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The Goods and Services Tax (GST) system was designed to simplify indirect taxation by merging multiple levies into a single framework. To maintain compliance and prevent tax evasion during the movement of goods, Section 129 of the CGST Act governs the detention, seizure, and release of goods and vehicles when rules are breached. In the current 2026 tax environment, this section acts as a high-stakes enforcement tool, integrated with digital tracking and the new Income Tax Act 2025 reporting standards.

Inspection of Goods in Transit

Under GST, an E-Way Bill is mandatory for transporting goods valued above ₹50,000. The person in charge of the vehicle must carry the invoice (or e-invoice), e-way bill, and delivery challan. Authorised GST officers now use real-time data from the Invoice Management System (IMS) and Fastag logs to intercept and inspect vehicles. If documentation is missing or if the digital status of the invoice shows a discrepancy, the officer has the power to detain the consignment.

Notice, Hearing, and Order Timeline

The legal process follows a strict 7-7-15-day cycle:

• Notice: The officer must issue a written notice in FORM GST MOV-07 within 7 days of detention.
• Order: After giving the taxpayer a chance to be heard, a final order in FORM GST MOV-09 must be passed within 7 days from the date of service of the notice.
• Payment: The taxpayer then has 15 days to pay the penalty.

Penalty Structure (As of 2026)

Situation	Penalty on Taxable Goods	Penalty on Exempted Goods
Owner Comes Forward	200% of tax payable	2% of value or ₹25,000 (Whichever is less)
Owner Does Not Come Forward	50% of value or 200% of tax (Whichever is higher)	5% of value or ₹25,000 (Whichever is less)

Note: If the transporter wishes to release only the vehicle, they may do so by paying a penalty of ₹1 lakh or the applicable penalty on goods, whichever is less.

Release of Goods and Vehicle

Section 129(2) provides that detained items shall be released upon the payment of the penalty or the furnishing of a security (such as a bank guarantee) equal to the penalty amount. If the taxpayer chooses to appeal the order, they must now pre-deposit 25% of the penalty amount to the department.

Confiscation and Fine

If the penalty is not paid within 15 days of the order, the officer may initiate confiscation proceedings under Section 130 using FORM GST MOV-10. Once confiscated, the goods become the property of the central government. The owner can only reclaim them by paying a redemption fine (in addition to the tax and penalty), which cannot exceed the market value of the goods. Under the Income Tax Act 2025, such fines are strictly non-deductible as business expenses.

Conclusion

Section 129 is central to enforcing GST compliance in India’s growing economy. With the shift to the tax year 2025-26 and the implementation of Section 74A for unified tax determination, the focus has moved toward digital transparency. Businesses must ensure their physical movement of goods perfectly matches their digital records in the IMS and E-Way Bill portal to avoid significant financial penalties and the risk of confiscation.

 

In terms of Indian law and taxation, a Hindu Undivided Family (HUF) is a distinct entity. An HUF is regarded as a person for tax purposes and is acknowledged as a distinct taxable entity under the Income Tax Act, 2025. It is governed by Hindu law and consists of people who share a common ancestor. Members of the family, referred to as coparceners, have a birthright in the joint family property, which is administered by the Karta. An HUF is subject to taxation at the same slab rates as an individual. The simplified tax structure under Section 202 is the default option for Tax Year 2025. Particular legal issues pertaining to the ownership and taxability of the divided property come up during a partition.

Meaning of Partition

‘Partition’ refers to the division of HUF property among its coparceners. It ends the joint status of the family concerning the property being divided. For a valid partition, there must be an actual and physical division of the property. Each coparcener must receive a specific and definite share. A mere division of income without dividing the underlying asset does not constitute a partition under the law.

The right to demand partition lies with all coparceners. In certain circumstances, a mother or wife also becomes entitled to an equal share along with the sons when a partition occurs among male members after the death of the father.

Types of Partition

A partition under Hindu law may be either total or partial.

• Partial Partition: A partial partition occurs either among some members of the family or concerning specific properties. The remaining coparceners continue as an HUF with the remaining assets. For example, if only one coparcener separates while others remain joint, it is a partial partition.

• Total Partition: In a total partition, the entire property of the HUF is divided among all coparceners. The joint family ceases to exist. Once such a partition is completed, the HUF is dissolved for taxation purposes. Each coparcener becomes an independent taxpayer for their respective share of property and income. The tax authorities must verify the genuineness of the partition and record a formal finding under Section 268 of the Income Tax Act, 2025.

Assessment of HUF Partition under Section 268

Section 268 of the Income Tax Act, 2025, governs the assessment of an HUF after a partition claim is made.

• Total Partition: When a total partition is claimed, the tax department conducts an inquiry to verify the claim. If satisfied, they record a finding that the family has been partitioned. They specify the date of partition and assess the total income of the HUF up to that date. For instance, if an HUF earns rental income up to September 2025 and the property is divided on October 1, 2025, the income up to September will be taxed in the hands of the HUF. Income generated thereafter will be taxed in the hands of each individual coparcener.
• Partial Partition: Partial partitions taking place after December 31, 1978, are generally not recognized for tax purposes if the HUF was previously assessed as a separate unit. This rule is maintained under the 2025 Act. Where a partial partition is ignored, the family continues to be assessed as if no partition occurred. The income or property is deemed to continue to belong to the HUF for tax purposes. However, if the family was never previously assessed as an HUF, this restriction does not apply.

Conclusion

The partition of a Hindu Undivided Family is a significant legal and tax event. While total partitions are recognized and lead to separate assessments for each member, partial partitions are often disregarded for tax purposes to ensure administrative simplicity. With the Income Tax Act, 2025 now in force, taxpayers must ensure that physical divisions of property are clearly documented. Maintaining transparent records is essential to validate a genuine partition and successfully transition from an HUF assessment to individual tax filing.

The Indian tax system can be complex because of the strict rules that taxpayers must follow. Genuine difficulties, however, may arise and cause the filing of tax returns or refund claims to be delayed. The Central Board of Direct Taxes (CBDT) has the authority to grant relief and direct income tax officers to handle such situations fairly under Section 422 of the Income Tax Act, 2025.

Section 422 of the Income Tax Act, 2025: Power to Instruct and Condone

The CBDT has the authority to issue directives and orders under Section 422 (previously Section 119) to guarantee the consistent and efficient application of tax laws throughout India. Most importantly, it permits the board to loosen strict procedural guidelines when “genuine hardship” occurs.

In order to guarantee equitable and uniform application of the law across the country, Section 422(1) gives the CBDT the authority to provide tax officers legally enforceable directions.

In particular, Section 422(2) permits the Board to provide tax authorities permission to accept late applications or returns for refunds, deductions, or exemptions if the taxpayer was unable to fulfil the deadline due to a legitimate reason.

Who Can Approve or Reject Late Filings?

The CBDT delegates the power to condone delays based on the monetary value of the claim:

Claim Amount	Competent Authority
Up to ₹1 crore	Principal Commissioner or Commissioner of Income Tax
Between ₹1 crore and ₹3 crore	Chief Commissioner of Income Tax
Above ₹3 crore	Principal Chief Commissioner of Income Tax or the CBDT

Time Limit

Taxpayers must apply for condonation within five years from the end of the relevant tax year. If a refund claim arises from a court order, the time the case was under court consideration is excluded, provided the application is filed within six months from the date of the court’s order.

How to Apply for Late Filing or Refund in 2026?

1. Digital Application: Log in to the e-filing portal and select the “Condonation Request” under the Service tab.
2. State the Reason: Provide a clear explanation for the delay (e.g., medical emergency, technical failure of the portal, or legal disputes).
3. Documentation: Upload supporting evidence like medical certificates or digital error logs.
4. Adjudication: The authority must ideally dispose of the application within six months from the end of the month in which it was received.
5. Filing: Once approval is granted, the “e-File” link for that specific Tax Year will be enabled for your account.

Note: As per established policy, refunds claimed through this condonation route are not eligible for interest on the delayed payment.

Benefits of Section 422

• Fairness: Gives sincere taxpayers a “second chance” when circumstances beyond of their control make compliance impossible.
• Uniformity: Because police are required to comply to CBDT-issued criteria, they are prevented from making arbitrary decisions.
• Efficiency: Makes it possible to correct genuine mistakes without requiring taxpayers to file costly and time-consuming High Court writ petitions.

Conclusion

Section 422 maintains a balance between strict enforcement and administrative understanding. It ensures that procedural technicalities do not lead to an excessive financial loss for a taxpayer facing genuine difficulties. In this new era of the Income Tax Act, 2025, the process is more transparent and digitally integrated, but the requirement for “genuine hardship” remains the basis of any successful application. If you miss a deadline, act immediately and use the digital portal to seek relief under this provision.

India are developing their GST system into more of a technology-based framework within compliance. The government has implemented numerous ways to lessen tax evasion, use of false invoices, and taking advantage of input tax credit through digital means. The use of a track and trace mechanism would fall under this category of new technology as introduced in Section 148A of the CGST Act. The intent of this system is to keep track of goods that are subject to tax evasion without being solely reliant on the physical documentation and inspection of the goods but, instead, through digitally linking the movement of goods with the tax records that are produced for those goods.

As of 2026, the framework is active in certain sectors and has become an important part of GST enforcement.

Purpose of the Track and Trace System

The government introduced this mechanism mainly to control tax evasion in industries where underreporting and fake transactions are common. Certain products move through long supply chains, making it difficult to track whether the correct amount of tax has been paid.

Under this system, notified goods are required to carry a unique identification marking, commonly known as a UIM. This mark may appear in the form of a QR code, RFID tag, or another secure digital marking placed on the product or packaging.

The marking helps authorities verify the following:

• Whether the goods are genuine
• Whether tax has been correctly reported
• Whether the movement of goods matches GST records
• Whether fake Input Tax Credit claims are being made

This system creates better transparency because every stage of movement can be digitally traced.

Legal Framework

The legal foundation of the mechanism comes from Section 148A of the CGST Act. This provision was introduced through the Finance Act, 2025 and became effective from 1 October 2025 through Notification No. 16/2025 Central Tax.

The section gives power to the government to notify the following:

• Specific goods
• Certain classes of persons
• The manner in which goods must be marked and tracked

Another important provision is Section 2(116A), which defines the Unique Identification Marking. The law states that the marking should be secure and difficult to remove or alter.

The penalty provision has also become stricter. Under Section 122B, failure to comply with the track and trace requirements may result in the following:

• A penalty of ₹100,000
• Or 10 per cent of the tax payable on such goods
• Whichever amount is higher

This shows that the government considers non-compliance a serious offence rather than a small procedural error.

Current Position as of April 2026

The system has now moved beyond the planning stage. The government has already notified certain high-risk sectors, including tobacco product, pan masala, and selected pharmaceutical items. Manufacturers dealing in these sectors are required to follow additional compliance measures. They must submit declarations regarding production capacity, packaging machinery, and operational details through prescribed forms such as Form CE DEC 01.

Another major development is the integration of the UIM system with existing GST tools. The track-and-trace mechanism now works together with the following:

• E-invoicing
• E-waybill systems
• GST portal verification systems

For notified goods, businesses cannot generate a valid e way bill unless the Unique Identification Marking is verified through the GST portal. This has enhanced real-time monitoring of goods movement across the supply chain.

Impact on Businesses

The mechanism has changed the compliance responsibilities of manufacturers and dealers operating in notified sectors. Businesses now need stronger internal systems and accurate digital records.

Companies are expected to maintain manufacturing batch records, packaging details, transport records linked with digital markings, and proper reconciliation between stock and GST filings. Many businesses have also invested in digital printing and scanning technologies to ensure that their products comply with legal requirements.

The system has improved supply chain authenticity because authorities can now identify suspicious consignments more quickly. It has also reduced the chances of fake invoices and fraudulent transactions.

Conclusion

GST’s Track and Trace Mechanism marks a significant change in India’s indirect tax system, as it will now provide not only a digital identification for goods but also ‘real-time’ tracking for determining if goods are being produced and if they comply with rules, thereby moving away from being reliant mostly upon physical inspections and manual verifications to improve compliance via the use of these technical means.

As of 2026, the Track and Trace Mechanism has begun operations across multiple high-risk industries and is expected to continue to be implemented over time. Businesses that handle notified goods should take compliance very seriously because of the serious penalties associated with non-compliance.

The Income Tax Act 2025 has set a clear framework for taxing virtual digital assets in India. This took effect on April 1, 2026. The basis of the prior tax laws is retained, but reporting accuracy and digital compliance are given more weight.

What Counts as a Virtual Digital Asset

The law defines these assets under Section 2(111). A virtual digital asset is any digital token or code created through cryptography that can be traded or stored electronically.

• Crypto Assets: This includes popular coins like Bitcoin and Ethereum.
• NFTs: Digital art and unique collectables fall here.
• Utility Tokens: These are tokens that provide access to specific digital services.

Digital versions of official currencies and gift vouchers are not part of this definition. The law treats these as separate from the VDA tax bracket.

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The Tax Rate and Calculations

These assets are considered capital assets by the government. Holding them for a long time has no advantages. A 30% flat tax is applied to all gains. The minimum tax rate is 31.2% when the 4% health and education cess is included.

Only the asset’s actual purchase price is deductible. All additional expenses are prohibited, including platform fees, gas fees, and mining costs. This implies that you are not responsible for the extra money spent on the transaction when paying tax on the gross profit.

Managing Losses and Transfers

The rules for losses are very strict. You cannot use a loss from one coin to reduce the profit made on another. Also, you cannot use crypto losses to lower your tax on salary or business income. If you end the year with a net loss, you cannot carry it forward to next year. Every transaction stands alone.

Exchanging one digital asset for another also counts as a sale. If you swap Bitcoin for Solana, the tax department views this as selling Bitcoin at its current market value. Gifts are also taxable. If you receive digital assets worth more than 50,000 rupees as a gift, you must report it as income from other sources.

Tax Deducted at Source

A 1 per cent TDS applies to almost all transfers. The buyer or the exchange must take this 1 per cent out and pay it to the government. This rule applies even if the seller is selling at a loss. The limit for this deduction is 10,000 rupees for most people. For individuals with smaller businesses, the limit increases to 50,000 rupees.

Reporting and Penalties

Taxpayers must use Schedule VDA in their tax returns. You have to list every single trade with the date of purchase and the date of sale. Section 446 of the new Act imposes severe fines for mistakes. Failing to report transactions can cost 200 rupees for every day of delay. If you provide wrong information, the penalty is a flat 50,000 rupees.

• Individuals: The deadline for filing is July 31st.
• Audit Cases: Businesses must file by October 31st.

Conclusion

The government clearly wants full transparency of all digital transactions, as stated in the 2025 Act. The actual risk for investors is the new penalty laws for incorrect reporting, even though the 30% tax is high. It is now required, not optional, to maintain complete records of each trade and platform ID. Accurate data and timely filing are essential for success in current tax environment.

The growth of cryptocurrencies, NFTs, and other virtual digital assets (VDAs) has altered India’s financial and investment sector. The government applies a 1% Tax Deducted at Source (TDS) on VDA transfers in order to monitor digital transactions and maintain tax transparency. Sections 393(1) [Table S.No. 8(vi)] and 393(4) [Table S.No. 12] of the Income Tax Act 2025 presently regulates this provision.

Meaning and Purpose of 1% TDS

TDS is a mechanism where tax is collected at the time of a transaction instead of at the end of the year. The 1% TDS on VDAs applies when one person pays another for transferring a digital asset. Whenever money changes hands for such an asset, 1% of the payment is deducted and paid to the government as an advance tax.

The purpose of this rule is to track crypto transactions, ensure traders do not avoid tax, and create a transparent audit trail in a sector often marked by anonymity.

Under the Income Tax Act, 1961

The 1% TDS was originally introduced through Section 194S in the older 1961 Act. It applied to any person making a payment to a resident for the transfer of a VDA. This covered both exchange trades and peer-to-peer transfers. The deduction was required at the time of credit or payment, whichever happened earlier.

Under the New Income Tax Act, 2025

The Income Tax Act, 2025, which is effective for the current tax year, provides a modern legal framework for digital assets. The new Act defines VDAs broadly to include any cryptographically generated representation of value or rights. The government has retained the 1% TDS under Section 393 with refined procedures using Form 141.

Key features under the 2025 Act:

• Unified Framework: VDAs are categorised as capital assets, ensuring consistent tax treatment across all digital tokens.
• Integrated Deduction System: The 1% TDS process is automated through the government portal using Form 141 Schedule D.
• Thresholds: TDS is required if the transaction value exceeds 10,000 rupees. For specified persons (individuals/HUFs with turnover below 1 crore), the threshold is 50,000 rupees.
• Real-time Reporting: Transactions are reported through linked data using Form 141, which acts as both a challan and a statement.
• Penalty Provisions: Section 446 of the new Act imposes strict penalties for failing to deduct or remit TDS on time.

Comparison

Aspect	Income Tax Act, 1961	Income Tax Act, 2025
Legal Provision	Section 194S	Section 393
Scope	Cryptocurrencies and NFTs	All VDAs including stablecoins and crypto-assets
Rate of TDS	1%	1%
Thresholds	10,000 / 50,000 rupees	10,000 / 50,000 rupees
Reporting Form	Form 26QE	Form 141 (Schedule D)
Credit Statement	Form 26AS / AIS	Form 168 (Unified AIS)
Enforcement	Manual Audit-Based	Real-time Digital Monitoring

Practical Effects on Taxpayers

The 1% TDS rule makes it possible for traders and investors to track even small cryptocurrency transactions. It validates digital assets inside the tax framework while also adding a compliance step. At present, exchanges are essential to the automatic deduction and remittance of TDS utilising Form 141. Individual traders’ manual labour is reduced as a result.

However, because the tax is deducted even if the sale is a loss, high-frequency traders can find that the deduction has an impact on their daily liquidity. The 2025 Act’s automation makes it easier to reconcile these deductions while paying taxes.

Conclusion

One important measure for financial transparency in India is the 1% TDS on VDA transactions. The system has developed into a technology-driven procedure under the 2025 Act, particularly Section 393 and Form 141. For both the government and the taxpayer, it offers real-time monitoring and more seamless compliance. Anyone trading in the digital asset market in 2026 must have a thorough understanding of these parts.

The ‘Goods and Services Tax (GST) Return Filing’ is the process of reporting information about your company’s sales, purchases, the taxes you have collected from customers and the taxes you have paid to the government. All registered companies are required to report their activities regularly (periodically, monthly, quarterly, or annually) on the basis of their category, turnover, and type of registration.

You may file returns online via the GST Portal at www.gst.gov.in. This system helps in maintaining accountability and transparency, and it enables you to comply with applicable laws. Additionally, submitting returns will help in collecting accurate input tax credits (ITC) when you make purchases.

Why should you submit your GST returns?

1. Required for all registered GST taxpayers.
2. Helps companies collect ITC for purchases resulting in a lower tax burden.
3. Maintains accurate records for accounting purposes and builds credibility with other stakeholders.
4. Avoids fines, late payment charges and interest linked with delays.
5. Facilitates smooth financial management and audit compliance.

Types of GST Returns

Return Type	Purpose	Filing Frequency	Due Date	Applicable To
GSTR-1	Details of outward supplies (sales)	Monthly / Quarterly (QRMP)	11th of next month (monthly) / 13th of month after quarter (QRMP)	All regular taxpayers
GSTR-1A	Amendment to GSTR-1 for current period	Monthly	Before filing GSTR-3B	Regular taxpayers correcting sales data
GSTR-3B	Summary of sales, ITC, and tax payment	Monthly / Quarterly (QRMP)	20th of next month (monthly); 22nd or 24th depending on state (QRMP)	All regular taxpayers
GSTR-4	Annual return for Composition Scheme	Annually	30th June of following financial year	Composition scheme dealers
GSTR-5	Return for non-resident taxable persons	Monthly	20th of next month	Non-resident taxpayers
GSTR-6	Return for Input Service Distributors (ISD)	Monthly	13th of next month	ISDs (Mandatory registration for common ITC)
GSTR-7	Return for entities deducting TDS	Monthly	10th of next month	TDS deductors under GST
GSTR-8	Return for e-commerce operators collecting TCS	Monthly	10th of next month	E-commerce operators
GSTR-9	Annual return summarising year transactions	Annually	31st December following financial year	Regular taxpayers with turnover > ₹2 crore
GSTR-9C	Self-certified reconciliation statement	Annually	31st December following financial year	Taxpayers with turnover > ₹5 crore
GSTR-10	Final return when registration is cancelled	One-time	Within 3 months of cancellation/order	Cancelled/Surrendered registrations

Key Updates (Effective 2025 and 2026)

• GSTR-3B Locking: From July 2025, it will no longer be possible to make changes to tax liabilities directly within GSTR-3B. Any corrections made to returns can now only be done through editing the corresponding information contained in GSTR-1A.
• IMS (Invoice Management System): IMS is a tool designed for suppliers who receive invoices from their customers. Suppliers are able to have their customers either accept or reject these invoices prior to having the invoice added as an input service credit on the customer’s GSTR-2B.
• Mandatory ISD: As of April 2025, if any registered entity has common inputs to use in more than one registration, this entity must establish an Input Service Distributor using the ISD mechanism (GSTR-6).

Conclusion

Legal compliance requires timely filing of GST returns. Businesses may operate transparently, get input tax credits, and keep records by filing GST. Through the Integrated Management Systems (IMS), your GST return is directly related to suppliers, and as of the 2026 GST amendments, GSTR-1A amendments are closely related to supplier transactions. Fines and interest may be applied to the total amount payable if you fail to file on time.

Section 34 of the Income Tax Act, 2025, is a residuary provision that allows businesses and professionals to claim deductions for all expenses not covered under Sections 28 to 33, provided they are incurred wholly and exclusively for business or profession. It lowers the total tax burden by ensuring that legal business expenses are deducted when calculating taxable income.

Section 34(1): “Any expenditure (not being an expenditure of the nature specified in sections 28 to 33, 44 to 49, 51 and 52 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession, shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession’.”

However, any expense incurred for illegal purposes, prohibited by law, or to settle legal contraventions is strictly prohibited from being claimed as a deduction.

Key Points of Section 34 of the Income Tax Act 2025

Aspect	Explanation
Type of expenditure	Revenue expenditure (not capital or personal).
Purpose	Must be for carrying on a business or profession.
Timing	Expense must be incurred during the relevant Tax Year.
Legality	Expenses related to illegal activities, bribes, compounding fees, or notified settlement payments are disallowed.
Nature	Must not be covered under specific deduction Sections 28 to 33.

Conditions for Allowance under Section 34

For an expense to qualify for a deduction under Section 34, the following conditions must be satisfied:

• It must not be a personal or capital expense.
• It should not be covered under specific Sections 28 to 33 (like rent, depreciation, etc.).
• It must be wholly and exclusively incurred for business or professional purposes.
• It must not relate to illegal or immoral activities, including providing prohibited benefits or perquisites to third parties (such as unethical gifts to doctors).
• The expense should be incurred during the relevant Tax Year.

Expenses Allowed as Deduction under Section 34(1)

Type of Expense	Description / Example
Interest on Business Loans	Interest on loans taken for business operations (not for capital investment).
Legal Fees	Legal services for business contracts, disputes, or compliance.
Advertisement Expenses	Marketing and promotional costs in print, digital, or TV media.
Employee Salaries	Salaries, bonuses, and compensation to employees. (Salary to partners allowed only within limits prescribed).
Loan Raising Expenses	Brokerage, registration, or stamp duty costs for obtaining business loans.
Employee Welfare Expenses	Costs for staff amenities, welfare activities, and festive expenses.
Professional Fees	Fees paid to consultants, accountants, auditors, etc.
Telephone and Communication	Telephone, internet, and courier charges for business use.
Festival/Corporate Events	Expenses for corporate festivals like Diwali, Christmas, etc.
Compensatory Payments	Payments made as compensation (not penalties) in contractual obligations.

Expenses Disallowed under Section 34(1)

Type of Expense	Reason for Disallowance
Fees to ROC for changing AoA/MoA	Capital expenditure alters the company structure.
Expenses for possession of land	Not related to regular business activity.
Fees to increase authorised capital	Capital expenditure enhances the financial base.
Payment for tenancy rights	Capital expenditure provides a long-term right to property.
Fixed Asset Guarantee Commission	Treated as capital expenditure.
Penalty or Fine for violating laws	Not allowed, against public policy.
Settlement/Compounding Fees	Explicitly disallowed under Section 34(3) for notified laws.
Demolition for new construction	Capital expenditure leading to a new asset.
Shifting registered office	Administrative convenience, not directly related to business profits.
CSR Expenses	Not allowed under Section 34 (specifically excluded by Section 34(2)(b)).

Conclusion

Section 34 of the Income Tax Act, 2025, plays an important role in determining which expenses are allowed for deductions. It helps in maintaining transparency and makes sure that only genuine expenses are claimed for deductions. It disallows expenses related to capital formation, personal use, or unlawful purposes. Businesses should maintain proper documentation to ensure maximum benefit under Section 34.

The rapid development of e-commerce has changed how governments handle taxes and how companies conduct business. E-commerce enables businesses to make significant profits in nations where they do not have a physical existence, but traditional tax systems were built around the idea of physical existence. A simple website, app, or cloud server can bring in huge profits from a market far away. This has complicated the determination of where income should be taxed.

Countries have been updating their tax rules to address these issues and make sure that cross-border e-commerce revenue is appropriately taxed where economic value is generated. Income tax, which is based on profits, and indirect tax, which is based on consumption, are now the two main taxation areas that businesses engaged in international digital trade must take into consideration.

Income Tax on Non-Resident E-Commerce Sellers

For foreign e-commerce platforms or sellers operating in a market like India, the central income tax question is whether their digital activities create a “taxable presence” in the country. Traditionally, a company was taxed only if it had a Permanent Establishment (PE) — like an office, warehouse, or employees — in that country. However, digital business models have made this concept less relevant.

Significant Economic Presence (SEP)

To bridge this gap, India introduced the concept of Significant Economic Presence (SEP) under the Income Tax Act. This rule broadens the scope of what qualifies as a taxable nexus.

As per current guidelines, an SEP is deemed to exist if:

• A non-resident earns revenues exceeding ₹2 crore in a financial year from transactions with Indian users, or
• Interacts systematically and continuously with more than 300,000 Indian users online.

If a foreign business meets these criteria, income related to that presence is considered to arise in India and becomes taxable here. However, for countries with which India has a Double Taxation Avoidance Agreement (DTAA), these treaty protections prevail. As of October 2025, the SEP provisions are legally enforced but, in practice, limited by treaty conditions.

Digital Taxes and Equalisation Levy – Current Status

India had previously introduced the Equalisation Levy (EL) to capture tax from cross-border digital transactions. However, following global developments under the OECD’s Two-Pillar Framework, India has phased out these levies.

• The 2% levy on online sales by e-commerce operators was abolished from August 1, 2024.
• The 6% levy on online advertising services was discontinued from April 1, 2025.

With these withdrawals, the corresponding tax exemption under Section 10(50) has also been removed. Consequently, businesses that previously paid the Equalisation Levy are once again subject to regular income tax rules, including SEP and PE conditions.

Indirect Tax Obligations (GST/VAT)

While income tax relates to profits, indirect taxes like the Goods and Services Tax (GST) in India focus on consumption. These taxes follow the destination principle, which means tax is charged in the country where the goods or services are consumed, not where they are produced.

OIDAR Services

India classifies digital services such as cloud storage, streaming, and online data access under Online Information and Database Access or Retrieval (OIDAR) services.

• When such services are provided by a foreign supplier to an Indian consumer, the supplier must register for GST in India and collect Integrated GST (IGST).
• For business-to-business (B2B) transactions, the Reverse Charge Mechanism (RCM) applies — the Indian recipient pays the IGST on behalf of the foreign supplier.

This ensures tax compliance even when foreign service providers have no physical operation in India.

Marketplace Facilitators and TCS

In addition to direct taxes, digital marketplaces acting as intermediaries must collect Tax Collected at Source (TCS) under GST. At present, e-commerce operators are required to collect 1% on the net taxable value of goods or services sold through their platform. This TCS is remitted to the government and credited to the seller’s account, maintaining full traceability of online transactions.

Global Policy Developments – OECD’s Two-Pillar Approach

India’s evolving framework is closely linked with the OECD’s Two-Pillar solution, which seeks to bring consistency to global digital taxation.

• Pillar One (Amount A): Aims to reallocate a share of global profits from the world’s largest multinational companies to the markets where users or consumers are located, regardless of physical presence. India is expected to apply this framework starting in 2026.
• Pillar Two: Sets a 15% minimum global corporate tax rate for multinational enterprises with annual revenues above EUR 750 million. The rule ensures that no major economy loses revenue to tax havens.

India’s removal of its equalisation levy demonstrates alignment with this coordinated international tax model.

Conclusion

Cross-border e-commerce taxation has changed from being a vague topic to one that is governed by both domestic adaptation and international cooperation. Non-resident sellers must now comply with more than just GST registration; they also need to continuously comply with global reporting standards and assess their income tax exposure using ideas like SEP and PE.

In essence, the new regime seeks stability—a balance between encouraging digital trade and ensuring each jurisdiction gets its fair share of tax from the developing global digital economy.

Since the implementation of the Goods and Services Tax (GST) in 2017, the Indian tax framework has undergone several rounds of refinement to simplify compliance and address emerging business challenges. One of the most significant developments came after the 53rd GST Council Meeting (22nd June 2024), which introduced Section 74A to replace the earlier Sections 73 and 74 of the Central Goods and Services Tax (CGST) Act, 2017.

This amendment, applicable from FY 2024–25, marks a major step toward simplifying adjudication and ensuring uniformity in handling cases of tax short payment, non-payment, or wrongful credit, whether or not fraud is involved.

What is Section 74A of the CGST Act?

Section 74A was introduced to streamline the adjudication process and remove the complex distinction between fraud and non-fraud cases that existed under Sections 73 and 74.

Under Section 74A, a proper officer can issue a tax demand notice for:

• Non-payment or short payment of tax,
• Wrongful availment or utilisation of input tax credit (ITC), or
• Erroneous refund.

Unlike earlier provisions, Section 74A applies uniformly, regardless of whether the cause involves fraud, wilful misstatement, or suppression of facts.

Key Provisions under Section 74A

• Minimum threshold: No notice can be issued if the tax liability is less than ₹1,000.
• Time limit: Notice must be issued within 42 months (3 years and 6 months) from the due date of the annual return or the date of the erroneous refund.
• Evidence requirement: Officers must provide material evidence when alleging fraud or misstatement; assumptions or suspicions alone are insufficient.
• Penalty:
• For non-fraud cases: 10% of the tax due or ₹10,000, whichever is higher.
• For fraud or wilful misstatement: Penalty equal to the tax due.
• Relief: Taxpayers paying full dues before notice issuance get a penalty waiver; post-notice payment within 60 days also attracts reduced penalties.

In essence, Section 74A merges and rationalises the earlier dual structure of Sections 73 and 74 into one cohesive framework.

What is Section 73 of the CGST Act?

Section 73 dealt with cases of non-payment or short payment of tax or erroneous refund where the issue did not involve fraud, wilful misstatement, or suppression of facts.

Key Features of Section 73

• Notice Period: The officer could issue a notice 3 months before the expiry of the 3-year limitation period.
• Time Limit for Order: 3 years from the due date of the annual return.
• Penalty: 10% of tax due or ₹10,000, whichever is higher.
• Relief: If tax and interest were paid before the notice, no penalty was levied.

Section 73 primarily handled genuine errors or inadvertent non-compliance.

What is Section 74 of the CGST Act?

Section 74 applied to similar cases as Section 73 but with an important distinction — it was invoked when the tax shortfall resulted from fraud, wilful misstatement, or suppression of facts.

Key Features of Section 74

• Notice Period: At least 6 months before expiry of the 5-year limitation period.
• Time Limit for Order: 5 years from the due date of the annual return.
• Penalty:
  • 15% of tax if paid before notice,
  • 25% if paid within 30 days of notice,
  • 50% after 30 days, and
  • 100% in case of non-compliance or proven fraud.

This section aimed to deter intentional tax evasion but often led to subjective interpretations and long litigation due to the difficulty in proving intent.

Section 74A vs Sections 73 & 74 of the CGST Act — Key Differences (2025 Update)

Particulars	Section 74A (New)	Section 73 (Old)	Section 74 (Old)
Applicability	Applies to all cases of short payment, non-payment, excess refund, or ITC misuse — irrespective of fraud	Applies to cases without fraud or wilful misstatement	Applies only to cases involving fraud, wilful misstatement, or suppression
Minimum Threshold	No notice if tax due < ₹1,000	No such limit	No such limit
Basis of Notice	Must be backed by material evidence	Could be based on assumption	Could be based on suspicion
Time Limit for Issuing Notice	Within 42 months	3 months before expiry of 3 years	6 months before expiry of 5 years
Time Limit for Order	Within 12 months from notice	3 years	5 years
Penalty (Non-Fraud Cases)	10% of tax due or ₹10,000, whichever is higher	10% of tax due or ₹10,000, whichever is higher	Not applicable
Penalty (Fraud Cases)	Equal to the tax due	Not applicable	Equal to tax due (up to 100%)
Voluntary Payment Before SCN	No penalty if full tax + interest paid	No penalty if full tax + interest paid	15% penalty on tax due
Voluntary Payment After SCN	Within 60 days: reduced penalty (25% in fraud cases)	Within 30 days: no penalty	Within 30 days: 25% penalty (fraud cases)
Objective	Simplify and unify adjudication for both fraud and non-fraud cases	Handle non-fraud discrepancies	Handle fraud-related discrepancies

Conclusion

The introduction of Section 74A in place of Sections 73 and 74 represents a major simplification under GST 2.0. It unifies the treatment of tax discrepancies, enforces accountability on officers to provide evidence, and ensures fairer penalty structures.

This change is expected to reduce disputes, speed up resolution of cases, and provide clarity to taxpayers— especially MSMEs — thereby strengthening India’s GST ecosystem in the years ahead.