Section 35DD- Amortization of Expenditure in case of Amalgamation or Demerger

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The Income Tax Act, of 1961 is the main statute of Income Tax in India. It provides for levy, administration, collection, and recovery of Income Tax.

In order to understand this Section, let us understand a few terms:

Merger and Demerger

A merger (also known as amalgamation), is a legal process where two or more companies come together to form a whole new business entity or two or more companies are absorbed or taken over by another company and as a consequence, the amalgamating company loses its existence and the shareholders from the previous company become the shareholders of the newly amalgamated company.

Demerging is a process where some part or portion of a company is transferred to another company that operates completely separate from the original company. The previous company’s shareholders are given an equal stake in the ownership of the new company.

As per Section 35DD,

(1) Where an assessee, being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999, wholly and exclusively for the purposes of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation or demerger takes place. (2) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act.

(1). An Indian company, being an assessee, incurs any expenditure for the purpose of demerging or amalgamating on or after 1 April 1999, the assessee will be allowed a deduction of an amount equivalent to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation or demerger took place.

(2). No deduction will be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act.