Section 37(1) - General clause of Deductions - Income Tax - Ready Reckoner - Income Tax

Section 37(1) : General clause of Deductions Any expenditure other than specifically allowed in Section 30 to 36 , shall be allowed as deduction provided the following conditions are satisfied: i.it is not in the nature of capital expenditure ii.it is not in the nature of personal expenses of the assessee and iii.it is laid out wholly and exclusively for the purposes of the business or profession of the assessee iv. the expenditure should have been incurred during the previous year. EXPLANATION 1 TO SECTION 37(1) : ILLEGAL PAYMENTS Any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. (Examples: hafta, bribes, secret commission) EXPLANATION 2 TO SECTION 37(1) : CORPORATE SOCIAL RESPONSIBILITY EXPENSES Any expenditure incurred by an assessee on the activities relating to Corporate Social Responsibility referred to in Section 135 of the Companies Act, 2013 shall not be deemed to be the expenditure incurred by the assessee for the purposes of the business or profession and shall not be allowed as deduction u/s 37(1) . However, the CSR expenditure which is of the nature described in section 30 to section 36 of the act shall be allowed deduction under those sections subject to fulfillment of conditions, if any, specified therein. The Finance Act, 2022 has inserted the following Explanation 3 to section 37(1) w.e.f. 1-4-2022 EXPLANATION 3 TO SECTION 37(1) For the removal of doubts, it is hereby clarified that the expression expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee,- (i) for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or (ii) to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline , as the case may be, for the time being in force, governing the conduct of such person; or (iii) to compound an offence under any law for the time being in force, in India or [ outside India; or (iv) to settle proceedings initiated in relation to contravention under such law as may be notified by the Central Government in the Official Gazette in this behalf. w.e.f. 01.04.2025 inserted vide Finance (No. 2) Act, 2024 ]