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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.

interest and remuneration to working partners subject to certain conditions.  Expenditures on scientific research for business purposes.  Membership fees etc.  Interest on loans (Whether Private of Institutional).  Depreciation on fixed assets.  Entertainment/Business Promotion expenses  Staff Welfare expenses.EXPENSES DEDUCTIBLE FROM INCOME FROM BUSINESS/PROFESSION All the expenses relating to business and profession are allowed against income. bonus.  Traveling and conveyance expenses. Following are few examples of expenditures which are allowed against income: Rent rates and insurance of building.  Salary. copy rights.  Discount allowed to customers. licenses.  Preliminary Expenses in case of Limited companies.  Bank Charges/Bank Commission expenses.  Payment for know-how.  Festival Expenses.  Communication expenses.  Advertisement expenses in respect of promotion of business products. trade mark. commission to employees.  Payment for professional services.  Salary.  Printing and stationery expenses . patents.

Any amount of Wealth Tax paid. EXPENSES NOT DEDUCTIBLE FROM BUSINESS/PROFESSION INCOME 1. Any interest. 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. 6. duty. 5. state financial corporation or from scheduled bank. Any tax calculated on the basis of profit of business. rent. Any interest. Interest on loan from public financial institutions. gratuity fund or other funds for welfare of employees. not deposited in prescribed time. Expenditure on any type of advertisement of political party. 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. Bonus or commission or leave encashment payable to employees. 2. 2. Any payment of salaries payable outside India or to a non-resident on which tax is not deducted. fees for technical services or other sums chargeable under this act. royalty. 4. Any tax. Contribution to provident fund. ESI premium.  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. Postage expenses. cess or fees by whatever name called. 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. 3. royalty. 3. or if deducted then not deposited before the due date of filing the return. commission. 4. .

20000/= (Rs. such payments shall be deemed as profit of the assessee for the year in which the payment is made. 10.20000/= or more from any other person except by an account payee cheque/draft. 13. on behalf of the employee. 11. (Rs. and the payment or aggregate of payments made to a person in a day otherwise than by way of an account payee cheque/DD. bank. Any remuneration paid to non working partner.35000/= in case of payment made for plying. 9. Any personal expenditures. 8. hiring or leasing goods carriages) except when payments are made under circumstance specified in Rule 6DD of Indian income tax act. This restriction shall not apply if the loan or deposit is taken or accepted from government.35000/= in case of goods carriages). post office. COMPULSORY AUDIT OF ACCOUNTS . 15. government undertaking etc.20000/= or more. Where a deduction has been claimed on accrual basis during an assessment year and the payment is made in a subsequent year. Any remuneration paid to working partner other than specified in agreement or as per the specified limits by income tax act.  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. 14. 12. Any provision for the payment of gratuity to the employees.7. co-operative bank. Expenses on defending in any proceedings for breach of any law relating to sales tax etc. Any interest to partner if not specified in agreement and not more than 12%.20000/=. exceeds Rs. Any payment in cash exceeding Rs. Notes:  Restriction on acceptance of loans or accept a deposits of Rs. Any tax actually paid by an employer on any income by way of perquisites.