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Recognition of government grants requires reasonable certainty of compliance and receipt; disclose in income computation accordingly.
Under ICDS VII, government grants are to be recognized when there is reasonable certainty that the related conditions will be complied with and that the grants will be received; such grants should not be postponed beyond the actual receipt date for income computation and disclosure purposes.
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Taxability of foreign currency translation reserve: opening FCTR to be included in income unless previously recognised, requiring professional judgment.
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.
Section 43A does not apply to foreign currency liabilities for purchase of assets in India; such liabilities are governed by ICDS VI. Per ICDS VI para 5(i), exchange differences on monetary items are recognised in the profit and loss account, whereas exchange differences on non monetary items are neither taxable nor 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.
Manuals Income Tax
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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.
Manuals Income Tax
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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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Comparison of section 406 "Payment of advance tax by assessee on his own accord." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

15 September, 2025

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Section 406 Payment of advance tax by assessee on his own accord

Income-tax Act, 2025

At a Glance

The provided document is Clause 406 of the Income Tax Bill, 2025 (Old Version) setting out the assessee's obligation to pay advance tax on his own accord. It matters because it prescribes the manner, timing and flexibility for instalment payments of advance tax by taxpayers; it affects taxpayers who are liable to pay advance tax and tax administration insofar as enforcement and compliance monitoring are concerned. Effective date or enactment date: Not stated in the document.

Background & Scope

Statutory hooks: Clause 406 refers to other provisions within the same enactment-section 404 (liability to pay advance tax), section 405 (calculation of specified sum), and section 408 (due dates of instalments). The clause is part of a Bill titled "Income Tax Bill, 2025 - Old Version." The clause addresses advance payment of tax by an assessee on his own accord. Definitions provided: the clause expressly defines "specified sum" in sub-section (3) as "current income as estimated by the assessee." No further definitions or explanatory notes are included in the clause text itself.

Statutory Provision Mode

Text & Scope

Coverage: Clause 406 imposes a duty on every person liable to pay advance tax u/s 404 to pay advance tax on the "specified sum" (current income as estimated by the assessee) calculated as per section 405. This duty applies "whether or not he has been previously assessed by way of regular assessment." The advance tax is to be paid "at the appropriate percentage" and "on or before the due date of each instalment, as specified in section 408." Sub-section (2) permits the taxpayer who has paid one or more instalments to increase or reduce advance tax payable in remaining instalments to align with revised estimation of the specified sum and the tax thereon. Sub-section (3) defines "specified sum."

Interpretation

Legislative intent indicated by the text: The clause aims to place an affirmative, self-initiated obligation on taxpayers to estimate their current income and make graduated advance tax payments at prescribed percentages by prescribed instalment dates. The provision emphasises taxpayer self-assessment and flexibility to adjust subsequent instalments when estimates change. The language "on his own accord" underscores voluntary initiation by the assessee rather than assessment-triggered demands. No express guidance on sanctions, interest, or penalties for underpayment is provided in this clause-those matters are Not stated in the document.

Exceptions/Provisos

No provisos, carve-outs or exceptions are present in Clause 406 itself. It does not exempt any class of person, nor does it state thresholds, exclusions, or special regimes (for example, for salaried taxpayers, small taxpayers, or presumptive taxpayers). Any such exclusions are Not stated in the document and would need to be located in other parts of the Bill or Rules.

Illustrations

  • Example 1: An assessee estimates current income for the year and pays the first instalment of advance tax as required by section 408 dates. Later in the year the assessee revises the estimate upwards and increases the amount payable in remaining instalments to accord with the increased specified sum. (This follows sub-section (2).)
  • Example 2: An assessee pays an instalment but subsequently estimates lower current income and reduces the amount payable in remaining instalments accordingly. (Permitted by sub-section (2).)
  • Example 3: A person who has never been subject to regular assessment but is liable u/s 404 must nevertheless comply with sub-section (1) and pay advance tax on his estimated current income. (Direct application of the opening phrase of sub-section (1).)

Interplay

The clause expressly refers to sections 404, 405 and 408 for liability, method of calculation and instalment due dates respectively, indicating that full compliance requires reading Clause 406 in conjunction with those sections. The clause itself does not reference Rules, Notifications, or Circulars. Any interplay with interest provisions for default, determination of "appropriate percentage," or administrative procedure is Not stated in the document and therefore must be read from the other specified sections or secondary legislation.

Differences Between the Two Provisions and Practical Impact

  • Minor punctuation and word-order differences in sub-section (2):

    Document 1 reads: "may increase or reduce the amount of advance tax payable in the remaining instalment or instalments to accord with specified sum and the advance tax payable thereon, and make payment of the said tax in the remaining instalment or instalments accordingly." Document 2 reads: "may increase or reduce the amount of advance tax to accord with specified sum and the advance tax payable thereon, and make payment of the said tax in the remaining instalment or instalments, accordingly."

    Practical impact: Substantively identical-both permit reconciliation of future instalments to reflect the assessee's revised estimate of current income. The corrigendum note in Document 1 corrects a typographical duplication ("tax tax").

Practical Implications

  • Compliance and risk areas: Taxpayers who fall within the ambit of section 404 must proactively estimate current income and ensure instalment payments at the "appropriate percentage" by the due dates in section 408. The clause allows later adjustments, but initial non-payment or materially inaccurate estimation may trigger consequences under other provisions (interest/penalties), which are Not stated in the document.
  • Record-keeping/evidence points: Given the self-estimation requirement, taxpayers should maintain contemporaneous records and documentation supporting the estimate of current income (working papers, projections, assumptions). The clause itself does not mandate specific records or forms-those requirements are Not stated in the document.

Key Takeaways

  • Clause 406 mandates that every person liable u/s 404 must pay advance tax on the assessee's own estimate of current income ("specified sum").
  • Advance tax must be calculated per section 405 and remitted at the appropriate percentages by the installment due dates in section 408.
  • The provision expressly permits the taxpayer to increase or reduce remaining instalments to reflect revised estimates of income and tax during the year.
  • "Specified sum" is defined as current income as estimated by the assessee; no further elaboration of "current income" is provided in the clause.
  • The clause emphasises voluntary self-compliance ("on his own accord"); enforcement, consequences for default, and specific procedural requirements are Not stated in the document.
  • Differences between the Bill (Document 2) and the enacted Section (Document 1) are typographical and ordering changes; substantive obligations remain the same. A corrigendum in the enacted text corrects a typographical duplication.

Full Text:

Section 406 Payment of advance tax by assessee on his own accord

Topics

Acts Income Tax