The Finance Bill, 2026 proposes a rationalisation in the computation of profits for non-life insurance businesses by allowing deferred deduction of certain expenses disallowed due to non-compliance with tax deduction at source (TDS) provisions. Under Schedule XIV of the Income-tax Act, 2025, expenses debited to the profit and loss account but inadmissible under sections 28 to 54 are required to be added back. While section 35(b)(i) and (ii) already provide that expenditure disallowed for failure to deduct or pay TDS can be allowed in the year in which such tax is subsequently deducted and paid, Schedule XIV did not expressly permit this deferred allowance for non-life insurance businesses. To remove this inconsistency, Clause 113 inserts a new sub-paragraph in paragraph 4 of Schedule XIV, expressly allowing such amounts to be claimed as deduction in the year of actual TDS compliance. This amendment ensures parity, avoids permanent disallowance, and provides certainty to insurers. The change applies from 1 April 2026.
Allowing deduction to non-life insurance business when TDS, not deducted earlier is paid later
Part B of Schedule XIV of the Act provides for computation of profits and gains from insurance business other than life insurance. Paragraph 4(1)(a) of Schedule XIV provides that while computing the profits and gains of such business, any expenditure, allowance, etc. which has been debited to profit and loss account but which is inadmissible under sections 28 to 54 shall be added back to the profits and gains.
2. Section 35(b)(i) and (ii) of the Act provides that any sum, interest, etc. payable on which tax is deductible at source but has not been deducted or deducted but not paid within the due date specified in section 263(1), then the amount as mentioned in the respective sections shall not be allowed as deduction. However, section 35(b)(i) and (ii) also provide that the amount disallowed shall be allowed in a tax year when the due tax was deducted and paid as per the provisions of the section.
3. Paragraph 4(2) of Schedule XIV provides that any amount payable under section 37 of the Act, which is added under paragraph 4(1)(a) shall be allowed as deduction in the tax year in which it has been actually paid. However, similar provision has not been provided for section 35(b)(i) and 35(b)(ii), wherein the amount added under paragraph 4(1)(a) shall be allowed as deduction in which tax has been deducted and paid as per the provisions of the said section.
4. Thus, to rationalize the same and provide for allowance of such amount as deduction in a subsequent tax year, it is proposed that a new sub-paragraph may be inserted in Paragraph 4.
5. It is proposed to amend schedule XIV of the Act.
6. This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.
[Clause 113]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 113 of the Bill seeks to amend Schedule XIV to the Income-tax Act, 2025 relating to insurance business.
It is proposed to consequentially amend clause (a) of sub-paragraph (1) of the said Schedule so as to substitute the words “this rule” with the words “this paragraph”.
It is further proposed to amend the said Schedule so as to insert sub-paragraph (3) in paragraph 4 to provide that the amount not deductible under sub-clause (i) or (ii) of section 35(b), which is added under sub-paragraph (1)(a), shall be allowed subsequently as a deduction in a tax year as per the provisions of the said sub-clause, as the case may be.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
113. Amendment of Schedule XIV.
In Schedule XIV to the Income-tax Act, in paragraph 4,––
(i) in sub-paragraph (1), in clause (a), for the words “this rule”, the words “this paragraph” shall be substituted;
(ii) after sub-paragraph (2), the following sub-paragraph shall be inserted, namely:––
“(3) The amount not deductible under sub-clause (i) or (ii) of section 35(b), which is added under sub-paragraph (1)(a), shall be allowed subsequently as a deduction in a tax year in accordance with the provisions of the said sub-clause, as the case may be.”.
