Advance money received
[Section-81 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Where any capital asset was, on any previous occasion, the subject of negotiations for its transfer, any advance or other money received and retained by the assessee in respect of such negotiations––
- (a) shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition;
- (b) shall not be deducted from the said cost, where such advance or other money has been included in the total income of the assessee for any tax year as per the provisions of section 92(2)(h).
FAQs Section 81 of Income Tax Act 2025
1. What is Section 81 of the Income Tax Act, 2025 about?
Section 81 deals with the treatment of advance money received in connection with the negotiations for the transfer of a capital asset.
2. From when is Section 81 applicable?
Section 81 is applicable from 1st April, 2026, as per the Income Tax Act, 2025.
3. What happens to advance money received during negotiations for a capital asset?
The advance money received and retained by the assessee shall be deducted from the cost of acquisition, written down value, or fair market value of the asset.
4. Is the deduction of advance money from cost mandatory in all cases?
No, it is not mandatory if the advance money has already been included in the assessee’s total income under Section 92(2)(h).
5. How is the cost of acquisition adjusted if the advance money is deducted?
The cost of acquisition is reduced by the amount of advance money received and retained by the assessee.
6. What if the advance money is already taxed under Section 92(2)(h)?
If the advance or other money has been taxed under Section 92(2)(h), it will not be deducted from the cost of acquisition.
7. What are the types of values from which the advance money can be deducted?
The advance can be deducted from the cost for which the asset was acquired, the written down value, or the fair market value, depending on the case.
8. Does Section 81 apply only if the asset is eventually transferred?
No, Section 81 applies if the advance money was received during negotiations, irrespective of whether the asset was ultimately transferred.
9. Is it necessary that the capital asset must be transferred after receiving the advance?
No, even if the capital asset is not transferred, Section 81 still applies to the advance money received and retained.
10. What happens if the advance money is forfeited by the assessee?
If the advance money is forfeited and not refunded, it is adjusted as per Section 81 by deduction from the cost of acquisition unless already taxed.
11. Can advance money affect capital gains computation?
Yes, reducing the cost of acquisition by advance money can affect the computation of capital gains when the asset is eventually sold.
12. Does Section 81 require any specific documentation?
While Section 81 does not specify documentation requirements, maintaining records of advance money received and retained is advisable for compliance.
13. Is there a connection between Section 81 and Section 92(2)(h)?
Yes, if the advance is already treated as income under Section 92(2)(h), then it will not reduce the cost of acquisition under Section 81.
14. What is meant by “retained” in Section 81?
“Retained” means the assessee has kept the advance money and not refunded it back to the other party.
15. Can advance money received be treated as taxable income?
Yes, if the conditions of Section 92(2)(h) are met, the advance money may already be included in taxable income.
Refresh Page