Considerable confusion prevails in the minds of even educated persons and some time even amongst Tax Practitioners as to the law of Wills in India.
Every person who has assets and property and a family should make a Will whether he is young or aged. It is an erroneous impression in the minds of persons that one should make a Will only when he is aged and not in good health.
With the above back ground I would like to deal with the topic of Wills, when and how it should be made and whether it requires witnesses or registration or stamp paper for making a Will and the advantage of making a Will.
In contrast to the complicated and legal wordings required for executing a sale deed or a deed of mortgage or a deed of gift, the drafting of a Will has a very simple formality. The following aspects are required to be kept in mind while dealing with Will and its advantages.

At the outset it may be stated that the law of Wills is substantially governed by Indian Succession Act, 1925 hereinafter referred to as “ISA”. However, many sections do not apply to Hindus, Buddhists, Sikhs, or Jains shortly referred to hereafter as “Hindus etc.” Further, most of the provisions do not apply to Muslims.

The subject will be discussed hereinafter under different heads :-


So far as immovable properties are concerned the making of Wills will be governed by the law of the place where property is situated. However, this proposition is important only if there are properties outside India.
So far as movable properties are concerned it will be governed by the law of testator’s domicile. In brief it may be mentioned that domicile is determined on the basis of a person’s residence and the intention to remain there indefinitely but not on account of service, unless some circumstances should occur to alter his intention.


1. Definition of “Domicile” not exhaustive

The word “domicile” is not capable of a precise and exhaustive definition. Halsbury’s Laws of England defines it as: “A person’s domicile is that country in which he either has or is deemed by law to have his permanent home”. There are two elements constituting domicile: (1) residence, (2) intention to remain there for ever unless some circumstances should occur to alter his intention. Every person will have domicile of origin which will be the country of his father’s domicile at that time, if he is born in lawful wedlock (Section 7) otherwise, the mother’s domicile (Section 8). This domicile of origin continues till a new domicile is acquired by taking up a fixed abode elsewhere with the intention of permanently residing there and no intention to revert to the place of domicile of origin. Merely taking up service or carrying on profession elsewhere for indefinite period will not amount to giving up domicile of origin (S. 10). Generally, minor’s domicile follows domicile of the father or mother as the case may be, unless he is in service of Government or has set up a distinct business with consent of the parent or is married (S. 17). A woman’s domicile follows that of her husband on her marriage until they are separated by order of Court (Sections 15-16).

2. Special Mode of acquiring Domicile.

There is a special mode of acquiring Indian domicile prescribed in S. 11. A declaration in writing to acquire such domicile can be lodged by a person in office prescribed by Government for this purpose provided he is in India for one year prior to such declaration.


Will is a legal declaration by a testator with respect to his property which he desires to be carried into effect after his death. Mere expression of desire is not enough in law but there is must be clear words bequeathing the property after the death of the testator. Therefore during his life time Will is always revocable. It may be noted that when a woman is making the will, the word used is “Testatrix”

It is necessary to emphasize that Will need not comprise the entire property of the testator. It may be limited to a portion of it. Similarly several Wills can be legally executed by the testator for different properties. If there is no will qua a particular property it devolves by intestate succession. To avoid this situation a residuary clause is generally added in the Will, bequeathing all remaining & unmentioned properties to certain legatees.


It is document executed in the same manner as a Will changing or altering or adding to the disposal made earlier in the Will. Just as a Will can be revoked by subsequent Will, a codicil can also be revoked by subsequent Will or Codicil. It may be noted that putting cross lines on the Will or codicil does not amount to cancellation or revocation of the Will/ codicil unless such cancellation follows the procedure required for making the Will and words are used to that effect.


Usually Will is made by a single individual for his own property. However, the following two kinds of Wills may be mentioned:-
(i) Joint Wills:- In this case a single document is executed by two or more persons disposing of their separate or joint properties to same or different legatees. Such a Will operates separately and independently as regards each testator on his death. It is revocable by each of them prior to his death and even by survivor on the death of one of them.
(ii) Mutual Wills:- In this case a Will is made by two testators conferring reciprocal benefits on each other. This is mostly in case of husband and wife. Such Wills are revocable so long as both the testators are alive but if one of them dies and the other takes the advantage under it, then it becomes irrevocable by him/her.
(iii) Oral Wills are not valid in India except in the case of Muslims or soldiers on front etc.


All persons of sound mind not being minors are competent to make a Will. In India, person attains majority at completion of 18 years unless guardian is appointed by Court of his person or property in which case he attains majority on attaining 21 years. Insane person can also make a Will during his lucid interval.
As a Will disposes of the property after testator’s death it can be revoked or altered at any time during his life time.
There is no limitation on the person’s power to deal with his property. He may exclude his near relations and give the property to total strangers in preference to his relatives. Even if the Will is unreasonable excluding his close relations it would be valid and effective if it is established that the person was of sound mind and not under coercion or undue influence while making the Will.


The requirements of making a Will are very simple:-
It must bear Testator’s signature (which includes even a mark or thumb impression) in presence of a two witnesses who have seen the person sign the Will or to put his mark or thumb impression. Two witnesses are essential for attesting the Will but both need not be present at the same time.
Will is not required to be executed on any stamp paper and it is not required to be registered under any law. The language can be very simple and it need not use legal wordings.

It is optional for a person to get the Will registered so that the proof of making of the Will by testator becomes easier in case any dispute or challenge is feared by the testator or is raised after his death. The attesting witnesses or the testator may sign at any place but generally and advisedly it should be put at the end of the document and also each page may be signed or initialed by the testator so as to avoid substitution of the page by someone. The normal phraseology used for Testator and attesting witnesses is as follows:-.

Dated this ____ (date) day of ____________ (month) _______(Year).
Signed in the presence of
(Name of the witness)
(Name of the witness)
It is important to note that attesting witness is not required to know the contents of the Will. He is only testifying that the Will is signed by testator in his presence.


The Will can be revoked in the following ways:-
(i) By another Will or Codicil.
(ii) By any writing declaring an intention to revoke the Will or Codicil and executed in the same manner as a Will.
(iii) By burning, tearing or otherwise destroying the Will by the testator.
As said above, merely cancelling by crossing two lines over it will not amount to valid revocation. It may also be noted that there is no automatic revocation of the Will by the marriage of the testator. Provision in s. 69 providing for cancellation of the Will on marriage does not apply to Hindus etc. but applies to Christians & Parsis.


It is obvious that any property which the testator can dispose of while alive can be disposed off by Will. This is so unless his interest in the property comes to an end on death, for example, in case of life interest. There are cases where power of appointment to dispose of property is given to a person, inter vivos or by Will. In such cases such property though not owned by the testator can be bequeathed by Will.


It may be noted that testator cannot bequeath the property to someone and at the same time restrict its enjoyment or disposal by such a legatee. In that case the bequest will be valid but the condition will be invalid. This aspect requires to be made clear because very often person making a Will will bequeath the property to his wife but provide that after her death she will not be able to dispose of the property by Will, to other persons such as her brother or parents but the same should go to testator’s children or any other person. If such is the intention of testator, he has to confer only life interest to the legatee to use the property during the life time and provide to whom it will go on death of life estate holder. Similarly while bequeathing the property he cannot laid down a the special mode of devolution of property, once he has disposed of the same in favour of the legatee.


As stated above it is optional for the testator to register his Will in which case himself and the two witnesses will have to sign in the presence of the Sub-Registrar under the Indian Registration Act.
This ensures the validity and the genuineness of the signature of the testator and the two witnesses.
Another alternative available to the testator is depositing the Will under provisions of the Registration Act. This deposit ensures a safety of the Will. The Will duly executed as above put in the sealed cover can be submitted to the Sub-Registrar by the testator or by his agent and the same can be withdrawn at any time by the testator or his authorized agent. It may be noted that Will which is registered or deposited can be revoked or cancelled at any time and another Will can executed by the testator without registering the same.


Under Hindu Succession Act as amended in 2005 a male or female may dispose of by his/her share l in the Joint family property by will. Male member can dispose of the share by Will so also a daughter who becomes a coparcener like a son may dispose of the same by Will. Wife/mother who got the share in the joint family property at the time of deemed partition on account of death of the husband, or on actual partition between father and son or between sons can also dispose of her share in the property by Will.


Without going into the details of the procedure for obtaining probate to be issued by the Court, It may be stated that procedure for getting a probate is provided in Indian Succession Act. When authorities such as Banks, Companies, Revenue Authorities etc. do not accept the Will unless the same is probated Probate has to be taken Probate is nothing but certified copy of the Will under seal of the Court after issuing notice to heirs.


Quite often tax planning is resorted to by a testator through the medium of a Will. Also social aspects may require the testator not to give away property to one or more legatees specifically but to create the trust of the properties or part of the properties, mentioning the beneficiaries but providing indeterminate shares to the beneficiaries and leaving the distribution of income or corpus to the trustees of the trust considering the need or requirement of various persons mentioned in the trust deed as beneficiaries. The obvious advantage in adopting this method is to see that the income or corpus of the property settled on trust is distributed to all or some of the beneficiaries as per the requirement of those beneficiaries such as education, marriage, settlement in life etc. The tax advantage will result if the trust created by Will does not give the income or corpus separately to one or more beneficiaries but provides indeterminate shares in the income or property at the discretion of the trustees. In case of such a trust created by Will it will be a separate taxable entity liable to tax at the appropriate rate and not at the highest tax rate which would be the position if such trust with indeterminate shares was created during his life time. However, only one such trust with indeterminate shares can be created for getting the benefit of being taxed at appropriate rate. The advantage would be that the income distributed by trustees will not be taxable in the hands of the beneficiaries who receive the same but will be taxed in the hands of the trustees at the appropriate rate and not at the maximum rate. If a trust is created with specific shares to the beneficiaries income or corpus which a beneficiary is entitled to have, the income or wealth will be added to his/her income or wealth. This situation will be avoided by creating a trust by will with indeterminate shares.


Very often the testator desires to bequeath his property to his grand children who are not in existence at the time of making of the Will or even at the time of his death. Such a bequest to an unborn person is governed by Section 112 & 113 of the Indian Succession Act. Under the said Sections a direct bequest in favour of persons not in existence at the time of testator’s death is declared void. By way of exception to the above position the section provides for situation where there is a prior bequest in favour of an existing person which is to precede the bequest to the unborn person who stands in particular degree of relationship to a specified individual and vesting of the bequest is otherwise deferred to such a unborn person until a time later than the death of the testator. In such situation under the above exception if a person answering the description is alive either at the death of the testator or comes in to existence between that event and such later time then the bequest shall go to such person, though he may not have been in existence at the time of testator’s death and if such person is dead than the bequest shall go to his legal representatives. Further under s. 113, bequest to the unborn person has to comprise the whole of remaining interest of the testator in the property bequeathed. In both the situations the bequest cannot remain in abeyance at any point of time. It is not possible to discuss in detail the above subject.
The rule against perpetuity is governed by section 114 of the Indian Succession Act. For the sake of clarity section 112 & 113 as well as 114 are reproduced below to avoid any confusion.

“112. Bequest to person by particular description, who is not in existence at testator’ s death.- Where a bequest is made to a person by a particular description, and there is no person in existence at the testator’s death who answers the description, the bequest is void.

Exception.– If property is bequeathed to a person described as standing in a particular degree of kindred to a specified individual, but his possession of it is deferred until a time later than the death of the testator, by reason of a prior bequest or otherwise; and if a person answering the description is alive at the death of the testator, or comes into existence between that event and such later time, the property shall, at such later time, go to that person, or, if he is dead, to his representatives.
113. Bequest to person not in existence at testator’s death subject to prior bequest.- Where a bequest is made to a person not in existence at the time of the testator’ s death, subject to a prior bequest contained in the will, the later bequest shall be void, unless it comprises the whole of the remaining interest of the testator in the thing bequeathed.
114. Rule against perpetuity.- No bequest is valid whereby the vesting of the thing bequeathed may be delayed beyond the life- time of one or more persons living at the testator’ s death and the minority of some person who shall be in existence at the expiration of that period, and to whom, if he attains full age, the thing bequeathed is to belong”.

It may be noted that under s. 117 of Indian Succession Act provision to accumulate income wholly or in part for a period longer than 18 years from the death of the testator shall be void to that extent. There are certain exceptions which are as under:

“117. Effect of direction for accumulation –
(1) Where the terms of a will direct that the income arising from any property shall be accumulated either wholly or in part during any period longer than a period of eighteen years from the death of the testator, such direction shall, save as hereinafter provided be void to the extent to which the period during which the accumulation is directed exceeds the aforesaid period, and at the end of such period of eighteen years the property and the income thereof shall be disposed of as if the period during which the accumulation has been directed to be made had elapsed.
(2) This section shall not affect any direction for accumulation for the purpose of–
(i) the payment of the debts of the testator or any other person taking any interest under the will, or
(ii) the provision of portions for children or remoter issue of the testator or of any other person taking any interest under the will, or
(iii) the preservation or maintenance of any property bequeathed; and such direction may be made accordingly ”.

It may be noted that under s. 141 of Indian Succession Act the bequest to an executor mentioned in the Will to carry out the provisions of the Will is invalid unless he proves the will or otherwise manifests an intention to act as executor.

Bequest is invalid under s. 67 Indian Succession Act, but the section does not apply to Hindus etc. Hence it would be valid for Hindus etc.

(1) It is also suggested that if the testator does not desire to register the Will he and the witnesses can execute the same before a notary. It will be sufficient proof that the Will has been executed by the testator and attested by two witnesses. It may be noted that at present the notary requires passport size photograph to be affixed to the document at the end.
(2) Property which is subject to encumbrance cannot be bequeathed without liability. The liability has to be discharged either by the testator’s estate or by the legatee as provided by the Will.
(3) Even if the property such as shares or house in a society contains nomination in favour of wife or son, it can be bequeathed to anyone because the nominee is not entitled to be the owner on the death of the testator, but he holds the same on behalf of the legal heirs mentioned in the Will or on intestacy. The situation will be different if there are joint holders (such as wife or son) on the record. Then, the second holder becomes the owner of the property.
(4) Section 118 of Indian Succession Act puts restriction on bequest to charity in case of person having a nephew or niece or any nearer relatives, except as provided by following the requirements mentioned in Section 118. The section However, this section has been struck-down by Supreme Court as unconstitutional in the decision in AIR 2003 SC 2902.
(5) If a person who has made the Will ceases to be a Hindu etc. and becomes a Christian he will not be governed by Hindu Law but will be totally governed by all provisions of Indian Succession Act.
In brief the following are the benefits/ advantages in making a Will:
(i) Procedure is very simple.
(ii) Different Wills can be executed for different properties.
(iii) Can be easily revoked, by following the same procedure.
(iv) One discretionary trust can be created by Will for tax benefit as stated above.
(v) Capital gain on transfer of capital assets is avoided by giving the property by Will as against transferring the same during the testator’s life time.
(vi) It enables the testator to give the property to anyone he desires as against mandatory provisions of Section 8 (in case of male) or Section 15 (in case of female) under Hindu Succession Act under which property will go to the heirs mentioned in the above sections.
It is therefore very desirable for a person having property to make a Will so that the property after his death can go to the persons he desires.

1. Option to legatee in the case of onerous bequest
Sometimes the testator not only bequeaths property to a legatee, but either the property itself is coupled with some obligations or liabilities, e.g discharge of a mortgage or charge or payment of business debts (if business is bequeathed) or some other liabilities or obligations are imposed on the legatee while bequeathing the property, e.g paying the testator’s debts or giving annuity to some person or to maintain some person. In such a case, the bequest is called an onerous bequest and the legatee has to take both the legacy and the obligation or neither. He cannot accept only the beneficial bequest and reject or disown the obligation (section 122).
2. When bequests are distinct and independent
But if the two bequests are distinct and independent a legatee is entitled to accept one bequest and disclaim the other (section 123). For example if shares are bequeathed on some of which calls are outstanding, then the legatee may accept the bequest with regard to shares where calls are not outstanding and disown the other bequest. Similarly, if the bequeathed property is itself subject to encumbrance like pledge, mortgage, etc the legatee is liable to discharge the said encumbrance.

1. On conversion to Islam, convert to be governed by Mahomedan law.
On conversion to Islam by any person of any other religion the convert will be governed by the Mahomedan law as to the making of Wills and the restrictions discussed hereafter including the power of disposal and the persons to whom bequest can be given up to one-third only will apply. However, on account of custom and usage, khojas and Sunni Bohras of Gujarat can make testamentary dispositions of their whole property not limited to one-third only unless they make a statutory declaration under Section 3 of the Shariat Act, 1937 restricting their powers to one-third only.
1. Other Converts
In the same manner, converts as well as reconverts to Hinduism would be governed by Hindu law and the provisions of the Indian Succession Act will apply to them to the same extent as to other Hindus. So also the Hindus converted to Christianity would be wholly governed by the Indian Succession Act as Christians.

1. Necessary Contents
Let us recapitulate what the Will must contain : (1) a writing, (2) signed by testator who is major and of sound mind, (3) and attestation by two witnesses (4) disposition of his property to take effect after death.
2. Desirable Contents
But let us see what the Will may usefully contain, and therefore, desirable, through not obligatory:-
(1) Appointment of two or more executors jointly or in alternative. Advisedly there should be odd number of executers.
(2) Full name and addresses of the attesting witnesses below their signatures.
(3) Interpretation of the Will to the testator by an independent person, if testator does not know or is not familiar with the language in which it is written though he might have signed it in that language.
(4) List of specific bequests to various legatees, also stating to whom it should go if legatee is dead when testator dies.
(5) A residuary bequest of all left out properties including properties covered by void bequests.
(6) Bequest of coparcenary interest in joint family property.
(7) List of properties at the time of making of the Will.
(8) If trusts are created by Will, clear mention of names of trustees, beneficiaries created by Will, clear mention of names of trustees, beneficiaries and properties comprised therein.
(9) If life interests are intended, it should be clearly so stated.
(10) Similarly, if absolute interest is to be created, it should be so stated.
3. In whose favour bequests can be made
It may be noted that bequests can be made in favour of (1) H.U.Fs, (2) Private Trusts or Public Charitable Trusts (3) Ltd. Companies, (4) A.O.Ps (5) Firms and (6) Deity – Idol.

1. Discretionary trust by Will is the most commonly utilized mode of tax planning by reason of the second exception to Section 164 of the Income Tax Act. Section 164 and the corresponding provision of the Wealth Tax Act contained in Section 21 provide that where income or wealth is receivable under a trust declared by Will the maximum marginal rate is not applicable and only the appropriate rate will be attracted on the income or wealth on such a discretionary trust. Thus, it is most advantageous to create a discretionary trust both as regards income and wealth left by a testator to a group of legatees. The requirement of the law is, therefore, satisfied when a trust is declared by a Will and the income or wealth is receivable under such a trust and such income or wealth is not specifically receivable on behalf of any one person or individual shares therein are indeterminate or unknown. If these requirements are satisfied, then discretionary trusts created by Will will be taxable as a separate unit of assessment under Section 164 qua income and Section 21(4) qua wealth and neither the income nor wealth will be includible in the assessment of the beneficiaries. But see CIT v/s. Kamalini Khatau, 209 ITR 101 (SC) when it is held that if any beneficiary of a discretionary trust has received any income from the trust, it is open to the Income Tax Dept. to tax the beneficiary on the income received under s. 166 which permits such direct assessment. This mode of planning has certain obvious advantages: (1) the income or wealth is not includible in the assessment of any beneficiaries under such trust and (2) the trust will be taxed as an independent unit at an appropriate rate. Thus, the assessments of the beneficiaries are not disturbed unless income is received by any beneficiary in which event Dept. has option to directly tax the beneficiary on that income, coupled with his other income. (See CWT v/s. Arvind Narottam, 102 ITR 232 (Guj). (4) The trustees would have discretion of distributing income and wealth amongst the beneficiaries in such proportion as they think necessary from time to time, thus enabling them to distribute the estate according to the needs of the beneficiaries. Even they can be empowered not to distribute but to accumulate income or distribute to some & not to other, further if long period is mentioned of the trust provision can be made to accelerate distribution period or extend it. Further future beneficiaries can also be provided for adding such as future spouse or children of existing beneficiaries.

Another question which has often arisen in the context of such a discretionary trust is whether such a trust can subsequently receive gifts or donations after they come into force on the death of the testator and if so, how the income from such subsequently gifted amounts is to be treated. The point is debatable. Every gift in fact, creates a new trust for the same purposes and, therefore, the income from such gifted amounts and the gifted amounts themselves cannot be said to be part of the trust declared by Will and they may not be entitled to the benefit of the appropriate rate of tax but may be liable to be taxed at a maximum marginal rate. It is also possible to contend that it amounts to a gift to an existing trust and a new trust does not come into being with every donation subsequently made. There is no decision of any Court on this point.

One more benefit available to discretionary trusts is that they are treated as “individuals” for purposes of section 80L and are entitled to benefit of deduction under section 80L as held by the Gujarat High Court in the case of Deepak Family Trust No. 1 v. CIT (1995) 211 ITR 575(Guj) and Harjivandas Juthabhai Zaveri v. Dy. CIT (2002) 258 ITR 785(Guj). Thus the taxable income will be further reduced by deductions available under section 80I.

The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. The existence of mistakes and omissions herein is not ruled out. This article may be referred and made use only for personal and non commercial purpose. For Expert guidance/2nd opinion it is always advisable to refer to an Advocate.



No change in tax rates and basic exemption limit

Tax rates continue to be same for A.Y. 2019-20 as applicable for A.Y. 2018-19. Further, there is no change in the basic exemption limit.
Health and Education Cess
“Education Cess on income-tax” @2% and “Secondary and Higher Education Cess on income-tax” @1% is levied.

Proposed amendment: A new cess named “Health and Education Cess is proposed to be levied @ 4% of income-tax including surcharge, if applicable, in place of existing cess of “Education Cess and “Secondary and Higher Education Cess on income-tax”.


Relief to Salaried employees
At present an employee is entitled for exemption of Rs. 19,200 (Rs. 38,400 for physically handicapped or blind or deaf and dump employees) towards transport allowance and exemption of Rs. 15,000 in respect of reimbursement of medical expenses. No Standard deduction is allowed.

Proposed amendment: A standard deduction of maximum of Rs. 40,000 is proposed to be allowed to salaried employees in lieu of present exemption in respect of transport allowance and reimbursement of medical expenses. The net benefit is only Rs. 5,800 which would be further reduced due to increase in cess by 1%. However, benefit of enhanced transport allowance to differently able persons shall be allowed.

Deduction in respect of interest income to senior citizen
A deduction upto Rs 10,000 is allowed under section 80TTA to an assessee in respect of interest income from savings account.

Proposed amendment: A new section 80TTB proposed to be inserted to enhance such deduction to Rs. 50,000 from the existing limit of Rs. 10,000 for senior citizens. Moreover, the benefit of such deduction is proposed to extended to interest on fixed deposits and recurring deposits.

Deductions available to senior citizens in respect of health insurance premium and medical treatment

Section 80D, inter-alia, provides that a deduction upto Rs 30,000 to an assessee, being an individual or a Hindu undivided family, in respect of payments towards annual premium on health insurance policy, or preventive health check-up, of a senior citizen, or medical expenditure in respect of very senior citizen.

Proposed amendment: Section 80D proposed to be amended to increase such limit of deduction from Rs. 30,000 to Rs. 50,000 for resident senior citizens, who is of the age of 60 years or more during the previous year.

Senior citizens not covered by insurance can claim reimbursement of medical expenditure upto Rs. 50,000. Earlier this benefit was available only for very senior citizens.

Further, in case of single premium health insurance policies to effect or to keep in force an insurance on the health for more than a year, it is proposed that the deduction shall be allowed on proportionate basis for the number of years for which health insurance cover is provided, subject to the specified monetary limit.

Enhanced deduction to senior citizens for medical treatment of specified diseases

Section 80DDB, inter-alia, provide that a deduction shall be available to an individual and Hindu undivided family in respect of an amount paid for medical treatment of specified diseases upto Rs 80,000 in case of very senior citizen and upto Rs 60,000 in case of senior citizens.

Proposed amendment: It is proposed to increase such deduction upto Rs. 1,00,000 for both senior citizens and very senior citizens in place of existing deduction upto Rs 80,000 and Rs. 60,000 in respect of very senior citizen and senior citizens, respectively.

Extending the benefit of exemption of withdrawal from NPS to non-employee subscribers

The existing provisions of the clause (12A) of section 10 of the Act provides an exemption of 40% of the total amount payable to an employee contributing to the NPS on closure of his account or on his opting out. This exemption is 17 not available to non-employee subscribers.

Proposed amendment: It is proposed to amend this section to extend the benefit of such exemption to all assessees. However, benefit of exemption under clause (12B) for partial withdrawal continues to be restricted to employees alone.


Taxability of Long-term Capital Gains on sale of listed equity shares etc.
Long term capital gains(LTCG) arising from transfer of long term capital assets, being equity shares of a company or an unit of equity oriented fund or an unit of business trusts, is exempt by virtue of section 10(38), provided sale and acquisition transactions carried out on a recognized stock exchange and are liable to securities transaction tax (STT).

Proposed Amendment: In order to minimize economic distortions and curb erosion of tax base, section 10(38) proposed to be withdrawn. For taxing LTCG in excess of Rs. 1 lakh @10%, a new section 112A proposed to be inserted with effect from A.Y. 2018-19.

All LTCG up to 31st January, 2018 will be grandfathered by way of providing that the cost of acquisitions in respect of the long term capital asset acquired by the assessee before the 1st day of February, 2018 , shall be deemed to be the higher of –

a) the actual cost of acquisition of such asset; and

b) the lower of –

(i) the fair market value of such asset on 31.1.2018 ; and
(ii) the full value of consideration received or accruing as a result of the transfer of the capital asset.

Such capital gains would neither be eligible for benefit of Chapter VI-A deductions nor rebate u/s 87A.

Short-term Capital Gains under section 111A
Short-term capital gains taxable under section 111A would continue to be taxable @15%.

Conversion of stock-in-trade into Capital Asset
Section 45 of the Act, inter alia, provides that capital gains arising from a conversion of capital asset into stock-in-trade shall be chargeable to tax. However, in cases where the stock in trade is converted into, or treated as, capital asset, the existing law does not provide for its taxability.

Proposed Amendment: Section 28 proposed to be amended to tax the profit or gains arising from conversion of inventory into capital asset or its treatment as capital asset as business income. The full value of the consideration received or accruing as a result of such conversion would be fair market value of the inventory on the date of conversion determined in the prescribed manner.
Further, for determining capital gain on transfer of such capital asset, the fair market value on the date of conversion shall be the cost of acquisition. The period of holding would be reckoned from the date of conversion or treatment.

It may be noted that business income would be taxable in the year of conversion and there is no provision for postponement of taxability of income to the year in which the transfer took place.

Transfer of immovable property

At present, while taxing income from capital gains (section 50C), business profits (section 43CA) and other sources (section 56) arising out of transactions in immovable property, the sale consideration or stamp duty value, whichever is higher is adopted. The difference is taxed as income both in the hands of the purchaser and the seller.

Proposed Amendment: Section 50C, 43CA & 56 proposed to be amended to provide that no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration is not more than 5% of the sale consideration.

Deduction under section 54EC

Deduction under section 54EC is available in respect of capital gain, arising from the transfer of a long-term capital asset, invested in the long-term specified asset at any time within a period of six months after the date of such transfer. Long-term specified asset means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the National Highways Authority of India (NHAI) or by the Rural Electrification Corporation Limited (RECL); or any other bond notified by the Central Government.

Proposed Amendment: Section 54EC proposed to restrict the exemption in respect of capital gain arising from the transfer of a long-term capital asset, being land or building or both only and not other capital assets. Further, the period for redemption of long-term specified asset, being a bond increased from three years to five years.


The central government has notified ten ICDSs effective from A.Y. 2017-18.These are applicable to all assesses (other than an individual or a Hindu undivided family who are not subject to tax audit under section 44AB of the said Act) for the purposes of computation of income chargeable to income-tax under the head “Profits and gains of business or profession” or “Income from other sources”.
Proposed Amendment: The Delhi High Court in case of Chamber of Tax Consultants & Anr Vs. Union Of India & Ors has held that certain provisions of ICDSs are ultra vires the Income-tax Act, 1961. In order to bring certainty, the following amendments are proposed to be effected with retrospective effect from A.Y. 2017-18, in the Income-tax Act in line with the ICDSs:


Incentives to micro and SMEs

Domestic companies whose turnover was less than Rs. 50 crore in financial year 2015-16 was liable to pay corporate tax @25% in FY 2017-18.

Proposed amendment: The benefit of concessional rate of corporate tax@25% is proposed to be extended to domestic companies whose total turnover or gross receipt in the previous year 2016-17 does not exceed Rs. 250 crores.
Charitable Trusts: To go digital for claiming exemption

Last year, the post demonetisation Union Budget witnessed changes in tax laws denying benefit of deductions from business income in respect of expenditure for which cash payment exceeds Rs.10,000 . However, such changes were not incorporated in the special taxation regime applicable to charitable trusts. Hence, charitable trusts were availing benefits even in respect of application of income by way of cash payments.

Proposed amendment: This year, the restrictive provisions are proposed to be made applicable to charitable trusts governed by the special taxation regime under section 10(23C) and 11 and 12. Furthermore, non-deduction of tax at source would now attract disallowance in the hands of the charitable trust also. This is a positive measure for bringing charitable trusts into the digital net.
Deduction in respect of employment of new employees

A deduction of 30% is allowed in addition to normal deduction of 100% in respect of emoluments paid to eligible new employees who have been employed for a minimum period of 240 days during the year under section 80JJAA.
However, the minimum period of employment is relaxed to 150 days in the case of apparel industry.

Proposed amendment: Section 80JJAA proposed to be amended to extend this relaxation to footwear and leather industry. Further, the deduction of 30% would also be available for a new employee who is employed for less than the minimum period during the first year but continues to remain employed for the minimum period in subsequent year. Such deduction would be available from the subsequent year.

Deduction in respect of income of Farm Producer Companies

Section 80P provides for 100 percent deduction in respect of profit of cooperative society which provide assistance to its members engaged in primary agricultural activities.

Proposed amendment: This benefit proposed to be extended to Farm Producer Companies (FPC), having a total turnover upto Rs 100 crore, whose gross total income includes any income from-

• the marketing of agricultural produce grown by its members, or
• the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or

• the processing of the agricultural produce of its members.
The benefit shall be available for a period of five years from the financial year 2018-19.

Dividend Distribution tax on deemed dividend

Dividend distributed by a domestic company is subject to dividend distribution tax payable by such company. However, deemed dividend under section of 2(22)(e) is taxed in the hands of the recipient and no dividend distribution tax is currently being levied.

Proposed amendment: It is proposed to tax deemed dividend referred under section 2(22)(e) in the hands of company. Dividend distribution tax @30% without grossing up is proposed to be levied on the company.

Expanding scope of accumulated profits for deeming dividend
Accumulated profits for deeming dividend has been provided in section 2(22) as all profits of the company upto the date of distribution or payment or liquidation, subject to certain conditions.

Proposed amendment: The scope of accumulated profits for deeming dividend would include, in a case of amalgamated company, the accumulated profits of the amalgamating company also, whether capitalised or not, on the date of amalgamation.


Mandatory filing of return to claim deduction under the heading C in Chapter VIA
Section 80AC provides that no deduction would be admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, unless the return of income by the assessee is furnished on or before the due date specified under sub-section (1) of section 139 of the Act.

Proposed amendment: It is proposed to extend the scope of section 80AC to provide that the benefit of deduction under the heading “C.—Deductions in respect of certain incomes” in Chapter VIA shall not be allowed unless the return of income is filed by the due date. It will now include its scope section 80P, 80PA, 80QQB and 80RRB.

Entities to apply for Permanent Account Number in certain cases
Section 139A, inter-alia, provides that every person specified therein and who has not been allotted a permanent account number shall apply to the Assessing Officer for allotment of a Permanent Account Number (PAN).

Proposed amendment: Section 139A proposed to be amended to provide that non-individual entities, which enters into a financial transaction of an amount aggregating to Rs. 2,50,000 or more in a financial year shall be required to apply to the Assessing Officer for allotment of PAN. Further, the managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer or any person competent to act on behalf of such entities would also apply to the Assessing Officer for allotment of PAN.

Prosecution for failure to furnish return

Section 276CC provides that if a person willfully fails to furnish in due time the return of income which he is required to furnish, he shall be punishable with imprisonment for a term, as specified therein, with fine. However, a person shall not be proceeded against under the said section for failure to furnish return if the tax payable by him on the total income determined on regular assessment as reduced by the advance tax, if any, paid and any tax deducted at source, does not exceed Rs. 3,000.

Proposed amendment: It is proposed to exclude company from such exemption of prosecution. Therefore, companies would be liable for prosecution for failure to furnish return even if there is no tax liability.

Rationalisation of prima-facie adjustments during processing of return of income
Section 143(1) provides for processing of return of income made under section 139, or in response to a notice under section 142(1). At the time of processing of return, the total income or loss shall be computed after making the adjustment, inter alia, in respect of addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return.

Proposed amendment: It is proposed to restrict the scope of adjustments in processing of return by providing that aforesaid adjustment shall not be made in respect of any return furnished on or after the assessment year commencing on the first day of April, 2018.

E-Assessments: A tax-payer friendly measure

The budget proposal to notify an electronic mode for assessment across the country will significantly reduce harassment of tax payers by the tax authorities and usher in greater efficiency and transparency in the assessment procedure.

Mistake in calculation of Interest U/s. 234C for newly formed Firms and Companies

Interest U/s. 234C for newly formed Firms and Companies for the period when they were not in existence

As per the provisions of section 207 and section 211, the assessee is liable to pay the advance tax on the `Current Income’ of the assessee. This presupposes the existence of the assessee. In view of this, interest under section 234C cannot be charged for the instalments of advance tax due before the date of coming into existence of a Firm or a Company. In spite of this, the Departmental Software processing the ITR does not take care of such a situation and interest under section 234C is being charged in a routine manner.

It is suggested that the Departmental Software needs to be suitably amended so that firm and companies are not required to pay interest on the short payment of instalment of advance tax under section 234C for the period when they were not in existence.

Tax liability of Gift to mother

Question :

I want to gift Rs 4 lakh to my mother. Please advise on the following points:

i) What will be tax liability of my mother?

ii) What will be my tax liability on this amount? Is above amount deductible from my income for the AY 2018-19 and whether I have to pay income tax on the balance income i.e. (total income — Rs 4 lakh = taxable income)?
Please clarify and also mention the head or section under which these exemptions are permissible.

Answer :

i) There will be no tax liability in respect of the amount gifted to your mother.

ii) There will be no tax liability in the hands of the donor as well. The amount so gifted is not deductible from the total income of the assessee. The exemption from tax in respect of the gift made to the mother is provided under Section 56(1)(vii) of the Income-tax Act, 1961.

New requirement of filing Form No 61A for statement of financial transactions wef 1st April 2016

To keep a watch on high value transactions undertaken by the taxpayer, the Income-tax Law has framed the new concept of furnishing of “Statement of financial Transactions” in Form No 61A (previously called as ‘Annual Information Return (AIR)’. With the help of the statement the tax authorities will collect information on certain prescribed high value transactions undertaken by a person during the year.

Basic Provisions:
Statement of ‘high value financial transactions‘ is required to be furnished under section 285BA of the Income-tax Act, 1961 by ‘specified persons‘ in respect of ‘specified transactions‘ registered or recorded by them during the financial year.

The ‘specified persons’ and the ‘specified transactions’ are listed in new Rule 114E of the Income-tax Rules, 1962.
New Rule 114E of the income tax rules requires all assessees liable for tax audit u/s 44AB will have to file statement of financial transactions in Form 61A, in case of receipt of cash payment exceeding of Rs. 2,00,000/- for sale of goods/services of any nature.

Who is required to file Statement of financial Transactions?
As per new rule following persons shall be required to furnish statement of financial transactions or reportable accounts registered or recorded or maintained by them during a financial year to the prescribed authority on or after 1st day of April, 2016.

• Any person who is liable for audit under section 44AB of the Act
• Banking Company
• Co-operative Bank
• Post Master General of Post office
• Nidhi referred to in sec 406 of the Companies Act 2013
• Non-banking Financial Company (NBFC)
• Any Institution issuing Credit Card
• Company or Institution issuing bonds or debentures
• Company issuing shares
• Trustee of a Mutual Fund
• Authorized Dealer, Money Changer, Off-shore Banking Unit or any other person defined in FEMA, 1999
• Inspector-General or Sub-Registrar appointed under Registration Act, 1908

Nature and values of transactions covered under filing statement of financial Transactions:
The statement of financial Transactions shall be furnished by every person mentioned in column (3) of the below Table in respect of all transactions of the nature and value specified in the corresponding entry in column (2) of the said Table which are registered or recorded by him on or after 1-04-2016

Sl No Nature and value of Transactions
1 Payment of cash aggregating Rs. 10,00,000 or more in a year for purchase of DD, Pay Orders, Bankers Cheque.

Class of Person : • A Banking Company, • Co-operative Bank

2 Payment made in cash aggregating to Rs. 10,00,000 or more in a year for purchase of pre-paid instruments issued by RBI

Class of Person • A Banking Company, • Co-operative Bank

3 A cash deposit aggregating to Rs. 10,00,000 or more in a year in one or more bank accounts (other than current account or time deposit)

Class of Person : A Banking Company, • Co-operative Bank, • Post Master General of Post office

4 A Cash deposit aggregating to Rs. 50,00,000 or more in a year in one or more current account of a person

Class of Person : A Banking Company, • Co-operative Bank

5 A Cash withdrawal aggregating to Rs. 50,00,000 or more in a year from one or more current account of a person

Class of Person : A Banking Company, • Co-operative Bank

6 One or more time deposit (other than renewal) aggregating to Rs. 10,00,000 or more of a person

Class of Person : A Banking Company, • Co-operative Bank, • Post Master General of Post office, • Nidhi referred to in sec 406 of the Companies Act 2013

7 Credit card payment made by any person aggregating to Rs. 1,00,000 or more in a year in cash or Rs. 10,00,000 or more by any other mode

Class of Person : A Banking Company, • Co-operative Bank, • Any Institution issuing Credit Card

8 • Company or Institution issuing bonds or debentures

9 Receipt from any person of an amount aggregating to Rs. 10,00,000 or more in a year for acquiring shares issued by the company (including share application money)

Class of Person : Company issuing shares

10 Buy back of shares from any person (other than the shares bought in the open market) for an amount or value aggregating to Rs. 10,00,000 or more in a year.

Class of Person : A company listed on a recognised stock exchange

11 Receipt of an amount aggregating Rs. 10,00,000 or more for acquiring units of one or more schemes of a Mutual Fund. (other than switching of funds from one scheme to another)

Class of Person
Trustee of a Mutual Fund

12 Receipt from any person for sale of foreign currency or expense in such currency through a debit or credit card or through issue of travellers cheque or draft or any other instrument of an amount aggregating to Rs. 10,00,000 or more in a year

Class of Person : Authorized Dealer, Money Changer, Off-shore Banking Unit or any other person defined in FEMA, 1999

13 Purchase or sale by any person of immovable property for an amount of Rs. 30,00,000 or more or valued by the stamp valuation authority referred to in section 50C of the Act at Rs. 30,00,000 or more.

Class of Person : Inspector-General or Sub-Registrar appointed under Registration Act, 1908

14 Receipt of cash payment exceeding Rs. 2,00,000 for sale of goods or providing services of any nature other than those specified above

Class of Person : Any person who is liable for audit under section 44AB of the Act


Under a typical joint development agreement, land owner contributes his land and enters into an arrangement with the developer to develop and construct a real estate project at the developer’s cost.

Joint Development Agreements (JDA) are prevalent in India as they are beneficial both for the owner and the developer. The owner gets a better built house and the developer gets his remuneration either in the form of a part of the building or money. Under a typical joint development agreement, land owner contributes his land and enters into an arrangement with the developer to develop and construct a real estate project at the developer’s cost.

The deal
Thus, land is contributed by the land owner and the cost of development and construction is incurred by the developer. The land owner may get consideration in the form of either lump sum consideration or percentage of sales revenue or certain percentage of constructed area in the project, depending upon the terms and conditions agreed upon between them. In this manner, the resources and efforts of land owner and developer are pooled together so as to bring out the maximum productive result. However, as is the case with any business deal, there are various ifs and buts attached to a JDA as well. Real estate development is subject to approvals from various government authorities, owing to which the consideration under a JDA is also dependent of these approvals. With things still not in the clear, the owner is expected to assess the tax liability and pay it. Is that fair, when the owner is not even sure, whether the deal will go through or fall apart?

Transfer of capital assets

Necessarily, there is a transfer of capital asset under the JDA and there should be a capital gain tax on the same, but various tax questions creep into the mind of the owner as to when to pay the tax? Would mere signing of a JDA lead to taxability in the hands of the owner? Is registration of the JDA is necessary for triggering the taxability? What if the consideration is not final at the time of signing the JDA and is actually dependent on an event/approval? Am I liable to pay tax on accrual basis or only when the consideration is received? There have been contradictory rulings on this matter till now and the income tax law was amended in this year’s Budget, which provides for taxation of such gains on completion of the project under certain circumstances. Till then, Indian tax authorities aggressively took the view that capital gains arise on signing of the development agreement and when the owner gives possession of the property to the developer.

Even the apex court of India has recently dealt with this matter and taken a favourable view. It laid down the law after considering the facts of the case and holding that the answer to these questions depends on two aspects:
Part performance of an unregistered agreement by the owner, by giving possession of the property for the limited purpose of development, would not amount to a transfer, and hence did not give rise to capital gains. Meaning thereby that where the owner continues to be the owner of the property throughout the development of the property, and did not seek to transfer rights similar to ownership to the developer, there was no transfer giving rise to capital gains.
As per income tax law, the income is liable to tax on accrual of receipt, whichever is earlier. But if the right of the owners to receive consideration is dependent on receipt of the necessary approvals and permissions for development of the property, the income can at best be called hypothetical income and hence cannot be taxed on accrual principle. This is an important aspect since these permissions need not necessarily come in and may lead to a situation where the JDA falls through. Accordingly, it becomes all the more important to agree to the terms of the JDA after a thorough analysis. The law on taxability arising on signing of a JDA is now clear and the court ruling makes it easier for the owners to assess their tax liability
Source : Financial Express

Provisions under the Income Tax Act, 1961 in relation to retention of records / books of accounts of a Company?

The applicable section of Income tax act are sections 44AA read with rule 6F – maintenance of books of accounts and Section 92D read with rule 10D for international transactions. Some case laws on this issue are as under:

Important decisions: The Income Tax Appellate Tribunal Delhi in its decision (1998) 97 Taxmann 273(Magzine)/60T.T.J. 278 has held that there is no rule made to the effect that which books of accounts are required to be made by the persons carrying on business covered u/s 44AA (2), therefore if the assessee has kept the details of Incomes and expenditures then no penalty shall be levied u/s 271A.

Similar decision was made by Amritsar bench of Tribunal in case of Sujan Singh v. AO [2007] 110 TTJ (Asr.) 818 wherein it was decided that Rule 6F has not been made applicable to the persons carrying on business or Profession other than those mentioned u/s 44AA(1) and covered u/s 44AA(2). The case of the assessee falls u/s 44AA (2), as the assessee was carrying on a business of poultry farm. the board has not specified or notified the books of account to be maintained by persons covered under sub-section 2 of section 44AA.Therefore, rule 6F is not applicable to the case of the assessee- ITO v. Dinesh Paper Mart [1999] 64 TTJ (Nag.) 674 : [1999] 70 ITD 274(Nag.) relied on.

Period of Preservation of Accounts/Records under Different laws are as under.


• A company is required to maintain its books of account and vouchers for a period of 8 years immediately preceding the current year.
• A S. 25 company is required to maintain its books of account and vouchers for a period of not less than 4 years.
• The books and papers of the Amalgamated/Transferor Company must be not be disposed of without the prior permission of the Central Government.
• The books and papers of a company which has been wound-up and of its liquidator shall not be destroyed for a period of 5 years from the date of its dissolution. They may be destroyed earlier with prior Central Government permission.
• Every Company (not being an NBFC) accepting public deposits must maintain a Register of deposits for 8 calendar years from the financial year in which the latest entry is made in the Register.
• The Register and Index of Members must be maintained permanently.
• The Register and Index of debenture-holders must be maintained for 15 years after the redemption of debentures.
• The copies of all Annual Returns and Certificates annexed thereto must be maintained for 8 years from date of filing with the ROC.


• Every NBFC accepting public deposits must maintain a Register of deposits for each branch and a consolidated Register for 8 calendar years following the financial year in which the latest repayment/renewal entry is made in the Register.
• NBFCs should maintain all necessary records of transactions for at least ten years from the date of cessation of transaction between the NBFCs and the client.


• Assessees are required to preserve the specified books of account for a period of 6 years from the end of the relevant assessment year, i.e., for a total period of 8 previous years. Thus, accounts must be maintained for P.Y. 2008-09 and onwards and accounts up to 31st March, 2008 (P.Y. 2007-08) need not be maintained for income-tax purposes.
• Period of six years gets extended if the assessment is reopened u/s. 147, till the time assessment is completed.
• Transfer Pricing documents and information specified under Rule 10D must be maintained for a period of 8 years from the end of the relevant assessment year, i.e., for a total period of 10 previous years.
• In a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax has escaped assessment for any assessment year — 16 years from the end of relevant assessment year.


• Records including books of account and source documents and data in any electronic media must be maintained for 5 years immediately after the financial year to which such records pertain.


• Records including books of account and source documents and data in any electronic media must be maintained for 5 years immediately after the financial year to which such records pertain.


• Under the SEBI Regulations for Stock Brokers, Merchant Bankers, Portfolio Managers, Underwriters, Debenture Trustees, FIIs, Custodian of Securities and Depository Participants the Records prescribed by SEBI under relevant Regulations must be maintained for a minimum period of 5 years. In case of any investigation by CBI or police books and records to be maintained up to settlement of case (see circular dated 4-8-2005).
• Under the SEBI Regulations for Venture Capital Funds and Mutual Funds the records prescribed by SEBI under relevant Regulations must be maintained for a minimum period of 8 years.
• SEBI Regulations for Registrar & Transfer Agents and Bankers to an Issue the records prescribed by SEBI under relevant Regulations must be maintained for a minimum period of 3 years.


• CAs should preserve records relating to audit and other work done by them, routine correspondence and other papers for a minimum period of 10 years