Section 122 of the Income-tax Act, 2025 is the gateway to Chapter VIII. Deductions cannot exceed gross total income, profit-linked deductions in Part C are denied if the return is not filed by the section 263(1) due date, and inter-unit transfers are recomputed at market value.
What section 122 does
Before you claim any deduction under Chapter VIII, section 122 decides whether you can. It merges four provisions of the Income-tax Act, 1961 — sections 80A, 80AB, 80AC and 80B — into a single gateway section.
Three rules do most of the work. Deductions cannot exceed gross total income, so Chapter VIII can reduce your income to nil but never create a loss. Profit-linked deductions in Part C are lost entirely if the return is filed late. And gross total income is defined as total income computed under the Act before any Chapter VIII deduction.
The provision that catches most taxpayers is sub-section (5). A Part C deduction is denied if the assessee fails to furnish the return by the section 263(1) due date, or fails to make the claim in that return. Both limbs are independent — filing on time but omitting the claim is equally fatal.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 80A(1) | Deductions allowed from gross total income | 122(1) |
| 80A(2) | Deductions cannot exceed gross total income | 122(2) |
| 80A(3) | No double deduction for AOP or BOI members | 122(3) |
| 80A(4) | No deduction under any other provision for the same profits | 122(4) |
| 80AC | Return must be filed by the due date | 122(5) |
| 80A(6) | Inter-unit transfers at market value | 122(6) and 122(7) |
| 80AB | Income of the nature specified computed under the Act | 122(9) |
| 80B(5) | Definition of gross total income | 122(10) |
Section 122 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-sections (1) and (2) — the basic rule and the ceiling
Deductions specified in Chapter VIII are allowed from gross total income, subject to the Chapter's provisions. And the aggregate of all Chapter VIII deductions cannot exceed gross total income. This is why Chapter VIII can never produce or increase a loss — a point that matters when planning donations or profit-linked claims in a low-profit year.
Sub-section (3) — no double claim through an AOP or BOI
Where a deduction under section 133, 135, 137, 138, 141, 142 or 143 is allowed to an association of persons or body of individuals, no deduction under the same section is allowed to a member in respect of their share of that income. The relief is claimed once, at the entity level.
Sub-section (4) — one set of profits, one deduction
Where profits of an undertaking, unit, enterprise or eligible business are claimed and allowed under Part C, then (a) no deduction for the same profits is allowed under any other provision of the Act for that year, and (b) the deduction cannot exceed the profits of that undertaking. Profit-linked incentives are not stackable.
Sub-section (5) — file on time and make the claim in the return
A Part C deduction is not allowed to an assessee who fails to (a) furnish a return on or before the due date specified under section 263(1), or (b) make the claim of deduction in a return furnished under section 263(1). A belated return, or an on-time return that omits the claim, loses the deduction outright.
Sub-sections (6) and (7) — inter-unit transfers at market value
Where goods or services are transferred between an eligible undertaking and another business of the same assessee and the recorded consideration does not correspond to market value, the profits of the eligible undertaking are recomputed as if the transfer had been at market value. Sub-section (7) defines market value as the open-market selling or acquisition price subject to statutory or regulatory restrictions — and, for a specified domestic transaction under section 164, as the arm's length price defined in section 173(a).
Sub-sections (8) to (10) — specified business, the computation base and the definition
Sub-section (8) bars a section 46 deduction for a specified business referred to in section 46(11)(d) where a Part C deduction has been claimed for it. Sub-section (9) provides that, for computing a Part C deduction, only the income of that nature as computed under the Act (before Chapter VIII deductions) is deemed to be the income derived and included in gross total income. Sub-section (10) defines gross total income as total income computed under the Act before making any deduction under Chapter VIII.
Worked example
A company with an eligible undertaking has the following position in tax year 2026-27.
| Item | Amount | Effect of section 122 |
|---|---|---|
| Gross total income | ₹90,00,000 | The ceiling under sub-section (2) |
| Part C profit-linked deduction claimed | ₹1,10,00,000 | Restricted to ₹90,00,000 — the excess cannot create a loss |
| Goods transferred from the eligible unit to another division at ₹40,00,000; market value ₹55,00,000 | — | Sub-section (6) recomputes the unit's profits at ₹55,00,000, increasing them |
| Return filed on 15 December 2027 against a due date of 31 October 2027 | — | Entire Part C deduction denied under sub-section (5)(a) |
The last row is decisive and overrides everything above it. However carefully the deduction was computed, filing after the section 263(1) due date removes it altogether. The same result follows if the return was filed on time but the claim was not made in it — sub-section (5)(b).
Compliance checklist and due dates
- File the return on or before the section 263(1) due date where any Part C deduction is claimed — there is no relief for a belated return.
- Make the claim in the return itself; sub-section (5)(b) is a separate condition from timely filing.
- Check that total Chapter VIII deductions do not exceed gross total income as defined in sub-section (10).
- Price inter-unit transfers at market value, and at arm's length price where the transaction is a specified domestic transaction under section 164.
- Do not claim the same profits under both a Part C provision and another section — sub-section (4) bars it.
- Where an AOP or BOI has claimed a deduction under the listed sections, members must not claim it again.
Common mistakes
- Believing a belated return only costs interest and a fee. It also costs every Part C deduction under sub-section (5).
- Expecting Chapter VIII deductions to create a loss that can be carried forward. Sub-section (2) caps them at gross total income.
- Recording inter-unit transfers at cost to shift profit into an eligible unit — sub-section (6) recomputes at market value.
- Claiming a deduction on gross receipts rather than on income of that nature computed under the Act, contrary to sub-section (9).
- Stacking two profit-linked incentives on the same profits.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.