Income tax: Now taxpayers will not get any benefit of deduction on these expenses, the government has made it clear

There is big news for taxpayers. They will not be able to take tax deduction on expenses incurred to settle proceedings initiated under four laws including SEBI or CCI Act. CBDT has issued a circular in this regard.

Income tax: The Income Tax Department on Thursday said that taxpayers will not be allowed to claim deduction for expenditure incurred on settlement of proceedings initiated under four laws, including the SEBI Act and the Competition Act. These specified laws include the Securities and Exchange Board of India Act, 1992; Securities Contracts (Regulation) Act, 1956; Depositories Act, 1996; and the Competition Act, 2002. The Central Board of Direct Taxes (CBDT), the controlling body of the Income Tax Department, in a notification issued on April 23 said that any expenditure incurred on settlement of proceedings initiated in respect of contraventions or defaults under the four specified laws shall not be treated as expenditure incurred for the purpose of business or profession. Being so, no deduction or allowance shall be allowed on such expenditure, the CBDT said. Amit Maheshwari, tax partner, AKM Global, said that the deductibility of settlement payments under section 37(1) of the Income Tax Act, 1961 has been a subject of judicial debate for a long time. In this, the consent fees paid to SEBI was allowed as business expenses on the basis of commercial convenience.

Grey area

However, he said the CBDT has made changes to the law through the Finance Act, 2024 and has now notified it. Now any expenditure incurred for settlement or compromise of proceedings under specific laws including the SEBI Act, Securities Contracts (Regulation) Act, Depositories Act and Competition Act in or outside India will not be eligible for deduction. Maheshwari said this effectively repeals the old decisions of the tribunal and brings much-needed clarity in the tax landscape. However, the ‘grey area’ still persists under other regulatory laws like FEMA and RBI directions.

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