Expenses Deductible and Not Deductible while calculating PGBP, Sec. 30 to Sec. 37, Income Tax Law and Practice Notes, B.Com 3rd Sem CBCS Pattern

 Profits and Gains from Business and Profession
Expenses Deductible and Not Deductible while calculating PGBP
Sec. 30 to Sec. 37
B.Com 3rd Sem CBCS Pattern

List out the expenses which are deductible and not deductible while calculating PGBP?

Ans: EXPENSES DEDUCTIBLE FROM INCOME FROM BUSINESS/PROFESSION: 

All the expenses relating to business and profession are allowed against income. Following are few examples of expenditures which are allowed against income: (ALLOWED EXPENSES)

1. Rent of Business Premises (Sec. 30): Rent of the business premises is allowed as deduction. In case of own premises rent cannot be debited. In property is partly for business and partly for personal purpose, then rent relating to business is allowed as deduction. Rent paid to a partner of the firm for using premises is also allowed as deduction. (Sec. 30)

2. Expenses relating to machinery, plant and furniture [Sec.31]: According to Sec.31 the following expenses are deductible: (a) Current repairs(b) Insurance premium. However, any repair expenditure of capital nature shall not be allowed as deduction under this section.

3. Depreciation (Sec. 32): Depreciation on buildings, machinery, plant or furniture, being tangible assets; know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession are allowed as deduction as per rate specified in income tax act.

4. Development rebate (Sec. 33): In respect of a new ship or new machinery or plant which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of section 34, be allowed a deduction as development rebate to the extent of 40%, 35% or 25% of the actual cost as the case may be.

5. Tea Development Account, Coffee Development Account and Rubber Development Account (Sec. 33AB): This deduction is allowed only to an assessee who is engaged in the business of Tea, coffee and rubber production. The amount of deduction will be 40% of PGBP or amount deposited in site restoration accounts whichever is less.

6. Site restoration fund (Sec. 33ABA): This deduction is allowed only to an assessee who is engaged in the business of extraction and production of petroleum, natural gas or both and entered into an agreement with central government in this respect. The amount of deduction will be 20% of PGBP or amount deposited in site restoration accounts whichever is less.

7. Conditions for Allowance of depreciation (Sec. 34): This section deals with the conditions under which depreciation is allowed under the Sec. 32 and Sec. 33 of the Income tax Act, 1961.

8. Expenditure on Scientific research (Sec. 35): Expenditure on scientific research is divided into two categories:

a) Expenditure on research carried on by assessee himself.

1. Revenue Expenditure: Any revenue expenditure incurred by an assessee in a research which is helpful in his business is fully allowed as deduction.

2. Capital Expenditure: Any expenditure of capital nature on scientific research carried on the assessee himself and related which assessees business or profession shall be allowed as deduction in full.

3. Expenditure on in-house research and development: Weighted deduction @ 150% of the expenditure incurred on in-house research by a company engaged in the business of bio-technology or in any business of manufacture or production of any article is allowed.

b) Expenditure on research carried on by outsiders whether or not research is related to assessee’s business:

1. Contribution to an approve research association, university, college or other institutions:

A) If Amount is given to an approved research association, university, college or other institutions for research which is unrelated to assessee’s business, a weighted deduction @ 150% of actual expenditure shall be allowed. W.e.f. A/y 20121 – 22, no weighted deduction shall be allowed.

B) If amount is given to an approved research association, university, college or other institutions for research in the field of social science or statistical research which is unrelated to assessee’s business, a deduction upto actual expenditure shall be allowed.

2. Contribution to National Laboratory: A higher weighted deduction @ 150% of actual amount shall be allowed if amount is given to a national laboratory or a university or an Indian institute of technology for undertaking scientific research programme approved by the prescribed authority.

3. Contribution to a company for scientific research: In case any assessee provides money to an Indian company engaged in the scientific research and approved for this purpose, a weighted deduction @ 100% of the amount paid shall be allowed.

9. Other Deductions (Sec. 36)

a)      Insurance premium of stock and employees.

b)      Salary, bonus, commission to employees.

c)       Salary, interest and remuneration to working partners subject to certain conditions.

d)      Contribution to recognised provident fund or approved superannuation fund.

e)      Contribution to an approved gratuity fund

f)       The amount of bad debt which is irrecoverable and written off from books of accounts.

g)      Communication, Traveling and conveyance expenses.

h)      Advertisement expenses in respect of promotion of business products.

i)        Discount allowed to customers.

j)        Interest on loans (Whether Private or Institutional).

k)      Bank Charges/Bank Commission expenses.

l)        Entertainment/Business Promotion expenses

m)    Discount on zero coupon bonds.

n)      Banking cash transaction paid during previous year.

o)      Securities transaction tax.

p)      Staff Welfare expenses.

q)      Festival/Puja Expenses.

r)       Printing and stationery expenses

s)       Postage expenses.

t)       All other expenses relating to business/profession

Note: The above expenditures are allowed on the basis of actual payment as well as on accrual basis at the date of finalization accounts.

10. General Deductions [Sec.37]: Under Sec.37, deductions of a general nature are allowed subject to the conditions as specified. The language of this section may be stretched to claim deduction for many items of expenditure which is not specifically covered elsewhere under this head, though there are restrictions with regard to expenditure on entertainment, advertising, traveling etc., as also under Sec.40 and 40A.

Conditions of deduction under Sec.37 :

1. The expenditure is not of the nature described in Sec 30 to 36.

2. It is not in the nature of capital expenditure

3. It is not in the nature of personal expenses of the assessee

4. It is laid out wholly and exclusively for purposes of the business or profession of the assessee.

11. Advertisement in publications of a Political Party: No allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, pamphlet or the like published by a political party.

12. EXPENSES WHICH ARE DEDUCTIBLE ON ACTUAL PAYMENT ONLY: Following expenses will be allowed if these expenses have been paid before or on due date or before filing of income tax return:

a)      Any tax, duty, cess or fees by whatever name called.

b)      Contribution to provident fund, ESI premium, gratuity fund or other funds for welfare of employees.

c)       Bonus or commission or leave encashment payable to employees.

d)      Interest on loan from public financial institutions, state financial corporation or from scheduled bank.

EXPENSES NOT DEDUCTIBLE FROM BUSINESS/PROFESSION INCOME  (DISALLOWED EXPENSES)

a)      Expenditure on any type of advertisement of political party.

b)      Any interest, royalty, fees for technical services or other sums chargeable under this act, which is payable outside India or in India to non-resident or a foreign company on which tax has not been deducted or after deduction, not deposited in prescribed time.

c)       Any interest, commission, rent, royalty, professional or technical fees paid or payable to any resident of India or payment to contractor or sub-contractor on which TDS is not  deducted, or if deducted then not deposited before the due date of filing the return.

d)      All provisions are reserves (Reserve for bad debts/ Depreciation/ Provision for tax)

e)      All Taxes (i.e. Income Tax, Advance income Tax, Wealth Tax etc.)Except sales Tax, Excise Duty and Local Taxes of premises used for business and allowed on paid basis.

f)       Any payment of salaries payable outside India or to a non-resident on which tax is not deducted.

g)      Any tax actually paid by an employer on any income by way of perquisites, on behalf of the employee.

h)      Any remuneration paid to non-working partner.

i)        Any remuneration paid to working partner other than specified in agreement or as per the specified limits by income tax act.

j)        Any interest to partner if not specified in agreement and not more than 12%.

k)      Any payment in cash or bearer cheque exceeding Rs.10,000/=. (Rs.35000/= in case of payment made for plying, hiring or leasing goods carriages) except when payments are made under circumstance specified in Rule 6DD of Indian income tax act.

l)        Where a deduction has been claimed on accrual basis during an assessment year and the payment is made in a subsequent year, and the payment or aggregate of payments made to a person in a day otherwise than by way of an account payee cheque/DD, exceeds Rs.10,000/= (Rs.35000/= in case of goods carriages), such payments shall be deemed as profit of the assessee for the year in which the payment is made.

m)    Any provision for the payment of gratuity to the employees.

n)      Any personal expenditure (LIP, Investment in NSS,NSC,PPF etc., Rent for residential portion, Loss by theft from residence)

o)      Expenses on defending in any proceedings for breach of any law relating to sales tax etc.

p)      Salary paid to self or any other member of family for casual help

q)      Rent paid to self

r)       All Capital Expenses and losses except expenditure on scientific research

s)       All types of Charities and Donations

t)       All expenses relating to other heads of income (e.g. Taxes on House Property etc.)

u)      Any Interest on Capital unless the amount is borrowed

v)      Gifts and presents (not Advertisement)

w)    Any type of Fine or Penalty

x)      Past Losses (i.e. Loss of the past year)

y)      Speculation Loss

z)       Bad debts still recoverable

aa)   Legal Expenses  (Capital nature)

bb)  Expenses and losses on illegal Business

cc)    Difference in Trial Balance (DR)