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[Section-36] : Other Deductions Allowed to Compute Income from Business or Profession

 

While computing the income of a business or profession, other expenses in the nature of following are admissible :

(i) Insurance Premium [Sec. 36(1)(i)]. The amount of any insurance premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purpose of the business or profession.

(ii) Insurance Premium for Cattle [Sec. 36(1)(ia)]. The Finance Act 1979 has introduced new sub-section (ia) under which any premium paid by a Federal Milk Co-operative Society to effect or to keep in force an insurance on the life of the cattle owned by a member of a co-operative society being a primary society engaged in supplying milk raised by its members to such federal milk cooperative society is allowed.

(iii) Insurance Premium for Employees [Sec. 36(1)(ib)]. The amount of any premium paid by cheque by the assessee as an employer to effect or to keep in force an insurance on the health of his employees under a scheme framed in this behalf by the General Insurance Corporation of India and approved by the Central Government and any other insurer and approved by the Insurance Regulatory and Development Authority.

(iv) Bonus or Commission [Sec. 36(1)(ii)]. Any sum paid to an employees in addition to salary as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it has not been paid as bonus or commission.

The amount of bonus or commission paid should be reasonable with reference to :

(a) the pay of the employee and conditions of his service;

(b) the profit of the business or profession for the previous year in question; and

(c) the general practice or local practice in similar business or profession.

The point to be noted in this case is that the undertaking should not pay bonus or commission with a view to reduce the taxable profits. This is quite possible in private companies and specially where the shareholders are the employees of the company.

Deduction regarding bonus shall be allowed in the year in which the payment is actually made and it is also allowed if payment is actually made on or before the due date of furnishing of return of income u/s 139 (as per Section 43B).

Bonus paid as a result of industrial dispute, is an allowable deduction under section 37 and not under section 36.

In factories where the Payment of Bonus Act 1965 is applicable the deduction regarding bonus being a statutory liability shall be equal to the bonus payable under this Act.

(v) Employer’s contribution towards employee’s pension scheme [Section 36(A)(iva) and Sec. 40A(a)]. Employer’s contribution upto 10% of employee’s salary towards employee’s pension scheme (as referred to in Section 8OCCD) shall be allowed as deduction. So in case employer contributes more than 10% of employee’s salary, excess over 10% shall be disallowed.

Salary for this purpose shall include dearness allowance, if terms of employment so provide and commission on turnover.

Thus, Salary = Basic Salary + D.A. (Enters) + Commission on Turnover.

(vi) Contribution to Gratuity Fund [Sec. 36(1)(v)].

Any amount paid by the assessee employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of employees under an irrevocable trust is allowed. This is subject to the provision of section 40 A(7) which is explained at a later stage in this chapter.

(vii) Loss of Animals [Sec. 36(1)(vi)].

If the animals are used in the business or profession of the assessee otherwise than as stock-in-trade andhave died or become permanently useless for such purposes and any loss, suffered due to the death or becoming permanently useless for the unit, will be allowed as deduction.

(viii) Expenditure by a corporation or body incorporate [Section 36(1 )(xii)].

With effect from 1-4-2002 any expenditure incurred by a corporation or body incorporate for its objects and purposes authorised by the Act under which it has been set up shall be fully allowed to be debited.

(ix) Contribution to credit guarantee trust fund [Section 36(1 )(xiv)].

A public financial institution can claim a deduction for the amount it has contributed to a notified credit guarantee trust fund for small industries.

(x) Security Transaction Tax (STT) [Section 36(1)(xv)].

During the course of its business, any security transaction tax paid by the assessee during the previous year shall be allowed as deduction provided the income arising from such taxable securities transaction is included in the income computed under the head ‘Profits and Gains of Business and Profession’. Security transaction tax is deductible only in case of those assessees who are dealers in securities.

(xi) Deduction of Commodity transaction tax [Section 36(1)(xvi)] [w.e.f. A.Y. 2014-15. ]

In respect of taxable commodities transaction entered into in the course of business during the year, any commodities transaction tax paid by the assessee shall be allowable as deduction. This deduction shall be allowed if the income arising from such taxable commodities transaction is cluded in the income computed under the head “Profits and gains of business or profession”.

 
More Topics .... " Business or Profession"
Definition of the Head ' Business or Profession'-[Sec.-28]
Compensation Received as Business Income(Section-28(ii))]
Income of a Trade or Professional Association [Section 28(iii)]
Income from Export Incentives is chargeable to Income Tax
Any Amount Received Under certain Agreement for not to Carry on Business [Section 28(va)]
Speculation Business [Explanation to Section 28]
Profit Earned from an Illegal Business
Transfer of certain Assets Specified u/s 35AD in certain circumstances [Section 28(vii)]
Certain Incomes relating to business but not taxable under the head ‘Profits Gains of Business or Profession .
Computation of Income of Business or Profession - General Important Points
General Principles - for Deductions Allowed from Gross Income of Business and Professions
Deductions from Gross Income of Business or Profession [ Section 30 to 44DB]
Expressly Admissible Deductions from Gross Income from Business or Profession [Section 30-36]
Expenditure Incurred in the Field of Scientific Research [Section 35]
Expenses on Research Activities carried on by the assessee himself
Contribution to Approved Institutions to carry on Research is Allowed as Weighted Deductions for Calculating Profits and Gains of Business or Professions.
Expenditure incurred on the acquisition of Patents Rights or Copy Rights [Section 35A] [Applicable for expenditure incurred before 1-4-1998]
Expenditure on know-how [Section 35 AB] [Applicable for expenditure incurred before 1-4-1998]
Expenditure for obtaining License to operate Telecommunication Services [Section 35 ABB]
Expenditure on eligible projects or schemes [Section 35 AC]
Deduction in respect of expenditure incurred on setting up of a Specified Business [Sec. 35AD]
Any amount given to an institution or association [Section-35CCA]
Expenditure on Notified Agricultural Extension Project [Section-35 CCC] [w.e.f. A.Y. 2013-14]
Expenditure on Notified Skill development project [Section-35 CCD] [w.e.f. A.Y. 2013-14]
Amortisation of Certain Preliminary Expenses [Section 35D]
Expenditure on demerger or amalgamation [Section 35DD]
Amortisation of Expenditure Incurred Under Voluntary Retirement Scheme [Section 35DDA]
Expenditure on Prospecting etc., for certain Minerals [Section 35E]
Other Deductions Allowed to Compute Income from Business or Profession   [Section-36]
Interest on Borrowed Capital [Sec. 36(1)(iii)].
Deduction of discount on Zero Coupon Bond [Section 36(iiia)]
Contribution to Provident and Superannuation Fund [Sec. 36(1)(iv)].
Employee’s contribution towards staff welfare schemes [Sec. 36(1)(va)]
Bad debts [Sec. 36(1)(vii)]
Bad debts of Banks, financial institution and industrial investment corporation etc. [Section 36(1)(viia)]
Special Reserve Created and Maintained by Financial Corporation [Section 36(1)(viii)].
Expenditure on Family Planning [Section-36(1)(ix)].
General Or Allowable Deductions [Section 37]
Commission earned by the agents of Life Insurance Corporation, Unit Trust of India, Post Office or Mutual Funds
Legal Expenses in the Interest of Business are Allowable Expenses
Losses incidental to Business Allowed to be Debited.
Expenses Expressly Disallowed In the Case of any ‘Assessee’ [ Section-40a]
Expenses Expressly Disallowed In the Case of any Firm [Section 40(b)]
Expenses Expressly Disallowed In General Cases [Section 40(b)]
Disallowing of certain Expenses under certain circumstances like ‘Payments to Relatives’
Payments exceeding ` 20,000 by cash/bearer cheque [Section 40A (3)].
Provision for the Payment of Gratuity – [Section-40A(7)]
DEEMED PROFITS Under Profits and Gains of Business or Professions [Section 41]
VALUATION OF STOCK for Profit and Gains of Business or Professions
Deduction Of Certain Payments Only If Actually Paid [Section 43B]
Maintenance Of Accounts By Certain Persons Carrying On Profession Or Business. [Sec. 44AA]
Compulsory Audit For The Non-Corporate Assessees [Section-44 AB]
Computation of Income on Estimated Basis [Section 44AD]
Profit from the business of carriage of goods for truck owners [Section 44 AE]
Special provision for computation of income from royalties in case of nonresidents [Section 44DA]
Partly Agricultural and Partly Business Income
Adjustment In The Profit And Loss A/C Prepared By The Assessee
Computation of Profits and Gains of a Non-Resident from Shipping Business— [Section 44B]
Computation of Profits and Gains of business of Oil Exploration [Section 44BB]
Computation of Profits and Gains of the Business of operation of Aircrafts by Non-Resident [Section 44 BBA]
Computation of Profits of Foreign Enterprises [Section 44BBB]
Ceiling Limits in respect of Head Office Expenses [Section 440]
Special Provisions in case of Income of Public Financial Institutions etc. [Section 43D]
 
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