As per Section 36(1)(ii), any bonus or commission paid to employees is allowed as a deduction while computing business income, provided it meets certain conditions.

✅ Conditions for Allowing Deduction

🔹 Must be paid to an employee – The payment should be made to an employee and not to proprietors, partners, or directors who are also shareholders.
🔹 Should not be in lieu of dividends – If the commission or bonus is paid instead of distributing profits as dividends, the deduction is not allowed.
🔹 Actual payment is required – As per Section 43B, the deduction is allowed only when the bonus or commission is actually paid before the due date of filing the income tax return.
🔹 Should be reasonable – The payment should be genuine and reasonable as per the business needs; otherwise, tax authorities may disallow it under Section 40A(2) (excessive or unreasonable payments).

⛔ When Deduction is NOT Allowed?

❌ If the bonus/commission is payable instead of a dividend to shareholders.
❌ If the payment is not actually made by the due date of filing the return.
❌ If the amount is considered excessive by tax authorities under Section 40A(2).

💡 Illustration

Example 1: XYZ Pvt Ltd pays ₹2 lakh as a performance-based commission to its employees. Since the payment is made to employees and is not in lieu of dividends, it is allowed as a deduction under Section 36(1)(ii).

Example 2: ABC Ltd pays ₹10 lakh to its shareholder-directors in the form of commission instead of dividends. Since this is effectively a profit distribution, it is not allowed as a deduction.

📌 Conclusion

✅ Bonus/commission paid to genuine employees is deductible under Section 36(1)(ii).
✅ The payment should not be an alternative to dividends.
✅ Deduction is available only on actual payment before the ITR due date.
✅ Ensure payments are reasonable to avoid disallowance under Section 40A(2).

💡 Proper documentation and adherence to these provisions ensure maximum tax benefits! 🚀

When a company incurs expenses exclusively for the purpose of amalgamation or demerger, it can claim a tax deduction for these expenditures under the Income Tax Act.

What You Need to Know

• Relevant Provision:
  The deduction is provided under Section 35DD of the Income Tax Act, 1961.

• Eligibility:

  • Only Indian companies that incur expenditure wholly and exclusively for amalgamation or demerger qualify.

  • The expenses must be directly related to the restructuring process.

• How the Deduction Works:

  • The entire expenditure is not deductible in a single year. Instead, it is spread out over five consecutive financial years.

  • This means you can claim 20% of the total expenditure each year as a deduction.

Step-by-Step Illustration

1. Expenditure Incurred: Suppose your company incurs ₹50 lakhs in amalgamation/demerger expenses during the financial year.

2. Annual Deduction:

   • Claim 20% of ₹50 lakhs = ₹10 lakhs per year.

3. Deduction Period:

   • You will get this deduction each year for five financial years (i.e., ₹10 lakhs per year for 5 years).

Important Considerations

• Documentation:
  It is essential to maintain proper documentation and records that demonstrate the expenses were incurred solely for amalgamation or demerger purposes.

• Exclusivity:
  No other tax deduction is available for these expenses under any other section. This is the only relief provided for amalgamation/demerger costs.

Key Takeaway

By spreading the deduction over five years, Section 35DD helps ease the tax burden on companies undergoing corporate restructuring, making it more manageable to recover the costs associated with amalgamation or demerger.

When a business is newly set up, it incurs various preliminary expenses before starting its operations. The Income Tax Act, 1961, allows a deduction for such expenses under Section 35D.

What Are Preliminary Expenses?

Preliminary expenses include costs incurred before the commencement of business, such as:
✔️ Legal and professional fees for drafting the Memorandum & Articles of Association.
✔️ Registration fees paid to the Registrar of Companies.
✔️ Underwriting commission for share issue.
✔️ Cost of feasibility studies, market surveys, or reports.

How Is the Deduction Allowed?

📌 Eligibility: The deduction is available to Indian companies and resident non-corporate assessees.
📌 Amount of Deduction: 5% of the cost of the project OR capital employed, whichever is higher.
📌 Manner of Deduction: The allowed preliminary expenses are deductible in 5 equal annual installments starting from the year in which the business commences.

Example:

If a company incurs ₹10 lakh as eligible preliminary expenses, it can claim ₹2 lakh per year for 5 years.

Key Conditions to Remember

✔️ The expenses must be specifically mentioned under Section 35D to qualify for deduction.
✔️ Proper documentation and proof of expenditure are required.
✔️ If the business is not yet operational, the deduction will commence from the year in which it starts functioning

Companies that incur expenses on in-house research and development (R&D) activities can claim tax deductions under the Income Tax Act, 1961. The key provision that facilitates this is Section 35(2AB).

What Does Section 35(2AB) Offer?

• Weighted Deduction:
  Eligible in-house R&D expenditure can be claimed at a weighted deduction (commonly 150% of the actual expenditure), effectively reducing taxable income by more than the amount spent.

• Eligibility Requirements:

  • The R&D work must be undertaken in-house and should relate to projects that are approved or fall under the specified categories in the Act.

  • The expenditure must be incurred wholly and exclusively for research and development purposes.

  • Proper documentation and record-keeping are essential to substantiate the claim.

How to Claim the Deduction

1. Maintain Accurate Records:

   • Keep detailed accounts and receipts of all expenses related to R&D activities.

   • Ensure that the expenses are segregated clearly in your books of accounts.

2. Meet the Conditions:

   • Verify that your R&D projects qualify under Section 35(2AB) by confirming they are in areas eligible for weighted deduction.

   • Ensure that all conditions laid down in the Act for claiming this deduction are satisfied.

3. Report in Your Tax Return:

   • When filing your income tax return, include the R&D expenditure under the appropriate section.

   • The weighted deduction (e.g., 150% of the actual expenditure) will then be applied, reducing your overall taxable income.

Example Illustration

Imagine your company spends ₹10 lakh on qualifying in-house R&D activities. With a weighted deduction of 150%, you can claim a deduction of:

• Deduction Amount: ₹10 lakh x 150% = ₹15 lakh

This additional deduction effectively reduces your taxable income, offering a significant tax benefit.

Key Takeaway

By claiming a weighted deduction for in-house R&D expenses under Section 35(2AB), companies not only support innovation and growth but also optimize their tax liabilities. Ensure you comply with all documentation and eligibility requirements to make the most of this deduction.

Yes, the Income Tax Act, 1961 provides a deduction for capital expenditure incurred on scientific research under Section 35. This deduction is available to assessees engaged in business or profession who invest in scientific research.

Key Provisions of Section 35:

1. 100% Deduction for Own Research Activities

   • If the capital expenditure is incurred by the assessee for in-house scientific research, a 100% deduction is allowed in the year in which the expenditure is incurred.

   • This benefit is available even if the research project is unsuccessful.

2. Capital vs. Revenue Expenditure

   • Revenue expenditure on scientific research is also fully deductible under this section.

   • Capital expenditure (excluding land & buildings) can be claimed as a deduction.

3. Donation to Research Associations

   • If the expenditure is made in the form of a contribution to an approved scientific research association, university, or institution, enhanced deduction of 100% or 150% (as per eligibility) is available.

   • The institution must be approved by the Income Tax Department under Section 35(1)(ii) or (iii).

4. Important Conditions to Avail Deduction

   • The scientific research should be related to the assessee’s business.

   • The deduction is not available for capital expenditure on land.

   • The research facility should be recognized by the prescribed authority.

Conclusion

Section 35 provides a strong incentive for businesses to invest in scientific research. Whether the research is done in-house or through an approved institution, businesses can significantly reduce their taxable income by claiming the deduction for eligible expenses.