Income Tax Act

Official PDF pages 56–60

SOURCE PDF PAGE 56
( a )   the profits and gains of any business or profession carried on by the
assessee at any time during the tax year;
( b )   any compensation or other payment, due to, or received, by any
person by whatever name called,—
( i )   wholly or substantially managing the affairs—
( A )   of an Indian company; or
( B )   in India, of any other company; or
( ii )   holding any agency in India for any part of business activities of
any other person; or
( iii )   for any contract relating to business,
in connection with termination of management, office, agency or
contract, as the case may be, or modification of terms and conditions
relating thereto;
( c )   any compensation or payment, due to, or received by, any person for
vesting of the management of any property or business, in the Govern -
ment including any corporation owned or controlled by the Government
under any law in force;
( d )   income derived by a trade, professional or similar association from
specific services performed for its members;
( e )   profits on sale of import licence, cash assistance against export, duty
drawback or duty remission or any other export incentive, received or
receivable;
( f )   the value of any benefit or perquisite arising from business or the
exercise of a profession, whether—
( i )   convertible into money or not; or
( ii )   in cash or in kind or partly in cash and partly in kind;
( g )   any interest, salary, bonus, commission or remuneration, by whatever
name called, which is due to, or received by, a partner of a firm from
such firm to the extent allowed under section 35( e ) as a deduction in
computing the income of the firm;
( h )   any sum, received or receivable, in cash or in kind—
( i )   under an agreement for not carrying out any activity in relation to
any business or profession, not being—
( A )   any sum received on account of transfer of the right to manu-
facture, produce or process any article or thing or right to
carry on any business or profession which is chargeable under
the head “Capital gains”;
( B )   any sum received as compensation from the multilateral fund
of the Montreal Protocol on Substances that Deplete the Ozone
layer under the United Nations Environment Programme, as
per the terms of agreement entered into with the Government
of India; or

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( ii )   under an agreement for not sharing any know-how, patent, copyright,
trade-mark, licence, franchise or any other business or commercial
right of similar nature, or information or technique likely to assist
in the manufacture or processing of goods or provision for services;
( i )   any sum received under a Keyman insurance policy including the sum
allocated by way of bonus on such policy;
( j )   the fair market value of inventory as on the date on which it is converted
into, or treated as, a capital asset determined in the manner, as may be
prescribed; and
( k )   any sum which is received or receivable in cash or kind, when—
( i )   a capital asset other than land or goodwill or financial instrument,
is demolished, destroyed, discarded or transferred; and
( ii )   the whole of the expenditure on it has been allowed as a deduction
under section 35AD of the Income-tax Act, 1961 (43 of 1961) or
section 46 of this Act.
(3) Where speculative transactions carried on by an assessee are of such nature
to constitute a business, the business (herein referred to as speculation business)
shall be deemed to be distinct and separate from any other business.
(4) Any income from letting out of a residential house or a part of it by the owner
shall not be included in income under sub-section (1) and shall be chargeable only
under the head “Income from house property”.
Manner of computing profits and gains of business or profession.
27.   The income referred to in section 26 shall be computed as per the provisions
of sections 28 to 60, except section 58.
Rent, rates, taxes, repairs and insurance.
28.   (1) The following amounts shall be allowed as deduction in respect of
premises, machinery, plant or furniture used for the purposes of the business
or profession:—
( a )   any premium paid in respect of insurance against risk of damage or
destruction thereof;
( b )   land revenue, local rates or municipal taxes paid;
( c )   rent paid, when the premises are occupied by the assessee as a tenant;
( d )   amount paid on account of current repairs to the premises, not being
in the nature of capital expenditure, when the premises are occupied by
the assessee otherwise than as a tenant;
( e )   amount paid on account of cost of repairs, not being in the nature of
capital expenditure, when the premises are occupied by the assessee as
a tenant and where he has undertaken to bear the cost of repairs to the
premises; and

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.
( f )   the amount paid on account of current repairs to machinery, plant or
furniture, not being in the nature of capital expenditure.
(2) In case where the premises, building, machinery, plant or furniture is partly used
or not wholly and exclusively used for the purposes of the business or profession, the
deduction allowable under sub-section (1) shall be restricted to the fair proportionate
part thereof as determined by the Assessing Officer, having regard to the usage for
the purposes of the business or profession.
Ded uctions related to employee welfare.
29.   (1) The following sums, in the case of an assessee being an employer,
shall be allowed as deduction in computing income chargeable under
section 26:—
( a )   any sum paid by way of contribution towards a recognised provident
fund or an approved superannuation fund, subject to—
( i )   such limits, as may be prescribed, for recognising the provident
fund or approving the superannuation fund; and
( ii )   such conditions, as the Board may specify, for cases where the
contributions are not made annually either as fixed amounts, or
annual contributions fixed on some definite basis by reference to the
income chargeable under the head “Salaries” or the contributions
or to the number of members of the fund;
( b )   any sum paid by way of contribution towards a pension scheme
referred to in section 124, for an employee up to 14% of the salary of the
employee in the tax year, where such salary includes dearness allowance,
if the terms of employment so provide, but excludes all other allowances
and perquisites;
( c )   any sum paid by way of contribution towards an approved gratuity fund
created by the assessee for the exclusive benefit of his employees under
an irrevocable trust;
( d )   irrespective of anything contained in sub-section (2), any provision made
for the purpose of making contribution towards approved gratuity fund
or for the purpose of payment of any gratuity that has become payable
during the tax year;
7
[ ( e )   the amount of contribution received from an employee to which the provi -
sions of section 2( 49 )( o ) apply, if it is credited by the assessee to the account
7.   Substituted by the Finance Act, 2026, w.e.f.   1-4-2026 . Prior to its substitution, clause ( e ) read
as under :
‘( e )   ( i )   the amount of contribution received from an employee to which the provisions
of section 2( 49 )( o ) apply, if it is credited by the assessee to the account of the
employee in the relevant fund or funds by the due date;
( ii )   for the purposes of sub-clause ( i ), “due date” means the date by which the assessee
is required as an employer to credit employee contribution to the account of an
employee in the relevant fund under any Act, rule, order or notification issued
under it or under any standing order, award, contract of service or otherwise and
the provisions of section 37 shall not apply for determining the “due date” under
this clause.’

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of the employee in the relevant fund or funds, on or before the due date of
filing of return of income under section 263(1) for the tax year. ]
(2) ( a ) Subject to the provisions of sub-section (1)( d ), no deduction shall be
allowed for any provision made for the payment of gratuity to the employees on
their retirement or termination for any reason; and
( b ) in case deduction has been allowed for any provision made under sub-
section (1)( d ), then no deduction shall be allowed on actual payment made from
such provision.
(3) No deduction shall be allowed in respect of any sum paid by the assessee as an
employer towards setting up or formation of, or as contribution to, any fund, trust,
company, association of persons, body of individuals, society registered under the
Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose,
except where such sum is so paid, for the purposes and to the extent provided by
or under sub-section (1)( a ) or ( b ) or ( c ), or as required by or under any other law
in force.
Deduction on certain premium.
30.   The following sums shall be allowed as deduction in computing income
chargeable under section 26, being premium paid:—
( a )   by any assessee in respect of insurance against risk of damage or destruc -
tion of stocks or stores used for the purposes of business or profession;
( b )   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;
( c )   by the assessee as an employer, through any mode of payment other
than cash, to effect or to keep in force an insurance on the health of its
employees under a scheme framed in this behalf by—
( i )   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
( ii )   any other insurer and approved by the Insurance Regulatory
and Development Authority established under section 3(1) of the
Insurance Regulatory and Development Authority Act, 1999
(41 of 1999).
Deduction for bad debt and provision for bad and doubtful debt.
31.   (1) The amount mentioned in column C of the Table below, in respect of any
provision for bad and doubtful debts made by the assessee specified in
column B thereof, shall be allowed as a deduction in computation of income charge -
able under section 26.

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TABLE
Sl.
No.
Specified assessee   Amount of deduction
A   B   C
1.   ( a )   A scheduled bank, other
than a bank incorporated
by or under the laws of a
country outside India; or
( b )   a non-scheduled bank; or
( c )   a co-operative bank, other
than—
( i )   a primary agricultur -
al credit society; or
( ii )   a primary co-opera -
tive agricultural and
rural   development
bank.
( a )   not   more than 8.5% of the total
income of the tax year computed
before making any deduction under
this clause and Chapter VIII, and
an additional amount up to 10%
of the aggregate average advances
made by rural branches computed
in the manner as may be prescribed;
( b )   for an assessee mentioned in clauses
( a ) and ( b ) of column B, at its option,
an additional amount in excess of
clause ( a ) of this column but not more
than the income from redemption of
securities as per a scheme framed by
the Central Government, when such
income has been disclosed in the
return of income under the head
“Profits and gains of business or
profession”.
2.   ( a )   A bank incorporated by or
under the laws of a country
outside India; or
( b )   a public financial institu -
tion or a State Financial
Corporation   or   a   State
Industrial   Investment
Corporation; or
( c )   a non-banking financial
company.
Not more than 5% of the total income of
a tax year computed before making any
deduction under this clause and Chapter
VIII.
(2) Any amount of bad debt, or part of it, in the tax year in which such amount
is written off as irrecoverable in the accounts of the assessee, shall be allowed as
deduction in computation of income chargeable under section 26, subject to the
following conditions:—
( a )   it has been taken into account in computing the income of the assessee
of the tax year in which it is written off, or any earlier tax year, or repre -
sents the money lent in the ordinary course of the business of banking
or money lending which is carried on by the assessee;
( b )   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 tax year in which the
ultimate recovery is made; and