Overview of Allowable Expenses

• Allowable business expenses are those incurred wholly and exclusively for business or professional purposes.
  
• These expenses are deducted from gross income to compute taxable business profits.
  
• They must be genuine, reasonable, and supported by proper documentation.
  
• Capital expenses are not allowable as revenue expenses but may qualify for depreciation.
  
• Personal and non-business expenses are strictly disallowed.
  

Common Allowable Business Expenses

• Rent paid for business premises.
  
• Salaries and wages paid to employees.
  
• Interest on business loans (excluding capital borrowings for personal use).
  
• Electricity and water charges for business operations.
  
• Depreciation on fixed assets as per the Income Tax Act.
  

Administrative and Office Expenses

• Telephone and internet charges related to the business.
  
• Stationery and printing expenses used in the course of business.
  
• Office maintenance and repair costs.
  
• Legal and professional fees paid to consultants, advocates, or chartered accountants.
  
• Bank charges and service fees on business accounts.
  

Selling and Marketing Expenses

• Advertisement and publicity expenses for promoting products or services.
  
• Commission and brokerage paid for business transactions.
  
• Travel and conveyance expenses for business visits.
  
• Sales promotion and entertainment costs for clients (within reasonable limits).
  
• Packaging and transport charges related to goods supplied.
  

Employee Welfare and Compliance Costs

• Contribution to employee provident fund, ESI, and gratuity as per law.
  
• Training and development expenses for staff.
  
• Insurance premium for business assets and employees.
  
• Audit fees and filing charges paid to professionals.
  
• GST and income tax consultancy charges related to the business.
  

Other Specific Allowances

• Repairs and maintenance of machinery and equipment.
  
• Bad debts written off, subject to conditions.
  
• Loss due to fire, theft, or accident, if not covered by insurance.
  
• Subscription to trade journals, industry bodies, and software tools.
  
• Preliminary expenses allowable in 5 equal installments (Section 35D).
  

Conditions for Allowability

• Expense must be directly related to business activity.
  
• Must be incurred in the same financial year.
  
• Should not be excessive or unreasonable under Section 40A(2).
  
• Payment above ₹10,000 in cash (₹35,000 for transporters) may be disallowed.
  
• Proper bills, vouchers, and accounting entries are essential for claiming.