# PGBP — Items to be Deducted from Net Profit (Allowances)
When computing PGBP starting from Net Profit as per P&L, certain items are allowable under the IT Act but may not have been debited (or were inadequately recognised). These must be deducted from Net Profit.
## Rule for deductions
Deduct only if not already debited to the Profit & Loss Account. If already debited, no adjustment needed.
## List of allowable deductions
| # | Item | Treatment |
|---|---|---|
| 1 | Depreciation as per Income-tax Act (Sec 32) | Always deduct here (replaces book depreciation added back) |
| 2 | Scientific Research contribution to approved university (Sec 35) | Allowable; not allowed if opting 115BAC |
| 3 | Gift of dry fruits/sweets to important customers | Allowed as revenue expense (business promotion) |
| 4 | Payment in cash up to ₹35,000 to a Transporter | Allowed (higher limit u/s 40A(3) for transporters) |
| 5 | Capital expenditure u/s 35AD — 100% deduction on capital exp. in specified businesses, except Land, Goodwill & Financial Instruments | 100% deduction |
| 6 | Salary paid to sister-in-law in excess of reasonable amount | Allowed — sister-in-law is NOT a relative as per Sec 40A(2)(b). No disallowance |
| 7 | Employer's contribution to PF u/s 36(1)(iv) — allowed if paid before due date of ROI | Sec 43B |
| 8 | Employee's contribution to PF — allowed only if paid before due date of relevant Act (i.e., 15th of next month) | Sec 36(1)(va) — strict deadline (Checkmate Services SC) |
| 9 | Interest on loan after asset put-to-use | Allowed as revenue expense (only for business asset) |
| 10 | Sale of furniture to brother at less than FMV | Sec 40A(2) does NOT apply on sale transactions — no adjustment required |
| 11 | Interest & Municipal taxes for Business portion of house | Allowed if paid before due date of ROI |
| 12 | Additional depreciation u/s 32(1)(iia) — 20% (or 35% for backward area) | For manufacturing/power generation; NOT allowed if opting 115BAC |
| 13 | Expenses on Buy-back of shares, Debenture Issue, Bonus Shares | Allowed as revenue expense |
## Key principles
- 40A(2) applies only to expenditure — sale of asset to a relative below FMV is NOT covered by 40A(2).
- 'Relative' under 40A(2)(b) does NOT include sister-in-law/brother-in-law. It is restricted to specified close relatives (spouse, brother, sister, lineal ascendant/descendant).
- 35AD specified businesses — cold chain, warehouse for agri produce, hospitals (≥100 beds), hotels (2-star+), production of fertilizer, etc. Full 100% deduction; not available under 115BAC.
- Additional depreciation is 20% of actual cost (10% if asset used < 180 days). For backward areas of specified states it is 35% (17.5%).
- 115BAC restrictions — Several incentive deductions (additional depreciation, Sec 35 weighted deduction, Sec 35AD, etc.) are NOT available under the new regime.