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CA Vishnu Ram
Enlightened
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  1. CA Manish Kumar Gupta Enlightened

    Whether default of TDS is not allowed in Income Tax Act? Yes, default in TDS can lead to disallowance of expenses and penal consequences. 📌 As per Section 40(a)(ia): “30% of any sum payable to a resident on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or,Read more

    Whether default of TDS is not allowed in Income Tax Act?

    Yes, default in TDS can lead to disallowance of expenses and penal consequences.

    📌 As per Section 40(a)(ia):

    “30% of any sum payable to a resident on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified… shall not be allowed as deduction in computing the income chargeable under the head ‘Profits and gains of business or profession’.”

    In Simple Terms:

    If TDS is:

    • Not deducted – 30% of such expense is disallowed.

    • Deducted but not deposited within due date of ITR filing (Sec 139(1)) – 30% is disallowed.

    ✅ However, if TDS is paid later, the disallowed amount is allowed as deduction in the year of actual payment.

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Manish Kumar Gupta Enlightened

    What expenditures or payments are disallowed under Income Tax Act? 1. Relevant Legal Provisions: Section 40 – General disallowance of certain expenses Section 40A – Disallowance of certain cash payments Section 40A(2) – Disallowance of excessive payments to related parties Section 40(a) – DisallowanRead more

    What expenditures or payments are disallowed under Income Tax Act?

    1. Relevant Legal Provisions:

    • Section 40 – General disallowance of certain expenses

    • Section 40A – Disallowance of certain cash payments

    • Section 40A(2) – Disallowance of excessive payments to related parties

    • Section 40(a) – Disallowance related to non-deduction of TDS

    • Section 43B – Certain expenses only allowed on actual payment basis

    2. General Expenditures Disallowed Under the Income Tax Act:

    2.1. Non-deduction of TDS (Section 40(a))

    If TDS is not deducted on certain payments (e.g., rent, professional fees, salary), then such payments will be disallowed.

    • Section 40(a)(ia) – If TDS is not deducted or deposited before the due date of filing of ITR, the expenditure will be disallowed.

    • deduction will be disallowed in computing the income.

    2.2. Payments Exceeding ₹10,000 in Cash (Section 40A(3))

    Any expenditure made in cash exceeding ₹10,000 in a day to a single person is disallowed unless it falls under the exceptions.

    2.3. Excessive Payments to Relatives or Related Parties (Section 40A(2))

    Expenditure or payments made to relatives or related parties which are deemed to be excessive or unreasonable in the opinion of the Assessing Officer will be disallowed.

    2.4. Payments to Non-Residents Without TDS (Section 40(a)(i))

    Payments made to non-residents without deducting tax at source (TDS), or not depositing the deducted TDS, are disallowed.

    2.5. Unpaid Liabilities (Section 43B)

    Certain expenditures like taxes, duties, and contributions to employee welfare schemes are allowed only if paid on time. If not paid within the relevant period, they will be disallowed.

    2.6. Capital Expenditure Without Actual Usage

    Capital expenditure on assets not put to use for business purposes is disallowed.

    2.7. Illegal Payments (Section 37)

    Any illegal payments or expenses made, including bribes or kickbacks, will be disallowed under Section 37, which disallows expenses not wholly and exclusively incurred for the business.

    2.8. Personal Expenses

    Personal expenditures that are not related to business are disallowed.

    2.9. Depreciation on Ineligible Assets

    Depreciation is allowed only on assets used for business purposes. If an asset is not used for business, depreciation on it will be disallowed.

    3. Summary Table: Disallowed Expenses Under Income Tax Act

    📅 Type of Payment/Expenditure 📜 Relevant Section ✅ Disallowed/Conditions
    Non-deduction of TDS Section 40(a) Expenditure disallowed if TDS not deducted or deposited
    Payments over ₹10,000 in Cash Section 40A(3) Disallowed if paid in cash (exceptions apply)
    Excessive payments to relatives or related parties Section 40A(2) Disallowed if deemed excessive or unreasonable
    Payments to non-residents without TDS Section 40(a)(i) Disallowed if TDS not deducted or deposited
    Unpaid liabilities (taxes, employee contributions) Section 43B Disallowed if not paid within the due date
    Personal or illegal expenses Section 37 Disallowed if personal or illegal
    Depreciation on ineligible assets Section 32 Disallowed if asset is not used for business

    ✅ Conclusion:

    Expenditures or payments are disallowed under the Income Tax Act if they do not meet the prescribed conditions of deduction, such as failing to comply with TDS provisions, being paid in cash exceeding specified limits, being excessive or unreasonable when paid to related parties, or being of a personal or illegal nature. Always ensure that payments are backed by proper documentation and are in compliance with the legal provisions to avoid disallowance.

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Manish Kumar Gupta Enlightened

    What is the general deduction under Income Tax Act? 1. Relevant Legal Provisions: Section 10 to 13A – Exemptions, exclusions, and deductions for specific income categories Section 37 – General deductions under business and profession Section 80C to 80U – Specific deductions under Chapter VI-A SectioRead more

    What is the general deduction under Income Tax Act?

    1. Relevant Legal Provisions:

    • Section 10 to 13A – Exemptions, exclusions, and deductions for specific income categories

    • Section 37 – General deductions under business and profession

    • Section 80C to 80U – Specific deductions under Chapter VI-A

    • Section 35 – Deduction for scientific research

    2. General Deduction (Section 37) Explained:

    General deduction under the Income Tax Act refers to the allowance for expenses incurred wholly and exclusively for the purpose of business or profession. These deductions are available to reduce the overall taxable income, making it more beneficial for businesses and individuals involved in professional activities.

    Section 37 of the Income Tax Act outlines the general deduction provisions:

    “Any expenditure (not being of a capital nature, personal or illegal) incurred wholly and exclusively for the purpose of the business or profession is allowed as a deduction.”

    In other words, a deduction can be claimed for any expenditure that is directly related to the business or profession and is incurred in the course of earning business income, provided it is not:

    • Capital expenditure (e.g., buying assets like machinery)

    • Personal in nature (e.g., family-related expenses)

    • Illegal or unethical (e.g., bribes, kickbacks)

    🧾 3. Common Examples of General Deductions:

    Expenditure Type Details
    Business expenses Salaries, rent, utilities, office expenses, etc., incurred for running a business.
    Depreciation On assets used for business (such as machinery, vehicles, etc.).
    Interest on business loans Interest paid on loans taken for business purposes.
    Travel and transportation Travel expenses for business purposes such as transportation, hotels, etc.
    Legal and professional fees Fees paid to lawyers, accountants, or other professionals for business-related services.
    Repairs and maintenance Costs of repairing and maintaining business assets.
    Advertising and promotion costs Costs incurred to promote the business, such as advertising, marketing, etc.
    R&D expenses Expenses related to research and development in scientific fields.

    ⚠️ 4. Exclusions from General Deduction:

    Certain expenses cannot be claimed as a general deduction under Section 37, even if they are incurred for business or professional purposes. These include:

    1. Capital Expenditure – Expenditure on the acquisition of assets like land, buildings, and machinery is capital in nature and hence, is not deductible under Section 37.

    2. Personal Expenses – Personal expenses of a business owner or professional are not allowed. For instance, any expenses related to family welfare or personal health are excluded.

    3. Illegal Payments – Expenditures related to bribes, kickbacks, or any illegal payments are not deductible.

    4. Prohibited Payments – Payments not allowed under any other specific provisions of the Income Tax Act (e.g., fines or penalties paid for violating legal provisions).

    💡 5. Important Notes:

    • Routine Business Expenditure: The Act encourages the deduction of routine, day-to-day business expenses that keep the business operational.

    • Admissibility: The expenditure should be actual (i.e., incurred and not just accrued) and substantiated with invoices, receipts, and proper records.

    • Taxable Income Impact: These deductions help businesses and professionals lower their taxable income and, consequently, reduce their tax liability.

    ✅ 6. Conclusion:

    General deduction under Section 37 is a wide-ranging provision allowing deductions for expenses incurred wholly and exclusively for business or professional purposes. These can include salaries, rent, interest on loans, advertising costs, and more. However, the expenditure must not be capital, personal, or illegal. Understanding and utilizing this provision helps businesses reduce their taxable income and thereby minimize tax outflow.

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Manish Kumar Gupta Enlightened

    How to get the deduction of advertisement expenditure under the Income Tax Act? 1. Relevant Legal Provisions:  below are the relevent provision of Income Tax Act which cover this issue: Section 37(1) – General deductions under business and profession Section 80G – Deduction for charitable contributiRead more

    How to get the deduction of advertisement expenditure under the Income Tax Act?

    1. Relevant Legal Provisions: 

    below are the relevent provision of Income Tax Act which cover this issue:

    • Section 37(1) – General deductions under business and profession

    • Section 80G – Deduction for charitable contributions (related to certain types of advertising)

    • Section 43B – Certain deductions allowed on actual payment basis

    2. Deduction of Advertisement Expenditure:

    Advertisement expenditure is generally allowable as a deduction under Section 37(1) of the Income Tax Act. For a business or profession, advertisement is an essential part of its operation and marketing, and expenses incurred on it are eligible for deduction, provided the expenditure is incurred wholly and exclusively for the purpose of business.

    Section 37(1) states:

    “Any expenditure (not being of a capital nature, personal in nature, or illegal) incurred wholly and exclusively for the purpose of the business or profession is allowable as a deduction.”

    3. Key Conditions for Deductibility:

    To ensure that the advertisement expenses qualify for deduction under Section 37(1), the following conditions must be satisfied:

    • Purpose of Business: The expenditure must be incurred for business promotion, such as advertisements in newspapers, magazines, TV, radio, internet, etc., and must directly serve the purpose of expanding the business or increasing sales.

    • Actual Payment: The expenditure must have been actually incurred and not merely an accrual (Section 43B). For example, the advertisement costs paid through invoices during the financial year should be claimed.

    • Not Capital in Nature: The advertisement expenses are typically revenue in nature, not capital. If the expenditure leads to creating an asset (e.g., creating a trademark or brand value), it could be treated as capital expenditure and would not be deductible under Section 37(1).

    4. Common Types of Deductible Advertisement Expenditures:

    Type of Advertisement Description Deductibility
    Print Media (Newspapers, Magazines) Costs of placing ads in newspapers, magazines, etc. Fully deductible as a business expense.
    Electronic Media (TV, Radio, Internet) Expenses related to advertising on TV, radio, or online platforms. Fully deductible as a business expense.
    Billboards/Outdoor Advertising Expenses for billboard ads, banners, hoardings, etc. Fully deductible as a business expense.
    Direct Mail Campaigns Costs of designing and sending brochures or flyers. Fully deductible as a business expense.
    Sponsorships Costs of sponsoring events for publicity. Fully deductible as a business expense.

    5. What is Not Deductible?

    Certain advertisement-related expenditures may not qualify for deductions under Section 37(1):

    1. Capital Expenditure: Expenditure incurred to create intangible assets (such as the development of a new brand or logo) is not deductible. These costs are typically capitalized and amortized over time.

    2. Personal Advertising: Advertising that is personal in nature (e.g., a personal blog promoting an individual’s image) is not deductible.

    3. Illegal or Unethical Advertising: Any expenditure that violates public policy or is made for illegal activities will be disallowed. For instance, ads promoting unlawful goods or services are not eligible for a deduction.

    💡 6. Advertising in Special Circumstances:

    • Section 80G allows deductions for certain advertising expenditures when the advertisement is for charitable organizations or causes. This applies to expenses related to advertising in support of charitable events or public welfare causes.

    • Section 43B: If the advertisement expenses are part of a contractual arrangement that involves deferred payment, the deduction may be allowed only when the payment is made. This applies to cases where an advertisement contract requires payment in installments.

    ✅ 7. Conclusion:

    Under Section 37(1), businesses can claim a deduction for advertisement expenses incurred wholly and exclusively for the purpose of business. This includes various media channels such as print, electronic, online, and outdoor advertising. However, such deductions are subject to certain conditions like actual payment, being revenue in nature, and being incurred for business purposes.

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Under the Income Tax Act, the treatment of MTM losses depends on the nature of the asset and the transaction involved. Here’s a breakdown of how these losses are treated: 1. For Business or Profession: If a taxpayer is engaged in trading activities (for example, as a trader in stocks or securities),Read more

    Under the Income Tax Act, the treatment of MTM losses depends on the nature of the asset and the transaction involved. Here’s a breakdown of how these losses are treated:

    1. For Business or Profession:

    If a taxpayer is engaged in trading activities (for example, as a trader in stocks or securities), MTM losses can generally be claimed as a deduction under Section 37(1) as a business expense. However, the following conditions must be met:

    • The asset is held as part of the trading business, not as an investment.

    • The loss is incurred in the course of business operations, and not for personal reasons.

    • The loss is actual (i.e., a real loss based on the current market price and not just an unrealized one) and can be substantiated with proper documents, such as trading statements.

    2. For Speculative Transactions (Section 43(5)):

    If the transaction is classified as speculative, then the treatment of MTM losses becomes more restrictive:

    • Speculative losses are not deductible against any other income, except for speculative profits. These losses can only be set off against speculative profits in the same financial year or carried forward for a period of up to four subsequent years (as per Section 73).

    • The MTM loss in speculative transactions (such as in futures contracts or derivatives trading) would be treated as speculative loss unless the taxpayer qualifies as a trader (i.e., the trading activity is substantial and systematic).

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Securities Transaction Tax (STT) is levied on the purchase and sale of securities listed on a recognized stock exchange in India. The tax is paid on the transaction value of the securities, and it is deducted at source by the stock exchange. Treatment of STT under the Income Tax Act: As a Cost for CRead more

    Securities Transaction Tax (STT) is levied on the purchase and sale of securities listed on a recognized stock exchange in India. The tax is paid on the transaction value of the securities, and it is deducted at source by the stock exchange.

    Treatment of STT under the Income Tax Act:

    1. As a Cost for Capital Gains Tax:

      • STT is often treated as a cost incurred for transactions relating to the sale of capital assets (like shares or securities).

      • If the securities transaction qualifies as a long-term or short-term capital gain (depending on the holding period), the STT paid on such transactions is not directly deductible as an expense under Section 37.

    2. Inclusion in Cost of Acquisition:

      • While STT is not directly deductible as an expense, Section 48 of the Income Tax Act allows taxpayers to include STT as part of the cost of acquisition or cost of sale for the purposes of computing capital gains.

      • This is particularly beneficial when calculating long-term or short-term capital gains as the STT paid can reduce the taxable capital gain.

      Section 48 provides:

      “The cost of acquisition and cost of improvement of a capital asset shall include any expenditure incurred in connection with the transfer of the asset, including the cost of STT paid during such transfer.”

    3. No Direct Deduction Under Business Expenses:

      • If the transaction is a speculative or business-related transaction, the STT paid is still not deductible as a direct expense under Section 37. However, speculative losses can be set off only against speculative income.

    Banking Transaction Tax (BTT):

    The Banking Transaction Tax (BTT) was a tax introduced in the past on certain banking transactions such as withdrawals exceeding a certain amount. However, it is no longer applicable as per the current tax regime under the Income Tax Act, as the tax was repealed by the Finance Act, 2009.

    For transactions that might still involve banking fees or charges, the general deduction for business-related expenses is applicable under Section 37(1), provided that:

    • The transaction is wholly and exclusively incurred for the purpose of business.

    • The expenditure is not capital or personal in nature.

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CA Vishnu Ram
Enlightened
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  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Deduction for Contributions to PF, ESIC, NPS, Gratuity, and Staff Welfare Fund: 1. Provident Fund (PF): Employer Contribution to PF: As per Section 36(1)(va), the employer's contribution to the Provident Fund (PF) is deductible from business income. However, this deduction is allowed only if the conRead more

    Deduction for Contributions to PF, ESIC, NPS, Gratuity, and Staff Welfare Fund:

    1. Provident Fund (PF):

    • Employer Contribution to PF:

      • As per Section 36(1)(va), the employer’s contribution to the Provident Fund (PF) is deductible from business income.

      • However, this deduction is allowed only if the contribution is made on time, i.e., before the due date of filing the return of income.

      • If the contribution is paid late, it is disallowed under Section 43B, even if it is paid before the due date of filing the return.

    • Employee Contribution to PF:

      • The employee’s contribution is deductible under Section 80C within the overall limit of ₹1.5 lakh for the financial year.

    2. Employees’ State Insurance Corporation (ESIC):

    • Employer’s Contribution to ESIC:

      • The employer’s contribution to ESIC is deductible under Section 36(1)(va) as a business expense. Similar to PF, the contribution must be made before the due date of filing the income tax return to qualify for the deduction.

    • Employee’s Contribution to ESIC:

      • The employee’s contribution to ESIC is not directly deductible from the individual’s income under the Income Tax Act.

    3. National Pension Scheme (NPS):

    • Employer’s Contribution to NPS:

      • As per Section 80CCD(2), the employer’s contribution to an NPS account of the employee is eligible for a deduction. This deduction is over and above the limit of ₹1.5 lakh under Section 80C.

      • The contribution is allowed as a deduction up to 10% of the salary (Basic + DA).

    • Employee’s Contribution to NPS:

      • Section 36(1)(iv) of the Income Tax Act is the section under which an employer’s contribution to a recognized provident fund, superannuation fund, or pension scheme (such as NPS) is eligible for a deduction from the employer’s taxable income.

      • The employee’s contribution to NPS qualifies for a deduction under Section 80CCD(1) to an Employee, subject to the overall limit of ₹1.5 lakh under Section 80C.

      • In addition to this, Section 80CCD(1B) allows an additional deduction of ₹50,000 for contributions made to NPS, which is over and above the ₹1.5 lakh limit.

    4. Gratuity:

    • Employer’s Contribution to Gratuity Fund:

      • The contribution made by the employer to a recognized Gratuity Fund is eligible for a deduction under Section 36(1)(v).

      • The deduction is allowed for the amount that has been paid or provided for in the books of account in accordance with the actuarial valuation.

    • Employee’s Gratuity:

      • Employees do not get a deduction for gratuity contributions under the Income Tax Act. However, gratuity received is exempt under Section 10(10), subject to specific limits and conditions.

    5. Staff Welfare Fund:

    • Expenditure on Staff Welfare:

      • Contributions to a staff welfare fund by the employer are deductible under Section 37(1), provided the expenditure is wholly and exclusively incurred for the benefit of the employees and is not of a capital nature. This could include expenses on activities like health programs, recreational activities, or educational expenses for employees.

    • Employee Contributions to Welfare Fund:

      • Employee contributions to staff welfare funds are not deductible under the Income Tax Act, unless the contributions are for specific programs that qualify as deductions under other provisions.

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Two sections cover the Interest cost in business: Section 36(1)(iii) – Interest on Borrowed Capital (Business Use) Section 43B – Allowability based on actual payment (for certain cases) As per Section 36(1)(iii) of the Income Tax Act, 1961: “The amount of the interest paid in respect of capital borrRead more

    Two sections cover the Interest cost in business:

    • Section 36(1)(iii) – Interest on Borrowed Capital (Business Use)

    • Section 43B – Allowability based on actual payment (for certain cases)

    As per Section 36(1)(iii) of the Income Tax Act, 1961:

    “The amount of the interest paid in respect of capital borrowed for the purposes of the business or profession shall be allowed as a deduction in computing the income chargeable under the head ‘Profits and gains of business or profession’.”

    Below are the Key Conditions for Allowability:

    Condition Explanation
    🎯 Purpose of Borrowing The capital must be borrowed for the purpose of business or profession.
    🕒 Timing Deduction is allowed even if the asset is not yet put to use, but interest for pre-construction/acquisition period must be capitalized.
    📘 Books of Account Interest must be recorded in books and supported by loan agreement and payment proofs.
    💰 Actual Payment (Section 43B) If interest is payable to a financial institution or NBFC, it must be actually paid on or before the due date of filing return to be eligible for deduction.
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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Below are the Relevant Legal Provision: Section 36(1)(ii) of the Income Tax Act, 1961 Section 43B – Governs timing of deduction Section 36(1)(ii) – Bonus or Commission to Employees: "Any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payableRead more

    Below are the Relevant Legal Provision:

    • Section 36(1)(ii) of the Income Tax Act, 1961

    • Section 43B – Governs timing of deduction

    Section 36(1)(ii) – Bonus or Commission to Employees:

    “Any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividends if it had not been paid as bonus or commission” – shall be allowed as a deduction.

    This means:

    • The bonus or commission must be genuinely paid for services rendered.

    • It should not be in lieu of profits or dividends payable to the employee.

    🕒 Section 43B – Timing of Deduction:

    Section 43B of the Act deals with certain expenses that are allowed only on actual payment, regardless of accounting method.

    As per Section 43B(b):
    “Any sum payable by the assessee as an employer by way of bonus or commission to his employees shall be allowed only in the year in which such bonus or commission is actually paid, irrespective of the year in which the liability is incurred.”

    ✅ Exception:

    If the bonus or commission is paid on or before the due date of filing the return under Section 139(1), it shall be deemed to have been paid within the year of accrual, and deduction is allowed in that same year.

    Conclusion:

    Situation Deduction Allowed In
    Bonus/Commission paid during the same FY Same FY
    Paid after FY but before return filing due date Same FY (due to 43B proviso)
    Paid after return filing due date Year of Actual Payment (next FY)
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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    As per Section 36(1)(ib) – Medical Insurance Premium: "Any premium paid by the employer by any mode of payment other than cash to effect or to keep in force an insurance on the health of his employees under a scheme framed by the General Insurance Corporation of India as approved by the Central GoveRead more

    As per Section 36(1)(ib) – Medical Insurance Premium:

    “Any premium paid by the employer by any mode of payment other than cash to effect or to keep in force an insurance on the health of his employees under a scheme framed by the General Insurance Corporation of India as approved by the Central Government or under a scheme framed by any other insurer and approved by the Insurance Regulatory and Development Authority (IRDA)” shall be allowed as a deduction.

    Conditions for Deduction:

    Condition Explanation
    🧾 Nature of Payment Must be premium paid for health insurance of employees
    🏥 Coverage Insurance must be for employees’ health, not directors/shareholders unless they are on payroll
    💳 Mode of Payment Must be paid by non-cash mode (e.g., cheque, bank transfer, UPI, etc.)
    ✔️ Approved Scheme Policy must be from GIC or other insurer approved by IRDAI
    🧑‍💼 Purpose Premium must be for employee welfare, not personal or family members not on payroll
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