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Ramesh Sharma
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  1. CA Vishnu Ram Enlightened

    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, pRead more

    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! 🚀

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Ramesh Sharma
Enlightened
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  1. CA Vishnu Ram Enlightened

    Expenditure incurred on Voluntary Retirement Scheme (VRS) is allowed as a deduction under Section 35DDA in a phased manner, rather than a one-time deduction. ✅ Deduction Allowed under Section 35DDA The total amount of VRS compensation paid to employees is allowed as a deduction over 5 years. 20% ofRead more

    Expenditure incurred on Voluntary Retirement Scheme (VRS) is allowed as a deduction under Section 35DDA in a phased manner, rather than a one-time deduction.

    ✅ Deduction Allowed under Section 35DDA

    • The total amount of VRS compensation paid to employees is allowed as a deduction over 5 years.

    • 20% of the total VRS expense is deductible each year for five consecutive years, starting from the year in which the payment is made.

    • Deduction is available only if the payment is actually made to the employees opting for voluntary retirement.

    ⛔ When Deduction is NOT Allowed?

    ❌ If the business fails to make the payment to employees, deduction is not allowed.
    ❌ If the business claims the entire amount in one year, the excess claim may be disallowed by tax authorities.
    ❌ If the employee retires under any scheme other than VRS, this section does not apply.

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    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 IRead more

    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.

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Ramesh Sharma
Enlightened
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  1. CA Vishnu Ram Enlightened

    When a company incurs costs for issuing shares or debentures—such as underwriting fees, printing expenses, and other related costs—these expenses are generally considered capital in nature rather than revenue expenses. Key Points to Note: Capital Nature of the Expense:Costs incurred in raising capitRead more

    When a company incurs costs for issuing shares or debentures—such as underwriting fees, printing expenses, and other related costs—these expenses are generally considered capital in nature rather than revenue expenses.

    Key Points to Note:

    • Capital Nature of the Expense:
      Costs incurred in raising capital (by issuing shares or debentures) are treated as capital expenditure. They are part of the process of financing the company and are not directly linked to generating regular business income.

    • Non-Deductibility Under the Income Tax Act:
      Since these expenses are capital in nature, they are not allowed as a deduction when computing taxable income. In other words, you cannot reduce your current year’s taxable profits by the amount spent on issuing shares or debentures.

    • Treatment as Capital Expenditure:
      Instead of a direct deduction, such expenses may be capitalized. Depending on the applicable accounting and tax provisions, they might be written off over a period through amortization or depreciation if the law permits, but they are not deducted immediately as a revenue expense.

    Relevant Provisions:

    • Section 37 of the Income Tax Act, 1961:
      This section generally allows deductions for revenue expenses incurred wholly and exclusively for business purposes. However, since the issuance expenses are of a capital nature, they do not qualify under this provision.

    Conclusion:

    In summary, the expenditure incurred on issuing shares or debentures is treated as a capital expense and is not allowed as a deduction in the current year under the Income Tax Act. It does not directly reduce your taxable income.

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    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, suRead more

    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

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    The tax treatment of telecom spectrum fees depends largely on the nature of the fee and how it is incurred by the telecom operator. Here’s a breakdown: 1. Nature of the Spectrum Fee Capital Expenditure:Typically, a one-time telecom spectrum fee paid to acquire a long-term license is considered a capRead more

    The tax treatment of telecom spectrum fees depends largely on the nature of the fee and how it is incurred by the telecom operator. Here’s a breakdown:

    1. Nature of the Spectrum Fee

    • Capital Expenditure:
      Typically, a one-time telecom spectrum fee paid to acquire a long-term license is considered a capital expenditure. This means that rather than claiming the entire fee as an immediate deduction, the fee is capitalized as an intangible asset and then amortized over the period of the license.

      • Amortization: The annual amortization (or depreciation for tax purposes) is allowed under the Income Tax Act. The deduction is spread over the useful life or license period.

    • Revenue Expenditure:
      In some cases, if the spectrum fee is structured as a recurring payment (for example, an annual fee), it is treated as a revenue expense and can be deducted in the year it is incurred.

    2. Relevant Provisions

    • Capitalized Costs:
      When the spectrum fee is capitalized as an intangible asset, it forms part of the company’s balance sheet and is depreciated (amortized) over the life of the asset under the relevant provisions (such as under Section 32 for depreciation on intangible assets).

    • Matching Principle:
      The treatment ensures that the expense is matched with the revenue generated over the period in which the telecom services are provided, which is a fundamental concept in accounting and taxation.

    3. Practical Implications

    • Tax Deduction Timing:
      For a one-time spectrum fee treated as capital expenditure, you will not get a full deduction in the year of payment. Instead, you will claim a part of the fee as a deduction over several years via amortization.

    • Structuring of Fee:
      If the fee is designed as a recurring charge, the full amount can be claimed as a deduction in the respective year as a revenue expense.

    Conclusion

    The tax treatment of a telecom spectrum fee varies based on its structure:

    • One-time payment for a long-term license is treated as capital expenditure and amortized over the license period.

    • Recurring fees are treated as revenue expenditure and deducted in the year they are incurred.

    By aligning the expense treatment with the nature of the fee, telecom companies can ensure proper matching of expenses with revenues and optimize their tax benefits.

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    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 bRead more

    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.

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    Yes, you can claim depreciation on an asset used in scientific research under the Income Tax Act, 1961, provided it is used wholly and exclusively for your business of scientific research. Key Points to Consider Applicable Provision:Depreciation on assets is generally allowed under Section 32 of theRead more

    Yes, you can claim depreciation on an asset used in scientific research under the Income Tax Act, 1961, provided it is used wholly and exclusively for your business of scientific research.

    Key Points to Consider

    • Applicable Provision:
      Depreciation on assets is generally allowed under Section 32 of the Income Tax Act. This includes both tangible and certain intangible assets used in the business.

    • Usage Criteria:
      For the asset to qualify, it must be used wholly and exclusively for the scientific research activities of your business. Proper documentation should support that the asset is used for research purposes.

    • Depreciation Rate:
      The rate of depreciation for scientific research equipment or assets will be prescribed under the Income Tax Rules. Often, specialized research equipment may attract higher depreciation rates due to rapid obsolescence.

    • Accounting Treatment:
      When you claim depreciation, the cost of the asset is written off over its useful life, thereby reducing your taxable income. This is a standard benefit available for any business asset used in operations, including those in scientific research.

    Conclusion

    If your asset is used exclusively for scientific research, you are entitled to claim depreciation under Section 32. Make sure to maintain proper records and follow the prescribed rates to ensure compliance with tax regulations.

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    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: 100% Deduction for Own Research ActRead more

    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.

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    No – if you incur scientific research expenses that aren’t connected to your business, you cannot claim them as business expenses under Section 35. However, if you wish to support scientific research that falls outside your business scope, you might consider making a donation to an approved researchRead more

    No – if you incur scientific research expenses that aren’t connected to your business, you cannot claim them as business expenses under Section 35. However, if you wish to support scientific research that falls outside your business scope, you might consider making a donation to an approved research institution (which can then be claimed under Section 80GGA).

    Let’s Break It Down:

    1. Business-Related Scientific Research (Section 35):

      • Purpose: The deduction under Section 35 is designed to reward companies and professionals for investing in research and development that enhances their business.

      • Key Requirement:

        • Wholly and exclusively incurred for business purposes.

      • Implication:

        • If your research activities aren’t tied to generating or improving your business income, you cannot claim these expenses as a deduction under this section.

    2. Non-Business Related Research:

      • Alternative Approach:

        • If you’re passionate about scientific research that doesn’t directly relate to your business, you can support such initiatives by donating to approved research institutions or trusts.

      • Tax Benefit Route:

        • Under Section 80GGA, donations made to these approved institutions are eligible for a 100% deduction from your gross total income.

      • What This Means:

        • While you won’t be able to claim the research expenditure as a business expense, you still get a tax benefit by supporting the cause through a charitable donation.

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