Section 36 of the Income Tax Act, 1961, lays down the provisions for deductions allowed in computing the income chargeable under the head ‘Profits and gains of business or profession.’ This section provides various expenses that a taxpayer can claim as deductions while computing their taxable income. In this article, we will discuss the provisions of Section 36 of the Income Tax Act in detail.
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Interest on Borrowed Capital:
Section 36(i) allows a deduction for the interest paid on borrowed capital to the extent it is used for business or profession. The interest can be claimed as a deduction in the year in which it is paid or accrued. However, interest on capital borrowed for the acquisition of a capital asset is not allowed as a deduction under this section.
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Depreciation:
Depreciation is the decrease in the value of an asset over time. Section 36(1)(vii) allows a deduction for the depreciation of assets used for business or profession. The rate of depreciation depends on the type of asset, its useful life, and the method of depreciation adopted.
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Bad Debts: Section 36(1)(vii) allows a deduction for bad debts that have been written off as irrecoverable in the books of accounts. However, the bad debts should have been included in the taxpayer’s income in any previous year in which it was credited to the Profit and Loss account.
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Securities Transaction Tax: Section 36(1)(xv) allows a deduction for the Securities Transaction Tax (STT) paid by a taxpayer. STT is a tax levied on the purchase and sale of securities in India.
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Other Deductions: Apart from the above deductions, Section 36 also allows for the following expenses to be claimed as deductions:
- Rent paid for the premises used for business or profession.
- Repairs and maintenance expenses incurred to keep the business assets in good working condition.
- Insurance premium paid to insure the assets used for business or profession.
- Contributions made to recognized provident funds and approved superannuation funds.
- Expenses incurred on scientific research.
It is important to note that the expenses claimed as deductions under Section 36 should be incurred wholly and exclusively for the purpose of business or profession. Any expense incurred for personal purposes cannot be claimed as a deduction.
In conclusion
Section 36 of the Income Tax Act provides various deductions that can be claimed by taxpayers to reduce their taxable income. Taxpayers should ensure that the expenses claimed as deductions are incurred wholly and exclusively for the purpose of business or profession. It is advisable to consult a tax professional to ensure that all the provisions of the Income Tax Act are complied with while claiming deductions under Section 36.
Other Related Blogs: Section 144B Income Tax Act
Frequently Asked Questions (FAQs)
Q.1 What is Section 36 of the Income Tax Act?
Section 36 of the Income Tax Act provides various deductions that a taxpayer can claim while computing their taxable income. These deductions include interest on borrowed capital, depreciation, bad debts, securities transaction tax, and other expenses incurred for business or profession.
Q.2 Can interest on capital borrowed for the acquisition of a capital asset be claimed as a deduction under Section 36?
No, interest on capital borrowed for the acquisition of a capital asset cannot be claimed as a deduction under Section 36. However, it can be claimed as a deduction under Section 24 if the asset is used for the purpose of generating rental income.
Q.3 Can the entire amount of interest paid on borrowed capital be claimed as a deduction under Section 36?
No, only the interest paid on borrowed capital to the extent it is used for business or profession can be claimed as a deduction under Section 36.
Q.4 Can a taxpayer claim a deduction for the entire amount of bad debts written off as irrecoverable?
No, only bad debts that have been included in the taxpayer’s income in any previous year in which it was credited to the Profit and Loss account can be claimed as a deduction under Section 36.
Q.5 Can a taxpayer claim a deduction for the rent paid for the premises used for personal purposes?
No, only rent paid for the premises used for business or profession can be claimed as a deduction under Section 36.
Q.6 Can a taxpayer claim a deduction for expenses incurred on scientific research conducted outside India?
No, expenses incurred on scientific research conducted outside India cannot be claimed as a deduction under Section 36.
Q.7 Can a taxpayer claim a deduction for the expenses incurred on repairs and maintenance of assets used for personal purposes?
No, expenses incurred on repairs and maintenance of assets used for personal purposes cannot be claimed as a deduction under Section 36.
Q.8 Can a taxpayer claim a deduction for the contributions made to unrecognized provident funds and unapproved superannuation funds?
No, contributions made to unrecognized provident funds and unapproved superannuation funds cannot be claimed as a deduction under Section 36.
Q.9 Is it necessary to maintain proper books of accounts to claim deductions under Section 36?
Yes, it is necessary to maintain proper books of accounts to claim deductions under Section 36. The expenses claimed as deductions should be supported by proper bills, vouchers, and receipts.
Q.10 Can a taxpayer claim a deduction for expenses incurred for personal use while on a business trip?
No, expenses incurred for personal use while on a business trip cannot be claimed as a deduction under Section 36. Only expenses incurred wholly and exclusively for the purpose of business or profession can be claimed as a deduction.
