Admissible Deductions From Profits and Gains of Business .................Shuchi

8/3/2019 Admissible Deductions From Profits and Gains of Business .................Shuchi

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Presented by :-Shuchi Smita

Deepshikha Sharma

Poonam Sharma

Menakshi


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Admissible Deductions

It means such expenses, losses or allowances etc. which,

under the provisions of the Income Tax Act, 1961, are

allowed as deduction in computing taxable income of a

businessman or a trader, or a vocational or a professional.

Deductions allowed in computation of income from business

or profession are classified into three categories :-

1) Expenses or losses expressly allowed,

2) Admissible allowances, and

3) General deductions.


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Expenses or losses expressly allowed

In order to compute the taxable income from

business or profession, deductions in respect

of certain expenses or losses are allowed

under sections 30, 31, 32, 35, 35-A, 35-D and

36 of the Income-tax Act.


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Building expenses (Sec. 30)

The following deductions shall be allowed in respect of rent, rates,repairs and insurance for premises, used for the purpose of thebusiness or profession :-

I. Where the premises are occupied by the assessee as a tenant,

the rent paid for such premises, the amount paid for such repairs;

II. Where the premises are occupied as owner, the amount spent byhim for current repairs to the premises. Current repairs do notmean the petty repairs but it means such repairs as are necessaryfor the proper maintenance of the premises; Current repairs thus

includes repairs meant to preserve an already existing asset.

III. Any amount paid as land revenue, local taxes or municipal taxes;

IV. The amount of any premium paid in respect of insurance againstrisk of damages or destruction of premises.


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Explanation :-

It should be noted that the amount paid on

account of the cost of repairs as referred to

here before shall not include any capitalexpenditure. Thus, repair should not be of the

nature of additions or improvements.


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Important rules :-

a) According to section 38, where a part of the rented premisesis used by the assessee as his dwelling house (carrying onhis business of profession in the rest of the portion), thededuction in respect of rent and rates shall be proportionateto the annual value of the part so used for the business orprofession, and in respect of repairs, such sum as inproportionate to the premises used for business orprofession. Deduction for insurance premium shall berestricted to the proportionate part of the premises used forbusiness or profession.

b) If the premises belong to the assessee, notional rent of suchpremises shall not be deducted. Income of such houses is

not taxable under the head Income from house property.

a) If the premises belonging to the assessee, is used by theemployees of the assessees business or profession, thenotional rent of such premises shall not be deducted undersection 37 of the act. Rather, the rental income of suchpremises shall be chargeable to tax under this head.


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Repairs and insurance of machinery,

plant and furniture (Sec. 31)The following deductions shall be allowed in respect ofrepairs and insurance of machinery, plant and furnitureused for the purposes of business or profession :-

I. The amount paid on account of current repairs;current repairs shall not include the renewals of theasset which is effected after several years and incurheavy costs, not it includes the cost of purchase of

new asset or cost of getting any new benefits fromthe asset.

II. The amount of any premium paid in respect ofinsurance against risk of damages or destruction.


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Explanation :-

It should be noted that any amount paid on accountof current repairs shall not include any expenditurein the nature of capital expenditure. Repair andreplacement be also distinguished. Repair meansmaintaining the thing, machinery or any of its part

as efficient as it was before. Identity of the thing,machinery etc. remains the same. In repairs someparts, nuts, bolts etc. of the thing may be replacedin order to bring back its efficiency. Replacementemplies the removal or discarding of the thing that

was in use, by a different new thing. That was inuse, by a different new thing. Cost of repair isallowable expenses whereas the cost ofreplacement, being capital expenditure, is notallowable expenses.


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Depreciation (Sec. 32)

The deductions shall be allowed in

respect of depreciation of buildings,

machinery, plant and furniture orintangible assets such as know-how,

patents, copyrights, trademarks, licences,

franchises and other right acquired aftermarch 31, 1998 owned wholly or partly by

the assessee and used for the purposes

of business or profession.


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Expenditure on scientific research

(Sec. 35)Scientific research means the extension of knowledge in

the field of natural and applied sciences including

agriculture, animal husbandry or fishers. Any expenditure

whether of revenue nature or capital nature incurred forcarrying out the scientific research is termed as

expenditure on scientific research.


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1) Revenue expenditure incurred by the assessee.

2) Payment to approved scientific researchassociation, educational or other institutions.

3) Payment to an Indian Company for scientificresearch.

4) Payment to a university, college or otherinstitution for social science or statisticalresearch.

5) Capital expenditure on scientific research.6) Payment to national laboratory etc.

7) Expenditure on scientific research on approved inhouse research and development facility.

8) Consequences on amalgamation

The following deductions shall be allowed in respect of

expenditure on scientific research :-


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Expenditure on acquisition of patent

rights or copyrights (Sec. 35A)Patent rights or copyrights means the right to use any

know-how, secret formula, designs and specifications.

Any expenditure incurred on acquisition of these rights is

allowed as deduction as follows :-1) Deduction in respect of capital expenditure on acquisition

ofpatents or copyrights incurred on or after April 1, 1998.

2) Deduction in respect of capital expenditure on acquisition

ofpatents or copyrights incurred prior to April 1, 1998.

3) Profit and loss on sale ofpatent rights or copyrights.

4) Consequences in case of amalgamation or demerger.

Documents

Admissible Deductions From Profits and Gains of Business .................Shuchi