Deductible Expenses for Machinery, Plant, and Furniture

Every business that runs on machines, tools, or office furniture eventually spends money keeping them in working order. A textile unit oils its looms, a bakery services its ovens, a law firm replaces a cracked office chair. The Income Tax Act does not ignore this reality. Section 31 specifically allows a deduction for repairs and insurance of machinery, plant, and furniture used for business or profession, but only within carefully defined limits. Understanding where those limits sit is one of the more practical, exam-relevant topics in the study of income from business or profession.

What section 31 actually allows 🔗

Section 31 permits two distinct types of deductions, and it is worth treating them separately because they are tested and applied differently.

Current repairs to machinery, plant, or furniture 🔗

The first limb of the section allows a deduction for the amount paid on account of current repairs to machinery, plant, or furniture used for the business. This covers routine, recurring maintenance that keeps an asset functional, such as servicing a generator, repairing a damaged office table, or fixing a faulty part in a production machine. The bare text of the provision is short and direct: it simply permits the amount paid on current repairs as a deduction, without laying out a checklist of qualifying expenses.

Insurance premiums on these assets 🔗

The second limb covers the amount of any premium paid to insure machinery, plant, or furniture against the risk of damage or destruction. If a factory insures its machinery against fire, flood, or theft, the premium paid qualifies for deduction under this clause, provided the asset is used for business purposes. Both limbs exist for the same underlying reason: they let a business claim the ordinary cost of keeping its income-generating assets safe and operational, rather than forcing every rupee spent on maintenance to wait for depreciation.

The real test: what makes an expense “capital in nature” 🔗

The section carries an explanation that quietly does most of the heavy lifting: the amount paid on current repairs does not include any expenditure that is capital in nature. This single line is what separates a deductible repair from a disallowed one, and it is also where most of the litigation under this section has taken place.

The “preserve and maintain” test 🔗

The Supreme Court settled the core test for current repairs in the Saravana Spinning Mills case. It held that the correct question is not simply whether an expense is revenue or capital in the general sense, but specifically whether it qualifies as current repairs. The Court laid down the basic test that the expenditure must be incurred to preserve and maintain an already existing asset, and it must not be aimed at bringing a new asset into existence or securing a new advantage. If those conditions are met, the cost is deductible under section 31, regardless of how large the bill is.

When replacement crosses into capital territory 🔗

Applying this test gets tricky when a business replaces a part rather than merely repairing it. Courts have repeatedly held that each independently functioning machine within a larger production line is treated as a separate asset. So replacing an entire component, such as a full set of spinning frames or a complete machine unit, has been treated as bringing a new asset into existence rather than repairing an old one, even though the surrounding plant continues to run. In one such ruling relying on the Supreme Court’s decision in the Mangayarkarasi Mills case, the tribunal explained that replacing an old machine part with a new one amounts to creating a new asset in place of the old one, and such expenditure falls outside the meaning of current repairs. On the other hand, replacing a small part that keeps an existing machine running, without adding capacity or a fresh asset, has generally been allowed as current repairs. The distinction often comes down to facts: was the business fixing something it already had, or effectively acquiring something new?

Assets covered, and how section 31 sits next to section 30 🔗

Section 31 applies only to machinery, plant, and furniture. Buildings used for business are dealt with separately under section 30, which covers rent, rates, taxes, repairs, and insurance for business premises. Keeping the two apart matters because the tests courts apply, and the surrounding conditions, are not identical. A quick comparison helps:

The structure of these two provisions reflects a deliberate legislative choice to treat immovable property and movable business assets under separate heads, even though the underlying logic of allowing genuine maintenance costs is the same in both.

What happens when an expense does not qualify under section 31 🔗

Not every business expense that fails the current repairs test is automatically lost. If the expenditure is capital in nature, it usually gets added to the actual cost of the asset and becomes eligible for depreciation under section 32 instead of an outright deduction. If the expense is revenue in nature but does not strictly fall within the wording of section 31, such as repairs that do not directly relate to an existing asset owned or used by the business, it may still be claimed as a general business expense under the residuary section 37, subject to that section’s own conditions. In effect, section 31 is not the only route to a deduction, but it is usually the fastest and least contested one when it applies cleanly.

A quick note on the new income-tax law 🔗

Students working through current editions of their textbooks should know that the Income-tax Act, 1961 has now been replaced by the Income-tax Act, 2025, which took effect on 1 April 2026. The substance of section 31 has not disappeared; it has simply moved. The deduction for repairs, rent, and insurance of plant, machinery, and furniture now appears under the renumbered provision, which tax reference material lists as section 28(1) of the new Act, corresponding to the old section 31. The underlying rule, that current repairs exclude capital expenditure, continues largely unchanged, so the case law built up over decades around “current repairs” remains relevant for interpreting the new provision as well.

Why this distinction matters in practice 🔗

For a business, the current repairs versus capital expenditure line has a direct cash-flow impact. A deduction under section 31 reduces taxable profit in the same year the expense is incurred. Capital expenditure, by contrast, is written off gradually through depreciation over several years, which delays the tax benefit. This is exactly why assessing officers scrutinise large repair claims closely, and why businesses are well advised to document what exactly was repaired or replaced, and why, before claiming the deduction. A worn-out bearing replaced in a motor is very different, in the eyes of the law, from an entire motor being swapped out for a new one, even if both get billed under the same heading of “repairs” in a company’s books.

What do you think? If a business replaces one machine in a production line with a more efficient model purely to keep operations running, should that count as a repair or as acquiring a new asset? And how much should the size of the expense, on its own, influence that judgment?

References

1. https://www.hostbooks.com/in/hb/income-tax-act-1961/section-31-repairs-insurance-machinery-plant-furniture/
2. https://www.lawfinderlive.com/archivesc/131598.htm?AspxAutoDetectCookieSupport=1
3. https://indiankanoon.org/doc/129725824/
4. https://taxguru.in/income-tax/accumulated-repairs-expenditure-rented-premisesdeduction-allowable.html
5. https://www.taxtmi.com/manuals?id=1084