Section 37 - General - Income-tax Act, 1961

General. 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 1 [ **** ] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . 2 [ Explanation 12 [ 1 ].- For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. ] 13 [ Explanation 2. -For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. ] 14 [ Explanation 3.- For the removal of doubts, it is hereby clarified that the expression expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee,- (i) for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or (ii) to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person; or (iii) to compound an offence under any law for the time being in force, in India or 15 [ outside India; or (iv) to settle proceedings initiated in relation to contravention under such law as may be notified by the Central Government in the Official Gazette in this behalf. ]] (2) 3 [ **** ] 4 [ (2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. ] (3) 5 [ **** ] (3A) 6 [ **** ] (3B) 7 [ **** ] (3C) 8 [ **** ] (3D) 9 [ **** ] (4) 10 [ **** ] (5) 11 [ **** ] **************** NOTES:- 1. Omitted vide Section 11 of the Finance Act, 1985 w.e.f. 01-04-1986 before it was read as, and section 80VV Earlier , Inserted vide Section 10 of the Taxation Laws (Amendment) Act, 1975 w.e.f. 01-04-1976 2. Inserted vide Section 15 of the Finance (No. 2) Act, 1998 w.e.f. 01-04-1962 3. Omitted vide Section 8 of the Finance Act, 1997 w.e.f. 01-04-1998 before it was read as, (2) Notwithstanding anything contained in sub-section (1), any expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year commencing on or after the 1st day of April, 1992 shall be allowed as follows : (a) where the amount of such expenditure does not exceed ten thousand rupees, the whole of such amount; (b) in any other case, ten thousand rupees as increased by a sum equal to fifty per cent of such expenditure in excess of ten thousand rupees. Explanation.- For the purposes of this sub-section, entertainment expenditure includes- (i) the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person; (ii) the amount of any expenditure in the nature of entertainment expenditure [not being expenditure incurred out of an allowance of the nature referred to in clause (i)] incurred for the purposes of the business or profession of the assessee by any employee or other person; (iii) expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work. Earlier , Amended vide Section 15 of the Finance Act, 1994 w.e.f. 01-04-1993 And was Amended vide Section 4 of the Finance (No. 2) Act, 1962 w.e.f. 01-04-1962 And was Amended vide Section 12 of the Finance Act, 1965 w.e.f. 01-04-1965 And was Amended vide Section 4 of the Taxation Laws (Amendment) Act, 1967 w.e.f. 01-10-1967 And was Amended vide Section 6 of the Finance Act, 1968 w.e.f. 01-04-1968 And was Amended vide Section 10 of the Finance Act, 1970 w.e.f. 01-04-1970 And was Amended vide Section 9 of the Finance Act, 1976 w.e.f. 01-04-1977 And was Amended vide Section 17 of the Finance Act, 1983 w.e.f. 01-04-1976/w.e.f. 01-04-1984 And was Amended vide Section 15 of the Finance Act, 1992 w.e.f. 01-04-199 4. Inserted vide Section 2 of the Taxation Laws (Amendment) Act, 1978 w.e.f. 01-04-1979 Earlier , Inserted vide Section 10 of the Finance Act, 1970 w.e.f. 01-04-1970 And was Omitted vide Section 9 of the Finance Act, 1976 w.e.f. 01-04-1977 (2B) Notwithstanding anything contained in this section, no allowance shall be made in respect of expenditure in the nature of entertainment expenditure incurred within India by any assessee after the 28th day of February, 1970. 5. Omitted vide Section 8 of the Finance Act, 1997 w.e.f. 01-04-1998 before it was read as, (3) Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guest-house or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed. Earlier , Inserted vide Section 9 of the Finance Act, 1964 w.e.f. 01-04-1964 6. Omitted vide Section 11 of the Finance Act, 1985 w.e.f. 01-04-1986 before it was read as, (3A) Notwithstanding anything contained in sub-section (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub-section (3B) exceeds one hundred thousand rupees, twenty per cent. of such excess shall not be allowed as deduction in computing the income chargeable under the head Profits and gains of business or profession . Earlier , Inserted vide Section 8 of the Finance Act, 1978 w.e.f. 01-04-1979 And was Omitted vide Section 10 of the Finance (No. 2) Act, 1980 w.e.f. 01-04-1981 before it was read as, (3A) Notwithstanding anything contained in sub-section (1) but without prejudice to the provisions of sub-section (3), where the aggregate expenditure incurred by an assessee on advertisement, publicity and sales promotion in India exceeds forty thousand rupees, so much of such aggregate expenditure as is equal to an amount calculated as provided hereunder shall not be allowed as a deduction, namely :- (i) where such aggregate expenditure does not exceed 1/4 per cent. of the turnover or, as the case may be gross receipts of the business or profession 10% of the adjusted expenditure; (ii) where such aggregate expenditure exceeds 1/4% but does not exceed 1/2 of the turnover or, as the case may be, gross receipts of the business or profession 12 1/2% of the adjusted expenditure; (iii) where such aggregate expenditure does not exceeds 1/2 per cent. of the turnover or, as the case may be, gross receipts of the business or profession 15% of the adjusted expenditure. Explanation : For the purposes of this sub-section, - (a) adjusted expenditure means the aggregate expenditure incurred by the assessee on advertisement, publicity and sales promotion in India as reduced by so much of such expenditure as is not allowed under sub-section (1) and as further reduced by so much of such expenditure as is not allowed under sub-section (3); (b) turnover and gross receipts means turnover or gross receipts, as the case may be, as reduced by any discount or rebate allowed by the assessee. And was Inserted vide Section 17 of the Finance Act, 1983 w.e.f. 01-04-1984 7. Omitted vide Section 11 of the Finance Act, 1985 w.e.f. 01-04-1986 before it was read as, (3B) The expenditure referred to in sub-section (3A) is that incurred on - (i) advertisement, publicity an sales promotion; or (ii) running and maintenance of aircraft and motor cars; or (iii) payments made to hotels. Explanation : For the purposes of sub-sections (3A) and (3B), - (a) the expenditure specified in clause (i) to clause (iii) of sub-section (3B) shall be the aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provision of this Act; (b) expenditure on advertisement, publicity and sales promotion shall not include remuneration paid to employees of the assessee engaged in one or more of the said activities; (c) expenditure on running and maintenance of aircraft and motor cars shall include, - (i) expenditure incurred on chartering any aircraft and expenditure on hire charges for engaging cars plied for hire; (ii) conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also. Earlier , Inserted vide Section 8 of the Finance Act, 1978 w.e.f. 01-04-1979 And was Omitted vide Section 10 of the Finance (No. 2) Act, 1980 w.e.f. 01-04-1981 before it was read as, (3B) Nothing contained in sub-section (3A) shall apply in relation to any expenditure incurred by an assessee on - (i) advertisement in any small newspaper; (ii) advertisement in any newspaper for recruitment of personnel; (iii) the publication in any newspaper of any notice required to be published by or under any law; (iv) the maintenance of any office for the purposes of advertisement, publicity or sales promotion; (v) the payment of salary [as defined in clause (1) of section 17] to any employee engaged in advertisement, publicity or sales promotion; (vi) the holding of, or the participation in, any press conference, sales conference, trade convention, trade fair or exhibition; (vii) publication and distribution of journals, catalogues or price lists; (viii) such other items as may be prescribed. Explanation 1 : For the purposes of clause (i), an advertisement in a newspaper shall be deemed to be an advertisement in a small newspaper, if the average circulation of such newspaper in the year in which such advertisement has been published, is certified by the prescribed authority as not exceeding fifteen thousand copies. Explanation 2 : Average circulation , in relation to any newspaper, shall be taken to be the number arrived at by dividing the aggregate of the number of copies of such newspaper circulated during a year by the total number of days on which such newspaper was published in that year. And was Inserted vide Section 17 of the Finance Act, 1983 w.e.f. 01-04-1984 8. Omitted vide Section 11 of the Finance Act, 1985 w.e.f. 01-04-1986 before it was read as, (3C) Nothing contained in sub-section (3A) shall apply in respect of expenditure incurred by an assessee, being a domestic company as defined in clause (2) of section 80B, or a person (other than a company), who is resident in India in respect of expenditure incurred wholly and exclusively on - (i) advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business; (ii) running and maintenance of motor cars in any branch, office or agency maintained outsaid India for the promotion, of the sale outside India of such goods, services or facilities. Earlier , Inserted vide Section 8 of the Finance Act, 1978 w.e.f. 01-04-1979 And was Omitted vide Section 10 of the Finance (No. 2) Act, 1980 w.e.f. 01-04-1981 before it was read as, (3C) For the removal of doubts, it is hereby declared that nothing contained in sub-section (3A) shall apply in relation to expenditure in the nature of entertainment expenditure incurred by an assessee in connection with advertisement, publicity or sales promotion and such expenditure shall be governed by the provisions of sub-section (2A). And was Inserted vide Section 17 of the Finance Act, 1983 w.e.f. 01-04-1984 9. Omitted vide Section 11 of the Finance Act, 1985 w.e.f. 01-04-1986 before it was read as, (3D) No disallowance under sub-section (3A) shall be made - (i) in the case of an assessee engaged in the business of operation of aircraft, in respect of expenditure incurred on running and maintenance of such aircraft; (ii) in the case of an assessee engaged in the business of running motor cars on hire, in respect of expenditure incurred in running and maintenance of such motor cars. Earlier , Inserted vide Section 8 of the Finance Act, 1978 w.e.f. 01-04-1979 And was Omitted vide Section 10 of the Finance (No. 2) Act, 1980 w.e.f. 01-04-1981 before it was read as, (3D) In a case where an assessee has set up an industrial undertaking for the manufacture or production of any articles, nothing in sub-section (3A) shall apply in respect of any expenditure on advertisement, publicity or sales promotion incurred by the assessee for the purposes of the business of such undertaking, in the previous year in which such undertaking begins to manufacture or produce such articles and each of the two previous years immediately succeeding that previous year. And was Inserted vide Section 17 of the Finance Act, 1983 w.e.f. 01-04-1984 10. Omitted vide Section 8 of the Finance Act, 1997 w.e.f. 01-04-1998 before it was read as, (4) Notwithstanding anything contained in sub-section (1) or sub-section (3),- (i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest-house (such residential accommodation being hereafter in this sub-section referred to as guest-house ); (ii) in relation to the assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest-house or depreciation of any assets in a guest-house: Provided that the aggregate of the expenditure referred to in clause (i) and the amount of any depreciation referred to in clause (ii) shall, for the purposes of this sub-section, be reduced by the amount, if any, received from persons using the guest-house : Provided further that nothing in this sub-section shall apply in relation to any guest-house maintained as a holiday home if such guest-house- (a) is maintained by an assessee who has throughout the previous year employed not less than one hundred whole-time employees in a business or profession carried on by him; and (b) is intended for the exclusive use of such employees while on leave. Explanation .-For the purposes of this sub-section,- (i) residential accommodation in the nature of a guest-house shall include accommodation hired or reserved by the assessee in a hotel for a period exceeding one hundred and eighty-two days during the previous year; and (ii) the expenditure incurred on the maintenance of a guest-house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in respect of such accommodation. Earlier , Inserted vide Section 10 of the Finance Act, 1970 w.e.f. 01-04-1970 11. Omitted vide Section 8 of the Finance Act, 1997 w.e.f. 01-04-1998 before it was read as, (5) For the removal of doubts, it is hereby declared that any accommodation, by whatever name called, maintained, hired, reserved or otherwise arranged by the assessee for the purpose of providing lodging or boarding and lodging to any person (including any employee or, where the assessee is a company, also any director of, or the holder of any other office in, the company), on tour or visit to the place at which such accommodation is situated, is accommodation in the nature of a guest-house within the meaning of sub-section (4). Earlier , Inserted vide Section 17 of the Finance Act, 1983 w.e.f. 01-04-1979 12. Renumbered vide Section 13 of the Finance (No. 2) Act, 2014 w.e.f. 01-04-2015 13. Inserted vide Section 13 of the Finance (No. 2) Act, 2014 w.e.f. 01-04-2015 14. Inserted vide Section 12 of the Finance Act, 2022 w.e.f. 01-04-2022 15. Substituted vide Section 13 of the Finance (No. 2) Act, 2024 w.e.f. 01-04-2025 before it was read as, outside India.