INCOME FROM BUSINESS &

PROFESSION

Dr.SugandhRawal
AssistantProfessor
DSPSR
 Income from Business & Profession
 Meaning of Business : [ Sec 2(13) ]
Business Includes,
a)Trade,
b)Commerce
c) Manufactur
e
d)Any adventure or concern in the nature of trade, commerce
or manufacture.
 Meaning of Profession : [ Sec 2(36) ]
 Profession includes vocation.
 Profession requires purely intellectual skill or manual skill on the
basis of some special learning.
  Basis of Charge : [ Sec 28 ]
Income from Business & Profession
The following income shall be chargeable to income tax under the head “ Profit & Gains
of Business or Profession.
 The profit or gains of any business or profession. [ Sec 28 (i) ]
 Income derived by a trade, professional or similar association from specified
services performed for its members. [ Sec 28 (ii) ]
 Export Incentive. [ Sec 28 (iiia), Sec 28 (iiib), Sec 28 (iiic), Sec 28 (iiid) ]
- Profit on sale of import license or duty entitlement pass book.
- Cash Assistant received or receivable by an exporter under any scheme of the
Govt.
- Export Duty draw back.
 The Value of any benefit or perquisite, whether convertible into money or not, arising
from business or the exercise of profession. [ Sec 28 (iv) ]
 Any interest, Salary, bonus, commission or remuneration due to or received by a partner
from a firm. [ Sec 28 (v) ]
 Any Sum received for not carrying out any activity in relation to any business or not to
share any know-how, patent, copyright, trademark etc. [ Sec 28(va) ]
 Income from speculative transaction
 Any sum received under Keyman Insurance Policy including Bonus on such policy.
 Income fromOFBusiness
 COMPUTATION & Profession
INCOME FROM BUSINESS [ Sec 29 ]

The profit and gains of business or profession shall be computed in accordance

with
the provisions contained in Sec 30 to 44 DB.

It must however be noted that the allowances and deductions are not
exhaustively
listed.

Admissibility of deduction will depend upon the method of accounting followed

by assessee, subject to deeming provisions of the Act.
 Expenses

•Rent rates and insurance of building.

•Payment for know-how, patents, copy rights, trade mark, licenses.
•Depreciation on fixed assets.
•Payment for professional services.
•Expenditures on scientific research for business purposes.
•Preliminary Expenses in case of Limited companies.
•Salary, bonus, commission to employees.
•Salary, interest and remuneration to working partners subject to certain conditions.
•Communication expenses.
•Traveling and conveyance expenses.
•Membership fees etc.
•Advertisement expenses in respect of promotion of business products.
•Discount allowed to customers.
•Interest on loans (Whether Private of Institutional).
•Bank Charges/Bank Commission expenses.
•Entertainment/Business Promotion expenses
•Staff Welfare expenses.
•Festival Expenses.
•Printing and stationery expenses
 EXPENSES WHICH ARE DEDUCTIBLE ON
ACTUAL PAYMENT ONLY
• Following expenses will be allowed if these expenses
have been paid before or on due date or before filing
of income tax return:-
• Any tax, duty, cess or fees by whatever name called.
• Contribution to provident fund, ESI premium, or other
funds for welfare of employees.
• Bonus or commission or leave encashment payable to
employees.
• Interest on loan from public financial institutions, state
financial corporation or from scheduled bank.
 EXPENSES NOT DEDUCTIBLE FROM
BUSINESS/PROFESSION INCOME
• Expenditure on any type of advertisement of political party.
•  Any interest, royalty, fees for technical services or other sums chargeable under this act,
which is payable out side India or in India to non-resident or a foreign company on which tax
has not been deducted or after deduction, not deposited in prescribed time.
• Any interest, commission, rent, royalty, professional or technical fees paid or payable to any
resident of India or payment to contractor or sub-contractor on which TDS is not  deducted,
or if deducted then not deposited before the due date of filing the return.
• Any payment of salaries payable outside India or to a non-resident on which tax is not
deducted.
• Any tax calculated on the bassis of profit of business.
• Any amount of Wealth Tax paid.
• Any tax actually paid by an employer on any income by way of perquisites, on behalf of the
employee.
• Any remuneration paid to non working partner.
• Any remuneration paid to working partner other than specified in agreement or as per the
specified limits by income tax act.s
• Any interest to partner if not specified in agreement and not more than 12%.
 Income from
 SPECIFIC
Sec 37 ]
Business
DEDUCTIONS & Profession
[ Sec.30 to

1. Rent, Rates ,Taxes & Insurance for Building [ Sec 30 ]

2. Repairs & Insurance of Plant & Machinery , Furniture [ Sec 31 ]
3. Depreciation [ Sec 32 ]
4. Investment Allowance [ Sec 32 AC ]
5. Tea/Coffee/Rubber Development A/c [ Sec 33 AB ]
6. Site Restoration Fund [ Sec 33 ABA ]
7. Reserve for Shipping Business [ Sec 33 AC ]
8. Scientific Research Exp [ Sec 35 ]
9. Amortisation of telecom licence fees [ Sec 35 ABB ]
10. Expenditure on eligible projects or scheme [ Sec 35 AC ]
11. Deduction in respect of exp on specific business [ Sec 35 AD ]
12. Payment to Association and institution for carrying out rural development program [ Sec
35 CCA ]
13. Weighted deduction for expenditure incurred on Agricultural Extension Project [ Sec 35
CCC ]
14. Weighted deduction for expenditure for skill development [ Sec 35CCD ]
15. Amortisation of Preliminary Expenses [ Sec 35 D]
16. Amortisation of Expenditure on development of certain minerals [ Sec 35 E ]
 -: Deduction U/s
36 :-
1. Insurance Premium [ Sec 36 (1) (i) ]
2. Insurance premium paid by a Federal Milk Co-op Socierty [ Sec 36 (1)(ia ]
3. Insurance premium on health of employees [ Sec 36(1) (ib) ]
4. Bonus or Commission to employees [ Sec 36 (1) (ii )
5. Interest on Borrowed Capital [ Sec 36 (1) (iii ) ]
6. Discount on Zero Coupon Bond [ Sec 36(1) (iiia) ]
7. Employer’s Contribution to Recognised PF & Superannuation Fund [ Sec 36(1)
(iv)]
8. Employer’s Contribution to Notified Pension Scheme (NPS) [ Sec 36(1)(iva)]
9. Provision for bad & doubtful debts relating to rural branches of scheduled
commercial Bank. [ Sec 36(1)(viia) ]
10. Transfer to Special Reserve [ Sec 36 (1) (viii) ]
11. Family Planning Expenditure [ Sec 36(1) (ix) ]
12. Revenue Expenditure incurred by entities establised under any Central, State or
Provincial Act. [ Sec 36 (1) (xii ) ]
13. Banking Cash Transaction Tax & Securities Transaction Tax.
14. Contribution to Credit Guarantee Trust Fund [ Sec 36(1) (xiv) ]
15. Commodities transaction tax [ Sec 36(1) (xvi) ]
16. Advertisement Expenses [ Sec 37 (2B) ]
 Income from
-: BusinessGeneral
& Profession
Deduction U/s 37
(1)
Sec 37(1) is a residuary section. In order to claim deduction under this section,
the following condition should be satisfied :-
• The expenditure should be other than covered u/s 30 to 36.
• It should not be in the nature of Capital Expenditure.
• It should not be Personal Expenditure of the Assessee.
• It should have been incurred in the previous year.
• It should be in respect of business carried on by the assessee.
• It should have been spent wholly & exclusively for the purpose of business.
• It should not have been incurred for any purpose which is an offence or
is prohibited by any law.
 Depreciation Chart (Important
Block of Assets )
Block of Asset Asset Rate of Depre
(%)
1) Building Residential Building 5
Factory Building, Office Building, Godown, 10
Stock yard, borewell, well, Wall
compound, Temple, road etc
Temporary Erections 40
2) Furniture Office Furniture & Appliances 10
3) Plant & Machinery, Car, Two Wheeler, Mobile 15
Machinery
Computer, laptop and software, 40
books

Books used by Professionals, Air 40

Pollution Control Equipment
4) Patents, Copyrights, Trademarks, know-how 25
Intangible
Assets
 Depreciation : Key Points
 Depreciation is available whether or not the assessee has
claimed deduction in books of account.
 If a part of the assets is used for business purpose and part is used
for personal purpose ( e.g. Resi-cum-office ) ,depreciation
should be allowed only for the portion for which the asset is used
for business purpose.
 Usage during the previous year is important :
a)if asset was acquired during any Preceding Previous Years
(PPY) and put to use in current P.Y. ( even for 1 day ), it is eligible
for full depreciation.
b) Further, asset acquired during the PY ( Current year) and
usage :
i) No usage - No Depreciation.
ii) Used for more than 180 days – full normal depreciation.
iii) Used for less than 180 days – 50% of normal depreciation.
 Depreciation : Key Points....
 Block is formed for Common Asset with common rate of depreciation.
 And accordingly, depreciation is calculated based on Block Concept
and not on individual asset.
 Any expenditure incurred till date , asset is put to use is to be
capitalised
i.e. Added to the Cost of Assets.
 Depreciation is calculated only as per WDV method.
SLM method is not allowed. ( except in case of Power Units ,where
prescribed rate on actual cost of asset, and NOT block value of
assets )
 In case of Company Assessee, depreciation is recorded as per
Company Law, in such case, depreciation as per Books is added back
while depreciation as per Income Tax Act is allowed, while computing
the income of such company.
 Whether asset is eligible for depreciation or not, it depends on nature
of asset and purpose of holding asset.
 Land is never to be depreciated.
 Amount Not Deductible [ Sec 40 ]

 Sec 40 (a) (i) { TDS Compliance related }

No deduction is allowed in respect of interest, royalty, fees for technical service
or
other sum payable to :
a) Any person outside India OR
b) In India to a Non-resident (not being Company or Foreign Company)
on
which TDS under chapter XVII B has not been deducted or paid.

 Sec 40 (a) (ia)

No deduction is allowed in respect of payment to resident towards interest,
commission, brokrage, fees for professional service or technical service, amount
payable to Contractor or sub contractor, rent or royalty in which provisions of
TDS under chapter XVII-B has not been complied with.
 Amount Not Deductible [ Sec 40 ]...
 Sec 40 (b ) { Related to Partnership Firm }
According to Scheme of assessee of Firms, Salary, Bonus, commission or
remuneration to partners of firms is allowable as deduction in the hands of
the firm, as under :-
* Remuneration to Partners :
Maximum Permissible limit
Book Profit Limit
On the First Rs.300000 of Rs.150000 or 90% of
Book profit or in case of LOSS Book profit whichever is
more

On the balance of Book Profit 60% of Book Profit.

* Interest on Capital to Partners :
Conditions to be satisfied :
i) Rate of interest should not exceed 12% p.a. Simple interset.
ii) Payment of interest on capital should be authorised by partnership
deed.
iii)Payment of int should be pertained to the period after partnership
 Amount Not Deductible [ Sec 40 ]...
 Sec 40 A (2 ) : Excessive or Unreasonable Payments to Relatives/Associates

 Any Expenditure in respect of which payments have been or is made to a

relative or associate concern, so much of the expenditure as is concerned to be
excessive or unreasonable shall be disallowed by the Income Tax Officer.

 Sec 40 A (3) : Payment in excess of Rs.10000/- in cash.

 As per Income Tax Act,1961, any expenditure incurred in respect of which

payment is made in a sum exceeding Rs.10000/- in CASH, shall not be allowed
as deduction.
Explanation : In case payment is made to same party on one day and the total
of payment in a day crosses Rs.10000 , then this section is attracted.

( Note : In case of payment is made to plying , hiring or leasing goods carrier

the limit of payment is increased to Rs.35000 )
• Any payment in cash exceeding Rs.20000/= till financial year 2016-17 and with
effect from 01.04.17, the limit of cash payments will be Rs.10000/= and 
(Rs.35000/= in case of payment made for plying, hiring or leasing goods carriages)
except when payments are made under circumstance specified in Rule 6DD of
Indian income tax act.
• Where a deduction has been claimed on accrual basis during an assessment year
and the payment is made in a subsequent year, and the payment or aggregate of
payments made to a person in a day otherwise than by way of an account payee
cheque/DD, exceeds Rs.20000/= (Rs.35000/= in case of goods carriages), such
payments shall be deemed as profit of the assessee for the year in which the
payment is made.
• Any provision for the payment of gratuity to the employees.
• Any personal expenditures.
• Expenses on defending in any proceedings for breach of any law relating to sales
tax etc.
• x/= or more. With effect from 01.04.17, cash should no be paid more than
Rs.10000/= in a single day to a single person to repay the loan amount.
• Expenses on defending in any proceedings for breach of any law relating to sales tax etc.
• With effect from 01.04.17, any payment for a capital expenditure made otherwise than
by an account payee cheque/draft/RTGS/ECS debit card or credit card, exceeding
Rs.10000/= shall neither be deductible nor eligible for depreciation under section 32.
• Notes:
• Restriction on acceptance of loans or accept a deposits of Rs.20000/= or more from any
other person except by an account payee cheque/draft. This restriction shall not apply if
the loan or deposit is taken or accepted from government, bank, post office, co-
operative bank, government undertaking etc. With effect from 01.04.17, cash should no
be accepted as loan more than Rs.10000/= in a single day from a single person.
• Restriction on repayment of loans or deposits: No person can repay loan along with
interest except by way of account payee cheque/draft if the amount is Rs.20000/= or
more. With effect from 01.04.17, cash should no be paid more than Rs.10000/= in a
single day to a single person to repay the loan amount.