Section 32 of the Income-tax Act, 2025 — Other Deductions for Business and Profession

In plain language

What Section 32 actually deals with

Section 32 of the Income-tax Act, 2025 is the "Other deductions" provision for computing profits and gains of business or profession (chargeable under Section 26). It is the modern successor to Section 36 of the old Income-tax Act, 1961. Importantly, in the 2025 Act the sprawling old Section 36 has been split up. So Section 32 does not cover everything the old Section 36 did — it is only the residual "basket" of specific allowances that did not get their own dedicated section.

Do not confuse this with the old Section 32 (1961), which dealt with depreciation. Under the 2025 Act, depreciation sits in a different section, and Section 32 (2025) is a fresh, renumbered "other deductions" clause.

The eleven allowances inside Section 32(1)

Section 32(1) lists clauses (a) to (k). Each is allowed only if the general conditions of business deductions are met:

• (a) Bonus or commission to employees — allowed only if it is genuinely for services rendered, and would not otherwise have been payable as profit or dividend (i.e. no disguising dividends as bonus).
• (b) Interest on borrowed capital — interest on capital borrowed for the business is deductible, but interest for the period from borrowing (for acquiring an asset) until the asset is first put to use is not allowed as revenue expense; it is capitalised.
• (c) Credit guarantee fund contribution — contributions by public financial institutions to a notified credit guarantee fund trust for small industries.
• (d) Zero coupon bond discount — pro-rata discount amortised over the bond's life (for infrastructure companies, scheduled banks etc.).
• (e) Special reserve — specified financial entities (industrial/agricultural/infrastructure/housing finance) may deduct up to 20% of profits carried to a special reserve, capped once the reserve exceeds twice paid-up capital plus general reserves.
• (f) Statutory corporation expenditure — non-capital expenditure by notified corporations set up under a Central/State Act for authorised objects.
• (g) Sugarcane purchase — expenditure by co-operative sugar factories on cane bought at government-fixed/approved price.
• (h) Marked-to-market / expected losses — computed as per the notified Income Computation and Disclosure Standards (ICDS).
• (i) Family planning expenditure — revenue expenditure by a company is fully deductible; capital expenditure gets one-fifth in the year and the balance over the next four years.
• (j) Animal loss — where animals used for business (not stock-in-trade) die or become permanently useless, the difference between cost and carcass realisation is deductible.
• (k) STT / CTT — Securities Transaction Tax or Commodities Transaction Tax paid, where the related income is taxed as business income.

Who it applies to

Anyone taxable under the head "Profits and gains of business or profession" — sole proprietors, partnership firms, LLPs, companies, co-operatives and financial institutions — can claim the clauses that fit their facts. A salaried employee or a person with only house-property or capital-gains income cannot use Section 32.

How it interacts with the neighbouring sections

Because the old Section 36 was broken apart, the items people most commonly look for are now elsewhere:

• Employer/employee fund contributions (recognised PF, approved superannuation, gratuity, pension/NPS, ESI welfare funds — with the strict "credit before due date" rule for employees' contributions) are dealt with under Section 29.
• Insurance premiums — on stock/stores against fire/damage, health of employees, and cattle/livestock — are under Section 30.
• Bad debts and provision for bad and doubtful debts are under Section 31.
• General conditions for allowability sit in the surrounding sections and in Section 34 (general deduction) and the disallowance rules.

Practical implications

The key practical takeaway is renumbering, not a change in the underlying tax logic. If your accountant earlier claimed something under "Section 36(1)", from 1 April 2026 it may live under Section 29, 30, 31 or 32 depending on the item. Always check that (i) the expense is genuinely for the business, (ii) it is not personal or capital in nature unless a clause specifically permits it, and (iii) statutory timing conditions (like the borrowed-capital "put to use" rule and the reserve caps) are respected. Keep documentation — board resolutions for bonus, loan sanction letters and interest certificates, reserve computations, and STT/CTT contract notes.