Expenses Disallowed Under Income Tax Act

There are two kinds of provisions wrt expenditure in Income Tax Act i.e.,

1. Allowable Expenditure- Those expenses which are allowed/ deducted while computing the taxable income under the head “Profits and Gains from Business or Profession”.

2. Disallowed Expenditure- Those expenses which are not allowed/ cannot be deducted while computing the taxable income under the head “Profits and Gains from Business or Profession”. It means such expenses will be added to the income on which tax needs to be remitted.

List of Expenses Disallowed Under Income Tax Act:

Sr. No.	Expenses Head	Income Tax Section	Description
1	Personal Expenses	37(1)	Any expenditure of a personal nature
2	Capital Expenditure	37(1)	Except those specifically allowed under other sections
3	Expenses Incurred for Non-Business Purposes	37(1)	Expenditure not laid out or expended wholly and exclusively for business or profession.
4	Wealth Tax	40(a)(iia)	Any wealth tax paid
5	Income Tax	40(a)(ii)	Any income tax paid or payable
6	Interest, Salary, Bonus, Commission Paid to Partners	40(b)	Interest, salary, bonus, commission, or remuneration paid to partners which is not in accordance with the terms of the partnership deed or exceeds the prescribed limits.
7	Provision for Unascertained Liabilities	40A(7)	Provisions made for unascertained liabilities
8	Expenditure on Prohibited Activities	37(2B)	Expenditure incurred on advertisements in any souvenir, brochure, tract, pamphlet, or the like published by a political party.
9	Illegal Payments	37(1)	Expenses related to activities that are prohibited by law are not deductible.
10	Payments to Relatives and Close Associates	40A(2)	Payments made to relatives or close associates which are deemed excessive or unreasonable.
11	Cash Payments Exceeding Limits	40A(3)	Payments made in cash exceeding ₹10,000 (₹35,000 in case of transporters) in a single day to a person, except under specified circumstances.
12	Provision for Gratuity	40A(7)	Provision made for the payment of gratuity is not allowed as a deduction, except under specified conditions.
13	Certain Payments to Non-Residents	40(a)(i)	Payments to non-residents without deduction of tax at source where TDS is applicable.
14	TDS Defaults	40(a)(ia)	Any payment subject to TDS under Chapter XVII-B which has not been deducted or after deduction, has not been paid on or before the due date specified in Section 139(1).
15	Expenditure on Corporate Social Responsibility (CSR)	37(1)	Expenditure incurred on CSR activities as per Section 135 of the Companies Act, 2013 is not allowed as a deduction.
16	Interest on Borrowed Capital for Acquisition of an Asset	36(1)(iii)	Interest paid on borrowed capital for the period from the date of borrowing till the date on which the asset is first put to use.
17	Expenses Deductible on Actual Payment Basis-on or before the due date of filing an Income Tax Return.	43B	Certain expenses are allowed as a deduction only when they are actually paid, irrespective of the method of accounting. These include: (a)Any Tax, Duty, Cess, or Fee (b)Employee Benefits: Contributions to any provident fund, superannuation fund, gratuity fund, or other funds for the welfare of employees. (c)Bonus or Commission: Any sum payable to employees as a bonus or commission. (d)Interest on Loan or Borrowing: Interest on loans or borrowings from public financial institutions, state financial corporations, or state industrial investment corporations. (e)Leave Encashment: Any sum payable as leave encashment to employees. (f)Payment to Indian Railways:Any amount taxpayers paid to the Indian Railway can be claimed as an expense while making the payment.
18	Expenses Deductible on Actual Payment Basis	43B(h)-from April 1, 2024	If an assessee settles its dues to an MSE beyond the Specified time for a relevant FY, such payment would be disallowed even if made before the return filing due date.

Disclaimer: It is not an Exhaustive list. Important ones have been complied to serve as a ready Reckoner. We do not undertake any responsibility for inadvertent errors, omission or subsequent changes, if any. Need Any Assistance Contact Us.