DT: Amendment in section 36 of P/G/B/P

Click on the following links to read the amendments provided in the previous posts

1. Amendments in Charitable Purpose and Income definition

2. Amendments in Period of Holding and Residential Status

3. Amendment in Additional Depreciation

4. Know everything about section 32AD

Today, we are providing the amendments in section 36 of P/G/B/P.

 

Section 36(1)(iii)

Proviso to section 36(1)(iii) is applicable if the following conditions are satisfied-

a.       a. Capital is borrowed for acquiring an asset and interest is paid or payable in respect of the borrowed capital;

b.     b.  The capital is borrowed for acquisition of the asset for the purpose of extension of an existing business or profession; and

c.       c. The interest liability may or may not be capitalized in the books of account.

If the above conditions are satisfied then interest on borrowed capital till the date asset is first put to use, shall not be allowed as deduction under section 36(1)(iii). However, the same may be capitalized to claim the benefit of depreciation and investment allowance.

Amendment

Proviso to section 36(1)(iii) is applicable only in the case of an existing business. It is not applicable in the case of a new business or in the case of an existing business when there is no extension. Interest on capital borrowed to finance asset acquisition in such cases is allowable as deduction, even if the interest liability related to the period before the asset is first put to use. To avoid the current mischief, the words “for extension of existing business or profession” have been deleted in the said proviso. After this recent amendment, the said proviso will now be applicable even in the case of a new business or in the case of an existing business when there is no extension.

Section 36(1)(vii)

Bad debts are allowed as deduction in the year in which such debts are written off in the books of account of the assessee and such debt has been taken into account in computing the income of the assessee of the current year or earlier year. If such debt becomes irrecoverable on the basis of Income Computation and Disclosure Standards without recording the same in the accounts, no deduction is allowed under the existing provisions of section 36.

Amendment

Newly inserted second proviso to section 36(1)(vii) provides that if a debt becomes irrecoverable on the basis of Income Computation and Disclosure Standards (ICDS) without recording the same in books of account, it shall be allowed as deduction in the previous year in which such debt becomes irrecoverable and it shall be deemed that such debt has been written off as irrecoverable in the accounts for the purpose of section 36(1)(vii).

Section 36(1)(xvii)

As per the newly inserted clause (xvii) to section 36(1), deduction will be allowed in respect of expenditure incurred by a co-operative society, engaged in the business of manufacture of sugar, for purchase of sugarcane at a price which is equal to or less than the price fixed or approved by the government.