Consent fee paid by businesses under SEBI Act, SCRA Act, Depository Act and Competition Act will now not to be treated as business expenditure, Income Tax Department has said. That means such an expenditure will not get tax exemption.
According to a notification by the Income Tax Department, any expenditure incurred to settle proceedings initiated in relation to contravention or defaults under four laws – SEBI Act, Securities Contracts (Regulation) Act, the Depositories Act and the Competition Act- “shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.” This notification will be effective from April 1, 2025 and will be applied from Assessment Year 2025-26 onwards.
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 (P.) Ltd., where consent fees paid to SEBI were allowed as business expenditure on grounds of commercial expediency. Now, the notification “effectively overrides prior tribunal rulings and brings much needed clarity to the tax landscape, although grey areas persist under other regulatory laws such as FEMA and RBI directions. Taxpayers are thus advised to re-evaluate their positions and exposure in light of this definitive guidance,“ he said.
According to Vinita Krishnan, Executive Director at Khaitan & Co, the provision aims to disallow expenditures, including ‘settlement’ payments incurred due to legal infractions, as specified in the notification listing the applicable laws. “This disallowance should only apply to settlement amounts paid post April 23 (i.e., it should not impact settlement amounts already paid. Going forward, the deductibility of settlement amounts especially in case of civil disputes as well must be carefully evaluated in light of this notification,” she said.
Published on April 24, 2025
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