Section 37 of income tax act general Deduction allowed for business and profession.
Contents
1. Overview of section 37 of income tax act?
2. What are the conditions required to be satisfied to claim deduction under section 37 of income tax act?
3.Which type of expenditure is allowable u/s 37 of income tax act?
4. Which type of expenditure is not allowable u/s 37?
5. Frequently asked question
1. Overview of section 37 of income tax act?
Section 37(1) of income tax says any expenditure not specifically covered by sections 30 to 36 is deductible under this section. Further, any expenditure wholly or exclusively for the purpose of business or profession shall be allowed in computing the income taxable under the head ” Profit and Gain of Business or Profession”.
2.What are the conditions required to be satisfied to claim deduction under section 37 of income tax act?
Any expenditure not specifically covered by sections 30 to 36 is deductible under section 37, provided following conditions are satisfied:
- It should be in respect of a business carried on by the assesses;
- It should have been laid out or expended wholly or exclusively for the purpose of the business ;
- It must have been incurred during the previous year;
- Further, it should not been in nature of capital expenditure or personal expenditure of the assesses; and
- Finally, the expenditure should not have been incurred for any purpose which is an offense or is prohibited by any law.
3.Which type of expenditure is allowable u/s 37 of income tax act?
Following expenditure is allowable u/s 37 (1) of income tax act:
- Insurance premium payment
- Salary or wages paid to employees
- Bonus or commission paid to employees
- Interest on borrowed capital
- Discount on Zero coupon bond
- Contribution to recognized provident fund, Staff welfare scheme, National Pension Fund or approved Gratuity Fund
- Bad debts write off
- Advertisement Expenditure for the business and profession
- Fees paid to lawyer ,solicitor, advocate etc. for obtaining legal advises or services related to your business or profession.
- Expenses for telephone connection
- Internet charges
- Gift or bonus allowed to employees but not to be part of perquisite.
- Further, expenses incurred on occasion of Diwali and mahurat subject to the ITO being satisfied that the expenses are not of personal ,social or religious nature.
- Annual listing fee paid to stock exchange
- Brokerage paid for raising loan to finance business.
- Stamp and registration charges for the purpose of entering agreement for obtaining overdraft facilities
- And, Professional tax paid by a person carrying on business or trade.
- Repairs and Maintenance Expenses
- Travelling expenses
4. Which type of expenditure is not allowable u/s 37?
Following expenditures are disallowed as deduction u/s 37 :
- Any expenditure incurred by an assesses on the activities relating to CSR referred to in section 135 of the companies act 2013. This expenditure shall not deemed to have incurred for the purpose of business . And hence this expenses is not allowed as deduction u/s 37.
- Fees paid to registrar of companies for increasing authorized capital . Because, this is a capital expenditure as it increases the borrowing power of the company.
- Fees paid to registrar of companies for changing Memorandum or article of association of company. Since it is a capital expenditure as it changes the constitution and rights of company.
- Penalty paid for violating or breaking any law or regulation. This is also disallowed as it is against the public policy.
- Interest paid for delayed payment, non-payment, less payment of advance tax. Because, this is not an business expenditure.
- Further, bank guarantee commission paid for securing loan for purchase of fixed assets.
5. Frequently asked question
1.What are the general deduction u/s 37(1) of income tax act?
Any expenditure wholly or exclusively for the purpose of business or profession shall be allowed in computing the income taxable under the head ” Profit and Gain of Business or Profession”.
2.What are the example of general deduction u/s 37(1)?
Examples are salary/wages, taxes , duties or advertisement expenditure wholly or exclusively for the purpose of business.
3.Which expenses are disallowed as deduction u/s 37 of income tax act?
In brief, Expenditure on CSR activities u/s 135 of companies act 2013, penalty for violating laws, capital expenditure or expenditure of personal nature etc.
