunal” means the Appellate Tribunal constituted under section 36113;
Corresponding Provision : Section 2(4) of the 1961 Act.
14(9) “approved gratuity fund” means a gratuity fund, which is approved and continues to be approved by the approving authority as per Part B of Schedule XI15;
9. Corresponds to section 2(1A)(c)(A) & (B) of the 1961 Act.
10. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
11. For the meaning of the term “amalgamation”, see Taxmann’s Direct Taxes Manual, Vol. 3.
12. Corresponds to section 23 of the 1961 Act.
13. Corresponds to section 252 of the 1961 Act.
14. See also Circular No. 30(XL-VII-18), dated 30-11-1964, Circular No. 14, dated 23-4-1969 (Making of initial contribution), Extracts from Minutes (Item 31) of Ninth Meeting of DTAC held on 5-11-1966 (Approval with retrospective effect) and Circular No. 110, dated 13-41973 (Provision for nomination in trust deeds). For details, see Taxmann’s Master Guide to Income-tax Act.
15. Corresponds to Fourth Schedule, Part B and C of the 1961 Act.
S. 2(13) [S. 2(8) of 1961 Act]
Corresponding Provision : Section 2(5) of the 1961 Act.
16(10) “approved superannuation fund” means a superannuation fund or any part of a superannuation fund, which is approved and continues to be approved by the approving authority as per Part B of Schedule XI17;
Corresponding Provision : Section 2(6) of 1961 Act.
18(11) “assessee”19 means a person by whom any tax or any other sum of money is payable under this Act, and includes—
(a) every person in respect of whom any proceeding under this Act has been taken—
(i) for the assessment of his income or of the loss sustained by him or refund due to him; or
(ii) for the assessment of the income of any other person in respect of which he is assessable, or of the loss sustained by such other person or refund due to such other person;
(
b) every person who is deemed to be an assessee under this Act;
(
c) every person who is deemed to be an assessee in default under this Act;
Corresponding Provision : Section 2(7) of the 1961 Act.
18(12) “Assessing Officer”19 means—
(a) the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer, who is vested with the relevant jurisdiction by virtue of directions or orders issued under section 241(1) or (2) or (3)20, or any other provision of this Act; and
(b) the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director, who is directed under section 241(5)(b)21 to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act;
Corresponding Provision : Section 2(7A) of the 1961 Act.
18(13) “assessment”19 includes reassessment and recomputation;
Corresponding Provision : Section 2(8) of the 1961 Act.
16. See also Letter F. No. 216/6/77-IT(A-II), dated 7-6-1978 (Employee voluntarily leaving service prematurely), Circular No. 500, dated 9-12-1987 (Approval to deeds of variation), Circular No. 444, dated 13-12-1985 (Reinvestment of matured deposits), Circular No. 482, dated 26-3-1987 (Depositing of contributions received on or after 1-4-1987), Circular No. 403, dated 5-12-1984 (Provision for ‘annuity certain’) and Circular No. 595, dated 5-3-1991 (Winding up of fund). For details, see Taxmann’s Master Guide to Income-tax Act.
17. Corresponds to Fourth Schedule, Part B and C of the 1961 Act.
18. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
19. For the meaning of the terms/expressions “assessee”, “Assessing Officer” and “assessment” see Taxmann’s Direct Taxes Manual, Vol. 3.
20. Corresponds to section 120(1), Explanation or 120(2) of the 1961 Act.
21. Corresponds to section 120(4)(b) of the 1961 Act.
1.33 CH. I - PRELIMINARY
S. 2(20) [S. 2(13) of 1961 Act]
(14) “Assistant Commissioner” means a person appointed to be an Assistant Commissioner of Income-tax or a Deputy Commissioner of Income-tax under section 237(1)22;
Corresponding Provision : Section 2(9A) of 1961 Act.
(15) “Assistant Director” means a person appointed to be an Assistant Director of Income-tax or a Deputy Director of Income-tax under section 237(1)22;
Corresponding Provision : Section 2(9B) of the 1961 Act.
(16) “average rate of income-tax” means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income;
Corresponding Provision : Section 2(10) of the 1961 Act.
23(17) “block of assets” means a group of assets falling within a class of assets comprising of—
(a) tangible assets, being buildings, machinery, plant or furniture;
(b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, not being goodwill of a business or profession, in respect of which the same percentage24 of depreciation is prescribed;
Corresponding Provision : Section 2(11) of the 1961 Act.
(18) “Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963);
Corresponding Provision : Section 2(12) of the 1961 Act.
(19) “books or books of account” includes ledgers, day-books, cash books, account-books and other books24, whether kept—
(a) in written form; or
(b) in electronic or any digital form, or on cloud based storage, or on any electromagnetic data storage device, such as floppy, disc, tape, portable data storage device, external hard drives, or memory cards; or
(c) as print-outs of data stored in electronic or digital form or on storage devices mentioned in sub-clause (b);
Corresponding Provision : Section 2(12A) of the 1961 Act.
23(20) “business”24 includes any trade24, commerce or manufacture or any adventure24 or concern in the nature of trade24, commerce or manufacture;
Corresponding Provision : Section 2(13) of the 1961 Act.
22. Corresponds to section 117(1) of the 1961 Act.
23. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
24. For the meaning of the terms/expressions “same percentage”, “other books”, “business”, “trade”, “adventure” and “in the nature of trade”, see Taxmann’s Direct Taxes Manual, Vol. 3.
S. 2(22) [S. 2(14) of 1961 Act]
ACT, 2025
(21) “business trust” means a trust registered as—
(
a) an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) ; or
(b) a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);
Corresponding Provision : Section 2(13A) of the 1961 Act.
25(22)26 “capital asset”27 means—
(
a) property27 of any kind held by an assessee27, whether or not connected with his business or profession;
(b) any securities held by—
(i) a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or
(ii) an investment fund specified in section 224(10)(a)28 which has invested such securities in accordance with the provisions of the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or under the International Financial Services Centres Authority Act, 2019 (50 of 2019);
(
c) any unit linked insurance policy to which exemption under Schedule II (Table: Sl. No. 2)29 does not apply, but does not include—
(i) any stock-in-trade, other than the securities referred to in subclause (b), consumable stores or raw materials held for business or profession;
(ii) personal effects27;
(iii) agricultural land27 in India, not being a land situated—
(A) in any area comprised within the jurisdiction of a municipality (whether known as a municipality27, municipal corporation, notified area committee, town area committee, town commit-
25. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
26. See also Letter [F. No. 500/111/12009-FTD-1(Pt.)], dated 29-5-2012 (Clarification regarding reopening of completed assessments on account of clarificatory amendments introduced by Finance Act, 2012, in sections 2(14), 2(47), 9 and 195 of 1961 Act with retrospective effect) and Circular No. 17/2015, dated 6-10-2015 [Applicability of measurement of aerial distance for purpose of section 2(5)(c)(i)/2(22)(iii)(B)]. For details, see Taxmann’s Master Guide to Income-tax Act.
27. For the meaning of the terms/expressions “capital asset”, “property”, “held by an assessee”, “agricultural land”, “municipality” and “personal effects”, see Taxmann’s Direct Taxes Manual, Vol. 3.
28. Corresponds to section 115UB, Explanation 1(a) of the 1961 Act.
29. Corresponds to section 10(10D), provisos of the 1961 Act.
1.35 CH. I - PRELIMINARY
S. 2(22) [S. 2(14) of 1961 Act]
tee, or by any other name) or a cantonment board and which has a population30 of not less than ten thousand; or (B) in any area within the distance as specified in column C of the following Table, measured aerially from the local limits of any municipality or cantonment board referred to in item (A) and having population as referred to in column B of the said Table:—
TABLE
Sl. No. Population of municipality or cantonment board
Within distance, measured aerially, from local limits of any municipality or cantonment board not being more than
1. More than 10000 and upto 100000. Two kilometres.
2. More than 100000 and upto 1000000. Six kilometres.
3. More than 1000000. Eight kilometres;
(iv) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 as may be notified by the Central Government, where,—
(A) “Foreign Institutional Investor” shall have the meaning assigned to it in section 210(6)(a)31;
(B) “personal effects” means any movable property (including wearing apparel and furniture) held for personal use by the assessee or any family member dependent on him, but excludes—
(I) jewellery, which includes—
(a) ornaments made of gold, silver, platinum, or any other precious metal or any alloy of such precious metals, with or without precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel; or
(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; or
(II) archaeological collections; or
30. For the meaning of the term “population”, see Taxmann’s Direct Taxes Manual, Vol. 3.
31. Corresponds to section 115AD, Explanation (a) of the 1961 Act.
S. 2(25) [S. 2(15B) of 1961 Act]
(III) drawings; or (IV) paintings; or (V) sculptures; or
(VI) any work of art;
ACT, 2025
(C) “population” shall mean the population according to the last preceding census of which the relevant figures have been published before the first day of the tax year;
(D) “property” includes any rights in or in relation to an Indian company, including rights of management or control or any other rights; and
(E) “securities” shall have the same meaning as assigned to it in section 2(h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)32;
Corresponding Provision : Section 2(14) of the 1961 Act.
33(23)34 “charitable purpose”35 includes—
(a) relief of the poor;
(b) 35education;
(c) yoga;
(d) medical relief;
(e) preservation of environment35 (including watersheds, forests and wildlife);
(f) preservation of monuments or places or objects of artistic or historic interest;
(g) the advancement of any other object of general public utility35;
Corresponding Provision : Section 2(15) of the 1961 Act.
(24) “Chief Commissioner” means a person appointed to be a Chief Commissioner of Income-tax or a Director General of Income-tax or a Principal Chief Commissioner of Income-tax or a Principal Director General of Income-tax under section 237(1)36;
Corresponding Provision : Section 2(15A) of the 1961 Act.
(25) “child”, in relation to an individual, includes a step-child and an adopted child of that individual;
Corresponding Provision : Section 2(15B) of the 1961 Act.
32. For definition of “securities”, see Appendix
33. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
34. See also Circular No. 395, dated 24-9-1984 (Promotion of sports and games). For details, see Taxmann’s Master Guide to Income-tax Act.
35. For the meaning of the terms/expressions “charitable purpose”, “education”, “preservation of environment” and “advancement of ..... public utility”, see Taxmann’s Direct Taxes Manual, Vol. 3.
36. Corresponds to section 117(1) of the 1961 Act.
1.37 CH. I - PRELIMINARY
S. 2(29) [S. 2(18) of 1961 Act]
(26) “Commissioner” means a person appointed to be a Commissioner of Income-tax or a Director of Income-tax or a Principal Commissioner of Income-tax or a Principal Director of Income-tax under section 237(1)37;
Corresponding Provision : Section 2(16) of the 1961 Act.
(27) “Commissioner (Appeals)” means a person appointed to be a Commissioner of Income-tax (Appeals) under section 237(1)37;
Corresponding Provision : Section 2(16A) of the 1961 Act.
38(28) “company”39 means—
(a) any Indian company; or
(b) any body corporate incorporated by or under the laws of a country outside India; or
(
c) any institution, association or body which is or was assessable or was assessed as a company under the Income-tax Act, 1961, as it stood immediately before its repeal by this Act (herein referred to as the Income-tax Act, 1961) (43 of 1961); or
(
d) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by order of the Board to be a company for such period as specified in such declaration;
Corresponding Provision : Section 2(17) of the 1961 Act.
38(29) “company in which the public are substantially interested” means39
(a) a company owned by the Government or the Reserve Bank of India or in which at least 40% of the shares of the company are held (individually or collectively) by the Government or the Reserve Bank of India or a corporation owned by that bank; or
(b) a company which is registered under section 8 of the Companies Act, 2013 (18 of 2013)40; or
(
c) a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, the Board by order declares it to be such a company for the period as specified in the declaration; or
(
d) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 40641 of the Companies Act, 2013 (18 of 2013), to be a Nidhi or Mutual Benefit Society; or
(
e) a company, wherein shares (excluding those entitled to a fixed rate of dividend, with or without a further right to participate in
37. Corresponds to section 117(1) of the 1961 Act.
38. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
39. For the meaning of the terms “company” and “means”, see Taxmann’s Direct Taxes Manual, Vol. 3.
40. For text of section 8 of the Companies Act, 2013, see Appendix
41. For text of section 406 of the Companies Act, 2013, see Appendix
S. 2(31) [S. 36(1)(viia) of 1961 Act] I.T. ACT, 2025
profits) carrying not less than 50% of the voting power, have been unconditionally42, allotted to or acquired by, and were beneficially held42 throughout the relevant tax year by, one or more co-operative societies; or
(f) a company which is not a private company as defined in the Companies Act, 2013 (18 of 2013)43, and either of the following conditions is fulfilled:—
(
i) shares in the company (not being shares entitled to a fixed rate of dividend, with or without a further right to participate in profits) were, as on the last day of the relevant tax year, listed in a recognised stock exchange in India as per the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder;
(ii) shares in the company (not being those entitled to a fixed rate of dividend, with or without a further right to participate in profits) carrying not less than 50% of the voting power, have been unconditionally, allotted to or acquired by, and were beneficially held throughout the relevant tax year by—
(A) the Government; or
(B) a corporation established by a Central Act or State Act or Provincial Act; or
(C) any company to which this clause applies or any subsidiary company of such company, if the entire share capital of such subsidiary company has been held by the parent company or by its nominees throughout the tax year,
so, however, that in respect of an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, the expression “not less than 50%” shall be read as if the expression “not less than 40%” had been substituted;
Corresponding Provision : Section 2(18) of the 1961 Act.
(30) “convertible foreign exchange” means foreign exchange which is treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder or any other corresponding law;
Corresponding Provision : Sections 115C(a), 115JB(7), Explanation (c), 115JF(ba) of the 1961 Act.
(31) “co-operative bank” shall have the same meaning as specified in Part V of the Banking Regulation Act, 1949 (10 of 1949);
Corresponding Provision : Sections 36(1)(viia), Explanation (vi), 36(1)(viii), Explanation (d), 43B, Explanation 4(d), 43D, Explanation (g), 44DB(5)(e), 80P(4),
42. For the meaning of the terms “unconditionally” and “beneficially held”, see Taxmann’s Direct Taxes Manual, Vol. 3.
43. For definition of ‘private company’ under section 2(68) of the Companies Act, 2013, see Appendix.
1.39 CH. I - PRELIMINARY S. 2(35) [S. 2(19AA) of 1961 Act]
Explanation (a), 139(1), Explanation 6(b), 194A(3)(v), Explanation, 269ST, Explanation (b), 269SS, Explanation (ii), 269T, Explanation (ii) of the 1961 Act.
44[45(32) “co-operative society”46 means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or the Multi-State Co-operative Societies Act, 2002 (39 of 2002), or under any other law in force in any State or Union territory for the registration of co-operative societies;]
Corresponding Provision : Section 2(19) of the 1961 Act.
(33) “currency”47 shall have the same meaning as assigned to it in section 2(h) of the Foreign Exchange Management Act, 1999 (42 of 1999);
Corresponding Provision : Section 2(47A), Explanation (b) of the 1961 Act.
(34) “demerged company” means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company;
Corresponding Provision : Section 2(19AAA) of the 1961 Act.
45(35) “demerger”46, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 230 to 23248 of the Companies Act, 2013 (18 of 2013), by a demerged company of its one or more undertakings to any resulting company in such a manner that—
(
a) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger;
(
b) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger;
(c) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger, except in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015 made under the Companies Act, 2013 (18 of 2013);
(
d) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis, except where the resulting company itself is a shareholder of the demerged company;
(e) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held
44. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, clause (32) read as under : ‘(32) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law in force in any State or Union territory for the registration of co-operative societies;’
45. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.
46. For the meaning of the terms “co-operative society” and “demerger”, see Taxmann’s Direct Taxes Manual, Vol. 3.
47. For definition of “currency”, see Appendix.
48. For text of sections 230 to 232 of the Companies Act, 2013, see Appendix.
S. 2(35) [S. 2(19AA) of 1961 Act]
I.T. ACT, 2025 1.40
therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company;
(
f) the transfer of the undertaking is on a going concern basis; and
(g) the demerger is as per the conditions, if any, notified under section 116(7)49 by the Central Government, where,—
(i) “undertaking” shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity;
(ii) “liabilities relatable to the undertaking”, referred to in sub-clause (b), shall include—
(A) the liabilities which arise out of the activities or operations of the undertaking;
(B) the specific loans or borrowings (including debentures) raised, incurred and utilised solely for the activities or operations of the undertaking; and
(C) the amount “N”, being the amount of general or multipurpose borrowings of the undertaking, as computed below, in cases other than those referred to in item (A) or (B),—
where,—
K = the amount of general or multipurpose borrowings of the demerged company;
L = the value of the assets transferred in a demerger; and
M = the total value of the assets of such demerged company immediately before the demerger;
(iii) any change in the value of assets consequent to their revaluation shall be ignored for determining the value of the property referred to in sub-clause (c);
(iv) the splitting up or the reconstruction of any authority or a body constituted or established under a Central Act or State Act or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if it fulfils such conditions as the Central Government may, by notification50, specify;
49. Corresponds to section 72A(5) of the 1961 Act.
50. For notified conditions, see Taxmann’s Master Guide to Income-tax Act.
