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."