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Taxable Incomes in Business & Profession: Lecture Notes

Learn about taxable incomes in business or profession, including deductions and allowable expenditures. Understand basis of charge, depreciation, and additional benefits.

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Taxable Incomes in Business & Profession: Lecture Notes

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  1. Profits and Gains of Business or Profession Lecture Notes

  2. Basis of Charge (Section 28) • Following Incomes shall be charged to tax under this head • 1. Profit and Gains of any business or Profession carried on by the assessee • 2. Any Compensation or other payments due or received by assessee, for loss of agency, due to termination or modification in terms and conditions of such agency • 3. Income derived by a trade, professional or similar association, for specific services performed; for its members. • 4. Export Incentives received by Exporter such as Sale of licenses, Cash Assistance, Duty Drawback

  3. Basis of Charge (contd.) • 5. Value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession • 6. Interest, Salary, Bonus, Commission or remuneration due o or received by, a partner of a firm from such firm. • 7. Sum Received or receivable in cash or kind for • a) not carrying out any activity • b) not sharing any knowhows, patent etc. • 8. Sum Received under Keyman Insurance Policy • 9. Income from Speculative Business.

  4. Business & Profession • Business includes any Trade, Commerce or Manufacture or any adventure in the nature of Trade, Commerce or Manufacture. Profession: means an occupation requiring specialised Knowledge and Skill. Vocation: is an activity in which an assessee has specialised skill for earning Income.

  5. Deduction Allowable • 1. Rent, Rates, Taxes and Insurance of Building ( u/s 30) • 2. Repairs and Insurance of Machinery, Plant and Furniture (u/s 31)

  6. Depreciation (u/s 32) • Following conditions are to be fulfilled. • a) Assessee must be owner of the Asset. • b) Asset must be used for the purpose of business or Profession. • c) Such use must be in the relevant previous year.

  7. Depreciation • Deprecation is allowed in respect of • a) Building • b) Plant & Machinery • c) Furniture • d) Motor Vehicles • e) Computers • f) Intangibles

  8. Depreciation • Depreciation is allowed on the Written Down Value of Block of Assets • Opening WDV XX • Add : Purchases during the year XX • Less : Sales during the year XX • Closing WDV XX • Note : If the Asset is put to use for less than 180 Days in the year, depreciation will be allowed at 50 % of the eligible rate.

  9. Additional Depreciation • Additional Deprecation @ 20 % of Actual Cost of Machinery acquired after 31.03.2002 for • a) New Industrial Undertaking • b) Existing Industrial Undertaking Note : If the Asset is put to use for less than 180 Days in the year, depreciation will be allowed at 50 % of the eligible rate.

  10. Expenditure of Scientific Research U/s 35 • Any Expenditure (other than Cost of Land) expended on scientific research related to the business. • Contribution to • i) Association, university, college for the purpose of Scientific Research • ii) National Laboratory • eligible for 175 % Deduction • iii) Association, university, college for the purpose of research in social sciences or statistical research • eligible for 125 % Deduction • In House Research in specified industries eligible for • 200 % Deduction

  11. Expenditure for Obtaining License to operate Telecommunication Services U/s 35ABB • Allowed as Deduction equally over the number of years of Validity of Licenses

  12. Other Expenditures • 35AC : Expenditure on Eligible Projects • 35CCA : Expenditure for carrying out rural development programmes • 35 CCB : Expenditure for carrying out programmes of conservation of natural resources.

  13. Amortisation of • Preliminary Exp deduction is allowed in 5 Years ( Section 35D) • Amortisation of Amalgamation or Demerger in 5 Years (Section 35DD) • Amortisation of VRS Expenses in 5 Years • ( Section 35DDA) • Expenditure on Minerals Prospecting in 10 Years (Section 35E)

  14. Other Deduction u/s 36 • i) Insurance premium paid to cover the risk of damage or destruction of Stock • Ii) Bonus or Commission paid to Employees • Iii) Interest on Borrowed Capital • iii) Contribution to Recognised Provident Fund • iv) Contribution to Approved Gratuity Fund • V) Write off of useless or Dead Animals • Vi) Bad Debts • Vii) Expenditure on promotion of Family Planning among employees

  15. General Expenses u/s 37 • Conditions to be fulfilled • i) Expenditure should not be in the nature prescribed u/s 30 to 36 • ii) Not a Capital Expenditure • iii) Not Personal Expenditure • iv) for the purpose of Business

  16. Advertisement Expenses ( Section 37(2B) • Deduction is not allowed in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamplet or like published by a political party.

  17. Disallowance u/s 40a • Interest Royalty Fees for Professional Services paid outside India without deducting TDS

  18. Disallowance us/s 40 a • Payment to Resident without deducting TDs • Following payments are covered • I) Interest • II) commission or Brokerage • III) Rent • Iv) Fees for Technical or Professional Services • V) royalty • VI) Payment to Contractor

  19. Disallowance us/s 40 a • Securities Transaction Tax • Fringe Benefit Tax • Income Tax • Wealth Tax • Salary paid outside India without deducting TDS • Provident Fund payment without deducting TDS • Tax on Prequisites paid by the employer

  20. Disallowance u./s 40 (b) • Amount not Deductible in case of Partnership Firm • I) Interest exceeding the rate specified in the Partnership Deed or 12 % whichever is lower • II) Remuneration to Partner

  21. Remuneration to Partner • Is allowed upto the following limits • First Rs 3,00,000 - 90 % or Rs 1,50000 • which ever is high • Balance - 60 %

  22. Disallowance u/s 40 A • Excessive Payment to Relatives • Payment exceeding Rs 20,000 in mode otherwise than Crossed cheque • (Entire amount is disallowed)

  23. Contribution to Non Statutory Funds • Provision for Unapproved Gratuity Fund

  24. Section 43 B : Deduction on Payment Basis • Following will be allowed as Deduction on actual paid basis. • Outstanding amount has to be paid before Due Date of Filing of Return of Income. • i) Any Tax, Duty paid to government • ii) Contribution to PF • iii) Bonus or Commission • iv) Interest on Loans from financial • institution • V) Interest on Loans from Scheduled Bank • Vi) Leave Salary to Employees

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