Taxation in India is not just about paying income tax—it is about compliance, disclosures, and governance. The Income Tax Act, 1961 contains several sections that deal with responsibilities of taxpayers, powers of authorities, and incentives to encourage socially beneficial contributions. Among these, Section 135 of Income Tax Act is noteworthy.
This section covers multiple aspects: granting powers to the Principal Director General, requiring taxpayers to disclose more details in their tax audit report, & providing deductions for donations in specific circumstances. Additionally, it emphasizes compliance for large companies—especially those with a net worth of rupees five hundred crore or more.
Power of Principal Director General under Section 135
One of the unique features of Section 135 is the Power of Principal Director General. This provision grants powers to Principal Director General (PDGIT) to call for information, direct audits, and monitor disclosures.
The role of PDGIT is to ensure that taxpayers, especially corporate entities, are adhering to the highest levels of compliance. The power is not arbitrary—it is regulated under the Income Tax Act & must be exercised for valid purposes such as checking discrepancies, ensuring transparency, or verifying large transactions.
By empowering tax authorities in this manner, Section 135 strengthens the government’s ability to curb tax evasion & enhance accountability.
Requirement of Additional Disclosures
Another important aspect of Section 135 is that it requires taxpayers to disclose additional information in their tax audit report. This includes:
- Reporting income under specific heads.
- Disclosing exemptions claimed.
- Mentioning compliance with donation-related provisions.
- Highlighting financial transactions that could have tax implications.
For businesses & companies, the audit report is not just a formality—it is a detailed record of compliance. Section 135 ensures that the report includes sufficient information for tax authorities to verify claims & exemptions.
Also Read: Time Limits and Extensions for Special Audit Reports
Deduction in Respect of Certain Donations
Section 135 also recognizes the importance of encouraging corporate donations & contributions. Therefore, it provides relief by allowing deductions in respect of certain donations.
This provision works in line with the Government’s policies on Corporate Social Responsibility (CSR). When companies contribute to approved funds, welfare projects, or charitable institutions, they may be entitled to claim a deduction. This not only reduces their taxable income but also promotes nation-building through private-sector support.
Applicability for Large Companies
Another vital point under Section 135 is that every company having net worth of rupees five hundred crore or more comes under its purview for stricter compliance.
Such companies are expected to:
- Maintain transparent financial records.
- Ensure CSR contributions are properly disclosed."
- File detailed tax audit reports with all additional information.
The emphasis is on large corporations because they handle huge sums of money & have greater responsibility to society.
Why Section 135 Matters
The importance of Section 135 can be understood from three perspectives:
- For Taxpayers – It clarifies disclosure requirements & provides deductions for eligible donations.
- For Companies – It imposes compliance responsibilities on large corporations, ensuring they contribute to social development.
- For Authorities – It grants the Power of Principal Director General to oversee, investigate, & enforce compliance.
This balance makes the provision critical in the ecosystem of tax governance.
Also Read: Penalty for Failure to Get Accounts Audited
Practical Example
Consider a company with a net worth of ₹600 crore. This company makes significant donations to a government-approved education fund. Under Section 135:
- The company must disclose this donation in its tax audit report.
- It can claim a deduction in respect of certain donations, reducing its taxable income.
- The Principal Director General may review the company’s compliance to ensure that the donations & disclosures are accurate.
This example shows how the section integrates governance, compliance, and incentives.
Relation to CSR (Corporate Social Responsibility)
Though Section 135 is often linked to CSR provisions under the Companies Act, its presence in the Income Tax Act ensures that tax benefits & compliance reporting align with corporate governance standards.
Thus, a company’s responsibility goes beyond profit-making—it must also invest in social welfare & report transparently.
Compliance Challenges
While Section 135 encourages accountability, it also creates challenges for taxpayers & companies. These include:
- Understanding the scope of disclosures in the audit report.
- Ensuring proper documentation of donations to claim deductions."
- Being prepared for scrutiny by the Principal Director General.
Non-compliance can result in penalties, loss of exemptions, & legal consequences.
Benefits of Section 135
Despite challenges, Section 135 brings clear benefits:
- Promotes transparency by requiring detailed audit disclosures.
- Supports social welfare by offering deductions on donations.
- Strengthens governance by empowering tax authorities.
- Encourages corporate accountability by targeting large companies.
Also Read: Tax Audit Limit: Who Needs a Tax Audit and Why?
Conclusion
Section 135 of Income Tax Act is a crucial provision that balances compliance, governance, & social responsibility. It grants powers to Principal Director General, requires taxpayers to disclose additional information in their tax audit report, & seeks to provide deduction in respect of certain donations. Importantly, it emphasizes that every company having net worth of rupees five hundred crore or more must ensure complete compliance.
By combining disclosure, deduction, and oversight, Section 135 ensures that India’s tax system is fair, transparent, & socially responsible.
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