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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