Comparison of Section 38 "Certain sums deemed as profits and gains of business or profession" between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

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....Act, 2025 [As Passed] (hereafter "As Passed"). The provision determines particular receipts that will be deemed profits and gains of business or profession and thus taxable; it primarily affects taxpayers carrying on business or profession, successor entities on reorganisation, and tax administration. Effective date or decision date: Not stated in the document. Background & Scope Statutory hooks: Clause 38 of the Income Tax Bill, 2025 - Old Version addresses "profits and gains of business or profession" and sets out specific categories of receipts to be treated as income for tax purposes. The Old Version enumerates paragraphs (a)-(e) describing receipts that will be taxable, conditions in sub-section (2), set-off mechanism in sub-section ....

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....A] - [C]; otherwise [B] - [C]. * (c) On sale of an asset representing capital expenditure on scientific research (referred to in section 45(1)(a) or (c)) sold without having been used for other purposes, where sale proceeds plus total deductions allowed under that section exceed the capital expenditure - the excess or the amount of deduction so made, whichever is less, in the year asset sold. * (d) Where a deduction for a bad debt (or part) u/s 31(2) was allowed and any subsequent recovery exceeds the difference between such debt and the amount allowed - the excess in the year of recovery. * (e) Where a deduction was allowed for any special reserve u/s 32(e), any amount subsequently withdrawn from such reserve in the year of withdrawa....

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....the trader&#39;s accounts and the trader enjoys a benefit by cessation of liability. Under clause 38(1)(a)(i), the value of that benefit is deemed business income in Y+2. (No numerical illustration given in the document.) * Example 2 (asset sale recapture): A tangible asset with actual cost [B], written down value [C], and scrap value [A] is sold in year Z. If money payable plus scrap value [A] exceeds [C], compute deemed income as [A] - [C] where [A] < [B], else [B] - [C], in year when money becomes due. (No numeric amounts provided in the document.) Interplay Interactions with other provisions: the Old Version expressly cross-references section 31(2) (bad debts), section 32(e) (special reserve), section 33 (depreciation), and section ....

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....ent for any earlier tax year"; As Passed: "when an allowance or deduction has been made in assessment for any tax year towards the trading liability, loss or expenditure incurred". * Practical impact: As Passed removes the explicit "earlier" qualifier and expands wording to "any tax year" (but retains concept of allowance in assessment); this could broaden scope to include allowances in the same or earlier years (interpretation depends on other provisions), potentially increasing situations where recapture applies. * Sub-section (2)(b) condition: Old Version requires asset "has been used for the purpose of business, and depreciation has been claimed and allowed thereon u/s 33". As Passed requires use "for the purpose of business or prof....

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....he benefit accrues or proceeds are received. * Record-keeping/evidence points suggested by the text: maintain contemporaneous records proving (i) assessment files showing the earlier allowance/deduction; (ii) dates and values of recoveries, write-offs, or remission; (iii) asset accounts showing cost, written down value, scrap value and depreciation claimed and allowed u/s 33; (iv) documentation for special reserves and withdrawals; and (v) documentation of successor-in-business transfers. These records are essential to determine timing and quantum of deemed income under the clause. Key Takeaways * Clause 38 of the Bill (Old Version) is a recapture provision taxing receipts that reverse earlier deductions/allowances in computing busines....