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:

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.