Allowable Expenses

Allowable expenses are legitimate and necessary business costs that are incurred wholly and exclusively for business operations. These expenses are deducted from business income to arrive at the taxable profit.

By allowing such deductions, the tax system ensures that businesses are taxed only on their true profits — not on gross revenue.

 Common Types of Allowable Expenses

Examples of expenses that are typically deductible:

Rent for business premises

Employee salaries and wages

Utilities like electricity, water, and internet

Repairs and maintenance

Raw materials and inventory

Business travel and transportation

Advertising & marketing costs

Office supplies & software

Bank charges

Depreciation/Amortisation of assets used for business

 Key Conditions for Deduction

To be allowable, an expense must be:

 Not Allowable as Business Expenses

• Personal or domestic expenses

• Fines and penalties

• Capital expenditure (unless depreciated)

• Income tax paid

• Expenses related to illegal activities

 Example

A business incurs the following expenses during the year:

 Total Allowable Expenses = ₹5,28,000
These will be deducted from business income to determine taxable profit.