COMPUTATION OF TOTAL INCOMECentral

Section 38 of The Income Tax Act 1961

(1)Where a part of any premises is used as dwelling house by the assessee,—
1. (a)the deduction under sub-clause (i) of clause (a) of section 30, in the case of rent, shall be such amount as the ¹⁰[Assessing Officer] may determine having regard to the proportionate annual value of the part used for the purpose of the business or profession, and in the case of any sum paid for repairs, such sum as is proportionate to the part of the premises used for the purpose of the business or profession;
2. (b)the deduction under clause (b) of section 30 shall be such sum as the 8[Assessing Officer] may determine having regard to the part so used.
(2)Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under sub-clause (ii) of clause (a) and clause (c) of section 30, 1. The words “and section 80VV” omitted by Act 32 of 1985, s. 11 (w.e.f. 1-4-1986). 3. Explanation numbered as Explanation 1 thereof by Act 25 of 2014, s. 13 (w.e.f. 1-4-2015). 5. Sub-section (2) omitted by Act 26 of 1997, s. 8 (w.e.f. 1-4-1998). 7. Sub-section (3) omitted by Act 26 of 1997, s. 8 (w.e.f. 1-4-1998). 8. Sub-sections (3A), (3B), (3C) and (3D) omitted by Act 32 of 1985, s. 11 (w.e.f. 1-4-1986). 9. Sub-sections (4) and (5) omitted by Act 26 of 1997, s. 8 (w.e.f. 1-4-1998). clauses (i) and (ii) of section 31 and 1[clause (ii) of sub-section (1)] of section 32 shall be restricted to a fair proportionate part thereof which the ²[Assessing Officer] may determine, having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession. 39. Managing agency commission.—Omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), s. 12, (w.e.f. 1-4-1989).

↩2.Ins. by Act 21 of 1998, s. 15 (w.e.f. 1-4-1962).

↩4.Ins. by s. 13, ibid. (w.e.f. 1-4-2015).

↩6.Ins. by Act 29 of 1978, s. 2 (w.e.f. 1-4-1979).

↩10.Subs. by Act 4 of 1988, s. 2, for “Income-tax Officer”, (w.e.f. 1-4-1988).

Summary

The section outlines the deductions under subsections (i) of clauses (a) of section 30, (ii) and (b) of subsection 30 in the case of rent, (iv) of sub-sections (b), and (c) of sections 30, and provides information on the deduction under subsection (a).
It also mentions the deduction of subsegments (a), (b).

Practical examples

1Rajesh uses a three-story building for his business. He lives on the top floor with his family and uses the bottom two floors as a warehouse and office. Under Section 38, he can only deduct two-thirds of the rent and repair costs for the building.

2Priya bought a car for her consultancy business. She uses it for client meetings during the week but uses it for personal grocery shopping and weekend trips 20 percent of the time. She can only claim 80 percent of the car's depreciation and insurance.

3An artist uses a high-end computer for his digital design work but also uses it for personal gaming. The officer determines that only half the usage is for work, so only half the repair costs are deductible.

FAQ

1. How are shared home and office expenses handled under Section 38 of the Income Tax Act?

Under Section 38 of the Income Tax Act, if you use a part of your dwelling for business, the deductions for rent and repairs are restricted to the fair proportionate part used for business.

2. Can I claim full depreciation on a machine used for personal tasks?

No, Section 38 of the Income Tax Act 1961 states that if a building, machinery, or furniture is not exclusively used for business, the depreciation is restricted to a fair proportionate part.

3. Who decides the proportion of business versus personal use under the Tax Act?

According to Section 38 of the Income Tax Act 1961, the Assessing Officer determines the fair proportionate part of the deduction based on the actual usage.

Test yourself

Q1.Under Section 38 of the Income Tax Act 1961, what happens if a building is used both as a home and an office?

Q2.Section 38 of the Tax Act applies to which specific deductions from earlier sections?

Q3.Under Section 38 of the Income Tax Act 1961, who has the power to determine the fair proportionate part of a shared deduction?

Q4.If a car is used 60 percent for business and 40 percent for personal use, what can be claimed under Section 38 of the Income Tax Act 1961?

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