The settlement amount will now be taxed at 25.17% for corporates.
India’s Central Board of Direct Taxes (CBDT) has withdrawn tax benefits on settlement payments made by companies for violations related to competition and securities laws. These payments will no longer be treated as tax-deductible expenses and will be taxed at the corporate rate of 25.17%.
The changes will impact major tech firms such as Amazon, Apple, Flipkart, Google, and Samsung, all of which are currently under investigation by the Competition Commission of India (CCI) for alleged abuse of market dominance. Publicly listed companies accused of violating securities regulations will also face increased financial pressure during settlements.
According to a CBDT circular issued on April 23, any payments made by businesses to settle regulatory breaches must now be included in taxable income. This means that taxpayers can no longer reduce their tax liability by claiming these expenses, explained tax advisor Amit Maheshwari of AKM Global.
Previously, companies could resolve regulatory disputes without admitting guilt by paying a settlement fee, helping them avoid lengthy legal battles. For instance, Google recently settled a CCI case by paying 202.4 million rupees (approx. $2.38 million).. With the new tax policy, such settlements will now come with an additional tax burden, potentially impacting corporate profitability.
Regulators have pointed out that settlement fees are already higher than the penalties companies would face if they chose litigation. SEBI board member Kamlesh Varshney noted that settling costs more than fighting a case in court, but firms often prefer this option to save time and protect their reputation.
Legal experts are urging tax authorities to clarify whether settlement expenses incurred before the new rules came into effect will still be deductible. Lawyer Amit Singhania noted that while the CBDT notification provides useful clarity on future cases, it remains uncertain whether payments made before April 23, 2025, will qualify for deductions.
Source: Moneycontrol
