Can I claim this expense? Business deduction rules in plain language
1 min read
Updated 03 Oct 2026
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AI summary
The tests every business expense must pass for income tax, the common disallowances, and a quick table of what is and isn't deductible.
5 sections 4 steps
The four tests
An expense is deductible only if it is:
- For the business, wholly and exclusively, not personal.
- Revenue in nature. Capital spending (machinery, vehicles, computers) is claimed through depreciation over years.
- Backed by evidence: a bill or invoice, and proof of payment.
- Not illegal, and not a penalty for breaking the law.
Common disallowances
| Situation | Effect |
|---|---|
| Cash payment above ₹10,000 to one person in a day (₹35,000 for transporters) | Whole payment disallowed |
| TDS not deducted or not deposited on time (resident payee) | 30% of the expense disallowed until TDS is paid |
| TDS not deducted on payment to a non-resident | 100% disallowed until TDS is paid |
| Unpaid dues to micro or small enterprises beyond 45 days at year end | Disallowed until paid |
| Statutory dues (GST, PF, bonus, leave encashment) unpaid by the ITR due date | Disallowed until paid |
| Employees' PF/ESI deducted from salary but deposited late | Disallowed permanently |
| Expenses for exempt income | Disallowed |
Is it deductible?
| Expense | Deductible? |
|---|---|
| Office rent, salaries, electricity, internet | Yes |
| Business travel and hotel stays | Yes, with bills |
| Mobile phone and vehicle used partly personally | Business portion only |
| Laptop, furniture, machinery | Through depreciation |
| Interest on a business loan | Yes |
| GST you paid and claimed as ITC | No, it isn't a cost |
| Interest on late GST payment | Generally allowed, as it is compensatory |
| Interest on late TDS or income tax | No |
| Penalties and fines for breaking the law | No |
| CSR spending by companies | No |
| Income tax itself | No |
| Family holidays, personal clothing, gifts to relatives | No |
| Donations | Not as business expense; may qualify as a separate deduction |
Practical tips
- Pay suppliers by bank transfer or UPI, never above ₹10,000 in cash.
- Check TDS on rent, contractors and professional fees before paying.
- Keep personal and business spending in separate accounts.
- If you use presumptive taxation, you can't claim these expenses separately. The presumptive income covers them.
Related
- Capital vs revenue expenditure
- Cash limits, MSME payments and other disallowances
- Interest, late fee and disallowance for TDS mistakes
- Depreciation: methods and entries
Sources
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