Income From Business and Profession

Lecture 12

Basis of Charge (Section 28)

• Following Incomes shall be charged to tax under this head• 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 members.

• 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. Profession: means an occupation requiring specialised Knowledge and

Skill. Vocation: 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

year.

Depreciation

• Deprecation is allowed in respect of• a) Building• b) Plant & Machinery• c) Furniture• d) Motor Vehicles• e) Computers• f) Intangibles

Depreciation

• Depreciation is allowed on the Written Down Value of Block of Assets

• Opening WDV XX• Add : Purchases during the year XX• Less : Sales during the year XX• Closing WDV XX

• 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 Licenses

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 resources.

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 Fund• 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 TDS• Provident Fund payment without deducting TDS• 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 Fund

Section 43 B : Deduction on Payment Basis

• Following will be allowed as Deduction on actual paid basis.• 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• institution• V) Interest on Loans from Scheduled Bank• Vi) Leave Salary to Employees

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