Section 31 of ITA, 1961 : Section 31: Repairs And Insurance Of Machinery, Plant And Furniture

Explanation using Example

Imagine a business owner, Mr. Sharma, who owns a textile manufacturing company. He uses various machines for the production of textiles. During the financial year, one of the machines breaks down and requires immediate repair to continue production. Mr. Sharma pays ₹50,000 for these repairs. Additionally, he has taken an insurance policy for all the machinery and pays an annual premium of ₹20,000 to cover any unforeseen damages or destruction.

Under Section 31 of The Income-tax Act, 1961, when Mr. Sharma files his income tax return, he can claim deductions for:

1. The ₹50,000 he paid for the current repairs of the machine, as it's a revenue expenditure incurred during the year to maintain the machinery.
2. The ₹20,000 annual premium paid for insuring the machinery against risks of damage or destruction.

However, if Mr. Sharma decided to upgrade the machine to a more advanced model, the expenses incurred would be considered capital expenditure and would not be deductible under this section.