Section 28 Rent, rates, taxes, repairs and insurance.

Income-tax Act, 2025 [As Passed]

At a Glance

Document considered: Clause 28 of the Income Tax Bill, 2025 (Old Version) titled "Rent, rates, taxes, repairs and insurance." It sets out categories of deductible expenditures in computing profits and gains of business or profession. It matters to taxpayers carrying on business or profession, lessors/tenants and tax authorities. Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hook: Clause 28 of the Income Tax Bill, 2025 dealing with "Profits and gains of business or profession." Scope: provides that specified amounts shall be allowed as deduction in respect of premises, machinery, plant or furniture "wholly and exclusively" used for business or profession. The clause enumerates categories (insurance premium, land revenue/local rates/municipal taxes, rent when tenant, current repairs when occupied otherwise than as a tenant, and cost of repairs when premises occupied by the assessee as a tenant). Definitions or further explanations: Not stated in the document.

Statutory Provision Mode

Text & Scope

The provision covers deductions in computing business/professional profits for expenses in respect of premises, machinery, plant or furniture that are "wholly and exclusively" used for business/profession. Enumerated deductible items are:

• (a) any premium paid in respect of insurance against risk of damage or destruction of the assets;
• (b) land revenue, local rates or municipal taxes paid;
• (c) rent paid where the premises are occupied by the assessee as a tenant;
• (d) amount paid on account of current repairs, not being capital expenditure, when premises are occupied otherwise than as a tenant;
• (e) cost of repairs, not being capital expenditure, when the premises are occupied by the assessee as a tenant.

Subsection (2) provides that where the asset is partly used or not wholly and exclusively used for business/profession, deduction under subsection (1) shall be restricted to a fair proportionate part as determined by the Assessing Officer, having regard to usage for business/profession.

Interpretation

The text conditions deductions on assets being "wholly and exclusively" used for business/profession; that phrase operates as a threshold requirement. The enumeration is restrictive: only specified categories qualify. The use of the phrase "not being capital expenditure" signals an intention to exclude capital improvements from deduction, limiting allowance to current/repair-type expenditure. The mechanism in subsection (2) entrusts apportionment to the Assessing Officer, implying case-by-case factual determination of proportionate business use.

Exceptions/Provisos

No express provisos, thresholds, or procedural conditions appear in Clause 28 beyond the "wholly and exclusively" condition and the exclusion of capital expenditure. Specific exceptions (e.g., measuring apportionment methods, documentation requirements) are Not stated in the document.

Illustrations

• Example 1: A manufacturing firm uses a factory building solely for manufacturing; premium paid for insurance on the building would be deductible under clause (a) because the premises are wholly and exclusively used for business.
• Example 2: A proprietor runs a business from part of a building and uses part for private residence. Only a fair proportionate part of municipal taxes and repairs, as determined by the Assessing Officer, would be deductible under subsection (2).
• Example 3: A tenant pays rent for business premises; rent paid is deductible under clause (c) provided the premises are wholly and exclusively used for business.

Interplay

Interaction with other statutory provisions, Rules, Notifications or Circulars is Not stated in the document. The clause's reference to determination by the Assessing Officer suggests interaction with assessment procedures under the Income-tax Code, but specific cross-references are Not stated in the document.

Differences between Section 28 of Income-tax Act, 2025 [As Passed] and Clause 28 of Income Tax Bill, 2025 - Old Version

• Scope of use: The Old Version (Clause 28) conditions deductions on premises, machinery, plant or furniture being "wholly and exclusively" used for the purposes of business or profession. The Passed Act (Section 28) omits "wholly and exclusively" and allows deductions in respect of such assets "used for the purposes of the business or profession," thereby broadening applicability.
• Repairs to machinery/plant/furniture: The Passed Act adds a new sub-clause (f) expressly permitting deduction for "current repairs to machinery, plant or furniture, not being in the nature of capital expenditure." The Old Version contains no equivalent clause.
• Tenant repairs: The Old Version's clause (e) refers to "cost of repairs, not being capital expenditure, when the premises occupied by the premises occupied by the assessee as a tenant" (contains a drafting repetition). The Passed Act's clause (e) clarifies that the deduction applies where the premises are occupied by the assessee as a tenant and "where he has undertaken to bear the cost of repairs to the premises." Thus the Passed Act adds an explicit requirement that the tenant has undertaken responsibility for repairs.
• Wording on capital expenditure: The Old Version uses the phrase "not being capital expenditure"; the Passed Act uses "not being in the nature of capital expenditure." This is a drafting refinement but may have interpretive significance.
• Assessing Officer determination: Both versions retain subsection (2) restricting deduction to a fair proportionate part where assets are partly used or not wholly and exclusively used; text is substantially the same though the Old Version's trigger language references "wholly and exclusively" use while the Passed Act's trigger is broader given the removal of that phrase in subsection (1).
• Minor drafting: The Old Version appears to contain a typographical repetition in clause (e). The Passed Act corrects and expands the drafting.

Practical impact of each change

• Removal of "wholly and exclusively": Broadens entitlement to deductions where assets are partly used for business/profession - potentially increasing allowable deductions but subject to apportionment under subsection (2).
• Addition of repairs to plant/machinery/furniture: Clarifies and expressly allows current repair deductions for tangible assets beyond premises - likely reduces disputes where such repairs were previously not expressly listed.
• Tenant repair undertaking requirement: Tightens the conditions for a tenant's deduction for repairs by requiring an undertaking to bear repair costs - may limit deductions where no express undertaking exists.
• Drafting refinement ("in the nature of"): May affect interpretation in borderline cases by focusing on the character of expenditure, rather than the technical label "capital expenditure."
• Subsection (2) retained: Apportionment by the Assessing Officer remains the mechanism to deal with mixed-use assets; practical disputes may shift from entitlement to apportionment methodology.

Practical Implications

• Compliance and risk areas: Taxpayers must establish that assets are "wholly and exclusively" used for business or profession to claim full deductions. Where use is mixed, subsection (2) exposes taxpayers to assessment-time apportionment. The exclusion of capital expenditure demands careful classification of spending as current repair versus capital improvement to avoid disallowance.
• Record-keeping/evidence points: Although the clause does not prescribe records, the textual requirements imply that taxpayers should retain evidence of exclusive business use (floor plans, usage logs), invoices and nature-of-expenditure documentation to substantiate repairs as current (versus capital). Where a tenant seeks deduction for repairs, documentation of tenancy terms and any undertaking to bear repairs is likely to be material-however, the Bill does not state precise documentary requirements.

Key Takeaways

• Clause 28 enumerates limited categories of deductible expenses relating to premises, machinery, plant and furniture for business/profession.
• Full deduction in the Old Version is conditioned on assets being "wholly and exclusively" used for business or profession.
• Capital expenditure is excluded; only current repairs or recurring costs qualify under the repair heads.
• Subsection (2) permits apportionment for mixed-use assets by the Assessing Officer on a fair proportionate basis.
• The Bill does not set out procedural, evidentiary or measurement standards; those are Not stated in the document.
• Ambiguities likely to arise concern classification of expenditure (current v. capital), proving "wholly and exclusively" use, and apportionment methodology.
• Specific operational details (effective date, transitional rules, forms or rulings) are Not stated in the document.

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Full Text:

Section 28 Rent, rates, taxes, repairs and insurance.

Deductions for business asset expenses broadened where used for business, subject to apportionment and capital expenditure classification. Allowable deductions for business or professional profits include insurance premiums, land revenue/local rates/municipal taxes, rent for premises occupied as a tenant, current repairs to premises when not a tenant, and cost of repairs where a tenant has undertaken to bear repair costs. Expenditure in the nature of capital expenditure is excluded. Where assets are partly used for business, deduction is restricted to a fair proportionate part as determined by the Assessing Officer. The Passed Act broadens use-based entitlement and expressly permits repairs to machinery, plant and furniture.