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Can we get deduction of Marked to Market (MTM) loss under Income Tax Act?
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:
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See lessSpeculative 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).
Howt to get deduction of advertisement expenditure under Income Tax Act?
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:
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:
5. What is Not Deductible?
Certain advertisement-related expenditures may not qualify for deductions under Section 37(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.
Personal Advertising: Advertising that is personal in nature (e.g., a personal blog promoting an individual’s image) is not deductible.
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.
See lessWhat is the general deduction?
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:
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:
⚠️ 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:
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.
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.
Illegal Payments – Expenditures related to bribes, kickbacks, or any illegal payments are not deductible.
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.
See lessWhat expenditures or payments are disallowed under Income Tax Act?
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))
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))
2.3. Excessive Payments to Relatives or Related Parties (Section 40A(2))
2.4. Payments to Non-Residents Without TDS (Section 40(a)(i))
2.5. Unpaid Liabilities (Section 43B)
2.6. Capital Expenditure Without Actual Usage
2.7. Illegal Payments (Section 37)
2.8. Personal Expenses
2.9. Depreciation on Ineligible Assets
3. Summary Table: Disallowed Expenses Under Income Tax Act
✅ 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.
See lessWhether default of TDS is not allowed in Income Tax Act?
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):
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.
See lessWhether payment made to relatives is disallowed under Income Tax Act?
Whether payment made to relatives is disallowed under Income Tax Act? 1. Relevant Provisions in the Income Tax Act: Section 40A(2)(a) – Disallowance of excessive or unreasonable payments to related parties (including relatives) Explanation (b) to Section 40A(2) – Defines "related persons" Section 64Read more
Whether payment made to relatives is disallowed under Income Tax Act?
1. Relevant Provisions in the Income Tax Act:
Section 40A(2)(a) – Disallowance of excessive or unreasonable payments to related parties (including relatives)
Explanation (b) to Section 40A(2) – Defines “related persons”
Section 64 – Clubbing of income if remuneration is paid to spouse without substantial contribution
2. Can Payment to Relatives Be Allowed as Deduction?
Yes, payment to relatives is not automatically disallowed, but subject to scrutiny under Section 40A(2) of the Act.
The law only disallows the portion of payment which is “excessive or unreasonable” having regard to:
Fair Market Value (FMV) of the goods/services
Legitimate needs of the business
Benefit derived by the business
So, if the payment is at arm’s length and justifiable, it is allowed.
3. Bare Act Text: Section 40A(2)(a)
4. Who Are Treated as “Relatives” for This Purpose?
As per Explanation (b) to Section 40A(2):
The term includes (but is not limited to):
Spouse of the individual
Brother or sister of the individual
Brother or sister of the spouse
Any lineal ascendant or descendant of the individual or spouse
Any individual having substantial interest in the business or profession of the assessee
Also includes entities in which such relatives have substantial interest.
5. Example Case:
Let’s say a sole proprietor pays ₹40,000/month salary to his brother for doing clerical work.
If the market salary for such work is ₹20,000/month, then ₹20,000 may be considered excessive.
The Assessing Officer (AO) can disallow ₹20,000/month as unreasonable expenditure under Section 40A(2).
6. What to Keep in Mind:
✅ Maintain proper documentation (appointment letter, qualification proof, work scope)
✅ Justify payment amount based on industry rates or FMV
✅ Avoid cash payments – use banking channels
✅ Make sure the relative actually works for the business
7. Clubbing of Income (Section 64): A Separate Concern
Even if salary paid to a spouse is reasonable, under Section 64(1)(ii):
This is not a disallowance of expense, but clubbing of income for taxation.
✅ Conclusion:
Proper business justification, recordkeeping, and arm’s length payment are essential to ensure deduction is allowed.
See lesswhat is deemed profit and how it is taxed under income tax act?
1. What is ‘Deemed Profit’? The term ‘deemed profit’ refers to certain incomes that are not actual profits in a traditional sense (like business turnover or service income), but which the Income Tax Act treats or "deems" to be profits for the purpose of taxation. 👉 These are fictitious or assumed prRead more
1. What is ‘Deemed Profit’?
The term ‘deemed profit’ refers to certain incomes that are not actual profits in a traditional sense (like business turnover or service income), but which the Income Tax Act treats or “deems” to be profits for the purpose of taxation.
👉 These are fictitious or assumed profits, taxed as if they were earned by the taxpayer — even if no real gain was realized.
🧾 2. Legal Basis for Deemed Profits in the Income Tax Act
The Income Tax Act does not define “deemed profit” directly in a single section, but it refers to the concept in various provisions, especially in the following sections:
🧾 3. Common Examples of Deemed Profits
Here are typical scenarios where deemed profit provisions apply:
✅ A. Recovery of Written-Off Items (Section 41(1))
📘 Bare Act Text (Section 41(1)):
✅ B. Sale of Business Asset Beyond WDV (Section 41(2))
✅ C. Value of Benefit or Perquisite (Section 28(iv))
✅ D. Forfeited Advance (Section 51)
✅ E. Amount Not Spent for Specific Deductions
Example: Section 35AD allows deduction for capital expenditure. If asset is not used for specified purpose for 8 years, the deduction claimed earlier becomes deemed income.
💰 4. How Is Deemed Profit Taxed?
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See lessDeemed profits are taxed under “Profits and Gains of Business or Profession” (PGBP)
Taxed at normal slab rates
No special benefit like indexation, deduction (unless specifically provided)