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Direct and Indirect Taxation · Profits and Gains of Business or Profession

Deductions Expressly Allowed in Business Income

Updated 10 October 2026 · Fact-checked

These are expenses the Income-tax Act, 2025 specifically allows when you compute profits from business or profession, such as rent, repairs, insurance, municipal taxes and depreciation. To solve a question, check the asset is used for business, test each condition, apply any proportion for part-business use, then compute the allowable amount.

Understand Deductions Expressly Allowed in Business Income

Business income is not simply receipts minus all expenses. The Act lists which expenses you may deduct and under what conditions. Expenses that are not covered by a specific rule must still pass the general test: revenue in nature, incurred wholly and exclusively for the business, and not barred by a disallowance provision.

Section 28 covers premises, machinery, plant and furniture used for the business. It allows insurance premium against damage or destruction, land revenue, local rates and municipal taxes, rent (if you are a tenant), and repairs. The type of repair allowed depends on your position. Current repairs to premises are allowed if you occupy them otherwise than as a tenant. If you are a tenant, repair cost is allowed only where you have undertaken to bear it. Current repairs to machinery, plant and furniture are allowed. All repairs must not be capital in nature.

If the asset is only partly used for business, section 28(2) restricts the deduction to a fair proportionate part, as determined by the Assessing Officer having regard to business usage.

Section 33 gives depreciation on buildings, machinery, plant and furniture (tangible), and on know-how, patents, copyrights, trademarks, licences, franchises and similar business or commercial rights (intangible) acquired on or after 1 April 1998, but not goodwill. The asset must be owned wholly or partly by you and used wholly and exclusively for the business. For a block of assets, depreciation is a prescribed percentage of the written down value (WDV). The rates are prescribed, so the question will give them.

The revenue versus capital test runs through everything. A repair that restores is revenue. An expense that brings a new asset or an enduring advantage is capital, and only depreciation is available on it.

Key rules to remember

Depreciation on a block of assets
Depreciation = prescribed rate × WDV of the block
Section 33(3)(a). Rate is applied on WDV of the block, not on each asset's cost. The rate will be given in the question.
Half-year rule
Depreciation = 50% × prescribed rate × WDV, for an asset acquired in the tax year and used for less than 180 days
Section 33(4). Applies to the asset acquired and used for less than 180 days in that tax year.
Additional depreciation
20% of actual cost of new machinery or plant (10% if used for less than 180 days, balance 10% in the next tax year)
Section 33(8) and (9). Only for manufacturers/producers or power generation, transmission and distribution businesses, and for new machinery or plant meeting the conditions. Conditions (i) to (iv) of section 33(8)(d) apply to machinery or plant other than a ship or an aircraft: it must not have been used earlier by another person, must not be installed in office premises or residential accommodation, must not be an office appliance or road transport vehicle, and must not be an asset whose whole actual cost is allowed as a deduction.
Part business use
Allowable = total expense × business-use proportion
Section 28(2) for rent, repairs, insurance and taxes; section 33(3)(b) for depreciation.
Deficiency on sale or discard of a tangible asset of a power undertaking (section 33(10))
Deduction = WDV − (moneys payable including scrap value), only if moneys payable including scrap value are less than the WDV
Section 33(10) applies to a tangible asset of an undertaking engaged in generation, or generation and distribution, of power, where depreciation is claimed and allowed under section 33(2) as a percentage of actual cost. The asset must be sold, discarded, demolished or destroyed in a tax year other than the year it is first put to use, and the deficiency must be actually written off in the books of account.
Unabsorbed depreciation
Depreciation allowed only up to available profits; the balance is added to the next year's depreciation
Section 33(11). If profits are a loss, no depreciation is allowed in that year, and it carries forward as per the section.
Leased building improvements
Capital expenditure on structure or renovation of a leased building is treated as a building owned by you
Section 33(6). Depreciation is then claimed on it.

How to solve Deductions Expressly Allowed in Business Income questions

Use this order for any question asking you to compute allowable business deductions.

  1. 1List every expense and the asset or purpose it relates to.
  2. 2Classify each as revenue or capital. Repairs that only maintain are revenue. Improvements or new assets are capital.
  3. 3Match revenue items to the right rule: insurance, rates and taxes, rent, repairs. Check the condition (tenant or not, nature of repair).
  4. 4Check usage. If the asset is partly used for personal purposes, apply the business-use proportion.
  5. 5For depreciation, group assets into blocks, find the opening WDV, add additions, deduct sale proceeds, and apply the given rate.
  6. 6Apply the half-rate rule for assets used less than 180 days, and additional depreciation if the conditions are met.
  7. 7Check if profits are sufficient for depreciation under section 33(11) and note any carry forward.
  8. 8Present a clear table: item, amount, allowed or not, reason.

Quickest way: Three-column check

When to use it: When a question lists many expenses and you have little time.

  1. Draw three columns: Item, Revenue or capital, Allowed amount.
  2. Tick the section 28 items first. Then deal with depreciation separately.
  3. Scale down for private use immediately.
  4. For depreciation: opening WDV + additions − sale proceeds = base. Apply the rate, halving it for assets used under 180 days.

Common mistakes in Deductions Expressly Allowed in Business Income

  • Allowing capital repairs as revenue deduction.

    The word repair makes it look like an ordinary expense.

    Fix: Ask whether the spend creates a new asset or lasting benefit. If yes, it is capital; only depreciation applies.

  • Claiming repairs for a rented premises in all cases.

    Students forget the tenant condition.

    Fix: For a tenant, repairs are allowed only if you have undertaken to bear the cost of repairs. Rent itself is allowed.

  • Applying depreciation on the cost of each asset instead of the block WDV.

    Mixing up with accounting depreciation.

    Fix: Use the block method: rate × WDV of the block, as section 33(3)(a) says.

  • Ignoring the 180-day rule.

    The date of use is hidden in the question.

    Fix: Check acquisition and first-use dates. Less than 180 days means 50% of the prescribed rate.

  • Allowing full deduction when the asset is partly personal.

    Forgetting section 28(2) and 33(3)(b).

    Fix: Always scan for private use and restrict the deduction proportionately.

  • Claiming additional depreciation on second-hand plant or office equipment.

    The 20% looks like a general benefit.

    Fix: Check the conditions of section 33(8): manufacturer or power business, new plant, not used earlier, not in office or residence, not office appliances or road transport vehicles.

Worked examples

Example 1

Mr. Rao runs a trading shop in premises held on lease. He paid rent of ₹2,40,000, municipal taxes of ₹12,000 (paid by him), insurance premium of ₹8,000 against damage or destruction of the furniture and plant used in the shop, current repairs to the premises of ₹30,000 (he bears the repairs under the tenancy agreement) and construction of a new partition wall of ₹50,000. All use is for business. Compute the deductions under section 28.

Show the solution
  1. Rent paid as a tenant: ₹2,40,000 is allowed under section 28(1)(c).
  2. Municipal taxes paid: ₹12,000 is allowed under section 28(1)(b).
  3. Insurance premium against damage or destruction of the furniture and plant used for business: ₹8,000 is allowed under section 28(1)(a).
  4. Current repairs of ₹30,000: he occupies as tenant and has undertaken to bear the cost, so allowed under section 28(1)(e).
  5. Partition wall of ₹50,000 is capital expenditure, so not allowed under section 28. Since the shop is held on lease, section 33(6) treats the wall as a building owned by him, so depreciation is available at the prescribed rate.
  6. Total = 2,40,000 + 12,000 + 8,000 + 30,000 = ₹2,90,000.

Answer: Deduction under section 28 is ₹2,90,000. The ₹50,000 wall is capital and attracts depreciation only.

Example 2

A manufacturing company has a block of plant and machinery with opening WDV of ₹10,00,000 (rate 15%). During the tax year it bought a new machine for ₹4,00,000 put to use on 10 June (more than 180 days before year end) and another for ₹2,00,000 put to use on 20 February (less than 180 days). No assets were sold. Both machines are new, not used earlier, and meet all conditions for additional depreciation. Compute total depreciation including additional depreciation.

Show the solution
  1. Normal depreciation on opening WDV: 15% × ₹10,00,000 = ₹1,50,000.
  2. Machine 1 (used 180 days or more): 15% × ₹4,00,000 = ₹60,000.
  3. Machine 2 (used less than 180 days): 50% × 15% = 7.5%; 7.5% × ₹2,00,000 = ₹15,000.
  4. Total normal depreciation = 1,50,000 + 60,000 + 15,000 = ₹2,25,000.
  5. Additional depreciation, machine 1: 20% × ₹4,00,000 = ₹80,000.
  6. Additional depreciation, machine 2: 10% × ₹2,00,000 = ₹20,000. The remaining 10% (₹20,000) is allowed in the next tax year.
  7. Total additional depreciation this year = 80,000 + 20,000 = ₹1,00,000.
  8. Total depreciation = 2,25,000 + 1,00,000 = ₹3,25,000.

Answer: Total depreciation for the year is ₹3,25,000 (normal ₹2,25,000 plus additional ₹1,00,000), with ₹20,000 additional depreciation deferred to the next tax year.

Exam tips

  • Write the section number beside each allowed item. Under the 2025 Act, use section 28 for rent, rates, taxes, repairs and insurance, and section 33 for depreciation.
  • Show the block WDV working in a small table. Step marks go to the opening balance, additions and rate.
  • Always state why an item is disallowed or capitalised, in one line.
  • Check dates in depreciation questions. The 180-day test is a favourite trap, in both normal and additional depreciation.
  • In MCQs, watch for tenant versus owner for repairs, and for part-business use.

Practice questions from Profits and Gains of Business or Profession

Deductions Expressly Allowed in Business Income in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Deductions Expressly Allowed in Business Income: frequently asked questions

Which deductions does section 28 of the Income-tax Act, 2025 allow?

It allows insurance premium against damage or destruction, land revenue, local rates and municipal taxes, rent as tenant, and repairs, for premises, machinery, plant or furniture used for the business. Repairs must not be capital in nature. Part-business use means a proportionate deduction.

How is depreciation computed on a block of assets?

Take the written down value of the block and apply the prescribed percentage. Under section 33(3)(a), the rate applies to the WDV of the block. Add new assets during the year, subtract sale proceeds, and halve the rate for assets used for less than 180 days.

Who can claim additional depreciation?

A business of manufacture or production of any article or thing, or of generation, transmission or distribution of power, on new machinery or plant that meets the conditions in section 33(8). The rate is 20% of actual cost, or 10% if used for less than 180 days, with 10% in the next year.

What happens if profits are too low to absorb depreciation?

Under section 33(11), depreciation is allowed only to the extent of available profits. If the profits are a loss, none is allowed that year. The unallowed amount is added to the next year's depreciation deduction.