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DEDUCTION OF EXPENSES

10 May 2007

HI,IM RUNNING A PVT.LTD COMPANY & HAVE GOT MY OFFICE REFURBISHED BY PURCHASING NEW CHAIRS / AC`S /COMPUTERS....AS PER MY CA..ALL THE PAYMENTS MADE FOR THE SAME ARE MADE FOR CREATING ASSETS & HENCE THESE EXPENSES CANNOT BE CLAIMED AS INCOME TAX DEDUCTION.ONLY DEPRECIATION CAN BE CLAIMED ON THEM.

COULD ANYONE PLZ ADVICE AS TO WHAT EXPENSES CAN OFFICIALLY BE CLAIMED AS DEDUCTION WHILE FILING INCOME TAX RETURNS OF A PRIVATE LTD COMPANY?
OR WHAT EXPENSES CAN I PUT OFFICIALLY IN MY COMPANIES ACCOUNT SO AS TO REDUCE MY COMPANIES TAX LIABILITIES?

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4 Replies

Som (112 Points)
Replied 10 May 2007

If any New asset is purchased which have long-term use like Furniture, computers etc. you cannot claim the expense in Income Tax in a year but that will be allowed as depretiation over the years.
The expenses incurred for earning the income and running your business is allowable, subject to certain conditions, it is difficult to list down the expenses.
If you can list down the expenses you are incurring we can certainly help you in determining whether the expenses is allowable or not.
Regards
som

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Ankit Bhatia (163 Points)
Replied 10 May 2007

In case any existing asset is replaced ,then it amounts to renewals,and being a revenue expenditure,it is eligible for dedn u/s 31 of the act, but in case of a new purchase, being a capital expend,it is entitled only to depreciation u/s 32

Rajesh Itty Eapen (111 Points)
Replied 10 May 2007

hi ISHAN

the expenses incurred has created new assets. so only deprection u/s 32 can be claimed.

in fact under the head profits and gains from business or profession, you CAN claim a lot of deductions. but as the same r not furnished. it would be difficult to explain it.

it is very well explained in vinod singhania's tax book. you could refer it. eg sec 30.31 etc.....

regards
rajesh itty eapen

Manish (34 Points)
Replied 10 May 2007

Hi Ishan,

U may plz note that income under Income tax Act is computed only in accordance with the methodology provided therein. While calculating yr assessable income, which in yr case is business profits, u can claim all those legitimate expenditures incurred for business during the financial year. So listing all those expenses here is not feasible but in net shell, the crux of the allowable expenditure incurred by u is given hereunder : -
1. Expenditure should be revenue in nature i.e. in connection with running of business.
2. Expenditure should be incurred wholly & exclusively for the purposes of business.
3. Expenditure should be incurred during the financial year.
4. Expenditure should be accounted for as per the method of accounting regularly followed by the assessee i.e. accrual basis or cash basis.
5. Certain statutory payments such as deposit of PF etc are allowable subject to proof of payment. (i can't elaborate the full provisions as its is too lengthy)
6. If expenditure is on purchase or construction, as the case may be, on building, machinery & plant, furniture/ fixtures, Motor Car etc then only depreciation is allowable to u as per relevant provisions. While running repairs exp. etc are fully allowable in the year of expenses.

In yr case also, u have purchased certain assets which law recognses as capital expenditure for which the whole amount can't be claimed in the year of expenses itself, but the benefit will flow to u only in the form of dep.

Hope above will clear yr doubts in detail.