Sections 7 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.
Three short sections of Chapter II fix when certain incomes are treated as received and who is taxed on them. Section 7 deals with provident fund and pension credits and the tax year of a dividend. Section 8 treats a firm that hands an asset to a partner on dissolution or reconstitution as having transferred it. Section 10 splits income equally between spouses under the community of property system. This article explains them as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026. The year in which an amount is taxed decides the return it belongs in, which is the daily work of our income tax return filing team.
Section 7: certain provident fund and pension credits are deemed received in the tax year, and a dividend is income of the tax year in which it is declared, distributed or paid (an interim dividend, when it is unconditionally made available to the member). Section 8: a firm or association that gives a capital asset or stock-in-trade to a partner or member in connection with its dissolution or reconstitution is deemed to have transferred it, at fair market value. Section 10: spouses under the Goa community of property system have income other than salary divided equally. Section 7 was amended by section 36 of the Finance Act, 2026.
Section 7: income deemed to be received
Section 7 is headed "Income deemed to be received and dividend deemed to be income in a tax year" and has two sub-sections. For the general scope of total income, see our post on Section 6 and residential status and the neighbouring articles on Section 9.
Section 7(1): three deemed receipts
The following incomes are deemed to be received in the tax year:
| Clause | Income deemed received |
|---|---|
| (a) | The annual accretion in that year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in paragraph 6 of Part A of Schedule XI |
| (b) | The transferred balance in a recognised provident fund, to the extent provided in paragraph 11(4) and (5) of Part A of Schedule XI |
| (c) | The contribution made by the Central Government or any other employer in that year to the account of an employee under a pension scheme mentioned in section 124 |
Section 7 itself states no amount for these; the extent is found in Schedule XI for (a) and (b). For the pension scheme in clause (c), see the post on Section 124 and the NPS deduction.
Section 7(2): dividend and the tax year
For inclusion in the total income of an assessee:
- (a) any dividend declared by a company, or distributed or paid by it within the meaning of section 2(40)(a) to (e), is deemed to be the income of the tax year in which it is so declared, distributed or paid, as the case may be. The reference to "(e)" is as substituted for "(f)" by the Finance Act, 2026, with effect from 1 April 2026.
- (b) any interim dividend is deemed to be the income of the tax year in which the amount is unconditionally made available by the company to the member entitled to it.
For the definition of dividend itself, see the article on clauses 36 to 48 of section 2.
Example: when is an interim dividend income?
Kiran Pharma Ltd (invented) declares an interim dividend on 20 March 2027, but the amount is made unconditionally available to the member, Leela, only on 5 April 2027. The tax year is the twelve months commencing on 1 April. The declaration falls in the tax year ending 31 March 2027, but under section 7(2)(b) the income arises in the tax year in which the amount is unconditionally made available: the tax year that begins on 1 April 2027. A dividend that is not an interim dividend would instead fall under section 7(2)(a), in the tax year it is declared, distributed or paid.
Section 8: capital asset or stock-in-trade received by a partner
Section 8(1): the deemed transfer
Where a specified person receives during the tax year any capital asset or stock-in-trade (or both) from a specified entity in connection with the dissolution or reconstitution of that entity, the specified entity is deemed to have transferred it to the specified person in the year in which it is received.
Section 8(2): income of the entity
Profits and gains from the deemed transfer are (i) deemed to be the income of the specified entity of the tax year in which the asset or stock-in-trade was received, and (ii) chargeable as income of the entity under the head "Profits and gains of business or profession" or under the head "Capital gains".
Section 8(3): the value
Fair market value on the date of receipt by the specified person is deemed to be the full value of consideration received or accruing. "Fair market value" is defined in section 2(44); see the article on clauses 36 to 48.
Section 8(4) and (5): guidelines
If any difficulty arises in giving effect to section 8 and section 67(10), the Board may, with the previous approval of the Central Government, issue guidelines for removing the difficulty. Every such guideline must be laid before each House of Parliament for a total period of thirty days, in one session or two or more successive sessions. If, before the expiry of the session immediately following, both Houses agree to modify it or agree that it should not be issued, it has effect only in the modified form or is of no effect, without prejudice to the validity of anything previously done under it. Guidelines actually issued are not in the text consulted.
Section 8(6): definitions
| Term | Meaning |
|---|---|
| Specified entity | A firm or other association of persons or body of individuals (not being a company or a co-operative society) |
| Specified person | A person who is a partner of a firm or member of other association of persons or body of individuals (not being a company or a co-operative society) in any tax year |
| Reconstitution of the specified entity | Where (i) one or more partners or members cease to be partners or members; (ii) one or more new partners or members are admitted in circumstances that one or more of the earlier partners or members continue; or (iii) all the partners or members continue with a change in their respective share or in the shares of some of them |
Example: asset taken on dissolution
Sharma and Verma Associates (an invented firm) is dissolved on 15 July 2026 and a plot of land held as a capital asset is given to partner Rohit. The fair market value of the plot on that date is Rs. 40,00,000. Under section 8(1) the firm is deemed to have transferred the plot to Rohit in the tax year commencing on 1 April 2026, the year in which he receives it. Under section 8(3), Rs. 40,00,000 is deemed to be the full value of the consideration. If the plot's cost under the capital gains provisions were Rs. 25,00,000 (an assumed figure, since section 8 does not compute cost), the firm's gain would be 40,00,000 minus 25,00,000, which is Rs. 15,00,000, chargeable to the firm under the head "Capital gains" under section 8(2)(ii). How the cost is determined is left to the capital gains provisions; section 8 is silent on it.
Section 10: spouses governed by the community of property system
Section 10 applies "if a husband and wife are governed by the community of property system" under the Portuguese Civil Code of 1860, in force in the State of Goa and the Union Territories of Dadra and Nagar Haveli and Daman and Diu. The Act prints the Portuguese name of the system in capitals; the text of the copy consulted shows it with an apparent spelling slip, so it is not repeated here. Then:
- (a) their income under any head of income is not assessed together as that of the community of property, whether treated as an association of persons or a body of individuals;
- (b) the income under each head other than "Salaries" is divided equally between husband and wife;
- (c) the divided income is included separately in the total income of the husband and the wife, and the rest of the Act applies accordingly; and
- (d) income under the head "Salaries" of either spouse is included in the total income of the spouse who actually earned it.
Example: Goa couple
Anita and Joao, spouses under the community of property system in Goa (invented names), have income of Rs. 6,00,000 under the head "Income from house property" and Joao earns a salary. Under section 10(b), the house property income is divided equally: Rs. 3,00,000 each (6,00,000 divided by 2). Under section 10(d), Joao's salary is included only in his total income. Section 10 prints no limit or rate.
Need help with deemed income and partner assets?
Whether an amount is taxed this year or next, or in the firm's or the partner's hands, changes the return. If you want a case reviewed, see our income tax return filing service for support.
Key takeaways
- Section 7(1) deems three provident fund and pension credits to be received in the tax year, to the extent stated in Schedule XI and section 124.
- A dividend is income of the tax year in which it is declared, distributed or paid; an interim dividend of the tax year in which it is unconditionally made available.
- Under section 8, an asset or stock-in-trade given to a partner or member on dissolution or reconstitution is a deemed transfer by the firm or association, valued at fair market value.
- The firm or association is charged, under business income or capital gains.
- Under section 10, non-salary income is divided equally between spouses in Goa and the Union Territories named; salary stays with the earner.
- Section 7 was amended by section 36 of the Finance Act, 2026; later changes should be checked.
Read next
- Section 9: income deemed to accrue or arise in India
- Sections 1 and 3: commencement and tax year
- Section 6: residential status
- Section 124: NPS deduction
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.