CHAPTER 01
PROFITS AND GAINS FROM BUSINESS OR PROFESSION
BUSINESS :
U/S 2(13) Business includes any trade, commerce or manufacture or any adventure or concern in the nature
of trade, commerce or manufacture.
In the simple terms, Business means buying, selling and manufacturing of goods to earn profit.
VOCATION :
Vocation refers to any activity which a person practices to earn his livelihood. Example : practice of religion,
painting etc.,
PROFESSION :
U/S 2(36) Profession means those activities for earning livelihood which requires intellectual skill, and
specialized knowledge. Example : Doctor, Lawyers, Charted Accountants, etc…
Proforma of computation of Income from Business:
ASSESSEE:
STATUS
ASSESSMENT YEAR: 2023-2024
: R & OR
PREVIOUS YEAR: 2022-2023
CATEGORY: Individual
PAN/GIR NO:
PARTICULARS
AMOUNT AMOUNT
Net profit as per Profit and Loss A/C
XXXX
ADD:
(1) Inadmissible expenses, Non Business Expenses, Excess
XX
Expenses debited to P/L A/c
(2) Business Income not credited to P/L A/c
XX
(3) Overvaluation of Opening Stock and Undervaluation of Closing
XX
XXXX
Stock
LESS :
(1) Allowed, admissible expenses not debited to P/L A/c
XX
(2) Non Business Income credited to P/L A/c
XX
(3) Undervaluation of Opening and Overvaluation of Closing stock
XX
TAXABLE INCOME FROM BUSINESS
XXXX
XXXXX
Disallowed / Inadmissible expenses :
All expenses incurred either directly or indirectly related to business are allowed as business expenses.
However the following expenses are disallowed and hence to be added back to the net Profit.
Inadmissible expenses are those expenses, which are not allowed under the act.
➢ Personal expenses like marriage expenses, drawing, premium on life and medical insurance,
proprietor salary, rent paid for own building, savings made in NSC, PF etc., household expenses like
Electricity, Telephone used for Residence.
➢ Any payment made in excess of 20,000 either in cash or in bearer cheque, the entire amount is
inadmissible.
➢ Income tax or advance income tax paid.
➢ Interest on loan, taken for personnel purpose.
➢ Provision for bad and doubtful debts, reserve for future losses.
➢ Bonus and commission paid to employees not allowed if it is paid after the due date of filing the
returns. (in case of individuals 31.07.2020)
➢ GST, CD, if is not paid before the due date of filing returns.
➢ Any losses related to capital in nature like loss on sale of assets.
➢ Donations and charities.
➢ Any purchase of capital assets, renovation and extension of buildings.
➢ Cost of sign board fixed on office premises.
➢ Contribution to Staff Welfare Fund and political party.
➢ Difference in trial balance.
➢ Speculation losses.
➢ Preliminary expenses 4/5th is disallowed. Example : market survey, discount omn issue of shares.
➢ Interest on capital.
➢ Employer’s contribution to URPF is not allowed.
➢ Any gratuity not approved or given on adhoc basis is not allowed.
➢ Expenses related to other heads of income.
➢ Family planning expenses.
➢ Personal gifts and presents.
➢ Penalties and fines on excise and customs duty.
Business income :
➢ Bad debts recovered allowed earlier.
➢ Sundary income
➢ Miscellaneous income
➢ Interest from debtors.
➢ Refund of customs duty.
➢ Profit on sale of import license.
➢ Sales tax refund.
➢ Smuggling income.
➢ Export incentive.
Allowed expenses : Expenses incurred for earning the business income is known as Allowed expenses.
➢ Repairs and renewals of business premises.
➢ Rent, taxes and rates related to business.
➢ Bad debts.
➢ Fire insurance paid for building and goods used for business.
➢ Expenditure on scientific research.
➢ Any contribution to approved scientific research institution, college, universities 125% of the amount
contributed is allowed as deduction.
➢ Group insurance premium paid for employees.
➢ Bonus commission paid before the due date.
➢ Sales tax paid before the due date.
➢ Theft in office premises.
➢ Pooja expenses at office.
➢ Employer contribution to RPF.
➢ Revenue advertisement expenses.
➢ Audit fee, establishment expenses.
➢ Staff welfare expenses.
➢ Salary to staff.
➢ Discount allowed.
➢ Guest house and holiday home expenses.
➢ Electricity/telephone bill/water bill/printing/stationary related to business premises.
➢ Travelling expenses relating to business purpose.
➢ Depreciation.
Non business income :It is a Non – part of the business income
➢ Interest on securities.
➢ Agricultural income.
➢ Rent received or income from house property.
➢ Bad debts recovered but not allowed eaelier.
➢ Profit on sale of fixed assets and investments.
➢ Dividend received.
➢ Interest on deposit, dividend o n UTI and mutual funds.
➢ Life insurance policy amount received.
➢ Gifts received from relatives.
➢ Income tax refund.
➢ Shares of income from HUF.
➢ Winning from lottery.
DEPRECIATION :
Depreciation usually means a loss or decline in the value which occurs gradually over useful life of a
material thing, due to physical wear, tear and decay.
Conditions for claiming depreciation :
Condition 1 : Asset must be owned by the assessee.
Condition 2 : It must be used for the purpose of business or profession.
Condition 3 : It should be used during the relevant previous year.
Condition 4 : Depreciation is available on tangible as well as intangible assets.
Block of Assets : It means a group of assets falling within a class of assets comprising of :
i)
Tangible assets being building, machinery, plant or furniture.
ii)
Intangible assets being technical knowhow, patents, goodwill, copyrights, trademarks, licenses,
franchises or any other business or commercial rights of similar nature.
A taxpayer may have different block of assets as given below :
Sl. No
Particulars
Rate
1
Buildings : residential building
5%
2
Buildings : Office, Factory, Go-down
10%
3
Furniture
10%
4
Plant and machinery and motor cars
15%
5
Busses, lorries, Taxies used in business of running them on hire.
30%
6
Busses, lorries taxies
40%
7
Professional books
40%
8
Computers
40%
9
Lifesaving medical equipment
40%
10
Typewriter
15%
11
Sign board
10%
12
Neon sign board
15%
13
Intangible assets
25%
Additional Depreciation :
Additional depreciation is allowed in the case of any new machinery or plant acquired and installed by an
assessee engaged in business of manufacture or production of any article or thing.
PROBLEMS ON INCOME FROM BUSINESS :
1. Smt. Chamundeshwari a resident of Mysore runs a cloth business. Her profit and loss account for
year ending 31st March 2023 as follows :
PARTICULARS
AMOUNT PARTICULARS
AMOUNT
To salary to staff
10,00,000
By Gross profit
30,00,000
To rent, rates and taxes
6,00,000
By interest on PO savings
40,000
A/c
To general expenses
8,00,000
To net profit
6,40,000
30,40,000
30,40,000
Salary includes Proprietor salary Rs.1,20,000 and general expenses includes Rs. 2,00,000 spent for
daughter’s wedding.
Compute taxable income from business for the assessment year 2023-24.
2. The profit and loss A/c for the year ending 31st March 2023 is as follows :
PARTICULARS
AMOUNT PARTICULARS
AMOUNT
Cost of goods sold
7,50,000
23,00,000
Salary to employees
9,90,000
Other expenses
1,00,000
Net profit
4,60,000
Sale proceeds of goods
23,00,000
23,00,000
The salary of Rs. 9,90,000 comprises Rs. 90,000 as employee’s contribution towards RPF. Out of
which Rs. 90,000, Rs. 60,000 is credited in the employee’s provident fund with in due date and the
balance is credited after the due date.
Compute the income from business of Mr. Nataraj for the A.Y 2023-24.
3. The net profit of Mr. Sulaiman of Sulia as per his P/L A/c for the year ended 31-03-2023, after
charging the following items was Rs.2,40,000
Sl.no
Particulars
Amount (Rs)
1
Interest on Capital
20,000
2
Salary to Staff
3
Office Expenses
4
Bad debts written off
13,000
5
Provision for bad-debts
10,000
6
Provision for Income Tax
16,000
7
Donation
10,000
8
Depreciation allowable as per the Act is only
12,000
1,16,000
3,000
Compute income from business for the Assessment Year 2023-2024.
4. The net profit of Mr. Suman of Sonu Enterprises as per P/L A/c for the year ended 31-03-2023, after
charging the following items was Rs.1,20,000
Sl.no
Particulars
Amount (Rs)
1
Office Expenses
1,500
2
Interest on Capital
10,000
3
Salary to Staff
58,000
4
Bad debts written off
6,500
5
Provision for bad-debts
5,000
6
Provision for Income Tax
8,000
7
Donation
5,000
8
Depreciation allowable as per the Act is only
6,000
Compute income from business for the Assessment Year 2023-2024.
5. Mr. Ramesh is the owner of a business. His P & L A/c for the year ending 31-03-2023 is as follows,
compute income from business
Trading & Profit & Loss Account
Particulars
Amount (Rs)
Particulars
Amount (Rs)
To Rent
60,000 By Gross Profit
To Establishment Charges
50,000 By Interest on Govt. Security
25,000
To General Charges
20,000 By Rent from House Property
25,000
To Household Expenses
6,500
To Commission
1,500
To Reserve for bad-debts
5,000
To Advertisement
10,000
5,50,000
To Repair house property
15,000
To Income Tax
20,000
To Depreciation
10,000
To Net Profit
4,02,000
6,00,000
6,00,000
Adjustments:
1) Actual bad debts amount to Rs. 2,000
2) Depreciation for the year amounted to Rs. 6,000.
6. Mr. Shekar presents you the Trading & P&L A/c for the PY 2022-2023.You are required to compute
the business income for the AY 2023-2024.
Trading & Profit & Loss Account
Particulars
To Opening stock
To Purchases
Amount (Rs)
Particulars
85,000 By Sales
2,40,000 By Closing stock
To Wages
35,000
To Freight
12,000
To Gross Profit c/d
1,32,000
Total
5,04,000 Total
Amount (Rs)
3,94,000
1,10,000
5,04,000
To Staff Salary
18,750 By Gross Profit b/d
To Office Rent
12,000 By interest on debenture
17,800
To Audit Fees
5,500 By Bad-debts recovered
5,200
To Income Tax
32,000 By Sundry Income
To Car Expenses
15,000
To General Expenses
58,650
To Donation
2,650
2,500
To Sales Tax Provision
16,000
To Patents
30,000
To Interest on Capital
16,000
To Depreciation on Car
18,000
To Net Profit
23,250
Total
1,32,000
2,47,650 Total
2,47,650
Additional Information:
a) Purchases includes a cash payment of Rs. 30,000
b) Opening stock is undervalued by 15%,
c) Closing stock is overvalued by 10%
d) Out of the Sales tax provision, Sales tax of Rs.1,250 was paid before filing the return of
Income.
e) 40% of bad debts recovered were disallowed earlier.
7. Compute income from business of Mr. J for the AY 2023-2024
Profit & Loss Account for the year ended 31-03-2023
Particulars
Amount (Rs)
Particulars
To Office Expenses
40,000 By Gross Profit
To General Expenses
16,000 By Interest on Govt. Securities
To Interest on Bank Loan
4,000 By Discount received
To Audit fee
4,000 By Bad-debts recovered (not
Amount (Rs)
6,40,000
11,200
16,000
800
written off earlier)
To Interest on Capital
12,000 By Sundry Receipts
16,000
To Rent
20,000 By Dividend
16,000
To Income Tax
16,000
To Charity
8,000
To Legal Expenses
4,000
To Compensation to retrenched
20,000
employee
To Extension of buildings
To Net Profit
20,000
5,36,000
7,00,000
Adjustments:
1) Rent includes Rs.12,000 relates to assesses house in which he lives.
2) Depreciation allowable as per IT Rs. 20,000
3) Legal Expenses includes Rs.3,000 as penalty of Income Tax.
7,00,000
8. From the P/L A/c for the relevant A/Y. Compute income from business of Sri. Babu
Trading & Profit & Loss Account
Particulars
Amount
Particulars
(Rs)
Amount
(Rs)
To Salaries
88,000 By Gross Profit
3,80,000
To Rent
42,000 By Sundry Receipts
20,000
To Gen. Expenses
20,000 By Dividends
40,000
To Advertisement
25,000 By Commission
30,000
To Legal Expenses
15,000 By Bad-debts recovered (allowed
10,000
earlier)
To Sales Tax
10,000
To Wealth Tax
20,000
To Telephone Expenses
12,000
To Gratuity paid
30,000
To Provision for bad-debts
10,000
To Advance income tax
20,000
To Depreciation
38,000
To Office Expenses
12,000
To Municipal tax of property let-
10,000
out
To contribution to employees PF
To Net Profit
6,000
1,66,000
5,24,000
5,24,000
Adjustments:
1) Legal expenses were found to have been incurred for the registration of a business asset.
2) Advertisement Expenses were paid in cash.
3) Allowable depreciation as per I.T rules Rs.46,000
9. Following is the P/L A/c of Mr. Shekar for the ended 31st March 2023
Trading & Profit & Loss Account
Particulars
Amount
Particulars
Amount
(Rs)
To Salaries
(Rs)
3,30,000 By Gross Profit
5,00,000
To Office Expenses
36,000 By bad-debts recovered
To Depreciation
28,000 By Dividends
To Sales Tax
18,000 By Rent from HP
18,000
To Legal Expenses
16,000 By Commission
20,000
To Expenses on Patent Rights
24,000 By Brokerage
20,000
To Repairs
12,000 By Sundry Receipts
10,000
To Donations
4,000 By Share of income from HUF
To Provision for bad-debts
6,000
To General Expenses
24,000
To Net Profit
88,000
6,00,000
20,000
6,000
6,000
6,00,000
Adjustments:
1) Salaries includes Rs.12,000 paid to the workers employed at home.
2) Legal expenses include 2,000 paid to the lawyer in connection with personal case.
3) Out of bad-debts recovered only Rs.8,000 were allowed as deduction earlier.
Compute the taxable income from business of Mr. Shekar for the AY 2023-2024.
10. Mr. Abraham, a business man provides you his profit & Loss A/c for the year ended 31/03/2023
Particulars
Amount (Rs)
Particulars
Amount
(Rs)
To Staff Salaries
52,000 By Gross Profit
2,75,500
To Advertisements
34,000 By Rental income from HP
1,45,000
To Interest on Capital
15,000 By winnings from lottery (net)
85,000
To Household expenses
65,000 By Dividends from VR India Ltd.,
32,000
(gross)
To Reserve for bad debts
To Income Tax paid
8,500 By Interest on debentures
38,000 By bad-debts recovered (fully
allowed earlier)
To Municipal Tax on house
property
35,000
1,90,000
15,200
To Repairs of house property
To Insurance premium on own
12,000
18,000
life
To Fire insurance premium
25,000
(Rs.8,000 on house property)
To Bad-debts written off
To General Expenses
To Net Profit
8,000
45,000
3,87,500
7,42,700
7,42,700
Other Information:
1) He owns a big house 25% portion is used for his profession
2) General expenses include Rs. 12,000 spent on the birthday of his wife.
Compute Taxable Income from Business for the A.Y 2023-2024.
11. From the following Profit & Loss Accountant of Mr. Sachin, a sole trader, calculate taxable
income from business for the assessment year ending 31-3-2023
Particulars
Salary to employees
Amount (Rs)
Particulars
1,90,000 Gross profit
Amount (Rs)
7,60,000
Advertisement expenses in cash
48,000 Interest on Securities
28,000
General expenses
32,000 Income from house property
50,000
Entertainment expenses
44,000 Bad debts recovered
24,000
(allowed earlier by ITO)
Bad debts
3,000
Drawings by proprietor
48,000
Sales tax
12,000
Interest on proprietor’s capital
14,000
Repairs
5,000
Rent
42,000
Legal expenses
10,000
Depreciation
30,000
Bonus to employees
12,000
Bonus to proprietor
8,000
Motor car purchased
Motor car expenses
Donations
Provision for bad debts
1,44,000
24,000
4,000
12,000
Net profit
,80,000
Total
8,62,000
Total
8,62,000
He gives you the following additional information:
1)
Rs.6,000 was spent on the purchase of land & is included in legal expenses.
2)
Half of repair expenses were on let-out building.
3)
Depreciation allowable on all assets including motor car is Rs.28,800.
12. Following is the Profit and Loss A/c of Mr. Ranjith for the year ending 31.03.2023
Particulars
To Salaries
Rs.
Particulars
1,65,000 By Gross Profit b/d
To Office Expenses
18,000 By bad debts recovered
To Depreciation
14,000 By dividend
Rs.
2,50,000
10,000
3,000
To Sales Tax
9,000 By Rent from House Property
To Legal Expenses
8,000 By Commission
10,000
To Income Tax
7,000 By Brokerage
10,000
To Patents purchased
12,000 By Sundry Receipts
To Repairs
6,000 By Share of income from HUF
To Donation
2,000
To Provision for bad-debts
3,000
To General Expenses
12,000
To Net Profit
44,000
1,41,800
Additional information:
1. Salaries include Rs.6,000 paid to workers employed at home.
2. Legal Expenses include Rs.1,000 paid to advocate in connection with personal case.
3. General Expenses include Rs.4,000 as contribution to Staff Welfare Fund.
4. Out of bad debts recovered only Rs.4,000 were allowed as deduction earlier.
Compute the Income from business for the assessment year 2023-24.
9,000
5,000
3,000
1,41,800
INCOME FROM PROFESSION : (DOCTOR)
FORMAT FOR COMPUTATION OF PROFESSIONAL INCOME :
PARTICULARS
Professional receipt
Less : Professional Expenses
Taxable Income from Profession
AMOUNT
XX
XX
XXXX
PROFESSIONAL INCOME AND EXPENSES RELATED TO A DOCTOR :
Professional income
Sale of medicines
Consultation and visiting fees
Gifts and presents from patients
Remuneration from articles published in
professional journals
Retainer fees
Examiner fees
Professional expenses
Cost of medicines purchased
Depreciation on surgical expenses
Salaries paid to staff
Rent of clinic / dispensary
Purchase of professional books
Telephone charges
Printing and stationery
Motor car expenses
Depreciation on motor car / office
equipment’s / furniture
PROFORMA OF COMPUTATION OF INCOME FROM PROFESSION:
ASSESSEE:
STATUS:
ASSESSMENT YEAR: 2023-2024
PREVIOUS YEAR: 2022-2023
CATEGORY:
PAN/GIR NO:
Particulars
Professional Receipts:
Consultation Fees
Visiting Fees
Dispensary Receipts
Sale of Medicines
Honorarium form Civil Hospital
Remuneration from articles published in professional magazines.
Pathological test
Operation theatre rent
Gifts from patients
Bad debts recovered (Allowed Earlier)
Total Professional Receipts
Less: Professional Expenditures:
Clinic/Dispensary Rent
Electricity & Water charges
Staff salaries
Subscription to professional magazines.
Motor car expenses
Telephone charges
Printing & Stationery
Depreciation on Books @ 40%(annual publications /not annual
publications - Professional)
Depreciation on Surgical Equipments @ 15%
Depreciation on Typewriter and Motor Car @ 15%
Laboratory expenses
Opening stock of medicines
XX
Add Medicines purchased
XX
XX
Less: Closing stock of medicines
XX
Medical Association Membership
Audit Fees
Staff Welfare Expenses
Diwali Expenses
Entertainment Expenses
Amount
Amount
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XXX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
Total Professional Expenses
XXX
Income from Profession
XXX
PROBLEMS ON DOCTOR :
1. From the following statement, compute the income from profession of Dr. Kapoor for the A.Y.
2023-2024.
Particulars
To Salaries
To Income tax
To Donation
To Dispensary rent
To Electricity charges
To Telephone expenses
To Depreciation
To Purchase of medicines
To Motorcar expenses
To Depreciation on car
To Net income
Amount
30,000
6,000
5,000
40,000
8,000
7,000
9,000
40,000
11,000
6,000
1,15,000
2,77,000
Particulars
By Visiting fees
By Dividends
By consultation fees
By Sale of medicines
Amount
55,000
5,000
1,35,000
82,000
2,77,000
Notes:
1. Electricity charges include Rs.2,000 used for domestic purpose.
2. Telephone expenses include 50% for personal use.
3. Half of motorcar is used for professional use.
4. Opening stock of medicine was Rs.5,000 and closing stock was Rs.6,000
2. Dr. Krishna is a registered medical practitioner. His income and expenditure account for the year
ending 31-03-2023 is as follows:
Particulars
Household expenses
Car purchased
Traveling (personal)
Donations
Amount
40,000
60,000
8,000
2,000
Income tax
Salaries
4,000
16,000
Gift to daughter
Establishment Expenses
14,000
2,000
Surgical Equipment’s
Books
Life insurance premium
Interest on capital
Surplus
8,000
2,400
4,000
4,000
17,400
1,81,800
Particulars
Consultation fees
Visiting fees
Gains on races (gross)
Profit on sale of Long-Term
securities
Dividend on shares
Interest on Post Office
Savings Bank account
Gift from patients
Bad debts
recovered(disallowed earlier)
Interest on Fixed Deposit in
bank(Gross)
Amount
78,000
40,000
20,000
12,000
10,000
1,200
4,000
4,000
12,600
181800
Note:
• Rate of depreciation allowable on car is 15%
• Surgical equipment’s 15%, and
• Books 40%.
Compute Gross Total Income for the A.Y. 2023-24.
3.Following is the Receipt and Payment A/c of doctor Hariprasad for the year ending 31.03.2023.
Receipts
To Balance b/d
To Consultation fees
To visiting fees
To sale of medicine
Amount
1,20,000
65,000
80,000
45,000
To operation theatre rent
25,000
To dividend
25,000
Payments
By clinic rent
By staff salary
By rent and taxes
By electricity and water
charges
By purchase of medical books
(annual publication)
By purchase of surgical
equipment
By motor car expenses
By
medical
association
members fees
By audit fees
By staff welfare expenses
By Diwali expenses
By entertainment expenses
By medicine purchase
By balance c/d
3,60,000
Amount
25,000
80,000
25,000
14,000
14,000
40,000
10,000
5,000
20,000
12,000
6,000
12,000
30,000
67,000
3,60,000
•
Gift from patient Rs.4,000 was given to him by a patient not included in the account.
•
¼ of motor car expenses relate to personnel use.
•
The rate of depreciation on surgical equipment is 40%
•
Interest received on bank deposits.
•
Audit fee include income tax appeal expenses of Rs.10,000.
Compute his taxable income from profession for the A.Y. 2023-24.
4. Following is the Receipt and Payments of a Medical Practitioner for the year ending 31.03.2023.
RECEIPT AND PAYMENT A/C
For the year ending 31.03.2023
Receipts
To balance b/d
To vising fees
To consultation fees
To sale of medicine
Amount
1,10,000
65,000
65,000
25,000
To operation theatre rent
15,000
To interest
20,000
Payment
By clinic rent
By staff salary
By rent and taxes
By electricity and water
charges
By purchase of medical
books (Annual publication)
By purchase of surgical
equipment’s
By motor car expenses
By medical association
members fees
By audit fees
By staff welfare expenses
By Diwali expenses
By entertainment expenses
By medicine purchase
By balance c/d
3,00,000
Adjustments :
•
A cash payment of Rs.5,000 was given to him by a patient
•
1/3 of motor car expenses relate to personnel use.
•
The rate of depreciation on surgical equipment is 40%
•
Interest received is on bank deposits
•
Audit fees include Income tax appeal expenses of Rs.15,000
Compute his taxable income from profession for the A.Y 2023-24
Amount
15,000
80,000
5000
4,000
4,000
30,000
15,000
5,000
20,000
2,000
1,000
12,000
30,000
77,000
3,00,000
5. Dr. Nataraj is a registered Medical Practitioner, he keeps his books on cash basis and summarized
cash account for the year ending 31.03.2023 is as follows :
Particulars
To balance b/d
To loan from bank
To sale of medicines
To consultation fees
To visiting fees
To interest on Govt.
securities
To rent from HP
To gifts from father – in –
law
To gifts from patients
Amount
5,850
10,000
26,250
16,000
3,000
3,600
Particulars
By cost of medicines
By general expenses
By motor car expenses
By salaries
By rent of dispensary
By telephone expenses
Amount
12,000
450
6,000
1,200
2,400
500
8,000
5,000
By personnel expenses
By life insurance premium
1,600
2500
2,000
By int. on loan on bank
200
By insurance premium :
Car
700
HP
500
By local taxes
By
travel
expenses
(Personnel)_
By charity
By balance c/d
1,200
79,950
800
1,000
100
50,000
79,950
Adjustments :
•
•
•
•
Half of the motor car expenses are in respect of his personnel use.
Consultation fees include a receipt of Rs. 6,000 as advance for attending a Medical Camp in April
2021.
The WDV of Motor car on 1.04.2021 was Rs.12,720 rate of depreciation 15%.
Loan from bank @2%.
Compute taxable income from Profession for the A.Y 2023-2024.
INCOME FROM PROFESSION (CHARTED ACCOUNTANT)
Proforma of Computation of Income from Profession:
ASSESSEE:
ASSESSMENT YEAR: 2023-24
STATUS:
PREVIOUS YEAR: 2022-23
CATEGORY:
PAN NO:
Particulars
Amount
Amount
Professional Receipts:
Audit Fees
XX
Consultancy/Consultancy Fees
XX
Appellate Tribunal Appearance
XX
Fees for drafting Memorandum of Association
XX
Professional fees
XX
Remuneration from articles published in professional
XX
magazines.
XX
Miscellaneous receipts
XX
Presents/Gifts from Clients
XX
Total Professional Receipts
XXX
Less: Professional Expenditures:
Office Rent
XX
Electricity charges
XX
Staff salaries
XX
Subscription to professional magazines.
XX
Motor car expenses
XX
Depreciation on Books @ 40% (annual/ not annual
XX
publications)
Depreciation on furniture & @ 10%
XX
Depreciation on Typewriter, Motor Car @ 15%
XX
Telephone charges
XX
Gratuity to clerk
XX
Audit Fees/Stipend to Article Clerks.
XX
Staff Welfare Expenses
XX
Diwali Expenses
XX
Entertainment Expenses
XX
Total Professional Expenses
XXX
Income from Profession
XXX
PROBLEMS ON CHARTED ACCOUNTANT :
1. The following is the Receipts and Payment account of Mr. Ramki a CA for the year ending
31.03.2023.
To balance b/d
1,50,000
By staff salary
3,00,000
To audit fees
2,00,000
By stipend to audit clerks
1,00,000
To tax consultancy fees
2,50,000
By office rent
90,000
To project report fees
2,50,000
By software development
10,000
expenses
To accounting software
50,000
By office expenses
1,25,000
25,000
By books : Annual
30,000
charges
To guest lectures in CA
institute
Non – Annual
30,000
To bank interest
25,000
By car expenses
65,000
To renumeration as
20,000
By CA institute
5,000
member tax reforms
membership fees
commission
By contribution to PPF
50,000
By balance c/d
1,65,000
9,70,000
9,70,000
Other information :
➢ ¼ car usage is personnel
➢ Depreciation on car Rs.10,000
➢ Depreciation on Office furniture Rs.7,000
2. Ms. Devaki is CA in Bangalore. Her Income and Expenditure A/c for the year 2022-23 is as
follows. Compute income from Profession for A.Y.2023-24.
Expenditure
Amount
Income
Amount
To office rent
30,000
By audit fees
3,00,000
To staff salaries
55,000
By financial consultancy
60,000
services
To charities
5,000
By interest on deposits in
a bank
22,000
To gifts to relatives
6,000
To drawings
16,000
To car expenses (1/2
24,000
By dividends from UTI
6,000
personnel)
To net income
2,52,000
3,88,000
3,88,000
3. Sri Krishna is a CA. He gives you the following Income and Expenditure A/c for the year
ending 31.03.2023.
INCOME AND EXPENDITURE A/C
EXPENDITURE
AMOUNT
INCOME
AMOUNT
To office expenses
20,000
By audit fees
3,41,000
To Books (Other than
10,000
By gift from father in law
10,100
10,000
By financial consultancy
16,000
annual publication)
To employees salary
services
To personal expenses
2,01,000
By profit on sale of
12,900
investments
To donation
5,000
To interest
1,400
To income tax
26,600
To car expenses
4,000
To surplus
1,62,000
By accountancy works
4,40,000
Adjustments :
➢ The car is used equally for professional and personnel purpose.
➢ Allowed depreciation on car for official purpose Rs.10,000.
➢ Staff salaries include Rs.4,000 paid to domestic servant.
➢ Loan was taken for personnel use.
➢ Allowed depreciation on Professional books @ 40%.
60,000
4,40,000
4. Shri. Srikanth is a CA. He has prepared following Income and Expenditure A/c for the year
ending 31.03.2023.
INCOME AND EXPENDITURE A/C
EXPENDITURE
AMOUNT
INCOME
AMOUNT
To office expenses
20,000
By audit fees
3,41,000
To employees salary
10,000
By gift from father in law
10,100
To personal expenses
2,04,000
By dividend
16,000
To books other than
11,000
By profit on sale of
12,900
Annual Publication
investments
To donation to NDF
1,000
To interest
1,400
To car expenses
4,000
To income tax
26,600
To Net surplus
1,02,000
3,80,000
3,80,000
Adjustments :
•
The car is used equally for official and personal purpose, and allowed depreciation on office work is
Rs.1000
•
Loan has been taken for personnel purpose.
•
Rs.2,000 domestic servant salary is included in Employees salary.
5. Ramkrishna is a CA in Bangalore he has submitted the following Income and Expenditure A/c
for the year 2022-23. Compute income from profession for the A.Y 2023-24.
EXPENDITURE
AMOUNT
INCOME
AMOUNT
To office rent
33,000
By audit fees
3,00,000
To salary to staff
75,000
By financial consultancy
60,000
service
To charities
5,000
By interest on deposit in
22,000
a bank
To gifts to relatives
6,000
By dividends on units of
6,000
UTI
To subscription for
2,400
journal
To drawings
16,000
To car expenses
24,000
By accountancy works
32,000
To household expenses
8,600
To NSC’s purchased
20,000
To net income
2,30,000
To excess of income over 2,30,000
expenditure
4,20,000
➢ Office rent Rs.3000 paid is not recorded.
➢ Depreciation of car during the year is Rs.6,000
➢ 30% of car expenses are related to personnel purpose.
4,20,000
INCOME FROM PROFESSION – ADVOCATE
Proforma of Computation of Income from Profession:
ASSESSEE:
STATUS:
CATEGORY:
ASSESSMENT YEAR: 2023-24
PREVIOUS YEAR: 2022-23
PAN NO:
Particulars
Professional Receipts:
Legal Fees
Consultancy/Consultancy Fees
Special commission appointment fees
Fees form notary
Professional fees
Remuneration from articles published in professional magazines.
Miscellaneous receipts
Presents/Gifts from Clients
Total Professional Receipts
Less: Professional Expenditures:
Office Rent
Electricity charges
Staff salaries
Subscription to professional magazines.
Motor car expenses
Depreciation on Books @ 100% (annual /not annual
publications
Depreciation on furniture & @ 10%
Depreciation on typewriter, Motor Car @ 15%
Telephone charges
Gratuity to clerk
Audit Fees
Staff Welfare Expenses
Diwali Expenses
Entertainment Expenses
Amount
Amount
XX
XX
XX
XX
XX
XX
XX
XX
XX
XXX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
Total Professional Expenses
XXX
Income from Profession
XXX
PROBLEMS ON ADVOCATE :
1. Mr. Anand, an advocate residing in Delhi submits his Receipts and Payment Account for the
previous year 2022-23.
RECEIPTS AND PAYMENTS ACCOUNT FOR THE YEAR ENDING 31-03-2023
RECEIPTS
To balance b/d
To sitting fees
To legal counselling fees
AMOUNT
5,000
1,20,000
15,000
To loan from bank
To rent from property
To interest on bank FD
To dividends from ABD
Ltd
To share of income from
HUF
12,500
22,500
10,500
4,000
PAYMENTS
By staff salary
By professional books
By subscription to
journals
By refreshment charges
By rent of office
By telephone charges
By printing charges
50,000 By electric charges
By purchase of car
By computer purchased
By car expenses
By contribution to PPF
By NSC purchased
By association fees
By balance c/d
2,39,500
Additional Information :
➢ ½ of the car expenses pertain to personnel use.
➢ Depreciation rates - car 15%, computer 40 %, books 40%.
➢ 25% of telephone expenses pertain to personnel use.
➢ Half of the electric charges are for house property.
➢ Gifts from clients Rs.5,000 not included in the above account.
➢ Loan from bank is for personnel use.
Compute his total income from profession for the AY 2023-2024.
AMOUNT
28,000
9,000
1,000
2,000
7,500
9,000
1,500
3,000
1,25,000
25,000
3,500
5,000
7,000
1,000
12,000
2,39,500
2. Mr. Kishore lives in Bangalore. He is a lawyer and he gives you the following Receipts and
Payment account for the year ending 31.03.2023.
RECEIPTS
To opening balance
To salary as a part time
lecturer
To fee received
To interest on bank deposit
To exam remuneration
from university
To cash received on car
sold
To shares sold
To dividend received
AMOUNT EXPENSES
2,000 By books purchased
(annual publication)
4,000 By repairs of house
2,20,000 By car expenses
1,500 By local taxes
2,500 By office expenses
20,000 By personnel expenses
15,000 By purchase of plant for
office
1,500 By car purchased
By life insurance premium
By donations
By gifts to daughter
By income tax paid
By income tax appeal
expenses
By bank deposit
By PPF deposit
By balance carried
forward
2,66,500
AMOUNT
1,000
1,200
1,800
1,200
3,000
11,000
1,000
20,000
6,000
1,100
500
3,000
300
12,000
3,000
2,00,400
2,66,500
Adjustments :
➢ 1/3rd part of the building is used for professional and 2/3rd for self residence.
➢ The car is used for professional and personnel work equally.
➢ Books purchased for teaching Rs.300 and remaining for profession.
3. Mr. Dharma Is a reputed lawyer in Bangalore. He has prepared the following Income and
Expenditure account for the year ending 31.03.2023.
PARTICULARS
AMOUNT PARTICULARS
AMOUNT
To household expenses
12,000 By legal fees
1,26,000
To office expenses
7,000 By special commission
1,400
To charity
500 By appointment fees
2,000
To telephonic expenses
500 By house rent
15,000
To income tax
900 By interest on government
3,000
securities
To rent
4,000 By salary as part time
6,000
lecturer
To gift to daughter
2,000
To electricity charges
1,000
To donation to NDF
1,000
To contribution to PPF
2,400
To journal subscription
3,000
To salaries
15,000
To purchase of motor car
60,000
To life insurance premium
To motor car expenses
To purchase of typewriter
To excess of income over
expenditure
2,000
6,000
6,000
25,100
1,53,400
1,53,400
Adjustments :
➢ Mr. Dharma lives in one half of the house and the other half is used for office.
➢ House rent and electricity charges are in respect of this house.
➢ One half of the car expenses are for personnel use.
➢ Depreciate motor car and typewriter @ 15% and furniture @ 10%.
4. Shri Ganesh is a leading advocate. He maintains the book on cash basis. He gives you the
following Receipts and Payment A/c for the year ending 31.03.23.
RECEIPTS
AMOUNT PAYMENTS
AMOUNT
To balance b/d
12,800 By staff salary
14,300
To consultation fees
37,700 By office rent
6,000
To special commission
30,000 By purchase of
7,500
professional books
To presents from clients
12,500 By furniture purchased
15,000
To remuneration from
22,500 By car expenses
9,000
articles published in
professional journals
To loan from bank
65,000 By computer purchased
30,000
To share of income from
10,000 By repayment on loan
14,250
HUF
To arbitration fee
23,250 By interest on loan
9,300
To income from betting
30,000 By household expenses
12,500
By medical insurance
7,500
premium
By car purchased
1,00,000
By balance c/d
18,400
2,43,750
2,43,750
Adjustments :
➢ Loan is borrowed for profession purpose :
➢ Depreciation is allowed as per IT rules are : professional 40%, furniture 10%, car 15% and
computer 40%.
➢ Out of the car expenses, 25% relates to use of car for personnel purpose.
Compute his professional income for the AY 2023-24.
5. Mr. Ranganath is a leading tax consultant who maintains his books of account on cash basis
furnish the following receipts and payments account for the previous year 2022-2023. Compute
his professional income.
RECEIPTS
AMOUNT
PAYMENT
AMOUNT
To balance b/d
22,000 By books purchased
12,000
(annual)
To fees from clients :
By computer purchased
30,000
2020-2021
1,50,000
2021-2022
33,000
To gifts and presents
25,000 By car expenses
18,000
To interest free loan from
2,40,000 By office expenses
40,000
a client for purchase of
car
To winning from lottery
46,000 By salary to staff :
2020-2021
32,000
2021-2022
8,000
To share from HUF
70,000 By car purchased
3,00,000
To bonus and
14,000 By income tax
5,000
commission from the
partnership firm
By professional tax
3,000
By medical insurance
2,000
premium
By balance c/d
1,50,000
6,00,000
6,00,000
➢ Car is partially used for official purposes (40%) and partly for professional purposes (60%).
➢ Gifts and presents include Rs.5000 received from a client.
➢ Office expenses include Rs.5000 paid as salary to his wife who casually helps him in the office.
Depreciate car @ 15%.