Rule 132 of Income Tax Act

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Rule 132 of Income Tax Act

Any individual who is managing a business must acquaint themselves with the newly added Rule 132 of the Income Tax Act (ITA). Sec 132 came into effect on 1st October 2022, and is concerned with the re-computation of income under sub-section 18 of section 155 of the ITA 1961.

The Central Board of Direct Taxes (CBDT) amended section 132 of the Income Tax Act, which is concerned with if businesses need to deduct surcharge payments when calculating their taxable income.

Section 132 of the Income Tax Act includes a provision that intends to aid Assessing Officers adhere to Section 155. Under this provision, one needs to recalculate the Total Income for previous years in the event that the taxpayer has claimed deductions for a surcharge or cess that had not been eligible under Section 40(a)(ii).

The rule affects legal professionals who derive income from a business or profession and use these deductions for cess/surcharge. Read on to learn more.

How Section 132 of the Income Tax Act Came into Effect

Formerly, the rule regarding the liberty of businesses in deducting cess/surcharge payments had been unclear. According to reports, however, these income tax deductions were commonplace in several companies.

Until recently, court rulings permitted this act, but tax authorities opposed the notion. So, in the revised Finance Act 2022, the Centre indicated that income tax cess/surcharge will not be a permissible deduction.

It also enables taxpayers to have their taxable profits recalculated and subsequently pay the excess amount as tax to the respective officials. Owing to an amendment in the ITA the decision was retroactively applied from 2005. Sec 132 is applicable in this case.

What is Stated in Rule 132 of the Income Tax Act?

Before Rule 132 had been introduced, the surcharge and cess payments of businesses were considered to be deductible expenses. However, with the Finance Act 2022, cess and surcharge deduction on taxable profit was no longer allowed under Rule 132.

Taxpayers who had previously claimed a cess or surcharge deduction got an opportunity to disclose information pertaining to their taxable income, liability and the outstanding cess or surcharge to be paid.

In essence, the amendment implied that if businesses claimed such deductions, the taxes they have paid all these years were less. If this is the case, Form 69 will have to be submitted along with the relevant information online.

The CBDT also notified on September 29, 2022, that assessees can now request for a recalculation of their gross income from former years without permission to claim a deduction for surcharge or cess.

Procedure for Recomputing the Income

Based on the guidelines set forth in the Income-tax (Thirty-second Amendment), 2022, let’s dive into a breakdown of the process:

  • By visiting the official income tax portal, the assessee must apply for Form 69 and provide the relevant information pertaining to the claimed amount from the total income before March 31, 2023

  • The assessing officer then recalibrates the overall income, following which they will issue a demand notice as per the guidelines outlined u/s

  • In the span of 30 days following successful payment, form no. 70 will have to be submitted by the taxpayer along with the payment details

  • The aforementioned rule is particularly crucial for individuals who have deducted cess and surcharge from their total taxable income.

Before the deadline of March 31, 2023, crosses, the said assessee will have to specify the year of assessment in which the claim for deduction was made and submit a single Form 69 application encompassing all AY (Assessment Years).

Search and Seizure by the Income Tax Department

  • Search and seizure by the Income Tax Department (ITD) is a powerful tool for rooting out any hidden income, valuables and identifying tendencies of tax evasion to prevent the accumulation of black money.

  • Search operations are carried out on the basis of information with the ITD to unearth hidden wealth in the case of taxpayers who have not disclosed their true financial state of affairs in the discharge of their tax obligations.

  • Seizure, on the other hand, is taking possession of the assets that have not been disclosed to the ITD, along with documents containing details regarding wealth and income that have not been disclosed.

  • Search and seizure is only done if there is sufficient reason to believe that an individual has not disclosed their income in the regular course of filing for return and assessment.

  • Sec 132 empowers income tax authorities to engage in the search and seizure of account books, jewellery, cash, etc. Additionally, section 132A of the Income Tax Act empowers specific authorities to requisition documents, books of accounts, etc.

  • Section 132A of the Income Tax Act is a prominent tool for uncovering hidden income and assets. However, the relevant authorities must adhere to legal procedures and procure the essential approvals before conducting such operations.


Rule 132 of the ITA plays an important role in ensuring compliance with tax laws. The rule enhances transparency within the system by providing guidelines for Assessing Officers to recalibrate total income in specific circumstances, such as ineligible deductions for surcharges or cess.

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What is mandatory rectification and when does it apply?

What is mandatory rectification and when does it apply?


Those who have claimed deductions subject to Rule 132 for any assessment year will undergo mandatory rectification by March 31, 2026, to ensure all tax assessments align with the updated regulations.

Who will be affected by Rule 132?


Rule 132 impacts individuals who earn income from businesses/professions and have claimed cess or surcharge deductions. Income recalculations are necessary as deductions are no longer allowed. Underreported income will result in higher taxes plus a 50% penalty on taxes owed.