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Business Standard
25-04-2025
- Business
- Business Standard
Tax deductions barred for legal settlements under select laws
The Central Board of Direct Taxes (CBDT) has clarified that settlement payments made under key financial regulatory laws will no longer be eligible for tax deductions. This change, introduced through the Finance Act, 2024, will come into effect from 1 April 2025. In a notification issued on 23 April 2025, the CBDT stated that taxpayers cannot claim deductions for settlement payments arising from legal proceedings under the Securities and Exchange Board of India (SEBI) Act, 1992, the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996, and the Competition Act, 2002. This move seeks to settle long-standing ambiguity over whether such payments could be treated as deductible business expenditures under Section 37(1) of the Income-tax Act, 1961. The issue has been at the center of various legal debates, particularly in cases such as Income Tax Officer v. Reliance Share & Stock Brokers, where consent fees paid to SEBI were allowed as business expenses on grounds of commercial expediency.
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Business Standard
25-04-2025
- Business
- Business Standard
Settle a Sebi case? You can't claim it as a business expense anymore
On April 24, the Income Tax Department (CBDT) issued a new rule that affects how businesses handle certain legal expenses in their tax filings. In a notification issued on Thursday, the Central Board of Direct Taxes (CBDT) clarified that any expenditure incurred to resolve or settle proceedings related to violations under four specific laws will not be considered a legitimate business expense. This means such amounts cannot be deducted from taxable income while computing profits for tax purposes. What's the rule About? If a company pays money to settle a case or proceeding under any of the following four laws: SEBI Act, 1992 (for violations in the stock market) Securities Contracts (Regulation) Act, 1956 Depositories Act, 1996 (related to shareholding systems) Competition Act, 2002 (anti-trust or monopoly-related cases) then those payments cannot be claimed as a business expense while filing income tax. The decision effectively closes a tax loophole that allowed companies to potentially reduce their taxable income by treating penalties or settlement payments related to regulatory violations as normal business expenditures. What Does It Mean for Taxpayers? Let's say a company is fined by SEBI or agrees to pay a settlement to resolve a case under the Competition Act. Before this rule: They might have tried to reduce their taxable income by calling that settlement an "expense" in their profit & loss account. After this rule: They can't do that anymore. That settlement won't reduce their taxable profit, so they'll pay more tax. Why is this important? The government is drawing a line: Expenses related to breaking the law or settling legal violations aren't part of doing 'normal business.' It stops companies from getting tax benefits for wrongdoing, even if they settle instead of going through full legal proceedings. "The deductibility of settlement payments under Section 37(1) of the Income-tax Act, 1961, has long been a subject of judicial debate, particularly in cases like Income Tax Officer v. Reliance Share Stock Brokers (P.) Ltd., where consent fees paid to SEBI were allowed as business expenditure on grounds of commercial expediency." However, the CBDT brought in changes to law via Finance Act, 2024, and has now notified that any expenditure incurred for settlement or compounding of proceedings under specific legislations in India or outside, including the SEBI Act, the Securities Contracts (Regulation) Act, the Depositories Act, and the Competition Act, shall not be eligible for deductions," said Amit Maheshwari, Tax Partner at AKM Global.
Time of India
25-04-2025
- Business
- Time of India
CBDT: Can't claim deductions for settlement under 4 laws
NEW DELHI: The on Thursday said taxpayers will not be allowed to claim deduction for expenditures incurred to settle proceedings initiated under four laws. On April 23, CBDT notified that any expenditure incurred to settle proceedings initiated in relation to contravention or defaults under the four specified laws — Securities and Exchange Board of India Act, 1992, the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996, and the , 2002 — shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance will be allowed for such expenditure.
Time of India
24-04-2025
- Business
- Time of India
No tax deductions for settling legal proceedings under certain laws
No tax deduction can be claimed for settling legal proceedings under four laws including Securities and Exchange Board of India Act , 1992; the Securities Contracts (Regulation) Act, 1956; the Depositories Act, 1996; and the Competition Act, 2002. The central board of direct taxes(CBDT) in a notification issued April 23 clarified that from April 1, no such deduction can be claimed. Last year, the Centre had made amendments in the Finance Act, 2024 under Section 37 of the act. Amit Maheshwari, tax partner at AKM Global, said, "The deductibility of settlement payments under Section 37(1) of the Income-tax Act, 1961, has long been a subject of judicial debate, particularly in cases like Income Tax Officer v. Reliance Share & Stock Brokers, where consent fees paid to Sebi were allowed as business expenditure on grounds of commercial expediency." by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Living in Thiruvananthapuram? Don't Buy Hearing Aids Before Reading This Learn More Undo
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Business Standard
24-04-2025
- Business
- Business Standard
Companies can't claim tax deduction on regulatory settlements, says govt
Companies can no longer claim tax benefits for money spent on settling cases related to violations of key financial and competition laws, according to a notification issued by the Central Board of Direct Taxes (CBDT). The tax department clarified that any expenditure incurred to resolve proceedings under four specific laws will not be treated as a business expense. These laws are: the Securities and Exchange Board of India (Sebi) Act, 1992; the Securities Contracts (Regulation) Act, 1956; the Depositories Act, 1996; and the Competition Act, 2002. The change is effective immediately from April 23. This means that fines, penalties, or settlement amounts paid under these laws cannot be deducted while calculating a company's income for tax purposes. The notification has been issued under Section 37 of the Income-tax Act, 1961, which deals with business expenditure. It makes clear that such payments, being related to legal violations, will not be considered as made for the purpose of business or profession. "The government is making it clear that breaking rules won't just cost companies in fines, but also in higher taxes. This change stops companies from saving tax on money spent to settle cases where they've gone against the law. The government is sending a strong message that non-compliance will carry financial consequences—not just in fines but also in tax treatment,' said Abhishek Rastogi, founder of Rastogi Chambers.
