General conditions for allowable deductions
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 34(1) of Income Tax Act 2025
34(1) Any expenditure (not being an expenditure of the nature specified in sections 28 to 33 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”.
Section 34(2) of Income Tax Act 2025
34(2) For the purposes of sub-section (1), an expenditure laid out or expended wholly and exclusively for business or profession by the assessee shall not include any of the following:––
- (a) an expenditure incurred for any purpose which is an offence or is prohibited by law; or
- (b) an expenditure incurred on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013; or
- (c) an expenditure incurred on advertisement in any souvenir, brochure, tract, pamphlet or the like, published by a political party.
Section 34(3) of Income Tax Act 2025
34(3) The expenditure mentioned in sub-section (2)(a) shall include expenditure incurred for––
- (a) any purpose which is an offence under, or is prohibited by, any law in force in or outside India; or
- (b) providing a benefit or perquisite in any form to a person, who may or may not be carrying on a business or exercising a profession, when its acceptance by the person is in violation of any law or rule or regulation or guideline governing the conduct of that person; or
- (c) compounding an offence under any law in force in or outside India; or (d) settling proceedings initiated in relation to contravention under any law notified by the Central Government in this behalf.
FAQs on Section 34 of the Income Tax Act 2025
1. What does Section 34(1) provide for?
Section 34(1) allows deduction of business expenses that are not covered under Sections 28 to 33, and are neither capital nor personal in nature, provided they are wholly and exclusively laid out for business/profession.
2. What types of expenses are excluded under Section 34(1)?
Capital expenditure, personal expenses, and any expense already covered under Sections 28 to 33.
3. Are illegal expenses allowable as deductions?
No. Expenses incurred for purposes that are offenses or prohibited by law are not allowable.
4. Is Corporate Social Responsibility (CSR) expenditure deductible under this section?
No. CSR expenses under Section 135 of the Companies Act, 2013 are not allowed as deductions.
5. Can advertisement costs in political brochures or souvenirs be deducted?
No. Any advertisement expense in materials published by a political party is not deductible.
6. Does the prohibition apply to offenses outside India too?
Yes. Any expenditure that relates to offenses prohibited by laws in or outside India is disallowed.
7. Are perks or benefits that violate laws or regulations allowable?
No. Any benefit or perquisite provided in violation of governing laws or guidelines is disallowed.
8. Is expenditure on compounding legal offenses deductible?
No. Such expenses are not allowable.
9. Can costs incurred to settle proceedings for legal contraventions be claimed?
No. These are explicitly disallowed when related to notified laws by the Central Government.
10. Is the “wholly and exclusively” condition strictly interpreted?
Yes. The expense must be entirely for business/profession. Mixed-purpose or partly personal expenses are not allowed.
11. Who determines if the expense is in violation of law?
The Assessing Officer will examine the facts and legal framework to determine admissibility.
12. Are donations or charity payments deductible under this section?
Only if they are business-related and not CSR or political in nature. Otherwise, they may be allowed under other specific provisions (like Section 80G), not Section 34.
13. Are legal fees deductible if paid in defense of business-related litigation?
Yes, provided the litigation is not related to illegal acts or penalties under law.
14. Can expenses incurred for regulatory compliance (like licenses) be deducted?
Yes, if they are routine and necessary for running the business, and not related to a legal offense.
15. Is entertainment expenditure for clients allowed under this section?
Yes, if it is reasonable, business-related, and not in violation of any law or regulation.
Section 34 ensures that only genuine business expenses, wholly and exclusively incurred for business or professional purposes, are deductible. However, expenses related to unlawful activities, CSR, or political advertisements are strictly disallowed.
The law enforces a strong ethical framework by disqualifying any expenditure connected to illegality, even if incurred abroad. This section upholds tax discipline by allowing only legitimate business costs, thereby promoting transparency and lawful conduct in business operations.
