Tax Compliance and Non-Deductibility of certain expenditure: Clause 35 of the Income Tax Bill, 2025 vs. Section 40 of the Income-tax Act, 1961

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....ection 40 of the Income-tax Act, 1961, are both pivotal provisions that govern the non-deductibility of certain expenses while computing income under the head "Profits and gains of business or profession." These provisions are instrumental in ensuring compliance with tax obligations, preventing tax evasion, and aligning with international tax standards. This article provides a comprehensive analys....

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....ause (a): Prohibits the deduction of taxes paid on income, including surcharges or cess. This aligns with the principle that taxes paid should not reduce taxable income. * Sub-Clause (b): Addresses non-deductibility of 30% of payments to residents where tax is deductible but not deducted or paid. It allows subsequent deduction when taxes are paid, ensuring compliance with tax deduction at source....

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....ome-tax Act, 1961 * Sub-Clause (a): Similar to Clause 35(a), it disallows deduction of taxes on income, emphasizing the same principle of non-deductibility of taxes. * Sub-Clause (ia): Corresponds to Clause 35(b), focusing on non-deductibility of certain payments to residents when TDS is not complied with, with provisions for subsequent deduction. * Sub-Clause (ib): Aligns with Clause 35(d),....

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.... They necessitate meticulous compliance with TDS provisions and adherence to partnership agreements to avoid disallowance of deductions. Businesses must ensure proper documentation and timely payment of taxes to claim deductions in subsequent years. The emphasis on equalisation levy also highlights the growing importance of digital economy taxation. Comparative Analysis While both Clause 35 and ....