Library / Income-tax Act, 2025: The Professional's Master Guide

27. Sector Specific Tax Issues

Each industry has its own recurring tax issues. The notes below bring together the provisions most relevant to common sectors, as a starting checklist for advisers and finance teams.

27.1 Real estate

• Revenue recognition: developers selling their own units recognise revenue as per the method consistently followed, usually percentage of completion in line with accounting guidance for real estate transactions; construction contractors follow ICDS III.
• Stamp value rule (section 53): sale price below 90% of stamp value (the 110% tolerance) is replaced by stamp value; agreement date value can be used where part consideration was received by banking channels on or before the agreement.
• Unsold inventory: notional rent is taxed on completed unsold units after 2 years from completion.
• Joint development: landowner taxed when the completion certificate is issued; developer deducts TDS on cash component.
• Affordable housing (section 142): 100% deduction for projects approved within the time limit.
• Buyer side: TDS at 1% on purchases of Rs. 50 lakh or more (section 393); buyer taxed on stamp value difference under section 92.

27.2 Information technology and IT enabled services

• SEZ units (section 144): units that began before 30 June 2020 continue with the 15-year profile; reinvestment reserve conditions in the third block.
• Transfer pricing: captive service centres (GCCs) are the most frequent TP cases; the Budget 2026 safe harbour (Rs. 2,000 crore, 15.5%) and faster APAs are important.
• Software payments: payments to non-resident suppliers for software licences are generally not royalty under treaties (Engineering Analysis).
• ESOPs: perquisite TDS for employees; deduction of ESOP cost for the company has been allowed by courts (for example, CIT v. Biocon Ltd., Karnataka High Court, 2020).

27.3 E-commerce and digital businesses

• E-commerce operators deduct TDS at 0.1% on gross sales of sellers (section 393, old 194-O).
• Foreign digital businesses may have a significant economic presence in India; the 6% equalisation levy on online ads was abolished from 1 April 2025.
• Sellers should reconcile operator reports, TDS in Form 168 and GST turnover.

27.4 Micro, small and medium enterprises

• Presumptive schemes with higher limits for digital receipts.
• Buyers must pay micro and small enterprises within MSMED limits (section 37), which improves MSME cash flows.
• Tax audit threshold of Rs. 10 crore for businesses with minimal cash transactions.

27.5 Healthcare

• Doctors and clinics: profession scheme up to Rs. 50 lakh (Rs. 75 lakh), audit above.
• Hospitals with 100 or more beds in specified areas: section 46 deduction for capital expenditure.
• Freebies to doctors by pharmaceutical companies are disallowed as prohibited by medical council regulations (Apex Laboratories Pvt. Ltd. v. DCIT, Supreme Court, 2022), and the benefit is taxable in the doctor's hands.

27.6 Education

• Educational institutions existing solely for education and not for profit are exempt under the NPO provisions; small institutions with receipts up to Rs. 5 crore have simpler conditions.
• Coaching centres and ed-tech companies are ordinary businesses; the exemption for education does not extend to them.

27.7 Financial services

• Banks and NBFCs: provisions for bad debts within limits; NPA interest on receipt basis (section 56); exempt from thin capitalisation.
• Stock brokers and traders: securities as stock-in-trade valued under ICDS VIII; STT deductible for business income.
• Mutual funds and specified funds are exempt; investors are taxed on distributions and gains.

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