The Statutory Brief

IT Act 1961 → 2025 / Section 37(1)

Business income

Section 37(1) → Section 34

General deduction for business expenditure; disallowance of illegal expenses and CSR

Section 37(1) of the old Income-tax Act, 1961 · new section 34 under the Income-tax Act, 2025

New reference Section 34

Income-tax Act, 1961Section 37(1)

  • Expenditure wholly and exclusively for business allowed
  • Capital and personal expenses excluded
  • Illegal expenditure, settlement payments and CSR not allowed
  • Political party souvenir advertisements disallowed

Applies to FY 2025-26 (AY 2026-27) and earlier years.

Income-tax Act, 2025Section 34

  • Same general rule, now section 34
  • Exclusions in 34(2)–(3): offences, prohibited benefits (e.g. freebies to doctors), CSR, political souvenirs

Applies from tax year 2026-27 (from 1 April 2026).

What changed

Renumbered; the explanations from the 1961 Act are now written into the section.

Practice notes

  • Freebies in breach of professional regulations remain disallowed (34(3)(b)).

These are summaries, not the statutory text. Read the bare Act for both sections on the Income Tax Department's official site, which also has a side-by-side comparison utility.

Frequently asked

Is CSR expenditure deductible under the new Income Tax Act 2025?

No. Section 34(2)(b) disallows CSR expenditure under section 135 of the Companies Act.

What is section 37(1) called in the new Income-tax Act, 2025?

Section 37(1) of the Income-tax Act, 1961 corresponds to Section 34 of the Income-tax Act, 2025, which applies from 1 April 2026 (tax year 2026-27).

What changed in section 37(1) under the new Income Tax Act?

Renumbered; the explanations from the 1961 Act are now written into the section.

Is section 37(1) still applicable for FY 2025-26?

Yes. Income of FY 2025-26 (AY 2026-27) and earlier years is governed by section 37(1) of the 1961 Act. Section 34 of the 2025 Act applies from tax year 2026-27.

Related sections

40→35Amounts not deductible: TDS defaults (40(a)) and partner remuneration/interest (40(b))43B→37Deductions allowed only on actual payment (taxes, PF, bonus, leave encashment, MSME dues)44AB→63Tax audit of accounts for businesses and professions above turnover limits