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Circulars Central Excise
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Inspection of prosecution work: ensure compliance with prosecution guidelines and address pendency and non-compliance in tax enforcement.
Inspection of prosecution work requires the Director General, Directorate of Performance Management and Chief Commissioners to inspect Commissionerates to verify scrupulous compliance with the Circular's guidelines for launching prosecution. Inspections must examine reasons for pendency and non-compliance in prosecution cases and ensure recording of statistical data during field visits to support oversight of prosecution performance.
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Compounding of offences for evasion under central excise and service tax allows the Principal Chief/Chief Commissioner to compound offences on payment of the compounding amount; Section 9A(2) of the Central Excise Act as applied to service tax via section 83 of the Finance Act authorises this, and circulars require that persons against whom prosecution is initiated or contemplated be informed in writing of the offer to compound.
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Power exists under the Central Excise statutory framework, as applied to service tax by the Finance Act, to publish the name and place of business of persons convicted under the relevant enactments; courts have exercised this power sparingly, and the department is directed to request courts to invoke this publication power in deserving cases for all convicted persons.
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Prosecution proposals for service tax or excise evasion must be examined and forwarded by the adjudicating authority to the sanctioning Principal Chief/Chief Commissioner or Principal/Director General; prosecution requires evidence of mens rea and should not be launched in purely technical or interpretation disputes. Criminal standards (beyond reasonable doubt) must be weighed separately from adjudication findings; prosecution may be initiated before adjudication in serious cases. Investigation reports must be prepared within one month and sanction obtained prior to filing; authorised officers must secure exhibits and coordinate with public prosecutors, with reporting obligations for delays and monthly updates to the sanctioning authority.
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Sanction for prosecution: designated senior authorities must authorize and formalize prosecution before filing criminal complaints.
Sanction for prosecution is required before initiating criminal complaints in service tax and central excise matters. The Principal Chief/Chief Commissioner must sanction routine cases, while the Principal Director General/Director General, CEI must sanction cases investigated by the Directorate General of Central Excise Intelligence. The sanctioning authority issues a written order and forwards it to the Commissionerate for expeditious filing of the complaint.
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Habitual evasion: prosecution permitted where repeated confirmed demands and substantial cumulative tax evasion or credit misuse.
Prosecution may be initiated against a company or assessee classified as a habitual evader where multiple confirmed demands (at first appellate level or above) for Central Excise duty or Service Tax, or findings of Cenvat credit misuse arising from fraud or suppression, occur within a prior period and the cumulative duty or tax evaded or credit misused meets a substantial monetary threshold; the Offence Register (335J) may be used to identify such assessees.
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Prosecution threshold: prosecution requires evasion exceeding the prescribed monetary limit before proceeding for excise or service tax offences.
Prosecution for evasion of Central Excise duty or Service Tax, or misuse of Cenvat credit in relation to offences specified under sub section (1) of Section 9 of the Central Excise Act, 1944 or sub section (1) of Section 89 of the Finance Act, 1994 should normally not be launched unless the evasion meets or exceeds the prescribed monetary threshold set out in the departmental guideline.
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Corporate criminal liability: officers and partners can be prosecuted for company service tax or excise evasion.
Persons in charge of and responsible for a company's business are prosecutable alongside the company for service tax or central excise evasion; where an offence by a company is shown to involve the consent, connivance or neglect of a director, manager, secretary or other officer, that individual is deemed guilty. The statutory definition of company includes firms and associations and treats a partner as a director, extending corporate liability principles to service tax prosecutions.
Circulars Service Tax
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Swachh Bharat Cess applicability: applies to all taxable services except services fully exempt or not leviable to service tax.
Swachh Bharat Cess applies to all taxable services except those that are fully exempt under a statutory notification or are otherwise not leviable to service tax; the cess was imposed by government authority to cover the taxable service base while preserving existing exemptions and non leviability rules.
Circulars Service Tax
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Cenvat credit reversal does not require separate reversal of Swachh Bharat Cess under the applicable rule per FAQ.
The circular states that Swachh Bharat Cess is not integrated into the Cenvat credit chain; the reversal under Rule 6 requires payment based on the value of exempted services, and therefore a separate reversal of Swachh Bharat Cess is not required when reversing credit under Rule 6 of the Cenvat Credit Rules.
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Point of taxation determines Swachh Bharat Cess liability; payment date triggers reverse charge cess on taxable service.
Point of taxation governs SBC liability for reverse-charge services: the date of payment is the point of taxation and SBC is payable on the value of the taxable service at the prescribed rate when consideration is paid to the service provider.
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Swachh Bharat Cess option for services under specified service-tax rule; SBC computed by prescribed formula and fixed for financial year.
Persons liable to pay service tax under the sub rules of rule 6 may elect to discharge Swachh Bharat Cess by applying a prescribed computation to their Service Tax liability; once exercised the election must be applied uniformly to such services and cannot be changed during the financial year.
Circulars Service Tax
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Swachh Bharat Cess on restaurant services is calculated on the value determined under Service Tax valuation rules, creating a combined levy.
Swachh Bharat Cess on restaurant services is payable on the taxable value determined under the Service Tax (Determination of Value) Rules, 2006; for restaurants, eating joints or messes with any air-conditioning or central heating, the cess and service tax are each applied to the portion of the total charge treated as taxable under those rules, and the combined levy is the sum of the service tax rate and the cess rate applied to that taxable portion.
Circulars Service Tax
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Service tax calculation for services under Rule 2A/2B/2C: apply combined service tax and SBC to the rule determined value.
Service tax and Swachh Bharat Cess on services governed by Rule 2A, 2B or 2C are computed by multiplying the combined service tax plus SBC rate by the value determined under the relevant rule. For works contract services, applying the combined rate to the rule specified taxable fraction of the contract value produces the operative tax liability; the same approach applies to restaurant and outdoor catering services.
Circulars Service Tax
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Point of taxation for Swachh Bharat Cess: levy applies where service, invoice and payment occur on or after commencement date.
Because SBC is a new levy on taxable services not in the Negative List or wholly exempt, the Point of Taxation Rules determine liability. SBC does not arise where payment and invoice are issued before the levy's commencement or where payment precedes commencement but invoice is issued within the short prescribed period. SBC is chargeable where service provision, invoice issuance and payment occur on or after the commencement date; it also applies if service is provided on or after commencement but payment was received earlier and invoice is not issued within the short post-commencement period.
Circulars Service Tax
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Cenvat credit of Swachh Bharat Cess disallowed; SBC not in Cenvat credit chain and not payable using credits.
Cenvat credit for the Swachh Bharat Cess (SBC) is not available because SBC is not integrated into the Cenvat credit chain; consequently SBC cannot be claimed as input credit nor paid using credits of any other duty or tax.
Circulars Service Tax
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Swachh Bharat Cess calculation: SBC applies same abatement percentage as service tax, on combined taxable rate.
Swachh Bharat Cess is to be levied on the same abatement percentage that applies to service tax; the notification prescribing abatement for service tax applies equally to SBC, so the combined rate (service tax plus SBC) is applied to the abated value to determine the effective levy.

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Comparison of SCHEDULE-XV "DEDUCTION IN RESPECT OF LIFE INSURANCE PREMIA, CONTRIBUTION TO PROVIDENT FUND, SUBSCRIPTION TO CERTAIN EQUITY SHARES, ETC." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

18 September, 2025

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SCHEDULE-XV DEDUCTION IN RESPECT OF LIFE INSURANCE PREMIA, CONTRIBUTION TO PROVIDENT FUND, SUBSCRIPTION TO CERTAIN EQUITY SHARES, ETC.

Income-tax Act, 2025

At a Glance

The Bill text reproduces Schedule XV (see section 123) providing a catalogue of payments and contributions that qualify for deductions for purposes of section 123 (Income Tax Bill, 2025 - Old Version). It matters to individual taxpayers, Hindu Undivided Families (HUFs), employees, employers, mutual funds, public companies and specified financing institutions. Document does not state an effective date beyond its placement in the Bill.

Background & Scope

Statutory hook: Schedule XV (see section 123) to the Income Tax Bill, 2025 - Old Version. The Schedule enumerates categories of payments which "qualify as deduction" for purposes of section 123 of the Bill. It covers life insurance premia, deferred annuity payments, contributions to provident, pension and superannuation funds, specified government-notified schemes, long-term deposits, certain subscriptions to equity/debentures and mutual fund units, tuition fees for two children, and payments for purchase/construction of residential house property (subject to paragraph 3). The Schedule contains rules limiting deduction for insurance premia (paragraph 2), defines the scope of amounts for house purchase/construction (paragraph 3), sets conditions under which previously allowed deductions are withdrawn and treated as income (paragraphs 4-5), and provides interpretative definitions (paragraph 6).

Statutory Provision Mode

Text & Scope

The Schedule identifies specific categories of payments/deposits made in the tax year that qualify as deductions for section 123. Key categories include:

  • Life insurance premium on life of the individual, spouse and any child; HUF coverage for members (clause 1(a)).
  • Payments under deferred annuity contracts (subject to conditions) (clause 1(b)).
  • Salary deductions by or on behalf of the Government for securing deferred annuity (20% of salary) (clause 1(c)).
  • Contributions to provident funds (including those under Provident Funds Act, 1925, and Central Government notified provident funds) (clauses 1(d)-(f)).
  • Contributions to recognised superannuation funds (clause 1(g)).
  • Subscriptions to notified securities/deposit schemes and to savings certificates (clause 1(h)-(i)).
  • Contributions/participation in specified unit-linked insurance plans and mutual fund/pension fund schemes (clauses 1(j)-(n), (m)).
  • Specified term deposits with banks and post offices, Senior Citizen Savings Scheme deposits, NABARD bonds, and long-term housing finance schemes (clauses 1(s)-(v)).
  • Tuition fees for full-time education of any two children (clause 1(q)).
  • Expenditure for purchase or construction of a residential house property chargeable to tax under "Income from house property" (clause 1(r)), subject to paragraph 3 restrictions.
  • Subscription to equity shares/debentures forming part of eligible capital issues approved by the Board and units of specified mutual funds (clause 1(z)).

Interpretation

Paragraph 2 prescribes quantitative ceilings on insurance premia deductible: (a) up to 20% of actual capital sum assured for policies issued on or before 31-03-2012; (b) up to 10% for policies issued on or after 01-04-2012; and (c) up to 15% where policy issued on/after 01-04-2013 covering a person with disability or certain specified diseases. "Actual capital sum assured" is defined narrowly to exclude return of premiums and bonuses (paragraph 2(2)). Paragraph 6 provides definitions (e.g., "Administrator," "contribution," "insurance," "Life Insurance Corporation," "public company," "security," "specified company," "transfer," "eligible issue of capital," "public financial institution") and cross-references to other statutes.

Exceptions/Provisos

Paragraph 3 delimits eligible payments for house purchase/construction; it expressly includes instalments, repayments of specified borrowings, and transfer costs, and expressly excludes admission fees, cost of shares, initial deposits for membership, post-completion alterations/repairs, and expenditures deductible u/s 22. Paragraphs 4 and 5 establish events that cause withdrawal of earlier deductions (e.g., surrender/termination, premature transfer, sale of subscribed shares within specified holding periods) and set out the tax treatment (deeming adjustments to income) when disallowance conditions are met.

Illustrations

  • Example 1: An individual pays premium for a life policy issued in 2014 on his own life; deductible premium is limited to 10% of the actual capital sum assured unless the policy covers a person with disability (in which case 15% limit may apply). (This follows paragraph 2.)
  • Example 2: An assessee subscribes to an eligible issue of capital approved by the Board under clause (z). If the assessee sells the shares within three years of acquisition, the deduction will be withdrawn and the aggregate of deductions allowed earlier will be deemed income in the year of sale (paragraphs 4 and table item 4).
  • Example 3: An assessee withdraws a Senior Citizen Savings Scheme deposit before five years; the withdrawn amount (excluding previously taxed interest and certain amounts received on death) is deemed income in the year of withdrawal (paragraph 5, table item 1).

Interplay

The Schedule explicitly cross-references multiple statutes and contingent notifications by the Central Government. It depends on notifications for bringing particular schemes/funds/instruments within its scope and interacts with other income-tax provisions by specifying which items are excluded (e.g., section 22 deductions) and by using cross-references (e.g., definition of "transfer" includes transactions referred to in section 269UA(f) of the Income-tax Act, 1961). The document does not state rules or notifications that give further detail; such delegated instruments will determine operational scope.

Differences between the two provisions and practical impact

Comparison basis: SCHEDULE-XV as reproduced from the Income-tax Act, 2025 (Document 1) versus SCHEDULE-XV as reproduced from the Income Tax Bill, 2025 - Old Version (Document 2). The Bill text (Document 2) is the primary source for the detailed commentary below; differences noted here are limited to those apparent in the two texts provided.

  • Cross-references for "security": Document 1 defines "security" by reference to section 2(f) of the Government Securities Act, 2006. Document 2 defines "security" by reference to section 2(2) of the Public Debt Act, 1944.
    • Practical impact: The two statutes have different scopes and drafting histories. A shift in cross-reference can alter which instruments qualify as "security" for the Schedule. Tax practitioners and taxpayers must check the precise statutory definitions in the referenced Acts to determine whether particular government or public debt instruments qualify for deduction-linked provisions; this may change the set of eligible instruments.
  • "Eligible issue of capital" cross-reference: Document 1 ties the term to section 80-IA(4) of the Income-tax Act, 1961. Document 2 ties the term to section 135(9) (numeration as in the Bill text).
    • Practical impact: Different sectional references may point to materially different criteria for what constitutes an eligible issue (for example, the type of business or use of proceeds). Unless the two cross-references are substantively identical (which cannot be assumed), taxpayers subscribing to equity/debenture issues will need to verify which business activities qualify under the Bill's reference. This affects eligibility for the deduction under clause (z).
  • Wording and sequencing differences in some clauses: Several clauses (for example clauses (i), (l), (m), (n)) show minor drafting variations - differences such as "as may be notified by the Central Government" versus "as notified by the Central Government," or rearrangement of sub-clauses listing Administrator/specified company.
    • Practical impact: Most such changes are stylistic and unlikely to change substantive outcomes. However, subtle differences in qualification language (e.g., "as may be notified" v. "as notified") could affect delegated power interpretations if tested. Practitioners should note exact drafting when advising on whether a scheme has been validly brought within the Schedule by notification.
  • Headings and minor editorial changes: The heading for paragraph 4 differs slightly: Document 1-"Disallowance of and taxation of deduction already allowed" versus Document 2-"Withdrawal of deduction and taxation of deduction already allowed" (or "Withdrawal of deduction and taxation..." depending on placement).
    • Practical impact: Primarily editorial. The substance of paragraph 4 (conditions for denial/reversal and taxation on fulfilment of specified conditions) appears consistent across both texts provided.
  • Interpretation clause cross-references: Document 1 references the Government Securities Act, 2006 and section 80-IA(4) of the Income-tax Act; Document 2 references the Public Debt Act, 1944 and section 135(9). Document 2 also cites "section 2(2) of the Public Debt Act, 1944" specifically for "security."
    • Practical impact: As above, these cross-reference changes can affect the scope of defined terms and therefore the reach of deductions. They may create compliance uncertainty until clarified by legislative history, explanatory memorandum, rules or notifications.

Practical Implications

  • Compliance: Taxpayers must track holding periods and conditions set out in paragraph 4 to avoid clawback of deductions (e.g., insurance surrender, early sale of eligible shares, premature withdrawal of term deposits).
  • Documentation: Record of policy issue date, capital sum assured, disability certification (where higher threshold applies), loan/repayment documentation for housing finance, notifications referenced in Schedule, and Board approvals for eligible capital issues will be necessary to substantiate deductions.
  • Interpretive uncertainty: Several entries depend on delegated notifications and cross-statutory definitions (e.g., "security," "eligible issue of capital"). Until clarifying notifications or rules are issued, taxpayers and advisers will need to consult the referenced Acts and any Ministry/Board notifications.

Key Takeaways

  • The Schedule lists specific categories of payments that qualify for deduction u/s 123, with detailed ceilings for insurance premia and conditions for housing payments.
  • Withdrawal/recapture rules are explicit: termination, surrender, sale within specified periods or premature withdrawal may convert previously allowed deductions into taxable income.
  • Definitions and cross-references (notably "security" and "eligible issue of capital") are determinative of scope and may materially affect eligibility; the Bill cites particular external Acts.
  • Many categories rely on Central Government notifications or Board approvals; practical application requires monitoring of such instruments.
  • Taxpayers should maintain contemporaneous evidence: policy documents, notification texts, loan/repayment records, purchase/transfer documents, and proof of holding periods.

Full Text:

SCHEDULE-XV DEDUCTION IN RESPECT OF LIFE INSURANCE PREMIA, CONTRIBUTION TO PROVIDENT FUND, SUBSCRIPTION TO CERTAIN EQUITY SHARES, ETC.

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Acts Income Tax