21
Which one of the following items is not allowed as deduction while computing income from business and profession?
Answer & Solution
Answer: Option
D
Solution:
Option A: Fees paid to the lawyer for drafting partnership deed: This is allowed as a deduction because it's a necessary expense for setting up and running the business. It's a cost to formally establish the business structure.
Option B: Loss due to embezzlement by an employee: This is also allowed as a deduction. It represents a real business loss incurred due to an unforeseen event related to employee actions. Businesses can deduct losses arising from such events.
Option C: Legal expenses paid to protect the building of the business: This is a deductible expense. Maintaining and protecting business assets like buildings are ordinary and necessary for running a business.
Option D: Cost of installing a new telephone: This is generally considered a capital expenditure, not a regular business expense. Capital expenditures are investments that provide long-term benefits to the business. Instead of being fully deducted in the year it is incurred, the cost of a new telephone (or telephone system) is usually capitalized and depreciated over its useful life. Depreciation means a portion of the cost is deducted each year. So, installing a new telephone isn't directly deducted from business income in the year it's purchased; rather it is depreciated.
In simple terms: You can deduct expenses that keep your business running day-to-day. A new telephone is a longer-term investment, so it is depreciated, not fully deducted at once.
Option B: Loss due to embezzlement by an employee: This is also allowed as a deduction. It represents a real business loss incurred due to an unforeseen event related to employee actions. Businesses can deduct losses arising from such events.
Option C: Legal expenses paid to protect the building of the business: This is a deductible expense. Maintaining and protecting business assets like buildings are ordinary and necessary for running a business.
Option D: Cost of installing a new telephone: This is generally considered a capital expenditure, not a regular business expense. Capital expenditures are investments that provide long-term benefits to the business. Instead of being fully deducted in the year it is incurred, the cost of a new telephone (or telephone system) is usually capitalized and depreciated over its useful life. Depreciation means a portion of the cost is deducted each year. So, installing a new telephone isn't directly deducted from business income in the year it's purchased; rather it is depreciated.
In simple terms: You can deduct expenses that keep your business running day-to-day. A new telephone is a longer-term investment, so it is depreciated, not fully deducted at once.