Expenditure incurred in relation to income not includible in total income

The Income Tax Act implemented in 1961 mandates that certain types of income are not to be counted as a part of a taxpayer’s overall income. However, any expenses incurred in connection with such income can be considered for deduction while computing the taxable income. This article aims to discuss the expenses that can be claimed as a deduction with regards to income that is not included in the total income.

Firstly, income earned through agriculture is exempted from income tax under Section 10(1) of the Income Tax Act. Nonetheless, expenses incurred in generating such income can be claimed as a deduction. These expenses may include the cost of seeds, fertilizers, labor, rent for land, repair and maintenance expenses of agricultural machinery, and so on.

Secondly, dividends received from domestic companies are also exempt from income tax under Section 10(34) of the Income Tax Act. However, any expenses incurred in earning such income can be claimed as a deduction. For example, if an individual invests in shares and incurs brokerage fees or other expenses related to the investment, such expenses can be claimed as a deduction.

Thirdly, long-term capital gains from the sale of listed equity shares or units of equity-oriented funds are exempt from income tax under Section 10(38) of the Income Tax Act. Nevertheless, expenses incurred in connection with such gains can be claimed as a deduction. For instance, if an individual incurs expenses on brokerage fees or other expenses related to the sale of shares or units, such expenses can be claimed as a deduction.

Fourthly, the maturity proceeds of a life insurance policy are exempt from income tax under Section 10(10D) of the Income Tax Act. However, any expenses incurred in relation to the policy can be claimed as a deduction. For example, if an individual pays premiums for a life insurance policy, such premiums can be claimed as a deduction.

Lastly, gifts received by an individual are exempt from income tax under Section 56(2)(x) of the Income Tax Act. Nonetheless, any expenses incurred in connection with such gifts can be claimed as a deduction. For instance, if an individual receives a gift of property and incurs expenses on registration fees or other expenses related to the transfer of property, such expenses can be claimed as a deduction.

In conclusion, though certain income types are exempt from income tax, the expenses incurred in connection with such income can be claimed as a deduction. It is crucial to maintain proper records of such expenses to claim the maximum deduction allowed under the Income Tax Act. Seeking advice from a tax expert is advisable to ensure the proper guidance on claiming deductions.