Retrospective Changes To Income-Tax Law

The Union Budget 2022-23 brought in some amendments to the Income Tax Act that would be effective retrospectively.

Making a retrospective amendment to the Income-tax Act from 2005-06, the Budget has clarified that cess and surcharge will not be allowed to be claimed as deductions in the form of expenditure, a practice that some companies and businesses were resorting to in the absence of legal clarity.

Citing some court rulings over the years that had given benefit to taxpayers in claiming cess as expenditure and not tax, the tax department said the retrospective amendment is being done to correct the anomaly.

The court rulings differentiated between income tax and education cess on income tax, and in absence of a specific disallowance for ‘education cess’, courts had taken a view beneficial for taxpayers in many cases.

In order to nullify the effect of such court rulings and to consider such rulings against the intention of the law, a clarificatory amendment has been introduced in the income tax law, providing that any surcharge or education cess on income tax shall not be allowed as business expenditure.

What are the other amendments done retrospectively?

The Budget has allowed exemption of the amount received for medical treatment and on account of death due to Covid-19 retrospectively from April 1, 2020.

Separately, gifts and freebies to doctors shall not be treated as business expenditure under section 37 of the Income-tax Act.

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