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CA Vishnu Ram
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  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
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  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
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  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
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  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
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  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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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    How to get deduction of expenditure incurred for Voluntary Retirement Scheme (VRS) under the Income Tax Act? ✅ Relevant Legal Provision: Section 35DDA of the Income Tax Act, 1961 📜 Bare Act Extract – Section 35DDA (1): "Where an assessee incurs any expenditure in any previous year by way of paymentRead more

    How to get deduction of expenditure incurred for Voluntary Retirement Scheme (VRS) under the Income Tax Act?

    ✅ Relevant Legal Provision:

    • Section 35DDA of the Income Tax Act, 1961

    📜 Bare Act Extract – Section 35DDA (1):

    “Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee in connection with his voluntary retirement in accordance with any scheme of voluntary retirement, one-fifth of the amount so paid shall be deducted in computing the profits and gains of business for that previous year; and the balance shall be deducted in equal instalments for each of the four immediately succeeding previous years.”

    🧮 Explanation & Computation of Deduction:

    If a company or firm pays any amount to employees under a Voluntary Retirement Scheme (VRS), the deduction is not allowed as a lump sum in the same financial year. Instead:

    • 1/5th (20%) of the VRS expense is allowed in the year of payment, and

    • The remaining 4/5th is spread equally over the next four financial years.

    This ensures a structured deduction benefit over five years.

    ✅ Conditions to Claim Deduction under Section 35DDA:

    Condition Requirement
    📜 VRS Scheme Must be as per guidelines prescribed under Rule 2BA of the Income Tax Rules
    📆 Timing Deduction starts in the year of payment
    💳 Actual Payment Expenditure must be actually incurred and paid to employees
    🧑‍💼 Applicable To Any employer: company, firm, cooperative society, etc.

    ❌ Deduction Not Allowed If:

    • VRS scheme not in accordance with Rule 2BA

    • Expenditure not actually paid (i.e., only provisioned)

    • Claimed fully in one year (not permissible)

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

      How to get deduction of expenditure incurred for amalgamation/demerger under the Income Tax Act? As per Section 35DD: "Where an assessee, being an Indian company, incurs any expenditure for the purpose of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction ofRead more

     

    How to get deduction of expenditure incurred for amalgamation/demerger under the Income Tax Act?

    As per Section 35DD:

    “Where an assessee, being an Indian company, incurs any expenditure for the purpose of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for that previous year, and the balance shall be allowed in equal instalments for each of the four immediately succeeding previous years.”

    Explanation:

    If an Indian company incurs legal, professional, or administrative expenses in connection with amalgamation or demerger, such expenses cannot be claimed entirely in the year of expenditure. Instead:

    • 1/5th (20%) of the total expenditure is allowed as a deduction in the year of amalgamation/demerger, and

    • The remaining 4/5th is allowed equally over the next 4 years.

    ✅ Conditions for Claim under Section 35DD:

    Condition Explanation
    🏢 Eligible Assessee Only an Indian company
    📂 Purpose Expenses must be solely for amalgamation or demerger
    📆 Method of Claim Deduction is spread over 5 years
    💳 Actual Expenditure Expenses must be actually incurred (not mere provisions)

    ❌ Not Covered Under Section 35DD:

    • Expenses for takeover or acquisition not resulting in amalgamation/demerger

    • Expenses incurred by non-Indian companies

    • Claimed under any other section, such as 37(1)

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    Under the Income Tax Act, 1961, advertisement expenses are typically allowed as a deduction under Section 37(1) if they are incurred wholly and exclusively for business or profession. However, certain circumstances lead to their disallowance: 1. Advertisement for Political Purposes Expenses incurredRead more

    Under the Income Tax Act, 1961, advertisement expenses are typically allowed as a deduction under Section 37(1) if they are incurred wholly and exclusively for business or profession. However, certain circumstances lead to their disallowance:

    1. Advertisement for Political Purposes

    Expenses incurred on advertisements directly supporting political parties or political causes are not allowed as deductions. However, contributions to political parties through Electoral Bonds or donations under Section 80GGC may be eligible for tax benefits.

    2. Advertisements Resulting in Capital Expenditure

    If the advertisement expense creates a long-term brand value, such as launch campaigns, logo redesigns, or promotional hoardings with permanent benefits, it may be classified as a capital expense and not deductible as a business expense. However, depreciation under Section 32 may be available if treated as an intangible asset.

    3. Expenses That Are Prohibited by Law

    Any expenditure incurred for an illegal purpose, violating regulations, or encouraging unlawful activities is not deductible. This includes advertisements promoting banned products, misleading claims, or violations of ethical advertising standards.

    4. Personal Advertisement Expenses

    If the expense is related to personal promotion rather than business (e.g., congratulatory advertisements for individuals, non-business sponsorships), it is not deductible. Only business-related advertising expenses qualify.

    5. Non-Compliance with TDS Requirements

    If an advertisement payment exceeds the prescribed limit and TDS is not deducted as per Section 194C, the expense can be disallowed under Section 40(a)(ia). Ensuring proper TDS compliance is essential to avoid disallowance.

    6. Excessive or Unreasonable Advertisement Expenses

    If the expense is disproportionate to the business scale or unreasonably high, the Assessing Officer may invoke Section 40A(2) to disallow the excessive portion.

    Conclusion
    To ensure the deductibility of advertisement expenses, businesses should maintain proper records, ensure compliance with tax laws, and justify the necessity of expenses for business purposes. Keeping track of TDS deductions, ensuring expenses are revenue in nature, and aligning with business requirements can help prevent tax disallowances.

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