Resignation, Retirement, VRS & Lay-Off Tax Rules: Gratuity, Leave Encashment and Exit Benefits Guide AY 2026-27

 By CA Surekha S Ahuja

Your exit from employment is not just a career decision; it is also a financial decision. Understanding the tax treatment of resignation, retirement, VRS and lay-off benefits can help you protect your hard-earned money.

Understand tax rules for resignation, retirement, VRS and layoffs. Complete guide on gratuity exemption, leave encashment under Section 10(10AA), VRS compensation under Section 10(10C) and retrenchment compensation under Section 10(10B).

Introduction: Why Understanding Job Exit Tax Rules Matters

With frequent job changes, corporate restructuring and layoffs becoming common, employees must understand the difference between:

• Resignation
• Retirement
• Voluntary Retirement Scheme (VRS)
• Termination
• Lay-off and Retrenchment

The mode of separation determines the treatment of important benefits such as:

✔ Gratuity
✔ Leave encashment
✔ VRS compensation
✔ Retrenchment compensation
✔ Provident Fund
✔ Pension benefits

A simple difference in terminology used in your relieving letter or settlement document can impact your tax position.

Resignation vs Retirement vs VRS vs Lay-Off: Key Differences

Type of Exit	Meaning	Who Initiates	Tax & Benefit Impact
Resignation	Employee voluntarily leaves service before retirement age	Employee	Normal exit benefits; no VRS exemption
Retirement	Exit on attaining retirement age or under service rules	Employer/Employee as per rules	Retirement benefits become payable
VRS	Early retirement under an employer-approved scheme	Employee under employer scheme	Section 10(10C) benefit may apply
Termination	Employer ends employment	Employer	Depends on reason and settlement terms
Lay-off/Retrenchment	Job loss due to business restructuring	Employer	Retrenchment compensation provisions may apply

Leave Encashment Tax Exemption under Section 10(10AA)

One of the Most Misunderstood Employee Benefits

Many employees believe that leave encashment exemption is available only on retirement.

However, Section 10(10AA) covers leave encashment received:

• On retirement,
• On resignation,
• Or on other cessation of employment.

Therefore, leave encashment received at the time of resignation may also qualify for exemption, subject to the conditions and limits prescribed under the Income-tax Act.

Tax Treatment of Leave Encashment

Category of Employee	Tax Treatment under Section 10(10AA)
Government employee	Fully exempt
Non-government employee	Exempt up to the prescribed limit; balance taxable

For non-government employees, exemption is restricted to the least of the prescribed conditions, including:

• Actual leave encashment received,
• Prescribed monetary ceiling,
• Salary-based calculation,
• Value of eligible accumulated leave.

Any amount exceeding the exemption limit is taxable under the head Income from Salary.

Gratuity Tax Exemption under Section 10(10)

Gratuity is payable to eligible employees who satisfy the conditions under the applicable gratuity law or employer scheme.

The exemption under Section 10(10) depends upon:

• Whether the employee is covered under the Payment of Gratuity Act,
• Type of employer,
• Salary and service period,
• Statutory limits applicable at the time of payment.

Employees should obtain a proper gratuity calculation before accepting the final settlement.

VRS Compensation Tax Benefit under Section 10(10C)

A genuine Voluntary Retirement Scheme (VRS) can provide a specific tax benefit.

Compensation received under a qualifying VRS may be exempt up to ₹5 lakh under Section 10(10C), provided the scheme satisfies the conditions prescribed under Rule 2BA of the Income-tax Rules.

Important:

A voluntary resignation with an ex-gratia payment is not automatically a VRS.

Employees should check:

✔ Whether a formal VRS scheme exists
✔ Whether Rule 2BA conditions are fulfilled
✔ Whether the payment is correctly described in settlement documents

Retrenchment Compensation and Lay-Off Benefits

When an employee loses a job due to:

• Business restructuring,
• Role elimination,
• Workforce reduction,

the payment may be treated as retrenchment compensation.

Eligible retrenchment compensation may qualify for exemption under Section 10(10B), subject to applicable conditions.

The reason mentioned in the termination letter is extremely important.

Exit Benefits Tax Comparison

Benefit	Resignation	Retirement	VRS	Lay-Off/Retrenchment
Gratuity	Subject to eligibility	Available	Available	Available if eligible
Leave Encashment	Section 10(10AA) subject to limits	Section 10(10AA)	Section 10(10AA)	Section 10(10AA)
VRS Compensation	Not available	Not applicable	Section 10(10C) possible	Not available
Retrenchment Compensation	Not applicable	Not applicable	Not applicable	Section 10(10B) possible

Common Mistakes Employees Make During Job Exit

❌ Treating voluntary separation as VRS without checking conditions

❌ Accepting settlement documents without checking tax treatment

❌ Ignoring leave encashment exemption under Section 10(10AA)

❌ Not preserving relieving letters and settlement documents

❌ Withdrawing PF/superannuation benefits without tax planning

Checklist Before Leaving Your Job

Before signing your exit documents, collect:

✅ Resignation acceptance / retirement order / VRS approval letter
✅ Full and final settlement statement
✅ Form 16
✅ Gratuity calculation
✅ Leave encashment calculation
✅ VRS scheme document (if applicable)
✅ PF and pension transfer details

Key Takeaways

✔ Resignation, retirement, VRS and lay-off are not the same under tax law.

✔ Section 10(10AA) provides an important exemption for leave encashment, including cases of resignation, subject to limits.

✔ Section 10(10C) applies only to genuine qualifying VRS schemes.

✔ Section 10(10B) may provide relief for eligible retrenchment compensation.

✔ Correct documentation is as important as correct computation.

Final Thought

A career exit is not merely the end of employment; it is a financial transaction involving your accumulated rights and benefits.

Before signing your resignation, retirement or separation papers, understand the tax implications of every component of your settlement. The right classification of your exit can protect your benefits and reduce avoidable tax costs.

CBDT Brings Foreign Asset & Income Data into AIS and Form 26AS: What Every Taxpayer Must Know Before Filing the Next ITR

 By CA Surekha Ahuja

A Complete 2026 Guide to AEOI Reporting, Foreign Asset Disclosure, Schedule FA, Black Money Act Risks and Practical Compliance

The Income-tax Department is not getting new information about your foreign assets. It has been receiving it for years. What has changed is that you will now be able to see much of that information yourself.

That single change could significantly reshape how taxpayers with overseas financial interests approach compliance.

On 8 July 2026, the Central Board of Direct Taxes (CBDT) issued an important order authorising the Director General of Income-tax (Systems) to upload information received under the Automatic Exchange of Information (AEOI) framework into the Annual Information Statement (AIS – Form 168) and Form 26AS.

This order does not introduce a new tax, nor does it create any new disclosure obligation. Instead, it makes information that the Income-tax Department has already been receiving under international information-sharing agreements visible to taxpayers through their tax portal.

For many taxpayers, this will be the first opportunity to compare what foreign financial institutions have reported to India with what has actually been disclosed in their Income-tax Returns.

The message is simple:

The era of "the Department may not know" is ending. The era of proactive reconciliation has begun.

At a Glance

Particulars	Details
CBDT Order	8 July 2026
Legal basis	Section 239 of the Income-tax Act, 2025 read with Rule 245(2) of the Income-tax Rules, 2026
What changes	AEOI information will be uploaded into AIS and Form 26AS
Initial upload	CY 2022 and the combined block of CY 2023–2024
Future uploads	Rolling uploads within 90 days from receipt
Who should review	Every taxpayer with overseas financial interests

Who Should Read This Article?

This guide is especially relevant if you are:

• A resident holding a foreign bank account or investment.
• An NRI who became resident during any part of the year.
• An employee with foreign ESOPs or RSUs.
• A person who has remitted funds overseas under the Liberalised Remittance Scheme (LRS).
• A student who studied or worked abroad.
• A returning Indian.
• A seafarer.
• A Chartered Accountant advising clients with cross-border financial interests.

Why This CBDT Order Matters

For years, India has been receiving financial information from numerous jurisdictions under the Common Reporting Standard (CRS), FATCA-related arrangements, and tax treaties.

Until now, much of this information remained within the Department for risk assessment and scrutiny selection.

The CBDT order changes that by allowing taxpayers to view much of the same information through AIS and Form 26AS.

This promotes transparency, encourages voluntary compliance and allows genuine reporting errors to be identified before they become assessment issues.

What Information May Appear?

Depending on what has been reported by the foreign jurisdiction, AIS may include:

Information	Examples
Foreign bank accounts	Institution, jurisdiction, balance, interest
Investment accounts	Foreign shares, ETFs, mutual funds
Dividend income	Overseas investments
Sale proceeds	Disposal of foreign securities
Custodial accounts	Brokerage holdings
Investment-linked insurance	Foreign insurance products
Interests in foreign entities	Shares, debt, partnership interests
Controlling person information	Certain trusts and entities

Myths vs Reality

Myth	Reality
My foreign account is not in AIS, so I need not disclose it.	Incorrect. Disclosure obligations arise under the law, not from AIS.
Every AIS entry is correct.	AIS should always be reconciled with your own records.
Small foreign balances are exempt.	Reporting obligations generally do not depend on the size of the balance.
Only wealthy taxpayers are affected.	Anyone with reportable foreign assets or income should review their position carefully.

The 8-Step Compliance Plan

1. Download AIS and Form 26AS.
2. Gather all overseas financial records.
3. Prepare a reconciliation statement.
4. Identify and address genuine omissions where legally permissible.
5. Submit AIS feedback if any entry is incorrect.
6. Re-evaluate your residential status.
7. Assess potential Black Money Act exposure with professional advice where appropriate.
8. Make AIS reconciliation an annual compliance exercise.

Common Mistakes

Some of the most frequent reporting errors include:

• Reporting foreign income but omitting Schedule FA.
• Ignoring dormant foreign bank accounts.
• Incorrect determination of residential status.
• Failure to disclose joint foreign accounts.
• Assuming ESOPs or RSUs require no reporting.
• Not reconciling foreign brokerage statements.
• Believing that small balances are immaterial.

What Should Taxpayers Do Now?

The best approach is proactive rather than reactive.

Before filing your next Income-tax Return:

• Review AIS and Form 26AS.
• Compare every overseas financial account with your own records.
• Verify reporting in Schedule FA and other relevant schedules.
• Correct genuine errors wherever legally possible.
• Preserve supporting documentation.
• Seek professional advice where significant exposures or complex issues exist.

Final Thoughts

This CBDT order represents a significant milestone in India's journey towards greater tax transparency.

It is not a new disclosure law. It is not a new tax. It is a new level of visibility.

For compliant taxpayers, this provides an opportunity to verify information, correct genuine mistakes and file more accurate returns.

For the tax administration, it enhances transparency and facilitates more focused compliance efforts.

The most effective strategy is therefore straightforward:

Review your AIS. Reconcile your overseas financial information. Make accurate disclosures. Resolve discrepancies early.

In today's data-driven tax environment, proactive compliance is no longer merely good practice—it is an essential part of responsible tax management.

Form 10BE & Form 10BD (Forms 114 & 113): Complete Guide for Donors and NGOs (FY 2025–26 & FY 2026–27) Part 2

 By Ca Surekha Ahuja

Part 2: Protecting Donation Deduction in ITR, Assessment Risks, Mismatch Resolution and Practical Compliance Guide

Part 1 explained the compliance framework of Form 10BE and Form 10BD, including the responsibilities of donors and charitable institutions.

The next practical question is:

After making a donation and receiving the certificate, how can a donor ensure that the deduction claim remains protected?

A genuine donation deserves a genuine tax benefit. However, the benefit is secured only when the entire compliance chain is complete.

The Donation Deduction Protection Framework

A donor's claim is strongest when the following five links are properly connected:

Compliance Link	What It Ensures
Donation made to eligible institution	Donation qualifies under applicable provisions
Payment trail available	Genuineness of transaction is established
Institution reports donation correctly	Records match with tax department reporting
Form 10BE/Form 114 available	Prescribed certificate supports the claim
Correct ITR disclosure	Deduction is properly claimed

A missing link can result in unnecessary clarification during return processing or assessment.

How to Claim Donation Deduction in ITR?

Form 10BE/Form 114 is a supporting document. It is not required to be uploaded with the Income-tax Return.

The donor should:

• enter eligible donation details in the applicable schedule;
• claim deduction as per the provisions applicable to that donation;
• retain Form 10BE/Form 114 and supporting documents.

The deduction should be claimed only after verifying:

• institution details;
• donation amount;
• eligibility category; and
• supporting documents.

What Details Should Be Checked Before Filing ITR?

Before claiming deduction, the donor should verify:

Particular	Verification Required
Name of institution	Should match certificate and records
PAN of institution	Should be correctly mentioned
Donation amount	Should match payment proof
Date of donation	Should relate to correct financial year
Deduction amount	Should be computed as per applicable rules

A simple reconciliation before filing the return can avoid future disputes.

Assessment Perspective: What May Be Verified?

During processing or assessment, the tax authorities may examine whether:

1. The Donation Was Genuine

The donor should be able to establish:

• actual payment;
• identity of institution;
• supporting certificate; and
• proper reporting.

2. The Institution Was Eligible

The donor should ensure that the institution was eligible to receive donations qualifying for deduction under the relevant provisions.

3. The Reporting Trail Matches

The following should be consistent:

Donation payment
↓
Donation receipt
↓
Form 10BE/Form 114
↓
Institution reporting
↓
ITR claim

Red Flags for Donors

Before claiming a donation deduction, taxpayers should be cautious where:

⚠ Donation is made to an unknown or unverified institution.

⚠ A large donation is claimed without proper documentation.

⚠ The receipt amount differs from payment records.

⚠ Form 10BE/Form 114 is not available.

⚠ The institution requests incorrect donor details.

⚠ Donation is made through untraceable modes.

A genuine donation with proper records generally avoids unnecessary complications.

Common Issues and Practical Solutions

Issue 1: Form 10BE/Form 114 Not Received

Situation - The donor has made payment and received only a donation receipt.

Practical Solution

The donor should request Form 10BE/Form 114 from the institution before finalising the tax claim, particularly for substantial donations.

Issue 2: PAN Mismatch

Situation - The donor's PAN is incorrectly reported by the institution.

Risk - The donation may not reconcile properly during verification.

Solution

The donor should:

• inform the institution;
• provide correct PAN details;
• obtain corrected documentation.

Issue 3: Difference Between Payment and Certificate Amount

Situation- Bank records show ₹5,00,000 donation, but certificate reflects ₹50,000.

Solution

The donor should:

1. Preserve bank/payment proof.
2. Contact the institution.
3. Request correction.
4. Retain revised documents.

Issue 4: Donation Not Properly Reported by Institution

A donor may have fulfilled all obligations, but the institution may have made an error in reporting.

The donor should maintain evidence showing:

• genuine payment;
• certificate received;
• communication with institution; and
• correction request, if required.

Issue 5: Donation Made at Year End

March donations require additional attention.

Both donor and institution should verify:

• date of payment;
• financial year;
• accounting entry;
• reporting details.

Year-end errors are among the most common causes of mismatch.

Consequences Where Form 10BD/Form 113 Compliance Is Not Proper

The institution responsible for filing the statement may face:

Late Fee - Applicable late fee may arise:

₹200 per day of default

subject to prescribed limits.

Penalty - Penalty provisions may apply:

₹10,000 to ₹1,00,000

depending on facts and circumstances.

However, donors should remember:

A penalty imposed on the institution does not automatically validate every donor claim.

The donor should maintain independent evidence supporting the deduction.

Guidance for NGOs Before Closing Annual Compliance

A professional compliance review should include:

Donor Data Review

✓ Verify PAN details
✓ Check donor names
✓ Review large donations
✓ Identify incomplete records

Accounting Reconciliation

✓ Match donation register with books
✓ Match receipts with bank credits
✓ Review year-end donations
✓ Reconcile reported figures

Final Review

✓ Validate donor-wise details
✓ Complete filing within due date
✓ Issue certificates promptly
✓ Preserve records and acknowledgement

Special Guidance for Corporate Donors

Companies claiming donation deductions should maintain a stronger documentation file.

The file should generally contain:

• approval/authorisation documents wherever applicable;
• payment evidence;
• institution details;
• Form 10BE/Form 114;
• accounting records;
• ITR disclosure details.

For significant donations, review should be completed before filing the return rather than during assessment.

FAQs: Form 10BE and Form 10BD Practical Issues

Q1. Can I claim deduction if I do not have Form 10BE?

It is advisable to obtain Form 10BE/Form 114 before claiming significant deductions, as it provides prescribed support for the claim.

Q2. Do I need to upload Form 10BE with my ITR?

No. It should be retained as supporting evidence.

Q3. Is Form 10BE issued by the donor or NGO?

It is issued by the eligible institution receiving the donation.

Q4. What if the NGO has reported incorrect PAN?

The donor should request correction from the institution and preserve supporting communication.

Q5. What if donation amount in Form 10BE is incorrect?

The institution should rectify the error as per the applicable procedure and issue corrected details.

Q6. Is payment proof necessary after receiving Form 10BE?

Yes. Form 10BE and payment proof together provide stronger evidence.

Q7. Can UPI donation qualify for deduction?

Yes, subject to fulfilment of applicable conditions and proper documentation.

Q8. Are all donations eligible for deduction?

No. Eligibility depends on the nature of donation, institution approval and conditions prescribed under the law.

Q9. Should NGOs maintain donor records even after filing Form 10BD?

Yes. Records should be preserved for future verification and compliance purposes.

Q10. What is the biggest mistake donors should avoid?

Claiming a large deduction without verifying documentation and institution details.

Final Professional Guidance

A donation begins with generosity, but a tax benefit is protected through compliance.

For donors:

Proper documentation ensures that their genuine contribution receives the benefit intended under the Income-tax law.

For NGOs:

Accurate reporting is not merely a statutory requirement; it is a responsibility towards every donor who supports their mission.

The best practice is simple:

Verify before donating.
Reconcile before filing.
Preserve before assessment.

A transparent donation system is created when generosity is supported by accountability.

Compliance does not reduce the spirit of charity; it strengthens trust between donors, institutions and the tax system.

---

Form 10BE & Form 10BD (Forms 114 & 113): Complete Guide for Donors and NGOs (FY 2025–26 & FY 2026–27)

 By CA Surekha Ahuja

Donation Certificates, 80G Deduction, NGO Compliance, Due Dates and Practical Solutions

A Donation Is More Than a Receipt

A donation represents trust.

A donor trusts a charitable institution to use the contribution for a meaningful purpose. At the same time, the donor expects that the tax benefit available under the Income-tax law is properly supported.

A common question asked by taxpayers is:

"I have made a donation and received a receipt. Can I claim the deduction in my Income-tax Return?"

The answer is:

Not always.

A donation receipt confirms that the institution has received the contribution. However, for claiming deduction under the Income-tax law, the donor should also ensure that the prescribed reporting and certification requirements are completed.

For eligible institutions:

• Form 10BD is the statement filed with the Income-tax Department reporting donations received.
• Form 10BE is the certificate issued to the donor supporting the deduction claim.

Under the Income-tax Act, 2025, the corresponding forms are:

• Form 113 replacing Form 10BD; and
• Form 114 replacing Form 10BE.

The objective remains unchanged:

The institution reports the donation. The donor receives the certificate required to support the tax deduction.

This guide explains the practical compliance requirements for donors, NGOs, trusts, institutions and tax professionals for FY 2025–26 and FY 2026–27 onwards.

Quick Summary: What You Need to Know

If you are	What you should do
Individual donor	Obtain Form 10BE/Form 114 and preserve payment proof.
Company/HUF donor	Ensure the donation claim is supported by proper documentation and reconciliation.
NGO/Trust/Institution	File Form 10BD/Form 113 and issue Form 10BE/Form 114 within the prescribed time.
Tax professional	Reconcile donation records, certificates and return disclosures before filing.

Form 10BE and Form 10BD: The Basic Difference

Many donors and institutions confuse these two forms.

The easiest way to remember:

Form 10BD goes to the Income-tax Department.

Form 10BE goes to the donor.

Particular	Form 10BE	Form 10BD
Meaning	Donation certificate	Statement of donations received
Purpose	Supports donor's deduction claim	Reports donations to the Income-tax Department
Prepared by	NGO/Trust/Institution	NGO/Trust/Institution
Filed with Department	No	Yes
Issued to donor	Yes	No
Responsibility	Donee institution	Donee institution

Forms 113 and 114 Under Income-tax Act, 2025

The Income-tax Act, 2025 introduces a new structure and renumbering of provisions and forms.

For FY 2026–27 onwards:

Existing Form	Corresponding Form under Income-tax Act, 2025	Purpose
Form 10BD	Form 113	Statement of donations received by the institution
Form 10BE	Form 114	Certificate issued to the donor

For practical understanding, taxpayers may continue to search for Form 10BE and Form 10BD, as these terms remain widely used. However, professionals and institutions should refer to the applicable forms prescribed for the relevant financial year.

CA Surekha's Practical Insight

During transition periods, the biggest compliance risk is not the law itself but using an outdated form or process. Institutions should always verify the applicable form before filing for the relevant financial year.

Who Has to Comply?

The responsibility is primarily on the donee institution.

Responsibilities of NGOs / Trusts / Institutions

They must:

✓ Maintain complete donor records.
✓ File Form 10BD/Form 113 with donor-wise details.
✓ Issue Form 10BE/Form 114 to eligible donors.
✓ Maintain supporting documents.

Responsibilities of Donors

They must:

✓ Donate to eligible institutions.
✓ Provide correct PAN and personal details.
✓ Obtain Form 10BE/Form 114.
✓ Preserve payment proof.
✓ Claim deduction correctly in the Income-tax Return.

A donor does not file Form 10BE, Form 10BD, Form 113 or Form 114.

Who Is Required to File Form 10BD / Form 113?

The reporting obligation applies to eligible institutions receiving donations that qualify for deduction claims.

These may include:

• charitable trusts;
• institutions approved under section 80G;
• universities and educational institutions eligible under the Income-tax law;
• research institutions eligible under section 35; and
• other approved entities covered by the applicable provisions.

Before issuing certificates, institutions should ensure that their approval or registration remains valid.

Due Date for Filing and Issuing Certificates

The institution is generally required to complete both compliance steps:

1. Filing the donation statement; and
2. Issuing the donation certificate to donors.

The general due date is:

31 May following the end of the relevant financial year.

Financial Year	Due Date
FY 2025–26	31 May 2026
FY 2026–27	31 May 2027*

*Subject to any extension or notification issued by the Government.

CA Surekha's Practical Insight

NGOs should not treat 31 May as the starting point of compliance. The reconciliation process should ideally begin immediately after the financial year closes. Most errors arise due to incomplete donor details collected during the year.

Practical Compliance Guide for NGOs

A systematic approach can prevent most compliance issues.

Step 1: Maintain Proper Donor Records

Every institution should maintain:

• donor name;
• PAN;
• address;
• date of donation;
• amount donated;
• mode of payment;
• receipt number; and
• bank reference.

The quality of Form 10BD/Form 113 depends entirely on the quality of donor data maintained during the year.

Step 2: Verify Donor Details

Before issuing certificates, verify:

✓ Correct spelling of donor name.
✓ Correct PAN.
✓ Correct donation amount.
✓ Correct financial year.
✓ Correct payment details.

A small spelling mistake or wrong PAN can create unnecessary difficulty for the donor.

Step 3: Reconcile Before Filing

Before filing Form 10BD/Form 113:

Compare:

• donation register;
• books of account;
• bank statements;
• donation receipts; and
• donor details.

Special attention should be given to:

• March donations;
• large-value donations;
• donations received near year-end; and
• donations where donor information is incomplete.

Step 4: File Statement and Issue Certificates

After reconciliation:

• file Form 10BD/Form 113 within the due date;
• issue Form 10BE/Form 114 to donors;
• retain acknowledgement and supporting records.

Practical Compliance Guide for Donors

For donors, compliance is simple but important.

Before Making Donation

✔ Verify that the institution is eligible to issue donation certificates.
✔ Provide your name exactly as per PAN records.
✔ Provide correct PAN details.

At the Time of Donation

Prefer payment modes that create a clear trail:

• bank transfer;
• UPI;
• cheque; or
• other traceable banking channels.

Obtain: donation receipt; and Form 10BE/Form 114.

While Filing Income-tax Return

Remember:

• Do not upload Form 10BE/Form 114 with the ITR.
• Enter donation details in the relevant schedule.
• Preserve documents for future reference.

Practical Example

Situation:

Mr A donated ₹1,00,000 to an approved charitable institution during FY 2025–26.

The institution issued a donation receipt immediately. However, while filing Form 10BD, the PAN was entered incorrectly.

Result: Mr A may have made a genuine donation, but the mismatch can create unnecessary questions while processing or assessing the deduction claim.

Solution: Verify details before filing:

• donor name;
• PAN;
• donation amount; and
• payment records.

A two-minute verification can prevent months of follow-up.

Is a Manual Form 10BE Valid?

A manually prepared Form 10BE may be acceptable where permitted, provided the information is accurate and matches the reported details.

The important requirement is consistency between:

1. Form 10BE/Form 114 issued to donor;
2. Form 10BD/Form 113 filed by the institution; and
3. Actual payment records.

The format matters less than accuracy and reconciliation.

Common Mistakes by NGOs and Donors

Common Mistake	Impact	Better Practice
Incorrect PAN	Certificate mismatch	Verify PAN before issuing
Wrong donation amount	Deduction issue	Reconcile with bank records
Delay in filing	Late fee and penalty exposure	Complete compliance early
Missing Form 10BE	Donor difficulty	Issue certificates promptly
Incorrect financial year	Wrong reporting	Verify donation date

Key Takeaways

✓ Form 10BD/Form 113 is filed by the institution, not the donor.
✓ Form 10BE/Form 114 is issued to the donor by the institution.
✓ Donation receipts alone may not be sufficient for claiming deduction.
✓ Accurate PAN, amount and donor details are critical.
✓ Proper compliance protects both NGOs and donors.

Continued in Part 2

Part 2 will cover:

• Claiming donation deduction in the Income-tax Return.
• Penalties and consequences.
• What happens if Form 10BE and Form 10BD do not match.
• Correction mechanism.
• Detailed FAQs.
• Donor and NGO compliance checklists.
• Final professional guidance.

Will vs Gift Deed: Complete Succession Planning Guide for Families with Resident and NRI Heirs (Part 2 of 2)

By CA Surekha S. Ahuja

The transfer of Indian property within resident and non-resident families involves a careful interplay of succession law, property law, taxation and FEMA regulations. This article reflects the provisions of the Income-tax Act, 2025 applicable from Assessment Year 2026–27. Stamp duty, registration requirements, probate and succession laws are governed by the applicable State laws and other relevant legislation. Readers should verify the latest legal position from the Income Tax Department's official portal and seek professional advice before implementing any succession or estate-planning strategy.

Why This Guide Matters

In Part 1, we examined an important but often overlooked reality—resident and NRI heirs may not face identical tax consequences when they ultimately sell the same inherited property.

We discussed:

• the difference in capital gains taxation;
• higher withholding requirements under Section 195 for NRI sellers;
• the importance of obtaining a Lower Deduction Certificate before sale;
• DTAA relief;
• reinvestment provisions;
• CGAS compliance; and
• the significance of determining the correct cost of acquisition and fair market value wherever applicable.

The next question naturally follows.

If tax consequences differ at the time of sale, how should parents transfer the property in the first place?

Should they execute:

• a Will,
• a Gift Deed,
• a Family Settlement, or
• leave the property jointly to their children?

Many families assume that choosing one method over another will substantially reduce future tax liability.

In most situations, that assumption is incorrect.

The transfer instrument primarily determines ownership, flexibility, succession planning and family certainty, whereas the future tax liability generally depends upon the law applicable when the heir eventually sells the property.

Accordingly, selecting the appropriate transfer mechanism is principally an estate-planning decision rather than a capital gains tax planning exercise.

Quick Answer: Which Transfer Method Is Generally Preferable?

Issue	Practical Position
Maximum flexibility	Will
Immediate transfer during lifetime	Gift Deed
Settlement amongst family members	Family Settlement
Mixed Resident and NRI families	A properly drafted Will with clearly defined ownership shares often provides the greatest flexibility
Future capital gains tax	Generally depends upon the residential status of the heir and the law applicable at the time of sale—not merely on the transfer instrument

The Estate Planning Principle Every Parent Should Understand

Parents frequently spend considerable time deciding whether to execute a Will or a Gift Deed, believing that one option will necessarily reduce the future tax burden on their children.

In reality, the method of transfer generally does not determine the capital gains tax payable when the inherited property is eventually sold.

The future tax consequences are ordinarily influenced by factors such as:

• the residential status of each heir;
• the applicable provisions of the Income-tax Act, 2025;
• the period of holding;
• the cost of acquisition;
• availability of exemption provisions;
• compliance with TDS requirements; and
• FEMA regulations wherever applicable.

Planning Implication

Parents should first determine how they wish to distribute ownership, and only thereafter examine the resulting tax implications. Designing an estate plan solely around perceived tax savings often leads to avoidable complications and family disputes.

Will vs Family Settlement vs Gift Deed – A Practical Comparison

Particulars	Will	Family Settlement	Gift Deed
When ownership passes	After the death of the testator	Immediately	Immediately
Can it be modified?	Yes, during the lifetime of the testator	Normally difficult after execution	Generally irrevocable once validly executed
Registration	Optional, though registration is often advisable	Generally required where rights in immovable property are created or extinguished	Mandatory
Stamp duty	Generally no stamp duty on execution of a Will	Governed by State law	Governed by State law
Probate	May be required in specified cases depending upon the applicable succession law	Usually not required	Not applicable
Tax implications at transfer	Generally none	Generally none in a genuine family arrangement	Gifts to specified relatives are generally exempt under Section 56(2)(x)
Primary advantage	Flexibility	Immediate certainty	Immediate transfer of ownership

When Is a Will Generally the Better Choice?

A Will is often the most suitable succession planning instrument where parents wish to:

• retain ownership and control during their lifetime;
• revise the distribution if family circumstances change;
• provide unequal shares where justified;
• deal separately with multiple properties and financial assets; or
• accommodate future changes in the residential status of children.

Perhaps the greatest advantage of a Will is flexibility.

So long as the testator remains legally competent, a Will may ordinarily be amended, replaced or revoked at any time.

Planning Implication

Where children may later settle abroad, return to India or experience changes in financial circumstances, a Will usually provides considerably greater flexibility than an irrevocable Gift Deed.

When Can a Family Settlement Be Appropriate?

A Family Settlement may be appropriate where:

• all stakeholders have already agreed on the proposed distribution;
• family disputes require resolution;
• ownership needs to be regularised immediately; or
• family members prefer certainty without waiting for succession to take effect after death.

Properly documented family settlements have frequently helped families avoid prolonged litigation while preserving long-term relationships.

When Should a Gift Deed Be Considered?

A Gift Deed may be appropriate where:

• immediate transfer of ownership is genuinely intended;
• the transfer is made in favour of specified relatives covered by Section 56(2)(x);
• parents no longer require ownership or control of the property; and
• the family understands that the transfer is generally irrevocable.

However, because ownership passes immediately, parents should carefully evaluate their own financial security before gifting away valuable assets.

CA's Practical Tip

Many parents execute Gift Deeds believing they are simplifying succession.

In practice, a carefully drafted Will often achieves the same objective while allowing parents to retain complete control over their assets throughout their lifetime.

Can One Child Receive the House and the Other Receive Cash?

This question arises frequently in families where:

• one child resides permanently in India; and
• another child has settled abroad.

Parents often ask:

Can the entire residential property be left to one child while the other receives cash or other financial assets of equivalent value?

The answer is Yes.

Indian succession law generally permits such arrangements, provided they are properly documented and the intention of the parents is clearly recorded.

The distribution may be made through:

• a Will;
• a Family Settlement; or
• any other legally valid succession arrangement.

The key objective should be fairness, clarity and ease of administration, rather than mechanical equality in every asset.

Common Structures Adopted by Families

Structure	Practical Position
Entire house to one child and cash to another	Legally permissible through an appropriately drafted succession document
Joint inheritance	Both children inherit specified ownership shares
Different assets for different heirs	One child receives immovable property while another receives financial investments or business assets

Each approach has advantages depending upon:

• the composition of family assets;
• residential status of the beneficiaries;
• future financial requirements; and
• long-term succession objectives.

Planning Implication

Equal treatment does not necessarily require each child to receive an identical asset. In many families, allocating different assets of broadly comparable value provides a more practical and efficient succession outcome.

Gifts Between Family Members

Section 56(2)(x) provides that gifts received from specified relatives are generally not taxable in the hands of the recipient.

Broadly:

Relationship	General Position
Parent and child	Generally exempt
Spouses	Generally exempt
Brothers and sisters	Generally exempt
Lineal ascendants and descendants	Generally exempt
Non-relatives	May be taxable under Section 56(2)(x), subject to applicable provisions

Accordingly, transfers within the immediate family ordinarily do not result in tax under these provisions.

However, the statutory definition of "relative" should always be examined carefully before implementing any transfer arrangement.

(Continued in Part 2B: Joint Ownership, Stamp Duty, Practical Action Plan, Common Mistakes, FAQs and Bottom Line.)

NRI Property Tax India 2025: The Capital Gains Trap Families With Mixed Resident and NRI Heirs Cannot Afford to Miss

 By CA Surekha S Ahuja

The  resident and non-resident families on cross-border inheritance, property taxation and succession planning is a little ticklish. This article reflects the provisions of the Income-tax Act, 2025 applicable from Assessment Year 2026-27. Tax laws may change; readers should verify the latest position from the Income Tax Department’s official portal and consult a qualified tax professional before taking any decision.

Why This Guide Matters

If your family owns property in India and your children are divided between those living in India and those living abroad, you may have a hidden tax planning challenge that many families discover only after the property is sold — when a substantial amount of money gets blocked as TDS.

The Income-tax Act, 2025 (applicable from AY 2026-27) simplified the headline capital gains rate for many property transactions to 12.5%. However, beneath this apparent simplicity lies an important difference:

Resident heirs and NRI heirs are not always taxed in the same manner when they sell inherited or gifted property.

This difference can significantly impact:

• the amount of tax payable,
• cash blocked as TDS,
• ability to reinvest and claim exemption,
• repatriation of sale proceeds,
• and the ultimate wealth transferred to the next generation.

This guide — Part 1 of a two-part series — explains the tax architecture that families must understand before transferring or selling inherited property.

Part 2 will cover the transfer strategy:

• Will vs family settlement vs gift,
• allocating property to one child while compensating another,
• whether joint ownership is beneficial,
• and succession planning strategies for families with resident and NRI heirs.

Who This Guide Is For

This guide is especially relevant for:

• Parents planning transfer of Indian property to children living in India and abroad.
• Families deciding between a Will, gift or family settlement.
• Siblings who have inherited property jointly and are planning a sale.
• NRIs inheriting ancestral or self-acquired property in India.
• Professionals advising families on cross-border inheritance planning.

Quick Answer: How Is NRI Property Sale Taxed in India?

An NRI selling inherited or gifted property in India generally faces:

Issue	Position
Capital gains rate	12.5% (subject to applicable provisions)
Indexation benefit	Not available for NRI sellers under the new framework
TDS	Deduction under Section 195 at applicable rates on sale consideration unless lower deduction certificate obtained
Lower deduction route	Application through Lower Deduction Certificate process (Form 128 under Income-tax Act, 2025 framework; corresponding to earlier Form 13)
DTAA relief	Possible where eligible under the applicable tax treaty
Repatriation	Governed separately under FEMA/RBI rules

The biggest mistake families make is assuming that resident and NRI children will have identical tax consequences merely because they inherit the same property.

They may not.

The Capital Gains Rate Asymmetry: NRIs Do Not Get the Same Choice

For property acquired before 23 July 2024, resident sellers may have a choice between:

• 20% tax with indexation, or
• 12.5% tax without indexation

whichever results in lower tax.

NRI sellers, however, do not enjoy the same flexibility.

Seller Status	Property Acquired Before 23 July 2024	Property Acquired On/After 23 July 2024
Indian Resident	Choice between 20% with indexation or 12.5% without indexation (whichever is beneficial)	12.5% without indexation
NRI	12.5% without indexation	12.5% without indexation

For older properties, especially properties held for decades where inflation-adjusted cost can substantially reduce taxable gains, indexation can be valuable.

Planning implication:

For resident heirs, the tax rate itself may provide a planning opportunity.

For NRI heirs, the focus shifts to other levers:

• correct determination of cost,
• FMV as on 1 April 2001 where applicable,
• exemption planning,
• DTAA relief,
• and proper TDS management.

The NRI TDS Trap: How Lakhs Can Get Blocked Until Refund

The biggest practical problem for NRI sellers is often not the final tax liability.

It is cash flow blockage due to TDS.

Seller	Applicable Provision	TDS Position	Practical Impact
Resident seller	Section 194-IA	1% where applicable (above threshold)	Usually manageable
NRI seller	Section 195	Applicable rate including surcharge and cess, depending on facts	Large amount may be deducted from sale proceeds

The key difference:

Resident seller TDS is generally linked to sale consideration under the specific property TDS mechanism.

NRI seller TDS under Section 195 applies based on the payment made to the non-resident seller and may require a lower deduction certificate to avoid excessive withholding.

Without a Lower Deduction Certificate, the buyer may deduct tax at the applicable rate on the gross amount payable, even though the actual capital gain may be much lower.

Worked Example: NRI’s Share of Consideration Is ₹90 Lakh

A property inherited by three siblings is sold for:

Total sale consideration: ₹2.70 crore

Each sibling receives:

1/3 share = ₹90 lakh

Assume one sibling is an NRI.

Scenario	Approximate Tax Deduction
Without Lower Deduction Certificate	Around ₹11.7 lakh to ₹13.5 lakh (depending on applicable rate)
With Lower Deduction Certificate	Based on estimated actual tax liability

The difference can result in several lakh rupees remaining blocked until the refund process is completed.

Refunds may take considerable time, affecting:

• investment plans,
• remittance plans,
• and family settlements.

Important Point for Joint Property Sales

In inherited property sales involving multiple heirs:

TDS is calculated separately for each seller based on:

• their residential status,
• amount payable to them,
• and applicable provisions.

A resident sibling selling alongside an NRI sibling does not automatically face NRI TDS treatment.

Each seller must be evaluated separately.

How to Avoid the NRI TDS Trap

An NRI seller should plan the Lower Deduction Certificate process before the sale is completed.

Documents generally required include:

• proposed sale agreement,
• computation of estimated capital gains,
• ownership and inheritance documents,
• passport and foreign address details,
• supporting tax records.

The biggest mistake is applying after the buyer has already deducted the tax.

(Continued in Part 1B: DTAA Relief, Section 54/54F Planning, CGAS Compliance, FMV as on 1 April 2001, FEMA Repatriation, Action Checklist and FAQs.)