Income from business and profession ITO 1984

An Overview
On
“Income from business and profession ITO 1984”
Taxation
Course Code –ACC 311
Section-02
Submitted to:
Rehnuma Hoque Moutushi
Senior Lecture,
Department of Business Administration,
East West University
Submitted by:
Name ID
Md. Tuhin Sarwar 2017-2-10-207
Rokibul Hasan 2017-2-10-234
Fokrul Hasan Fahad 2018-1-10-111
Tamanna Yasmeen 2017-3-10-159
Sajit Mohammad 2018-3-10-087
Income from business and profession ITO 1984

LETTER OF TRANSMITAL

Date: 17/05/21

Rehnuma Hoque Moutushi

Senior Lecturer

East West University, Dhaka

Subject: Submission of Term Paper.

Dear Sir,

With great gratification, we are submitting our term paper on “Income from business and
profession ITO 1984” that you have assigned us as an essential requirement of Taxation course. It
is really an enormous prospect for us to congregate vast information and grasp the subject matter
in an appropriate way. We have found the study is quite interesting, beneficial, and informative
and tried our level best to prepare an effective and creditable report.

We honestly, not only anticipate that our analysis will assist to provide a clear idea about the
overall condition of this topic, but also optimistic enough to believe that you will find this term
paper worth for all the effort we have put in it. We welcome your entire query & take pride to
answer them.

Yours sincerely,

________________

Md. Tuhin Sarwar 2017-2-10-207

Rokibul Hasan 2017-2-10-234

Fokrul Hasan Fahad 2018-1-10-111

Tamanna Yasmeen 2017-3-10-159

Sajit Mohammad 2018-3-10-087

Income from business and profession ITO 1984

Table of Contents
LETTER OF TRANSMITAL.................................................................................................................................2
Acknowledgement..........................................................................................................................................4
Executive Summary:.......................................................................................................................................4
Origin of the report:........................................................................................................................................5
Scope of the Study:.........................................................................................................................................5
Objectives of the report..................................................................................................................................5
Specific Objectives:.........................................................................................................................................5
Limitations of the study..................................................................................................................................5
Methodology..................................................................................................................................................6
Secondary sources:.........................................................................................................................................6
Introduction....................................................................................................................................................7
Distinction between income and profession:.................................................................................................8
Importance on them:......................................................................................................................................8
Establishes Appropriate Boundaries:..............................................................................................................8
Income from business or profession [section-28]...........................................................................................9
INADMISSIBLE EXPENSES..............................................................................................................................11
Deductions from income from business or profession (Shill, Masud, & Alam, 2018)...................................13
Specimen Form of “Income from Business and Profession”.........................................................................15
Literature review..........................................................................................................................................16
Findings.........................................................................................................................................................17
Inadmissible Expenses:.............................................................................................................................17
Allowable Deduction.................................................................................................................................17
Recommendation.........................................................................................................................................18
Income from business and profession ITO 1984

Acknowledgement
I would like to express my gratitude among all the beloved member of our group who has worked
with passionate to complete this term-paper. This term-paper will help us to know about Income
from business and profession ITO 1984 under this section we will know how many heads of
income we will calculate which amount will deduct as well as the percentage portion and how a
country like Bangladesh properly work with this all section.

First, I would like to thank to my honorable faculty Rehnuma Hoque Moutushi, Senior Lecturer,
Department of Business Administration, East West University for providing me with the relentless
guidance an invaluable advice whenever needed.

Executive Summary: Income Tax Ordinance 1984. There are seven heads of income namely
salary, interest on securities, house property, agriculture, business and profession, capital gain and
miscellaneous. Among those sectors we calculate our income after deducting some cost basically
income from business generate always positive result that is profit there is no question of loss in
case of income from salary so the provision of set off is not applicable in case of salary as source
of income. Loss arising out of the source of income from securities can be set off against any other
heads of income. Loss arising out of the source of income from house property also can be set off
against any other heads. Loss in case of agriculture can be set off against any other heads except
income from capital gain. Loss arising out of business other than speculation business can be set
off against any head except income from capital gain and house property. Loss from speculation
business can only be set off against any other speculation business. Loss in the source of capital
gain can be set off only against other capital gain. Losses in cases of miscellaneous sources of
income cannot be set off.
Income from business and profession ITO 1984

Origin of the report:

This term paper is required for ACT-311 course from the Department of Business Administration,
East West University. After going through all the essential topic about Income from business and
profession ITO 1984 in our class as well as reading the necessary materials we have got an
opportunity to know about the types of income and their requirements to calculate as well as the
deduction from income and allocate those income and relate with our life. This section is vast, so
we delighted to work on that.

Scope of the Study:

The study will help us to take broad idea on Income from Business and Profession. For the time
limitation we could not have enough time to study on this topic. By this report we got a chance to
study more on this topic. In future it will help us to computation calculate our own taxable income.

Objectives of the report

The main objective of the study is to know about Income from Business and profession.

Specific Objectives:
 To have an overview Income from Business and Profession ‘the chapter of our book
of Bangladesh Income Tax’.
 To have an overview of source of taxable income from Business and Profession.
 To analyze the Information about income From Business and Profession
 To identify importance of it.
 To learn Computing total income from Business and profession.
 Providing suggestions and recommendation

Limitations of the study

We have given best effort to prepare this term paper but there are some limitations of the study
which are as follows-

 We had to reliable only in secondary sources of data.

 For the running pandemic situation and lockdown in country we could not collect data
physically and from primary sources.
 Time limitation is big challenge for this term paper.
Income from business and profession ITO 1984

 The COVID-19 situation has made it even more difficult to collect information for us.
 For the online semester we the group mates could not sit together.
 Due to lack of practical experience, some errors might be occurred during the study.
Therefore, maximum efforts have given to avoid mistakes.

Methodology
All the information included in this study has been obtained from secondary sources. For the
pandemic situation and for the lack of time we could not collect data from primary sources.

Secondary sources:
 Law of Bangladesh Income-tax Ordinance, 1984
 Website of Bangladesh Income tax (nbr.gov.bd)
 Analysis and evaluation of the findings.
 From Book Chapter of Bangladesh Income Tax by Dr. Nikhil Chandra Shil, Mohammad
Zakaria Masud and Mohammad Faridul Alam.
 Journals articles and Research paper.
 Different books, term papers, manuals etc. related to the topic.
Income from business and profession ITO 1984

Introduction

Business refers to any kind of economic activity done by an assesses for earning profits. The term
business/economic activity includes “any trade, commerce, manufacturing activity or any
adventure or concern in the nature of trade, commerce, and manufacture”. A profession is a kind of
job that requires special expertise, skill, and knowledge like that of C.A., Lawyer, Doctor,
Engineer, Architect, etc. In other words, he/she utilizes either his/her intellectual or manual skills

to earn the livelihood. The term ‘Income from business and profession’ means any income shown
in profit and loss account after considering all the allowed expenditures by an assesses. The
income also includes both positive (profit) and negative incomes (loss). In other words, ‘profit and
gains’ represent plus income while ‘losses represent minus income. So, both legal and illegal
business incomes are taxable in nature. The income earned by the assesses from the previous year
is taxable. An assesses involved in the business/profession should file his/her income on or before
31 July of an assessment year. The chargeable income under “Profits and gains of business or
profession” is given below:

1. The profits and gains from any business/profession carried on by the assesses at any time
during the previous year.
2. Any compensation /other payment due to or received by, any person, by whatever name,
manage the whole or significant whole of the affairs of an Indian company, at or connected
to the termination of his management or the modification of the terms and conditions.
3. Income obtained by a trade, professional or similar association from specific services
performed for its members.
Income from business and profession ITO 1984

Distinction between income and profession:

In view of Section 2(13), business includes any (a) trade, (b) commerce, (c) manufacture, or (d)
any adventure or concern in trade, commerce, or manufacture. It covers every facet of an
occupation carried on by a person with a view to earning profit.

 The word “business” is one of large and indefinite import and connotes something which
occupies attention and labor of a person for the purpose of profit.
 Business arises out of commercial transactions between two or more persons. One cannot
enter a business transaction with oneself.

As per section 2(36), profession includes vocation. As profits and gains of a business, profession
or vocation are chargeable to tax under the head “Profits and gains of business or profession”,
distinction between “business”, “profession” and “vocation” does not have any material
significance while computing taxable income. What does not amount to “profession” may amount
to “business” and what does not amount to “business” may amount to “vocation”.

Importance on them:

Professional workplace behavior is necessary for the long-term success of a business, whether it
is a big corporation or small business. Employee interactions and relationships with customers
are of vital importance to ensure that company goals and objectives are met. A professional
workplace attitude and appearance allow employees to take pride in their work and improve
worker performance. Managers who behave professionally set an appropriate example by
encouraging their people to conduct themselves in a manner that supports company-wide
success.

Establishes Appropriate Boundaries:

Professionalism in the workplace establishes boundaries between what is considered appropriate

office behavior and what is not. While most managers support an enjoyable and vibrant work
Income from business and profession ITO 1984

environment, limits must be put in place to avoid conflicts and misunderstandings. Workers who
conduct themselves professionally steer clear of crossing the line with their conversations and
other interactions with co-workers, superiors, and clients.

The authors investigate how both the amount and source of income affects the importance placed
on money using a longitudinal analysis of the British Household Panel Survey and evidence from
two laboratory experiments. Larger amounts of money received for labor were associated with
individuals placing greater importance on money, but this effect did not hold for money unrelated
to work. The longitudinal survey analysis demonstrated these differential effects of the source of
income on moneys importance while holding constant stable individual differences. The
experiments provide evidence that the source of income has a causal effect on the importance of
money as well as on the effort expended to earn more money. Even as individual differences in the
importance placed on money may affect people’s income, our results suggests that, depending
upon its source, income can also affect the importance people place on money.

Income from business or profession [section-28]

The following income of an assesses shall be classified and computed under the head "Income
from business or profession”, namely:

(a) profits and gains of any business or profession carried on, or deemed to be carried on, by the
assesses at any time during the income year.

(b) income derived from any trade or professional association or other association of like nature on
account of specific services performed for its members.

(c) value of any benefit or perquisite, whether convertible into money or not, arising from business
or the exercise of a profession.
(d) the amount, the value of the benefit and the trading liability referred to in section 19(15).

 Any amount received weather in cash or in any other manner as collection of any loss
charged earlier; any bad debt that was written off in an earlier period:
 Any amount previously charged as interest expense but remained unpaid for three income
years shall be deemed to be the income during the income year immediately following the
expiry of the said three years.
Income from business and profession ITO 1984

 Any benefits received in respect of trading liability should be the income in the years of
such receipt if not considered earlier.
 If any trading liability, either in part or full, has not been paid in 3 years after deduction
made in this respect, such amount be deemed to be the income during the income year
immediately following the expiry of the said 3 year.

(e) the excess amount referred to in section 19(16); for example – the balancing charge of any
building and machinery, plant used for the purpose of business or profession, disposed of.

Example: Suppose, a machine was sold at Tk. 79000 with a written down value of Tk 50000 and
was originally purchased at Tk 70000. In this case, the total gain on sale will be 29000 (sale
proceeds minus WDV). Now, whether this gain can be shown as balancing charge? As per rule,
balancing charge must not be exceeded Tk 20000 (original cost minus WDV). Hence, total gain of
Tk 29000 will be distributed as Tk 9000 as capital gain (sale proceeds minus original cost) and Tk
20000 as balancing charge (sale proceeds minus WDV). So balancing charge is nothing but the
revenue gain that can be shown as income under this head. Whereas capital gain will be shown as
income under the head of capital gain. In this case, if the machine was sold less than the original
cost, say, at Tk 60000, there will be no capital gain. The balancing charge in this case would be Tk
10000 (Tk 60000 – Tk 50000) only.

(f) the excess amount referred to in section 19(18); for example – Insurance compensation received
against any building, machineries, or plant, used for the purpose of business or profession, that is
demolished, destroyed, or discarded to the extent the amount equals to balancing charges.

Example: Suppose a machine with Tk 70000 original cost and Tk 50000 written down value is
destroyed by fire against which there is an active insurance policy. If Tk 60000 can be recovered
from the insurance company, then balancing charge will be Tk 10000 (recoverable value minus
WDV) which must not exceed Tk 20000 (original cost minus WDV). In such case, there is no
chance of having capital gain. But the maximum amount of balancing charge will further be
reduced, if any money can be recovered through scraping. If in this situation, the burnt machine
can be sold in the market as a scrap value of Tk 2000, maximum amount for balancing charge will
be Tk 18000 (original cost minus WDV minus scrap value).
Income from business and profession ITO 1984

(Vii) the sale proceeds referred to in 19(20); for example- sale proceeds of any asset used for
scientific research to the extent such proceeds do not exceeds the amount of expenditure allowed
as deduction under section 29(1)(xx).

(Viii) the amount of income under section 19(23); for example – 3% (rule 30A) of the export value
of the garments exportable against the export quota as transferred to any assesses.

Partial income under the head as per different rules:

(a) Income derived from the sale of tea grown and manufactured by the seller in Bangladesh
shall be computed as if 40% of such income was derived from business and 60% of such
income was derived from agriculture (31).
(b) Income derived from the sale of rubber grown and manufactured by the seller in
Bangladesh shall be computed as if 40% of such income was derived from business and
60% of such income was derived from agriculture (rule 32);
(c) Tobacco, sugar, or other agricultural products that needs industrial proceeds to make it
marketable. Here, income from business will be (final sale proceeds – fair value of the raw
materials produced). (rule 30).

INADMISSIBLE EXPENSES

a) any payment which is an income of the payee classifiable under the head "Salaries" if tax
thereon has not been paid in accordance with provisions of Chapter VII.
b) any payment made by an assesses to any person if tax thereon has not been deducted and
credited in accordance with the provisions of Chapter VII.
c) any payment by way of salary to an employee if the employee is required to obtain a
twelve-digit Taxpayer’s Identification Number under the provisions of this Ordinance but
fails to obtain the same at the time of making such payment;]
Income from business and profession ITO 1984

d) any payment made by way of salary to an employee for whom the statement under section
108A was not provided.
e) any payment by way of interest, salary, commission, or remuneration made by a firm or an
association of persons to any partner of the firm or any member of the association.
f) any payment by way of brokerage or commission made to a person who is not a resident in
Bangladesh unless tax has been deducted therefrom under section 56.
(g) any payment to a provident fund or other fund established for the benefit of the employees
unless the employer has made effective arrangements to secure that tax shall be deducted at
source from any payments made from the fund which are taxable being income falling
under the head "Salaries”.
h) so much of the expenditure by an assesses on the provision of perquisites, as defined in
clause (45) of section 2, to any employee as exceeds taka 6[ 7[ five lakh and fifty thousand]
and to any employee who is a person with disability, as exceeds taka twenty-five lakh]:
Provided that the provision of this clause shall not be applicable to an employer where
perquisites were paid to an employee in pursuance of any Government decision published
in the official Gazette to implement the recommendation of a Wage Board constituted by
the Government;]

i) any expenditure in respect of the following as is more than the amount or rate prescribed in
this behalf and as is not, in the cases of sales and services liable to excise duty, supported
by excise stamp or seal, namely:

j) salary or allowance expense if it is not paid by crossed check or bank transfers to the
employees whose monthly salary or allowance is Tk 15000 or more.

k) Exp. By way of incentive bonus exceeding 10% of the net profit disclosed in the statement
of accounts.

l) Expenditure by way of overseas travelling expense exceeding 1.25% of disclosed turnover.

Provided that nothing of this clause shall apply to the overseas travelling expenses by an
assesses engaged in providing any service to the government where overseas travelling is a
key requirement of that service.
Income from business and profession ITO 1984

m) any payment by way of commission paid or discount made to its shareholder director by a
company.

n) any payment by a person exceeding taka 50000 or more, otherwise than by a crossed
check

or bank transfer excluding payment for the purchase of raw materials.

o) any payment by way of any rent of any property, whether used for commercial or
residential mpurposes, otherwise than by a crossed cheque or bank transfer.

Deductions from income from business or profession[ CITATION Shi18 \l

1033 ]
The main aim to collect tax from the source of income. Business and profession are a source of
income and govt. collect tax from it. Business expense must be both ordinary and necessary. A
necessary expense is one that is helpful and appropriate for your trade or business Some income
from business and profession can be deductible when tax will be calculated.

Under the Income-tax Ordinance, 1984, in computing the income under the head "Income from
business or profession", the following allowances and deductions shall be allowed, namely: -

 Rent of Premises: the amount of any rent paid for the premises in which the business or
profession is carried on.
 Repair of Hired Premises: The amount paid for the repair of the hired premises in which
the business or profession is carried on if the assessee has undertaken to bear the cost of
such repair.
 Interest on Borrowed Capital: The amount of any interest paid, or any profit shared with
a bank run on Islamic principles in respect of capital borrowed for the purposes of the
business or profession.
 Distribution of Profit: Any sum paid or credited to any person maintaining a profit and
loss sharing account or deposit with a bank run on Islamic principles by way of distribution
of profits by the said bank in respect of the said account of deposit.
Income from business and profession ITO 1984

 Insurance Premium: The whole or the proportionate part of the amount of any premium
paid for insurance, against risk of damage, destruction or loss of buildings, machinery,
plant or furniture, stocks or stores according as the whole or part thereof is used for the
purposes of the business or profession.
 Depreciation: Depreciation allowance of business assets or bridge or road or fly over
owned by a Physical infrastructure undertaking as admissible under the third schedule.
 Amortization or license fee: In respect of amortization of license fees as admissible under
the Third Schedule
 Investment Allowance for Ships: Investment allowance to an amount equivalent to 20%
of the original cost for a ship, being a passenger vessel plying ordinarily on inland waters,
or a fishing trawler, which is entitled to a special depreciation allowance.
 Land Development Tax or local tax: Any sum paid on account of land development tax
or rent, local rates, or municipal taxes in respect of such premises are used by the assessee
for the purpose of business or profession.
 Bonus or Commission: Any bonus or commission paid to the employees for services
rendered where such sum would not have been payable to him as profits or dividend, that
fulfills followings-
 If the paid in line with general practice in similar business or profession,
 If the profits of the business or profession in that year and
 If the pay and other conditions of service of the employee.
 Bad Debt: The amount of any debt or part thereof which is established to have become
irrecoverable and has actually been written off as such in the books of accounts of the
assessee for the income year if the debt or part thereof has been taken into account in
computing the income of the assessee of that income year or an earlier income year and, in
the case of the business of banking or money-lending carried on by the assessee, represents
money lent in the ordinary course of business.
 Expenditure on Scientific Research: Any revenue expenditure laid out or expended on
scientific research in Bangladesh related to the business carried on by the assesee.
 Expenditure on training: Any expenditure laid out or expended on the training of citizens
of Bangladesh related to scheme approved by the board.
Income from business and profession ITO 1984

Specimen Form of “Income from Business and Profession”.

Name of Assessee:

Assessment year:

Computation of Total Income

Particulars Tk.
Net Income as per Profit and Loss Account XX
Add: Expenses that are not allowed (made debited in) XX
Add: Income under the head of Business and Profession that are not included earlier XX
Less: Expenses that are allowed (Not debited in) XX
Total Income XX
Less: Income that are not from Business and Profession (Already credited in) XX
Taxable Income from Business and Profession XX
Income from business and profession ITO 1984

Literature review

Bangladesh is a huge, populated country compared to its area. Although it is an agriculturally

based country, but a large portion of its population is connected to business and various profession.
Every year a huge amount of income tax come from business and profession. As this income play
an important role on in income tax it has some difficulties because of some rules and regulation.

According to Income Tax Law applicable in Bangladesh, incomes are to be categorized in seven
specific heads as mentioned in section 20 of ITO 1984. Income from business or profession is the
fifth head although the head is the most complex one and is of paramount importance to the
income authority as most of the taxes (in terms of volume) are collected under this head.

Here we studied about an overall idea on income tax from business and profession. Under this
head of income, we find the terms and condition of income tax which are counted under this head
of income, the meaning of business and profession, allowable deduction, or admissible expenses,
source of income tax under this head. We tried to show how income tax is calculated under the
head of income from business and profession. The mainstream of the rules of income tax under
this head of income is provided here through a sequential way.

Basically, the source of the study come from main two sources like primary source and secondary
source. Though we could not gather information from the primary sources, but we make our study
based on secondary sources like NBR official website, Law of Bangladesh income-tax Ordinance,
1984, also from various books and research paper. We tried to make sure that all the information’s
is important for this study.

Our study gap can be described as we could not find is there any changes or rebate on income tax
under this head of income during this pandemic situation of Covid-19. We also failed to cover up
how much income tax is collected under this head of income.
Income from business and profession ITO 1984
Income from business and profession ITO 1984

Findings
Income from Business and profession: there must be some scope of income from business and
profession.
 Profits and gains consider to be conducted by the assessee during the income year.
 any income obtained from a trade, professional, or other similar association in exchange for
specific services performed for its members.
 any amount earned, whether in cash or in any other form, as payment for a previous loss;
any bad debts which have been written off previously.
 Any benefits received in respect of trading liability should be the income in the years of
such receipt if not considered earlier.

Inadmissible Expenses: According to section 30 of ITO, 1984 some expenses are not qualified for
deduct partly or fully and those are like
 Basically, salaries paid to the employee with deducting taxes but if tax not deducted then it
will be considered as an inadmissible expense.
 any payment made by a company or a body of individuals in the form of interest, salary,
fee, or remuneration to any of the firm's partners or members.
 any payment made in place of a crossed check or a bank transfer for the rent of any house,
whether used for commercial or residential purposes.

Allowable Deduction: According to section 29 of the ITO, 1984 certain expenses are allowed for
deduction from income form business and profession.
 Every physical infrastructure has depreciation value which is decrease the value of the asset
and in income tax from business and profession the depreciation allowances is consider as
admissible expenses.
 Debt is always considered as a risk but when it is a bad debt then definitely it is a risk, and
if this occurs on income from business and profession it is consider as admissible expense
and it is deducted.
 All kind of capital expenditure like expenditure on scientific research, donation on research
body, donation to educational institution or hospitals are considered as admissible
expenses.
 If any amount paid as Land development tax it is deduct as admissible expenses from
income from business and profession
Income from business and profession ITO 1984

Recommendation
 We are passing through a critical situation from last one year because of world pandemic
situation of Covid-19. In this situation income from business and profession got decrease,
many businesses got shut down. So, in this circumstance government should take necessary
steps by giving the owners tax rebate or government free their tax from under this head of
income.
 The infrastructure of income tax under the head of income from business and profession is
not so strong. Thus, there is a question arise about Tax evasion. In this case government
should strong the collection system.
 Government should give the assesses tax rebate to encourage and give punishment for tax
evasion.
Income from business and profession ITO 1984