Chapter 10

Income from Business or Profession

Chapter highlights:
•Definitions and Coverage
• Allowable expenses, and Unallowable expenses
•Accounting method
•Depreciation allowance
•Set off and Carry forward of business loss
• Mathematical problems relating to computation of income
under this head
 Business or Profession
Business: An organization or enterprising entity engaged in
commercial, industrial or professional activities. A business can be a
for-profit entity, such as a publicly-traded corporation, or a non-profit
organization engaged in business activities, such as an agricultural
cooperative. Business includes any trade, commerce or
manufacturing activities or any other activities concerning trade,
commerce or manufacturing.
Trade: It includes buying goods and selling those goods at a higher
price for making profit. Trade is ordinary purchase and sale with a
view to making profits. Generally it is practiced as a livelihood.
Commerce: For commerce transactions are repeated on a large scale.
Normally commerce involves large investment.
Manufacture: It includes manufacture of finished goods by using raw
materials.
Profession: Professions are the intellectuals or skills based
occupations. These skills are generated on the professionals by some
special learnings or through practice or devotions. Example: Lawyers,
Doctors, Professors, Artists & Singers and even mechanics.

Scope of Income from Business or profession:

a)Profits or gains of business or professions.
b)Income derived from any trade or professional association
c)Value of any benefits or perquisites from any business or exercize of
profession whether convertible or not in cash.
d)The excess amount referred to in Section 19(16) , like balancing
charge of any building or machinery or plant used for business or
profession, disposed off.
e) The amount or value of the benefits referred to in section 19(15) like
any loss or bad debt recovery that was previously charged as such.
f) The excess amount referred to in section 19(18) like- Insurance
compensation received against any land, building, plant assets or
machinery used for business or profession that has been destroyed,
demolished or discarded to the extend the amount equals to the balancing
charge.
And some others like- Export value: 0.3% of the export value of the
garments exportable against any export quota as transferred to assessee.

Partial Income under this head: 40% of market value of some items like
tea, rubber, sugar, tobacco etc.
 Allowable deductions:
The admissible expenses are:
•Rent of premise
•Repair of hired premise
•Interest on borrowed capital
•Distribution of profits ( for banks run on islamic shoriyah)
•Transfer to special reserve fund not more than 5% of total
income( Accumulated balance of fund should nor exceed the paid
up capital)
•Current repairs: Amount paid for current repair of building,
machinery, plants.
•Insurance premium: Insurance premium paid for policy purchased
against risk of damage, destruction or loss of building, machinery,
plant, furniture, inventories used for business or profession.
• Depreciation ( Tax depreciation is allowed not accounting
depreciation)
• Amortization
• Obsolesce allowance
• Land development tax
• Bonus or commission
• Bad debt, old bad debt, additional bad debt and provision for
doubtful debt
• Expenditure for scientific research( Also donation and payment for it)
• Payment and donation to educational institute/hospital
• Expenditure on training/professional development
• Entertainment expense: Income, gain or profits of the business or
profession (before charging this allowance)
On first 1,000,000………………….Allowable rate 4%
On the balance…………………….. Allowable rate 2%
• Foreign travel allowance of the employees and their dependants:
Once in every two years to the extend of 3 month’s basic salary or 2
third of the actual expenditure whichever is lower. In this case
amount of Tk.10,000 or more must be paid through crossed cheque.
• Free sample distribution:
Celling of turnover Pharmaceutical Other industry
industry
Up to 5 crore at the rate of 2% 1.5%
Above 5 crore to 10 crore 1% 0.75%
Above 10 crore 0.5% 0.375%

• Admissible business loss: Business losses are admissible subject to

some conditions
 Other Admissible expenses under accounting
principles
• Revenue expenditure on publicity, promotion etc.
• Compensation to employees due to dismissal , suspense.
• Compensation to employee for injury/ accident
• Employer’s contribution to RPF
• Telephone, telegraph expense
• Royalty, copyright expense
• Employee incentives etc.
For details go through the text.
 Inadmissible expenses or unallowable expenses
• Salaries paid without deducting TDS
• Any payment in the form of, interest, commission, remuneration
made by the firm to the partners of the firm.
• Any payment of brokerage or commission to any person who is not
a resident of Bangladesh.
• Head office expense exceeding 10% of profits
• Any payment to a person exceeding Taka 50,000 or more,
otherwise than by a crossed cheque or bank transfer excluding:
# payment for the purchase of raw materials
# any payment for government obligation
# salary or remuneration made to an employee, without
prejudice to an obligation referred to clause (i).
 Inadmissible business losses
• Loss which is not incidental to trade or profession
• Loss due to damage or destruction of capital assets
• Loss on sale of shares held as investment
• Depreciation of funds kept in foreign currency for capital purpose
• Anticipated future loss
• Loss as a result of seizure of and confiscation of illegal stock in
trade.
• Loss incurred in the closing down of the business
• Loss incurred for violating law
Other inadmissible expenses and losses:
•Past loss in case of changing business
•Penalty, fine or damage paid in connection with infringement of law
•Income tax and provision for income tax
•Loss of speculative business
•Fund embezzlement after office hour
•Contribution to un-recognized provident fund

Accounting methods
Depreciation allowance
 Balancing allowance, balancing charge and capital
gain:

Balancing allowance: If the WDV of any assets exceeds the sales

proceeds or disposed value , the difference is balancing allowance.
(WDV – Sales)
Balancing charge: The difference between sales proceeds and WDV.
Capital Gain: Difference between sales proceeds and actual cost.
Set-off and Carry forward of loss under
the head Income from Business or
Profession
Loss from business or profession other than speculative
business:
Can be set off from income from any other sources except
capital gain. And if such loss can not be set off fully, can be
forwarded upto six successive assessment years.
Loss from Speculative business: Loss from any speculative
business can be set off from income of any other speculative
business. If the total loss can not be set off , the remaining
loss can be forwarded upto six successive assessment years.