Principles of Governing Deduction and its admissibility towards expenses

Posted By : JobGuarantee Blogger

Posted On : 29-Dec-16

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The Income Tax Act Particularly Section 30 to 37 provide an account primarily for the deductions. These deductions are those which are allowed while computing profit under the head “Profits and Gains of Business or Profession”. In accordance to this section every single bit of expense, big or small is recorded in a detailed manner, which in turn helps to gain a real picture of the profit. However, this list isn’t the final list considering the fact that there can be other arising expenses for which the admissibility gains governance in accordance to the below mentioned principles:


A.   Any such expenditure incurred in terms of expediency on a commercial note and also on the grounds of commercial trading should be accounted as a major deduction. Any and all expenditure should beardirect relation to the previous year to be taken into account and processed further.

 B. The basic meaning of commercial expediency gains ground with these underlying principle where prudence gains benevolence for the very nature of a business where expenditure is incurred in totality and the exclusivity is meant for the sole purpose of the profit made for the business.

C. Any other form of expenditure which has been carried on because of the nature of the business is being incidental to the purpose of the business or the profession of the individual.

D: In case the business has been set up newly, the accounting year starts from the date on which it was set up. As such, any expenditure that has been incurred and falls way ahead of the date when the business actually came to being cannot be allowed as it rightfully falls outside the braces of the accounting year.

 E: It is to be remembered that the deductions are to be made from the business itself for which the expenses were made.

 F: Capital expenditure in no form whatsoever is allowed in any form.

 G: Any expenditure that is incurred must bear a direct relationship with the business of the assesse.

 H: Any illegally tainted expense cannot be claimed as a deduction. A good instance would be the penalty charges that are levied according to the provisions laid down in the Income Tax Act.

 I: It is to be remembered and made a point that no one else but the assesse carries the onus of proving an expenditure to be regarded and allowed to make a part of deduction.



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