While computing the income of a business or profession, other expenses in the nature of the following are admissible for deduction
(i) Insurance Premium [Sec. 36(1)(i)]
The amount of any insurance premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purpose of the business or profession.
(ii) Insurance Premium for Cattle [Sec. 36(1)(ia)]
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 is allowed.
(iii) Health Insurance Premium for Employees [Sec. 36(1)(ib)]
The amount of any premium paid by cheque 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 the General Insurance Corporation of India and approved by the Central Government and any other insurer and approved by the Insurance Regulatory and Development Authority.
(iv) Bonus or Commission [Sec. 36(1)(ii)]
Any sum paid to an employees in addition to salary as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it has not been paid as bonus or commission.
The amount of bonus or commission paid should be reasonable with reference
(a) the pay of the employee and conditions of his service;
(b) the profit of the business or profession for the previous year in question; and
(c) the general practice or local practice in similar business or profession.
The point to be noted in this case is that the undertaking should not pay bonus or commission with a view to reduce the taxable profits. This is quite possible in private companies and specially where the shareholders are the employees of the company.
Deduction regarding bonus shall be allowed in the year in which the payment is actually made and it is also allowed if payment is actually made on or before the due date of furnishing of return of income u/s 139 (as per Section 43B).
Bonus paid as a result of industrial dispute, is an allowable deduction under section 37 and not under section 36. In factories where the Payment of Bonus Act 1965 is applicable the deduction regarding bonus being a statutory liability shall be equal to the bonus payable under this Act.
(v) Interest on Borrowed Capital [Sec. 36(1)(iii)]
Any interest paid on borrowed capital is an allowable deduction. The borrowed capital must be used in the business/profession of the assessee. The borrowing must, however, be genuine and not bogus and the assessee must have paid as interest he amount claimed as deduction under this category.
(vi) Deduction of discount on Zero Coupon Bond [Section 36(iiia)]
Meaning of Zero coupon bond [Section 2(48)]
Zero coupon bond means a bond:
Issued by any infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank on or after 1-6-2005;
- in respect of which no payment/benefit is received or receivable by a bond holder before maturity/redemption from the issuer; and
- which is specified by the Central Government by notification in the Official Gazette.
(vii) Contribution to Provident and Superannuation Fund [Sec. 36(1)(iv)]
Any sum paid by the assessee as an employer by way of contribution towards a recognized provident fund or an approved superannuation fund, subject to such limits as may be prescribed, is allowed as deduction
(a) The above contribution shall be allowed as deduction to the employer subject to the provisions of Section 43B i.e. the amount for any previous year must have been actually paid either during the same previous year or on/before the due date of furnishing of return of income of that previous year.
(b) Employer's contribution towards unrecognized provident fund shall not be deduction under this section. However, such contribution shall be deduction to employer u/s 37.
(viii) Employer's contribution towards employee's pension scheme [Section 36(1)(iva) and Sec. 40A(a)]
Employer's contribution upto 10% of employee's salary towards employee's pension scheme (as referred to in Section 80CCD) shall be allowed as deduction. So in case employer contributes more than 10% of employee's salary, excess over 10% shall be disallowed.
(ix) Contribution to approved Gratuity Fund [Sec. 36(1)(v)]
Any amount paid by the assessee employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of employees under an irrevocable trust is allowed. This is subject to the provision of section 40 A(7) which is explained at a later stage in this chapter.
(x) Employee's contribution towards staff welfare schemes [Sec. 36(1)(va)]
By amending section 2 (24), a new sub-clause (x) has been introduced. Under this sub-section any amount received by employer from his employees as their contribution to any provident fund, or superannuation fund,or any fund set up under E.S.I. Act 1948 or any other fund for the welfare of such employees shall be treated as income of the assessee and shall be credited to P & L A/c of the year only if such sum is credited/paid by the empolyer to the employee's account in the relevant fund on or before the due date of crediting such contribution prescribed under the relevant Act. Assessee can debit to his P & L A/c such contribution of employees towards provident fund, superannuation fund, E.S.I. fund or other fund created for welfare of employees.
This deduction will be allowed only if such amount is credited to the employee's in relevant fund on or before due date. Due date means the date by which assessee is required to credit such contribution in the relevant Account fund as prescribed under respective fund.
(xi) Loss of Animals [Sec. 36(1)(vi)]
If the animals are used in the business or profession of the assessee otherwise than as stock-in-trade and have died or become permanently useless for such purposes and any loss, suffered due to the death or becoming permanently useless for the unit, will be allowed as deduction.
(xii) Bad debts [Sec. 36(1)(vii) & Section 36(2)]
A deduction is allowed in respect of the debt of the business or profession which have actually become irrecoverable in the previous year. The loans advanced by banking or money-lending concerns if they are irrecoverable in full or part thereof, a deduction is allowed. The eligibility of the deduction depends upon the existence of debt which is irrecoverable under law or through the help of courts.
(xiii) Expenditure on Family Planning [Section 36(1)(ix)]
The company assessees are allowed deduction in respect of the bona fide revenue expenditure incurred by them for the purpose of omoting family planning amongst its employees. If the amount of such expenditure is more an available business profit, it shall result in business loss for the previous year shall be treated cordingly.
In case where capital expenditure is incurred for family planning purposes, the expenditure will be spread over a period of five years and every year one installment will be allowed as deduction beginning from the previous year in which expenditure was incurred. The deduction for such expense shall be allowed to the extent of available business profit for the previous year. The unabsorbed capital expenditure on family planning shall be set-off and carry forward like unabsorbed depreciation.
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