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Querist : Anonymous

Querist : Anonymous (Querist)

29 April 2013 Dear Sir, I want to know that whether Impact Fees paid is allowable expenditure in Income tax Act or not?

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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09 September 2013 what is nature of fees.?

Asha Kanta Sharma

Asha Kanta Sharma

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18 July 2024 Impact fees are typically charged by local governments to developers or individuals as a condition for granting approval to undertake a construction project or development that may impact public infrastructure or services. These fees are intended to mitigate the impact of new development on the community.

In the context of Income Tax in India, the allowability of impact fees as a deductible expenditure depends on several factors and interpretations under the Income Tax Act, 1961. Here’s a general guideline:

1. **Business Expenditure:** If the payment of impact fees is incurred wholly and exclusively for the purposes of business or profession, it may qualify as a deductible business expenditure under Section 37 of the Income Tax Act. The key requirement here is that the expenditure should be directly related to the business activity and incurred to earn business income.

2. **Capital vs. Revenue Expenditure:** Generally, payments like impact fees are considered revenue expenditures because they are not related to acquiring or improving capital assets but rather to facilitate ongoing business operations or comply with regulatory requirements. Revenue expenditures are deductible against business income in the year they are incurred.

3. **Allowable under Section 37:** Section 37 allows deductions for any expenditure (not being capital expenditure or personal expenses) laid out or expended wholly and exclusively for the purposes of business or profession. Therefore, if the impact fees meet these criteria and are not specifically disallowed under any other provision of the Income Tax Act, they may be claimed as a deduction.

4. **Specific Provisions:** It’s important to note that the Income Tax Act may have specific provisions or interpretations related to certain types of fees or levies. It would be prudent to consult with a tax advisor or chartered accountant who can provide guidance based on the specific circumstances and relevant judicial interpretations.

In summary, impact fees may be allowable as a deduction under the Income Tax Act if they meet the criteria of being incurred for the purpose of business, are revenue in nature, and are not specifically disallowed under any other provision. However, the final determination of allowability would depend on the specific facts and circumstances of each case and how the provisions of the Income Tax Act are interpreted.

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