Taxation of Special Incomes in India "Profits and gains from Life Insurance Business" : Clause 194 of the Income Tax Bill, 2025 Vs. Section 115B of the Income-tax Act, 1961

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....bon credits, and royalties from Indian-developed patents. Additionally, it addresses the taxation of profits and gains from life insurance business, a domain historically governed by Section 115B of the Income-tax Act, 1961. The move to introduce Clause 194 is reflective of the legislature's intent to modernize, streamline, and clarify the tax treatment of these special income categories, particularly in response to evolving business models and technological advancements. The inclusion of new income sources such as VDAs and carbon credits underlines the adaptive nature of tax policy to emerging economic realities. At the same time, the provision retains and refines the approach to long-standing income streams, ensuring continuity and st....

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.... characteristics, require distinct tax treatment. For example, the high rate of tax on winnings from gambling and lotteries is designed both to discourage such activities and to ensure a fair share of revenue from windfall gains. The concessional rate on patent royalties aims to foster indigenous innovation. Detailed Analysis of Clause 194 of the Income Tax Bill, 2025 Clause 194 is structured to apply "irrespective of anything contained in any other provision of this Act," thereby granting it overriding effect. The clause operates by reference to a comprehensive table, which sets out the categories of taxpayers, the specific income streams, the applicable tax rates, and any conditions or restrictions. 1. Winnings from Lotteries, Games, a....

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....s and the denial of deductions/set-offs. This may require adjustments in tax planning and compliance processes. * Businesses: Companies involved in patent development, carbon credits, or VDAs must ensure robust documentation and timely exercise of options to avail concessional rates where applicable. * Life Insurance Sector: The continuation of the 12.5% rate provides certainty, but any changes in the computation of profits and gains may require adjustments in reporting and tax calculation. * Regulators: The need for clear rules and guidance, especially for new income streams like VDAs and online games, will be critical to ensure consistent enforcement and minimize disputes. * Compliance: The denial of deductions and set-offs simpli....

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....ework for special incomes, rather than as a standalone section. * Computational Method: * Both provisions use the "aggregate" method: tax at special rate on specified income, plus tax at normal rates on the remainder. * Denial of Deductions: * Section 115B does not expressly deny deductions for expenses; such matters are governed by the general provisions of the Act. * Clause 194, for some categories (but not life insurance), expressly denies deductions. For life insurance business, no specific denial is mentioned, so general rules likely apply. * Special Deposit Requirement: * Section 115B(2) had a requirement for contributions to a social security fund for certain years. Clause 194 contains no such requirement. * This refl....

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....ce profits excluded Same aggregation method for all specified incomes Clause 194 adopts the same computational mechanism, ensuring consistency. Additional Requirements For AYs 1989-90 & 1990-91, deposit in social security fund No such requirement The social security fund deposit was a temporary measure, not continued in Clause 194. Other Incomes Covered Only life insurance business Winnings, patent royalties, carbon credits, VDAs, online games, etc. Clause 194 is broader in scope, reflecting contemporary economic realities. Conditions/Restrictions None specified (other than for social security fund) Specific conditions for other income streams; none for life insurance business Life insurance business remains....