Profits and Gains of Business or Profession

Profits and Gains of Business
or Profession
Lecture Notes
Basis of Charge (Section 28)
 Following Incomes shall be charged to tax under this
 1. Profit and Gains of any business or Profession
carried on by the assessee
 2. Any Compensation or other payments due or
received by assessee, for loss of agency, due to
termination or modification in terms and conditions of
such agency
 3. Income derived by a trade, professional or similar
association, for specific services performed; for its
 4. Export Incentives received by Exporter such as
Sale of licenses, Cash Assistance, Duty Drawback
Basis of Charge (contd.)
 5. Value of any benefit or perquisite, whether
convertible into money or not, arising from
business or the exercise of a profession
 6. Interest, Salary, Bonus, Commission or
remuneration due o or received by, a partner of a
firm from such firm.
 7. Sum Received or receivable in cash or kind for
a) not carrying out any activity
b) not sharing any knowhows, patent etc.
 8. Sum Received under Keyman Insurance Policy
 9. Income from Speculative Business.
Business & Profession
 Business
includes any Trade, Commerce or Manufacture
or any adventure in the nature of Trade,
Commerce or Manufacture.
means an occupation requiring specialised
Knowledge and Skill.
is an activity in which an assessee has
specialised skill for earning Income.
Deduction Allowable
 1. Rent, Rates, Taxes and Insurance of
Building ( u/s 30)
 2. Repairs and Insurance of Machinery, Plant
and Furniture
(u/s 31)
Depreciation (u/s 32)
 Following conditions are to be fulfilled.
 a) Assessee must be owner of the Asset.
 b) Asset must be used for the purpose of
business or Profession.
 c) Such use must be in the relevant previous
Deprecation is allowed in respect of
a) Building
b) Plant & Machinery
c) Furniture
d) Motor Vehicles
e) Computers
f) Intangibles
 Depreciation is allowed on the Written Down
Value of Block of Assets
 Opening WDV
 Add : Purchases during the year
 Less : Sales during the year
 Closing WDV
 Note : If the Asset is put to use for less than
180 Days in the year, depreciation will be
allowed at 50 % of the eligible rate.
Additional Depreciation
 Additional Deprecation @ 20 % of Actual Cost
of Machinery acquired after 31.03.2002 for
 a) New Industrial Undertaking
 b) Existing Industrial Undertaking
Note : If the Asset is put to use for less than
180 Days in the year, depreciation will be
allowed at 50 % of the eligible rate.
Expenditure of Scientific Research U/s 35
 Any Expenditure (other than Cost of Land) expended on
scientific research related to the business.
 Contribution to
 i) Association, university, college for the purpose of
Scientific Research
 ii) National Laboratory
 eligible for 175 % Deduction
 iii) Association, university, college for the purpose of
research in social sciences or statistical research
 eligible for 125 % Deduction
 In House Research in specified industries eligible for
 200 % Deduction
Expenditure for Obtaining License to operate
Telecommunication Services U/s 35ABB
 Allowed as Deduction equally over the
number of years of Validity of
Other Expenditures
 35AC : Expenditure on Eligible Projects
 35CCA : Expenditure for carrying out rural
development programmes
 35 CCB : Expenditure for carrying out
programmes of conservation of natural
Amortisation of
 Preliminary Exp deduction is allowed in 5
Years ( Section 35D)
 Amortisation of Amalgamation or Demerger
in 5 Years (Section 35DD)
 Amortisation of VRS Expenses in 5 Years
 ( Section 35DDA)
 Expenditure on Minerals Prospecting in 10
Years (Section 35E)
Other Deduction u/s 36
 i) Insurance premium paid to cover the risk
of damage or destruction of Stock
 Ii) Bonus or Commission paid to Employees
 Iii) Interest on Borrowed Capital
 iii) Contribution to Recognised Provident
 iv) Contribution to Approved Gratuity Fund
 V) Write off of useless or Dead Animals
 Vi) Bad Debts
 Vii) Expenditure on promotion of Family
Planning among employees
General Expenses u/s 37
 Conditions to be fulfilled
 i) Expenditure should not be in the
nature prescribed u/s 30 to 36
 ii) Not a Capital Expenditure
 iii) Not Personal Expenditure
 iv) for the purpose of Business
Advertisement Expenses
( Section 37(2B)
 Deduction is not allowed in respect of
expenditure incurred by an assessee
on advertisement in any souvenir,
brochure, tract, pamplet or like
published by a political party.
Disallowance u/s 40a
 Interest Royalty Fees for Professional
Services paid outside India without
deducting TDS
Disallowance us/s 40 a
Payment to Resident without deducting TDs
Following payments are covered
I) Interest
II) commission or Brokerage
III) Rent
Iv) Fees for Technical or Professional Services
V) royalty
VI) Payment to Contractor
Disallowance us/s 40 a
Securities Transaction Tax
Fringe Benefit Tax
Income Tax
Wealth Tax
Salary paid outside India without deducting
 Provident Fund payment without deducting
 Tax on Prequisites paid by the employer
Disallowance u./s 40 (b)
 Amount not Deductible in case of
Partnership Firm
 I) Interest exceeding the rate
specified in the Partnership Deed or
12 % whichever is lower
 II) Remuneration to Partner
Remuneration to Partner
 Is allowed upto the following limits
 First Rs 3,00,000 - 90 % or Rs 1,50000
which ever is high
 Balance
- 60 %
Disallowance u/s 40 A
 Excessive Payment to Relatives
 Payment exceeding Rs 20,000 in
mode otherwise than Crossed cheque
 (Entire amount is disallowed)
 Contribution to Non Statutory Funds
 Provision for Unapproved Gratuity
Section 43 B : Deduction on
Payment Basis
 Following will be allowed as Deduction on actual paid
 Outstanding amount has to be paid before Due Date
of Filing of Return of Income.
 i) Any Tax, Duty paid to government
 ii) Contribution to PF
 iii) Bonus or Commission
 iv) Interest on Loans from financial
 V) Interest on Loans from Scheduled Bank
 Vi) Leave Salary to Employees