Section 35DD of Income-tax Act, 1961: Amortisation of Amalgamation and Demerger Expenses
Section 35DD allowed an Indian company to deduct eligible expenses incurred wholly and exclusively for amalgamation or demerger in five equal annual instalments. For tax years governed by the Income-tax Act, 2025, see the corresponding Section 52.
What is Section 35DD?
Section 35DD is a special amortisation provision for expenditure incurred by an Indian company wholly and exclusively for the purposes of the amalgamation or demerger of an undertaking. It covers qualifying expenditure incurred on or after 1 April 1999. Rather than allowing the entire amount in one year, the provision spreads the deduction over five successive previous years.
Amalgamation generally describes a statutory merger of companies or their undertakings, subject to the applicable conditions in tax law. Demerger generally describes the transfer of an undertaking from a demerged company to a resulting company under a qualifying scheme. Whether a transaction meets the applicable statutory definitions requires examination of its legal structure and the relevant provisions.
Wholly and exclusively means the expense must have a direct business purpose connected with the qualifying amalgamation or demerger. Potential examples include transaction-related legal, professional, valuation and procedural costs, where sufficiently connected and otherwise eligible; not every payment connected with a transaction automatically qualifies.
How the five-year deduction works
Under Section 35DD(1), one-fifth (20%) of qualifying expenditure is deductible in the previous year in which the amalgamation or demerger takes place, with the remaining four-fifths deductible in equal instalments over the next four previous years. Section 35DD(2) prevents a second deduction for the same expenditure under another provision.
| Previous year | Deduction for qualifying expenditure of Rs. 10,00,000 |
|---|---|
| Year of amalgamation or demerger | Rs. 2,00,000 |
| Second year | Rs. 2,00,000 |
| Third year | Rs. 2,00,000 |
| Fourth year | Rs. 2,00,000 |
| Fifth year | Rs. 2,00,000 |
| Total | Rs. 10,00,000 |
Illustration assumes the entire expenditure qualifies and the transaction occurs in a period governed by the cited provision. This is not an independent eligibility determination.
Section 35DD: Original statutory provision
Amortisation of expenditure in case of amalgamation or demerger
(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.
Legislative history: Inserted by the Finance Act, 1999 (Act 27 of 1999), section 20, with effect from 1 April 2000.
Corresponding provision in the Income-tax Act, 2025
Section 52 of the Income-tax Act, 2025 consolidates amortisation rules for several types of expenditure, including expenditure incurred by an Indian company wholly and exclusively for amalgamation or demerger. The provision uses the new tax year terminology and prescribes equal instalments starting from the year of amalgamation or demerger. The five-year principle is carried forward for this category, subject to the enacted text and applicable transitional provisions.
Consult the official Income-tax Act, 2025 (PDF), particularly Section 52, for the governing text. The earlier law is available on the Income Tax Department's Section 35DD page.
Practical documentation and claim considerations
- Keep the sanctioned scheme, merger or demerger order, effective date and company records establishing the transaction.
- Maintain invoices, engagement letters, payment evidence and a cost schedule showing why each expense relates wholly and exclusively to the transaction.
- Prepare a five-year amortisation schedule and reconcile the deduction with the return of income and financial statements.
- Ensure that the same expense is not claimed again under another deduction provision.
- Check the applicable statute for the relevant tax year, including the Income-tax Act, 2025 and any transition provisions.
For further background, see the Income Tax Department's business or profession deduction guidance and deductions reference.
Frequently asked questions
Who can claim Section 35DD deduction?
An Indian company that incurs qualifying expenditure wholly and exclusively for amalgamation or demerger of an undertaking.
How many years can qualifying costs be deducted?
Five successive previous years, with one-fifth of qualifying expenditure deductible in each year, starting in the year of amalgamation or demerger.
Can the same expenditure be deducted under Section 37?
No. Section 35DD(2) bars deduction of the same expenditure under any other provision of the Income-tax Act, 1961.
What is the corresponding provision under the Income-tax Act, 2025?
Section 52 addresses amortisation of expenditure for amalgamation and demerger, among other categories, for the new tax-year framework.
This article provides general legal information. Eligibility and tax treatment depend on the facts, governing legislation and the relevant assessment or tax year.