Proper financial management requires an understanding of the nuances of income tax regulations, especially when it comes to which expenses can be deducted for income tax purposes. Certain expenses, while integral to business operations, are not permitted as deductions under the law. This article will discuss such expenses and shed light on the complexities of income tax deductions.



Expenses Not Allowed as Deductions

1. Premium for Life and Health Insurance Premium for Employees [Section 36(1)]


  • A premium paid in cash for employee health insurance is not recognized as an expense.
  • Life insurance premiums paid for employees also cannot be considered an expense.



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2. Bonus or Commission Paid to Employees [Section 36(1)]


  • If a bonus or commission paid to employees is made after the due date for return filing in a financial
    year, it cannot be considered an expense.



3. Interest on Loans [Section 36(1)]


  • Interest paid on personal loans cannot be claimed as a business expense.
  • Interest paid on business/professional loans cannot be claimed if it’s paid after the return filing due date for a financial year.



4. Employer’s Contribution for Employee Benefits [Section 36(1)]


  • Any contribution made to employee benefit funds such as Provident Fund, Superannuation Fund, and Gratuity Fund cannot be claimed as an expense if paid after the due date for return filing in a financial year.



5. Bad Debts [Section 36(1)]


  • Bad debts related to sales can be claimed as an expense, but those related to loans (excluding money lending businesses) cannot.
  • Provisions for doubtful debts are also not allowed as an expense.



6. Business and Professional Expenses [Section 37]


  • Personal expenses incurred using business money are not deductible.
  • Illegal expenses like bribes, secret commissions, etc. are not deductible.
  • Expenses related to political party advertisements are not claimable.
  • Income tax, interest on income tax, and wealth tax paid cannot be claimed as an expense



7. Cash Payments Exceeding Rs.10,000 to a Single Person in a Day [Section 40A(3)]


  • Any single-day expenditure over Rs.10,000 paid in cash to a single person cannot be claimed as an expense.



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8. TDS Requirements


  • If TDS has not been deducted in the current year or has been deducted but not deposited with the government by the due date of return filing, a portion of the sum paid will not be allowed as an expense in the current year.



Read More: Do these advance preparations before filing your income tax return



As you navigate the intricacies of business finance, a clear understanding of non-deductible expenses under income tax regulations is invaluable. To optimize your financial management and tax filing, be aware of these categories of expenses that are not permissible as deductions. As a seasoned Chartered Accountant, I am dedicated to providing valuable insights into the complexities of company law, audits, accounts, and taxation. Remember, a clear understanding of tax regulations is the first step towards sound financial management.