Business Expenses

Reviewed by Anjaneyulu | Updated on Nov 18, 2022



Businesses and professionals have to incur several expenses to earn income. Many of the legitimate business expenses can be deducted from the taxpayers income before it is taxed.

Proper management of a business must include efficient management of the companys tax liabilities, maximising the allowable deductions and minimising the obligations within the boundaries of the law. Therefore, taking advantage of allowable tax deductions can be very beneficial to small business owners and professionals.

Business expenses are the costs incurred to run the business. This is applicable irrespective of a business being a large corporation or a small entity. Business spending is part of the statement of income. Business expenses are subtracted from income on the income statement to arrive at the taxable net income of a business. Business expenses are also referred to as deductions.

In general, companies have some limitations and special considerations for business expense deductions. Business expenses are generally divided into capital expenditures and operational expenditures.

Types of Business Expenses

There are two types of expenses one is revenue expenses, and another is capital expenses. Revenue expenses mean costs incurred for daily business activities, maintenance of office, employee expenses, rent, electricity etc. Capital expenditure means the costs incurred for the purchase of fixed assets.

Revenue expenses are shown under expenses head in profit, and loss account of an entity and capital expenses are shown under assets in the balance sheet of an entity.

Business Expenses under the Income Tax Act

Tax deductions are allowed to businesses and professionals on all the expenses, which are revenue in nature. Section 30 to 36 of the Income Tax Act, 1961 provides a deduction for specific costs like rent, rates, taxes, insurance, depreciation, the interest cost, employee expenses, etc. Section 37 of the Income Tax Act, 1961 provides for the deduction of all other legitimate expenses that are not covered from Section 30 to 36.

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