Relief from double taxation where India has NO tax treaty with the other country is given under:

Section 80C, deduction from gross total income

Which of the following is NOT one of the prescribed methods for determining the arm's length price under section 92C?

Comparable uncontrolled price method

Transactional net margin method

Concealing income and inflating expenses to reduce tax liability is:

Tax evasion, illegal and punishable

Tax avoidance, legal but against the spirit of the law

Tax planning, legal and encouraged

Tax management, a matter of compliance

The Supreme Court judgment that held colourable devices and dubious methods cannot be regarded as legitimate tax planning is:

McDowell & Co. Ltd v Commercial Tax Officer (1985)

In an own-or-lease decision, the depreciation tax shield on owning an asset is worth LEAST to a company that:

Has large carried-forward losses and expects no taxable profit for years

Pays tax at the 30% rate on substantial profits

Is a new manufacturing company eligible for additional depreciation

Has opted for the old regime with all deductions

If a payee does not furnish a PAN, tax is deducted at source under section 206AA at:

The rate in the relevant section or 20%, whichever is higher

The maximum marginal rate of 30% in every case

Nil, because deduction requires a PAN

An updated return under section 139(8A), after the Finance Act, 2025, may be filed within how long from the end of the relevant assessment year?

48 months, on payment of additional tax rising from 25% to 70%

24 months, with no additional tax

Any time, provided it declares lower income

Income-tax II: International Taxation, Corporate Tax Planning, TDS and TCS, Advance Tax and E-filing

The second half of Unit 10 is the corporate and procedural half. It asks how a taxpayer who earns in two countries avoids paying twice and how the department stops group companies from moving profit through the prices they charge each other; what tax planning is and where it becomes avoidance or evasion; how tax enters the classic business decisions — make or buy, own or lease, repair or replace, shut down or continue; and the machinery by which tax reaches the exchequer before the return is filed — deduction and collection at source, advance tax, and the electronic return itself. As in the first chapter, the rule is stated with the current figure and the financial year it belongs to, using the 1961 Act's section numbers that the syllabus vocabulary still follows.

1. International taxation: double taxation and its avoidance, and transfer pricing

Double taxation arises because countries tax on two different connecting factors: the country of residence taxes its residents on their world income, and the country of source taxes income arising within its borders whoever earns it. Juridical double taxation is the same income taxed twice in the same person's hands; economic double taxation is the same income taxed in two different hands, as when a company pays tax on its profit and the shareholder pays again on the dividend. Relief comes in two forms. Bilateral relief is a Double Taxation Avoidance Agreement, which India signs under section 90 — and, with specified associations in territories such as Taiwan, under section 90A — following either the OECD Model Convention, which favours residence-based taxation, or the UN Model, which preserves more source-country rights and is the template for most of India's treaties with developing countries. Unilateral relief under section 91 applies where there is no treaty: a resident who has paid foreign tax on income that is also taxed in India gets a deduction from Indian tax of the lower of the Indian and the foreign rate on the doubly taxed income.

Methods of relieving double taxation
Method	How it works	Who bears the cost
Exemption method	The residence country does not tax the foreign-source income at all (full exemption) or taxes it only to set the rate on the rest (exemption with progression)	The residence country gives up its tax entirely
Credit method	The residence country taxes world income but credits the foreign tax paid — in full, or 'ordinary credit' limited to the residence-country tax on that income, which is India's practice under Rule 128 and Form 67	The taxpayer ends up paying the higher of the two rates
Deduction method	Foreign tax is allowed as an expense deducted from income, not from tax	Weakest relief; double taxation is reduced, not removed
Tax sparing and underlying tax credit	Tax sparing credits the tax the source country would have charged but waived as an incentive; underlying credit gives a shareholder credit for the corporate tax paid on the profit out of which the dividend came	Treaty-specific; both appear in several of India's older treaties

ℹ️ How a treaty interacts with the Act

Section 90(2) lets the taxpayer choose whichever is more beneficial, the treaty or the Act — except that the General Anti-Avoidance Rule in Chapter X-A (sections 95 to 102, in force from assessment year 2018-19, applicable where the tax benefit exceeds 3 crore rupees) overrides the treaty for impermissible avoidance arrangements. A non-resident must produce a tax residency certificate from the home country to claim treaty benefit (s. 90(4)). Business profits are taxed in the source country only if the enterprise has a permanent establishment there — a fixed place of business, a dependent agent, a construction site beyond the treaty's threshold, or services beyond a stated number of days — and 'significant economic presence' in section 9 extends Indian source taxation to digital businesses without a physical PE. India signed the OECD's Multilateral Instrument in 2017 to write the BEPS anti-abuse measures into its treaties at once. The equalisation levy on digital services — 6% on online advertising from 2016 and 2% on e-commerce supplies from 2020 — has been withdrawn: the 2% levy from 1 August 2024 and the 6% levy from 1 April 2025.

Transfer pricing, sections 92 to 92F, requires that income from an international transaction between associated enterprises be computed at the arm's length price — the price two independent parties would have agreed — so that a group cannot shift profit to a low-tax country by over- or under-invoicing itself. Enterprises are associated under section 92A when one holds 26% or more of the voting power in the other, or through common control, loans of 51% of assets, appointment of half the board, dependence on intangibles or supplies, and similar tests. The arm's length price is found by the most appropriate of six methods under section 92C: comparable uncontrolled price, resale price, cost plus, profit split, transactional net margin, and any other prescribed method; where the price lies within a tolerance range of 3% of the transaction price (1% for wholesale traders) no adjustment is made. Every taxpayer with international transactions files an accountant's report in Form 3CEB by 31 October and keeps contemporaneous documentation above 1 crore rupees of transactions; the Transfer Pricing Officer may determine the price, and a primary adjustment above 1 crore rupees requires a secondary adjustment under section 92CE treating the untaxed excess as a deemed loan. Certainty comes from Advance Pricing Agreements under section 92CC, available since 2012 for five years with a four-year rollback, and from safe-harbour rules that accept declared margins. Section 94B limits interest paid to a non-resident associated enterprise to 30% of EBITDA; specified domestic transactions above 20 crore rupees are also covered under section 92BA; and multinational groups above the threshold file country-by-country reports under section 286.

2. Corporate tax planning: concept, significance, avoidance versus evasion, and techniques

Planning, avoidance, evasion and management
Term	Meaning	Legality and consequence
Tax planning	Arranging affairs to take full advantage of the exemptions, deductions, rebates and reliefs the Act itself provides, within its letter and its intent	Legal and encouraged — investing in 80C instruments, choosing the regime, timing a sale to make a gain long-term
Tax avoidance	Reducing tax through arrangements that comply with the letter of the law but defeat its purpose — artificial structures, colourable devices, treaty shopping	Not a crime, but GAAR may disregard the arrangement and specific anti-avoidance rules (clubbing, transfer pricing, section 94B, deemed dividend) block known routes
Tax evasion	Reducing tax by breaking the law — concealing income, inflating expenses, false books, unrecorded cash sales	Illegal: penalty under section 270A of 50% of tax on under-reported income and 200% on misreported income, and prosecution under section 276C with imprisonment
Tax management	Complying on time — deducting and depositing TDS, paying advance tax, filing returns and audit reports, keeping records	Avoids interest, penalty, disallowance and prosecution; a precondition of planning, not a saving in itself

📖 Three Supreme Court judgments the paper names

In McDowell & Co. v CTO (1985) the Court said that tax planning may be legitimate if within the framework of law, but colourable devices and dubious methods are not tax planning, and it is wrong to encourage the belief that avoiding tax by such means is honourable. In Union of India v Azadi Bachao Andolan (2003) it upheld the India-Mauritius treaty benefit on the strength of a Mauritian residency certificate, restating the older Westminster principle that a taxpayer may arrange affairs to reduce tax so long as the arrangement is real. In Vodafone International Holdings v Union of India (2012) it held that a transfer of shares of a foreign company between two non-residents was not taxable in India merely because the underlying assets were Indian, reading the transaction as it was and not looking through it — after which Parliament amended section 9 retrospectively to tax indirect transfers, and later enacted GAAR to codify what McDowell had implied.

Corporate tax planning matters because tax is the single largest claim on a company's profit, and because the Act deliberately prices certain choices — where to locate, how to finance, when to buy an asset — so that a company that ignores tax chooses badly. Its techniques follow the Act's own structure. Form of organisation: a company pays a flat rate but its shareholders pay again on dividend, while a firm or LLP pays 30% once and its partners' shares are exempt. Location: units in Special Economic Zones enjoyed section 10AA deductions on export profits, and start-ups recognised by DPIIT incorporated up to 1 April 2030 may take 100% of profits for three of their first ten years under section 80-IAC. Nature of business and rate regime: a domestic company pays 30%, or 25% where turnover in the financial year two years earlier did not exceed 400 crore rupees, or may opt under section 115BAA for 22% with no exemptions and no minimum alternate tax — 25.17% with surcharge and cess — while new manufacturing companies that began production by 31 March 2024 pay 15% under section 115BAB; a foreign company pays 35%. Capital structure: interest on borrowed capital is deductible under section 36(1)(iii) while dividend is paid out of taxed profit, which tilts financing toward debt within the section 94B limit. Depreciation: the written-down-value block system under section 32, additional depreciation of 20% on new plant and machinery for manufacturers, and the timing of acquisition around the half-year rule that gives only 50% depreciation for assets used under 180 days. Amalgamation and demerger: accumulated losses and unabsorbed depreciation of the amalgamating company pass to the amalgamated company under section 72A if the conditions are met. Minimum alternate tax under section 115JB is 15% of book profit, with credit carried forward fifteen years, and does not apply to companies that have opted for 115BAA or 115BAB. Dividend distribution tax was abolished from 1 April 2020, so dividend is taxed in shareholders' hands; and from 1 October 2024 the proceeds of a share buy-back are taxed as dividend in the shareholder's hands too, closing the route by which buy-backs replaced dividends.

3. Tax considerations in specific business decisions

In each of the four classic decisions the method is the same: compare the after-tax cash flows of the alternatives, discounted where they fall in different years, remembering that a deductible expense costs only (1 − t) of its face value and that depreciation, though not a cash flow, saves tax equal to the depreciation multiplied by the rate — the tax shield. What changes from decision to decision is which provisions of the Act enter the comparison.

The four decisions and the tax that enters each
Decision	Comparison	Tax provisions that matter	Rule of thumb
Make or buy	After-tax cost of making (materials, labour, variable overhead, plus the tax shield on depreciation of any new plant and on additional depreciation) against the after-tax purchase price	Section 32 depreciation and 20% additional depreciation on new machinery; section 37 deduction of the purchase price as revenue expenditure; the effect of capacity use on fixed costs already incurred	Both costs are deductible, so tax narrows but rarely reverses the pre-tax answer; make when idle capacity exists and the new asset earns depreciation shields
Own or lease	Present value of after-tax lease rentals against the present value of the purchase price less the tax shields on depreciation and on interest, plus the after-tax salvage value	Lease rent fully deductible under section 37(1) for the lessee, and the lessor claims depreciation; an owner claims depreciation under section 32 and interest under section 36(1)(iii); GST on lease rentals is creditable	Leasing suits a firm with low or no taxable profit that cannot use the depreciation shield; owning suits a profitable firm that can
Repair, renew or replace	After-tax cost of continuing to repair against the after-tax net investment in a new asset, allowing for the tax effect of selling the old one	Current repairs deductible in full under sections 30 and 31; renewal or replacement that brings an enduring benefit is capital and earns only depreciation; under the block-of-assets system the sale price of the old asset is simply reduced from the block's written-down value, so there is no gain unless the block is exhausted or the sale exceeds the block (short-term gain under section 50)	Repair while its deductible cost stays below the annualised after-tax cost of replacement; replace when the old asset's sale leaves the block intact and the new one brings additional depreciation
Shut down or continue	After-tax contribution from continuing against the after-tax cost of closure — retrenchment compensation, asset disposal, unrecovered fixed costs — and the fate of carried-forward losses	Business loss may be carried forward eight years under section 72 by the same assessee whether or not the same business continues; unabsorbed depreciation carries forward indefinitely under section 32(2) even after the business is discontinued; on sale of the whole block section 50 taxes any excess as short-term gain; remission of a trading liability on closure is income under section 41(1); retrenchment compensation is deductible	A temporary shut-down keeps the losses alive against other income; permanent closure forfeits unexpired business losses unless the assessee has other business income to absorb them

⚠️ Own or lease is not decided by the rate of depreciation alone

A question that gives a depreciation rate and a lease rental and asks which is cheaper wants the after-tax present-value comparison, and the answer flips with the firm's tax position: the depreciation shield is worth nothing to a company with carried-forward losses or one paying only minimum alternate tax, and for it the fully deductible lease rental is the cheaper route even where the pre-tax cost of owning is lower. The same logic makes 115BAA companies — which have given up additional depreciation and most deductions — relatively more inclined to lease.

4. Deduction and collection of tax at source, advance tax and e-filing of returns

Tax deducted at source, Chapter XVII-B, makes the payer collect the tax when the payment is made and deposit it with the government by the seventh of the next month (30 April for March), so that the state is paid as income arises and a record exists against the recipient. The deductor needs a Tax Deduction and Collection Account Number under section 203A, files quarterly statements — Form 24Q for salary, 26Q for other resident payments, 27Q for non-residents — and issues certificates, Form 16 for salary by 15 June and Form 16A quarterly; the deductee sees every credit in Form 26AS and the Annual Information Statement and claims it against the final liability. Where the deductee has no PAN the rate rises to 20% under section 206AA; a recipient whose income is below the taxable limit can file Form 15G, or 15H for senior citizens, or obtain a certificate for nil or lower deduction under section 197. A deductor who fails to deduct or deposit becomes an assessee in default under section 201, pays interest of 1% a month for failing to deduct and 1.5% a month for failing to deposit, faces penalty and prosecution, and loses 30% of the expense as a deduction under section 40(a)(ia) until the tax is paid.

TDS sections, rates and thresholds asked most often (FY 2025-26)
Section	Payment	Rate	Threshold
192	Salary	Average rate on estimated annual salary under the regime the employee opts for	Where estimated tax is payable
194A	Interest other than on securities	10%	50,000 a year from banks, cooperatives and post offices (1 lakh for senior citizens); 10,000 from others
194C	Payment to a contractor	1% to an individual or HUF, 2% to others	30,000 per contract or 1 lakh a year
194H	Commission or brokerage	2% (5% until 30 September 2024)	20,000 a year
194-I	Rent	2% for plant and machinery, 10% for land, building or furniture	6 lakh a year (50,000 a month)
194-IA	Purchase of immovable property other than agricultural land	1% of consideration or stamp-duty value, whichever is higher	50 lakh
194J	Fees for professional or technical services, royalty, director's fees	10% professional, 2% technical services and call centres	50,000 a year; none for director's fees
194N	Cash withdrawal from a bank	2%; 2% above 20 lakh and 5% above 1 crore for non-filers	1 crore a year
194Q	Purchase of goods by a buyer with turnover above 10 crore	0.1%	50 lakh from one seller in a year
194 and 193	Dividend; interest on securities	10%	10,000 a year each

Tax collected at source under section 206C is the mirror image: the seller collects tax from the buyer at the time of sale on the goods and transactions the section names — 1% on scrap, minerals and alcoholic liquor for human consumption, 2.5% on timber, 5% on tendu leaves, 1% on a motor vehicle sold for more than 10 lakh rupees under 206C(1F), and under 206C(1G) 20% on remittances under the Liberalised Remittance Scheme above 10 lakh rupees a year, with nil for education financed by a loan and 5% for other education and medical remittances above the threshold, and 5% on an overseas tour package up to 10 lakh and 20% above. The 0.1% collection on sale of goods under 206C(1H) was omitted from 1 April 2025 because the buyer already deducts under 194Q. Advance tax, sections 207 to 219, is 'pay as you earn': every assessee whose tax after TDS for the year is 10,000 rupees or more must pay it in the year the income is earned, except a resident senior citizen with no business or professional income. Section 211 fixes the instalments — 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March, cumulatively — while a presumptive taxpayer under sections 44AD or 44ADA pays the whole amount by 15 March. Any balance is self-assessment tax under section 140A. Interest runs under section 234B at 1% a month where advance tax paid is less than 90% of the assessed tax, under 234C at 1% a month for three months on each deferred instalment (one month for March), and under 234A at 1% a month for filing the return late.

Return forms and due dates (assessment year 2026-27)
Form	Who files it	Due date and mode
ITR-1 (Sahaj)	Resident individual with total income up to 50 lakh from salary, one house property, other sources, agricultural income up to 5,000 and long-term equity gains up to 1.25 lakh	31 July; online, or on paper for a very senior citizen aged 80 or more
ITR-2	Individuals and HUFs without business or professional income — capital gains, more than one house, foreign assets	31 July, electronically
ITR-3	Individuals and HUFs with business or professional income	31 July, or 31 October where accounts are audited under section 44AB
ITR-4 (Sugam)	Resident individuals, HUFs and firms other than LLPs with presumptive income under sections 44AD, 44ADA or 44AE and total income up to 50 lakh	31 July
ITR-5	Firms, LLPs, associations of persons, bodies of individuals	31 July, or 31 October if audited
ITR-6	Companies other than those claiming exemption under section 11	31 October; 30 November where a transfer-pricing report under section 92E is required; digital signature mandatory
ITR-7	Trusts, political parties, institutions and universities filing under sections 139(4A) to 139(4D)	31 October

E-filing is done on the income-tax portal against the PAN, which must be linked with Aadhaar under section 139AA, and returns are now pre-filled from the Annual Information Statement. A return is complete only when verified within 30 days — by Aadhaar OTP, net banking, a bank or demat account, a digital signature certificate, which is compulsory for companies and audited cases, or by posting the signed ITR-V acknowledgement to the Centralised Processing Centre at Bengaluru, which processes returns and issues intimations under section 143(1). A return missed by the due date may be filed as a belated return under section 139(4), and a return filed may be revised under section 139(5), both up to 31 December of the assessment year, with a late fee under section 234F of 5,000 rupees, or 1,000 where total income does not exceed 5 lakh; a belated return forfeits carry-forward of business and capital losses. An updated return under section 139(8A) may be filed within 48 months of the end of the assessment year — extended from 24 months by the Finance Act, 2025 — on payment of additional tax of 25%, 50%, 60% or 70% by the year of filing, but only to declare more income, never less. A defective return may be corrected within 15 days of notice under section 139(9). Assessment itself has been faceless since 2020 under section 144B, with cases allotted by an automated system and no personal appearance except by video conference.

Key takeaways

Double taxation is relieved bilaterally by a DTAA under section 90 (OECD or UN model) and unilaterally under section 91; India uses the ordinary credit method; the taxpayer may choose treaty or Act, but GAAR overrides, and a treaty needs a tax residency certificate.
Transfer pricing requires the arm's length price between associated enterprises (26% voting power) by the most appropriate of six methods, with a 3% tolerance, Form 3CEB, secondary adjustment, and certainty through APAs and safe harbours.
Planning uses the Act's own reliefs, avoidance defeats its purpose within the letter and is caught by GAAR, evasion breaks the law and draws 50% or 200% penalty; McDowell, Azadi Bachao Andolan and Vodafone mark the line; a domestic company pays 30%, 25% or 22% under 115BAA with no MAT.
In make-or-buy, own-or-lease, repair-or-replace and shut-down decisions the comparison is after-tax cash flows: lease rent is fully deductible, ownership earns depreciation and interest shields, the block system defers gain on replacement, business loss carries eight years and unabsorbed depreciation for ever.
TDS is deposited by the seventh of the next month with 20% for no PAN and 30% disallowance for default; advance tax is due when liability reaches 10,000 in instalments of 15, 45, 75 and 100 per cent; returns are due 31 July, 31 October or 30 November, belated or revised by 31 December, updated within 48 months.

Practice questions (10)

Attempt each one before opening the answer. Every explanation names the tempting wrong option as well as the right one, because that is where marks are lost.

Relief from double taxation where India has NO tax treaty with the other country is given under:
1. Section 91, unilateral relief
2. Section 90, bilateral relief
3. Section 92, transfer pricing
4. Section 80C, deduction from gross total income
Show answer
Answer: A — Section 91, unilateral relief
Section 91 gives a resident a deduction of the lower of the Indian and the foreign rate on doubly taxed income where no agreement exists. Section 90 is the power to enter into treaties, and section 92 concerns the arm's length price between associated enterprises.
Under section 92A, two enterprises are treated as associated enterprises when one holds, directly or indirectly, shares carrying not less than what percentage of voting power in the other?
1. 26%
2. 51%
3. 20%
4. 10%
Show answer
Answer: A — 26%
The voting-power test is 26%, one of the deeming tests in section 92A(2). Fifty-one per cent is the test for loans as a share of assets, and 20% is the 'substantial interest' figure used for clubbing and associate companies, not for transfer pricing.
Which of the following is NOT one of the prescribed methods for determining the arm's length price under section 92C?
1. Net present value method
2. Comparable uncontrolled price method
3. Resale price method
4. Transactional net margin method
Show answer
Answer: A — Net present value method
The six methods are comparable uncontrolled price, resale price, cost plus, profit split, transactional net margin and any other prescribed method. Net present value is a capital-budgeting technique, not a transfer-pricing method.
Concealing income and inflating expenses to reduce tax liability is:
1. Tax evasion, illegal and punishable
2. Tax avoidance, legal but against the spirit of the law
3. Tax planning, legal and encouraged
4. Tax management, a matter of compliance
Show answer
Answer: A — Tax evasion, illegal and punishable
Evasion breaks the law and attracts penalty under section 270A and prosecution under section 276C. Avoidance stays within the letter while defeating the purpose and is addressed by GAAR; planning uses the reliefs the Act itself provides; management is timely compliance.
The Supreme Court judgment that held colourable devices and dubious methods cannot be regarded as legitimate tax planning is:
1. McDowell & Co. Ltd v Commercial Tax Officer (1985)
2. Union of India v Azadi Bachao Andolan (2003)
3. Vodafone International Holdings v Union of India (2012)
4. Salomon v Salomon & Co. (1897)
Show answer
Answer: A — McDowell & Co. Ltd v Commercial Tax Officer (1985)
McDowell drew the line against colourable devices. Azadi Bachao Andolan upheld treaty benefit on a Mauritian residency certificate; Vodafone read an offshore share transfer as it was, not through to the Indian assets; Salomon is company law on separate personality.
In an own-or-lease decision, the depreciation tax shield on owning an asset is worth LEAST to a company that:
1. Has large carried-forward losses and expects no taxable profit for years
2. Pays tax at the 30% rate on substantial profits
3. Is a new manufacturing company eligible for additional depreciation
4. Has opted for the old regime with all deductions
Show answer
Answer: A — Has large carried-forward losses and expects no taxable profit for years
A shield saves tax only if there is tax to save; with losses to absorb, depreciation merely enlarges an unabsorbed balance, so the fully deductible lease rental becomes relatively cheaper for such a company. The other three companies have high taxable profit or extra depreciation, so the shield is worth more to them.
Under section 211, the cumulative percentage of advance tax payable by 15 December is:
1. 75%
2. 45%
3. 60%
4. 100%
Show answer
Answer: A — 75%
The instalments are 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March. A presumptive taxpayer under sections 44AD or 44ADA pays the whole amount by 15 March.
If a payee does not furnish a PAN, tax is deducted at source under section 206AA at:
1. The rate in the relevant section or 20%, whichever is higher
2. A flat 10%
3. The maximum marginal rate of 30% in every case
4. Nil, because deduction requires a PAN
Show answer
Answer: A — The rate in the relevant section or 20%, whichever is higher
Section 206AA raises the rate to the higher of the prescribed rate and 20% when no PAN is furnished (30% is the specified rate only for a few payments such as winnings, where it already applies). The deductee also cannot claim the credit until the PAN is linked.
For a company whose accounts are not subject to a transfer-pricing report, the due date for filing the return of income for assessment year 2026-27 is:
1. 31 October 2026
2. 31 July 2026
3. 30 November 2026
4. 31 March 2027
Show answer
Answer: A — 31 October 2026
Companies and audited assessees file by 31 October; 31 July is for individuals without audit; 30 November applies where a section 92E transfer-pricing report is required. A belated or revised return may follow up to 31 December of the assessment year.
An updated return under section 139(8A), after the Finance Act, 2025, may be filed within how long from the end of the relevant assessment year?
1. 48 months, on payment of additional tax rising from 25% to 70%
2. 24 months, with no additional tax
3. 12 months, by 31 December
4. Any time, provided it declares lower income
Show answer
Answer: A — 48 months, on payment of additional tax rising from 25% to 70%
The window was extended from 24 to 48 months, with additional tax of 25%, 50%, 60% and 70% for each successive year. An updated return can only add income or tax; a return that reduces income or creates a refund is not permitted under this section.