Comparison of Section 36 "Expenses or payments not deductible in certain circumstances" between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

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....s on cash payments. It affects taxpayers engaged in business or profession and entities transacting with related/specified persons. Effective date or decision date: Not stated in the document. Background & Scope Statutory hooks: The provision is titled "Expenses or payments not deductible in certain circmstances" and is framed as Clause 36 of the Income Tax Bill, 2025, operating in relation to computation of income under the head "Profits and gains of business or profession". The clause contains a non-obstante provision in sub-section (1) making it effective irrespective of contrary provisions elsewhere in the Act. Definitions and coverage are contained in clause (3). The text sets out: Assessing Officer's power to disallow excessive....

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....r laws/contracts where specified banking/online payment is made. Interpretation The Bill gives the Assessing Officer discretionary power to characterise payments to specified persons as excessive or unreasonable, using three yardsticks: fair market value, legitimate needs, and benefit to the assessee. The presence of a non-obstante clause indicates legislative intent to prioritise this provision over any conflicting computation rules. The text uses "in the opinion of the Assessing Officer", signalling an evaluative fact-intensive enquiry; however, the Bill does not specify procedural safeguards or standards for such opinion. "Specified person" is defined broadly to capture related parties and persons with "substantial interest" (20% thres....

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.... following tax year to the creditor in cash exceeding Rs.10,000 will be treated as income under "Profits and gains of business or profession". (Directly from sub-section (5)). Interplay The clause states it applies "irrespective of anything to the contrary" in the Act, indicating primacy over other computation provisions. It contemplates delegated rules ("as prescribed") to carve out exceptions for cash/online rules but does not reference specific existing Rules, Notifications or sections (other than the head of income). Interaction with other statutory provisions (e.g., transfer pricing, section dealing with related-party transactions, or specific provisions on mode of payment elsewhere) is not spelled out in the text. Any interplay with....

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....however, the As Passed wording reduces any potential argument that portions of the section other than sub-section (2) were outside the definitional scope. * Minor drafting differences in list items: The Old Version frames the entries under clause (3)(a) with repeated "shall mean" language for each clause (ii)-(iv). The As Passed version uses a consolidated parent provision and different punctuation. * Practical impact: Drafting clarity improved in As Passed text; no substantive policy change. * Scope of sub-section (3)(b) definition of "substantial interest": The Old Version sets the tests as "(i) the beneficial owner of shares ... carrying at least 20% of the voting power" and "(ii) entitled to at least 20% of the profits ... at any ....

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....ges to applicability across subsection(s). * Presentation of monetary thresholds: No practical change; thresholds remain Rs.10,000 and Rs.35,000 (for goods carriages). * Addition of prohibition on deductions for marked-to-market/expected losses in As Passed: Significant substantive change - narrows allowable deductions and creates a specific exclusion that could affect entities (e.g., traders, financial firms) that recognise MTM or anticipated losses; such losses will be allowable only if covered u/s 32(1)(h) as enacted. * Overall drafting refinement: As Passed drafting appears more precise and inclusive; reduces interpretive ambiguity but does not alter most taxpayers' obligations beyond the new MTM/expected loss restriction. Pr....