Chapter VIII - Deductions to be Made in Computing Total Income
Section 122
Section 122: general deductions to be made in computing total income
Section 122 opens Chapter VIII (which houses most of the Act's deductions, from Section 123 onward) with the ground rules that apply across the whole Chapter - how deductions are computed from gross total income, an overall cap, anti-double-claim rules, a timely-filing requirement for profit-linked deductions, and a market-value rule for goods or services transferred between an eligible undertaking and other businesses of the same assessee.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) In computing the total income of an assessee, the deductions specified in this Chapter shall be allowed from his gross total income, as per and subject to the provisions of this Chapter.
(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee.
(3) If the deduction under section 133 or 135 or 137 or 138 or 141 or 142 or 143 is admissible in computing the total income of an association of persons or a body of individuals, no deduction under the same section shall be made in relation to the share of income of a member of such association of persons or body of individuals in computing the total income of such member.
(4) Irrespective of anything to the contrary contained in any of the provisions of Part C of this Chapter, where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under those provisions for any tax year,–– (a) deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provision of this Act for such tax year; and (b) shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
(5) Deduction under the provisions of Part C of this Chapter shall not be allowed to an assessee, who fails to— (a) furnish a return of income on or before the due date specified under section 263(1); or (b) make a claim of deduction in a return furnished under section 263(1).
(6) For the purposes of any deduction under this Chapter, irrespective of anything to the contrary contained in Part C of this Chapter, if any goods or services held for the purposes of–– (a) the undertaking, unit, enterprise or eligible business carried on by the assessee are transferred to any other business carried on by the assessee; or (b) any other business carried on by the assessee are transferred to the undertaking or unit or enterprise or eligible business of the assessee, and the consideration, if any, for such transfer as recorded in the accounts of the undertaking or unit or enterprise or eligible business does not correspond to the market value of such goods or services as on the date of transfer, then the profits and gains of such undertaking or unit or enterprise or eligible business carried on by the assessee shall be computed as if the transfer, in clause (a) or (b), had been made at the market value of such goods or services as on that date.
(7) For the purposes of sub-section (6), “market value”,— (a) in relation to any goods or services sold or supplied, means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any; (b) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any; and (c) in relation to any goods or services sold, supplied or acquired, means the arm’s length price of such goods or services as defined in section 173(a), if it is a specified domestic transaction referred to in section 164.
(8) Where a deduction under Part C of this Chapter, is claimed and allowed in respect of profits of a specified business as referred to in section 46(11)(d) for any tax year, no deduction shall be allowed for such specified business under section 46 for the same or any other tax year.
(9) Where any deduction is required to be made or allowed under Part C of this Chapter, in respect of any income of the nature specified in that section and included in the gross total income of the assessee, then, irrespective of anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed under the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.
(10) For the purposes of this Chapter, the expression “gross total income” means the total income computed as per the provisions of this Act, before making deduction under this Chapter.
Introduction
Section 122 sets the framework for Chapter VIII deductions: they reduce gross total income but cannot exceed it, and several profit-linked claims need timely return filing and must not duplicate another deduction. The chosen tax regime can separately restrict Chapter VIII claims.
Key takeaways
Chapter VIII ceiling
The deductions in this Chapter are taken from gross total income; their combined amount cannot exceed that income.
Business-profit claims
Part C deductions for an undertaking or eligible business cannot duplicate another deduction for the same profits and require a timely return that actually claims the deduction.
How Chapter VIII deductions are computed
In computing an assessee's total income, the deductions specified in Chapter VIII are allowed from the assessee's gross total income, as per and subject to the provisions of the Chapter.
"Gross total income" for this purpose means the total income computed under the Act, before making any deduction under Chapter VIII.
Overall cap
The aggregate amount of deductions under Chapter VIII cannot, in any case, exceed the assessee's gross total income.
No double claim via an AOP/BOI member's share
Where a deduction under Section 133, 135, 137, 138, 141, 142 or 143 is allowed in computing the total income of an association of persons or a body of individuals, no deduction under that same section can be claimed again in relation to a member's share of that income when computing the member's own total income.
No deduction beyond the eligible undertaking's own profits
Irrespective of anything to the contrary in Part C of Chapter VIII, where profits and gains of an undertaking, unit, enterprise or eligible business are claimed and allowed as a deduction under those provisions for a tax year:
- Deduction in respect of, and to the extent of, those profits and gains cannot be allowed under any other provision of the Act for that tax year.
- The deduction can in no case exceed the profits and gains of that particular undertaking, unit, enterprise or eligible business.
Timely return required
A deduction under Part C of Chapter VIII is not allowed to an assessee who fails to furnish a return of income on or before the due date specified under Section 263(1), or who fails to make the deduction claim in a return furnished under Section 263(1).
Market-value rule for inter-unit transfers
Where goods or services held for the purposes of an eligible undertaking/unit/enterprise/business are transferred to another business of the same assessee (or vice versa), and the recorded consideration does not correspond to the market value of those goods or services on the transfer date, the profits and gains of the eligible undertaking are computed as if the transfer had been made at market value on that date.
"Market value" for goods or services sold/supplied means the open-market price (subject to statutory or regulatory restrictions); for goods or services acquired, it means the open-market acquisition cost; and where the transfer is a specified domestic transaction under Section 164, market value means the arm's length price as defined in Section 173(a).
Interaction with specified-business deduction under Section 46
Where a deduction under Part C of Chapter VIII is claimed and allowed for profits of a specified business referred to in Section 46(11)(d) for a tax year, no deduction can be allowed for that specified business under Section 46 for that or any other tax year.
How the deduction amount itself is computed
Where a Part C deduction is required to be made or allowed for income of a particular nature included in gross total income, the amount of income of that nature - as computed under the Act's provisions before any Chapter VIII deduction - alone is treated as the amount of that income derived or received by the assessee and included in gross total income, for purposes of computing the deduction.
Step-by-step flow for applying Section 122
- 1
Compute gross total income
Under Section 122(10), gross total income is the total income computed under the Act before any Chapter VIII deduction.
- 2
Is the claim a Part C deduction for profits of an undertaking, unit, enterprise or eligible business?
- No: Go to the aggregate-cap step.
- Yes: Go to the next step.
- 3
Was the return furnished by the Section 263(1) due date, and is the deduction claimed in it?
- No: The Part C deduction is not allowed (Section 122(5)).
- Yes: Go to the next step.
- 4
Were goods or services transferred between the eligible unit and another business of the assessee at a value different from market value?
If so, recompute the eligible unit's profits as if the transfer had been made at market value on that date (Section 122(6) and (7)).
- 5
Apply the anti-duplication limits
The deduction cannot exceed the eligible unit's profits; the same profits cannot be deducted under another provision; a Part C claim for a specified business blocks Section 46 for it; and an AOP/BOI-level deduction under the listed sections is not repeated for a member's share.
- 6
Aggregate cap
The total of all Chapter VIII deductions cannot exceed gross total income (Section 122(2)).
Practical checklist
Do
- Compute gross total income first and list each proposed Chapter VIII deduction with its own eligibility proof.
- For Part C profits, check return due date, claim in return, audit and anti-duplication or market-value adjustment rules.
Avoid
- Do not create a negative total income by claiming deductions beyond gross total income.
- Do not duplicate the same undertaking profit under two deduction provisions.
Illustrative example
Worked example: inter-unit transfer and the deduction ceiling
Hypothetical facts (illustration only, not a real taxpayer): Ms. Iyer's gross total income is ₹10,00,000. It includes ₹5,00,000 of profits recorded by an eligible business for which a Part C deduction is available. During the year her other business transferred goods to the eligible business at ₹2,00,000, while their market value on that date was ₹2,60,000. She also has ₹1,00,000 of other Chapter VIII deductions (assumed eligible). For illustration, assume the relevant Part C provision allows the full eligible profit as a deduction; the actual percentage depends on that provision. Her return is filed by the Section 263(1) due date with the claim made.
Market-value adjustment
The goods are treated as acquired at ₹2,60,000, so the eligible business's profit is recomputed as ₹5,00,000 − ₹60,000 = ₹4,40,000.
Part C deduction
Under Section 122(4)(b) the deduction cannot exceed ₹4,40,000, and those profits cannot be deducted again under another provision.
Aggregate cap
Total Chapter VIII deductions are ₹4,40,000 + ₹1,00,000 = ₹5,40,000, which is within the gross total income of ₹10,00,000.
Outcome
- Total income = ₹10,00,000 − ₹5,40,000 = ₹4,60,000.
- Had the return been filed after the due date, or without the claim, the ₹4,40,000 Part C deduction would be lost under Section 122(5).
Glossary
- Gross total income
- Total income computed before Chapter VIII deductions, as defined in subsection (10).
- Part C deduction
- A Chapter VIII deduction for specified income or business profits subject to extra general conditions.
Frequently asked questions
Can total deductions under Chapter VIII exceed gross total income?
No - Section 122(2) caps the aggregate of all Chapter VIII deductions at the assessee's gross total income.
Is filing the return on time necessary to claim Part C deductions?
Yes - a deduction under Part C of Chapter VIII is denied if the assessee fails to furnish the return by the due date under Section 263(1), or fails to claim the deduction in that return.
What happens if goods are transferred between an eligible undertaking and another business of the same assessee below market value?
The profits of the eligible undertaking are recomputed as if the transfer had happened at market value on the transfer date, to prevent profit-shifting that would inflate the deduction.
What does "gross total income" mean for Chapter VIII deductions?
Section 122(10) defines it as the total income computed under the Act before making any deduction under Chapter VIII.
Need help applying this provision to your situation?
Get help structuring your Chapter VIII deduction claimsLast updated 10 October 2026