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This section covers following Deductions which are allowed under PGBP

 

1.Section 36(1) (i)

Stock Insurance Premium

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

Section 36(1) Other Deductions (AMENDMENTS) - Amendment November December 2016 Exams CA CS CMA - PGBP Income Amendments

 


 

2.Section 36(1) (ia)

Cattle Insurance 

Cattle Insurance Policy for protection of Indian rural people from financial loss due to death of their cattle

(Cattle is owned by primary milk cooperative society which supplies milk to federal cooperative society 

Insurance is done of this cattle by federal milk cooperative society

Hence,Insurance Premium  is paid by federal milk cooperative society on the life of cattle of primary milk cooperative society

Deduction is allowed of this cattle insurance premium to federal milk cooperative society

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3.Section 36(1) (ib)

Health Insurance 

It is paid by employer on health insurance of employees.It should not be paid by cash. (If paid by cash,then no deduction)

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 4.Section 36(1) (ii)

Bonus and Commission paid to employees

 

Note:-If it is in nature of profit or dividend but disguised as bonus/commission,then deduction not allowed

Also as per Section 43B,

It should be actually paid till Return filing date,otherwise deduction not available(Refer Section 43B)

If declared but not paid till then,then no deduction.

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 5.Section 36(1) (iii) 

Interest on Capital Borrowed (Interest on loan)

The amount of the interest paid in respect of capital borrowed for the purposes of the business or profession.

 

Interest paid in respect of capital borrowed for acquisition of an asset

for extension of existing business or profession(Words removed by AMENDMENT) (whether capitalized in the books of account or not) for the period

beginning from the date on which capital was  borrowed for acquisition of the asset till the date on which such asset was first put to use

shall not be allowed as deduction.

 

 

Effect of Amendment

Interest on loan from date of taking loan to date of put to use is not allowed as deduction. (Earlier,this condition was only for extension of existing business or profession, now it is for all assets, whether existing or new)

 

Note:-

 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;

 

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Interest subject to Section 43B

If loan is taken from banks or financial institutions,it is subject to Section 43B also

i.e. It should be actually paid till Return filing date,otherwise deduction not available(Refer Section 43B)

 

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6.Section 36(1) (iv)

Contribution to Super Annuation Fund/Recognized Providend Fund

It is allowed subject to conditions as may be imposed by Board and subject to such limits which may be prescribed

It should be actually paid till Return filing date,otherwise deduction not available(Refer Section 43B) 

 


 

7.Section 36(1) (v)

Contribution towards Approved Gratuity Fund

It should be created  for exclusive benefit of employees and created through irrevocable trust

 


 

8.Section 36(1) (v)(a)

Any Amt Received from Employee towards Any fund

or

Deducted from Employees Salary

For Example:Employee Contribution to PF(both URPF/RPF Covered here)

When received/deducted,It is treated as PGBP  Income of Employer and

Deduction allowed only if it is paid within due date mentioned in law


 

9.Section 36(1) (vi)

Animals Used for Business or Profession

On the death of such animals,following is allowed as deduction

Actual Cost of Such Animals

Less

Amt realizd on sale of carcasses (dead bodies)

However if animals used as stock in trade(for eg Poultry Farm)then this section not applicable


 

10.Section 36(1) (vii) and (viia)

Bad Debts and Provison for Bad Debts

 

 

Bad Debts

Sales made to A 100000

A paid only 30000 in full settlement

In this case,70000 is bad debts

 

Provision for Bad Debts

Sales made to A 100000

It is expected that only 30000 can be recovered from A

In this case,70000 is Provision for bad debts

 Treatment in Income Tax

Normal Business

Banks/Financial Institutions

No Deduction for  Provision For Bad Debts

Deduction for Provision

Available at Specified Percentage (10%/5%)

 

Deduction for Actual Bad Debts

Written off in Books

Deduction for Actual Bad Debts

Less Provision for Bad Debts in books is available

 

Example:

Suppose Actual Bad debts is 80000

but provision made of 70000

,then balance 10000 allowed here 

 

 

For Normal Assessees(Except Banks/Financial Institutions)

  • Bad Debts allowed as deduction if written off as irrecoverable in books of accounts
  • However, provision for bad debts not allowed as deduction

 

If amount was taken into computation as per Income Disclosure Standards

But not recorded in books of accounts,

And such amount later becomes unrecoverable,

It shall be deemed that it has become irrecoverable in books of accounts for the purpose of this sub-section

and bad debts allowed for the same. 

 This may be of the current year or any previous year

Earlier Provisions

AMENDMENT

Unascertained Income is not recognized in books of accounts

Example

Interest Charged on overdue payments

Unascertained Income is recognized in books of accounts if there is reasonable certaininty regarding its collection

If amount not recoverable, Bad debts could not be booked

 

If amount not recoverable , there can be 2 cases

 

1.If amount was taken into computation as per Income Disclosure Standards

Bad debts can be booked

 

2. If amount was not taken into computation as per Income Disclosure Standards

Bad debts cannot be booked

Hence, Bad Debts were allowed as deduction only if they were written off in books of accounts,

Hence, Bad Debts were allowed as deduction if they were taken into computation as per Income Disclosure Standards

(even if they were not written off in books of accounts)

 

 

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Bad Debts For Banks/Financial Institutions/NBFC (NEW AMENDMENT)

They get deduction for both Provision for Bad debts and Bad debts

 Provision for Bad Debts is allowed as follows

Type of Bank % of PGBP before claiming this deduction
Scheduled Bank  
Rural Branches 10%
Other Branches 5%
   
Others like NBFC 5%
Foreign Bank
Public Financial Instituition
State Financial Corporation
State Industrial Corporation

 Even NBFC Covered Now and get Deduction of amount not exceeding 

5% of total income (before making any deduction under section 36(1)(viia) and Chapter VI-A ) in the case of NBFCs also.

Bad Debts Deduction

Actual Bad Debt

less

Provison for Bad Debt

allowed under this section

Example: Suppose Actual Bad debts is 7% but provison made of 5%,then balance 2% allowed here 


 


 

11 Section 36(1) (viii)

Special Deduction for Finance Companies/Corporation

It is available to

Deduction to Engaged in long term finance for
Housing Finance Company Construction or purchase of houses (residential only)

Finance Corporation which is a PSU

Banking Company

Cooperative Bank

 

Development of

Infrastructure facility

or 

Housing

Any other finance corporation

Development of

Infrastructure facility

   

 

 

Max deduction is

  • Amt transferred to Specific Reserve
  • 20% of Total Income

 

Note:-If amount of total reserve of all the years is greater than twice the (share capital+ General Reserves),then no deduction

 

Taxability on Withdrawal

If amount later withdrawn,then amount withdrawn is deemed to be PGBP income u/s 41 in the year of withdrawal

 


 

12.Section 36(1) (ix)

Expenditure on family planning

It is only allowed to Companies

Revenue Expenditure:-Fully allowed

Capital Expenditure:-Allowed in 5 years


 


14. Deduction for Purchase Price of Sugarcane

Section 36(1) (xvii)

 

Expenditure incurred by a Cooperative Society

for purchase of Sugarcane

is allowed as a deduction

only if such amount is less than or equal to price fixed by Central Government

 

hence, if purchase price of Sugarcane is more than price fixed by Government, balance is not allowed as deduction.

 Example

Particulars Case 1 Case 2
Purchase Price 300000 300000
Amount fixed by Government 280000 310000
Deduction Allowed                    (Lower of Purchase Price and Amount Fixed by Government) 280000 300000

 

 

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QUESTIONS

Q1

Proft and Loss of A Ltd  
SALES 5000000
Less  
EXPENSES 3000000
PROFIT 2000000
   
Suppose expenses include   
Bad Debts 60000
Provison for Bad Debts 10000
  70000
View Answer

Q2

Proft and Loss of Ajay & Co,A proprietorship  
SALES 1000000
Less  
EXPENSES 400000
PROFIT 600000
   
Suppose expenses include  following expenses on Family Planning
Revenue Expenditure 60000
Capital Expenditure 80000
Total 140000
View Answer

Q3

Solve last question assuming it is a Company

View Answer

 


 

 

 

  1. Income Tax
  2. Amendments Income Tax for November 2016 Exams
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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 8 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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