Ever wondered about the tax treatment of out-of-court settlements?

Let’s dive into this complex terrain and demystify it.

➡️ Revenue Receipts: These arise from regular business operations. Think of compensation for loss of trading stock or profits.

Generally, revenue receipts are taxable unless specifically exempted. So, keep an eye on those exemptions!

➡️ Capital Receipts: Unlike revenue receipts, capital receipts aren’t part of routine business operations.

They’re usually one-time receipts. In out-of-court settlements, compensation for asset value diminution or business termination falls into this category.

➡️ The good news? Capital receipts are usually not taxable—unless the Income Tax Act says otherwise.

➡️ GST Clarity: Under the Goods and Services Tax (GST) regime, the taxable event is the supply of goods or services (or both). But what about compensation in settlements?

Well, it doesn’t qualify as a ‘supply’ under GST.

➡️ However, here’s the twist: Taxability depends on whether it’s for breach of contract (taxable) or other reasons (not taxable).

💡 Key Takeaways:

➡️ Grab Attention: Start with a relatable enemy in your first line.
➡️ Concise Wins: Keep it short—210 characters above the fold. Easy readability matters.
➡️ Your Unique Twist: Add your perspective. What’s your take on out-of-court settlements?

Share your insights below! Let’s unravel the tax maze together.