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:

“Any expenditure (not being of a capital nature, personal or illegal) incurred wholly and exclusively for the purpose of the business or profession is allowed as a deduction.”

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:

1. 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.

2. 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.

3. Illegal Payments – Expenditures related to bribes, kickbacks, or any illegal payments are not deductible.

4. 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.