Govt. Proposes to Allow Deduction for Non-Life Insurance Businesses When TDS Is Paid Later

The government of India has proposed an amendment to the conditions for non-life insurance companies to claim deductions for certain expenses related to the tax deducted at source (TDS).

Presently, Part B of Schedule XIV of the Income Tax Act explains how to calculate profits and gains for insurance companies other than non-life insurance. Paragraph 4(1)(a) of the said schedule says that while calculating these profits and gains, if the company has made any expenditure or claimed allowances that are not permitted under sections 28 to 54, then these amounts should be added back to the profit.

Section 35(b)(i) and (ii) of the Act says that if any payments like salary, interest, or any sum have been made on which TDS (Tax Deducted at Source) is required to be deducted but have not been deducted or have not been deducted before the statutory due date as specified under section 263(1) of the Act, then in that case you cannot claim that payment as a deduction for tax purposes in that year. However, the same section also permits the expenses to be claimed as a deduction in a later year, the year in which the tax is actually deducted and paid on time as per the rules.

Paragraph 4(2) of Schedule XIV already allows some expenses payable under section 37 of the Act, which are added back under paragraph 4(1)(a), to be permitted to be deducted in the year they are actually paid. But similar relief does not exist for TDS-related disallowed amounts under section 35(b)(i) and (ii). Under these sections, the amount that is added back under paragraph 4(1)(a) will be allowed as a deduction only in the year in which tax is actually deducted and paid, as required by the provisions of that section.

Considering the same, the government has proposed some changes to make things consistent; a new sub-paragraph will be added to Schedule XIV. This amendment will allow non-life insurance companies to claim a deduction in a later year for expenses where TDS was not deducted or paid on time, once the tax is actually deducted and paid.

The proposed amendment is scheduled to take effect on April 01, 2026, and will cover tax year 2026-27 and onwards.