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Companies can't claim tax deduction on regulatory settlements, says govt
This means that fines, penalties, or settlement amounts paid under these laws cannot be deducted while calculating a company's income for tax purposes. The notification has been issued under Section 37 of the Income-tax Act, 1961, which deals with business expenditure. It makes clear that such payments, being related to legal violations, will not be considered as made for the purpose of business or profession.
"The government is making it clear that breaking rules won't just cost companies in fines, but also in higher taxes. This change stops companies from saving tax on money spent to settle cases where they've gone against the law. The government is sending a strong message that non-compliance will carry financial consequences—not just in fines but also in tax treatment,' said Abhishek Rastogi, founder of Rastogi Chambers.
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