Business income final.. (1)

8/7/2019 Business income final.. (1)

1/22


2/22

Any income that is realized as a result of business

activity. Business income is a type of earned income,

and is classified as ordinary income for tax purposes.

Business may be defined as any trade, commerce or

manufacturing activity.

Profession may be defined as a vocation, or a job

requiring some thought, skill and special knowledgelike that of C.A., Lawyer, Doctor, Engineer, Architect

etc.


3/22

Under Section 28, the following incomes are chargeable to tax asincome from business and profession:

Profits and gains from business and profession

Any compensation or other payments due to or received by anyperson specified in Section 28(ii)

Income derived by a trade, professional or similar association from

specific services performed for its members

The value of any benefit or perquisite, whether convertible intomoney or not, arising from business or exercise of a profession

Export incentives available to exporters


4/22

Any interest, salary, bonus, commission or remunerationreceived by a partner from a firm

Any sum received for not carrying out any activity in relationto any business or not to share any know-how, patent,copyright, trademark, etc.

Any sum received under Keyman Insurance Policy includingbonus

Profits and gains from managing agency

Income from speculative transaction

Basis of Charge


5/22

To understand taxability of business income, we have tounderstand types of expenditure that are incurred inconnection with the business, such as:

Capital expenditure

Revenue expenditure

Personal expenditure


6/22

Capital expenditure is that expenditure which results inacquisition of an asset, tangible or intangible, which canbe later sold or converted into cash or which increasesthe earning capacity of a business or which affords other

advantages to the firm.

However, following should be kept in mind:

Normally, capital expenditures are not allowed to bededucted from income from business out-rightly.

They are allowed to be deducted in proportion to thelife of the asset or as per other schemes of the IncomeTax Act.

For Example

Procurement of license Acquiring goodwill


7/22

An item of expenditure whose benefit expires within one

year or expenditure which merely seeks to maintain the

business or keep the asset in good working condition is a

revenue expenditure

However, following should be kept in mind:

Normally, revenue expenditures are allowed to be

deducted from income from business out-rightly

They are allowed to be deducted if they are expanded for

the purpose of the business.

Few Example

Renovation of office

Construction of school for employees

Annual sum paid for use of goodwill

Royalty paid for obtaining stock in trade


8/22

Personal expenditure refers to all expenses which areincurred for the personal benefit of the assesses.

However, the following should be kept in mind:

Personal expenditure charged to business income isnot allowed to be deducted from income frombusiness.

However, if personal expenditures qualify fordeduction under various provisions of the Income TaxAct, they are deductible while computing tax liabilityand not while computing income from business.


9/22

Rent, rates, taxes, repairs and insurance for buildings [Section

30]

Repairs and Insurance of Machinery, Plant and Furniture

[Section 31]

Depreciation [Section 32]

Bonus, commission to employees for service rendered [Section36(1)(i)]

Interest on Borrowed Capital [Section 36(1)(iii)]

General Deduction [Section 37(1)]

Expenditure when any building, machinery, plant or furnitureis not exclusivel used for the ur oses of business Section


10/22

If the assesses uses a premises for his business purposestaken on rent, then:

The rent of premises, the amount of repairs if he has

undertaken to bear the cost of repairs

The amount of current repairs (not being capitalexpenditure)

Any sum on account of land revenue, local rates or

municipal taxes

Amount of any premium in respect to insurance againstrisk of damage or destruction of the premises

Are allowed as deduction while calculating businessincome.


11/22

The expenditure incurred on

current repairs (not being capital

expenditure) and insurance inrespect to plant, machinery and

furniture used for business

purposes is allowable asdeduction.


12/22

Depreciation is the diminution in the value of assets dueto wear and tear or due to just passage of time.

The following are the pre-requisites for allow ability of

depreciation:

The asset must be owned wholly or partially by theassesses

The asset must be used for the purpose of businessand profession

The asset must be used during the previous year


13/22

The following are the conditions for allow ability of bonus andcommission to employees for services rendered:

o It should not have been payable to employees as profits ordividend if not paid as bonus or commission

o It is allowed on payment basis i.e., in the year in which it isactually paid


14/22

The following are the conditions for allow ability of interest on

borrowed capital:

The money (capital) must have been borrowed by theassesses.

It must have been borrowed for the purpose of business.

The assesses must have paid interest or interest is

payable on such loan.


15/22

Any expenditure other than specifically allowed under the act shallbe allowed as deduction provided the following conditions aresatisfied:

It should not be in the nature of capital expenditure

It should not be personal expenditure of the assessee

It should be expanded wholly and exclusively for thepurposes of business or profession

It should not have been incurred for any purpose, which isan offence or is prohibited by any law


16/22

In such cases, the deduction for

Rent paid for such premises

Repairs, if he has undertaken to bear the cost of repairs

Land revenue, local rates or municipal taxes

Shall be such sum as the assessing officer maydetermine having regards to the part so used for thepurpose of business or profession


17/22

Interest, royalty, fees for technical services payable tonon resident if TDS is deductible but has not beendeducted or deducted but not properly deposited with

the Government

Wealth Tax paid by the assessee

Salary payable outside India without deductionof TDS

Provident Fund payment without taxdeduction at source


18/22

Any amount paid to the relatives of the assesses to the extent suchexpenditure is considered to be excessive or unreasonable

20% of the amount of expenses exceeding Rs.20000 if the following

conditions are satisfied:

The amount of expenditure exceeds Rs.20000

A payment in respect of the above expenditure (or part thereof)

exceeds Rs.20000

The payment mentioned above has been made otherwise than bya crossed bank cheque or bank draft.

Employers contribution to unrecognized provident fund.


19/22

Any sum payable by way of tax, duty or cess (by whatevername called under any law for the time being in force)

Any sum payable by employer to any fund for the welfare ofemployees

Any sum payable as bonus or commission to employees forservices rendered

Any sum payable as interest on any loan from any institution

Any sum payable by an employer in lieu of leave at the creditof his employee


20/22

The exception is available when two conditions aresatisfied:

Payment in respect of aforesaid expenditure is made on orbefore the due date of submission of return

The evidence of such payment is submitted along with thereturn of income

Then the expenditure is allowed on accrual basis in the yearin which the liability is incurred.


21/22

Net Profit as per Profit and LossAccount XXX

Add : Inadmissible Expenses debitedto Profit and Loss Account XXX

Deemed Incomes not credited toProfit and Loss Account XXX

XXX

Less: Deductible Expenses not debitedto Profit and Loss Account XXX

Incomes chargeable under otherheads credited to Profit & Loss A/c XXX

XXX

Profits and Gains of Business orProfession

XXX


22/22

PRESENTED BY

DINSHAH ANKLESVARIA(22)

FAZALABBAS MUNI(24)

GEETA NAIK(26)

GOLDY AMBWANI(28)

HEMEN DOSHI(30)

Documents

Business income final.. (1)