What is Rule 132 of Income Tax? Why Is It Important?

The Central Board of Direct Taxes, on October 1, 2022, set in motion Rule 132 of Income Tax. But there is uncertainty among the masses towards Rule 132. In this article, we will decode Rule 132 of the Income Tax. Rule 132 is introduced in the backdrop of disputes about whether cess or surcharge can be applied to income as a deduction or not. Earlier, when business groups calculated their net taxable profit, the law clarified that income tax paid by them couldn’t be allowed as a deduction.


This ruling did not clarify whether a cess or surcharge on such income tax is allowed as a deduction or not. Across India, business groups and tax authorities claimed deductions on such cess or surcharge in their tax calculations, hence the issue remained disputed. But now, a court, in its recent judgment, shed light and allowed the deduction for cess and surcharge from the income.

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Here is the catch, though. Finance Act 2022 states a deduction for such cess and surcharge on income tax is not an allowable deduction from the taxable profit. Despite this, the government provided a one-time window for the taxpayers to recompute their taxable profits after removing such cess or surcharge and deposit the tax on such income. Hence Rule 132 deals with the procedure for computing income.

With this Rule 132, taxpayers, who claimed a deduction of cess or surcharge, can share details of their taxable income, tax paid, and amount of cess or surcharged to be paid. The information has to be submitted electronically through Form 69.

Hence, Form 69 will allow the authorities to recompute the taxable income of the taxpayer and additional tax to be paid by him. Through Form 70, taxpayers can make payments of tax and inform the tax officer of the payment. No penalty will be levied by the authorities on such payments.

Rule 132 allows assessees to comply with the provision of Section 155 which allowed assessing officers to re-compute the total income.

This recomputation will be under Section 270A❲3❳and can address the under-reported income. Such income will be subject to taxes and penalties. Individuals earning from business or profession and have claimed deduction of surcharge or cess in the previous years will be impacted by Rule 132. Moreover, the last date to furbish form 69 and such income is March 31, 2023.

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