Section 37 of the Income Tax Act
Businesses and professionals often spend money to earn money—on things like marketing, office rent, or legal help. The Income Tax Act understands this and says these costs can be subtracted from profit before tax, as long as they are real business costs. Section 37 is the rule that explains which expenses are allowed—and which aren’t—to encourage honest business growth.
Meaning and Scope of Section 37
- What Section 37 covers:
Any business or professional expense that doesn’t fit in other tax sections (30 to 36), is not a one-time big purchase, and is used fully for the work you do. - Why this matters:
It helps fill gaps when your expense doesn’t fall under rent, wages, repairs, or specific allowances covered elsewhere.
Conditions for Claiming Deduction under Section 37
To use Section 37, four boxes must be ticked:
- The expense must be revenue in nature (like a phone bill), not for something that lasts years (like a new car).
- It has to be incurred only for your business or profession, not for fun or personal reasons.
- The expense should not be personal or capital. That means you cannot use it for yourself or for buying lasting assets.
- It should not be illegal or banned. No bribes or unlawful payments allowed!
- Also, if it’s already covered in Sections 30–36 (like rent or interest), you can’t claim it here.
Types of Expenses Allowed under Section 37
Here are the everyday costs that businesses can subtract:
- Office and admin costs: phones, electricity, office supplies
- Marketing & ads: posters, online ads, promotions
- Professional fees: payments to lawyers, accountants, consultants
- Travel & conveyance: transport, meals, lodging for work trips
- Interest on loans, and costs of raising loans (like brokerage, stamp duty)
- Employee welfare and gifts/bonuses to staff, festival events like Diwali puja
- Group health insurance paid by employer for employees
Expenses Not Allowed under Section 37
You cannot subtract costs that are:
- Capital expenses: buying property, machines, or tenancy rights
- Personal expenses: weekend family trip, personal meals
- Expenses for illegal purposes: bribes, kickbacks, forbidden freebies
- Corporate Social Responsibility (CSR): even if required by law, doesn’t qualify as business cost.
Practical Examples of Section 37 Application
- A small shop owner buys ads in local papers and pays for delivery—to show her new store opening. That’s allowed.
- A doctor pays for a webinar and travels to a medical conference. Allowed.
- A company taking a business loan: interest plus stamp duty count as expenses.
Importance of Proper Documentation
To avoid trouble with tax officers, always keep:
- Invoices, receipts, and bills
- Bank statements or digital payment proofs
- Contracts or appointment letters
- Ledger entries or accounting records.
Without these, expenses can be disallowed—even if they’re valid.
Common Mistakes to Avoid While Claiming Section 37 Deductions
- Claiming personal expenses as business costs (like your lunch or family trip)
- Mixing capital expenses with daily costs (like repairing machinery vs buying it)
- Not keeping records or sloppy documentation
- Paying in cash above ₹10,000 (₹35,000 for transport) —don’t do it!
Expert Tips for Maximizing Section 37 Benefits
- Plan ahead: Know what counts, track business costs early
- Consult a tax pro: Especially helpful during filing
- Stay compliant: Proper invoices, small digital payments, accurate categorization
- Keep business and personal accounts separate—this makes things easier later
Conclusion: Section 37 is a helpful rule that lets honest businesses and professionals subtract day-to-day costs from their earnings—so they don’t pay tax on money they didn’t really make. But rules matter: it must be real business cost, not personal, not capital, not illegal. Good planning and good records make it all work smoothly.
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FAQs
What qualifies as a Section 37 expense?
Any expense that’s revenue in nature, wholly for business, not covered under Sections 30–36, not capital or personal, and legal.
Can I claim group health insurance under Section 37?
Yes, if an employer pays for employee health insurance, it’s considered a business expense.
Are CSR expenses deductible under Section 37?
No. Even if mandatory, CSR isn’t a business cost and is not deductible.
Can I claim expenses with no business income?
Yes—as per the NDTV case, if you can show you’re in business and the cost is valid, deductions are allowed.
Do I need receipts for every expense?
Yes—digital or printed, you must show evidence to support your claims.
Is there a limit on how much I can claim under Section 37?
No fixed limit—but expenses must be justified and reasonable.
What if I accidentally claim a wrong expense?
Respond promptly to notices—provide proofs or file amended returns if needed.
