Profits and Gains of Business or Profession

Lecture Notes

Basis of Charge (Section 28)
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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.)

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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.

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)

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.

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
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Deprecation is allowed in respect of a) Building b) Plant & Machinery c) Furniture d) Motor Vehicles e) Computers f) Intangibles

Depreciation

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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

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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.

Tea Development Account u/s 33 AB

Applicable only for Assessee carrying on business of growing and Manufacture of tea in India Condition : Deposit of amount in NABARD account within 6 months or due date of Filing Return which ever is earlier. Deduction : 40 % of Profit of such business OR Amount Deposited whichever is less

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Site Restoration Fund u/s 33 ABA

Applicable only for Assessee carrying on business of prospecting, extraction of, petroleum or natural gas or both Condition : Deposit of amount in SBI account within 6 months or due date of Filing Return which ever is earlier. Deduction : 20 % of Profit of such business OR Amount Deposited whichever is less

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Expenditure of Scientific Research U/s 35

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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, research in social sciences or statistical research ii) National Laboratory eligible for 125 % Deduction In House Research in specified industries eligible for 150 % 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 Amortisation of Amalgamation or Demerger Amortisation of VRS Expenses Expenditure on Minerals Prospecting

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Other Deduction u/s 36

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i) Insurance premium paid to cover the risk of damage or destruction of Stock Ii) Bonus or Commission paid to Employees iii) Contribution to Recognised Provident Fund iv) Contribution to Approved Gratuity Fund V) Expenses on Animals Vi) Bad Debts Vii) Expenditure on Family Planning

General Expenses u/s 37
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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