Section 35DD Deduction towards expenditure incurred during amalgamation or demerger

Much amount of expenditure is incurred during amalgamation or demerger of any undertaking. In order to facilitate the company to claim the same, deduction towards such expenditure is allowed under section 35DD of the Income Tax Act. The provisions of section 35DD are briefly taken up and explained in the current article.

Understanding the terms ‘amalgamation’ and ‘demerger’-

The term ‘amalgamation’ is defined under section 2(1B) of the Income Tax Act. In simple terms, amalgamation means merger of two or more companies in to a new entity in a specified manner.

Further, the term ‘demerger’ is defined under section 2(19AA) of the Income Tax act. Putting up simply, demerger is a form of corporate restructuring, wherein, the company transfers one or more of the business undertaking to another company.

Understanding deduction provisions covered under Section 35DD

Any expenditure, wholly and exclusively, incurred for the purpose of amalgamation/ demerger is allowed as a deduction under section 35DD. The provisions of section 35DD of the Income Tax Act are simplified hereunder-

1. Eligible expenditure-

a. The assessee, claiming the deduction, should be an Indian company.

b. Expenditure should have been incurred, wholly and exclusively, for the purpose of amalgamation or demerger of an undertaking.

c. Expenditure should have been incurred on or after 1st April 1999.

2. The allowable amount of deduction-

a. The entire eligible expenditure will be amortized.

b. The amortized amount will be allowed as a deduction in five equal instalments.

c. The first deduction will be available from the previous year in which the amalgamation/ demerger took place.

3. The expenditure allowed as a deduction under section 35DD of the Income Tax Act will not be allowed under any other provisions of the Act.

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