A merger budget is not automatically a tax deduction
Section 52(1), Table serial number 1, of the Income-tax Act, 2025 addresses expenditure incurred by an Indian company wholly and exclusively for amalgamation or demerger of an undertaking. The deduction is spread over five tax years beginning with the year the amalgamation or demerger takes place. This guide, checked on 28 October 2026, concerns a new qualifying event in tax year 2026–27. It does not apply the 2025 Act's section numbers to FY 2025–26 / AY 2026–27 returns or assume a five-year restart for an older deduction. Income-tax Act, 2025 as amended by Finance Act 2026: section 52(1), Table row 1, and 52(4)(b).
Establish the qualifying transaction before selecting invoices
Read the legally operative scheme and supporting orders rather than treating every acquisition, share purchase, business transfer or internal reorganisation as an amalgamation or demerger. Record the Indian company's identity and the undertaking concerned. A professional invoice labelled merger advice may include general investment evaluation, unrelated fundraising or work on an abandoned alternative; the statutory wholly-and-exclusively test requires an evidence-based cost allocation. The illustrations stipulate a qualifying transaction and regime eligibility rather than deciding a disputed scheme. Income-tax Act, 2025 as amended by Finance Act 2026: section 52(1), Table row 1, and 52(4)(b).
Create an invoice-level eligible pool
Connect engagement letters, scope descriptions, time records, legal bills and approvals to the actual transaction. Remove unsupported or separately classified items from this pool without automatically declaring that they are deductible elsewhere. A book capitalisation or expense label does not establish or defeat this particular tax claim by itself. Resolve recoveries, shared costs and the identity of the person who actually incurred expenditure before allocating a single invoice across several entities. Keep the excluded-cost population and its reasons available for review. Income-tax Act, 2025 as amended by Finance Act 2026: section 52(1), Table row 1, and 52(4)(b).
Start the cohort from the statutory transaction year
Table row 1 specifies the year in which the amalgamation or demerger takes place. Do not substitute the year of an initial board discussion or automatically use the payment-year condition applicable to the separate voluntary-retirement row. Keep legal transaction timing and expenditure-incurrence evidence separately; a timing dispute requires its own supported analysis. Once the qualifying amount and initial year are established, create five equal instalments and a fixed final year. Management's later decision to expense an old balance is not a new statutory event. Income-tax Act, 2025 as amended by Finance Act 2026: section 52(1), Table row 1, and 52(4)(b).
Reconcile current profit without taking the cost twice
Section 52(4)(b) prevents deduction under another provision for the row 1 expenditure. If the accounts already charge the whole eligible amount and tax relief is through this section, build an explicit add-back and current-instalment deduction. Where accounts treat costs differently, reconcile that actual treatment instead of copying the same add-back mechanically. Keep book carrying amounts, tax-unallowed amounts and deferred-tax analysis as separate workings; this article does not prescribe the accounting treatment of a business combination. Income-tax Act, 2025 as amended by Finance Act 2026: section 52(1), Table row 1, and 52(4)(b).
Control overlapping reorganisations and closing balances
A company may have more than one supported cohort. Track the event, eligible pool, first year, annual amount, cumulative tax deduction and remaining balance independently. Do not merge distinct cohorts into a rolling five-year provision or claim an accelerated balance merely because a later reorganisation occurs. Determine any succession consequences from the provision actually applicable to that event. These examples isolate row 1 amortisation and do not extend spectrum-transfer rules, preliminary-expense limits or business-loss succession rules to it. Income-tax Act, 2025 as amended by Finance Act 2026: section 52(1), Table row 1, and 52(4)(b).
Applicable primary references
Income-tax Act, 2025 as amended by Finance Act 2026: section 52(1), Table row 1, and 52(4)(b)
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Single eligible pool
Assume a qualifying Indian-company transaction in 2026–27 and verified eligible expenditure ₹10,00,000. Five equal instalments are ₹2,00,000 each; ₹8,00,000 remains after the first claim, subject to all applicable conditions.
Illustrative example 2: Separate unsupported transaction spending
Assume total bills ₹10,00,000 include a distinct ₹2,00,000 unrelated investment assignment. The stipulated eligible pool is ₹8,00,000 and annual instalment ₹1,60,000. The excluded amount requires separate treatment; it is not automatically another deduction.
Illustrative example 3: Full book charge requires a bridge
Assume draft profit ₹50,00,000 already deducts the entire qualifying ₹10,00,000 pool. Adding back ₹10,00,000 and deducting the current ₹2,00,000 instalment produces ₹58,00,000 before other tax adjustments.
Illustrative example 4: After two valid instalments
For a ₹10,00,000 pool with two ₹2,00,000 claims already allowed, cumulative deduction is ₹4,00,000 and remaining amount ₹6,00,000 across the original three remaining years. A book write-off does not make that ₹6,00,000 immediately deductible under the model.
Illustrative example 5: Two distinct events in the same year
Assume separately supported eligible pools ₹15,00,000 and ₹5,00,000 from two qualifying events in 2026–27. Annual amounts are ₹3,00,000 and ₹1,00,000, total ₹4,00,000. Preserve the two underlying pools even though the current total can be combined in a computation summary.
Illustrative example 6: Count the original five years
A supported initial year of 2026–27 gives successive years 2026–27 through 2030–31: 2030 − 2026 + 1 = 5. An eligible ₹5,00,000 pool therefore has five ₹1,00,000 instalments, not an extra claim in 2031–32 merely because a balance was omitted from an internal schedule.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm company and tax regime | Indian-company identity and deduction availability |
| 2 | Verify transaction classification | Legally supported amalgamation or demerger of undertaking |
| 3 | Identify the statutory event year | Operative scheme and timing memorandum |
| 4 | Reconcile expenditure incurrence | Invoices, engagement scope and liable entity |
| 5 | Test exclusive transaction connection | Eligible and excluded cost populations |
| 6 | Build separate cohorts | Event-specific pool, first year and five-year end |
| 7 | Compute equal instalments | Verified amount divided by five |
| 8 | Reconcile actual book treatment | Full charge, capitalisation or other supported entries |
| 9 | Prevent duplicate tax deductions | Section 52(4)(b) and computation cross-check |
| 10 | Close the remaining balance | Prior allowed amounts, current claim and original remaining years |
Sixteen practitioner FAQs
1. Which period does this guide cover?
A new qualifying tax-year 2026–27 event under the 2025 Act.
2. Which table row governs the expenditure?
Section 52(1), Table serial number 1.
3. Does every share acquisition fall in that row?
No. Verify the required amalgamation or demerger classification.
4. What taxpayer is specified?
An Indian company incurring the qualifying expenditure.
5. Does a merger label on an invoice prove eligibility?
No. Establish the wholly-and-exclusively connection.
6. Can unrelated advisory work be included automatically?
No. Separate it and determine its own treatment.
7. Does this row copy the VRS payment-year rule?
No. Row 1 specifies the year the amalgamation or demerger takes place.
8. How many years does the row specify?
Five successive tax years with equal instalments.
9. Does the article settle every disputed legal effective date?
No. Support the actual transaction timing independently.
10. Is a full book expense automatically the current tax deduction?
No. Reconcile it to the permitted current instalment.
11. Should an add-back be copied when no expense was deducted in book profit?
No. Base the bridge on actual accounting treatment.
12. Can the same qualifying cost also be deducted elsewhere?
Section 52(4)(b) prevents the covered duplicate deduction.
13. Does a later book write-off accelerate remaining instalments?
The five-year model does not provide that acceleration.
14. Should two different transactions share one undocumented pool?
No. Retain event-specific cohorts and evidence.
15. Does this guide prescribe business-combination accounting?
No. It isolates the tax amortisation working.
16. Does an omitted internal entry create a sixth statutory year?
No. Preserve the original initial and final years and review the actual correction route separately.
Conclusion
Separate qualifying amalgamation or demerger expenditure from the wider transaction budget, then reconcile five equal tax instalments to the accounts.