Profits and Gains of Business

or Profession

BY: Dr. Preeti Jindal

Associate Professor
TIAS
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