Section 66 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.
Section 66 is the glossary for Part D of Chapter IV, the part that deals with profits and gains of business or profession. It runs to forty clauses; this article covers clauses (1) to (26), from "agreement" to "rural branch". The other clauses, (27) to (40), are in our companion article on section 66(27) to (40). The reading is as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. For help applying these terms in your books, see our books of accounts compliance service.
Section 66 gives meanings that apply "for the purposes of Part D of this Chapter" (sections 26 to 66). The term most often needed is "paid" in clause (15): it means actually paid or incurred according to the method of accounting on which business profits are computed, except for section 37. Clause (4), on commodities transactions tax and commodity derivative, is as substituted by the Finance Act, 2026. Many clauses simply point to another provision or to another Act.
Reading section 66 in practice
Because section 66 applies to Part D only, a term defined here is not automatically the meaning of the same word elsewhere in the Act. Many of the definitions only make sense alongside the section that uses them, such as the business deductions in section 26 onwards (see the live notes on section 26 and section 34).
Clauses (1) to (26) at a glance
| Clause | Term | Meaning in the Act |
|---|---|---|
| (1) | Agreement (for section 26(2)(h)) | Includes any arrangement, understanding or action in concert, whether or not formal or in writing, and whether or not intended to be enforceable by legal proceedings |
| (2) | Banking company | A company to which the Banking Regulation Act, 1949 applies, and includes any bank or banking institution referred to in section 51 of that Act |
| (3) | Commission or brokerage | Has the meaning in section 402(7) |
| (4) | Commodities transactions tax and commodity derivative | Same meanings as respectively assigned in Chapter VII of the Finance Act, 2013 (as substituted by the Finance Act, 2026, with effect from 1 April 2026) |
| (5) | Fees for technical services | Meaning in section 9(7)(b) |
| (6) | Housing finance company | A public company formed or registered in India with the main object of providing long-term finance for construction or purchase of houses in India for residential purposes |
| (7) | Indian Institute of Technology | Same meaning as "Institute" in section 3(g) of the Institutes of Technology Act, 1961 |
| (8) | Keyman insurance policy | Meaning in Schedule II (Note 1) |
| (9) | Limited liability partnership | Meaning in section 2(1)(n) of the Limited Liability Partnership Act, 2008 |
| (10) | Long-term finance (for section 32(e)) | Any loan or advance whose terms provide for repayment with interest over a period of not less than five years |
| (11) | Micro enterprise | An enterprise classified as such under the Central Government notification under the Micro, Small and Medium Enterprises Development Act, 2006 |
| (12) | Mineral oil | Includes petroleum and natural gas |
| (13) | Moneys payable (for tangible assets as referred to in section 33(12)(a)(i)) | Includes insurance, salvage or compensation moneys payable, and the sale price where the asset is sold |
| (14) | Non-scheduled bank | A banking company as defined in section 5(c) of the Banking Regulation Act, 1949, which is not a scheduled bank |
| (15) | Paid | Except for section 37, actually paid or incurred according to the method of accounting used to compute business or profession profits |
| (16) | Permanent establishment | Meaning in section 173(c) |
| (17) | Plant | Includes ships, vehicles, books, scientific apparatus and surgical equipment used for the business or profession, but not tea bushes, livestock, buildings or furniture and fittings |
| (18) | Predecessor entity | Amalgamating Indian company; demerged Indian company; a firm succeeded by a company under section 70(1)(zd); a private or unlisted public company converted under section 70(1)(ze) |
| (19) | Primary agricultural credit society | Meaning in Part V of the Banking Regulation Act, 1949 |
| (20) | Primary co-operative agricultural and rural development bank | A society whose area of operation is confined to a taluk and whose principal object is to provide long-term credit for agricultural and rural development activities |
| (21) | Professional services | Meaning in section 402(28) |
| (22) | Public company | Meaning in section 2(71) of the Companies Act, 2013 |
| (23) | Public financial institution | Meaning in section 2(72) of the Companies Act, 2013 |
| (24) | Rate of exchange | Rate determined or recognised by the Central Government for converting Indian currency into foreign currency or the reverse |
| (25) | Royalty | Meaning in section 9(6)(b) |
| (26) | Rural branch | A branch of a scheduled bank or non-scheduled bank in a place with a population of not more than ten thousand according to the last preceding census, whose relevant figures were published before the first day of the tax year |
Several clauses name other Acts (the Banking Regulation Act, 1949, the Institutes of Technology Act, 1961, the Limited Liability Partnership Act, 2008, the Micro, Small and Medium Enterprises Development Act, 2006, the Companies Act, 2013 and the Finance Act, 2013). Their meanings are quoted as printed; the reader should check those laws. Which enterprises count as micro or small is left to a Central Government notification, which is not in the text consulted.
The clauses that matter most
"Paid": clause (15)
"Paid" is not limited to cash. Apart from section 37 (which has its own payment basis, discussed in our note on section 37), it means actually paid or incurred according to the method of accounting upon which the profits or gains are computed under the head "Profits and gains of business or profession". So a person who keeps accounts on a basis that records expenses when incurred reads "paid" as "incurred"; a person whose method records only on payment reads it as actual payment.
Example (invented). Kavya Traders incurs an electricity bill of Rs. 12,000 in March and pays it in April. Under a method of accounting that records expenses when incurred, the bill is "paid" in the tax year of March for a section that uses the word, apart from section 37. Under a method that records on payment, it is "paid" only in the year of payment. The amount of Rs. 12,000 is assumed for the illustration.
"Plant": clause (17)
Plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the business or profession. It excludes tea bushes, livestock, buildings and furniture and fittings. The depreciation rules that use the word are in section 33; see depreciation under section 33.
"Predecessor entity" and "successor entity": clauses (18) and (37)
Clause (18) lists four cases. In an amalgamation it is the amalgamating Indian company; in a demerger, the demerged Indian company; for a firm succeeded by a company, the firm; for a conversion, the private company or unlisted public company. Clause (37), in the companion article, gives the matching successor entities. Section 70(1)(zd) and (ze) are explained in our note on section 70.
"Rural branch": clause (26)
A rural branch is a branch of a scheduled bank or a non-scheduled bank in a place with a population of not more than ten thousand according to the last preceding census whose figures were published before the first day of the tax year. The population threshold is as printed in the clause.
"Long-term finance": clause (10)
The definition is stated "for the purposes of section 32(e)" and requires repayment with interest over a period of not less than five years. It is separate from the housing-finance wording in clause (6), which uses "long-term finance" in its ordinary sense.
Drafting points to note
- Clause (4) is printed in square brackets with a footnote; the footnote records that it was substituted by the Finance Act, 2026, with effect from 1 April 2026. The earlier wording is not law and is not explained here.
- Clause (13) carries a bracketed cross-reference, "as referred to in section 33(12)(a)(i)", as printed.
- The consolidated copy prints a footnote in the middle of clause (7) and (8); it belongs to clause (4), not to those clauses.
Need help with business income terms?
Whether an expense is "paid" in a given tax year, or whether an asset is "plant", depends on the method of accounting and the facts. Our books of accounts compliance team can review how your records line up with these definitions.
Key takeaways
- Section 66 defines terms for Part D (sections 26 to 66) only.
- "Paid" means actually paid or incurred according to the method of accounting, except for section 37.
- "Plant" includes ships, vehicles, books, scientific apparatus and surgical equipment, but not tea bushes, livestock, buildings or furniture and fittings.
- A rural branch sits in a place with population of not more than ten thousand per the last published census figures.
- Clause (4) is as substituted by the Finance Act, 2026.
Read next
- Section 66(27) to (40): scientific research, speculative transaction and specified derivative
- Sections 64–65: co-operative bank reorganisation
- Section 63: tax audit
- Income-tax Act 2025 Chapter IV: computation of total income
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.