ITA 1961 · Section 36

Section 36 — Other Deductions

Chapter IV-D — Profits and Gains of Business or ProfessionITA 1961Up to AY 2025-26

Function in the statutory architecture

Statutory text — Income-tax Act, 1961

CHAPTER IV

COMPUTATION OF TOTAL INCOME / D. PGBP

Other deductions.

36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28—

(i) the amount of any premium paid in respect of insurance against risk of damage or destruction of

stocks or stores used for the purposes of the business or profession;

(ia) the amount of any premium paid by a federal milk co-operative society to effect or to keep in force

an insurance on the life of the cattle owned by a member of a co-operative society, being a primary society engaged in supplying milk raised by its members to such federal milk co-operative society;

(ib) the amount of any premium paid by any mode of payment other than cash by the assessee as an

employer to effect or to keep in force an insurance on the health of his employees under a scheme framed in this behalf by—

(A) the General Insurance Corporation of India formed under section 9 of the General

Insurance Business (Nationalisation) Act, 1972 (57 of 1972) and approved by the Central Government; or

(B) any other insurer and approved by the Insurance Regulatory and Development Authority

established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);

(ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would

not have been payable to him as profits or dividend if it had not been paid as bonus or commission;

(iia) [Omitted by the Finance Act, 1999, w.e.f. 1-4-2000;]

(iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or

profession :

Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.

Explanation.—Recurring subscriptions paid periodically by share holders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;

(iiia) the pro rata amount of discount on a zero coupon bond having regard to the period of life of such

bond calculated in the manner as may be prescribed.

Explanation.—For the purposes of this clause, the expressions—

(i) "discount" means the difference between the amount received or receivable by the

infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank issuing the bond and the amount payable by such company or fund or public sector company or scheduled bank on maturity or redemption of such bond;

(ii) "period of life of the bond" means the period commencing from the date of issue of the

bond and ending on the date of the maturity or redemption of such bond;

(iii) [***]

(iv) any sum paid by the assessee as an employer by way of contribution towards a recognised

provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the super-annuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fund;

(iva) any sum paid by the assessee as an employer by way of contribution towards a pension scheme, as

referred to in section 80CCD, on account of an employee to the extent it does not exceed 16[fourteen] per cent of the salary of the employee in the previous year.

Explanation.—For the purposes of this clause, "salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites;

(v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity

fund created by him for the exclusive benefit of his employees under an irrevocable trust;

(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause

(x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.

Explanation 1.—For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.

Explanation 2.—For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause;

(vi) in respect of animals which have been used for the purposes of the business or profession otherwise

than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realised in respect of the carcasses or animals;

(vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is

written off as irrecoverable in the accounts of the assessee for the previous year:

Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause:

Provided further that where the amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year on the basis of income computation and disclosure standards notified under sub-section (2) of section 145 without recording the same in the accounts, then, such debt or part thereof shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable and it shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts for the purposes of this clause.

Explanation 1.—For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee.

Explanation 2.—For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of sub-section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches;

(viia) in respect of any provision for bad and doubtful debts made by—

(a) a scheduled bank [not being a bank incorporated by or under the laws of a country outside

India] or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding eight and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner :

Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf,

for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year:

Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five per cent", the words "ten per cent" had been substituted :

Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the fore going provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government:

Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession."

Explanation.—For the purposes of this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005;

(b) a bank, being a bank incorporated by or under the laws of a country outside India, an

amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A);

corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A):

Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, of an amount not exceeding ten per cent of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year;

(d) a non-banking financial company, an amount not exceeding five per cent of the total

income (computed before making any deduction under this clause and Chapter VI-A).

Explanation.—For the purposes of this clause,—

(i) "non-scheduled bank" means a banking company as defined in clause (c) of section 5 of

the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank;

(ia) "rural branch" means a branch of a scheduled bank or a non-scheduled bank situated in a

place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year;

(ii) "scheduled bank" means the State Bank of India constituted under the State Bank of India

Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);

(iii) "public financial institution" shall have the meaning assigned to it in section 4A of the

Companies Act, 1956 (1 of 1956);

(iv) "State financial corporation" means a financial corporation established under section 3 or

section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951);

(v) "State industrial investment corporation" means a Government company within the

meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and eligible for deduction under clause (viii) of this sub-section;

(vi) "co-operative bank", "primary agricultural credit society" and "primary co-operative

agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P;

(vii) "non-banking financial company" shall have the meaning assigned to it in clause (f) of

section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);

(viii) in respect of any special reserve created and maintained by a specified entity, an amount

not exceeding twenty per cent of the profits derived from eligible business computed under the head "Profits and gains of business or profession" (before making any deduction under this clause) carried to such reserve account:

Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and of the general reserves of the specified entity, no allowance under this clause shall be made in respect of such excess.

Explanation.—In this clause,—

(a) "specified entity" means,—

(i) a financial corporation specified in section 4A of the Companies Act, 1956 (1 of

1956);

(ii) a financial corporation which is a public sector company;

(iii) a banking company;

(iv) a co-operative bank other than a primary agricultural credit society or a primary

co-operative agricultural and rural development bank;

(v) a housing finance company; and

(vi) any other financial corporation including a public company;

(b) "eligible business" means,—

(i) in respect of the specified entity referred to in sub-clause (i) or sub-clause (ii) or

sub-clause (iii) or sub-clause (iv) of clause (a), the business of providing long-term finance for—

(A) industrial or agricultural development;

(B) development of infrastructure facility in India; or

(ii) in respect of the specified entity referred to in sub-clause (v) of clause (a), the

business of providing long-term finance for the construction or purchase of houses in India for residential purposes; and

(iii) in respect of the specified entity referred to in sub-clause (vi) of clause (a), the

business of providing long-term finance for development of infrastructure facility in India;

1949) applies and includes any bank or banking institution referred to in section 51 of that Act;

(d) "co-operative bank", "primary agricultural credit society" and "primary co-operative

agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P;

(e) "housing finance company" means a public company formed or registered in India with the

main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes;

(f) "public company" shall have the meaning assigned to it in section 3 of the Companies Act,

1956 (1 of 1956);

(g) "infrastructure facility" means—

(i) an infrastructure facility as defined in the Explanation to clause (i) of sub-section

(4) of section 80-IA, or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions as may be prescribed;

(ii) an undertaking referred to in clause (ii) or clause (iii) or clause (iv) or clause (vi)

of sub-section (4) of section 80-IA; and

(iii) an undertaking referred to in sub-section (10) of section 80-IB;

(h) "long-term finance" means any loan or advance where the terms under which moneys are

loaned or advanced provide for repayment along with interest thereof during a period of not less than five years;

(viiia) [***]

(ix) any expenditure bona fide incurred by a company for the purpose of promoting family planning

amongst its employees :

Provided that where such expenditure or any part thereof is of a capital nature, one-fifth of such expenditure shall be deducted for the previous year in which it was incurred; and the balance thereof shall be deducted in equal instalments for each of the four immediately succeeding previous years :

Provided further that the provisions of sub-section (2) of section 32 and of sub-section (2) of section 72 shall apply in relation to deductions allowable under this clause as they apply in relation to deductions allowable in respect of depreciation :

Provided further that the provisions of clauses (ii), (iii), (iv) and (v) of sub-section (2) and sub-section (5) of section 35, of sub-section (3) of section 41 and of Explanation 1 to clause (1) of section 43 shall, so far as may be, apply in relation to an asset representing expenditure of a capital nature for the purposes of promoting family planning as they apply in relation to an asset representing expenditure of a capital nature on scientific research;

(x) [***]

(xi) any expenditure incurred by the assessee, on or after the 1st day of April, 1999 but before the 1st

day of April, 2000, wholly and exclusively in respect of a non-Y2K compliant computer system, owned by the assessee and used for the purposes of his business or profession, so as to make such computer system Y2K compliant computer system :

Provided that no such deduction shall be allowed in respect of such expenditure under any other provisions of this Act :

Provided further that no such deduction shall be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the

Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this clause.

Explanation.—For the purposes of this clause,—

(a) "computer system" means a device or collection of devices including input and output

support devices and excluding calculators which are not programmable and capable of being used in conjunction with external files, or more of which contain computer programmes, electronic instructions, input data and output data, that performs functions including, but not limited to, logic, arithmetic, data storage and retrieval, communication and control;

(b) "Y2K compliant computer system" means a computer system capable of correctly

processing, providing or receiving data relating to date within and between the twentieth and twenty-first century;

(xii) any expenditure (not being in the nature of capital expenditure) incurred by a corporation or a

body corporate, by whatever name called, if,—

(a) it is constituted or established by a Central, State or Provincial Act; (b) such corporation or body corporate, having regard to the objects and purposes of the Act

referred to in sub-clause (a), is notified by the Central Government in the Official Gazette for the purposes of this clause; and

it is constituted or established;

(xiii) any amount of banking cash transaction tax paid by the assessee during the previous year on the

taxable banking transactions entered into by him.

Explanation.—For the purposes of this clause, the expressions "banking cash transaction tax" and "taxable banking transaction" shall have the same meanings respectively assigned to them under Chapter VII of the Finance Act, 2005;

(xiv) any sum paid by a public financial institution by way of contribution to such credit guarantee fund

trust for small industries as the Central Government may, by notification in the Official Gazette, specify in this behalf.

Explanation.—For the purposes of this clause, "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

(xv) an amount equal to the securities transaction tax paid by the assessee in respect of the taxable

securities trans actions entered into in the course of his business during the previous year, if the income arising from such taxable securities transactions is included in the income computed under the head "Profits and gains of business or profession".

Explanation.—For the purposes of this clause, the expressions "securities transaction tax" and "taxable securities transaction" shall have the meanings respectively assigned to them under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004);

(xvi) an amount equal to the commodities transaction tax paid by the assessee in respect of the taxable

commodities transactions entered into in the course of his business during the previous year, if the income arising from such taxable commodities transactions is included in the income computed under the head "Profits and gains of business or profession".

Explanation.—For the purposes of this clause, the expressions "commodities transaction tax" and "taxable commodities transaction" shall have the meanings respectively assigned to them under Chapter VII of the Finance Act, 2013;

(xvii) the amount of expenditure incurred by a co-operative society engaged in the business of

manufacture of sugar for purchase of sugarcane at a price which is equal to or less than the price fixed or approved by the Government;

(xviii) marked to market loss or other expected loss as computed in accordance with the income

computation and disclosure standards notified under sub-section (2) of section 145.

(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply—

(i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in

computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;

(ii) if the amount ultimately recovered on any such debt or part of debt is less than the difference

between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made;

(iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in

the accounts of an earlier previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year), but the Assessing Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year;

(iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous

year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) and the Assessing Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply;

(v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of

sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.

— Footnotes (gazette text) —

16. Sub. for "ten" by Act No. 15 of 2024, w.e.f. 1-4-2025.

— Source —

Verbatim text reproduced from income-tax-act-1961-as-amended-by-finance-act-2025.pdf (full layout extract, 0-indexed lines 10180-10558). Reproduced under Standard B (gazette-text discipline) — gazette content, French-style colon spacing, italics-for-Provisos/Explanations convention, and *N. footnote-numbering preserved.

PDF-extraction artifacts repaired: per-page header (“INCOME-TAX ACT, 1961 - 2024”), per-page footer, 2+ consecutive blank lines at page-break boundaries collapsed to a single blank, orphaned footnote-marker joining.

Finance Act 2026 overlay: not applicable. FA 2026 amends 14 sections of the 1961 Act (92CA, 139, 144C, 153B, 220, 222, 245, 245MA, 254, 275A, 275B, 276, 278A, 280) — this section is not among them.

Parallel provisions — Income-tax Act, 2025 mapping

Income-tax Act, 1961	Income-tax Act, 2025 / Allied Sources
s. 36(1)(i) — Insurance premium on business stock / health of cattle / health of employees.	s. 35 of the 2025 Act — Same.
s. 36(1)(ii) — Bonus or commission to employees (for services not paid as profit / dividend).	Same.
s. 36(1)(iii) — Interest on capital borrowed for business / profession; FA 2003 proviso — capital-asset-acquisition interest pre-asset-use treated as capital (added to cost).	Same.
s. 36(1)(iva) — Employer NPS contribution under s. 80CCD; FA 2024 raised cap from 10% to 14% of salary.	Same FA 2024 enhancement preserved.
s. 36(1)(v) — Approved gratuity fund contribution.	Same.
s. 36(1)(va) — Employee PF contribution received by employer; deductible only if remitted within due date (Checkmate Services line); FA 2021 Explanation 2 codified.	Same; FA 2021 codification preserved.
s. 36(1)(vii) — Bad debts written off (subject to 36(2) conditions — previously included in income).	Same.
s. 36(1)(viia) — Bank / public-financial-institution NPA provision deduction; FA 2017 extended to NBFCs.	Same FA 2017 extension.
s. 36(1)(viii) — Special reserve for housing-finance / industrial-financing companies (40% of profits).	Same.
s. 36(1)(xv) — STT paid; (xvi) — CTT paid (anti-cascade for derivatives trading).	Same.

Cross-references — Rules, Constitution, allied statutes:

■ Provident Funds Act / EPF Act framework — anchors s. 36(1)(va) employee-PF rule.

■ FA 2021 — Explanation 2 to s. 36(1)(va) codifying anti-Alom-Extrusions / pro-Checkmate Services position.

■ FA 2024 — s. 36(1)(iva) NPS rate hike from 10% to 14%.

■ FA 2017 — s. 36(1)(viia) extended to NBFCs.

Function in the statutory architecture

Section 36 is the specific-deductions catalog for PGBP. It supplements the general s. 37 deduction by enumerating particular categories — insurance, employee contributions, interest, NPS contributions, gratuity funds, bad debts, NPA provisions, special reserves, STT/CTT. Each clause has its own conditions and timing rules.

Historical context / FA amendment trail

Substantively amended in every recent FA. Major reforms: (a) FA 2003 — proviso to s. 36(1)(iii) capitalising pre-use interest. (b) FA 2017 — s. 36(1)(viia) extended to NBFCs. (c) FA 2021 — Explanation 2 to s. 36(1)(va) codifying Checkmate Services position (employee PF deduction only on actual remittance to employee's account by due date). (d) FA 2024 — s. 36(1)(iva) NPS deduction cap raised from 10% to 14% of salary.

Operative consequences

• Insurance — business stock, cattle, employee health.

• Interest on borrowed capital (s. 36(1)(iii)) — deductible; pre-asset-use capital expenditure CAPITALISED to cost.

• Employee PF (s. 36(1)(va)) — strict due-date compliance per Checkmate Services / FA 2021 Explanation 2.

• NPS employer contribution (s. 36(1)(iva)) — up to 14% of salary post-FA 2024.

• Bad debts (s. 36(1)(vii)) — subject to prior inclusion in income (s. 36(2)).

• Bank NPA provision (s. 36(1)(viia)) — operative for banks + NBFCs (FA 2017).

• STT (xv) / CTT (xvi) — anti-cascading for derivative trading.

Verified cases on point

Checkmate Services P. Ltd. v. CIT — (2022) 448 ITR 518 (SC) — 3-Judge Bench

Holding. Foundational on s. 36(1)(va) employee PF contribution. Held — the due date for s. 36(1)(va) deduction is the due date under the RESPECTIVE Provident Fund / Employees' State Insurance Act / etc. — not the s. 139(1) return-of-income due date. Therefore, if the employer fails to remit the employee's contribution within the PF Act due date, the deduction is FOREVER LOST — it cannot be revived by remittance before the s. 139(1) date. Statutorily codified by FA 2021 inserting Explanation 2 to s. 36(1)(va). Overrules the pre-FA 2021 favourable HC line (Alom Extrusions, Sagun Foundry, etc.). Watershed authority that has tightened employer PF compliance.

Case Laws & Commentary

SECTION 36 — Other deductions

Important Case Laws — 1961 Treatise (FA 2026)

Provision in brief: Lists specific allowances for computing PGBP: (i) insurance premium on stocks; (ia) cattle insurance; (ib) employee health-insurance premium; (ii) bonus/commission to employees; (iii) interest on borrowed capital used for business; (iiia) discount on Zero-Coupon Bond; (iv) employer's PF/super-annuation contribution to approved fund; (iva) employer's NPS contribution (cap raised to 14% by FA 2024 for non-Govt employers); (v) employer's gratuity-fund contribution; (va) employee's PF/ESI deposit by due date under the respective Act (Checkmate Services); (vi) animal-loss write-off; (vii) bad debts; (viia) provision for bad debts (banks/FIs); (ix) family-planning expenditure by companies; (xii) STT (since FA 2008); (xv) CTT (since FA 2013); (xvii) sugar-cooperative-society purchases above SAP; (xviii) MTM/expected losses computed under ICDS (FA 2018).

Section Commentary

Catalogue of specific deductions

Section 36(1) lists specific allowances that, by virtue of s. 29, must be allowed in computing PGBP if the assessee satisfies the prescribed conditions. The catalogue grows by accretion — STT (FA 2008), CTT (FA 2013), ICDS-driven MTM (FA 2018, sub-clause (xviii)), MSME-related provisions. Unlike s. 37 (residuary), s. 36(1) deductions are not contingent on a 'wholly and exclusively for business' filter — they have their own specific conditions.

Interest on borrowed capital — s. 36(1)(iii)

The most-litigated clause. Allows interest on capital borrowed for the purposes of business / profession. Two key Supreme Court principles: (i) S.A. Builders — 'commercial expediency' permits interest deduction even where borrowed funds are advanced interest-free to subsidiaries / third parties, if a prudent businessman would so advance. (ii) Munjal Sales — rebuttable presumption that interest-free advances came from own / interest-free funds where assessee has sufficient pool. Pre-FA 2003 position (Core Health Care) allowed interest on borrowed capital for capital asset acquisition; FA 2003 inserted PROVISO requiring capitalisation up to date asset is 'first put to use'.

Employee PF / ESI — s. 36(1)(va) — Checkmate Services landmark

Employee's contribution to PF / ESI / other welfare fund deducted by employer is, in essence, TRUST MONEY held by the employer. Section 36(1)(va) requires it to be deposited by the due date prescribed under the respective welfare law. Checkmate Services (SC 2022) settled that this is a STRICT deadline — failure permanently loses the deduction. Section 43B does NOT rescue it (only employer's own contributions get the s. 43B safe-harbour up to s. 139(1) due date). FA 2021 inserted Expln 2 to s. 36(1)(va) and Expln 5 to s. 43B codifying the Checkmate position. This is now the single most important PGBP compliance trip-wire for payroll-heavy clients.

Bad debts — s. 36(1)(vii) — TRF / Vijaya Bank line

Post-FA 1989 (which removed 'established' from the section), the assessee only needs to WRITE OFF the debt as irrecoverable in the books — proof of actual irrecoverability is not required (TRF Ltd. (SC)). Vijaya Bank (SC) extends this to banks: reduction in advances account on balance sheet (provision-netting method) coupled with P&L debit qualifies as write-off, even without individual customer-ledger reduction. Pre-condition: the debt must have been taken into account in computing income of any earlier year (or represents money lent in ordinary banking course).

NPS — s. 36(1)(iva) — FA 2024 cap raise

Employer's contribution to NPS (notified pension scheme u/s 80CCD(2)) is allowed up to 10% of salary; FA 2024 raised this cap to 14% for non-Government employers in the new tax regime. This aligns with the Government-employee cap and is a major compliance update for HR / payroll teams.

Zero coupon bonds — s. 36(1)(iiia)

Discount on ZCBs issued by infrastructure / specified companies is allowed on a pro-rata basis over the life of the bond. Mechanics codified in Rule 8B.

STT / CTT — ss. 36(1)(xv) / (xvi)

Securities Transaction Tax (FA 2008) and Commodities Transaction Tax (FA 2013) — paid in respect of taxable transactions are allowable as business expenditure. For brokers / dealers, this is integral to their trading P&L.

MTM under ICDS — s. 36(1)(xviii)

Inserted by FA 2018 to permit deduction of MTM / expected losses computed in accordance with ICDS notified u/s 145(2). Brings ICDS-VIII (securities) and related standards into the deduction framework.

CA's check-list summary

(i) Employee PF / ESI — STRICT due-date trap (Checkmate). (ii) Interest on borrowings — capital-vs-revenue / pre-vs-post-put-to-use proviso. (iii) Bad debts — write-off in books sufficient post-1989. (iv) NPS cap monitoring at 14% under new regime. (v) STT / CTT pass-through. (vi) Form 3CD Cl. 20-21 captures these items.

FA 2026 impact: No fresh FA 2026 amendment. FA 2024 had raised employer NPS contribution cap u/s 36(1)(iva) from 10% to 14% for non-Government employers under the new tax regime. FA 2021 inserted Expln 2 to 36(1)(va) clarifying employee-PF strict due date.

Leading Decisions

1. Checkmate Services (P) Ltd. v. CIT

Citation: (2022) 448 ITR 518 (SC)