Deemed income

Deemed income refers to income that is considered as income by the tax authorities even if it is not actually received by the taxpayer. This concept ensures that income is taxed under various circumstances where actual receipt or specific conditions might otherwise lead to tax avoidance or evasion. The Income Tax Act, 1961, outlines several provisions under which income is deemed to be earned and hence taxable.

1. Deemed Income under Section 2(22)

Section 2(22) deals with the definition of income in certain situations involving companies:

• Deemed Dividend:

Any distribution by a company to its shareholders that is not out of its profits but out of its accumulated profits. This includes advances or loans provided by a company to its shareholders where certain conditions are met.

2. Deemed Income under Section 10(10D)

Section 10(10D) provides that the sum received from a life insurance policy, including the bonus, is generally exempt from tax. However, if the premium paid exceeds 10% of the sum assured, the excess amount is deemed taxable.

3. Deemed Income under Section 14A

Section 14A mandates that any expenses incurred to earn tax-free income should be deemed to be part of taxable income. This means that if you have incurred expenses in earning income that is exempt from tax (such as interest income from tax-free bonds), these expenses are deemed to be part of your taxable income.

4. Deemed Income under Section 56(2)(vii)

Section 56(2)(vii) deals with income from other sources and includes specific provisions on deemed income:

• Gifts Received:

If an individual receives gifts of money or property exceeding ₹50,000 from non-relatives, the excess amount is deemed to be income and taxed under “Income from Other Sources.”

5. Deemed Income under Section 60-65

These sections deal with the taxation of income that is not actually received but is deemed to be received in certain circumstances:

• Section 60:

Income from assets transferred to a spouse or minor child is deemed to be the income of the transferor.

• Section 61:

Income from assets transferred without adequate consideration to a trust or an individual is deemed to be the income of the transferor.

• Section 62:

Income from property or assets transferred to a partnership firm or association of persons is deemed to be the income of the transferor.

• Section 63:

Income from property transferred to a revocable trust is deemed to be the income of the transferor.

• Section 64:

Income from property transferred to a minor child, where such property is not transferred under a legally enforceable obligation, is deemed to be the income of the transferor.

6. Deemed Income under Section 69-69C

These sections address various types of income deemed to be undisclosed or unaccounted:

• Section 69:

Deals with deemed income from unexplained investments. If a taxpayer has made investments for which no satisfactory explanation is provided, the amount of such investments is deemed to be the taxpayer’s income.

• Section 69A:

Deals with deemed income from unexplained money, bullion, jewelry, or other valuable articles found in the possession of the taxpayer.

• Section 69B:

Concerns deemed income from unexplained investments, purchases, or expenditures, where the nature and source of such investments are not satisfactorily explained.

• Section 69C:

Deals with deemed income from unexplained expenditures. If a taxpayer incurs expenses that are not satisfactorily explained, the amount is deemed to be income.

7. Deemed Income under Section 70

Section 70 allows for the set-off of capital losses against capital gains. If there is a deemed income from capital gains, capital losses can be set off against these gains.

8. Deemed Income under Section 71

Section 71 provides for the set-off of losses from one source against income from another source under the same head of income. If deemed income is categorized under a particular head, losses under that head can be set off.

9. Deemed Income under Section 80A

Section 80A provides that deductions under Chapter VI-A (such as those under Sections 80C, 80D, etc.) are available only if the income is considered as part of the gross total income. Therefore, deemed income is relevant in determining the eligibility for deductions.

10. Deemed Income under Section 80IA

Section 80IA relates to deductions for profits from infrastructure and other businesses. Income deemed to be part of this section will affect the deductions available to the taxpayer.