Income-tax Act,1961
Act No : 43
Section :
Other deductions
36. Other deductions (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) the amount of any premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purposes of the business or profession; 1[(ia) the amount of any premium paid 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;] 2[(ib) the amount of any premium paid by cheque by the assessee as an employer to effect or to keep in force an insurance on the health of his employees under a scheme framed in this behalf by 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;] 3(ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission: 4 [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] 4[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989.] 6 (iia) a sum equal to one and one-third times the amount of the expenditure incurred on payment of any salary 7[for any period of employment before the 1st day of March, 1984] to an employee who, as at the end of the previous year,- ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980. 2 Inserted by the Income-tax (Amendment) Act, 1986, w.e.f. 1-4- 1987. 4 Prior to the omission, the first proviso, as inserted by the Payment of Bonus (Amendment) Act, 1976, w.r.e.f. 25-9-1975, read as under: 'Provided that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 (21 of 1965) apply shall not exceed the amount of bonus payable under that Act:" 5 Prior to the omission, the second proviso, as amended by the Payment of Bonus (Amendment) Act, 1976, w.r.e.f. 25-9-1975, read as under: "Provided further that the amount of the bonus (not being bonus referred to in the first proviso) or commission is reasonable with reference to- (a) the pay of the employee and the conditions of his service; (b) the profits of the business or profession for the previous year in question; and (c) the general practice in similar business or profession." 6 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 7 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984. --------------------------------------------------------------------- 1.218 (a) is totally blind, or (b) is subject to or suffers from a permanent physical disability (other than blindness) which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation: Provided that the assessee produces before the 1[Assessing] Officer, in respect of the first assessment for which deduction is claimed in relation to each employee under this clause,- (i)in a case referred to in sub-clause (a), a certificate as to his total blindness from a registered medical practitioner being an oculist; and (ii)in a case referred to in sub-clause (b), a certificate as to the permanent physical disability referred to in the said sub-clause from a registered medical practitioner: Provided further that nothing contained in this clause shall apply in the case of an employee whose income in the previous year chargeable under the head "Salaries" exceeds twenty thousand rupees. Explanation 1.-In this clause, "salary" includes the pay, allowances, bonus or commission payable monthly or otherwise. Explanation 2.-For the removal of doubts, it is hereby declared that where a deduction under this clause is allowed for any assessment year in respect of any expenditure, deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year;] (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession. Explanation.-Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause; 2(iv) any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual ---------------------------------------------------------------------- 1 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.219 contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fund; 1(v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust; 2[(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation. For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise;] (vi) in respect of animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realised in respect of the carcasses or animals; 3(Vii) subject to the provisions of sub-section (2), the amount of 4[any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]: 5[Provided that in the case of a bank to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause;] 6(viia) 7[in respect of any provision for bad and doubtful debts made by- --------------------------------------------------------------------- 2 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 4 Substituted for 'any debt, or part thereof, which is established to have become a bad debt in the previous year' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 5 Inserted by the Finance Act, 1985, w.e.f. 1-4-1985. 6 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980. See rule 6A BA. 7 Substituted for 'in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of clause (viiia) or a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank, an amount not exceeding ten per cent of the total income (income computed before making any deduction under this clause and Chapter ---------------------------------------------------------------------- 1.220 (a) a scheduled bank [not being 1[* * *] a bank incorporated by or under the laws of a country outside India] or a nonscheduled bank, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding 2[ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner; (b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA)]. 3[(c)a public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA).] Explanation.-For the purposes of this clause,- 4[(i) "non-scheduled bank" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 19495 (10 of 1949), which is not a scheduled bank;] 6[(ia)]"rural branch" means a branch of a scheduled bank 7 [or a non-scheduled bank] situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; 8[(ii) "scheduled bank" means the State Bank of India ---------------------------------------------------------------------- VI-A) or an amount not exceeding two per- cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher' by the income-tax (Amendment) Act, 1986, w.e.f. 1-4-1987. Earlier, these words were substituted for "in respect of any provision for bad and doubtful debts made by a scheduled bank or, a non-scheduled bank in relation to the advances made by its rural branches, an amount not exceeding one and a half per cent of the aggregate average advances made by such branches, computed in the prescribed manner" by the Finance Act, 1985, w.e.f. 1-4-1985. The italicised words were inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 1 The words "a bank approved by the Central Government for the purposes of clause (viiia) or" omitted by the Finance Act, 1994, w.e.f. 1-4-199.5. 2 Substituted for 'four" by the Finance Act, 1994, w.e.f. 1-4- 199.5. Earlier, 'four' was substituted for 'two" by the Finance Act, 1993, w.e.f. 1-4-1994. 3 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 4 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 6 Relettered by the Finance Act, 1982, w.e.f. 1-4-1983. 7 Inserted, ibid. 8 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, clause (ii), as amended by the Finance Act, 1985, w.e.f. 1-4-1985, read as under: "(ii) 'scheduled bank" has the same meaning as in the Explanation to clause (iii) of sub-section (5) of section 11, but does not include a co-operative bank;" 1.221 constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 1 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 19802 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank;] 3[(iii)"Public Financial Institution" shall have the meaning assigned to it in section 4A of the Companies Act, 19564 (1 of 1956); (iv)"State Financial Corporation" means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 19515 (63 of 1951); (v) "State Industrial Investment Corporation" means a Government company within the meaning of section 617 of the Companies Act, 19566 (1 of 1956), engaged in the business of providing long- term finance for industrial projects and approved by the Central Government under clause (viii) of this sub-section;] (Viii) 7[in respect of any special reserve created by a financial corporation which is engaged in providing long-term finance for 8[industrial or 9[agricultural development in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the total income (computed before making any deduction under 10[this ----------------------------------------------------------------------- 3 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 5 Ibid. 6 Ibid. 7 Substituted by the Finance Act, 1966, w.e.f. 1-4-1966 and amended by the Finance (No.-2) Act, 1967, w.e.f. 1-4-1968; the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972-and the Finance Act, 1974, w.e.f. 1-4- 1975. 8 Being substituted by "industrial or agricultural development or development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived from such business of providing longterm finance (computed under the head "Profits and gains of business or profession" before making any deduction under this section) carried to such reserve account" by the Finance Act, 1995, w.e.f. 1-4-1996. 5 Substituted by the Finance Act, 1979, w.e.f. 1-4-1980. 10 Inserted by the Finance Act, 1985, w.e.f. 1-4-1985. ---------------------------------------------------------------------- 1.222 clause and] Chapter VIA) carried to such reserve account:]]] Provided that the corporation 4[or, as the case may be, the company] is for the time being approved2 by the Central Government for the purposes of this clause: Provided further that where the aggregate of the amounts carried to such reserve account from time to time exceeds 3(twice the amount of] the paid-up share capital (excluding the amounts capitalised from reserves) of the corporation 4(or, as the case may be, the company], no allowance under this clause shall be made in respect of such excess. 5[Explanation.-In this clause,- (a) "financial corporation" shall include a public company and a Government company; (b) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 6 (1 of 1956); (c) "Government company" shall have the meaning assigned to it in section 617 of the Companies Act, 19567 (1 of 1956);] 8[(d)"infrastructure facility" shall have the meaning assigned to it in section 80-1A.] 9[(viiia) Omitted by the Finance Act, 1994, w.e.f. 1-4-1995.] ------------------------------------------------------------------------ 1 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980. 3 Inserted by the Finance Act, 1981, w.e.f. 1-4-1982. 4 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980. 5 Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1987. Earlier, an Explanation was substituted by the Finance (No. 2) Act, 1991, also w.r.e.f. 1-4-1987. Prior to the substitution, the Explanation, as inserted by the Finance Act, 1979, w.e.f. 1-4-1980, read as under- 'Explanation.-In this clause, 'public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);" Originally, it was inserted by the Finance Act, 1970, w.r.e.f. 1- 4-1966 and omitted by the Finance Act, 1974, w.e.f. 1-4-1975. 7 Ibid. 8 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 9 Prior to the omission, clause (viiia), as amended by the Finance Act, 1982, w.e.f. 1-4-1983 and Finance Act, 1985, w.e.f. 1-4-1985, read as under: "(viiia)in respect of any special reserve created by a scheduled bank (other than a bank incorporated by or under the laws of a country outside India) which is engaged in banking operations outside India, an amount not exceeding forty per cent of the total income (computed before making any deduction under this clause and Chapter VIA) carried to such reserve account: Provided that, having regard to its capital structure, the extent of its banking operations outside India, its need for resources for such operations outside India and other relevant factors, the bank is, for the time being, approved by the Central Government for the purposes of this clause.* Explanation.-For the purposes of this clause, 'scheduled bank' has the same meaning as in clause (ii) of the Explanation to clause (viia);" ----------------------------------------------------------------------- 1.223 1[(ix) any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its employees: Provided that where such expenditure or any part thereof is of a capital nature, one-fifth of such expenditure shall be deducted for the previous year in which it was incurred; and the balance thereof shall be deducted in equal instalments for each of the four immediately succeeding previous years: Provided further that the provisions of sub-section (2) of section 32 and of sub-section (2) of section 72 shall apply in relation to deductions allowable under this clause as they apply in relation to deductions allowable in respect of depreciation: Provided further that the provisions of clauses (ii), (iii), (iv) and (v) of sub-section (2) 2[and sub-section (5)] of section 35, of sub-section (3) of section 41 and of Explanation 1 to clause (1) of section 43 shall, so far as may be, apply in relation to an asset representing expenditure of a capital nature for the purposes of promoting family planning as they apply in relation to an asset representing expenditure of a capital nature on scientific research;] 3[(X) any sum paid by a public financial institution by way of contribution towards any funds specified under clause (23E) of section 10. Explanation.-For the purposes of this clause, "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 4 (1 of 1956).] (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- 5[(i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;] (ii) 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 previous year in which the ultimate recovery is made; ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1965 w.e.f. 1-4-1965. 2 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 3 Inserted by the Finance Act, 1989, w.e.f. 1-4-1988. 5 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, clause (i) read as under: "(i) no such deduction shall be allowed unless such debt or part thereof- (a) has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money- lending which is carried on by the assessee, and (b) has been written off as irrecoverable in the accounts of the assessee for that previous year;" ---------------------------------------------------------------------- 1.224 (iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year 1[(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)], but the 2 [Assessing] Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year; (iv) where any- such debt or part of debt is written off as irrecoverable in the accounts of the previous year 3[(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] and the 4 [Assessing] Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; 5[(v) where such debt or part of debt relates to advances made by a bank to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the bank has debited the amount of such debt or part of debt in that previous year to the provisions for bad and doubtful debts account made under that clause.] ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 2 Substituted for "Income-tax", ibid, w.e.f. 1-4-1988. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1989. 4 Substituted for "Income-tax", ibid, w.e.f. 1-4-1988. 5 Inserted by the Finance Act, 1985, w.e.f. 1-4-1985. --------------------------------------------------------------------- 1.225 lie. The trust deeds containing such a provision should therefore not be refused recognition if the other conditions prescribed under the rules are satisfied. 6. Winding up of superannuation fund.-An approved superannuation fund cannot be wound up unless necessitated by the winding up or discontinuance of the employer's trade or under-taking. 7. A superannuation fund where rules provide for pension benefits in the form of 'annuity certain' is not entitled for approval, as the same is not covered under rule 89 of the Income-tax Rules. 8. The limit mentioned in rule 80 is in respect of the salary of each employee taken separately and also in respect of each year of his service taken separately. 9. Approval of superannuation funds which provide for payment of annuities to an employee or transfer of equitable interest to another approved superannuation fund when the employee leaves the services voluntarily before he attains the specified age of retirement may not be refused merely on the ground that he left the service voluntarily before he reached the age of normal retirement. 10. The words 'pay' and 'salary' should be interpreted alike for all purposes of the PF Rules since the word 'salary' has been defined in the Act and since contributions to the fund are also being made by the employee members on this basis, the word pay occurring in the Rules relating to withdrawals should also be interpreted to have the same meaning as salary. 11. Gratuity funds.-Initial contributions to approved gratuity funds may be permitted to be made in not more than five annual instalments commencing from the year in which the employee has been admitted to the benefits of the fund. An application for approval of Gratuity Fund may be made three years after the establishment of the gratuity fund. In order that the benefits of approval for the intervening period may not be denied to bona fide funds Commissioners may after considering all the relevant facts of the case accord approval with effect from the date from which it satisfies the conditions laid down in rule 3 of Part C of the Fourth Schedule. 12. Bad debts.-The suggestion of Chambers of Commerce and the Indian Banks Association that in the case of Banks the bad debts claimed should be automatically allowed in their entirety in the assessments of the banks was not acceptable. Where accounts are kept on mercantile basis, interest thereon is taxable irrespective of whether the interest is credited to suspense account or to interest account. The amount of such interest is therefore includible in the taxable income. [Instruction No. 1186, dated 20th June, 1978]
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