Date: 17th March 2022

LIVE COACHING CLASSES

BOARD OF STUDIES(A), ICAI

CA INTERMEDIATE
TOPIC NAME – HEADS OF INCOME
UNIT 2 – PROFITS AND GAINS OF BUSINESS OR
PROFESSION
PAPER 4: TAXATION
SEC – A: INCOME-TAX LAW

Faculty Name: CA. Ridhima Bhatia

 Section 36 - Other deductions
Section Particulars Other points to note

36(1)(i) Premium paid in respect of insurance against risk of damage or destruction of stocks or stores
used for the purposes of the business or profession
36(1)(ia) 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
36(1)(ib) Premium paid (payment other than cash )by an employer to effect or to keep in force an
insurance on the health of his employees
36(1)(ii) bonus or commission for services paid to employee (subject to section 43B)
36(1)(iii) Interest paid in respect of capital borrowed (subject to section 43B)
36(1)(iiia) pro rata amount of discount on a zero coupon bond having regard to the period of life

36(1)(iv) Contribution by employer towards a recognised provident fund or an approved

superannuation fund (subject to section 43B)
36(1)(iva) Employer ‘s contribution towards a pension scheme -Should not exceed
10% of salary
36(1)(v) Employer’s contribution towards an approved gratuity fund created for the exclusive benefit
of his employees under an irrevocable trust; (subject to section 43B)

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 Section 36 - Other deductions
Section Particulars Other points to note

36(1)(va) Amount received from employee as contribution to welfare fund – to be allowed

only if such amount is credited on or before the due date.
36(1)(vi) Animals ,used for the purposes of the business or profession otherwise as stock
and have died or become permanently useless for such purposes
36(1)(vii) Bad debts (also refer to section 36(2))
36(1)(ix) Expenditure incurred by a company for the purpose of promoting family planning -1/5th of qualifying expenditure
amongst its employees for each of 5 successive years
beginning from the P.Y. in which it
was incurred
36(1)(xv) Securities Transaction tax paid

36(1)(xvi) Commodities Transaction Tax Paid

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 Speculation Business
Speculative transaction is a transaction of purchase or sale of a commodity including stocks and shares settled otherwise
than by actual delivery or transfer of the commodity or scrip.

EXCEPTIONS Hedging contract in respect of raw

materials or merchandise

Hedging contract in respect of stocks and

shares

Forward contract

Trading in derivatives

Trading in commodity derivatives

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Section 37 - General

Any revenue expenditure laid out or expended wholly and exclusively for the purposes of the business or
profession

Explanation 1 - If expenditure incurred by assessee is an offence or prohibited by law – it shall not be allowed
as deduction
Explanation 2 - Any expenditure incurred on the activities relating to corporate social responsibility referred to
in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by
the assessee for the purposes of the business or profession.

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 Section 40 – Inadmissible deductions
Section Particulars Disallowance

40(a)(i) If tax has not been deducted or, after deduction, has not been paid on or before -Amount of such interest royalty,
filing of return on – FTS or other sum*
Any interest, royalty, fees for technical services or other sum chargeable under this
Act, which is payable,—
(A) outside India; or
(B) in India to a non-resident, not being a company or to a foreign company,

40(a)(ia) Any sum payable to a resident, on which tax is deductible at source under Chapter -30% of such sum*
XVII-B and such tax has not been deducted or, after deduction, has not been paid on
or before filing the return

These will be subsequently allowed, once TDS is deducted or deposited as the case may be

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Section 40 – Inadmissible deductions
Section Particulars Disallowance

40(a)(iib) any amount— -Such amount

(A) paid by way of royalty, licence fee, service fee, privilege fee, service charge
or any other fee or charge, by whatever name called, which is levied
exclusively on; or
(B) which is appropriated, directly or indirectly, from,
a State Government undertaking by the State Government.
40(a)(iii) Any payment which is chargeable under the head "Salaries", if it is payable— -Such Sum
(A) outside India; or
(B) to a non-resident,
and if the tax has not been paid thereon nor deducted there from under
Chapter XVII-B
40(a)(iv) Payment to a Provident Fund or other fund established for the benefit of
employees of the assessee, unless the assessee has made effective
arrangements to secure that tax shall be deducted at source from any
payments made from the fund which are chargeable to tax under the head
"Salaries“;
40(a)(iv) any tax actually paid by an employer referred to in clause (10CC) of section 10 Tax on non monetary salary

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 Section 40 – Inadmissible deductions
Section Disallowance
40(b) In case of firm including LLP
i) any payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter
referred to as "remuneration") to any partner who is not a working partner
ii) any payment of remuneration to any partner who is a working partner, or of interest to any partner,
which, in either case, is not authorised by, or is not in accordance with, the terms of the partnership
deed or prior to partnership deed
iii) Interest Exceeding 12% p.a.
iv) Salary to working partners, as authorised by partnership deed but exceeding the aggregate of –
- on the first Rs. 3,00,000 of the book-profit or in case of a loss :: Rs. 1,50,000 or 90% of the book-
profit, whichever is more
- on the balance of the book-profit :: at the rate of 60%
40(ba) In the case of AOPs or BOIs :
Any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by
such association or body to a member of such association or body.

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Section 40A – Expenses or payments not deductible in certain circumstances

Section Disallowance

40A(1) & 40A(2) Payment to relative and associates

If AO of the opinion that payment made to relative or associate is excessive or unreasonable having regard to FMV
and then such excessive amount shall be disallowed
40A(3), read with Expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by
rule 6DD an account payee cheque drawn on a bank or account payee bank draft, or use of electronic clearing system
through a bank account or through such other prescribed electronic mode , exceeds Rs. 10,000

then no deduction shall be allowed in respect of such expenditure (including payment of goods and services)

40A(3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the
assessee for any expenditure and in the subsequent year assessee makes payment in respect thereof, otherwise
than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system
through a bank account to a person in a day, exceeding Rs. 10,000

- the payment so made shall be deemed to be the profits and gains of business or profession and accordingly
chargeable to income-tax as income of the subsequent year
In the case of payment made for plying, hiring or leasing goods carriages, for the provisions of sub-sections (3) and (3A),
the limit of Rs. 10,000 will be replaced by Rs. 35,000
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Section 40A – Expenses or payments not deductible in certain circumstances
Section Disallowance

40A(7) No deduction shall be allowed in respect of any provision made by the assessee for the payment of
gratuity to his employees on their retirement or on termination of their employment for any reason.

No disallowance will be attracted if gratuity is actually payable during the year

40A(9) No deduction shall be allowed in respect of any sum paid by the employer towards the setting up or
formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals,
society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any
purpose,

Except where such sum is so paid, for the purposes and to the extent provided by or under section
36(1)(iv) or 36(1)(iva) or 36(1)(v), or as required by or under any other law for the time being in force.

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Section 41 – Profits chargeable to tax
Section Deemed Income

41(1) Remission or cessation of trading liability

41(2) Balancing Charge

41(3) Sale of capital asset used for scientific research

41(4) Recovery of bad debts

41(5) Where the business or profession referred to in this section is no longer in existence and there is income
chargeable to tax under the above sub-sections in respect of that business or profession, any loss, not
being a loss sustained in speculation business, which arose in that business or profession during the
previous year in which it ceased to exist and which could not be set off against any other income of that
previous year shall, so far as may be, be set off against the income chargeable to tax under the sub-
sections aforesaid.

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Section 43B – Certain deductions to be made only on Actual Payment
Deduction allowed only on actual payment on or before filing of return

a) any sum payable by way of tax, duty, cess or fee, by whatever name called, under any law for the time
being in force, or
(b) any sum payable as an employer by way of contribution to any provident fund or superannuation fund or
gratuity fund or any other fund for the welfare of employees, or
(c) any sum referred in section 36(1)(ii), as bonus commission for services rendered or
(d) any sum payable as interest on any loan or borrowing from any public financial institution or a State
financial corporation or a State industrial investment corporation, or
(e) Any sum payable as interest on any loan or borrowing from NBFCs
(f) any sum payable as interest on any loan or advances from a 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
(g) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee,
(h) any sum payable by the assessee to the Indian Railways for the use of railway assets,
It shall be allowed in the previous year in which such sum is paid [explanation 3AA]

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 THANK YOU

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