Section 95: profits chargeable to tax

Introduction

This is a cross-reference rule. To compute income under Section 92, read the specified four subsections of Section 38 alongside Section 95.

Key takeaways

How the cross-reference works

Section 95 applies Section 38(1)–(4) when income is computed under Section 92, using the same application those provisions have under the business or profession head.

What the imported rules cover

Section 95 points to Section 38(1)–(4) for the computation under Section 92. The imported provisions must be read with their conditions; a recovery or accounting credit is not automatically taxable merely because money has been received.

Section 38(1) addresses specified recoveries or benefits connected with earlier allowances, particular depreciated assets and research assets, recovered bad debts and withdrawals from a special reserve. Section 38(2) supplies relevant conditions, subsection (3) deals with a specified unabsorbed loss where a business has ceased, and subsection (4) addresses a successor receiving the subsection (1)(a) benefit or amount.

Prior deduction, later event and correct year

For the loss, expenditure or trading-liability limb in Section 38(1)(a), confirm that the earlier allowance or deduction was made in assessment. Trace the later amount obtained or remission or cessation benefit to that earlier item. A unilateral write-off of the liability is expressly within that limb, subject to its conditions.

The imported clauses have their own timing and amount rules. For example, the loss or expenditure recovery limb identifies the subsequent tax year in which the amount is obtained. The bad-debt limb uses an excess-over-the-unallowed-part calculation; it is not a rule that every recovered rupee is always added.

Limits of the cross-reference

Section 95 expressly names four subsections. Do not present every other provision of Section 38 as separately imported by this sentence. Read the applicable clause, any definition it uses and Section 92 together.

For a Section 92 computation, first establish that the income falls under the other-sources head and that the particular imported condition is met. The cross-reference does not authorise double counting under both business income and other sources, or an adjustment where the asserted prior deduction was never allowed.

Step-by-step recovery review

1. Identify the Section 92 income source and the particular Section 38(1) clause said to apply.

2. Obtain the original computation and assessment evidence for the earlier allowance or deduction.

3. Match the later event, recipient, amount and tax year to the clause and the conditions in Section 38(2)–(4).

4. Compute the clause-specific amount, reconcile it to the books and ensure it is recognised once under the appropriate head.

Hypothetical expenditure recovery

Assume that expenditure of ₹20,000 relating to income computed under Section 92 was previously allowed in assessment, and ₹8,000 of that expenditure is later recovered. If Section 38(1)(a)(ii), as applied by Section 95, governs those facts, the ₹8,000 recovery is brought into the applicable computation in the year it is obtained. The example assumes the prior allowance and the necessary statutory connection; it does not establish that every refund has the same treatment.

Evidence checklist

The earlier return computation, assessment and evidence of the deduction allowed.

The settlement, recovery or liability record establishing the later event and its date.

A clause-by-clause computation, recipient details and a reconciliation preventing duplicate inclusion.

Official statutory source

• Income-tax Act, 2025 as amended by Finance Act, 2026: Section 95 and referenced provisions

Practical checklist

Glossary

Recapture

Tax recognition of an amount connected to an earlier allowance or deduction.

Cross-reference

The direction to apply another section's rules to the present computation.

Frequently asked questions