Rule 269 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 269 of the Income-tax Rules, 2026 rounds an interest period to whole months, treats part of a month as a full month where interest runs monthly, and rounds the principal to the nearest Rs 100; rule 270 allows the market value of own agricultural produce as a deduction.
What rule 269 governs
Rule 269 implements section 533(2)(u) and applies to both directions of interest — that payable by the assessee and that payable by the Central Government to the assessee under any provision of the Act. The 1962 parallel is rule 119A.
| Clause | Situation | Rounding under rule 269 |
|---|---|---|
| (a) | Interest calculated on an annual basis | The period is rounded off to a whole month or months, and any fraction of a month is ignored. The rounded period is deemed to be the period for which interest is calculated |
| (b) | Interest calculated for every month or part of a month in a period | Any fraction of a month is deemed to be a full month, and interest is so calculated |
| (c) | The amount of tax, penalty or other sum on which interest runs | Rounded off to the nearest multiple of Rs 100; any fraction of Rs 100 is ignored, and the rounded amount is deemed to be the amount on which interest is calculated |
This is the point on which interest computations most often go wrong. Under clause (a) of rule 269 a fraction of a month is ignored — twenty-nine days of a thirtieth month drop out. Under clause (b) the same fraction is deemed to be a full month — one day attracts a whole month's interest. Which applies is decided not by the taxpayer's preference but by how the charging provision expresses itself: "at x% per annum" engages clause (a), while "for every month or part of a month" engages clause (b). Read the interest provision before rounding anything.
Note that clause (c) of rule 269 rounds the base downward as well — any fraction of Rs 100 is ignored, so Rs 4,99,999 becomes Rs 4,99,900 and not Rs 5,00,000, despite the words "nearest multiple". The operative instruction is the second half of the clause, not the first.
Rule 270 — the agricultural produce deduction
Sub-rule (1): in terms of section 533(2)(b)(i), where income is partially agricultural and partially from business, the market value of any agricultural produce raised by the assessee, or received by him as rent in kind, shall be allowed as a deduction where:
- (a) such produce has been utilised as a raw material in the business; or
- (b) sale receipts of such produce are included in the accounts of the business.
Sub-rule (2): no further deduction shall be made for any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind. The 1962 parallel is rule 7.
Sub-rules (1) and (2) of rule 270 work as a pair and neither makes sense alone. The business is allowed a deduction for produce it never bought, valued at market value — as though it had purchased the raw material at arm's length. In exchange, the actual costs of growing it are excluded from the business computation entirely, because those costs belong to the agricultural side, whose income is exempt. Claiming both the market value under sub-rule (1) and the cultivation expenses is the classic error, and sub-rule (2) exists to stop it.
How market value is fixed
Sub-rule (3) of rule 270 gives two methods and the choice between them is not the assessee's:
| Clause | When it applies | Market value is |
|---|---|---|
| (a) | The produce is ordinarily sold in the market in its raw state, or after a process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be taken to market | The value calculated at the average price at which it has been so sold during the relevant tax year |
| (b) | The produce is not ordinarily so sold | The aggregate of: (i) the expenses of cultivation; (ii) the land revenue or rent paid for the area in which it was grown; and (iii) such amount as the Assessing Officer finds, having regard to all the circumstances, to represent a reasonable profit |
Clause (a) is the ordinary case and is evidential — an average of actual sales in the year. Clause (b) is a cost-plus construction used where no market exists, and its third limb is a matter for the Assessing Officer's judgment, which is where most disputes under rule 270 arise.
Note the qualifier in clause (a): a process ordinarily employed by a cultivator to make the produce marketable does not take it out of clause (a). Manufacturing beyond that does.
Worked example
| Facts | Position under rule 269 and rule 270 |
|---|---|
| Interest at a per annum rate for 7 months and 12 days | 7 months — the fraction is ignored under clause (a) |
| Interest "for every month or part of a month", same period | 8 months — the fraction is a full month under clause (b) |
| Demand of Rs 4,99,999 | Interest computed on Rs 4,99,900 |
| Refund interest due from the Government | Rule 269 applies equally |
| Sugar mill crushes cane it grew itself | Market value of the cane is deductible in the business computation |
| Same mill also claims its cultivation costs | Not allowed — sub-rule (2) |
| Cane is ordinarily sold in the local market | Value at the average price of actual sales in the year |
| A crop with no local market, grown solely for the factory | Cultivation expenses + land revenue or rent + a reasonable profit |
| Produce received as rent in kind and processed | Within sub-rule (1) — rent-in-kind is expressly covered |
Compliance checklist
- Read the charging provision's wording to decide whether clause (a) or clause (b) of rule 269 applies.
- Round the period before applying the rate, not after.
- Round the base amount down to a multiple of Rs 100.
- Apply rule 269 to refund interest as well as to demand interest.
- For a composite business, identify produce raised by the assessee or received as rent in kind.
- Take the deduction at market value and exclude cultivation costs from the business computation.
- Establish whether the produce is ordinarily sold in the market — that selects the valuation method.
- Where clause (b) applies, document cultivation expenses and land revenue or rent and be ready to argue the reasonable profit.
Common mistakes
- Rounding a per-annum period up when clause (a) ignores the fraction.
- Rounding the base to the nearest hundred upward, when the clause ignores the fraction.
- Claiming both market value and cultivation expenses under rule 270.
- Using a cost-plus valuation where the produce is in fact ordinarily sold in the market.
- Treating ordinary marketing processes as manufacture and moving out of clause (a).
- Overlooking rent-in-kind produce, which the rule covers expressly.
Which year this governs
The Income-tax Rules, 2026 are made under the Income-tax Act, 2025. The 1962 parallels are rule 119A for rule 269 and rule 7 for rule 270, given for tracing only. Verify the current text before computing interest or a composite income.