Guide to .. Tax Management ,Tax Planning and Tax Saving

What Expenses can be claimed as "Deductible Expenses"


Name of Expenses…



Rent, Rates, Taxes, Repairs & Insurance of Premises/Buildings used for the purpose of the business



Repairs and insurance of Plant & Machinery, Furniture used in business or professions.



Depreciation on Building, , Plant & Machinery, Furniture owned by the assessee



Tea , coffee, rubber development account : Any amount deposited with the National Bank any amount before the expiry of 6 months from the end of the previous year or before the due date of furnishing the return of his income, whichever is earlier,— be allowed a deduction ..
(a) a sum equal to the amount or the aggregate of the amounts so deposited ; or
(b)  a sum equal to 40%  of the profits of such business (computed under the head “Profits and gains of business or profession” before making any deduction under this section), whichever is less :



Site Restoration Fund : deposited with the State Bank of India any amount or amounts in a special approved by the Government of India in the Ministry of Petroleum and Natural Gas; or be allowed a deduction to the lease of the following…
(i) a sum equal to the amount or the aggregate of the amounts so deposited; or
(ii) a sum equal to 20% of the profits of such business (computed under the head “Profits and gains of business or profession” before making any deduction under this section),



Expenditure on scientific research : any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business.



Revenue Expenditure incurred by the assessee himself : If the assessee himself carries on Scientific Research and incurred Revenue Expenditure which must relate to Business is allowed as Deductions.



Contribution made to Outsiders : Where the assessee makes contribution to other Institutions  for carry on scientific research for this purpose, a weighted deductions is allowed which is equal to 1 ¼ times of any sum paid to a scientific research association or to a university, college or other institutions.



Expenditure on acquisition of patent rights or copyrights : Any expenditure of a capital nature incurred on the acquisition of patent rights  used for the purposes of the business  after the 28-02-1966 [but before the 1-04-1998], be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure.



Expenditure for obtaining license to operate telecommunication services : In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services [either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year] and for which payment has actually been made to obtain a license be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure



Expenditure on eligible projects or schemes : Where an assessee incurs any expenditure by way of payment of any sum to a public sector company or a local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme, the assessee shall  be allowed a deduction of the amount of such expenditure incurred during the previous year :



Expenditure by way of payment to associations and institutions for carrying out rural development programmes. :



Amortisation of certain preliminary expenses : This Deduction is available to Indian Company or a resident non-corporate assessee. A foreign company even if it is resident cannot claim such Deduction u/s 35D.
Expenses incurs, after the 31st day of March, 1970,
(i)  before the commencement of his business, or
(ii)  after the commencement of his business, in either for extension of his [industrial] undertaking or towards setting up a new [industrial] unit,
the assessee shall be allowed a deduction of an amount equal to - one-tenth (1/10 th. ) of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or the new [industrial] unit commences production or operation.



Amortisation of expenditure in case of amalgamation or demerger. : The Tax payer is an Indian company and incurs any expenditure, on or after the 01-04-1999, 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 (1/5) of such expenditure for each of the five(5) successive previous years beginning with the previous year in which the amalgamation or demerger takes place.



Deduction for expenditure on prospecting, etc., for certain minerals : This Deduction is allowed only in case of an Indian company or a resident person (other than a company) and it is not available to Foreign Compnay.
This Section provides for the amortization of expenditure incurred after the 31st day of March, 1970 wholly and exclusively on any operation relating to prospecting for the minerals or group of associated minerals or on the development of amine or other natural deposit of any such minerals or group of associated minerals.
The Deduction  shall be allowed for each one of the relevant previous years a deduction of an amount equal to one-tenth (1/10) of the amount of such expenditure.



Other Deductions:
a.  Insurance Premium paid for Stock and/ or Stores
b. Insurance Premium paid towards Health Insurance Scheme of Employees
c. Bonus & Commission paid to Employees
d. Interest paid on borrowed Capital for Business/ Profession
e. The pro rata amount of discount on a zero coupon bond
f. Employer’s contribution towards a Recognised Provident Fund (RPF) or an approved superannuation fund.
g. Employer’s contribution towards an approved Gratuity Fund created by him for the exclusive benefit of his employees.
h. The amount of any Bad Debt or part thereof which is  written off as irrecoverable in the accounts of the assessee for the previous year.
i. In respect of any provision for Bad and Doubtful Debts made by
(a) a scheduled bank or  a non- scheduled bank or a co-operative bank or a primary co-operative agricultural and rural development bank , an amount
- not exceeding seven and one-half per cent  of the total income  and
- an amount not exceeding  Ten per cent (10%) of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner



j.  Transfer to Special Reserve :
in respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent (20%) of the profits derived from eligible business computed under the head “Profits and gains of business or profession” (before making any deduction under this clause) carried to such reserve account:

k.  any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its employees



Any expenditure (not being in the nature of capital expenditure) incurred by a corporation or a body corporate, by whatever name called, if,— it is constituted or established by a Central, State or Provincial Act;



any amount of banking cash transaction tax paid by the assessee during the previous year



any sum paid by a public financial institution by way of contribution to such Credit Guarantee Fund Trust for small industries as the Central Government may specify in this behalf



General Deduction :

For instance the following expenditure are deductible u/s 37(1):

(a) Expenditure on advertisement in souvenirs by trade, commerce and industry, including more than one souvenir published by the same organisation or institution

(aa) Expenses incurred in providing freebees to Medical Prectitioner by pharmaceutical and allied health sector Industry.

(b) Revenue expenses incurred by the industrial undertakings in connection with maintenance of industrial home-guard units

(c) Expenditure (other than that of enduring nature) on civil defence measures

(d) Recurring expenses incurred on imparting of basic training to the apprentices under the Apprentices Act, 1961

(e) Annual listing fee payable to stock-exchanges

(f) Commitment charges paid by the borrower on the unused portion of loan which has not been drawn but kept in readiness by lender for disbursement

(g) Managerial subsidy paid in connection with setting up of consumer co-operative stores for industrial workers.

(h) Rebate or bonus allowed by a consumer co-operative stores, on purchases made by member

(I) Customary expenses in respect of Diwali and Mahurat, excluding expenses of a personal, social or religious nature

(j) Reasonable remuneration paid by a company to its registrars for performing the duties in connection with company’s legal obligations under the Company Law

(k) Interest payable on unpaid purchase price of plant and machinery

(I) Membership fee for the Indian Institute of Foreign Trade

(m) Membership subscription paid to Indian Institute of Packaging

(n) The salaries and wages paid to the employees for the period of training in the courses organised by the Central Board of Workers’ Education

(o) Payments made to the employees under profit sharing schemes

(p) Customary Laga contributions paid to trade associations for utilisation for charitable purposes.

(q) Deposit made under Own your telephone scheme’

(r) Deposit under Tatkal Telephone Deposit Scheme’

(s) Admissibility of Ex-gratia amount paid by assessees for granting enduring benefit or advantage under Voluntary retirement scheme (VRS)-

(t) the Board have disallowed the claim of harvesting and transportation expenses incurred by the Cooperative sugar mills for producing sugarcane from farmers-

(u) Professional tax paid by a person carrying on business.

(v) Security deposit of Rs. 10,000 required to be made for an existing or new telex connection

(w) Contribution to unrecognised Executive Staff Provident Fund [-

(x) Payment though referred to as penalty, but in fact made in exercise of option available under statutory scheme, in course of assessee’s business, is allowable business expenditure –

(y) The amount of broken period interest paid by the bank cannot be claimed as allowable deduction from the income of the bank.



Section 37(1) is a residuary section . In order to claim deduction under this section, the following conditions should be satisfied :

Condition-1:    The expenditure should not be of the nature described under section 30 and 36.    
Condition-2 :    It should not be in the nature of capital expenditure.
Condition-3 :    It should not be personal expenditure of the assessee.
Condition-4 :    It should have been incurred in the previous year.
Condition-5 :    It  should be in respect of business carried on by the assessee.
Condition-6 :    It should have been expended wholly and exclusively for the purpose of such business.
Condtion-7  :    It should not have been incurred for any purpose which  is an offence or is prohibited by any law.

17    The following Expenditures are allowed, if incurred, for furtherance of Business without any limit :
(a)  Entertainment
(b)  Compliments
(c)  Traveling
(d)  Advertisement
(e)  Maintenance of Guest House
Note :    Any payment above Rs.20,000 should be made by Account Payee Cheque/DD. Otherwise, 20% of such expenditure will be disallowed subject to exceptions.

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