Profits and Gains of Business or Profession

Lecture Notes

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