Section 32
Section 32: other deductions allowed while computing business income
Section 32 is a catch-all list of specific deductions allowed while computing income chargeable under section 26 (profits and gains of business or profession), beyond the depreciation and bad-debt deductions covered elsewhere in the Act. It runs from clause (a) to (k), each covering a distinct type of expenditure.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
What Section 32 allows
The deductions listed in Section 32 include:
- (a) Bonus or commission paid to an employee for services rendered - but only to the extent it would not otherwise have been payable to the employee as profit or dividend had it not been paid as bonus or commission.
- (b) Interest paid on capital borrowed for the business or profession - excluding interest relating to the period between borrowing for acquiring an asset and the asset being first put to use (which must instead be capitalised); recurring subscriptions paid periodically by shareholders/subscribers to certain Mutual Benefit Societies are deemed capital borrowed.
- (c) Contribution by a public financial institution to the credit guarantee fund trust for small industries, as notified by the Central Government.
- (d) The pro-rata amount of discount on a zero coupon bond, calculated over the bond's life in the prescribed manner.
- (e) Amounts carried to a special reserve by specified entities (public financial institutions, certain public sector financial corporations, banking companies, most co-operative banks, housing finance companies and other financial corporations) for eligible long-term financing businesses - capped at 20% of profits from the eligible business, and no further deduction once the aggregate reserve exceeds twice the paid-up share capital and general reserves.
- (f) Non-capital expenditure incurred by a corporation/body corporate constituted by a Central, State or Provincial Act, notified by the Central Government, and incurred for the objects/purposes authorised by its constituting Act.
- (g) Expenditure by a co-operative society engaged in manufacturing sugar, on purchase of sugarcane at a price not exceeding the government-fixed or approved price.
- (h) Marked-to-market loss or other expected loss, computed as per the notified income computation and disclosure standards.
- (i) Expenditure bona fide incurred by a company for promoting family planning among its employees - capital expenditure is spread over five years (one-fifth per year), and depreciation-type provisions apply to related capital assets.
- (j) The difference between the actual cost of animals used in the business (other than as stock-in-trade) and the amount realised from their carcasses, where the animals have died or become permanently useless.
- (k) Securities transaction tax or commodities transaction tax paid, where the underlying transactions are entered into during the tax year in the course of the business and the resulting income is included under "Profits and gains of business or profession".
Frequently asked questions
Does Section 32 cover depreciation?
No. Depreciation is dealt with separately in Section 33. Section 32 is a list of other specific deductions - bonus/commission, interest on borrowed capital, special reserves, family planning expenditure, securities transaction tax and similar items.
Is all interest on capital borrowed for business deductible?
Not automatically. Interest relating to capital borrowed to acquire an asset, for the period between the borrowing and the asset being first put to use, is excluded from this deduction and must instead be added to the cost of the asset.
What is the cap on the special reserve deduction under Section 32(e)?
The amount carried to the special reserve cannot exceed 20% of the profits from the eligible business for that year, and once the aggregate reserve exceeds twice the specified entity's paid-up share capital plus general reserves, no further deduction is allowed on the excess.
Related sections
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Talk to our tax audit team about claiming these deductionsLast updated 9 September 2026