Disallowing deductions of specific expenses in Clause 94 of Income Tax Bill, 2025 vs. Section 58 of Income Tax Act, 1961

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..... 4, examining its implications and comparing it with the existing Section 58 of the Income Tax Act, 1961. Objective and Purpose The legislative intent behind Clause 94 is to prevent the erosion of the tax base by disallowing deductions for specific expenses that are either personal in nature or involve international transactions where tax compliance is not ensured. The overarching goal is to maintain the integrity of the tax system by ensuring that income from other sources is accurately reported and taxed. Historically, similar provisions have been in place to address issues of tax evasion and base erosion, reflecting a consistent policy approach in Indian tax legislation. Detailed Analysis Clause 94 of the Income Tax Bill, 2025 Perso .....

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..... ormity and reducing opportunities for tax arbitrage. Provisions for Foreign Companies For foreign companies, the provision applies Section 59 in computing income from other sources. This reflects a policy to align the tax treatment of foreign companies with domestic entities, ensuring that foreign entities do not gain an undue advantage through differential tax treatment. Income from Gambling and Betting This sub-clause disallows any deductions related to income from lotteries, gambling, and similar activities. The intent is to tax gross winnings without allowing for the offset of related expenses, reflecting a policy choice to tax such income more heavily due to its speculative nature. Exception for Horse Racing An exception is provi .....

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..... iance frameworks to ensure that all relevant taxes are withheld and paid. This is particularly important for multinational corporations and entities with significant foreign operations. For Regulators Tax authorities will need to focus on enforcing compliance with withholding obligations, especially for payments made outside India. This may involve increased scrutiny of international transactions and collaboration with foreign tax authorities. Conclusion Clause 94 of the Income Tax Bill, 2025, represents a continuation and refinement of policies aimed at safeguarding the tax base by disallowing certain deductions. By comparing it with Section 58 of the Income Tax Act, 1961, we observe both continuity and evolution in tax policy. The emp .....

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