TaxTMI 
TaxTMI 
Comparison of Section 37 "Certain deductions allowed on actual payment basis only" between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)
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.... profession, lenders/financial entities, employers and suppliers (including micro and small enterprises). The enacted version introduces targeted drafting changes and an additional definitional clause; effective date/commencement is Not stated in the document. Background & Scope Statutory hooks: these provisions operate in the context of computing "income chargeable u/s 26" and interact with section 32(a), section 15 of the Micro, Small and Medium Enterprises Development Act, 2006, and section 263(1) (as referenced for due date of filing). The text sets out a non-exhaustive list of categories of sums which are deductible only in the tax year in which they are actually paid. Definitions provided in the text include "specified financial ent....
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....efore the due date of filing the return u/s 263(1) for that tax year. Sub-section (5) prevents double deduction where a deduction was already allowed when liability was incurred. Sub-section (6) excludes sums received by the assessee from employees as contributions as covered by section 2(49)(o). Interpretation The enacted provision clarifies several interpretive points not present in the Bill text. Notably, Section 37 (As Passed) expressly defines for sub-section (2)(a) that "the sum payable" means a sum for which the assessee has incurred liability in the tax year even if it was not payable in that year under relevant law - this clarifies the scope of clause (2)(a) (tax/duty/cess etc.) as to what counts as a "sum payable" for the sectio....
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....he stamp duty is not paid until November of the following tax year. Under the enacted section, the duty will be deductible only in the year in which it is actually paid (November year), unless it is paid on or before the due date of filing the return u/s 263(1) for the earlier year - in which case sub-section (3) permits deduction in the earlier year. (Hypothetical dates consistent with the text.) * Example 2: Interest payable under a loan agreement with a scheduled bank is capitalised and converted into a debenture at year-end. Under sub-section (4) of the enacted text, that conversion will not be treated as actual payment and the deduction will not be available unless and until cash payment is made. * Example 3: An assessee fails ....
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....on. Lenders and borrowers must check contracts: if payment is contractually deferred, the deduction waits until actual payment unless allowed by sub-section (3). * Addition of definitional clause for clause (2)(a) in enacted text (new sub-section (8)): The enacted section clarifies that for tax/duty/cess etc., "sum payable" includes sums where liability was incurred even if not payable in that year under relevant law. * Practical impact: clarifies what liabilities are considered "payable" for the purpose of the section, which reduces uncertainty about whether statutory levies with later payment windows fall within the scope. However, the central rule of actual-payment timing remains; this clause only clarifies liability incidence for cl....
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....s payment. * Record-keeping/evidence: Taxpayers should retain contractual documents (loan agreements, payment schedules), proof of payment (bank statements, receipts), employer contribution records, and correspondence with suppliers (notably micro/small suppliers) to substantiate the timing of actual payment. For clause (2)(a) liabilities, documentation proving the year liability was incurred will remain relevant due to the enacted definitional clarity. * Payments to micro and small enterprises: Because clause (g) is excluded from the sub-section (3) early-payment carve-out, delayed payments to MSME suppliers remain deductible only in the year of actual payment - increasing the tax cost of delayed supplier payments relative to some othe....