No Income Tax Deduction for Penalty Settlements Under 4 Key Laws: CBDT [Read Notification]

The Ministry of Finance, through the Department of Revenue (Central Board of Direct Taxes), has issued Notification No. S.O. 1838(E) dated April 23, 2025, announcing significant clarifications under the Income-tax Act, 1961 regarding the disallowance of certain expenditures.

Details of the Notification

The CBDT has exercised its powers under section 37(1), Explanation 3, clause (iv) of the Income-tax Act. The notification explicitly disallows businesses and professionals from claiming tax deductions on expenses incurred for settling proceedings related to contraventions of the following laws:

1. The Securities and Exchange Board of India Act, 1992 (SEBI Act)

2. The Securities Contracts (Regulation) Act, 1956

3. The Depositories Act, 1996

4. The Competition Act, 2002

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According to the CBDT, any amount paid to settle defaults or violations under these laws will not be considered as an expense incurred for the purpose of business or profession. As a result, such payments will not be eligible for tax deduction.

The notification becomes effective on April 23, 2025, the date of its publication in the Official Gazette.

To Read the full text of the Notification CLICK HERE

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