The 2026 Fortress: Why Indian Family Businesses Must Rethink “Safety” in a Fractured World

By CA Surekha S Ahuja 

Introduction: When “Global” Stops Being Safe

The era of frictionless globalization has quietly—but decisively—ended.

As we enter 2026, global growth projections hover around a modest 3.1%, yet this number conceals a far more complex truth: capital, supply chains, currencies, and even sovereign stability are now being reshaped not by economic cycles alone, but by geopolitical fracture, militarized trade, and asymmetric risk.

For Indian family businesses, this marks a structural inflection point.

Boardroom discussions can no longer remain confined to EBITDA, valuation multiples, or expansion geography. Today, geopolitics has become a balance-sheet variable. Missile ranges in the Middle East, sanctions regimes in Eurasia, and tariff walls in the Atlantic now directly influence input costs, forex exposure, capital allocation, and—most critically—legacy preservation.

The “war economy” is no longer a distant macro headline. It is a silent partner in every serious business decision.

Geopolitical Reality of 2026: Three Fronts, One Balance Sheet

To understand why Indian family businesses must now think in terms of fortresses rather than footprints, we must recognize the three risk vectors shaping 2026.

The Energy Trigger: Oil as a Geopolitical Weapon

Escalating tensions in the Middle East—particularly around Iran and the Strait of Hormuz—have reintroduced oil as a geopolitical choke point. A credible spike toward USD 100 per barrel is no longer alarmist; it is mathematically plausible.

For Indian businesses, this is not merely a fuel cost issue. It is:

• A logistics inflation shock

• A raw-material cost escalator

• A margin compression event

• A downstream consumer demand disruptor

Energy volatility now transmits instantly across manufacturing, transportation, FMCG, and export pricing. In such an environment, cost predictability itself becomes a strategic advantage.

The Eurasian Deadlock: Volatility Without Resolution

The Russia-Ukraine conflict has transitioned into a prolonged war of attrition, increasingly targeting critical infrastructure and commodity corridors.

Its consequences for Indian family enterprises are indirect yet severe:

• Persistent volatility in fertilizers, metals, and energy derivatives

• Pricing instability in construction, infrastructure, and agri-business

• Disrupted long-term procurement contracts

The key risk here is not shortage—but unforecastable pricing, which erodes planning discipline and working-capital efficiency.

The South Asia Risk Premium: Capital Has a Memory

Closer home, renewed friction on India’s borders introduces a subtler but powerful variable: sovereign risk perception.

Foreign institutional capital is hypersensitive to regional instability. Even limited escalation can trigger:

• Sudden capital outflows

• Rupee depreciation

• Equity market volatility

• Higher cost of external commercial borrowing

Family businesses must recognize that currency risk is no longer cyclical—it is geopolitical.

Strategic Shift I: The “Homecoming” of Capital

For over a decade, sophisticated family capital pursued global diversification—London real estate, US equities, offshore structures. That logic is now being reversed.

2026 marks the rise of strategic repatriation.

With Europe facing stagnation and proximity to conflict, and the US struggling with structurally sticky inflation (3–4%), India increasingly represents a relative safe haven—not because it is risk-free, but because its risks are domestic, democratic, and governable.

The Rise of “Reverse Flipping”

This is no longer limited to startups. Family offices are reassessing offshore allocations with a sharper lens:

• Why accept 1–2% real yields in fragile geographies

• When Indian private credit, infrastructure, and operating businesses offer double-digit risk-adjusted returns

• Backed by demographic growth and political continuity

The Repatriation Matrix: A Disciplined Approach

1. Vulnerable Real Estate Holdings
Low-yield properties in Eastern Europe or geopolitically sensitive regions now carry hidden costs—insurance premiums, exit illiquidity, and physical risk. In many cases, liquidation and repatriation under the automatic route is a capital preservation move, not a retreat.

2. Strategic Offshore Assets
Capital invested in strategic technology, intellectual property, or “India+1” manufacturing hubs (Vietnam, Mexico) should be retained. These assets function as trade-barrier hedges, not speculative bets.

3. Idle Dollar Liquidity
The US dollar remains a hedge against INR volatility. Operational liquidity may be maintained in safe jurisdictions (e.g., Singapore), but passive capital must be redeployed into India’s growth engines rather than lying fallow abroad.

Strategic Shift II: Regulatory Agility — The FEMA Opportunity

Regulation is often seen as constraint. In 2026, it is also an instrument of risk management.

Recognizing global volatility, the RBI introduced a crucial amendment in 2025 allowing exporters to retain foreign currency proceeds in IFSC (GIFT City) accounts for up to 90 days (earlier: 30 days).

Why This Matters

This is not a procedural tweak—it is a forex strategy tool.

Instead of mechanically converting every export dollar into INR, businesses can now:

• Match export inflows against import outflows

• Reduce conversion costs and timing risk

• Hedge naturally against short-term currency shocks

In a world where the rupee reacts instantly to geopolitical headlines, cash-flow-aligned forex management becomes a competitive edge.

Strategic Shift III: Supply Chain Sovereignty

In 2026, diversification no longer means buying global indices.
It means owning control over your supply chain.

If a business relies on a single critical input from a conflict-prone region, it is effectively shorting its own continuity.

The New Imperative: Shadow Supply Chains

Forward-thinking family enterprises are reallocating capital to:

• Build backup vendor ecosystems

• Invest in domestic MSMEs

• Establish alternate sourcing in Mexico, Vietnam, or India

This is not inefficiency. It is strategic redundancy.

Western buyers are increasingly mandating “friend-shoring”—requiring 50% or more value addition outside adversarial jurisdictions. Compliance with this is no longer optional; it is a market-access prerequisite.

The Family Behind the Business: Personal Wealth Fortification

A fortress business without a fortified family balance sheet is incomplete.

For business families, personal wealth strategy in 2026 must be conservative, liquid, and intentionally asymmetric.

Core Principles

Liquidity Supremacy
Maintain at least 12 months of lifestyle liquidity, independent of business working capital. In crises, cash disappears first where it is assumed to be “available”.

The Barbell Portfolio

• 10–15% in Gold as a hedge against conflict and currency debasement

• Defensive equities (pharma, FMCG) that preserve value in slowdowns

Interest-Rate Discipline
In a world of uneven rate movements, fixed-rate liabilities offer certainty. Floating-rate optimism is a dangerous gamble in an inflation-anchored war economy.

Conclusion: Safety Is No Longer Global — It Is Strategic

In 2026, the greatest risk facing Indian family businesses is not geopolitics.
It is inertia.

The world has structurally changed. Capital flows are reversing. Supply chains are being weaponized. Regulation is evolving into strategy. Safety is no longer found by being everywhere—but by being deliberate, liquid, and anchored.

The fortress of wealth today is built not on unchecked expansion, but on strategic consolidation, intelligent repatriation, and sovereign-aligned resilience.

Stay liquid. Stay hedged. Stay adaptive.

And for the first time in many years, when family businesses ask where safety truly lies—the answer, quite simply, may be:

Home.

GST Export Strategy for FY 2026–27: A Cash-Flow and Risk-Based Choice Between LUT and IGST

Choosing Between LUT and IGST Route – A Cash-Flow, Compliance & Risk-Based Framework

By CA Surekha S. Ahuja

As FY 2025–26 draws to a close, exporters are required to take an important forward-looking decision for FY 2026–27:
whether exports should be made under LUT without payment of IGST, or with payment of IGST followed by refund.

This choice is often misunderstood as a technical or procedural issue. In reality, it is a strategic decision with direct implications on working capital, compliance certainty, and operational ease. The law permits both routes. The business outcome, however, differs materially depending on the exporter’s profile.

This guidance note distils experience from practical GST administration, audits, and refund behaviour to help exporters make the right choice upfront, rather than correcting it later at the cost of blocked cash and avoidable litigation.

The Foundational Principle That Must Anchor the Decision

Exports are zero-rated supplies under Section 16 of the IGST Act. GST, by design, is not intended to become a cost, nor a financing burden, for exporters.

Both the LUT route and the IGST-payment route are legally valid. The distinction between them lies only in the timing and movement of funds, not in tax incidence. Any strategy that converts GST into a long-standing receivable on the balance sheet defeats the very purpose of zero-rating.

What Actually Changes Between LUT and IGST Routes

Under the LUT mechanism, exports are made without payment of IGST and the exporter claims refund of accumulated input tax credit. This results in no upfront tax outflow and a relatively stable working capital position.

Under the IGST route, tax is paid at the time of export and recovered later by way of refund. While this may appear neutral on paper, in practice it introduces temporary but significant cash blockage, dependence on automated systems, and exposure to refund mismatches.

The difference is not theoretical—it is felt directly in liquidity, especially for exporters with regular volumes.

Services vs Goods: Where the Strategic Line Is Clear

For exporters of services, the answer is largely settled. The LUT route should be treated as the default option.

Service exports do not benefit from shipping-bill-based automated refunds. Refunds under the IGST route for services involve higher scrutiny, slower processing, and avoidable blockage of funds. Paying IGST upfront in such cases offers no commercial advantage and often complicates reconciliation.

The IGST route for service exporters should therefore be confined to rare, exceptional transactions, not adopted as a routine method.

For exporters of goods, the decision requires nuance. Where exports are regular or continuous, LUT remains the superior option due to better cash flow discipline. The IGST route may be considered where exports are occasional or one-time, and the exporter has surplus liquidity and a clean refund track record. The ICEGATE automation system works best in low-volume, clean-data scenarios—not in repetitive, high-frequency exports.

Domestic and Export Supplies Together: The Most Misjudged Area

Businesses supplying both domestically and internationally often make the mistake of selecting an export route without analysing their ITC absorption capacity.

The decisive question is simple:
Is the input tax credit naturally absorbed against domestic output GST?

Where the answer is negative or only partially positive, adopting the IGST route leads to a double working capital blockage—first by utilising ITC to pay IGST on exports, and then by waiting for its refund. In such cases, LUT is not merely preferable; it is strategically essential.

Only where domestic supplies fully and consistently absorb ITC, and exports are infrequent, can the IGST route be selectively considered without stress.

Why Export Ratios Alone Are Misleading

Export percentage is often over-emphasised. In practice, regularity of exports matters more than their proportion.

Continuous monthly exports—even at moderate ratios—are better handled under LUT. Any export of services, irrespective of volume, tilts strongly in favour of LUT. IGST payment is best reserved for isolated, non-recurring export transactions.

ITC Accumulation: The Hidden Driver of the Decision

Accumulation of ITC is not an anomaly; it is a structural feature of many export businesses, especially those that are labour-intensive, input-heavy, or engaged predominantly in zero-rated supplies.

It is important to clarify that ITC on GST-paid labour services is generally admissible, provided the services are used in furtherance of business and are not hit by specific restrictions under Section 17(5). Consequently, labour-heavy exporters will almost inevitably accumulate ITC.

For such businesses, opting for the IGST route converts GST into a financing cost. LUT, on the other hand, aligns naturally with their credit profile and preserves liquidity.

Switching Between LUT and IGST: Legal but Strategically Unsound

The law does not prohibit switching between the two routes. However, frequent switching introduces operational friction—refund mismatches, portal inconsistencies, audit flags, and unpredictability in cash flow.

A disciplined approach is to select one principal route for the financial year, aligned with the business model, and deviate only for exceptional shipments where commercial reasons clearly justify it.

Foreign Exchange Fluctuation: No GST Consequence

Foreign exchange gains or losses arising on realization of export proceeds do not constitute a separate supply. They do not alter GST liability and do not affect refund eligibility. This position applies uniformly to exports, deemed exports, and direct port shipments.

GST valuation is fixed at the time of supply. Subsequent realization differences remain an accounting matter, not a GST event.

Strategic Takeaway for FY 2026–27

Based on FY 2025–26 behavior, exporters should default to the LUT route where exports are recurring, services are involved, ITC accumulates, or working capital sensitivity is high. The IGST route should be reserved for rare, low-frequency exports where liquidity is strong and refund certainty is demonstrably high.

Final Perspective

GST is intended to circulate within the business ecosystem, not sit idle as a refund claim.
When GST consistently appears as a receivable in the balance sheet, it is not a compliance success—it is a strategic warning.

The export route decision, if taken correctly at the beginning of FY 2026–27, can quietly save months of cash blockage and years of avoidable follow-up.

Crypto & Specified Digital Assets in Income-tax Returns (AY 2026–27)

 By CA Surekha S Ahuja

Introduction: AY 2026–27 – Compliance Is Now Mandatory, Not Optional

Assessment Year 2026–27 is a structural inflection point for crypto taxation in India:

• Resident Indians are required to declare all crypto income, including trading gains, staking, and airdrops.

• Non-Residents (NRIs, PIOs, FIs) must declare income sourced in India, including capital gains from sale on Indian exchanges, and pay tax accordingly under applicable DTAA provisions.

The risk is no longer aggressive tax planning but system-driven CPC adjustments and procedural defaults, which can trigger penalties even for legally earned income.

This practitioner-focused note is aimed at professionals and taxpayers seeking disciplined compliance, rectification strategy, and long-term, penalty-free wealth creation.

Declaration Alignment Across Residents & Non-Residents

Residents

• Must declare crypto gains in Schedule VDA.

• Gains taxed at 30% without deduction except cost of acquisition.

• Losses cannot be offset against other income.

• Interest, airdrops, staking: treated as income from other sources.

Non-Residents

• Only income sourced in India is taxable.

• If DTAA applies, claim relief via Form 10F & TRC.

• Report Indian crypto exchange gains in Schedule VDA.

• Maintain documentation of foreign exchange remittances to avoid mismatches.

Professional Insight:

CPC does not distinguish Resident vs NRI unless the return is coded incorrectly. A misalignment triggers automatic adjustments, which can create unnecessary correspondence and delay refunds.

Schedule VDA: Row-by-Row Filing Mistakes for All Categories

Common Errors (Residents & NRIs):

1. Netting gains/losses instead of reporting transaction-wise.

2. Omitting crypto tax paid or mapped to TDS/Advance.

3. Misclassifying income (e.g., treating trading gains as “Other Income”).

4. Incorrect transaction dates causing AIS/ITR mismatch.

Strategic Rule:

Correct Schedule VDA submission resolves 80–90% of CPC crypto-related adjustments for all taxpayers.

CPC Adjustment vs Substantive Exposure

CPC Adjustment (Procedural)

• Automated, system-generated.

• Triggered by mismatch, missing data, or incorrect reporting.

• Rectifiable via Section 154.

Substantive Exposure (Legal)

• Requires evidence of concealment or fraud.

• Human-driven assessment by AO/DRP.

• Can apply penalties under Sections 270A, 271, 271AAC.

Professional Tip:

Treat CPC adjustment as a diagnostic opportunity, not an accusation—applicable equally to Residents & NRIs.

Rectification Strategy if CPC Adjusts Crypto Income

Step 1: Identify Trigger

• Missing Schedule VDA entries?

• Tax paid but unlinked?

• AIS mismatch?

Step 2: Action Path

• Section 154 Rectification (preferred).

• Revised Return only if original return misclassifies source or residency.

Step 3: Maintain Proof

• Transaction statements

• Exchange records

• Tax remittance evidence

• Cost basis calculation

Pro Tip:

Rectification should clarify, not re-characterise. Overcorrection can invite AO scrutiny.

Penalties and Interest: How to Avoid Defaults

Penalty triggers (Residents & NRIs):

• Failing to report taxable crypto income.

• Ignoring CPC adjustment notices.

• Late payments of self-assessed tax or interest.

• Filing inconsistent rectifications.

Safe Practices

• Timely filing and payment.

• Accurate Schedule VDA reporting.

• Maintain AIS / exchange reconciliation.

• Respond professionally to CPC notices.

Key Insight:

Disciplined compliance protects both Residents and Non-Residents equally from Sections 270A, 271, and 194S consequences.

Long-Term Wealth Creation: Compliance as Strategy

Crypto wealth is increasingly judged by pedigree of compliance:

• Residents: enables clean repatriation, credible net worth, and estate planning.

• Non-Residents: ensures DTAA benefits, avoids double taxation, and smooth cross-border remittance.

Strategic View:

In India, unexplained crypto wealth is a compliance liability. Legal wealth grows through disciplined reporting, not aggressive concealment.

Do’s & Don’ts 

Do

• Declare all taxable crypto transactions in Schedule VDA.

• Pay taxes and map to CPC/TDS.

• Respond to CPC notices professionally.

• Retain all evidence and reconciliations.

Don’t

• Net gains/losses improperly.

• Hide Indian-sourced gains if NRI.

• Ignore AIS mismatches or CPC adjustments.

• File emotional or defensive rectifications.

Conclusion: Compliance is the Real Alpha

For AY 2026–27, both Residents and Non-Residents must recognize that:

• Law is clear. System is automated.

• Discipline and accuracy prevent penalties, reduce correspondence, and protect wealth.

• CPC adjustments are opportunities for correction, not threats.

Bottom line: Strategic, disciplined compliance is the cornerstone of long-term, legally secure crypto wealth in India.

ITAT Appeals After the 2025 Amendment: Digital Institution as a Jurisdictional Condition

 By CA Surekha S Ahuja

Form 36, DSC Authentication, and the End of Physical Filing

Effective from 3 January 2026

The Income-tax (Appellate Tribunal) Amendment Rules, 2025, notified under section 255(5) and published in the Official Gazette on 3 January 2026, mark a decisive procedural inflection point in ITAT practice.

The amendment does not merely prescribe electronic filing. It redefines the legal act of instituting an appeal. Post-amendment, an appeal before the ITAT comes into existence only through valid electronic filing authenticated by a Digital Signature Certificate (DSC). The Tribunal’s jurisdiction is now invoked digitally—not presumed through paper submission.

Effective Date: The Jurisdictional Cut-Off

Rule 1(2) expressly provides that the amended rules come into force from the date of publication, i.e., 3 January 2026.

• Appeals instituted prior to this date continue to be governed by the erstwhile procedure

• Appeals instituted on or after this date must strictly comply with the amended digital framework

There is no transitional or saving clause. Any appeal attempted to be filed otherwise than in accordance with the amended Rule 6 after the effective date is non est, with attendant exposure to limitation risk.

Rule 6: Reconstitution of the Filing Act

Rule 6 has been entirely substituted to provide that:

A memorandum of appeal to the Appellate Tribunal shall be filed by the appellant or by an agent authorised by him under his digital signature.

The legal consequences are immediate and unambiguous:

• Electronic filing is mandatory

• Authentication by DSC (as recognised under section 3 of the Information Technology Act, 2000) is jurisdictional

• An appeal uploaded without DSC authentication is defective ab initio

The earlier distinction between filing and signing does not survive the amendment.

No Concept of an “Unsigned” Appeal

Handwritten signatures have ceased to have independent legal relevance. The commonly used expression “with or without signature” is legally inaccurate in the post-amendment context.

Digital authentication is the sole recognised mode of execution of an appeal.
Anything short of this does not constitute a valid institution in law.

Exclusive Portal-Based Filing

All appeals and applications before the ITAT must now be filed exclusively through the e-filing portal:

https://itat.gov.in/efiling

• Assessees: Login through OTP or Pre-Validation Code (PVC)

• Departmental Representatives: Login through bench-registered credentials

There is no counter filing, physical submission, or parallel mode available post-amendment.

Filing Discipline: Form 36 in Practice

An appeal is legally instituted only upon completion of the following sequence:

• Portal login and correct bench selection

• Accurate completion of Form 36, including email address and mobile number (now statutorily relevant for service)

• Upload of prescribed Rule 9 enclosures (single electronic copies)

• Online payment of Tribunal fee

• DSC authentication via EmSigner

• Generation of system acknowledgement and appeal number

Anything short of this sequence does not result in a cognisable appeal.

Enclosures, Revisions, and Paper Books — The Compressed Position

• Rule 9 rationalises annexures to single electronic copies, with specific codification for DRP and Commissioner-level appeals

• Rule 9A mandates filing a Revised Form 36 for any change in address, email, or mobile; informal intimation is legally irrelevant

• Rule 18 eliminates physical paper books; all compilations must be digitally filed and authenticated in accordance with Rule 6

Stays, Miscellaneous Applications, and Defects

• Stay applications and miscellaneous applications now follow the same digital procedure as appeals

• Prior applications under section 254(2) and related Tribunal orders must be disclosed and uploaded

• Defects are system-generated, dashboard-based, and rectifiable only electronically

• Service of notices and orders through registered email and mobile is conclusive

Closing Note: The Professional Position

The 2025 Amendment completes the Tribunal’s transition from a paper-administered forum to a system-administered court.

In this regime:

Limitation protects an appeal only if jurisdiction is correctly invoked.

For professionals, the message is clear. DSC readiness, portal discipline, and procedural exactitude are no longer ancillary—they are foundational. Post-2026 ITAT litigation will be tested first on institutional validity, and only thereafter on merits.

Income-tax Act, 2025: A Re-Codification of Law, Not a Re-Creation of Liability

By CA Surekha S Ahuja

Why the New Act Changes How We Read the Law — Not What the Law Is

“When Parliament rewrites a statute to simplify its language, interpretation must preserve continuity of principle, not surrender to novelty of words.”

The Real Question the 2025 Act Poses

The enactment of the Income-tax Act, 2025 has caused a degree of interpretative unease that is unusual for a statute which, by legislative declaration, does not alter tax policy or tax rates. The uncertainty arises not from what the law does, but from how different it looks.

For taxpayers, Chartered Accountants, tax administrators, and courts, the central question is therefore precise and fundamental:

Does a change in statutory language, structure, and terminology amount to a substantive change in law?

When examined with interpretative discipline and fidelity to legislative intent, the answer is unequivocal: No.

The Income-tax Act, 2025 is a re-enactment undertaken for clarity, coherence, and modern presentation. It is not a re-legislation of substantive rights, obligations, or liabilities. It modernises the vehicle; it does not alter the destination.

Legislative Intent: The Primary Interpretative Anchor

The Statement of Objects and Reasons accompanying the Income-tax Act, 2025 is not ornamental. In statutory interpretation, it is foundational.

It records three unambiguous pillars on which the new Act rests:

1. Structural Simplification – to improve clarity, coherence, and navigability

2. Policy Continuity – no major tax policy changes are intended

3. Stability – tax rates and core principles remain unchanged

This legislative declaration carries a decisive interpretative consequence. Courts have consistently held that a re-enactment undertaken without an expressed policy shift cannot be read as a legislative reset.

Accordingly, where two interpretations are possible, the interpretation that preserves continuity must prevail over one that introduces disruption. Any other approach would defeat the very object of the re-enactment.

Drafting Reform Is Not Substantive Reform

The Income-tax Act, 2025 consciously adopts modern drafting techniques:

• Shorter and cleaner sections

• Plain, accessible language

• Consolidation of allied provisions

• Elimination of archaic expressions such as “Notwithstanding anything contained…”

However, drafting refinement is not doctrinal reform.

The Legislature has altered the manner of expression, not the legal effect. To assume that linguistic improvement automatically signals a change in law would be to elevate grammar over governance and syntax over substance.

Courts do not interpret tax statutes by counting words; they interpret them by discerning intent, continuity, and consequence.

“May” vs. “Shall”: A Textbook Case of Misread Change

The Apparent Shift

The most debated feature of the 2025 Act concerns provisions relating to unexplained income (Sections 102–106), corresponding to Sections 68–69D of the 1961 Act.

The linguistic shift is evident:

• Old Law (Section 68): The sum may be charged to income-tax

• New Law (Section 102): The sum shall be charged to income-tax

At first glance, this appears to remove discretion and mandate compulsory additions once an explanation is found unsatisfactory.

Why This Reading Fails in Law

Such a literal reading is legally untenable.

Under the 1961 Act, the Supreme Court in CIT v. Smt. P.K. Noorjahan (237 ITR 570) authoritatively held that the rejection of an explanation does not automatically compel an addition. The Court recognised that discretion based on facts and surrounding circumstances is intrinsic to fair taxation.

This judgment did not merely interpret a word; it declared a principle of tax jurisprudence.

Applying settled interpretative principles:

• Judicial continuity: A re-enactment does not nullify Supreme Court precedent unless it does so expressly

• Constitutional fairness: Mandatory language cannot override reasonableness and proportionality

• Legislative consistency: A statute that disclaims policy change cannot be read to effect one by implication

The Correct Reading

The word “shall” in Section 102 clarifies the charging framework; it does not mandate mechanical taxation divorced from facts. To read it otherwise would:

• Contradict the Statement of Objects and Reasons

• Impliedly overrule binding Supreme Court precedent

• Invite constitutional challenge

Such a construction is unlikely to withstand judicial scrutiny.

Virtual Digital Space: Codifying What Already Existed

The explicit inclusion of “Virtual Digital Space” in Section 261 has been misconstrued by some as a dramatic expansion of search and seizure powers.

The reality is far more restrained.

Even under the 1961 Act:

• Digital evidence was judicially recognised

• Emails, cloud data, and online accounts were accessed during proceedings

• Courts had already adapted search jurisprudence to technological reality

The omission earlier was linguistic, not legal.

The 2025 Act merely names and defines what was already implicit. Importantly:

• Authorization thresholds remain unchanged

• Procedural safeguards are intact

• Constitutional protections continue to govern

This is recognition, not expansion.

“Tax Year”: Simplification Without Extension

Replacing the dual concepts of Previous Year and Assessment Year with a single Tax Year is among the most taxpayer-friendly reforms in the Act. It removes decades of conceptual confusion and aligns Indian tax law with global norms.

Concerns that reassessment timelines under Section 282 have been extended stem from faulty comparison.

• Earlier law counted limitation from the end of the Assessment Year

• The new law counts from the end of the Tax Year

Once the reference points are correctly aligned, the effective reopening window remains substantially the same. There is no enlargement of limitation—only a cleaner starting point.

Conclusion: The Only Sustainable Legal Position

When read as a whole, and in light of its declared intent, the Income-tax Act, 2025 is best understood as:

• New in language

• Modern in structure

• Unchanged in substance

It does not create new liabilities by stealth, nor does it remove judicial discretion by linguistic substitution. Parliament has rewritten the statute for clarity and accessibility, not for augmenting revenue power.

As the profession transitions into this new legislative format, the advisory position must remain firm and consistent:

The law remains what it always was.
Only its expression has matured.

Form 26AS Is Evidence — Not Income

 By CA Surekha S Ahuja

Why Gross Receipts, Reimbursements and Pass-Through Amounts Cannot Be Mechanically Taxed

“Income is a legal conclusion, not a computational residue.

What appears in Form 26AS may trigger inquiry — it cannot conclude taxability.”

The Core Fallacy in Contemporary Assessments

One of the most persistent and systemic errors in income-tax administration today is the confusion between information and income.

Form 26AS, conceived as a tax credit and information statement, is increasingly treated as a proxy for turnover, and worse, as a substitute for statutory charging provisions. This administrative drift has resulted in mechanical additions, unwarranted demands, refund withholdings, and avoidable litigation—particularly in service sectors involving reimbursements, agency arrangements, and pass-through costs.

This editorial addresses the issue at its legal root: the definition, accrual, and character of income under the Act, tested across every procedural stage—from return filing to final appeal.

What the Statute Actually Taxes

The Income-tax Act, 1961 does not tax receipts. It taxes “total income”.

• Section 4 charges tax only on total income.

• Section 5 confines income to that which accrues, arises, or is received beneficially.

• Section 145 mandates computation in accordance with regularly maintained books, unless lawfully rejected.

Interpretative consequence:
For a receipt to be taxable, it must carry beneficial ownership and profit character. Amounts collected for onward remittance—whether freight, statutory levies, or third-party costs—fail this test at inception.

No provision in the Act creates a deeming fiction that:

“Any amount on which tax is deducted shall be deemed income.”

Such a fiction does not exist—and cannot be implied.

The Legal Status of Form 26AS

Form 26AS is a procedural artifact of the TDS mechanism. Its statutory role is limited to:

• reflecting tax deducted, and

• enabling credit under section 199.

It is not:

• a charging provision,

• a rule of evidence overriding books, or

• a determinant of income character.

Courts have consistently held that erroneous or excessive TDS deduction by the payer does not enlarge the tax base of the payee.

The Delhi ITAT in DCIT v. MKF Logistics (P.) Ltd. (2025) authoritatively reaffirmed that:

Additions cannot be made merely on the basis of Form 26AS unless the Revenue first establishes that the receipt represents compensation for services rendered.

This is not a factual observation—it is a jurisdictional threshold.

Real Income Doctrine: A Limitation on Charging Power

The doctrine of real income is not equitable discretion; it is a legal restraint on taxation.

Judicial authority is uniform:

• CIT v. Industrial Engineering Projects Pvt. Ltd. (Delhi HC)
  Reimbursement without profit element is not income.

• CIT v. Siemens Aktionenge sells chaft (Bombay HC)
  Cost recovery does not result in accrual.

• DCIT v. MKF Logistics (ITAT Delhi)
  Form 26AS entries do not determine taxability.

The burden of proof remains on the Revenue, and it does not shift merely because TDS appears in Form 26AS.

Stage-Wise Legal Consequences

Return Filing
Offering only real income is not aggressive tax planning—it is statutory compliance. Artificial alignment with Form 26AS distorts margins and weakens audit and GST consistency.

CPC (Section 143(1))
Automated additions based on Form 26AS exceed statutory scope. CPC has no adjudicatory power to decide the nature of receipts. Such adjustments are ultra vires.

Assessment / Reassessment
If books are accepted and no defect is found, adding Form 26AS difference is internally contradictory. The AO must either reject books under section 145 or drop the addition.

Demand & Refund
A demand founded on an unsustainable addition is itself vulnerable. Refund withholding in such cases compounds the illegality.

Appeal & ITAT
Appellate authorities have consistently restored discipline by rejecting Form-26AS-based taxation where income character is unproven.

GST and Accounting Alignment: The Overlooked Risk

This issue does not exist in isolation.

Under GST law, reimbursements qualifying as pure agent transactions (Rule 33, CGST Rules) are excluded from value of supply.
Under accounting standards, pass-through amounts are liabilities—not revenue.

Treating the same amount as:

• non-turnover for GST,

• liability in financial statements, but

• income for income-tax,

creates a cross-statute inconsistency that is professionally indefensible in audit, peer review, or litigation.

Where the Law Draws the Boundary

This is not a blanket immunity.

Gross receipts may be taxed where:

• the assessee acts as principal,

• reimbursements include embedded margins,

• books are lawfully rejected, or

• agency is unsubstantiated.

Even then, only the income element is taxable—not the gross inflow.

Conclusion

Form 26AS is evidence, not authority.
Turnover is not income.
Reimbursement is not consideration.

The Income-tax Act taxes legal reality, not accounting reflections or compliance artefacts.

Where administration taxes what merely passes through, courts will continue to intervene—not as a matter of leniency, but as a matter of law.

CPC’s Suo-Motu Rectification U/S 154 Denying Section 87A Rebate on STCG under Section 111A AY 2024-25

 By CA Surekha S Ahuja

A Study in Statutory Interpretation, Judicial Discipline and the Limits of Administrative Power

In December 2025, the Centralised Processing Centre (CPC) undertook a system-driven, suo-motu rectification exercise under section 154 for Assessment Year 2024-25, withdrawing the rebate under section 87A earlier granted on short-term capital gains chargeable under section 111A, and raising consequential demands.

What distinguishes this episode from routine computational adjustments is not merely its scale, but its juridical implications. The exercise raises fundamental questions concerning:

• the true scope of section 154,

• the interpretation of section 87A as it stood for AY 2024-25, and

• the constitutional hierarchy between statute, circular and judicial precedent.

This editorial examines the issue as a matter of law and jurisdiction, not as an operational inconvenience.

Section 87A (AY 2024-25): Plain Language and Legislative Design

Section 87A, as applicable to AY 2024-25, grants a rebate of income-tax where the total income of an individual does not exceed ₹7,00,000 under section 115BAC(1A).

The provision contains a specific and conscious exclusion only in respect of:

• long-term capital gains chargeable under section 112A.

Equally significant is what the provision does not exclude:

• short-term capital gains chargeable under section 111A.

This legislative distinction is deliberate. Parliament, while carving out an exclusion for one category of capital gains, chose not to do so for another. The statutory language leaves no scope for implication.

The interpretative maxim expressio unius est exclusio alterius therefore applies with precision:
the express exclusion of one category necessarily implies the inclusion of others.

For AY 2024-25, STCG under section 111A formed part of “total income” eligible for rebate under section 87A.

Finance Act, 2025: Prospective Restriction and Legislative Consciousness

The Finance Act, 2025 introduced an explicit restriction denying rebate under section 87A against tax payable on income chargeable under section 111A.

The legal consequences are unmistakable:

1. The amendment is prospective, by both language and legislative intent.

2. It amounts to a legislative recognition that the pre-amended provision did not contain such a bar.

It is a settled principle of tax jurisprudence that:

a substantive amendment withdrawing or curtailing a statutory benefit cannot operate retrospectively unless the statute expressly so provides.

The December 2025 CPC action, in substance, seeks to achieve retrospectivity through administrative rectification—a method unknown to the Act.

Judicial Position: The Law Is No Longer Res Integra

The controversy stands conclusively addressed by the Ahmedabad Bench of the Tribunal in:

Jayshreeben Jayantibhai Palsana v. ITO
(177 taxmann.com 411)

The Tribunal held, in unequivocal terms, that:

• rebate under section 87A is allowable on STCG taxable under section 111A,

• the absence of a statutory exclusion is determinative,

• CBDT circulars cannot override the Act, and

• the subsequent amendment reinforces the prospective nature of the restriction.

The decision rests on statutory interpretation, not on equity or administrative discretion.
Unless displaced by a jurisdictional High Court, the ruling is binding on departmental authorities and cannot be neutralised through rectification proceedings.

CBDT Circular No. 13/2025: Its Place in the Legal Hierarchy

CBDT Circular No. 13/2025 appears to have informed the December 2025 rectification drive.

While circulars are binding on tax authorities for administrative uniformity, the law is settled that:

• a circular cannot impose a tax burden not authorised by statute, and

• a circular cannot prevail over judicial interpretation.

Where a circular conflicts with the Act as judicially interpreted, the statute and the courts must prevail. Administrative guidance cannot become a substitute for legislative amendment.

Section 154: Rectification or Re-adjudication

Section 154 permits rectification only of:

• mistakes apparent from the record, and

• errors that are patent, obvious and incapable of two views.

In the present case:

• the issue involves interpretation of substantive law,

• a binding Tribunal decision exists, and

• the matter is neither clerical nor arithmetical.

The withdrawal of rebate under section 154, therefore, represents not rectification but re-adjudication, a function wholly alien to the provision.

Rectification cannot be employed as an instrument for retrospective policy enforcement.

The Correct Pre-Appeal Discipline

Given that the impugned action is administrative and algorithmic, the appropriate legal response before invoking appellate jurisdiction lies in a graduated approach:

1. Assessee-initiated rectification, to place on record that no mistake apparent from record exists and that the CPC action itself is jurisdictionally flawed.

2. Administrative grievance, to ensure supervisory and human review where the system continues to apply a legally unsustainable adjustment.

3. Appeal, only as a statutory safeguard where correction mechanisms fail.

This sequence preserves judicial economy and respects the architecture of the Act.

The December 2025 suo-motu section 154 exercise by CPC for AY 2024-25:

• disregards the plain text of section 87A,

• overlooks binding judicial precedent,

• seeks to apply a prospective amendment retrospectively, and

• stretches the concept of rectification beyond its statutory limits.

In tax law:

What Parliament has not excluded cannot be excluded by administrative interpretation.
What is prospectively amended cannot be retrospectively withdrawn.
What is judicially settled cannot be reopened through section 154.

For AY 2024-25, rebate under section 87A on STCG chargeable under section 111A remains legally admissible, and demands raised to the contrary are unsustainable in law.

This episode underscores a broader institutional lesson:

Automation may enhance efficiency, but it cannot dilute legality.

E-Commerce Accounting & Compliance: Capturing Hidden Profits Across Platforms

By Surekha S Ahuja

 "In the world of e-commerce, sales are reported on the platform—but profits are only realized in the books. Miss a reconciliation, and silent losses quietly erode your margins."

Introduction: The Hidden Complexity of Multi-Platform Accounting

Managing settlements across Amazon, BigBasket, Flipkart, Meesho, Nykaa, and other platforms may seem straightforward. Yet, without structured accounting procedures, TCS, TDS, GST, promotional adjustments, and platform commissions can silently impact profitability.

Small teams, even with competent accountants, often encounter:

• Misaligned GST/ITC claims across platforms.

• Overlooked TDS obligations on promotional or contract expenses.

• Misclassified promotional freebies affecting reported revenue.

• Inconsistent platform expense recognition, masking true margins.

• Lost recoverables due to non-reconciliation of gross sales vs net settlements.

Professional Insight: Hidden balances on platforms can exceed net monthly profits. A rigorous SOP and structured reconciliation framework is not just compliance—it protects and realizes revenue.

The Multi-Platform Accounts SOP & Workflow

1. Platform Settlement Receipt

• Collect all platform settlement statements and verify totals: gross sales, returns, chargebacks, TCS/TDS deductions, and promotional adjustments.

2. Breakdown & Categorization

• Sales Revenue: Net of returns and chargebacks.

• Promotional Freebies: Document separately; do not reduce revenue.

• Returns / Chargebacks: Link to original invoices.

• Commissions & Fees: FBA, logistics, COD, marketing; segregate from promotional costs.

3. Adjust Platform Expenses

• Record platform-specific costs as operating expenses.

• Separate from marketing/promo to reflect true operating margin.

4. Invoice / Debit / Credit Note Posting

• Classify taxable vs non-taxable components in ERP.

• Attach promo documentation / DN-CN references.

• Use correct voucher types for audit traceability.

5. GST / TCS / ITC Classification

• Reconcile GSTR-2B vs ERP entries; verify TCS receivables.

• Claim eligible ITC; exclude freebies/promo adjustments from ITC reversal.

• Ensure compliance with CBIC circulars & notifications.

6. TDS Determination & Recording

• Apply Sec 194C TDS on promotional/service contracts >₹30,000 per quarter.

• ERP entry:

  • Dr Promo Expense

  • Cr TDS Payable

  • Cr Vendor / Platform

• Deposit via Form 26Q; verify Form 26AS.

7. Monthly Reconciliation & Tracker Update

• Compare settlement vs ERP vs portal.

• Track ITC, TCS, TDS, platform expenses, promo costs, net realization.

• Update monthly tracker for variance analysis and audit readiness.

8. Variance Analysis & Escalation

• Flag deviations >1%.

• Escalate to CFO / Head Accounts.

• Document corrective actions for audit trail.

9. Quarterly Review & Audit Documentation

• Conduct full quarterly reconciliation across all platforms.

• Ensure RCM compliance.

• Retain audit-ready vouchers, promo documentation, DNs/CNs, and reconciliations for 7 years.

Platform-Specific Accounting Insights

Platform	Transaction Type	GST	TCS	Accounting Treatment	TDS Applicability	Platform Expenses / Commission
Amazon	Promo Invoice	Yes	1%	Dr Promo Expense, Dr ITC, Cr Vendor	2% Sec 194C >30k	8–15% commission, FBA charges
BigBasket	Debit Note	No	1%	Dr Promo Expense, Cr Sales Adjustment	2% Sec 194C	6–12% commission, logistics charges
Flipkart	Settlement Invoice	Yes	1%	Dr Sales, Dr ITC, Cr Vendor	2% Sec 194C	8–18% commission, packing fees
Meesho	Promo Credit / DN	No	1%	Dr Promo Expense, Cr Vendor	2% Sec 194C	10–20% commission
Nykaa	Invoice / DN	Yes	1%	Dr Expense/Sales, Dr ITC, Cr Vendor	2% Sec 194C	12–22% commission, COD charges

Key Insight: Freebies and promotional adjustments are marketing expenses, not revenue reductions. Platform commissions must always be separated from operating costs to preserve margin clarity.

Professional Insights for CFOs & Audit Committees

• Silent losses are rarely due to sales—they stem from incomplete accounting and reconciliation.

• Small accounting teams can efficiently manage reconciliation with structured SOPs, trackers, and maker–checker control.

• Proper classification of commissions, expenses, and promotional items ensures accurate reporting.

• Timely variance analysis and escalation prevents audit exceptions and unclaimed credits.

To maximize recoverables and maintain compliance:

• Implement platform-specific SOPs for accounting, reconciliation, and compliance.

• Maintain a monthly tracker capturing GST, TCS, TDS, platform expenses, and promotional costs.

• Conduct quarterly variance analysis and escalate material deviations to CFO.

• Seek professional guidance for audit readiness, Ind AS / GST alignment, and cross-platform compliance.

"E-commerce platforms report the sales, but only disciplined accounting ensures the profit story is realized."