Income deemed to be received
[Section 7 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 7(1) of Income Tax Act 2025
7(1) The following incomes shall be deemed to be received in the tax year:—
- (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 provident in paragraph 6 of Part A of the 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 the 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(2) of Income Tax Act 2025
7(2) 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) or (b) or (c) or (d) or (e) or (f) shall be deemed to be the income of the tax year in which it is so declared, distributed or paid, as the case may be;
- (b) any interim dividend shall be deemed to be the income of the tax year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it.
FAQs on Section 7 of the Income Tax Act 2025
1. What is meant by “Income deemed to be received” under the Income Tax Act, 2025?
“Income deemed to be received” refers to certain incomes that, even though not actually received by the taxpayer, are treated as received for taxation purposes as per Section 7 of the Income Tax Act, 2025.
2. What types of income are deemed to be received under Section 7(1) of the Act?
As per Section 7(1), the following incomes are deemed to be received in the tax year:
- Annual accretion to the credit balance of an employee in a recognised provident fund (as per Schedule XI, Part A, Paragraph 6).
- Transferred balance in a recognised provident fund (as per Schedule XI, Part A, Paragraph 11(4) and (5)).
- Employer’s contribution to an employee’s account under a pension scheme covered under Section 124.
3. Are contributions made to a recognised provident fund considered income?
Only the annual accretion and transferred balance in a recognised provident fund are deemed to be received income to the extent specified in Schedule XI, Part A. The employee’s own contributions are not included.
4. How is the employer’s contribution to a pension scheme taxed?
Any contribution made by the Central Government or any other employer to an employee’s account under a pension scheme (as per Section 124) is deemed to be received in the same tax year and is subject to tax accordingly.
5. What is deemed dividend income under Section 7(2)?
Under Section 7(2), dividends are considered income in the following ways:
- Any declared, distributed, or paid dividend by a company (as per Section 2(40)(a) to (f)) is taxable in the tax year in which it is declared, distributed, or paid.
- Interim dividends are taxed in the year in which they are unconditionally made available to the shareholder.
6. If I do not withdraw my provident fund balance, will I still be taxed on it?
Yes, as per Section 7(1)(a), the annual accretion in your recognised provident fund account is considered deemed income and is taxable, regardless of whether you withdraw it or not.
7. If a company declares a dividend but I do not receive it immediately, when is it taxable?
The dividend is taxable in the year it is declared, distributed, or paid, irrespective of when you actually receive it. However, for interim dividends, it is taxed in the year it is made unconditionally available to you.
8. Are there any exemptions for income deemed to be received?
Exemptions, if any, will be as per the provisions of Schedule XI and other relevant sections of the Act. Employees may also check for exemptions under Section 10 or deductions under Chapter VI-A.
9. Does the taxation of deemed income apply to all employees and taxpayers?
Yes, the provisions of Section 7(1) and 7(2) apply universally to all employees and taxpayers falling under the respective categories of income.
10. What if the employer contributes to a private pension scheme?
If the employer contributes to a pension scheme covered under Section 124, it is deemed to be received income and taxable in the same year. Contributions to other pension schemes may have different tax treatments.
11. Is tax deducted at source (TDS) applicable to deemed income?
Yes, in most cases, employers or companies may deduct tax at source (TDS) on deemed income, such as employer contributions to pension schemes or dividends declared by a company.
12. Can I defer tax on deemed income by not withdrawing the funds?
No, deemed income is taxed irrespective of actual receipt. You cannot defer tax liability by postponing withdrawal.
13. What happens if a company declares a dividend but does not pay it in the same year?
As per Section 7(2)(a), the dividend is deemed to be received in the year it is declared, distributed, or paid, whichever is earlier.
14. How do I report deemed income in my tax return?
Deemed income must be included under the relevant heads of income in your tax return. Employers and companies provide details through Form 16 or Form 26AS.
15. Will changes in provident fund rules affect deemed income?
Yes, any changes in Schedule XI or other provisions related to recognised provident funds may impact the taxation of deemed income.
16. How is an interim dividend different from a regular dividend for tax purposes?
An interim dividend is taxable in the year it is made unconditionally available to the shareholder, whereas a declared dividend is taxable in the year it is declared, distributed, or paid.
17. If I transfer my balance from one provident fund to another, is it taxed?
As per Section 7(1)(b), the transferred balance in a recognised provident fund is deemed income to the extent specified in Schedule XI, Part A, Paragraph 11(4) and (5).
18. What if I receive multiple dividends from different companies in a year?
Each dividend is taxable in the year it is declared, distributed, or paid. Ensure you report all such income in your tax return.
19. Is income deemed to be received different from accrual-based income?
Yes. Accrual-based income is recognized when earned, whereas deemed income is taxed even if not actually received.
20. Can I claim a refund if I have already paid tax on deemed income but later do not receive it?
No, once deemed income is taxed, it is considered final unless refunded or adjusted under specific provisions of the Act.
The concept of “Income Deemed to be Received” under Section 7 of the Income Tax Act, 2025 ensures that certain incomes, even if not actually received, are considered taxable in the year of accrual or declaration. This includes:
- Provident Fund Contributions & Accretions: Employer contributions and interest growth in recognised provident funds.
- Pension Scheme Contributions: Employer contributions to pension schemes under Section 124.
- Dividends: Regular and interim dividends declared, distributed, or made available by companies.
These provisions aim to prevent tax deferral, ensuring that taxpayers cannot postpone taxation by delaying withdrawals or receipt. It is crucial for individuals and businesses to be aware of these rules while filing returns to avoid non-compliance.
For accurate tax planning, employees, investors, and employers should stay updated with Schedule XI and other relevant provisions of the Act. Proper documentation and tax filings can help avoid legal complications.
