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Section 37(1) says that 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 purpose of business or profession shall be allowed in computing the income chargeable under the head, "Profits and Gains of Business or Profession".

Section 37: General Deductions under the Income Tax Act

The deductions are to be allowed in respect of those expenses which shall satisfy the following conditions

  1. The expenditure should not be of the type of expenses already covered under sections 30 to 36 of this Act.
  2. Expenses should have been incurred in the relevant accounting year.
  3. Expenses should be in respect of the business carried on by the assessee and the profits of which are to be computed and assessed, and should be incurred after the business is set up. 
  4. Expenses should not be in the nature of personal expenses of the assessee.
  5. The expenses should have been incurred totally and exclusively for the purposes of the business of the assessee.
  6. Expenses are not of capital nature.
  7. The expenses are incidental to the business of the assessee and directly spring from the carrying on of it.
 

The followings are some of the examples of expenses allowable as deduction u/s 37

  1. All expenses and payments made for purchasing of raw materials, manufacture and sale of
  2. All expenses in the nature of advertisement to push up sales.
  3. Sales-tax and expenses incurred in relation to sales tax appeal.
  4. Day-to-day expenses to carry on business.
  5. Some subscription to be paid compulsorily and to protect the business interests.
  6. Reasonable expenses incurred on Diwali/Puja or other Festivals etc.
  7. Reasonable expenses incurred at the time of mahurat, Dewali, etc. But no monetary has been fixed by Board.
  8. Royalty paid in connection with the use of trade marks, patents, copyrights, etc.
  9. Commission paid to procure orders.
  10. Compensation paid to an agent in connection with the termination or modifications in the terms and conditions of his agency.
  11. Installation expenses of new telephone and payment made under 'Own Your Telephone' (O.Y.T.) scheme.
  12. Expenses incurred to oppose the threatened nationalisation of the business
  13. Legal expenses incurred to claim damages or compensation in case of non-fulfilment of a contract.
  14. Pension, gratuity and any other voluntary payment given to the employees. 
  15. Gifts given to the employees but such gifts should not fall in the category of perquisites.
  16. Bonus paid on the basis of an industrial award. 
  17. Any compensation paid to an employee on the termination of his service compensation paid to a managing agent on the termination of his agency.
  18. Insurance premium paid to get insurance of employees against injury, accident while working and also any compensation paid to employees due to such injury or accident.  Payment received from insurance company, if any, shall be treated as taxable income and credited to P & L A/c.
  19. Expenses incurred on employees welfare activities.
 
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Category Income Tax, Other Articles by - Ritik Chopra 



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