C.

Profits and Gains of Business and

Income From
O Chargeability: Professions
Section 28 of the Income tax Act, brings into its ambit the following incomes as
chargeable to tax under the head 'Profit and gains business or profession'
a) Profit and gains of any business or profession carried on bythetheexercise
assessee ofat any
ume during the previous year. Income earned from
"Profession", which involves the idea of occupation requiring cither purely
intellectual skill or anymanual skill is taxable under this head.
b) Any compensation or other payment due to or received by any person
by section 28 (ii), specified
c) Income derivcd by a trade, profession or similar association from
performance for its members, specific
) Profiton sale of a license granted under the Import (Control) Order, 1955 made
under the Imports and Exports (Control) Act, 1947.
c) Cash assistance received or receivable by any person against exports under any
scheme of the Government.
) Any duty of customs or excise repaid or repayable as drawback to any person
against exports under the Customs and Central Excise Duties Drawback Rules
1971.
8) Value of any benefits or perquisites arising from a business or the exercise of a
profession.
h) Interest, salary, bonus, commission or remuneration due to or received by a
partner of fim from such fim.
i) Any sums received under a 'Keyman Insurance Policy' including the sum by way
of bonus on such policy.
O Expenses expressly allowed as deduction from profits and gains of business or
profession:
The following expenses are expressly allowed under the Act:
1) Rent, rates, taxes, repairs and insurance of building (Sec.30)
2) Repairs and insurance of machinery, plants and furniture (sec. 31)
3) Depreciation: Depreciation rates prescribed for a particular block of assets is applied on
the written down value of the block at the end of the relevant previous year.
and additions made during the year are added to the relevant block of assets. Purchases
Likewise,
any amnount received or receivable on account disposable of the asset falling within the
block of destroyed, the value thereof, is deducted from the relevant block of assets; the
resulting figure represents the written down value of the assets at the end of the relevant
previous year on which the prescribed rate of depreciation is applied to arrive at the
amount of depreciation permissible under the Act.
4) Expenditure on scientific research (Sec. 35)
S) Expenditure on acquisition of patent rights and copyrights:
1998, in the respect of the capital expenditure, depreciation can be claimed under Sec.
32. In respect of revenue expenditure, one can claim deduction under section 37 (1);
6) Expenditure on know-how
7) Insurance Premium:
8) Insurance premium on health of the employees:
INCOME TAX O90 O KSHITILJA PUBLICATION, PUNE
 9)
Bonus or commission to cmployees:
10) Interest on borrowed capital:
11)Employer's contribution to recognized provident and approved superannuation fund:
1)Contribution towards approved gratuity fund:
1)Employees contribution to staff welfare schemes:
L4) Write off allowance for animals:
15) Bad Debts.
16) Family planning expenditure:
12) Expenditure on account of entertainment, travelling. advertisement and guest house
maintenance are now allowable as deductions subject to the provisions of section 37(0).
ODepreciation allowed as deduction u/s 32
Sr. Expenditure Section Rule of Availability
No.
1. Depreciation shall be allowed u/s Depreciation shall be allowed, to taxpayers
in respect of following assets: 32(1)(i)engaged in business of generation or
1. Tangible Assets generation and distribution of power, at
(buildings, machinery, prescribed percentage on actual cost of an
plant or furniture); asset
ii. Intangible Assets (know However, if asset is acquired and put to use
how, patents, for less than 180 days during the previous
copyrights, trademarks, year, the deduction shall be restricted to
licenses, franchises, or s0% of depreciation computed above.
any other business or Note: Taxpayers engaged in the business of
commercial rights of generation or generation and distribution
similar nature). of power shall have the option to claim
depreciation either on basis of straight-line
basis method or written down value
method on each block of asset.
2 Depreciation shall be allowed Ws |Depreciation shall be allowed to all
in respect of following assets: 32(1)(ii) taxpayer (except as referred to above) at
i. Tangible Assets prescribed percentage on writen down
(buildings, machinery, value of each block of asset (as per WDV
plant or furniture); method).
ii. Intangible Assets (know However, if asset is acquired and put to use
how, patents, for less than 180 days during the previous
copyrights, tradenmarks, year, the deduction shall be restricted to
licenses, franchises, or 50% of depreciation computed above.
any other business or
commercial rights of
similar nature).
3
|Additional depreciation shall ws (This Deduction is Not Applicable w.e.f.
be allowed to the
following32(1)(1a)A. Y. 2021-22 in case of
|assessees in respect of new option of new
plant and machinery [other taxation regime u/s 115 BAC exercised)

INCOME TAX KSHITIJA PUBLICATION, PUNE

 than ships, aircraft, oftice Additional depreciation to be allowed ate
appliances, second hand plant % of actual cost of new
or machinery, etc.]: machinery. plant and
a) manufacture or production However, if an asset is acquired and put
of any article or thing: or use for less than 180 days
b)generation, transmission or previous year, 50% of during the
distribution of power (if
taxpayer is not claiming
| depreciation shall be allowed in
acquisition and balance 50% would
additional
year of
depreciation on basis of allowed in the next year. be
straight-line method)
O Depreciation U/s 32 of the Income Tax Act, 1961
Name of the Assets
Percentage of
1.
Depreciation
Machinery. Sign Board, Type Writer 15%
2. Build1ng -Residential Purpose 5%
3. Building - Office Purpose 10%
4 Furniture & Fixture
10%
5 Motor Car - Personal Purpose 15%
6. Motor Car (Commercial hiring busincss) 40%
7. Computer including Computer software 40%
8. Trade mark, Know-how, Patents, Copy right & all
other
intangible assets 25%
9 Books
100%
10. Electric Equipment 80%
OAmounts expressly disallowed under the Act.
1) Amounts not deductible under section 40:
(a) in the case of any assesse, the following expenses are
expressly disallowed under
Section 40(a):
a) Any interest, royalty, fees for technical service or other sum chargeable under the
Act payable out of India on which t¡x has not been paid or deducted at source.
b) Any sum paid on account of any tax levied on the profits or gains of any business
or profession;
c) GST Penalty only (If filling late return)
d) Any sum paid on account of wealth tax under the Wealth-tax Act, 1957, or any
tax of similar nature chargeable under any law in force in any foreign country;
e) Salary paid out of India if tax has not been paid or deducted at source; and
f) Any payment to a provident fund or other fund established for the benefit of
employees of the assessee has not made irom the fund.
(b) Amounts not deductible in respect of payment to relatives (sec. 40 A (2))
(c) Amounts not deductible in respect of expenditure Cash Payment exceeding Rs. 10,000
(sec. 40 A (3))
(d) Provision for payment of gratuity under section 40 A (7):
(e) Contribution to non-statutory funds under section 40 A (9):
(f) Unpaid statutory liability under section 43 B

INCOME TAX 92 O KSHITIJA PUBLICATION, PUNE

 Computation of profits and Gains from business:
D case of business, the profit and loss account are available: which shows the profit or
inthe financial year.
lossfor the
a) The figure of profit or loss disciosed by the profit and loss account is adjusted for
arriving at the
income from business as follows:
I) Add to the above figurce of profit or loss all the cxpcnses which are appearnnz
in the Profit and loss Alcbut are not allowed under the Income-Tax Act; such
as household expenses, interest on capital life insurance premium crC.
If any expenses are partly disallowed; then the partly disallowed amount
would be added.
2) Deductexpenses admissible under the Income-Tax Act but not debited to the
profit and Loss Alc
3) Deduct items which cannot be treated as income such as Income Tax Refund,
Bad
debts recovered not allowed earlier, etc.
4) Deduct incomes which are not chargeable under the head 'profit and gains
from businesses.
5) Add any item of income or receipt which I an income under the head 'Profit
and Gains from business' but not considered in the Profit and Loss A/c.
The resulting figure after the above additions and subtraction would be 'Profit and gains from
business.
J Computation of Income from Business:
Aformat which can be useful for computation of business income of given below:
Net Profit or Loss (NIP) as per profit and loss a/c
Add: Disallowed Expense Debited to P&L alc
Household Expenses
Income-Tax/Gift Tax
Life insurance premium
Reserve or Provision for Bad debts
Interest on Capital /interest on Drawing
Proprietors salary
Donations charity
Any Provision/Reserve
Any Cash Payment Excess Rs. 10,000
Contribution to Political Party/URPF/PPF
GST /Sales tax penalty/FBT
Loss on sale of Capital Asset
Personal Expenses
Wealth Tax, Advance Income Tax
Gift & Present to employee
Any Capital Expenditure
Provision for Income-Tax/Excise/Custom
Reserve for Discount
Any expenses not pertaining to business
Excess Depreciation (if any)
INCOME TAX O93 KSHITILJA PUBILICATION, PUNE
 Overvaluation of Opening Stock
Undervatuation of Closing Stock
Add: Allowed Incomes but net credited to P&l a'c
Any Basness-related incomes
Less: Disallowed Incomes Credited to P&l aC
Gifts fhom relatives ot employee
Income-tax Refund
Recover of Bad IDebts not allowed carlier
Refund of any penalty
Dividends
Interest on securities FDebenturesBonds
Profit on sale of Capital Assets/'securitics
Wining from lottery/ Horse Race cte
Rent from house property
Any Subsidy Grant
Overvaluation of Closing Stock
Undervaluation of Opening Stock
Less: Allowed Expenses but not Debited to P&L ale
Depreciat1ion allowable (if considered separately)
Actual Bad Debts (if not debited to profit and loss a/c)
Capital Expenditure for scient1fic rescarch
Add: Any Business income not considered Income from
business
Taxabie lncome from Business
OComputation of Income from Profession:
In case of profession. the Receipts and Payments account for the year or the Income and
Ixpenditure Account for the year would be available. The following steps are taken.
a) Group all the items of incomes appearing on the receipt side or income side which
pertain to the profession only. Do not consider any other receipt or income which
Iis not arising from the profession carried out by the assessee.
b) Group all the expenses from the payment or expenditure side
account of profession only. which are on
c) Consider in the Expenses, group all the expenses which are
Income Tax Act but not considered in the Receipt and allowable under
and Expend1ture A/c payment Ac or Income
A format which can be uscful for
Computation of income form profession computation of profession income of given below
for the Assessment year..
Particulars
Amount
All only
Profession related Reccipts
Less: Al! only Profession relatcd payments XXX

Taxabie income from Profession XXX

Methud of Accouating: bus1ness profiles are XXX

computed in aceordance with the method
accounting regular enployed by the assesse There
system and cash system are two method of mercant1le
accounting
INCOME TAX
O94
KSHI
 Mercantile system: under the mercantile system of all the income and the
) accounting,
expenses are recorded on accrual basis actual reccipt of income or actual payment of
expenses during the year is not necessary. Net profit or loss is computed after considering
all income and expenses, whether or actually received or paid during the accounting
period. Theincome may be reccived or expenditure may be paid during the previous year
or in the year preccding or following the previous year. As per this system, the annual net
profitis ascertaincd by preparing profit or loss A/c income and expenditure Alc.
2) Cashsystem: under the cash system of accounting, record is kept of actual receipt and
actual payment of particular year. Under the system, the receipt and payment A/c is
prepared.

PROBLEMS ON INCOME FROM BUSINESS

PROBLEM NO: - 01
The following is the Profit & Loss Account of Mr. Businessman for the year ending on 3T
March, 2023.
Profit & Loss a/e for the vear ended 31st March 2023
Particulars Amount |Particulars Amount
To Salary 1,25,000 By Gross Profit 3,00,000
To General Expenses 12,500 By Commission 30,000
To Conveyance 1,250 By Sundry Receipt 3,000
To Postage 125 By Gift froma Friend 12,000
To Depreciation 25,000 By Interest on
To Computer Stationery 2,500 Fixed Deposit 23,075
To Construction of canteen 15,700 By Bad Debts
To Donation to an Recovered 10,000
Educational Institute 10,500
To GST 25,000
To R.D.D. 2,500
To Net Profit 1,58,000
Total 3,78,075Total 3,78,075
1. Salary includes Rs. 12,500 paid to Mr. Businessman.
2. General Expenses include Rs. 5,850 as the gift given to a friend on his marriage
ceremony.
3. Depreciation allowed as per income tax rule is amounted to Rs. 22,000
4. GST include Rs. 2,500 as Penalty for evasion of Goods & Service tax.
Compute taxable income from business of Mr. Businessman for the A.Y. 2023-24.
(S.P.P.U.0CT. 2003)

INCOMETAX O95 0 KSHITIJA PUBLICATION, PUNE