11 July 2024
Under section 198 of the Income Tax Act, 1961 in India, the calculation of profit for income tax purposes follows the principles of accounting consistently applied by the taxpayer. Specifically addressing your query regarding CSR (Corporate Social Responsibility) activities under Section 135 and extraordinary income like the waiver of a bank loan:
1. **Waiver of Bank Loan**: When a bank loan is waived, it results in an extraordinary gain for the company because it represents a relief from a liability without a corresponding expense.
2. **Treatment under Accounting Standards**: According to Indian Accounting Standards (Ind AS) or Generally Accepted Accounting Principles (GAAP), the waiver of a liability, such as a bank loan, is typically recognized as an extraordinary item or gain in the financial statements of the company.
3. **Impact on Profit Calculation under Section 198**: - **Inclusion in Profit**: Generally, under section 198, such extraordinary income, including the waiver of a bank loan, would be included in the calculation of profit for income tax purposes. This is because it represents a gain that enhances the financial position of the company.
4. **CSR Activities and Section 135**: Section 135 of the Companies Act, 2013 mandates certain companies to spend a specified amount on CSR activities. Income or gains from CSR activities are generally considered part of the company's overall financial performance and would be included in the profit calculation for tax purposes unless specifically exempted.
5. **Considerations**: - **Consistency**: It's important to apply consistent accounting principles and disclose any extraordinary income, such as the waiver of a bank loan, in the financial statements and tax returns. - **Specific Circumstances**: Each case may have unique circumstances, and it’s advisable to consult with a tax advisor or accountant to ensure proper classification and treatment of such income.
In summary, unless there are specific exemptions or provisions under the Income Tax Act regarding certain types of extraordinary income (which should be reviewed in detail), the waiver of a bank loan would typically be included in the calculation of profit under section 198 for income tax purposes.
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