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The opening balance of the Foreign Currency Translation Reserve (FCTR) as on 1 April 2016 relating to exchange differences on monetary items for non integral foreign operations shall be recognised in the relevant previous year as income to the extent not previously included in income computation; the correctness of this recognition is debatable and requires appropriate professional judgment because conversion does not create real income and ICDS treatment may not apply to earlier years.
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Foreign currency liabilities treatment: exchange differences on monetary items hit profit or loss; non monetary differences not taxable or deductible.
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Exchange difference recognition requires periodic recognition until final settlement, treated as income or expense for monetary items.
Exchange differences on monetary transactions settled after the end of the previous year must be recognised in each intervening period up to final settlement, with exchange gain or loss on settlement treated as income or expense, except for items relating to nonintegral foreign operations.
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Foreign exchange differences: monetary item gains and losses recognised as income or expense, non-monetary conversion differences excluded.
Exchange differences on monetary items (cash and assets or liabilities receivable or payable in fixed or determinate amounts of money) arising on settlement or on the last day of the financial year must be recognised as income or expense of that year. Exchange differences on non-monetary items arising on conversion at the last day of the year are not to be recorded as income or expense for that year.
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Foreign currency transaction recording: use transaction-date exchange rate or a stable weekly/monthly average when fluctuations are insignificant.
Under ICDS VI, a foreign currency transaction must be initially recorded in the reporting currency using the exchange rate on the transaction date; if rates do not fluctuate significantly from actuals, a weekly or monthly average rate may be used instead.
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Capitalization of test-run and commissioning expenditure: pre-commercial costs capitalized, post-commercial costs treated as revenue excluding general overheads.
Expenditure on start-up and commissioning, including test runs and experimental production, must be capitalized as part of the cost of the tangible fixed asset until commercial production begins; expenditure after commercial production is revenue expenditure. Administration and general overheads not relating to a specific tangible fixed asset are excluded from asset cost and treated as revenue expenditure.
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Valuation of tangible fixed assets requires recording at actual cost including nonrecoverable taxes and directly attributable expenditures.
Valuation of tangible fixed assets under ICDS V requires recording assets at actual cost, comprising purchase price, duties and taxes that are not recoverable, and other directly attributable expenditure necessary to bring the asset to its intended use; recoverable taxes are excluded.
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Accrual basis interest recognition: interest taxed on accrual must be included when computing capital gain from subsequent sale.
Where interest has been accounted as income on an accrual basis before the sale of a security, the amount already taxed as interest income on accrual basis shall be taken into account for computation of income arising from such sale.
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Interest on compensation taxed as Income from Other Sources when received; accounting standard ICDS does not displace the statute.
Interest received on compensation or enhanced compensation is taxable in the year of receipt and must be reported under Income from Other Sources, regardless of whether the assessee uses mercantile or cash accounting; where ICDS IV conflicts with the Act the statute prevails.
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ICDS applicability to gross-basis incomes confirms ICDS governs computation of taxable interest, royalty and fees for technical services.
ICDS IV (Revenue Recognition) applies to incomes taxed on a gross basis, including interest, royalty and fees for technical services payable to non-residents, and such receipts must be computed and recognized under ICDS principles for determining the amount chargeable to tax.
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Accrual-based revenue recognition: interest and royalty must be recognised despite collection uncertainty; statutory provisions prevail.
Interest is recognised on a time basis and royalty according to contractual terms; later non recovery may be claimed as a deduction under the amended deduction provisions, and applicable statutory provisions prevail over ICDS IV.

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Comparison of Section 2(28) "Company" between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

19 August, 2025

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Section 2 Definitions.

Income-tax Act, 2025 [As Passed]

At a Glance

The texts are: (i) Section 2 Definitions of the Income-tax Act, 2025 [As Passed] (Document 1), and (ii) Clause 2 (Definitions) of the Income Tax Bill, 2025 - old version (Document 2). Both set out extensive definitions that frame the entire Act/Bill. The definition of "company" at clause (28) is materially comparable across the two texts but contains drafting differences; there are also scattered wording, cross-reference and formatting differences across the wider Clause 2. Affected parties include taxpayers, corporate entities, tax administrators and practitioners interpreting eligibility, scope and transitional references. Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hooks: Section/Clause 2 provides definitions foundational to the Income-tax Act / Income Tax Bill and is explicitly preliminary in character. The documents list defined expressions (accountant; advance tax; agricultural income; amalgamation; capital asset; company; dividend; virtual digital asset; etc.). Where cross-references to other legislation are used (Companies Act, SEBI Act, RBI Act, IT Act, Companies (Indian Accounting Standards) Rules, Bharatiya Nyaya Sanhita, etc.), those references are retained. The texts provide internal definitions and qualifying provisos for many expressions. Definitions that are not modified or that are identical between the two texts are not separately flagged unless relevant to interpretive contrast. Any specific legislative intent beyond wording: Not stated in the document.

Statutory Provision Mode

Text & Scope

Clause 2 / Section 2 operates as the definitional foundation for the Act/Bill. It enumerates numerous terms and, in many cases, sets out sub-clauses, provisos and cross-references that influence the meaning of operative provisions elsewhere in the statute. Key thematic areas covered include constitutional scope ("India"), personhood and entity classes ("person", "company", "domestic company", "foreign company"), capital assets and capital gains terminology ("capital asset", "short-term/long-term capital asset", "transfer"), tax administration offices (Commissioner, Assessing Officer), income heads and inclusions ("income"), and modern concepts such as "virtual digital asset".

Interpretation

The definitional text manifests standard interpretive signals: express inclusions and exclusions, cross-references to other statutory definitions (e.g., Companies Act, SEBI Act), and discrete criteria that make certain categories (e.g., "company in which the public are substantially interested") contingent on quantifiable thresholds (40%/50% shareholding, population distances for agricultural land, etc.). The Act version (Document 1) and the Bill (Document 2) show largely parallel structures but with drafting and cross-reference variations that may affect temporal scope and transitional interpretation in narrow respects. Legislative intent beyond textual meaning is Not stated in the document.

Exceptions/Provisos

The texts include numerous exceptions and provisos within definitions. Examples: "capital asset" excludes certain agricultural land subject to population/distance tests; "dividend" excludes distributions in particular circumstances (e.g., items (i)-(v) in clause (40)); "short-term capital asset" contains specific exceptions for securities and certain units with substitution of "twelve months" for "twenty-four months". These carve-outs are expressed within the definitions themselves and operate as direct exceptions to general meaning.

Illustrations

  • Example 1: A share listed on a recognised Indian stock exchange held for 9 months - under the definition in both texts the holding period for short-term/long-term characterisation is 12 months for such securities (i.e., treated as short-term if held <= 12 months). This follows the substitution specified in the short-term capital asset clause.

  • Example 2: A building adjacent to agricultural land used by a cultivator for storage and occupied by the cultivator will, if within the specified municipal/population/distance parameters, qualify for inclusion in agricultural income under clause (5)(c) subject to the stated provisos.

  • Example 3: A token defined as a "virtual digital asset" - non-fungible token or crypto-asset relying on distributed ledger technology - falls within clause (111) subject to any Central Government notifications excluding particular digital assets.

Interplay

The definitions repeatedly invoke other statutory provisions and delegated instruments (Finance Act rates, Companies Act provisions, SEBI regulations, notification powers, rules to be prescribed etc.). Where the Bill and Act texts differ in cross-reference phrasing or additional qualifiers, the interplay with transitional provisions, savings clauses or specific sections elsewhere could be affected. Specific references to Rules/Notifications/Circulars beyond those cited in the texts themselves: Not stated in the document.

Differences between Section 2(28) (Act, Document 1) and Clause 2(28) (Bill, Document 2) - and practical impact

  • Textual formulation of clause (28) - "company":

    • Document 1 (Act) defines "company" as (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; or (d) any institution, association or body ... declared by order of the Board.

    • Document 2 (Bill) uses largely similar limbs but expands or varies the wording in (c): it specifies "for any assessment year so referred to in that Act" and adds certain wording around timing ("hereinafter referred to as the Income-tax Act,1961), for any assessment year so referred to in that Act;").

    • Practical impact: the Bill's (c) expressly confines the continuing footprint of entities assessed under the old Act to those assessments relating to particular assessment years; the Act's (Document 1) wording is broader and omits the temporal qualification phrase present in the Bill. This may marginally affect transitional treatment of entities with a historical character under the old Act (i.e., whether entities assessed earlier but not in specified assessment years remain captured). The documents do not state transitional provisions; therefore full practical consequences across assessments: Not stated in the document.

  • Minor drafting differences: Document 1's clause (6) (amalgamation) and clause (22) (capital asset) include slightly different punctuation and parenthetical formulations compared with Document 2.

    • Example: Document 1 uses "herein referred to as the Income-tax Act,1961" while Document 2 uses "hereinafter referred to as the Income-tax Act,1961), for any assessment year so referred to in that Act".

    • Practical impact: largely drafting/clarificatory; however, where temporal references are introduced in the Bill, those could create interpretive limits on the retrospective or historical application of the definition. The significance depends on any transitional or savings provisions (which are Not stated in the document).

  • Differences in cross-references and sub-clause content: scattered discrepancies exist in cross-references (e.g., to schedules, to section numbering or table references).

    • Practical impact: potential for misalignment when applying other sections dependent upon precise cross-references; in practice, legislative consolidation in the final Act (Document 1) presumably resolves these. The documents do not state how conflicts are to be resolved beyond the final Act text: Not stated in the document.

  • Formatting and lexical differences across many definitions (e.g., "personal effects" wording, distance table formatting, language such as "and includes" vs "and shall include"):

    • Practical impact: minimal substantive change in most cases but may affect interpretive nuance (e.g., whether certain items are classed as inclusive examples or mandatory inclusions). The precise interpretive consequence in litigation or administrative practice: Not stated in the document.

Practical Implications

  • Compliance and risk areas: practitioners should note the final Act wording where definition-driven liabilities hinge on thresholds (e.g., what counts as "company", "domestic company", "company in which the public are substantially interested", and the population/distance tests for agricultural land). Any transactional structuring that relies on historical assessment status under the repealed Income-tax Act, 1961 requires attention to the exact transitional phrasing (differences between Bill and Act), although the document does not provide transitional rules.

  • Record-keeping/evidence: retain documentary proof of any historical assessment status or class characterisation (e.g., whether an institution was "assessable as a company" under the Income-tax Act, 1961), the dates and assessment years involved, shareholding percentages, listing status, and the municipal population/distance metrics for agricultural land exclusions. The statute itself references such factual thresholds; the document does not prescribe specific forms or filing procedures.

Key Takeaways

  • Section/Clause 2 is pivotal; definitions determine coverage and operation of many substantive rules.
  • The core definition of "company" is substantively similar in both texts but the Bill includes a temporal qualification in limb (c) that is not present in the Act text supplied; this may affect transitional interpretation of institutions assessed under the 1961 Act.
  • Many differences are drafting-level (punctuation, cross-reference phrasing, parenthetical insertions) with limited apparent substantive effect, but precise outcomes depend on transitional and saving clauses not contained in the documents.
  • Practitioners must focus on threshold facts embedded in definitions (shareholding percentages, listing status, population/distance tests, dates of issue/assessment) when applying the tax provisions.
  • The inclusion of modern terms (e.g., "virtual digital asset") confirms coverage of digital assets; the Central Government retains notification power to exclude specific digital assets.
  • Where the document is silent about transitional mechanics and legislative intent beyond wording, those matters remain Not stated in the document.

Full Text:

Section 2 Definitions.

Topics

Acts Income Tax