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In this Article we have discussed briefly Different Provisions Applicable to Income from Business
and Profession at one place.

Profits and Gains from Business and Profession

1. Chargeability:

The following incomes are chargeable to tax under the head Profit and Gains from Business or
Profession:

S. Section Particulars
No.

1. 28(i) Profit and gains from any business or profession carried on by the
assessee at any time during the previous year

2. 28(ii) Any compensation or other payment due to or received by any

specified person

3. 28(iii) Income derived by a trade, professional or similar association

from specific services performed for its members

4. 28(iiia) Profit on sale of a license granted under the Imports (Control)

Order 1955, made under the Import Export Control Act, 1947

5. 28(iiib) Cash assistance (by whatever name called) received or

receivable by any person against exports under any scheme of
Government of India

6. 28(iiic) Any duty of Customs or Excise repaid or repayable as drawback

to any person against exports under the Customs and Central
Excise Duties Drawback Rules, 1971.

7. 28(iiid) Profit on transfer of Duty Entitlement Pass Book Scheme, under

Section 5 of Foreign Trade (Development and Regulation) Act,
1992

8. 28(iiie) Profit on transfer of Duty Free Replenishment Certificate, under

Section 5 of Foreign Trade (Development and Regulation) Act
1992

9. 28(iv) Value of any benefits or perquisites arising from a business or the

exercise of a profession.

10. 28(v) Interest, salary, bonus, commission or remuneration due to or

received by a partner from partnership firm

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11. 28(va) a) Any sum received or receivable for not carrying out any activity
in relation to any business or profession; or
b) Any sum received or receivable for not sharing any know-how,
patent, copyright, trademark, licence, franchise, or any other
business or commercial right or information or technique likely to
assist in the manufacture of goods or provision of services.

12. 28(vi) Any sum received under a Key man Insurance policy including the
sum of bonus on such policy

12A. 28(via) Any profit or gains arising from conversion of inventory into capital
asset.

13. 28(vii) Any sum received ( or receivable) in cash or in kind, on account of

any capital assets (other than land or goodwill or financial
instrument) being demolished, destroyed, discarded or
transferred, if the whole of the expenditure on such capital assets
has been allowed as a deduction under section 35AD

14. Explanation Income from speculative transactions. However, it shall be

to section deemed to be distinct and separate from any other business.
28

15. 41(1) Remission or cessation of liability in respect of any loss,

expenditure or trading liability incurred by the taxpayers
Recovery of trading liability by successor which was allowed
to the predecessor shall be chargeable to tax in the hands of
successor. Succession could be due to amalgamation or
demerger or succession of a firm succeeded by another firm
or company, etc.
Any liability which is unilaterally written off by the taxpayer
from the books of accounts shall be deemed as remission or
cessation of such liability and shall be chargeable to tax.

16. 41(2) Depreciable asset in case of power generating units, is sold,

discarded, demolished or destroyed, the amount by which sale
consideration and/ or insurance compensation together with scrap
value exceeds its WDV shall be chargeable to tax.

17. 41(3) Where any capital asset used in scientific research is sold without
having been used for other purposes and the sale proceeds
together with the amount of deduction allowed under section 35
exceed the amount of the capital expenditure, such surplus or the
amount of deduction allowed, whichever is less, is chargeable to
tax as business income in the year in which the sale took place.

18. 41(4) Where bad debts have been allowed as deduction under Section
36(1)(vii) in earlier years, any recovery of same shall be
chargeable to tax.

19. 41(4A) Amount withdrawn from special reserves created and maintained
under Section 36(1)(viii) shall be chargeable as income in the
previous year in which the amount is withdrawn.

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20. 41(5) Loss of a discontinued business or profession could be adjusted
from the deemed business income as referred to in
section 41(1), 41(3), (4) or (4A) without any time limit.

20A. 43AA Any foreign exchange gain or loss arising in respect of specified
foreign currency transactions shall be treated as income or loss.
Such gain or loss shall be computed in accordance with notified
ICDS [subject to Section 43A]

21. 43CA Where consideration for transfer of land or building or both as

stock-in-trade is less than the stamp duty value, the value so
adopted shall be deemed to be the full value of consideration for
the purpose of computing income under this head.
However, no such adjustment is required to be made if value
adopted for stamp duty purposes does not exceed 110% of the
sale consideration.

Note:

To boost the demand in the real-estate sector and to enable the

real-estate developers to sell their unsold inventory at a lower
rate, the safe harbour limit is increased from existing 10% to 20%
in case of transfer of residential property during the period from
12-11-2020 to 30-06-2021 by way of the first-time allotment to any
person. Further, the consideration received or accruing as a result
of such transfer should not exceed Rs. 2 crores.

21A. 43CB The profits and gains arising from construction contract or a
contract for providing service is to be determined on the basis of
percentage completion method, in accordance with the notified
ICDS.
In case of contract for providing services with duration of not more
than 90 days, the profits and gains shall be determined on basis
of project completion method.

While as in case of contract for providing services with

indeterminate number of acts over a specified period of time shall
be determined on basis of straight line method.

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 22. 43D As per RBI Guidelines, Interest on bad and doubtful debts of
Public Financial Institution or Scheduled Bank or [a co-operative
bank other than a primary agricultural credit society or a primary
co-operative agricultural and rural development bank] or State
Financial Corporation or State Industrial Investment Corporation,
shall be chargeable to tax in the year in which it is credited to
Profit and Loss A/c or year in which it is actually received,
whichever happens earlier.
With effect from Assessment Year 2020-21, the Finance (No. 2)
Act, 2019 has covered ‘Deposit Taking NBFCs’ and ‘Systemically
Important Non-deposit Taking NBFCs’ in the ambit of 43D. Hence,
such NBFCs shall be able to recognize interest on bad and
doubtful debts in the year in which it is credited to Profit and Loss
A/c or year in which it is actually received, whichever happens
earlier.
Deposit Taking NBFC’ means a NBFC which is accepting or
holding public deposits and is registered with the RBI.
‘Systemically Important Non-deposit Taking NBFC’ means a
NBFC which is not accepting or holding public deposits and
having total assets of not less than Rs. 500 crore as per the last
audited balance sheet and is registered with the RBI.

23. 43D Similarly as per NHB Guidelines, Interest on bad and doubtful
debts of housing finance company, shall be chargeable to tax, in
the year it is credited to P & L A/c or year in which it is actually
received by them, whichever is earlier.

24 — Assistance in the form of a subsidy or grant or cash incentive or

duty drawback or waiver or concession or reimbursement (by
whatever name called) by the Central Govt. or State Govt. or any
authority or body or agency to the assessee would be included in
definition of income as referred to in Section 2(24). However, in
the following cases subsidy or grant shall not be treated as
income:
i) The subsidy or grant or reimbursement which is taken into
account for determination of the actual cost of the asset in
accordance with the provisions of Explanation 10 to clause (1)
of Section 43;

ii) The subsidy or grant by the Central Government for the

purpose of the corpus of a trust or institution established by the
Central Government or a State Government, as the case may be.

2. Deductions under Sections 30 to 37

Amount deductible, while computing, Profits and Gains of Business or Profession are:-

Section Nature of Quantum of deduction Assessee

expenditure

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30 Rent, rates, taxes, Actual expenditure incurred All assessee
repairs (excluding excluding capital expenditure
capital expenditure)
and insurance for
premises

31 Repairs (excluding Actual expenditure incurred All assessee

capital expenditure) excluding capital expenditure
and insurance of
machinery, plant
and furniture

32(1)(i) Depreciation on Allowed at prescribed Assessees

i) buildings, percentage on Straight Line engaged in
machinery, plant or Method for each asset business of
furniture, being Provided that where an asset generation or
tangible assets; is acquired by the assessee generation and
during the previous year and is distribution of
ii) know-how, put to use for a period of less power
patents, copyrights, than one hundred and eighty Note:
trademarks, days in that previous year, the
licenses, franchises, deduction in respect of such Taxpayers
or any other asset shall be restricted to fifty engaged in the
business or per cent of the amount business of
commercial rights of calculated at the percentage generation or
similar nature not prescribed for an asset. generation and
being goodwill of distribution of
business or power shall have
profession, being the option to claim
intangible assets depreciation either
on basis of
straight line basis
method or written
down value
method on each
block of asset.

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32(1)(ii) Depreciation on Allowed at prescribed All assessees
i) buildings, percentage on WDV method
machinery, plant or for each block of asset
furniture, being Provided that where an asset
tangible assets; is acquired by the assessee
during the previous year and is
ii) know-how, put to use for a period of less
patents, copyrights, than one hundred and eighty
trademarks, days in that previous year, the
licenses, franchises, deduction in respect of such
or any other asset shall be restricted to fifty
business or per cent of the amount
commercial rights of calculated at the percentage
similar nature not prescribed for an asset.
being goodwill of
business or
profession, being
intangible assets

32(1)(iia) Additional Additional depreciation shall All assessee

depreciation on new be available @20 % of the engaged in
plant and machinery actual cost of new plant and – manufacture or
(other than ships, machinery. production of any
aircraft, office Provided that where an asset article or thing; or
appliances, second is acquired by the assessee
hand plant or during the previous year and is – generation,
machinery, etc.). put to use for a period of less transmission or
(subject to certain than one hundred and eighty distribution of
conditions) days in that previous year, power (if taxpayer
then deduction of additional is not claiming
depreciation would be depreciation on
restricted to 50% in the year of basis of straight
acquisition and balance 50% line method)
would be allowed in the next
year

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Proviso Additional Additional depreciation shall All assessees-
to Section depreciation on new be available @35 % of the where an
32(1)(iia) plant and machinery actual cost of new plant and assessee sets up
(other than ships, machinery. an undertaking or
aircraft,office Provided that where an asset enterprise for
appliances, second is acquired by the assessee production or
hand plant or during the previous year and is manufacture of
machinery, etc.)) put to use for a period of less any article or thing
(Subject to certain than one hundred and eighty in any notified
conditions) days in that previous year, backward area in
then deduction of additional state of the state
depreciation would be of Andhra
restricted to 50% of actual cost Pradesh, Bihar,
in the year of acquisition and Telangana or West
balance 50% would be Bengal.
allowed in the next year

Note:

1. Manufacturing unit should

be set-up on or after 1st day of
April, 2015.

2. New plant and machinery

acquired and installed during
the period beginning on the
1st day of April, 2015 and
ending before the 1st day of
April, 2020

32AC Deduction 15% of actual cost of new Company

under section asset engaged in
32AC is available if business or
actual cost of new manufacturing or
plant and machinery production of any
acquired and article or thing
installed by a
manufacturing
company during the
previous year
exceeds Rs. 25/100
Crores, as the case
may be.(Subject to
certain conditions)

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32AD Investment Investment allowance shall be All assessee who
allowance for available @15 % of the actual acquired new
investment in new cost of new plant and plant and
plant and machinery machinery in the year of machinery for the
if manufacturing unit installation of new asset. purpose of setting-
is set-up in the Note:- up manufacturing
notified backward unit in the notified
area in the state of 1) New asset should be backward area in
Andhra Pradesh, acquired and installed during the state of
Bihar, Telangana or the period beginning on the Andhra Pradesh,
West 1st day of April, 2015 and Bihar, Telangana
Bengal(Subject to ending before the 1st day of or West Bengal
certain conditions) April, 2020.

2) Manufacturing unit should

be set-up on or after 1st day of
April, 2015.

3) Deduction shall be allowed

under Section 32AD in
addition to deduction available
under Section 32AC if
assessee fulfils the specified
conditions

33AB Amount deposited in Deduction shall be lower of All assessee

Tea / Coffee / following: engaged in
Rubber a) Amount deposited in business of
Development account with National Bank for growing and
Account by Agricultural and Rural manufacturing
assessee engaged Development (NABARD) or in tea/Coffee/Rubber
in business of Deposit Account of Tea Board,
growing and Coffee Board or Rubber Board
manufacturing tea/ in accordance with approved
Coffee /Rubber in scheme; or
India
b) 40% of profits from such
business before making any
deduction under section
33AB and before adjusting any
brought forward loss.

(Subject to certain conditions)

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33ABA Amount deposited in Deduction shall be lower of All assessee
Special Account following: engaged in
with SBI/Site a) Amount deposited in business of
Restoration Account Special Account with SBI/Site prospecting for, or
by assessee Restoration Account; or extraction or
carrying on production of,
business of b) 20% of profits from such petroleum or
prospecting for, or business before making any natural gas or both
extraction or deduction under section in India
production of, 33ABA and before adjusting
petroleum or natural any brought forward loss.
gas or both in India
(Subject to certain conditions)

35(1)(i) Revenue Entire amount incurred on All assessee

expenditure on scientific research is allowed
scientific research as deduction.
pertaining to Expenditure on scientific
business of research within 3 years before
assessee is allowed commencement of business
as deduction (in the nature of purchase of
(Subject to certain materials and salary of
conditions). employees other than
perquisite) is allowed as
deduction in the year of
commencement of business to
the extent certified by
prescribed authority.

35(1)(ii) Contribution to 100% of sum paid to such All assessee

approved research association, university,
association, college, or other institution is
university, college or allowed as deduction.
other institution to
be used for scientific
research shall be
allowed as
deduction (Subject
to certain
conditions)

35(1)(iia) Contribution to an 100% of sum paid to the All assessee

approved company company is allowed as
registered in India to deduction
be used for the
purpose of scientific
research is allowed
as deduction
(Subject to certain
conditions)

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35(1)(iii) Contribution to 100% of sum paid to such All assessee
approved research association, university,
association, college, or other institution is
university, college or allowed as deduction
other institution with
objects of
undertaking
statistical research
or research in social
sciences shall be
allowed as
deduction (Subject
to certain
conditions)

35(1) Capital expenditure Entire capital expenditure All assessee

(iv) read incurred during the incurred on scientific research
with 35(2) year on scientific is allowed as deduction.
research relating to Capital expenditure incurred
the business carried within 3 years before
on by the assessee commencement of business is
is allowed as allowed as deduction in the
deduction (Subject year of commencement of
to certain business.
conditions)
Note:

i. Capital expenditure excludes

land and any interest in land;

ii. No depreciation shall be

allowed on such assets.

35(2AA) Payment to a 100% of payment is allowed All assessee

National Laboratory as deduction (Subject to
or University or an certain conditions).
Indian Institute of
Technology or a
specified person is
allowed as
deduction.
The payment should
be made with the
specified direction
that the sum shall
be used in a
scientific research
undertaken under
an approved
programme.

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35(2AB) Any expenditure 100% of expenditure so Company
incurred by a incurred shall be allowed as engaged in
company on deduction. business of bio-
scientific research Note: technology or in
(including capital any business of
expenditure other i. Company should enter into manufacturing or
than on land and an agreement with the production of
building) on in- prescribed authority for co- eligible articles or
house scientific operation in such research things
research and and development and fulfils
development conditions with regard to
facilities as maintenance of accounts and
approved by the audit thereof and furnishing of
prescribed reports in such manner as
authorities shall be may be prescribed.
allowed as
deduction (Subject
to certain
conditions).
Expenditure on
scientific research in
relation to Drug and
Pharmaceuticals
shall include
expenses incurred
on clinical trials,
obtaining approvals
from authorities and
for filing an
application for
patent.

35ABA Capital expenditure Deduction will be available in All assessee

incurred and equal installments starting engaged in
actually paid for from the year in which actual telecommunication
acquiring any right payment is made and ending services
to use spectrum for in the year in which spectrum
telecommunication comes to an end.
services shall be Note:
allowed as
deduction over the If spectrum fee is actually paid
useful life of the before the commencement of
spectrum. business, the deduction will be
available from the year in
which business is
commenced.

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35ABB Capital expenditure Deduction would be allowed in All assessee
incurred for equal installments starting engaged in
acquiring any from the year in which such telecommunication
license or right to payment has been made and services
operate ending in the year in which
telecommunication license comes to an end.
services shall be
allowed as
deduction over the
term of the license.

35AC Expenditure by way Actual payment made to All assessee.

of payment of any prescribed entities. However, a However,
sum to a public company can also claim deduction for
sector deduction for expenditure direct expenditure
company/local incurred by it directly on is allowed only to
authority/approved eligible projects. a company
association or Note:-
institution for
carrying out any No deduction in any A.Y.
eligible scheme or commencing on or after the
project (Subject to 1st day of April, 2018
certain conditions).

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35AD Deduction in respect 150% of capital expenditure All assessee
of `expenditure on incurred for the purpose of
specified business is allowed as
businesses, as deduction provided the
under: specified business has
a) Setting up and commenced its operation on
operating a cold or after 01-04-2012.
chain facility 100% of capital expenditure
will be allowed to be deducted
b) Setting up and from the assessment year
operating a 2018-19 onwards
warehousing facility
for storage of Note: If such specified
agricultural produce businesses commence
operations on or before 31-03-
c) Building and 2012 but after prescribed
operating, anywhere dates, deduction shall be
in India, a hospital limited to 100% of capital
with at least 100 expenditure.
beds for patients
Note: No deduction of any
d) Developing and capital expenditure above Rs
building a housing 10,000 shall be allowed if it is
project under a incurred in cash.
notified scheme for
affordable housing

e) Production of
fertilizer in India

(Subject to certain
conditions)

35AD Deduction in respect 100% of capital expenditure All assessee

of expenditure on incurred for the purpose of Note: Such
specified business is allowed as deduction is
businesses, as deduction provided specified available to Indian
under: businesses commence company in case
a) Laying and operations on or after the of following
operating a cross- prescribed dates. business, namely;-
country natural gas Note: No deduction of any
or crude or capital expenditure above Rs i) Business of
petroleum oil 10,000 shall be allowed if the laying and
pipeline network for payment for such expenditure operating a cross-
distribution, is made otherwise than by an country natural
including storage account payee cheque/draft or gas or crude or
facilities being an ECS or through prescribed petroleum oil
integral part of such electronic mode of payment. pipeline network
network;
ii) Developing or
b) Building and maintaining and
operating, anywhere operating or
in India, a hotel of developing,
two-star or above maintaining and
category;

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c) Developing and operating a new
building a housing infrastructure
project under a facility.
scheme for slum
redevelopment or
rehabilitation

d) Setting up and
operating an inland
container depot or a
container freight
station

e) Bee-keeping and
production of honey
and beeswax

f) Setting up and
operating a
warehousing facility
for storage of sugar

g) Laying and
operating a slurry
pipeline for the
transportation of
iron ore

h) Setting up and
operating a semi-
conductor wafer
fabrication
manufacturing unit

i) Developing or
maintaining and
operating, or
developing,
maintaining and
operating a new
infrastructure facility

(Subject to certain
conditions)

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35CCA Payment to Actual payment to specified All assessee
following Funds are funds
allowed as
deduction:
a) National Fund for
Rural Development;
and

b) Notified National
Urban Poverty
Eradication Fund

35CCC Expenditure (not 100% of the expenditure All assessee

being cost of (Subject to certain conditions)
land/building)
incurred on notified
agricultural
extension project for
the purpose of
training, educating
and guiding the
farmers shall be
allowed as
deduction, provided
the expenditure to
be incurred is
expected to be more
than Rs. 25 lakhs
(Subject to certain
conditions).

35CCD Expenditure 100% of the expenditure Company

incurred by a (Subject to certain conditions) engaged in
company (not being Note: manufacturing of
expenditure in the any article or
nature of cost of any (i) No deduction shall be providing specified
land or building) on allowed to a company services
any notified skill engaged in manufacturing
development project alcoholic spirits or tobacco
is allowed as products.
deduction (Subject
to certain
conditions).

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35D An Indian company Qualifying preliminary Indian Company
can amortize certain expenditure is allowable in
preliminary each of 5 successive years
expenses (up to beginning with the previous
maximum of 5% of year in which the extension of
cost of the project or undertaking is completed or
capital employed, the new unit commences
whichever is more) production or operation.
(Subject to certain
conditions and
nature of
expenditures)

35D Non-corporate Qualifying preliminary Resident Non-

taxpayers can expenditure is allowable in corporate
amortize certain each of 5 successive years assessees
preliminary beginning with the previous
expenses (up to year in which the extension of
maximum of 5% of undertaking is completed or
cost of the project) the new unit commences
(Subject to certain production or operation.
conditions and
nature of
expenditures)

35DD Expenditure Expenditure is allowed as Indian Company

incurred after 31-3- deduction in five equal
1999 in respect of installments in 5 previous
amalgamation or years starting with the year in
demerger can be which amalgamation or
amortized by an demerger took place.
Indian Company

35DDA Expenditure Each payment under VRS is All assessee

incurred under allowed as deduction in five
Voluntary equal installments in 5
Retirement Scheme previous years.
is allowed as
deduction.

35E Qualifying Eligible expenditure is allowed Resident persons

expenditure incurred as deduction in ten equal
by resident persons installments in 10 previous
on prospecting for years.
the minerals or on
the development of
mine or other
natural deposit of
such minerals shall
be allowed as
deduction (Subject
to certain
conditions).

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36(1)(i) Insurance premium Actual expenditure incurred All assessee
covering risk of
damage or
destruction of
stocks/stores

36(1)(ia) Insurance premium Actual expenditure incurred All assessee

covering life of cattle
owned by a member
of co-operative
society engaged in
supplying milk to
federal milk co-
operative society

36(1)(ib) Medical insurance Actual expenditure incurred All assessee

premium paid by
any mode other
than cash, to insure
employee’s health
under (a) scheme
framed by GIC of
India and approved
by Central
Government; or (b)
scheme framed by
any other insurer
and approved by
IRDA

36(1)(ii) Bonus or Actual expenditure incurred All assessee

commission paid to
employees which
would not have
been payable as
profit or dividend if it
had not been paid
as bonus or
commission

36(1)(iii) Interest on Interest paid in respect of All assessee

borrowed capital capital borrowed for the
(Subject to certain purposes of the business or
conditions) profession shall be allowed as
deduction. However, if capital
is borrowed for acquiring an
asset, then interest for any
period beginning from the date
on which capital was borrowed
till the date on which asset
was first put to use, shall not
be allowed as deduction.

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36(1)(iiia) Discount on Zero Pro-rata amount of discount Specified
Coupon Bonds on zero coupon bonds shall be Assessee
(Subject to certain allowed as deduction over the
conditions) life of such bond

36(1)(iv) Employer’s Actual expenditure incurred All assessee

contributions to
recognized
provident fund and
approved
superannuation fund
[subject to certain
limits and
conditions]

36(1)(iva) Any sum paid by Actual expenditure not All assessee –

assessee-employer exceeding 10% of the salary* Employer
by way of of the employee
contribution towards *Salary = Basic Pay +
a pension scheme, Dearness Allowance (to the
as referred to extent it forms part of
in section 80CCD, retirement benefits)+ turnover
on account of an based commission
employee.

36(1)(v) Employer’s Actual expenditure not All assessee –

contribution towards exceeding 8.33% of salary of Employer
approved gratuity each employee
fund created
exclusively for the
benefit of
employees under an
irrevocable trust
shall be allowed as
deduction (Subject
to certain
conditions).

36(1)(va) Deposit of Actual amount received if All assessee –

employee’s credited to the employee’s Employer
contributions in their account in relevant fund on or
respective provident before due date specified
fund or under relevant Act
superannuation fund
or any fund set up
under Employees’
State Insurance Act,
1948

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36(1)(vi) Allowance in Actual cost of acquisition of All assessee
respect of animals such animals less realization
which have died or on sale of carcasses of
become animals
permanently
useless (Subject to
certain conditions)

36(1)(vii) Bad debts which Actual bad debts which have All assessee
have been written been written off from books of
off as irrecoverable accounts
(Subject to certain Note:-
conditions)
However, if amount of debt or
part thereof has been taken
into account in computing the
income of assessee on basis
of income computation and
disclosure standards notified
under Section 145(2) without
recording the same in
accounts then, such debt shall
be allowed in the previous
year in which such debt or part
therof becomes irrecoverable.
It shall be deemed that such
debt or part thereof has been
written off as irrecoverable in
the accounts.

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36(1)(viia) Deductions for Deductions for provision for Banks, Public
provision for bad bad and doubtful debts shall Financial
and doubtful debts be limited to following: Institutions, Non-
created by certain (a) In case of scheduled and banking financial
banks, financial non-scheduled banks: Sum company, State
institutions and non- not exceeding aggregate of Financial
banking financial 8.5% of total income (before Corporation, State
company (Subject to any deductions under this Industrial
certain conditions). provision and Chapter VI-A) Investment
Note and 10% of aggregate Corporations
average advances made by
Deduction in respect rural branches of such bank;
of bad debts
actually written off (b) In case of Financial
under section 36(1) Institutions: Up to 5% of total
(vii) shall be limited income before any deductions
to that amount of under this provision and
bad debts which Chapter VI-A; and
exceed the
provision for bad (c) In case of foreign banks:
and doubtful debts Up to 5% of total income
created before any deductions under
under section 36(1) this provision and Chapter VI-
(viia). A

(d) In case of non-banking

financial company: Up to 5%
of total income before any
deduction under this provision
and chapter VI-A

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36(1)(viii) Deduction under Deduction shall be allowed to Specified financial
this provisions is the extent of lower of corporations or
allowed to following following: public company
entities in respect of a) Amounts transferred to
amount transferred special reserve account
to special reserve
account: b) 20% of profits derived from
a) Financial eligible business
Corporation which is
engaged in c) 200% of paid-up capital and
providing long-term general reserve (on last day of
finance for industrial previous year) minus balance
or agricultural in special reserve account (on
development or first day of previous year)
development of
infrastructure facility
in India; or

b) Public company
registered in India
with the main object
of carrying on the
business of
providing long-term
finance for
construction or
purchase of
residential houses in
India.

[Subject to certain
conditions]

36(1)(ix) Expenditure 1) Entire revenue expenditure Company

incurred by a is allowed as deduction
company on 2) Capital expenditure shall be
promotion of family allowed as deduction in five
planning amongst equal installment in five years
employees is
allowed as
deduction

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36(1)(xii) Any expenditure Actual expenditure incurred Notified
incurred by a (not being in the nature of corporations
notified corporation capital expenditure)
or body corporate
constituted or
established by a
Central, State or
Provincial Act, for
the objects and
purposes authorized
by the respective
Act is allowed as
deduction

36(1)(xiv) Contribution to Actual expenditure incurred Public Financial

Credit Guarantee Institutions
Trust Fund for micro
and small industries
is allowed as
deduction

36(1)(xv) Securities Actual expenditure incurred if All assessee

Transaction Tax corresponding income is
paid included as income under the
head profits and gains of
business or profession

36(1)(xvi) Amount equal to Actual expenditure incurred if All assessee

commodities corresponding income is
transaction tax paid included as income under the
by an assessee in head profits and gains of
respect of taxable business or profession
commodities
transactions entered
into in the course of
his business during
the previous year is
allowed as
deduction

36(1)(xvii) Amount of Deduction would be allowed Co-operative

expenditure incurred the extent of lower of society engaged in
by a co-operative following: the business of
society engaged in a) Actual purchase price of manufacture of
the business of sugarcane, or sugar
manufacture of
sugar for purchase b) Price of sugarcane fixed or
of sugarcane. approved by the Government

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 36(1) Marked to market Actual losses incurred All assessee
(xviii) loss or other
unexpected loss as
computed in
accordance with
notified ICDS

37(1) Any other Actual expenditure incurred All assessee

expenditure [not
being personal or
capital expenditure
and expenditure
mentioned in
sections 30 to 36]
laid out wholly and
exclusively for
purposes of
business or
profession

37(2B) Expenditure on Not Allowed All assessee

advertisement in
any souvenir,
brochure etc.
published by a
political party shall
not be allowed as
deduction

3. Amount expressly disallowed under the Act

Section Description

40(a)(i) Any sum (other than salary) payable outside India or to a non-resident,
which is chargeable to tax in India in the hands of the recipient, shall not
be allowed to be deducted if it was paid without deduction of tax at
source or if tax was deducted but not deposited with the Central
Government till the due date of filing of return.
Where deductor has failed to deduct the tax and he is not deemed to be
an assessee in default under first proviso to section 201(1), then it shall
be deemed that the deductor has deducted and paid the tax on the date
on which the payee has furnished his return of Income.

However, if tax is deducted or deposited in subsequent year, as the case

may be, the expenditure shall be allowed as deduction in that year.

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40(a)(ia) Any sum payable to a resident, which is subject to deduction of tax at
source, would attract 30% disallowance if it was paid without deduction of
tax at source or if tax was deducted but not deposited with the Central
Government till the due date of filing of return.
However, where in respect of any such sum, tax is deducted or deposited
in subsequent year, as the case may be, the expenditure so disallowed
shall be allowed as deduction in that year.
Where deductor has failed to deduct the tax and he is not deemed to be
an assessee in default under first proviso to section 201(1), then it shall
be deemed that the deductor has deducted and paid the tax on the date
on which the payee has furnished his return of Income.

40(a)(ib) Any sum paid or payable to a non-resident which is subject to a

deduction of Equalisation levy would attract disallowance if such sum
was paid without deduction of such levy or if it was deducted but not
deposited with the Central Government till the due date of filing of return.
However, where in respect of any such sum, Equalisation levy is
deducted or deposited in subsequent year, as the case may be, the
expenditure so disallowed shall be allowed as deduction in that year.

Note: This provision has beeninserted by the Finance Act, 2016, w.e.f. 1-
6-2016

40(a)(ii) Any sum paid on account of any rate or tax levied on the profits and
gains of business or profession is not deductible

40(a)(iia) Wealth-tax or any other tax of similar nature shall not be deductible

40(a)(iib) Amount paid by way of royalty, license fee, service fee, privilege fee,
service charge or any other fee or charge, by whatever name called,
which is levied exclusively on (or any amount appropriated) a State
Government undertaking by the State Government shall not be
deductible.

40(a)(iii) Salaries payable outside India, or in India to a non-resident, on which tax

has not been paid/deducted at source is not deductible.

40(a)(iv) Payments to provident fund or other funds for employees’ benefit shall
not be deductible if no effective arrangements have been made to ensure
deduction of at source from payments made from such funds to
employees which shall be chargeable to tax as ‘salaries’.

40(a)(v) Tax paid by the employer on non-monetary perquisites provided to

employees is not deductible if the tax so paid is not taxable in the hands
of employees by virtue of Section 10(10CC).

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40(b) Following sum paid by a partnership firm to its partners shall not be
allowed to be deducted:
1) Salary, bonus, commission or remuneration paid to non-working
partners;

2) Remuneration or interest paid to the partners is not in accordance with

the terms of the partnership deed;

3) Remuneration or interest to partners is in accordance with the terms of

the partnership deed but relates to any period prior to the date of the
deed;

4) Interest to partners is in accordance with the terms of the partnership

deed but exceeds 12% per annum;

5) Remuneration to partners is in accordance with the terms of the

partnership deed but exceeds the following permissible limit:

a) On first Rs. 3 Lakhs of book profit or in case of loss – Rs. 1,50,000 or

90% of book profit, whichever is more;

b) On the balance of the book profit – 60% of book profit

40(ba) Interest, salary, bonus, commission or remuneration paid by Association

of Persons or Body of Individuals to its members shall not be allowed as
deduction (Subject to certain conditions).

40A(2) Any payment to related parties (relatives, directors, partner, member of

HUF/AOP, person who has substantial interest in business of the
taxpayer, etc.) in respect of any expenditure shall be disallowed to the
extent such expenditure is considered excessive or unreasonable by the
Assessing Officer having regard to its fair market value.

40A(3)/(3A) An expenditure, which is otherwise deductible under any provision of the

Act, shall be disallowed if payment thereof has been made otherwise
than by account payee cheque/bank draft or use of electronic clearing
system through a bank account or through other prescribed electronic
mode of payment and it exceeds Rs. 10,000 (Rs. 35,000 in case of
payment made for plying, hiring or leasing goods carriages) in a day
(Subject to certain conditions and exceptions).

40A(7) Provision for payment of gratuity to employees, other than a provision for
contribution to approved gratuity fund, shall not be allowed as deduction
(Subject to specified conditions).
Gratuity actually paid (or payable) during the year and contribution to
approved gratuity fund is allowed as deduction.

40A(9) Any sum paid as an employer for setting up or as contribution to any

fund, trust, company, AOP, BOI, Society or other institution (other than
recognized provident fund, approved superannuation fund, approved
gratuity fund or pension scheme referred to in section 80CCD) shall not
be allowed as deduction deduction if such contribution or payment is not
required by any law.

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 40(A)(13) No deduction shall be allowed in respect of marked to market loss or
other unexpected loss except as allowable under section 36(1)(xviii).

4. Expenses deductible on actual payment basis

The following expenses shall be allowed as deduction if such expenditure are actually paid on or
before the due date of filing of return of income:-

Section Particulars

43B(a) Any Tax, Duty, Cess or Fees under any Law

43B(b) Any contribution to Provident Fund/Superannuation Fund/Gratuity

Fund/Welfare Fund

43B(c) Bonus or Commission paid to employees which would not have been
payable as profit or dividend

43B(d) Interest on Loan or Borrowings from Public Financial Institutions/State

Financial Institutions etc.

43B(da) Interest on loan from a deposit taking NBFC or systemically important non-
deposit taking NBFC

43B(e) Interest on loan or advance from bank

43B(f) Payment of Leave Encashment

43B(g) Sum payable to the Indian Railways for the use of railway assets.

5. Other provisions

Section Particulars Provision

42 Special allowance in case of Following deductions shall be allowed

business of prospecting etc. for as deductions:
mineral oil (including petroleum and a) Any infructuous exploration
natural gas) in relation to which the expenditure
Central Government has entered
into an agreement with the b) Expenditure on drilling or
taxpayer for the association or exploration activities or services, etc.
participation (Subject to certain
conditions). c) Allowance in relation to depletion of
mineral oil, etc.

43A Special provisions consequential to Any increase or decrease in the

changes in rate of exchange of liability incurred in foreign currency (to
Currency (Subject to certain acquire a capital asset) pursuant to
conditions). fluctuation in the foreign exchange
rates shall be adjusted with the actual
cost of such asset only on actual
payment of the liability.

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 43C Acquisition of any asset (except Cost of acquisition of any asset
stock-in-trade) by the taxpayer in (except stock-in-trade) acquired by the
the scheme of amalgamation or by taxpayer in the scheme of
way of gift, will etc. amalgamation or by way of gift, will
etc. from the transferor (who sold it as
stock-in-trade) shall be the cost of
acquisition in the hands of transferor
as increased by cost of any
improvement made

6. Provisions applicable to Non-Resident/Foreign Company

Section Particulars Limit of exemption Available

or Computation of to
income/deduction

44B read Income from shipping business shall 7.5% of specified Non-
with 172 be computed on presumptive basis sum shall be resident
(Subject to certain conditions). deemed to be the engaged
presumptive income in shipping
business

44BB Income of a non-resident engaged in 10% of specified Non-

the business of providing services or sum shall be resident
facilities in connection with, or deemed to be the engaged
supplying plant and machinery on hire presumptive income in activities
used, or to be used, in the prospecting connected
for, or extraction or production of, with
mineral oils shall be computed on exploration
presumptive basis (Subject to certain of mineral
conditions). oils

44BBA Income of a non-resident engaged in 5% of specified sum Non-

the business of operation of aircraft shall be deemed to resident
shall be computed on presumptive be the presumptive engaged
basis (Subject to certain conditions). income in the
business
of
operating
of aircraft

44BBB Income of a foreign company engaged 10% of specified Foreign

in the business of civil construction or sum shall be Company
the business of erection of plant or deemed to be the
machinery or testing or commissioning presumptive income
thereof, in connection with turnkey
power projects shall be computed on
presumptive basis (Subject to certain
conditions).

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 44C Deduction for Head office Expenditure Deduction for head- Non-
(Subject to certain conditions and office expenditure resident
limits) shall be limited to
lower of following:
a) 5% of adjusted
total income*

b) Head office exp.

as attributable to
business or
profession of
taxpayer in India

* In case adjusted
total income of the
assessee is a loss,
adjusted total
income shall be
substituted by
average adjusted
total income

** Adjusted total
income or average
adjusted total
income shall be
computed after
prescribed
adjustments i.e.
unabsorbed
depreciations, carry
forward losses, etc.

44DA Deduction of expenditure from royalty Expenditure incurred Non-

and FTS received under an agreement wholly and resident
made after 31-03-2003 which is exclusively for the
effectively connected to the PE of non- business of PE or
resident in India (Subject to certain fixed place of
conditions) profession in India
shall be allowed as
deduction.

7. Accounts and Audit

Section Particulars Threshold

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 44AA Compulsory Persons carrying on specified profession and their
maintenance of gross receipts exceed Rs. 1,50,000 in all the three
prescribed books of years immediately preceding the previous year
account – Specified
Profession
(Subject to certain
conditions and
circumstances)

44AA Compulsory 1) If total sales, turnover or gross receipts exceeds

maintenance of books Rs. 25,00,000 in any one of the three years
of account – Other immediately preceding the previous year; or
business or profession 2) If income from business or profession exceeds
(Subject to certain Rs. 2,50,000 in any one of the three years
conditions and immediately preceding the previous year
circumstances)

44AB Compulsory Audit of 1) If total sales, turnover or gross receipts exceeds

books of accounts Rs. 2 Crore in any previous year, in case of
(Subject to certain business; or
conditions and Note:
circumstances)
a) Provided that this section is not applicable to the
person, who opts for presumptive taxation Scheme
under Section 44AD and his total sales or turnover
does not exceed Rs 2 crores.

b) Threshold limit of Rs. 1 crore shall be increased

to Rs. 10 crore in case where the cash receipt and
payment made during the year does not exceed 5%
of total receipt or payment the business

2) If gross receipts exceeds Rs. 50 Lakhs in any

previous year, in case of profession.

8. Presumptive Taxation

Section Nature of business Presumptive income

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 44AD Income from eligible business can Presumptive income of eligible
be computed on presumptive business shall be 8% of gross receipt
basis if turnover of such business or total turnover.
does not exceed two crore rupees. Note: Presumptive income shall be
Note: If an assessee opts out of calculated at rate of 6% in respect of
the presumptive taxation scheme, total turnover or gross receipts which is
after a specified period, he cannot received by an account payee cheque
choose to revert back to the or draft or use of electronic clearing
presumptive taxation scheme for a system or through any other electronic
period of five assessment years mode as may be prescribed.
thereafter. [section 44AD(4)]

(Subject to conditions)

44ADA Income from eligible Presumptive income of such profession

profession u/s 44AA(1) can be shall be 50% of total gross receipt.
computed on presumptive basis if
the total gross receipts from such
profession do not exceed fifty lakh
rupees in a previous year.
(Subject to conditions)

44AE Presumptive income from For Heavy Goods Vehicle:

business of plying, hiring or Rs. 1,000 per ton of gross vehicle
leasing of goods carriage if weight for every month or part of a
assessee does not own more than month during which the heavy goods
10 goods carriage. vehicle is owned by assessee.

For Other Goods Vehicle:

Rs. 7,500 for every month or part of a

month during which the goods carriage
is owned by assessee.

Note: ‘Heavy goods vehicle’ means

goods carriage vehicle the gross
vehicle weight of which exceeds 12,000
kilograms.

Also Read:-

Tax Treatment of Income from Salary in Brief

All about Income from House Properties

Capital Gain – All you want to know

Tax Treatment of Income from Other Sources

Source- Income Tax India Website- Republished with amendments

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