Building, etc., partly used for business, etc., or not exclusively so used: Clauses 28 and 33 of the Income Tax Bill, 2025 vs. Section 38 of the Income-tax Act, 1961

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Contents

Clause 28 Rent, rates, taxes, repairs and insurance.

Income Tax Bill, 2025

Introduction

The Income Tax Bill, 2025, introduces several significant changes to the taxation framework concerning profits and gains from business or profession. Clauses 28 and 33 specifically address deductions related to expenses on premises and depreciation of assets, respectively. These clauses aim to modernize and streamline the provisions to better align with contemporary business practices. This article provides a comprehensive analysis of these clauses and compares them with the existing Section 38 of the Income-tax Act, 1961, which deals with deductions related to buildings and assets not exclusively used for business purposes.

Objective and Purpose

Clause 28 of the Income Tax Bill, 2025, seeks to provide deductions for expenses incurred on rent, repairs, insurance premiums, and local taxes for premises and assets used in business. The legislative intent is to offer clarity and uniformity in the treatment of such expenses, ensuring they are wholly and exclusively for business purposes. Clause 33 addresses the depreciation of both tangible and intangible assets, aiming to provide a structured approach to calculating depreciation. This clause is designed to encourage investment in new assets and ensure businesses can fairly claim deductions for asset wear and tear. Section 38 of the Income-tax Act, 1961, deals with the apportionment of deductions for assets not exclusively used for business. It aims to ensure that only the business-related portion of expenses is deductible, preventing misuse of deductions for personal or non-business purposes.

Detailed Analysis

Clause 28: Deductions for Rent, Repairs, and Insurance

- Sub-section (1):

Allows deductions for insurance premiums, land revenue, rent, and repair costs, provided these expenses are wholly and exclusively for business purposes.

- Sub-section (2):

Introduces a mechanism for apportioning deductions when premises or assets are not exclusively used for business. The Assessing Officer determines the fair proportionate part of the deduction.

Clause 33: Depreciation Deductions

- Sub-section (1):

Provides for depreciation deductions on tangible and intangible assets used for business, excluding goodwill.

- Sub-sections (2) to (12):

Detail the calculation of depreciation, including specific provisions for power generation assets, block of assets, and conditions for additional deductions on new machinery or plant. It also addresses situations where assets are used for less than 180 days, and the treatment of assets in cases of succession, amalgamation, or demerger.

Section 38 of Income Tax Act, 1961: Apportionment of Deductions

- Sub-section (1):

Addresses deductions for premises partly used as a dwelling, allowing the Assessing Officer to determine the proportionate deduction based on business use.

- Sub-section (2):

Similar to Clause 28(2), it limits deductions for assets not exclusively used for business, ensuring only the business-related portion is deductible.

Practical Implications

The provisions in Clauses 28 and 33 are designed to provide clarity and fairness in the deduction of business expenses and depreciation. Businesses will need to maintain clear records of asset usage and ensure compliance with the apportionment rules to maximize allowable deductions. The updated provisions aim to reduce disputes over deductions and streamline the assessment process.

Comparative Analysis

- Clause 28 vs. Section 38:

Both provisions address the apportionment of deductions for assets not exclusively used for business. Clause 28 provides a more detailed framework, potentially offering clearer guidance to taxpayers and assessing officers.

- Clause 33 vs. Section 38:

While Section 38 focuses on apportionment, Clause 33 provides a comprehensive structure for depreciation, including specific rates and conditions for additional deductions. This reflects a more modern approach to asset depreciation, encouraging investment in new assets.

Conclusion

The Income Tax Bill, 2025, through Clauses 28 and 33, seeks to modernize the tax deduction framework, providing clearer guidelines for businesses. These changes are expected to enhance compliance and reduce litigation by offering detailed provisions for the treatment of business expenses and depreciation. Future developments may include further refinements to address any ambiguities and ensure the provisions remain aligned with evolving business practices.