Businessmen are allowed to deduct certain expenses when computing their profits. These deductions are allowed under Sections 30 to 37 of the Income-tax Act. The following are some of the deductions that are allowed:
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Expenses wholly and exclusively for the purposes of the business or profession: Any expenditure that is laid out or expended wholly and exclusively for the purposes of the business or profession, and is not of the nature described in Sections 30 to 36, is allowed as a deduction in computing the income chargeable under the head "Profits and Gains of Business or Profession".
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Salary and perquisites paid to employees: Salary and perquisites paid to the employees of the assessee are allowable as a deduction.
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Direct expenses: These are costs that are directly related to the production of goods or services, such as raw materials, labor, and manufacturing overhead.
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Indirect expenses: These are costs that are not directly related to the production of goods or services, but are necessary for the operation of the business, such as rent, utilities, and office supplies.
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Interest on debt: Interest expenses on loans or other forms of debt used to finance the business are deductible.
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Depreciation: Depreciation expenses can be deducted over a number of years. They typically include the costs of computers, furniture, property, equipment, trucks, and more.
It is important to note that the expenses must be "ordinary and necessary" for the industry in which the business operates. Additionally, the expenses must be documented and supported by receipts or other records.
