admissible deductions from profits and gains of business .................shuchi
TRANSCRIPT
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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.