Section 61 Special provision for computation of income on presumptive basis in respect of certain business activities of certain non-residents.

Income-tax Act, 2025

At a Glance

Clause 61 of the Income Tax Bill, 2025 (Old Version) prescribes a presumptive scheme for computing profits and gains of certain specified businesses carried on by non-residents. It matters because it fixes taxable income for designated activities (shipping, aircraft, cruise ships, turnkey power construction, mineral oil services, and certain electronics-manufacturing services) at specified percentages of receipts. Affected parties include non-resident taxpayers and, in one entry, foreign companies and resident companies (as recipients). Effective/decision date: Not stated in the document.

Background & Scope

Statutory hook: Clause 61 of the Income Tax Bill, 2025 (Old Version). The clause creates a special presumptive computation method for profits and gains from specified business activities, overriding sections 26-54 "to the extent contrary" (Bill: s.61(1)). The clause applies to specified businesses listed in a Table in s.61(2), each paired with a specified assessee and a formula (percentage of defined receipts referred to as A and B). Definitions provided in-text relate to the components A and B for each Table entry. The clause contains limited provisions on claiming actual profits (audit-based), non-allowance of deductions, written down value computation, exclusions where certain sections apply, definition of "plant" (for Sl. No.5), and conditions for resident companies under Sl. No.6.

Statutory Provision Mode

Text & Scope

The provision covers six specified businesses:

• Operation of ships (other than cruise ships) - non-residents - 7.5% of (A+B).
• Operation of cruise ships (conditions prescribed) - non-residents - 20% of (A+B).
• Operation of aircraft - non-residents - 5% of (A+B).
• Civil construction/erection/testing/commissioning of plant/machinery in connection with a turnkey power project, approved by Central Government - foreign companies - 10% of amount paid or payable.
• Providing services/facilities (including supply of plant and machinery on hire) for prospecting/extraction/production of mineral oils - non-resident person - 10% of (A+B).
• Providing services/technology in India for establishing/operating electronics manufacturing facility or in connection with manufacturing electronic goods to a resident company - non-residents - 25% of (A+B).

Each entry defines A and B as receipts/amounts either paid/payable (in or outside India) or received/deemed to be received in India depending on the activity; inclusive examples such as demurrage, handling charges are specified for shipping.

Interpretation

The clause creates a deeming/presumptive mechanism: the specified percentage of the defined receipts "shall be computed ... and charged to income-tax" under the head "Profits and gains of business or profession." Legislative intent, as indicated by the text, is to provide a simplified, predictable taxation basis for specified cross-border activities often difficult to tax under conventional computation rules. The Bill contemplates that, despite sections 26-54 normally governing computation, this clause will govern computation "to the extent contrary" - i.e., where inconsistent, the presumptive rule prevails.

Exceptions/Provisos

Key exceptions and conditions expressly in the clause:

• Sub-section (3): For Table Sl. Nos. 1-5, the specified assessee may claim that actual profits are lower than presumptive amount if books of account are maintained as per section 62 and accounts are audited with report u/s 63.
• Sub-section (4): No loss, allowance or deduction under the Act shall be allowed against income computed under subsection (2).
• Sub-section (5): Written down value of assets used for the specified business shall be computed as if depreciation had been claimed and allowed each relevant year.
• Sub-section (6): For Sl. No.5, the provisions shall not apply where sections 54, 59, 207 or 527 apply for computing profits or other income referred in those sections.
• Sub-section (7): "Plant" includes an enumerated list (ships, aircrafts, vehicles, drilling units, scientific apparatuses and equipments) used for the specified business in Sl. No.5.
• Sub-section (8): For Sl. No.6, resident company must be operating/establishing an electronics manufacturing facility under a central government notified scheme (MeitY) and satisfy conditions prescribed.

Illustrations

• Example 1 (shipping non-resident): A non-resident ship operator receives sums A (shipments from Indian ports) and B (shipments from foreign ports deemed received in India). Taxable business profits under Clause 61 are 7.5% of (A+B) and no further deductions/losses can be set off against this amount. (No numerical data provided in the document.)

• Example 2 (turnkey power foreign company): A foreign company receives amounts for erection/testing under an approved turnkey power project. Taxable income is 10% of the amounts paid/payable to the company for such services. The company may, if it maintains books and audits (per s.62/63), claim actual profits lower than 10% (subject to subsection (3)).

Interplay

The clause expressly displaces sections 26-54 to the extent inconsistent, thereby altering the usual rules for income computation for the listed activities. It cross-refers to sections 62 and 63 (bookkeeping and audit) as preconditions for claiming actual profits, and to sections 54, 59, 207 and 527 to exclude application in specific circumstances for Sl. No.5. No other rules, notifications or circulars are cited in the Bill text. Any interpretive ambiguities arise in determining the scope of "to the extent contrary" and the precise meaning of "deemed to be received in India" in certain entries (Not stated in the document as to clarifying guidance).

Differences between Section 61 of the Income-tax Act, 2025 and Clause 61 of the Income Tax Bill, 2025 (Old Version)

• Terminology for affected persons in Table, Sl. No. 5: Bill (Old Version) uses "Non-resident person"; Act uses "Non-resident."

  • Practical impact: Minor drafting normalization; no substantive difference in scope unless "person" was intended to include residents (not stated). Likely none of substantive effect.
• Scope reference in subsection (3): Bill refers to "Table: Sl. Nos. 1 to 5"; Act limits subsection (3) to "Table: Sl. Nos. 4 and 5."
  • Practical impact: Act narrows the provision allowing audited actual-profit claim to only items 4 and 5, whereas the Bill permitted such claims for items 1-5. This is substantive: under the Act, non-resident shipping and aircraft operators (Sl. Nos.1-3) lose the explicit ability under s.61(3) to seek audit-based lower profits; they are strictly bound by the prescribed presumptive percentages unless another provision applies. This increases tax certainty for authorities but raises compliance/risk for those taxpayers.
• Definition/wording of "plant" (subsection (7)/(7) in Bill): Bill states "In this section, 'plant' includes ... used for the purposes of the specified business as mentioned in sub-section (2) (Table: Sl. No. 5)." Act states "For the purposes of sub-section (2) (Table: Sl. No. 5) 'plant' includes ..."
  • Practical impact: The Act confines the definition explicitly for s.61(2) Sl. No.5 purposes, aligning the scope; the Bill's broader phrase "In this section" could potentially have been read to apply the list more widely. The Act therefore narrows or clarifies the application of the definition.
• Subsection (6) phraseology and numbering: Both refer to exclusions where sections 54, 59, 207 or 527 apply but Bill and Act differ slightly in wording and numbering references; substance appears same.
  • Practical impact: No material change discernible from the texts provided.
• Subsection (8) proviso on resident company conditions (Sl. No. 6): Bill states "it satisfies the conditions prescribed in this behalf." Act states "it satisfies the conditions as may be prescribed in this behalf."
  • Practical impact: Purely stylistic/drafting; no substantive effect evident.
• Subsection (9) in Act: Adds an express provision that sections 59 and 207 shall not apply to amounts referred to in s.61(2) Table Sl. No.6. This subsection is not present in the Bill (Old Version).
  • Practical impact: The Act provides an express non-application (exemption) of s.59 and s.207 to the electronics-manufacturing-related Sl. No.6 amounts, removing potential liabilities or withholding/other consequences under those sections for those amounts. This clarifies a gap in the Bill and reduces uncertainty for non-residents providing such services/technology.
• Subsection (1) wording: Bill says "shall not apply to the specified business mentioned in column B of the Table in sub-section (2)." Act says "shall not apply to the manner of computation of profits and gains of the specified business in sub-section (2)."
  • Practical impact: Act clarifies the limited non-application is to the manner of computation (i.e., computation rules), reducing any unintended broader exclusion. This narrows the non-application and clarifies legislative intent.

Practical Implications

• Compliance and risk areas: Taxpayers carrying on the listed activities must compute taxable profits using the fixed percentages for the defined receipts. For Sl. Nos.1-5, taxpayers can contest the presumptive amount by maintaining books and obtaining an audit (s.62/63). For Sl. No.6, the requirement that the resident company operates under a notified MeitY scheme and prescribed conditions must be satisfied, else the presumptive rate may not apply. Failure to maintain the requisite books/audit where a taxpayer wishes to claim lower actual profits will foreclose that avenue.
• Record-keeping/evidence: Where a taxpayer intends to claim actual profits lower than the presumptive amount, strict compliance with s.62 (books of account) and s.63 (audit report) prerequisites is mandatory. For other taxpayers, documentation evidencing receipt categories A and B and that amounts are paid/payable or received/deemed received in India is essential to compute the base for the percentage.

Key Takeaways

• Clause 61 prescribes presumptive taxation percentages for six specified non-resident activities, simplifying computation by reference to defined receipts.
• For Sl. Nos.1-5, the Bill allows audit-backed claims to prove actual profits are lower than presumptive amounts, subject to s.62/63 compliance.
• No deductions, losses or allowances under the Act may be set against income computed under the presumptive scheme.
• Specific definitions and carve-outs apply: "plant" is defined for mineral-oil services, and Sl. No.6 requires resident company participation under a notified MeitY scheme.
• Interplay with sections 26-54 is limited: the presumptive method overrides to the extent of inconsistency; precise interaction points may require clarification in practice (Not stated in the document).

Full Text:

Section 61 Special provision for computation of income on presumptive basis in respect of certain business activities of certain non-residents.