by Deemed income is a concept in income tax law that refers to income that is not actually received by the taxpayer but is still considered taxable as income under certain circumstances. This income is deemed to have been received by the taxpayer, even if it has not been received in reality. In this article, we will discuss in detail the concept of deemed income and the various instances in which it arises under the Income Tax Act, 1961.
Deemed Income Under Income Tax Act, 1961
Deemed Dividend (Section 2(22)(e)):
Deemed dividend refers to a situation where a company makes a payment to its shareholder or their relative or associate, either directly or indirectly, in the form of a loan or advance or any other form of payment. Such payment is treated as a dividend, and the amount of the payment is considered taxable under the head ‘Income from other sources’ in the hands of the recipient. This provision is applicable if the payment is made by a closely held company (i.e., a company in which the public are not substantially interested).
Deemed Profit in Lieu of Salary (Section 17(3)):
This provision applies to a situation where an employer transfers any assets or goods to its employees or provides any services to them for a consideration that is less than the fair market value of such assets, goods or services. In such cases, the difference between the fair market value and the consideration paid is deemed to be the taxable income of the employee under the head ‘Income from Salary’.
Deemed Gift (Section 56(2)(x)):
Deemed gift refers to a situation where an individual or HUF receives any property or sum of money without any consideration, the value of which exceeds Rs. 50,000 in a financial year. In such cases, the amount or value of such property or money is deemed to be the income of the recipient and is taxable under the head ‘Income from other sources’. However, certain gifts are exempt from tax, such as gifts received from relatives or on the occasion of marriage or under a will or inheritance.
Deemed Income from Transfer of House Property (Section 56(2)(x)):
This provision applies to a situation where an individual or HUF receives any sum of money, without any consideration or for inadequate consideration, on account of the transfer of a house property. The difference between the fair market value of the property and the amount received is deemed to be the taxable income of the recipient under the head ‘Income from other sources’.
Deemed Profits and Gains from Business or Profession (Section 41(1)):
This provision applies to a situation where a taxpayer had claimed any deduction or allowance in respect of any expenditure incurred in the past and subsequently recovers any amount in respect of such expenditure. The amount so recovered is deemed to be the taxable income of the taxpayer under the head ‘Profits and gains of business or profession’.
Deemed Income from Accreted Income of a Trust or Institution (Section 115TD):
This provision applies to a situation where a trust or institution is set up for a charitable or religious purpose, and its income or property is accumulated or set apart for any such purpose. Any income or property that has not been applied for charitable or religious purposes is deemed to be the income of the trust or institution, and is taxable at the maximum marginal rate of tax.
Deemed Income from Undisclosed Sources (Section 68):
This provision applies to a situation where any sum of money is found credited in the books of account of a taxpayer, and the taxpayer is unable to explain the nature and source of the credit. Such sum of money is deemed to be the taxable income of the taxpayer under the head ‘Income from other sources’.
