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Business Expenditure

Reviewed by Sreeram

Business expenditure means the expenses incurred for operating a particular business. This article is an overview of this terminology.

Accounting Period is the Unit

For the purpose of computing annual profits and gains for assessment to income-tax, each year is a separate and self-contained period of time.The losses and expenses incurred before its commencement or after its expiry cannot be the subject of any allowance in assessing the income of that particular year. In performing the assessment for any particular year, deductions are permissible only in respect of expenses incurred in the relevant accounting period.

Allowance of Eligible Capital Property

You may purchase a property that does not physically exist but instead give you an enduring financial advantage. A few illustrations are altruism, establishments, concessions, and licenses for an unlimited period. We call this sort of property ‘qualified capital property’. The value you pay to purchase this kind of property is a ‘qualified capital expenditure’.

You can’t deduct the full cost of a qualified capital expenditure since it is a capital cost and gives an enduring monetary advantage. In any case, you can deduct some portion of its cost every year. This kind of deducted amount is known as annual allowance.

Accrued Liabilities

If a liability accrued during the bookkeeping years is pending to be released at a future date, the sum to be utilized in the discharge of that liability should be assessed all-together.

Contractual  Liabilities

A contractual liability takes shape the moment the assessee consents to make the required payments.

Disputed Liabilities

A statutory liability of an assessee, following the trade framework is permissible in the year in which it emerges despite the fact that it is debated by the assessee.

Where a liability out of an authoritative commitment is debated, the assessee is qualified to make a reasoning in the appraisal year significant to the earlier year in which the question is at last mediated upon and settled.

Leave Encashment

Leave encashment is a provision where employees will be paid for the leaves availed by them. Leave encashment is fully taxable. Provision of deduction for obligation towards leave encasement would be permitted.

Remuneration

Remuneration paid to directors for services in the previous years is allowable in the year in which the resolution approving the payment is passed.

Damages

Where the liability to pay damages is under dispute, such liability would accrue only when the settlement of the dispute is made, even if the assessee is following the mercantile system of accounting.

Deferred Expenses

The revenue expenditure, which is incurred wholly and exclusively for purpose of business, must be allowed in its entirety in a year in which it is incurred; it cannot be spread over a number of years even if the assessee has written it off in its books over a period of a number of years.