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CS Executive · Tax Laws and Practice · Computation of Total Income and Tax Liability of various Entities

Under section 37(5) of the Income-tax Act, 2025, if a sum payable listed in section 37(2) was already allowed as a deduction in the tax year in which the liability was incurred, what happens when it is later paid?

It is not allowed again. Section 37(5) provides that if a deduction for a listed sum payable has already been allowed in the year the liability was incurred, no second deduction is available in the later year of payment, which avoids a double deduction.

  1. AIt is allowed again in the year of payment at 50 per cent
  2. BIt is not allowed again in the later year of paymentCorrect
  3. CIt is added to income of the later year as deemed profit
  4. DIt is allowed again only if paid to a specified financial entity

Explanation

Section 37(5) prevents double deduction. Where the deduction has already been allowed in the year the liability was incurred, it cannot be allowed again in a later year when it is paid. The Act contains no 50 per cent rule or deemed income rule here.

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