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In this article we have discussed deduction available to Taxpayers from various sources of Income for A.Y. 2017-18 and subsequent Years. Deductions include deduction Against Salaries, Against ‘income from house properties’, Against ‘profits and gains of business or profession’ Against ‘capital gains’ and Against ‘income from other sources’.

[AY 2017-18]

Section Nature of deduction Who can claim
(1) (2) (3)
Against ‘salaries’
16(ii) Entertainment allowance [actual or at the rate of 1/5th of salary, whichever is less] [limited to Rs. 5,000] Government employees
16(iii) Employment tax Salaried assessees
Against ‘income from house properties’
23(1), first proviso Taxes levied by local authority and borne by owner if paid in relevant previous year All assessees
24(a) Standard deduction [30% of the annual value (gross annual value less municipal taxes)] All assessees
24(b) Interest on borrowed capital (Rs. 30,000/Rs. 2,00,000, subject to specified conditions) All assessees
25A(2) Standard deduction of 30 per cent of arrears of rent or unrealised rent received All assessees
Against ‘profits and gains of business or profession’
A. Deductible items
30 Rent, rates, taxes, repairs (excluding capital expenditure) and insurance for premises All assessees
31 Repairs (excluding capital expenditure) and insurance of machinery, plant and furniture All assessees
32(1)(i)
Depreciation1 in respect of following assets shall be allowed at prescribed percentage on actual cost of an asset (i.e., Straight Line Method):
i. Tangible Assets (buildings, machinery, plant or furniture);
ii. Intangible Assets (know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature).
However, if asset is acquired and put to use for less than 180 days during the previous year, the deduction shall be restricted to 50% of depreciation computed above.
Note:
×
Taxpayers engaged in business of generation or generation and distribution of power have the option to claim depreciation on written down value basis also
Taxpayer engaged in business of generation or generation and distribution of power.
32(1)(ii)
Depreciation1 in respect of following assets shall be allowed at prescribed percentage on written down value of each block of asset (as per WDV method):
i. Tangible Assets (buildings, machinery, plant or furniture);
ii. Intangible Assets (know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature).
However, if asset is acquired and put to use for less than 180 days during the previous year, the deduction shall be restricted to 50% of depreciation computed above.
All assessees engaged in business or profession
32(1)(iia)
Additional depreciation shall be allowed at 20% of actual cost of new plant and machinery [other than ships, aircraft, office appliances, second hand plant or machinery, etc.] (Subject to certain conditions).
However, if an asset is acquired and put to use for less than 180 days during the previous year, 50% of additional depreciation shall be allowed in year of acquisition and balance 50% would be allowed in the next year.
All taxpayers engaged in:
a) manufacture or production of any article or thing; or
b) generation, transmission or distribution of power (if taxpayer is not claiming depreciation on straight line basis ).
Proviso to Section 32(1)(iia)
Additional depreciation shall be allowed at 35% of actual cost of new plant and machinery [other than ships, aircraft, office appliances, second hand plant or machinery, etc.] (Subject to certain conditions).
However, if an asset is acquired and put to use for less than 180 days during the previous year, 50% of additional depreciation shall be allowed in year of acquisition and balance 50% would be allowed in the next year.
Note:
1. Manufacturing unit should be set-up on or after April 1, 2015.
2. New plant and machinery should be acquired and installed on or after April 1, 2015 but before April 1, 2020.
All taxpayers setting-up an undertaking or enterprise for production or manufacture of any article or thing in any notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal.
32AC
Investment allowance shall be allowed at 15% of actual cost of new asset acquired and installed by a company engaged in business or manufacturing or production of any article or thing (Subject to certain conditions)
Note:
Deduction shall be available if actual cost of new plant and machinery acquired and installed by the company during the previous year exceeds Rs. 25/100 Crores, as the case may be
Company engaged in business of manufacturing or production of any article or thing.
32AD
Investment allowance shall be allowed at 15% of actual cost of investment made in new plant and machinery (other than ships, aircraft, vehicle, office appliances, second hand plant or machinery, etc.) if manufacturing unit is set-up in notified backward area in the State of Andhra Pradesh, Bihar, Telangana or West Bengal (subject to certain conditions).
Note:
1. New asset should be acquired and installed on or after April 1, 2015 but before April 1, 2020.
2. Manufacturing unit should be set-up on or after April 1, 2015.
3. Deduction shall be allowed under Section 32AD in addition to deduction under Section 32AC if assessee fulfils the specified conditions.
All taxpayers who acquire new plant and machinery for purpose of setting-up manufacturing unit in notified backward areas in the State of Andhra Pradesh, Bihar, Telangana or West Bengal
33A Development allowance – 50 per cent of actual cost of planting (subject to certain conditions and limits) (planting should have been completed before 1-4-1990) Assessee engaged in business of growing and manufacturing tea in India
33AB Tea/Coffee/Rubber Development Account – Amount deposited in account with National Bank (Special Account) or in Deposit Account of Tea Board, Coffee Board or Rubber Board in accordance with approved scheme or 40% of profits of business, whichever is less (subject to certain conditions) Assessees engaged in business of growing and manufacturing tea/Coffee/Rubber in India
33ABA Amount deposited in Special Account with SBI/Site Restoration Account or 20 per cent of profits, whichever is less (subject to certain conditions) Assessee carrying on business of prospecting for, or extraction or production of, petroleum or natural gas or both in India
35(1)(i)
Revenue expenditure on scientific research pertaining to business of assessee is allowed as deduction (Subject to certain conditions).
Note:
Expenditure on scientific research incurred within 3 years before commencement of business (in the nature of purchase of materials and salary of employees other than perquisite) is allowed as deduction in the year of commencement of business to the extent certified by prescribed authority.
All assessee
35(1)(ii)26
175% of contribution made to approved research association, university, college or other institution to be used for scientific research shall be allowed as deduction (Subject to certain conditions)
150% of sum paid to such association, university, college or other institution is allowed as deduction (applicable from AY 2018-19)
All assessee
35(1)(iia)
125% of contribution made to an approved company registered in India to be used for the purpose of scientific research is allowed as deduction (Subject to certain conditions)
Entire sum paid to the company is allowed as deduction (applicable from AY 2018-19)
All assessee
35(1)(iii)
125% of contribution made to approved research association, university, college or other institution with objects of undertaking statistical research or research in social sciences shall be allowed as deduction (Subject to certain conditions)
Entire sum paid to such association, university, college or other institution is allowed as deduction (applicable from AY 2018-19)
All assessee
35(1)(iv)read with35(2)
Capital expenditure incurred during the year on scientific research relating to the business carried on by the assessee is allowed as deduction (Subject to certain conditions)
Capital expenditure incurred within 3 years before commencement of business is allowed as deduction in the year of commencement of business.
Note:
i. Capital expenditure excludes land and any interest in land;
ii. No depreciation shall be allowed on such assets.
All assessee
35(2AA)26
200% of payment made to a National Laboratory or University or an Indian Institute of Technology or a specified person is allowed as deduction (Subject to certain conditions).
150% of payment is allowed as deduction (applicable from AY 2018-19)
The payment should be made with the specified direction that the sum shall be used in a scientific research undertaken under an approved programme.
All assessee
35(2AB)26
200% of any expenditure incurred by a company on scientific research (including capital expenditure other than on land and building) on in-house scientific research and development facilities as approved by the prescribed authorities shall be allowed as deduction (Subject to certain conditions).
150% of expenditure so incurred shall be allowed as deduction (applicable from AY 2018-19)
Note:
Company should enter into an agreement with the prescribed authority for co-operation in such research and development and fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed;
Company engaged in business of bio-technology or in any business of manufacturing or production of eligible articles or things
35A Expenditure incurred before 1-4-1998 on acquisition of patent rights or copyrights [equal to appropriate fraction of expenditure on acquisition to be deducted in fourteen equal annual instalments beginning with previous year in which such expenditure has been incurred] (subject to certain conditions) All assessees
35AB Lump sum payment made in any previous year relevant to assessment year commencing on or before 1-4-1998, for acquisition of technical know-how [consideration for acquisition to be deducted in six equal annual instalments (3 equal annual instalments where know-how is developed in certain laboratories, universities and institutions)] (subject to certain conditions) All assessees
35ABA Capital expenditure incurred and actually paid for acquiring any right to use spectrum for telecommunication services shall be allowed as deduction over the useful life of the spectrum in equal instalments All Assessee engaged in telecommunication services
35ABB Expe nditure incurred for obtaining licence to operate telecommunication services either before commencement of such business or thereafter at any time during any previous year All assessees
35AC
Expenditure by way of payment of any sum to a public sector company/local authority/approved association or institution for carrying out any eligible scheme or project (subject to certain conditions)
Deduction under this section is available only A.Y. 2017-2018
All assessees
35AD Capital expenditure incurred, wholly and exclusively, for the purpose of any specified business [setting up and operating a cold chain facility; setting up and operating a warehousing facility for storage of agricultural produce; laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network; building and operating, anywhere in India, a hotel of two-star or above category as classified by the Central Government; building and operating, anywhere in India, a hospital with at least one hundred beds for patients; developing and building a notified housing project under a scheme for slum redevelopment or rehabilitation framed by the Government, as the case may be, in accordance with prescribed guidelines; developing and building a notified housing project under a scheme for affordable housing framed by the Government, as the case may be, in accordance with prescribed guidelines; production of fertilizer in India; setting up and operating an inland container depot or a container freight station which is approved/notified under the Customs Act, 1962; bee-keeping and production of honey and beeswax; and setting up and operating a warehousing facility for storage of sugar. Lying and operating a slurry pipeline for the transportation of iron ore; setting-up and operating a notified semi-conductor wafer fabrication manufacturing unit; developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility4, carried on by the assessee during the previous year in which such expenditure is incurred (subject to certain conditions)
All assessees
Note: Such deduction is available to Indian company in case of following business, namely;-
i) Business of laying and operating a cross-country natural gas or crude or petroleum oil pipeline network.
ii) Developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility.
35CCA Payment to associations/institutions for carrying out rural development programmes (subject to certain conditions) All assessees
35CCB Expenditure incurred before 1-4-2002 by way of payment to approved associations/institutions for carrying out approved programmes of conservation of natural resources or afforestation (subject to certain conditions) All assessees
35CCC One and a half times of expenditure on notified agricultural extension project (subject to certain conditions) All assessees
From the Assessment Year 2021-22, the deductionshall be restricted to 100% of the expenditure incurred.
35CCD One and a half times of expenditure on notified skill development project (subject to certain conditions) A company
Note: From the Assessment Year 2021-22, the deduction shall be restricted to 100% of the expenditure incurred.
35D Amortisation of certain preliminary expenses [deductible in 5 equal annual instalments] (subject to certain conditions) Indian companies and resident non-corporate assessees
35DD Amortisation of expenditure incurred after 31-3-1999 in case of amalgamation or demerger in the hands of an Indian company (one-fifth of such expenditure for 5 successive previous years) (subject to certain conditions) Indian Company
35DDA Amortisation of expenditure incurred under voluntary retirement scheme in 5 equal annual instalments starting with the year when the expenditure is incurred All assessees
35E Expenditure on prospecting, etc., for certain minerals [deductible in ten equal annual instalments] (subject to certain conditions) Indian companies and resident non-corporate assessees engaged in prospecting, etc., for minerals
36(1)(i) Insurance premium covering risk of damage or destruction of stocks/stores All assessees
36(1)(ia) Insurance premium covering life of cattle owned by a member of co-operative society engaged in supplying milk to federal milk co-operative society Federal milk co-operative societies
36(1)(ib) Medical insurance premium paid by any mode other than cash, to insure employee’s health under (a) scheme framed by GIC of India and approved by Central Government; or (b) scheme framed by any other insurer and approved by IRDA All assessees as employers
36(1)(ii) Bonus or commission paid to employees All assessees
36(1)(iii) Interest on borrowed capital2 All assessees
36(1)(iiia) Pro rata amount of discount on a zero coupon bond based on life of such bond and calculated in prescribed manner All assessees
36(1)(iv) Contributions to recognised provident fund and approved superannuation fund [subject to certain limits and conditions] All assessees as employers
36(1)(iva) Any sum paid by assessee-employer by way of contribution towards a pension scheme, as referred to in section 80CCD, on account of an employee to the extent it does not exceed 10 per cent of the employee’s salary in the previous year. All assessees as emloyers
36(1)(v) Contributions to approved gratuity fund [subject to certain limits and conditions] All assessees as employers
36(1)(va) Contributions to any provident fund or superannuation fund or any fund set up under Employees’ State Insurance Act, 1948 or any other fund for welfare of such employees, received from employees if the same are credited to the employee’s account in relevant fund or funds before due date All assessees as employers
36(1)(vi) Allowance in respect of animals which have died or become permanently useless [subject to certain conditions] All assessees
36(1)(vii)3 Bad debts which have been written off as irrecoverable [subject to limitation in the case of banks and financial institutions] All assessees
36(1)(viia) Provision for bad and doubtful debts
■ up to 7½ per cent of total income before making any deduction under this clause and Chapter VI-A, and up to 10 per cent of aggregate average advances made by its rural branches Certain scheduled banks, non-scheduled banks (but other than foreign banks) and co-operative bank (other than primary agricultural credit society or primary co-operative agricultural and rural development bank)
■ up to 5 per cent (10% in case of Public Financial Institutions, State Financial Corporations and State Industrial Investment Corporations in any of the two consecutive assessment years 2003-04 and 2004-05 – subject to certain conditions) of total income before making any deduction under this clause and Chapter VI-A Foreign banks/Public financial institutions/State financial corporations/State industrial investment corporations. Non-Banking Financial Company
36(1)(viii) Amounts transferred to special reserve [subject to certain conditions and maxi-mum of 20 per cent of profits derived from eligible business] Specified entities, namely, financial corporations/financial corporation which is a public sector company/banking company/co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank/housing finance company/any other financial corporation including a public company
36(1)(ix) Expenditure for promoting family planning amongst employees (deductible in 5 equal annual instalments in case of capital expenditure) Companies
36(1)(xi) Expenditure incurred wholly and exclusively by the assessee on or after the 1st April, 1999 but before the 1st April, 2000 in respect of a non-Y2K compliant system, owned by the assessee and used for the purposes of his business or profession, so as to make such system Y2K compliant computer system All assessees
36(1)(xii) Any expenditure (not being in the nature of capital expenditure) incurred by a notified corporation or body corporate, by whatever name called, constituted or established by a Central, State or Provincial Act, for the objects and purposes authorised by the Act under which such corporation or body corporate was constituted or established Notified corporation or body corporate, by whatever name called, constituted or established by a Central, State or Provincial Act
36(1)(xiii) Any banking cash transaction tax paid during the previous year on taxable banking transaction entered into by the assessee All assessees
36(1)(xiv) Contribution to notified credit guarantee trust fund for small industries Public financial institution
36(1)(xv) Securities Transaction Tax paid if corresponding income is included as income under the head ‘Profits and gains of business or profession’ All assessees
36(1)(xvi) Amount equal to commodities transaction tax paid by an assessee in respect of taxable commodities transactions entered into in the course of his business during the previous year, if the income arising from such transactions is included in the income computed under the head “Profits and gains of business or profession” All assessees
36(1)(xvii)
Amount of expenditure incurred by a co-operative society for purchase of sugarcane shall be allowed as deduction to the extent of lower of following:
a) Actual purchase price of sugarcane; or
b) Price of sugarcane fixed or approved by the Government
Co-operative society engaged in business of manufacturing sugar
37(1) Any other expenditure [not being personal or capital expenditure and expenditure mentioned in sections 30 to 36] laid out wholly and exclusively for purposes of business or profession5 All assessees
B. Non-deductible items
37(2B) Advertisement in souvenir, brochure, tract, pamphlet, etc., of political party All assessees
40(a)(i) Interest, royalty, fees for technical services or other chargeable sum payable outside India, or in India to a non-resident or foreign company, on which tax has not been paid/deducted during the previous year or in the subsequent year within time prescribed under section 200(1). Where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid6 All assessees
40(a)(ia) Any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work)7, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139. All assessees
However, where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
40(a)(ib) Any sum paid or payable to a non-resident which is subject to a deduction of Equalisation levy would attract disallowance if such sum was paid without deduction of such levy or if it was deducted but not deposited with the Central Government till the due date of filing of return. All assessees
However, where in respect of any such sum, Equalisation levy is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.
Note: This provision has been inserted by the Finance Act, 2016, w.e.f. 1-6-2016
40(a)(ii) Rate or tax levied on the profits or gains of any business or profession All assessees
40(a)(iia) Wealth-tax paid All assessees
40(a)(iib) Amount paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on, or any amount which is appropriated, whether directly or indirectly, from a State Government undertaking by the State Government State Govt. undertakings
40(a)(iii) Salaries payable outside India, or in India to a non-resident, on which tax has not been paid/deducted at source All assessees as employers
40(a)(iv) Payments to provident fund/other funds for employees’ benefit for which no effective arrangements are made to secure that tax is deducted at source on payments made from such funds which are chargeable to tax as ‘salaries’ All assessees as employers
40(a)(v) Tax actually paid by an employer referred to in section 10(10CC) All assessees as employers
40(b) Interest, salary, bonus, commission or remuneration paid to partners (subject to certain conditions and limits) Firms
40(ba) Interest, salary, bonus, commission or remuneration paid to members (subject to certain conditions and limits) Association of persons or body of individuals (except a company or a co-operative society, society registered under Societies Registration Act, etc.)
40A(2) Expenditure involving payment to relative/director/partner/substantially interested person, etc., which, in the opinion of the Assessing Officer, is excessive or unreasonable All assessees
40A(3) 100% of payments exceeding Rs. 20,000 (Rs. 35,000 in case of payment made for plying, hiring or leasing goods carriages) made to a person in a day otherwise than by account payee cheque/bank draft (subject to certain conditions)

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