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PROFESSION

TAXATION OF INCOME FROM BUSINESS OR

PROFESSION
Posted By G.S. Bansal, On August 11, 2012

What is business: In brief, Business includes any trade, commerce and manufacturing
of goods with a purpose of making profit within the permissible laws of country.
What is a Profession: It includes services provided by the professionally qualified or
technically qualified person according to their qualification.
Income from Business/Profession: means any income which is shown in profit and
loss account after considering all allowed expenditures.
INCOME CHARGEABLE UNDER BUSINESS/PROFESSION
The following are few examples of incomes which are chargeable under this head:1.

Normal Profit from general activities as per profit and loss account of business
entity.

2.

Profit from speculation business should be kept separate from business income
and shown separately.

3.

Any profit other than regular activities of a business should be shown as casual
income and will be shown under income from other sources head.

4.

Profit earned on sale of REP License/Exim scrip, cash assistance against export
or duty drawback of custom or excise.

5.

The value of any benefits whether convertible into money or no from

business/profession activities.

6.

Any interest, salary, commission etc. received by the partner of a firm will be
treated as business/professional income in hand of partner. However, the share of profit
from partnership firm is exempt in hand of partner.

7.

Amount recovered on account of bad debts which were already adjusted in profit
in earlier years etc.

EXPENSES DEDUCTIBLE FROM INCOME FROM BUSINESS/PROFESSION

All the expenses relating to business and profession are allowed against income.
Following are few examples of expenditures which are allowed against income:

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

Postage expenses.

All other expenses relating to business/profession

Note: The above expenditures are allowed on the basis of actual payment as well as on
accrual basis at the date of finalization accounts.
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:-

1.

Any tax, duty, cess or fees by whatever name called.

2.

Contribution to provident fund, ESI premium, gratuity fund or other funds for
welfare of employees.

3.

Bonus or commission or leave encashment payable to employees.

4.

Interest on loan from public financial institutions, state financial corporation or

from scheduled bank.
EXPENSES NOT DEDUCTIBLE FROM BUSINESS/PROFESSION INCOME

1.

Expenditure on any type of advertisement of political party.

2.

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.

3.

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.

4.

Any tax calculated on the basis of profit of business.

5.

Any amount of Wealth Tax paid.

6.

Any payment of salaries payable outside India or to a non-resident on which tax

is not deducted.

7.

Any tax actually paid by an employer on any income by way of perquisites, on

behalf of the employee.

8.

Any remuneration paid to non working partner.

9.

Any remuneration paid to working partner other than specified in agreement or as

per the specified limits by income tax act.

10.

Any interest to partner if not specified in agreement and not more than 12%.

11.

Any payment in cash exceeding Rs.20000/=. (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.

12.

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.

13.

Any provision for the payment of gratuity to the employees.

14.

Any personal expenditures.

15.

Expenses on defending in any proceedings for breach of any law relating to sales
tax etc.
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.

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.
COMPULSORY AUDIT OF ACCOUNTS