BASIC PRINCIPLES FOR ARRIVING AT BUSINESS INCOME: -

BASIC PRINCIPLES FOR ARRIVING AT BUSINESS INCOME: -

Deductions allowed from Income
Since there are different types of businesses and each business has different types of
expenses and incomes it is practically impossible to mention each and every type of
expense under the act hence we follow the general guidelines that will help us in
deciding which expenses would be allowed as deduction and which would be
disallowed by the act
1. Personal Expenses of the proprietor are not allowed to be debited to the profit
and loss account of the business.
2. Expenses in the nature of penalty are not allowed as deduction
3. Capital Gains or capital losses, which are incurred in the sale of capital assets,
are not allowed as deduction.
4. The particular expense should not be disallowed by the income tax act
1961[meaning there are some expenses which are totally disallowed, like
advertisements related to political party]
5. Expenses of capital nature are not allowed to be debited to the profit and loss
account except capital expenditure on scientific research.
6. Anticipatory expenses, which are contingent in nature, which depend on the
happening or the non-happening of a certain future event, are not allowed. such
as reserve for doubtful debts or provision for a pending legal case etc.
7. Expense should be incurred in the previous year
8. The expense should be related to the business of the assessee. While applying
this rule it should be noted that the standard business practices and principles of
just and reasonable should be allowed.