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Very urgent

manik (ca in practice) (420 Points)

04 May 2011

can a company pay personal expenses of the directors say electricity bills etc?are they deductible?

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12 Replies

(Guest)

i think no.

but wait for more replies

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Pankaj Arora (Learner) (3134 Points)
Replied 04 May 2011

YES you can maintain director's current account...

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 04 May 2011

Yes, they can pay. But they need to a part of their packages, i.e. the offer letter or the agreement made with them. Many company's provide the directors with various amenities like rent-free furnished accommodation, car-with-driver, phone and mobile connections, etc..

Only the thing is that these should form part of the resolution that was passed for their appointment or revision of salary/package, etc. as applicable. So, if the company agrees to to pay, say for example light bill and the same is approved in general meeting, there is no problem for paying it and it is totally deductible.

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 04 May 2011

Originally posted by : Pankaj Arora
	YES you can maintain director's current account...

There is no thing like directors current account as in the case of a partnership they have partners current account.

Pankaj Arora (Learner) (3134 Points)
Replied 04 May 2011

please find attachment on director's current a/c

https://www.garbetts.com/download/directorsaccount.pdf

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Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 04 May 2011

Ok.. I agree but as far as i know, such concept is not in usage in Indian framework. There is no doubt about the existence of the concept - "Directors Current Account".

But from the attachment given in your link, it seems that it is just a personal account of director with the company. This is not related to the question asked.

manik (ca in practice) (420 Points)
Replied 04 May 2011

my question is are these expenses allowed as per IT act:

1. if they form part of the package

2.if they don't

if they form won't these should be entered in directors salary a/c instead of electricity expense a/c

Pankaj Arora (Learner) (3134 Points)
Replied 04 May 2011

if this expenses are taxable in the hand of director as perquisite than it will allowed in company's book

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 04 May 2011

Originally posted by : manik
	my question is are these expenses allowed as per IT act: 1. if they form part of the package 2.if they don't if they form won't these should be entered in directors salary a/c instead of electricity expense a/c

Answers to your questions:

1. They are deductible if they form part of the package.

2. If dont then they shall be debited to directors account and shall be deducted from the payment to be made to director.

Further, if they form part of the package, then it shall be under the main head of salaries and allowances and sub head like other benefits or amenities.

Hitesh Jogani (CA Final...!!) (190 Points)
Replied 04 May 2011

IF its included in the pay packages i.e. his salary or the CTC...

THAN he can actually claim such deductions in respect of such private expenses...

peace....!!!

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Ramil (CA,L.L.B.) (Taxation) (147 Points)
Replied 04 May 2011

hi dear,

Electricity exps incurred on the behalf of the director will be considered as the perquisite to the director and such shall not shown as electricity exps , such shall be shown as part of director salary but for the purpose of this there should be a resolution passing this.however if there is not any resolution approving in this behalf and same is debited as electricity exps in books of the company then it means that company is paying personal exps of director and it shall attract the provs of 227(1A) of companies act which states that whether any personal exps have been charged into pesonal exps account if answer is yes then it's auditor repsonsibility is to state in his report this point.Because naming electricity exps means it is the exps of company while it is the personal exps of the director.

In india there is no concept of director current account.it is prevalent in western countries.

SO finally it is the auditor reponsibility to state in his report this point.

If any further query then ask..........

MUKUL JAIN (PARTNER) (29 Points)
Replied 04 May 2011

One of my client had purchased a Residential House for Rs 3/- (1 + 2(Loan) . After 3 Yr. that house was sold by him in Rs. 4/-. Assume the LTCG arise from this sale is Rs. 1 (after indexation).

Now after this sale he rapaid the balance loan outstaning of Rs. 1 from the sale proceeds and Rs. 2.5 used for his personal purposes and balance Rs. 0.5 used for purchasing the new residential house. The cost of new residential house is Rs. 3. Balance Rs. 2.5 arrange by him from hoUse loan.

Now my questions are given as under:-

1. Can he take the tax benifit of Rs. 1 of repayment of loan otherwise than 80C.
2. Can he take the exemption under 54 for whole of the LTCG of Rs. 1 while he used only Rs.0.50 for purchasing of new residential property.

Plz give your suggestion in this regard with relevent provisions of Income tax Act, 1961

Thanks & Regards

CA. Mukul Jain