Complexities of Tax Deductions - requiring actual payment for certain deductions: Clause 37 of the Income Tax Bill, 2025 vs. 43B of the Income Tax Act, 1961

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..... Clause 37 of the Income Tax Bill, 2025, represents a significant legislative effort to streamline and clarify the conditions under which certain deductions can be claimed by taxpayers. This clause mandates that specific deductions are permissible only on an actual payment basis, irrespective of the accounting method employed or the year in which the liability was incurred. This provision is crucia .....

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..... within the Act, the accounting method, or the year the liability was incurred. This ensures consistency and uniformity in the application of tax laws. Sub-section (2): Specific Deductions Sub-section (2) enumerates the types of payments eligible for deductions, including: * Taxes, duties, cess, surcharges, or fees levied under any law. * Employer contributions to employee welfare funds. * .....

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..... ear the liability was incurred, it cannot be claimed again when the payment is made. This prevents double-dipping and ensures equitable tax treatment. Sub-section (6): Employee Contributions This provision excludes sums received from employees for welfare funds from the deductions, aligning with the principle that only employer contributions are eligible. Sub-section (7): Definition of Specifie .....

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..... er provisions and accounting methods. They aim to ensure that tax deductions reflect actual economic outflows. Differences in Specific Provisions * Scope of Deductions: Clause 37 includes payments to micro and small enterprises, reflecting a broader scope compared to Section 43B. * Timing Provisions: While both allow deductions for payments made before the tax return filing, Clause 37 explici .....

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..... lause enhances transparency and compliance. The comparative analysis with Section 43B highlights both continuity and innovation in legislative intent, with Clause 37 addressing modern economic realities and supporting small enterprises. Future reforms may continue to refine these provisions, ensuring they remain effective in a dynamic economic environment.     Full Text: Clause 37 Ce .....

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