Quick Summary
Disallowance of settlement amounts being paid to settle contraventions Section 37 of the Act provides for allowability of expenditure laid out or expended wholly and exclusively for the purpose of business or profession. 2. Explanation 1 of sub-section (1) of section 37 provides that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or all
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FAQ :
From April 1, 2025, settlement amounts paid to resolve legal contraventions will no longer be considered allowable business expenses for tax deduction purposes.
The amendment is proposed to be effective from April 1, 2025, and will apply from the assessment year 2025-2026 onwards.
The clarification includes any expenditure incurred to settle proceedings initiated in relation to a contravention under any law, as may be notified by the Central Government.
Section 37 previously allowed expenditure laid out or expended wholly and exclusively for the purpose of business or profession, with certain exceptions.
The amendment clarifies that settlement amounts related to contraventions of law should not be allowed as business expenses.
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