How to get deduction of expenditure incurred for amalgamation/demerger under the Income Tax Act? As per Section 35DD: "Where an assessee, being an Indian company, incurs any expenditure for the purpose of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction ofRead more
How to get deduction of expenditure incurred for amalgamation/demerger under the Income Tax Act?
As per Section 35DD:
“Where an assessee, being an Indian company, incurs any expenditure for the purpose of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for that previous year, and the balance shall be allowed in equal instalments for each of the four immediately succeeding previous years.”
Explanation:
If an Indian company incurs legal, professional, or administrative expenses in connection with amalgamation or demerger, such expenses cannot be claimed entirely in the year of expenditure. Instead:
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1/5th (20%) of the total expenditure is allowed as a deduction in the year of amalgamation/demerger, and
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The remaining 4/5th is allowed equally over the next 4 years.
✅ Conditions for Claim under Section 35DD:
| Condition | Explanation |
|---|---|
| 🏢 Eligible Assessee | Only an Indian company |
| 📂 Purpose | Expenses must be solely for amalgamation or demerger |
| 📆 Method of Claim | Deduction is spread over 5 years |
| 💳 Actual Expenditure | Expenses must be actually incurred (not mere provisions) |
❌ Not Covered Under Section 35DD:
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Expenses for takeover or acquisition not resulting in amalgamation/demerger
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Expenses incurred by non-Indian companies
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Claimed under any other section, such as 37(1)
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How to get deduction of expenditure incurred for Voluntary Retirement Scheme (VRS) under the Income Tax Act? ✅ Relevant Legal Provision: Section 35DDA of the Income Tax Act, 1961 📜 Bare Act Extract – Section 35DDA (1): "Where an assessee incurs any expenditure in any previous year by way of paymentRead more
How to get deduction of expenditure incurred for Voluntary Retirement Scheme (VRS) under the Income Tax Act?
✅ Relevant Legal Provision:
Section 35DDA of the Income Tax Act, 1961
📜 Bare Act Extract – Section 35DDA (1):
🧮 Explanation & Computation of Deduction:
If a company or firm pays any amount to employees under a Voluntary Retirement Scheme (VRS), the deduction is not allowed as a lump sum in the same financial year. Instead:
1/5th (20%) of the VRS expense is allowed in the year of payment, and
The remaining 4/5th is spread equally over the next four financial years.
This ensures a structured deduction benefit over five years.
✅ Conditions to Claim Deduction under Section 35DDA:
❌ Deduction Not Allowed If:
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See lessVRS scheme not in accordance with Rule 2BA
Expenditure not actually paid (i.e., only provisioned)
Claimed fully in one year (not permissible)