Section 36 of Income Tax

Section 36 of the Income Tax Act consists of a list of specified deductions for computation of income from business or profession. This article describes these deductions for the attention of our taxpayers.

Insurance Premium

Deductions in insurance premium are provided in respect of the following:

Stocks or shares
Cattle
Employees

Let us understand the quantum of deduction accorded for each of these.

Stocks or Shares

If the taxpayer has claimed insurance premium against the risk of damage or destruction of stocks or shares, the assessee will be offered tax deductions for the entire claim amount.

Cattle

The provision for income tax deductions on the premium paid to insure against the loss of cattle was introduced in the year of 1979. The Finance Act of 1979 introduced provisions that allow a Federal Milk Co-operative society to claim total deductions on the insurance so deposited to fulfil this purpose.

Employees

The taxpayer, who in this case is an employer, can claim total deductions for the insurance premium remitted to insure the health of an employee. The provision is applicable for insurance availed under a scheme framed in behalf by the General Insurance Corporation of India; and which has received the endorsement of the Central Government, Insurance Regulatory and Development Authority and all other insurers.

Bonus or Commission

Any amount remitted to the employee in the form of bonus or commission in a particular year is deductible from tax. The sum of bonus or commission paid should be reasonable with the following factors:

The remuneration of the employee and the conditions of service.
The profit of the business or profession for the particular previous year.
The general or local practice in an identical business or profession.

Taxpayers should note that as per the provisions of the Income Tax Act, deduction under this provision is only granted if payment is remitted within the due date of furnishing return of income under section 139.

Contribution to Employee's Pension Scheme

An employer’s contribution to an employee’s pension scheme is deductible to the extent of 10% of the employee’s salary. The computation of salary with respect to this scheme includes dearness allowance and commission on turnover.

Contribution to Gratuity Fund

Any sum remitted by an employer as a contribution towards an approved gratuity fund formed in favour of the employees under an irrevocable trust will qualify for a tax deduction.

Loss of Animals

Death or ineffectiveness of an animal which is used for business or profession (barring stock-in-trade) will benefit the taxpayer with deductions. This provision is only applicable if the death or incapacity of the animal results in the loss or redundancy of the unit.

Expenditure by a Corporation/Body Incorporate

From the year 2002, expenditures incurred by a corporation or body corporate will be deducted while calculating tax, provided that the expenses are incurred in concurrence with the stipulations of the Act.

Credit Guarantee Trust Fund

Contributions to a notified credit guarantee trust fund by a public financial institution are exempted from tax, and can, therefore be deducted during tax computation.

Security Transaction Tax

Remittance of any security tax by the assessee during any previous year will not be taxable, provided that the income derived from the same is bracketed under the head “Profits and gains of business and profession,” and the concerned assessee is a dealer in securities.

Commodity Transaction Tax

Payment of commodity transactions by the assessee is deductible while computing tax, provided that the income arising from the same is bracketed under the head “Profits and gains of business or profession.”