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Conditions to be satisfied for claiming deductions

Conditions for claiming deductions

For claiming deductions there are certain conditions which need to be fulfilled. The deduction for income from other sources will be claimed only when certain conditions are satisfied.
  1. It should not be capital expenditure. Capital expenditure is incurred by a company in the process of acquiring assets while expenditure is incurred by a company in a normal course of action. Capital expenditure is treated as a non-recurring item whereas revenue expenditure is treated as a recurring item. Therefore, the difference between them depends on the situation and circumstances of the company.
  2. It should not be a capital expenditure because this kind of expenditure is incurred in acquiring an asset which provides benefits for more than one year. This is so because the principle underlying the rules for deduction is that your income should only be set off against expenses that contributed to earning that income. Therefore, instead of providing entire deduction in the year of expenditure deduction is provided for a number of years in the form of depreciation over the useful life of the asset. Expenditure on capital assets like plant, machinery, patents, buildings, land etc. is considered as capital expenditure and thus not deductible.  Under section 37 these are not deductible.
  3. It should not be a personal expenditure- personal expenditure is those which are incurred for personal use such as food, clothing, and shelter. This expenditure is not related to business. They are incurred for personal or domestic use. Any expenditure that cannot be attributed as providing value to the business will be treated as personal expenditure and will not allow to be deducted.
  4. It should be incurred in a particular current accounting year. The deduction can only be claimed in the year in which expenses are incurred. It should not be of the previous or subsequent year.
This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST Software, GST Return Filing, GST Registration, Section 8 Company Registration, Nidhi Company Registration, IEC Registration, Fssai License, File ITR Online.

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