Section 2 Definitions.

Income-tax Act, 2025 [As Passed]

At a Glance

Clause 2 of the Income Tax Bill, 2025 (Old Version) contains definitions of key terms used throughout the Bill. It is foundational for classification and operation of the Bill-affecting taxpayers, tax authorities and regulated entities across industry-because definitional clarity determines applicability of obligations, rates and exemptions. Effective date or enactment timing: Not stated in the document.

Background & Scope

Statutory hooks: Clause 2 is the definitions provision of the Income Tax Bill, 2025 (Old Version). It sets out definitions for terms such as "assessee", "company", "capital asset", "income", "domestic company", "short-term capital asset", "virtual digital asset" and many others. The scope is the whole Bill: each defined term is used elsewhere in the Bill/Act and establishes the meaning to be applied unless the context otherwise requires. The text supplies detailed descriptions and sub-clauses for many terms; where a term lacks further explanation in Clause 2, the document does not provide such explanation (see below under specific headings).

Statutory Provision Mode

Text & Scope

Clause 2 provides a comprehensive glossary of terms and expressions. Coverage includes administrative office designations (e.g., "Assessing Officer", "Commissioner"), types of entities (e.g., "company", "domestic company", "foreign company", "public sector company"), income concepts (e.g., "income", "capital asset", "long-term capital gain", "short-term capital gain"), modes of transaction ("transfer", "slump sale", "demerger"), specialised items ("virtual digital asset", "zero coupon bond") and miscellaneous matters (e.g., "books of account", "fair market value"). Many definitions contain nested provisos, cross-references to other sections of the Bill or to other statutes (Companies Act, SEBI Act, RBI Act, etc.).

Interpretation

The definitions are expressed in ordinary statutory form: an opening saving ("unless the context otherwise requires"), followed by numbered sub-clauses. The Bill indicates that defined meanings apply throughout unless another meaning is clearly required by context. Interpretive cues placed in the text include cross-references to other sections and provisions of other statutes, and explicit provisos that exclude specified items from a definition (for example, exclusions from "capital asset"). The Bill does not expressly state legislative intent beyond the terms themselves; therefore, any broader purposive interpretation must be derived from the text and cross-references. Where the Bill departs from conventional drafting (see clause 2(29)(f) discussed earlier), interpretive uncertainty may arise and would need to be resolved by reference to plain meaning and legislative context.

Exceptions/Provisos

Clause 2 contains numerous carve-outs and provisos. Examples include:

• "capital asset" excludes stock-in-trade, personal effects and certain agricultural land, with a detailed table defining permissible distances from municipal limits.
• "income" explicitly includes certain benefits, allowances and enumerated categories (e.g., assistance/subsidy), but excludes specific subsidy types under sub-clauses (w)(i) and (w)(ii).
• "dividend" definition includes several inclusions and several listed exclusions (e.g., distributions on full cash shares, ordinary course loans by lenders, certain intergroup loans) together with contextual explanations of "accumulated profits".
• "short-term capital asset" contains altered holding period rules for specified assets and a detailed scheme to compute holding periods in different factual scenarios.

Where a particular exception or proviso is not present in the Bill text, the document states: Not stated in the document.

Illustrations

• Example 1 - Short-term vs Long-term: A security listed on a recognised Indian stock exchange held for 14 months will be a short-term capital asset because Clause 2(101)(b) substitutes "twelve months" for such securities. (This follows directly from the text.)
• Example 2 - Agricultural land exclusion: A plot situated 7 kilometres from a municipal limit of a city with population 1,50,000 will fall within the "within distance" threshold in the table and therefore may not be excluded from "capital asset" as agricultural land. (Directly follows from Clause 2(22)(iii)(B) table.)
• Example 3 - Virtual digital asset: A non-fungible token falls within the definition of "virtual digital asset" subject to any notification by the Central Government excluding specified digital assets. (Taken from Clause 2(111).)

Interplay

The definitions explicitly interact with other statutes and Bill provisions: references are made to the Companies Act, SEBI regulations, RBI Act, Special Economic Zones Act, Information Technology Act, and to schedules and other sections within the Bill (e.g., references to Schedule II, section numbers for assessment, Chapter XIX-C for advance tax). Where the Bill refers to rules, notifications or prescribed manner, those secondary instruments are necessary to give full effect to certain definitions (for instance, "fair market value" when market price cannot be ascertained is "determined in the manner, as prescribed"). The text does not specify those rules or their content: Not stated in the document.

Differences between Section 2(29) - Act [As Passed] and Bill (Old Version)

• Wording of condition clause: The Act (As Passed) uses the phrase "and either of the following conditions is fulfilled" (Document 1) while the Bill (Old Version) uses "and the following conditions are fulfilled" (Document 2).
  • Practical impact: The Bill's phrasing is grammatically susceptible to being read as requiring both listed conditions to be satisfied simultaneously rather than one or the other. This creates interpretive ambiguity on whether clause (f)(i) and (f)(ii) are alternative tests (as appears intended) or conjunctive tests. If read conjunctively, far fewer companies would qualify as a "company in which the public are substantially interested", with potential downstream effects on tax classification and benefits/exemptions tied to that status. The Act's later wording restores the clear disjunctive sense ("either ... is fulfilled"), reducing litigation risk on this point.
• Minor drafting and punctuation differences: There are small differences in punctuation and phrasing (for example, the Bill refers to "the following conditions are fulfilled:-" and uses slightly different clause punctuation and spacing).
  • Practical impact: These are drafting-level variations with minimal substantive effect except insofar as punctuation/connector choice affects statutory interpretation (see preceding point).
• Substantive content: No substantive alteration to the enumerated categories (clauses (a) to (f)) or the special proviso reducing the 50% test to 40% for certain Indian companies is visible between the two texts.
  • Practical impact: The categories of companies listed remain materially the same; the primary risk from the Bill language is interpretive (conjunctive vs disjunctive) rather than a change in policy scope.

Practical Implications

• Compliance and risk areas: Taxpayers must pay careful attention to definitional nuances (e.g., holding periods for capital assets, the meaning of "dividend", and the thresholds in "company in which the public are substantially interested"). Ambiguities in drafting (notably the conjunctive/disjunctive phrasing risk in clause 2(29)(f) of the Bill) may give rise to disputes with the tax administration.
• Record-keeping/evidence: The text implies the need to retain documentary evidence supporting factual classifications - e.g., shareholding records (to evidence percentage holdings throughout the tax year), listing status at year-end, valuation documents for fair market value, records of asset holding periods and conversion dates, and documentation supporting the characterisation of benefits/subsidies. Where the document requires prescribed procedures for valuation or conditions, those procedures themselves are Not stated in the document.

Key Takeaways

• Clause 2 is foundational: definitions determine the operation and reach of the Bill across taxpayers and administration.
• The Bill contains detailed, often technical definitions with multiple cross-references and provisos that materially affect tax treatment.
• Certain definitions require secondary rules or notifications ("prescribed" manner) which are not provided in the document: Not stated in the document.
• Drafting differences between the Bill and the Act (As Passed) are largely textual, but can create interpretive risk (notably in clause 2(29)(f)).
• Taxpayers and advisers should focus on documentation of shareholding, asset conversion/allotment dates, and classification evidence to minimise disputes.

Full Text:

Section 2 Definitions.