Section 36 of Income Tax Act "Other deductions"
36. (1) The deductions provided for in the following clauses
shall be allowed in respect of the matters dealt with
therein, in computing the income referred to in section 28-
(i) the amount of any premium paid in respect of insurance
against risk of damage or destruction of stocks or stores
used for the purposes of the business or profession;
(ia) the amount of any premium paid by a federal milk
co-operative society to effect or to keep in force an
insurance on the life of the cattle owned by a member of a
co-operative society, being a primary society engaged in
supplying milk raised by its members to such federal milk
co-operative society;
(ib) the amount of any premium paid by any mode of payment
other than cash by the assessee as an employer to effect or
to keep in force an insurance on the health of his employees
under a scheme framed in this behalf by-
(A) the General Insurance Corporation of India formed under
section 9 of the General Insurance Business (Nationalisation)
Act, 1972 (57 of 1972) and approved by the Central
Government; or
(B) any other insurer and approved by the Insurance
Regulatory and Development Authority established under
sub-section (1) of section 3 of the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999);
(ii) 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 dividend if it had not been
paid as bonus or commission;
(iia) [Omitted by the Finance Act, 1999, w.e.f. 1-4-2000.]
(iii) the amount of the interest paid in respect of capital
borrowed for the purposes of the business or profession :
Provided that any amount of the interest paid, in respect of
capital borrowed for acquisition of an asset (whether
capitalised in the books of account or not); for any period
beginning from the date on which the capital was borrowed
for acquisition of the asset till the date on which such
asset was first put to use, shall not be allowed as
deduction.
Explanation.-Recurring subscriptions paid periodically by
shareholders, or subscribers in Mutual Benefit Societies
which fulfil such conditions as may be prescribed, shall be
deemed to be capital borrowed within the meaning of this
clause;
(iiia) the pro rata amount of discount on a zero coupon bond
having regard to the period of life of such bond calculated
in the manner as may be prescribed.
Explanation.-For the purposes of this clause, the
expressions-
(i) "discount" means the difference between the amount
received or receivable by the infrastructure capital company
or infrastructure capital fund or public sector company or
scheduled bank issuing the bond and the amount payable by
such company or fund or public sector company or scheduled
bank on maturity or redemption of such bond;
(ii) "period of life of the bond" means the period
commencing from the date of issue of the bond and ending on
the date of the maturity or redemption of such bond;
(iii) [***]
(iv) any sum paid by the assessee as an employer by way of
contribution towards a recognised provident fund or an
approved superannuation fund, subject to such limits as may
be prescribed for the purpose of recognising the provident
fund or approving the superannuation fund, as the case may
be; and subject to such conditions as the Board may think
fit to specify in cases where the contributions are not in
the nature of annual contributions of fixed amounts or
annual contributions fixed on some definite basis by
reference to the income chargeable under the head "Salaries"
or to the contributions or to the number of members of the
fund;
(iva) any sum paid by the assessee as an employer by way of
contribution towards a pension scheme, as referred to in
section 80CCD, on account of an employee to the extent it
does not exceed ten per cent of the salary of the employee
in the previous year.
Explanation.-For the purposes of this clause, "salary"
includes dearness allowance, if the terms of employment so
provide, but excludes all other allowances and perquisites;
(v) any sum paid by the assessee as an employer by way of
contribution towards an approved gratuity fund created by
him for the exclusive benefit of his employees under an
irrevocable trust;
(va) any sum received by the assessee from any of his
employees to which the provisions of sub-clause (x) of
clause (24) of section 2 apply, if such sum is credited by
the assessee to the employee's account in the relevant fund
or funds on or before the due date.
Explanation.-For the purposes of this clause, "due date"
means the date by which the assessee is required as an
employer to credit an employee's contribution to the
employee's account in the relevant fund under any Act, rule,
order or notification issued there-under or under any
standing order, award, contract of service or otherwise;
(vi) in respect of animals which have been used for the
purposes of the business or profession otherwise than as
stock-in-trade and have died or become permanently useless
for such purposes, the difference between the actual cost to
the assessee of the animals and the amount, if any, realised
in respect of the carcasses or animals;
(vii) subject to the provisions of sub-section (2), the
amount of any bad debt or part thereof which is written off
as irrecoverable in the accounts of the assessee for the
previous year:
Provided that in the case of an assessee to which clause (viia)
applies, the amount of the deduction relating to any such
debt or part thereof shall be limited to the amount by which
such debt or part thereof exceeds the credit balance in the
provision for bad and doubtful debts account made under that
clause:
Provided further that where the amount of such debt or part
thereof has been taken into account in computing the income
of the assessee of the previous year in which the amount of
such debt or part thereof becomes irrecoverable or of an
earlier previous year on the basis of income computation and
disclosure standards notified under sub-section (2) of
section 145 without recording the same in the accounts,
then, such debt or part thereof shall be allowed in the
previous year in which such debt or part thereof becomes
irrecoverable and it shall be deemed that such debt or part
thereof has been written off as irrecoverable in the
accounts for the purposes of this clause.
Explanation 1.-For the purposes of this clause, any bad debt
or part thereof written off as irrecoverable in the accounts
of the assessee shall not include any provision for bad and
doubtful debts made in the accounts of the assessee;
Explanation 2.-For the removal of doubts, it is hereby
clarified that for the purposes of the proviso to clause
(vii) of this sub-section and clause (v) of sub-section (2),
the account referred to therein shall be only one account in
respect of provision for bad and doubtful debts under clause
(viia) and such account shall relate to all types of
advances, including advances made by rural branches;
(viia) in respect of any provision for bad and doubtful
debts made by-
(a) a scheduled bank [not being a bank incorporated by or
under the laws of a country outside India] or a
non-scheduled bank or a co-operative bank other than a
primary agricultural credit society or a primary
co-operative agricultural and rural development bank, an
amount not exceeding eight and one-half per cent of the
total income (computed before making any deduction under
this clause and Chapter VIA) and an amount not exceeding ten
per cent of the aggregate average advances made by the rural
branches of such bank computed in the prescribed manner :
Provided that a scheduled bank or a non-scheduled bank
referred to in this sub-clause shall, at its option, be
allowed in any of the relevant assessment years, deduction
in respect of any provision made by it for any assets
classified by the Reserve Bank of India as doubtful assets
or loss assets in accordance with the guidelines issued by
it in this behalf, for an amount not exceeding five per cent
of the amount of such assets shown in the books of account
of the bank on the last day of the previous year:
Provided further that for the relevant assessment years com-mencing
on or after the 1st day of April, 2003 and ending before the
1st day of April, 2005, the provisions of the first proviso
shall have effect as if for the words "five per cent", the
words "ten per cent" had been substituted :
Provided also that a scheduled bank or a non-scheduled bank
referred to in this sub-clause shall, at its option, be
allowed a further deduction in excess of the limits
specified in the foregoing provisions, for an amount not
exceeding the income derived from redemption of securities
in accordance with a scheme framed by the Central
Government:
Provided also that no deduction shall be allowed under the
third proviso unless such income has been disclosed in the
return of income under the head "Profits and gains of
business or profession."
Explanation.-For the purposes of this sub-clause, "relevant
assessment years" means the five consecutive assessment
years commencing on or after the 1st day of April, 2000 and
ending before the 1st day of April, 2005;
(b) a bank, being a bank incorporated by or under the laws
of a country outside India, an amount not exceeding five per
cent of the total income (computed before making any
deduction under this clause and Chapter VI-A);
(c) a public financial institution or a State financial
corporation or a State industrial investment corporation, an
amount not exceeding five per cent of the total income
(computed before making any deduction under this clause and
Chapter VI-A) :
Provided that a public financial institution or a State
financial corporation or a State industrial investment
corporation referred to in this sub-clause shall, at its
option, be allowed in any of the two consecutive assessment
years commencing on or after the 1st day of April, 2003 and
ending before the 1st day of April, 2005, deduction in
respect of any provision made by it for any assets
classified by the Reserve Bank of India as doubtful assets
or loss assets in accordance with the guidelines issued by
it in this behalf, of an amount not exceeding ten per cent
of the amount of such assets shown in the books of account
of such institution or corporation, as the case may be, on
the last day of the previous year;
(d) a non-banking financial company, an amount not exceeding
five per cent of the total income (computed before making
any deduction under this clause and Chapter VI-A).
Explanation.-For the purposes of this clause,-
(i) "non-scheduled bank" means a banking company as defined
in clause (c) of section 5 of the Banking Regulation Act,
1949 (10 of 1949), which is not a scheduled bank;
(ia) "rural branch" means a branch of a scheduled bank or a
non-scheduled bank situated in a place which has a
population of not more than ten thousand according to the
last preceding census of which the relevant figures have
been published before the first day of the previous year;
(ii) "scheduled bank" means the State Bank of India
constituted under the State Bank of India Act, 1955 (23 of
1955), a subsidiary bank as defined in the State Bank of
India (Subsidiary Banks) Act, 1959 (38 of 1959), a
corresponding new bank constituted under section 3 of the
Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970 (5 of 1970), or under section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act,
1980 (40 of 1980), or any other bank being a bank included
in the Second Schedule to the Reserve Bank of India Act,
1934 (2 of 1934);
(iii) "public financial institution" shall have the meaning
assigned to it in section 4A of the Companies Act, 1956 (1
of 1956);
(iv) "State financial corporation" means a financial
corporation established under section 3 or section 3A or an
institution notified under section 46 of the State Financial
Corporations Act, 1951 (63 of 1951);
(v) "State industrial investment corporation" means a
Government company within the meaning of section 617 of the
Companies Act, 1956 (1 of 1956), engaged in the business of
providing long-term finance for industrial projects and
eligible for deduction under clause (viii) of this
sub-section;
(vi) "co-operative bank", "primary agricultural credit
society" and "primary co-operative agricultural and rural
development bank" shall have the meanings respectively
assigned to them in the Explanation to sub-section (4) of
section 80P;
(vii) "non-banking financial company" shall have the meaning
assigned to it in clause (f) of section 45-I of the Reserve
Bank of India Act, 1934 (2 of 1934);
(viii) in respect of any special reserve created and
maintained by a specified entity, an amount not exceeding
twenty per cent of the profits derived from eligible
business computed under the head "Profits and gains of
business or profession" (before making any deduction under
this clause) carried to such reserve account:
Provided that where the aggregate of the amounts carried to
such reserve account from time to time exceeds twice the
amount of the paid up share capital and of the general
reserves of the specified entity, no allowance under this
clause shall be made in respect of such excess.
Explanation.-In this clause,-
(a) "specified entity" means,-
(i) a financial corporation specified in section 4A of the
Companies Act, 1956 (1 of 1956);
(ii) a financial corporation which is a public sector
company;
(iii) a banking company;
(iv) a co-operative bank other than a primary agricultural
credit society or a primary co-operative agricultural and
rural development bank;
(v) a housing finance company; and
(vi) any other financial corporation including a public
company;
(b) "eligible business" means,-
(i) in respect of the specified entity referred to in
sub-clause (i) or sub-clause (ii) or sub-clause (iii) or
sub-clause (iv) of clause (a), the business of providing
long-term finance for-
(A) industrial or agricultural development;
(B) development of infrastructure facility in India; or
(C) development of housing in India;
(ii) in respect of the specified entity referred to in
sub-clause (v) of clause (a), the business of providing
long-term finance for the construction or purchase of houses
in India for residential purposes; and
(iii) in respect of the specified entity referred to in
sub-clause (vi) of clause (a), the business of providing
long-term finance for development of infrastructure facility
in India;
(c) "banking company" means a company to which the Banking
Regulation Act, 1949 (10 of 1949) applies and includes any
bank or banking institution referred to in section 51 of
that Act;
(d) "co-operative bank", "primary agricultural credit
society" and "primary co-operative agricultural and rural
development bank" shall have the meanings respectively
assigned to them in the Explanation to sub-section (4) of
section 80P;
(e) "housing finance company" means a public company formed
or registered in India with the main object of carrying on
the business of providing long-term finance for construction
or purchase of houses in India for residential purposes;
(f) "public company" shall have the meaning assigned to it
in section 3 of the Companies Act, 1956 (1 of 1956);
(g) "infrastructure facility" means-
(i) an infrastructure facility as defined in the Explanation
to clause (i) of sub-section (4) of section 80-IA, or any
other public facility of a similar nature as may be notified
by the Board in this behalf in the Official Gazette and
which fulfils the conditions as may be prescribed;
(ii) an undertaking referred to in clause (ii) or clause
(iii) or clause (iv) or clause (vi) of sub-section (4) of
section 80-IA; and
(iii) an undertaking referred to in sub-section (10) of
section 80-IB;
(h) "long-term finance" means any loan or advance where the
terms under which moneys are loaned or advanced provide for
repayment along with interest thereof during a period of not
less than five years;
(viiia) [***]
(ix) any expenditure bona fide incurred by a company for the
purpose of promoting family planning amongst its employees :
Provided that where such expenditure or any part thereof is
of a capital nature, one-fifth of such expenditure shall be
deducted for the previous year in which it was incurred; and
the balance thereof shall be deducted in equal instalments
for each of the four immediately succeeding previous years :
Provided further that the provisions of sub-section (2) of
section 32 and of sub-section (2) of section 72 shall apply
in relation to deductions allowable under this clause as
they apply in relation to deductions allowable in respect of
depreciation :
Provided further that the provisions of clauses (ii), (iii),
(iv) and (v) of sub-section (2) and sub-section (5) of
section 35, of sub-section (3) of section 41 and of
Explanation 1 to clause (1) of section 43 shall, so far as
may be, apply in relation to an asset representing
expenditure of a capital nature for the purposes of
promoting family planning as they apply in relation to an
asset representing expenditure of a capital nature on
scientific research;
(x) [***]
(xi) any expenditure incurred by the assessee, on or after
the 1st day of April, 1999 but before the 1st day of April,
2000, wholly and exclusively in respect of a non-Y2K
compliant computer system, owned by the assessee and used
for the purposes of his business or profession, so as to
make such computer system Y2K compliant computer system :
Provided that no such deduction shall be allowed in respect
of such expenditure under any other provisions of this Act :
Provided further that no such deduction shall be admissible
unless the assessee furnishes in the prescribed form, along
with the return of income, the report of an accountant, as
defined in the Explanation below sub-section (2) of section
288, certifying that the deduction has been correctly
claimed in accordance with the provisions of this clause.
Explanation.-For the purposes of this clause,-
(a) "computer system" means a device or collection of
devices including input and output support devices and
excluding calculators which are not programmable and capable
of being used in conjunction with external files, or more of
which contain computer programmes, electronic instructions,
input data and output data, that performs functions
including, but not limited to, logic, arithmetic, data
storage and retrieval, communication and control;
(b) "Y2K compliant computer system" means a computer system
capable of correctly processing, providing or receiving data
relating to date within and between the twentieth and
twenty-first century;
(xii) any expenditure (not being in the nature of capital
expenditure) incurred by a corporation or a body corporate,
by whatever name called, if,-
(a) it is constituted or established by a Central, State or
Provincial Act;
(b) such corporation or body corporate, having regard to the
objects and purposes of the Act referred to in sub-clause
(a), is notified by the Central Government in the Official
Gazette for the purposes of this clause; and
(c) the expenditure is incurred for the objects and purposes
authorised by the Act under which it is constituted or
established;
(xiii) any amount of banking cash transaction tax paid by
the assessee during the previous year on the taxable banking
transactions entered into by him.
Explanation.-For the purposes of this clause, the
expressions "banking cash transaction tax" and "taxable
banking transaction" shall have the same meanings
respectively assigned to them under Chapter VII of the
Finance Act, 2005;
(xiv) any sum paid by a public financial institution by way
of contribution to such credit guarantee fund trust for
small industries as the Central Government may, by
notification in the Official Gazette, specify in this
behalf.
Explanation.-For the purposes of this clause, "public
financial institution" shall have the meaning assigned to it
in section 4A of the Companies Act, 1956 (1 of 1956);
(xv) an amount equal to the securities transaction tax paid
by the assessee in respect of the taxable securities
transactions entered into in the course of his business
during the previous year, if the income arising from such
taxable securities transactions is included in the income
computed under the head "Profits and gains of business or
profession".
Explanation.-For the purposes of this clause, the
expressions "securities transaction tax" and "taxable
securities transaction" shall have the meanings respectively
assigned to them under Chapter VII of the Finance (No. 2)
Act, 2004 (23 of 2004);
(xvi) an amount equal to the commodities transaction tax
paid by the assessee in respect of the taxable commodities
transactions entered into in the course of his business
during the previous year, if the income arising from such
taxable commodities transactions is included in the income
computed under the head "Profits and gains of business or
profession".
Explanation.-For the purposes of this clause, the
expressions "comm-odities transaction tax" and "taxable
commodities transaction" shall have the meanings
respectively assigned to them under Chapter VII of the
Finance Act, 2013;
(xvii) the amount of expenditure incurred by a co-operative
society engaged in the business of manufacture of sugar for
purchase of sugarcane at a price which is equal to or less
than the price fixed or approved by the Government;
(xviii) marked to market loss or other expected loss as
computed in accordance with the income computation and
disclosure standards notified under sub-section (2) of
section 145.
(2) In making any deduction for a bad debt or part thereof,
the following provisions shall apply-
(i) no such deduction shall be allowed unless such debt or
part thereof has been taken into account in computing the
income of the assessee of the previous year in which the
amount of such debt or part thereof is written off or of an
earlier previous year, or represents money lent in the
ordinary course of the business of banking or money-lending
which is carried on by the assessee;
(ii) if the amount ultimately recovered on any such debt or
part of debt is less than the difference between the debt or
part and the amount so deducted, the deficiency shall be
deductible in the previous year in which the ultimate
recovery is made;
(iii) any such debt or part of debt may be deducted if it
has already been written off as irrecoverable in the
accounts of an earlier previous year (being a previous year
relevant to the assessment year commencing on the 1st day of
April, 1988, or any earlier assessment year), but the
Assessing Officer had not allowed it to be deducted on the
ground that it had not been established to have become a bad
debt in that year;
(iv) where any such debt or part of debt is written off as
irrecoverable in the accounts of the previous year (being a
previous year relevant to the assessment year commencing on
the 1st day of April, 1988, or any earlier assessment year)
and the Assessing Officer is satisfied that such debt or
part became a bad debt in any earlier previous year not
falling beyond a period of four previous years immediately
preceding the previous year in which such debt or part is
written off, the provisions of sub-section (6) of section
155 shall apply;
(v) where such debt or part of debt relates to advances made
by an assessee to which clause (viia) of sub-section (1)
applies, no such deduction shall be allowed unless the
assessee has debited the amount of such debt or part of debt
in that previous year to the provision for bad and doubtful
debts account made under that clause.
37. (1) Any expenditure (not being expenditure of the
nature described in sections 30 to 36 and not being in the
nature of capital expenditure or personal expenses of the
assessee), laid out or expended wholly and exclusively for
the purposes of the business or profession shall be allowed
in computing the income chargeable under the head "Profits
and gains of business or profession".
Explanation 1.-For the removal of doubts, it is hereby
declared that any expenditure incurred by an assessee for
any purpose which is an offence or which is prohibited by
law shall not be deemed to have been incurred for the
purpose of business or profession and no deduction or
allowance shall be made in respect of such expenditure.
Explanation 2.-For the removal of doubts, it is hereby
declared that for the purposes of sub-section (1), any
expenditure incurred by an assessee on the activities
relating to corporate social responsibility referred to in
section 135 of the Companies Act, 2013 (18 of 2013) shall
not be deemed to be an expenditure incurred by the assessee
for the purposes of the business or profession.
(2) [***]
(2B) Notwithstanding anything contained in sub-section (1),
no allowance shall be made in respect of expenditure
incurred by an assessee on advertisement in any souvenir,
brochure, tract, pamphlet or the like published by a
political party.
(3) [***]
(3A) [***]
(3B) [***]
(3C) [***]
(3D) [***]
(4) [***]
(5) [***]
38. (1) Where a part of any premises is used as dwelling
house by the assessee,-
(a) the deduction under sub-clause (i) of clause (a) of
section 30, in the case of rent, shall be such amount as the
Assessing Officer may determine having regard to the
proportionate annual value of the part used for the purpose
of the business or profession, and in the case of any sum
paid for repairs, such sum as is proportionate to the part
of the premises used for the purpose of the business or
profession;
(b) the deduction under clause (b) of section 30 shall be
such sum as the Assessing Officer may determine having
regard to the part so used.
(2) Where any building, machinery, plant or furniture is not
exclusively used for the purposes of the business or
profession, the deductions under sub-clause (ii) of clause
(a) and clause (c) of section 30, clauses (i) and (ii) of
section 31 and clause (ii) of sub-section (1) of section 32
shall be restricted to a fair proportionate part thereof
which the Assessing Officer may determine, having regard to
the user of such building, machinery, plant or furniture for
the purposes of the business or profession.