Section 38 of the Income-tax Act, 1961: Partly Used Business Premises and Assets
Section 38 limits specified business deductions when premises, buildings, machinery, plant or furniture are used partly for business or professional purposes and partly for another purpose. The allowance is restricted to an appropriate business-use share.
What does Section 38 mean?
Sections 30, 31 and 32 address specified deductions for business premises, repairs and insurance of certain assets, and depreciation. Section 38 operates as a restriction where those premises or assets are not devoted exclusively to business or professional use. It does not automatically permit the personal portion of an expense.
Section 38(1): premises partly used as a dwelling house
When the taxpayer uses part of a premises as a dwelling house, Section 38(1) restricts deductions otherwise available under Section 30:
- Rent under Section 30(a)(i): The Assessing Officer determines an allowable amount having regard to the proportionate annual value of the part used for business or profession.
- Repairs under Section 30(a)(i): The deduction is proportionate to the part of the premises used for business or profession.
- Amounts under Section 30(b): The Assessing Officer determines the appropriate amount having regard to the business-use portion.
The actual area, nature of occupation, use and supporting records matter. A floor-area ratio can be useful evidence, but is not a universal statutory formula for every expense.
Section 38(2): building, machinery, plant or furniture used for mixed purposes
If a building, machine, item of plant or furniture is not exclusively used for business or profession, Section 38(2) limits relevant deductions under Sections 30, 31 and 32(1)(ii) to a fair proportionate part determined with regard to business use.
This can affect qualifying repair, insurance and depreciation claims. The proportion should be reasonable and supportable by records; it may differ between assets and periods.
Examples of proportionate deduction
| Illustration | Expense before restriction | Illustrative business use | Illustrative eligible share |
|---|---|---|---|
| Premises repair expense | Rs. 60,000 | 40% | Rs. 24,000 |
| Depreciation otherwise allowable on mixed-use machinery | Rs. 1,20,000 | 75% | Rs. 90,000 |
These examples illustrate apportionment only. Actual eligibility, amounts and percentages depend on the relevant deduction provision, evidence and the Assessing Officer's fair determination.
Practical compliance checklist
- Keep invoices, rental agreements and proof of payment for the expense claimed.
- Maintain floor plans, room measurements or usage records for premises with residential and business functions.
- Maintain asset-use logs or other credible evidence for machinery, plant and furniture used for multiple purposes.
- Apply a consistent, reasonable apportionment methodology and retain the calculation.
- Check other applicable conditions under Sections 30, 31 and 32, and applicable tax-year law.
Income-tax Act, 2025: transition
India's Income-tax Act, 2025 (official text) applies from 1 April 2026. For the tax year and any legacy proceedings in question, verify the governing Act, commencement and savings provisions, and the current statutory language. This article retains Section 38 as a reference to the 1961 Act; it should not be treated as a quotation of the 2025 Act.
Original Section 38 text and legislative notes
The following source material is preserved from the original webpage for reference. Historical footnote markers and formatting reflect the uploaded source; consult the official legislation for authoritative consolidated wording.
(1) Where a part of any premises is used as dwelling house by the assessee,-
(a) the deduction under sub-clause (i) of clause (a) of section 30, in the case of rent, shall be such amount as the 1Assessing Officer may determine having regard to the proportionate annual value of the part used for the purpose of the business or profession, and in the case of any sum paid for repairs, such sum as is proportionate to the part of the premises used for the purpose of the business or profession;
(b) the deduction under clause (b) of section 30 shall be such sum as the 8 Assessing Officer may determine having regard to the part so used.
(2) Where any building, machinery, plant or furniture is not exclusively used
for the purposes of the business or profession, the deductions under sub-clause
(ii) of clause (a) and clause (c) of section 30, clauses (i) and (ii) of section
31 and 2 clause (ii) of sub-section (1) of section 32 shall be restricted to a
fair proportionate part thereof which the 3 Assessing Officer may determine,
having regard to the user of such building, machinery, plant or furniture for
the purposes of the business or profession.
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1. Subs. by Act 4 of 1988, s. 2, for "Income-tax Officer", (w.e.f. 1-4-1988).
2. Subs. by Act 46 of 1986, s. 32, for "clause (i), (ii), (iia) and (iii) of sub-section (1) and sub-section (1A)" (w.e.f. 1-4- 1988).
3. Subs. by Act 4 of 1988, s. 2, for "Income-tax Officer" (w.e.f. 1-4-1988).
2. Subs. by Act 46 of 1986, s. 32, for "clause (i), (ii), (iia) and (iii) of sub-section (1) and sub-section (1A)" (w.e.f. 1-4- 1988).
3. Subs. by Act 4 of 1988, s. 2, for "Income-tax Officer" (w.e.f. 1-4-1988).
3. Subs. by Act 4 of 1988, s. 2, for "Income-tax Officer" (w.e.f. 1-4-1988).
Frequently asked questions
Can I claim full rent for a home used partly as an office?
No. Section 38(1) restricts the deduction under section 30 to the business-use portion. The Assessing Officer may determine the allowable amount based on the relevant facts.
Can depreciation be claimed on a partly business-use car or machine?
Section 38(2) provides for a fair proportionate restriction for eligible buildings, machinery, plant and furniture under section 32(1)(ii), having regard to actual business use.
Does Section 38 itself create a new deduction?
No. It restricts deductions otherwise available under sections 30, 31 and 32 where the asset or premises is not used exclusively for business or profession.
What records support the business-use percentage?
Floor plans, area measurements, usage logs, business records, invoices and other contemporaneous evidence can help substantiate the proportion claimed.