The Income Tax Department on Thursday said that taxpayers will not be allowed to claim deductions for expenses made to settle proceedings under four laws, including the SEBI Act and the Competition Act. These laws are the Securities and Exchange Board of India Act, 1992; the Securities Contracts (Regulation) Act, 1956; the Depositories Act, 1996; and the Competition Act, 2002. In a notification issued on April 23, the Central Board of Direct Taxes (CBDT), which controls the Income Tax Department, clearly stated that any expense made to settle violations or defaults under these laws will not be considered as a business or professional expense.
The CBDT stated that no deductions or allowances will be granted for such expenses. Amit Maheshwari, tax partner at AKM Global, explained that the deduction of settlement payments under Section 37(1) of the Income Tax Act, 1961, has been a topic of judicial debate for a long time. In the past, the consent fee paid to SEBI was allowed as a business expense based on commercial convenience.
CBDT issues Notification No.38/2025 dt 23.04.2025
👉Any expenditure incurred to settle proceedings initiated in relation to contravention or defaults under the specified laws shall not be deemed to have been incurred for the purpose of business or profession.
👉No deduction or… pic.twitter.com/T5MalLKGTp
— Income Tax India (@IncomeTaxIndia) April 24, 2025
A Grey Area
However, Maheshwari noted that the CBDT made changes to the law through the Finance Act, 2024, and has now officially notified it. According to the new rule, any expenses incurred for the settlement or compromise of proceedings under the specified laws—such as the SEBI Act, Securities Contracts (Regulation) Act, Depositories Act, and Competition Act, whether in India or abroad—will no longer be eligible for a deduction.
From April 1, taxpayers can’t claim deductions for settlement payments under SEBI, SCRA, Depositories, and Competition Acts.
CBDT clarified this following amendments made in Finance Act, 2024 under Section 37. pic.twitter.com/otPVkEuxmu
— Taxology India (@taxologyin) April 25, 2025
Maheshwari stated that this change effectively overrules previous tribunal decisions and brings much-needed clarity to the tax landscape. However, a “grey area” remains under other regulatory laws like FEMA and RBI instructions.
