Rule 22 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 22 of the Income-tax Rules, 2026 computes a scheduled bank's aggregate average advances from rural branches branch by branch on month-end balances; rule 23 spreads a zero coupon bond discount over calendar months.
The three-step computation in rule 22
For section 31(1) — the deduction for a provision for bad and doubtful debts — the aggregate average advances made by the rural branches of a scheduled bank are determined as follows:
- the amounts of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the tax year are aggregated separately;
- the sum so arrived at in the case of each such branch is divided by the number of months for which the outstanding advances have been taken into account; and
- the aggregate of the sums so arrived at in respect of each of the rural branches is the aggregate average advances of the bank.
Sub-rule (2) takes "rural branch" and "scheduled bank" from sections 66(26) and 2(98). The 1962 parallel is rule 6ABA.
Two features of rule 22 are routinely collapsed. The aggregation is separate for each branch, not a single pool; and each branch's total is divided by the number of months for which its outstanding advances have been taken into account — which is not always twelve. A branch opened in October, or one that ceased to be a rural branch mid-year, is averaged over its own months. Summing every branch's month-end balances and dividing by twelve gives a different, and lower, answer.
Note also that the measure is the outstanding at the end of the last day of each month — a point-in-time balance taken twelve times, not an average daily balance and not disbursements during the month.
The zero coupon bond discount, next to rule 22
For section 32(d), the pro rata amount of discount on a zero coupon bond is computed in three steps. The 1962 parallel is rule 8C.
| Step | Computation |
|---|---|
| (a) Convert the life to months | The period of life of the bond is converted into a number of calendar months. Where the calendar month in which the bond is issued, or in which it matures or is redeemed, contains a part of a calendar month: a part of fifteen days or more is increased to one calendar month; a part of less than fifteen days is ignored |
| (b) Monthly amount | The amount of discount is divided by the number of calendar months determined in step (a) |
| (c) Amount for the year | Where one or more of those calendar months is included in a tax year, the step (b) amount is multiplied by the number of calendar months so included, and that is the pro rata amount of discount for that tax year |
Step (a) of rule 23 tests the part month in the month of issue and in the month of maturity or redemption separately. A bond issued on the 20th of a month contributes a part of eleven days, which is ignored; one redeemed on the 20th contributes twenty days, which is rounded up to a full month. Applying a single rounding to the total life, or rounding the whole period to the nearest month, produces a different month count and therefore a different figure every year of the bond's life.
Because the monthly amount in step (b) is fixed once, the total spread over the bond's life is exactly the discount — but only if the month count is computed on the rule's own rounding and the months falling in each tax year are counted consistently from year to year.
Worked example
| Facts | Computation |
|---|---|
| Bank with three rural branches; month-end advances aggregating Rs 60 crore, Rs 48 crore and Rs 9 crore over twelve, twelve and four months respectively | Branch averages Rs 5 crore, Rs 4 crore and Rs 2.25 crore |
| Aggregate average advances | Rs 11.25 crore |
| Same figures divided by twelve throughout | Rs 9.75 crore — understated, because the fourth-quarter branch is wrongly spread |
| Zero coupon bond issued 20 June 2026, redeemed 20 May 2031 | June part is 11 days — ignored; May part is 20 days — counted as one month |
| Month count | July 2026 to April 2031 is 58 months, plus one for May 2031 = 59 |
| Discount Rs 5,90,000 | Rs 10,000 a month |
| Tax year 2026-27 includes July 2026 to March 2027 | 9 months × Rs 10,000 = Rs 90,000 |
Compliance checklist
- Identify every rural branch under section 66(26) and confirm the bank is a scheduled bank under section 2(98).
- Take the outstanding at the end of the last day of each month, branch by branch.
- Divide each branch's total by its own month count, not by twelve.
- Aggregate the branch averages to get the bank figure.
- Keep the month-end branch schedule that rule 22 implies as the working paper.
- For a zero coupon bond, apply the fifteen-day rounding at both ends of the life.
- Fix the monthly discount amount once and reuse it each year.
- Count the calendar months falling in each tax year consistently.
Common mistakes
- Pooling all rural branches before averaging.
- Dividing every branch by twelve regardless of its months of operation.
- Using average daily balances instead of month-end outstandings.
- Rounding the bond's total life rather than each part month.
- Recomputing the monthly discount each year instead of fixing it once.