PRESENTATION ONPROFIT AND GAIN OFBUSINESS OR PROFESSIONPresented By :- GROUP-6RAJAN PATEL (104143)BRIJESH PATEL (104106)SOHAN LASKARI (104153)
BASIS OF CHARGE [SECTION 28] profits and gains of any business or profession any compensation or other payments due to or received by any person specified in section 28(ii) income derived by a trade, professional or similar association from specific services performed for its members the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of profession any profit on transfer of the Duty Entitlement Pass Book Scheme any profit on transfer of duty free replenishment certificate export incentive available to exporters any interest, salary, bonus, commission or remuneration received by a partner from firm any sum received for not carrying out any activity in relation to any business or not to share any know how , patent, copyright, trademark , etc. profit and gains of managing agency and income from speculative transactions
BUSINESS [SECTION 2(13)] It includes any trade, commerce, manufacture or any adventure or concern in nature of trade, commerce or manufacture A person who purchases goods with a view to sell them as profit is trade Whereas if such transactions are repeated on a large scale it is called commerce Manufacture is a process which results in alteration or change in goods which are subjected to such manufacture.
BASIC PRINCIPLES FOR ARRIVING AT BUSINESS INCOME Business or profession carried on by the assessee Business or profession should be carried on during the previous year Income of previous year is taxable during the following assessment year Tax incidence arises in respect of all business or profession Legal ownership V/S Beneficial Ownership Real profit V/S Anticipated profit Real profit V/S Notional profit Mode of book entries not relevant Illegal business Losses incidental to trade
METHOD OF ACCOUNTING 2 main methods Mercantile system Cash system Mercantile system:- Net profit/loss is calculated after taking consideration all income and expenditure of a particular accounting year irrespective of the fact whether income is not received or expenditure is not actually paid during the accounting period Cash system:- a record is kept of actual receipts and actual payments of a particular year. Hence income actually collected during the previous year is taxable and expenditure actually paid during the previous year is deductable irrespective of fact whether it related to the previous year or some other years.
TWO CONCEPTS Block of assets method of providing depreciation on fixed assets Calculation of taxable business/ profession income.
BLOCK OF ASSETS In income tax for calculating depreciation a unique method is used. Here all assets are classified in to different blocks on the basis of its nature and rate of depreciation. Here following format will show how to calculate on depreciation value is derived as follow:-
Opening W.D.Vadd : addition made during the yearLess : sale proceed on assets sold , discarded , demolished or destroy---------------------------------------------------------------= depreciation amountless : deprecation---------------------------------------------------------------- closing W.D.V
RULES Depreciation on asset used in business is allowed as deduction in computing the taxable income/profits but subject to following conditions:-1) Assets should be owned by the assessee.2) Asset should be used for the purpose of business or profession.
3) If any asset is used for less than 180 days than depreciation will be allowed @ ½ the prescribed rate. up to 2nd October full depreciation (even on 2nd October)4) The depreciation is to be allowed on the basis of concept of block of assets Block of assets means a group of assets following with same class of assets and subject to same depreciation rate.
5) All expenses incur to acquire assets are to be considered as a part of total cost. like:- carriage inward installation charges technical fees interest on loan etcHowever subsidy is received it would be deducted from total cost.
6) No depreciation will be considered in following cases :- If all assets of block are sold out. It may result short term capital gain or short term capital loss. When sales proceed is more than opening W.D.V and addition made during the year. In that situation sale proceed less ( o/p W.D.V + addition during the year)= short term capital gain . For depreciation selling date is not concern but purchasing date must considered , it is calculated not from date of purchase but from date of use.
EXAMPLE Sohan Pvt. Ltd. is having 5 Mac book subject to rate of depreciation 20 % ( W.D.V as on 1/4/2011) Rs 8 laces already with Unjha ltd. On 19 June 2011 company purchased Mac book costing 180000 with installation charges for Rs 120000. However one Mac book was sold on 26 December 2011 for Rs 400000Compute advisable depreciation for year 2011-12 ???????????????
SOLUTIONPARTICULAR AMOUNT TOTAL AMOUNTW.D.V OPENING 800000+ ADDITION DURINGTHE YEAR : 19/6/2011 180000 + 20000 200000 300000 30000019/11/2011(AFTER)- SALE DURING THE 400000YEARBASE OF 900000DEPRECIATION
EXPENSES WHICH ARE DEDUCTABLE Any expenses on scientific research whether it is of revenue nature or capital nature. Any interest paid on loan taken and any expenditure incurred for arranging business loan. Expenses on promoting family planning among employees provided it is incurred by employer which is company. Advertisement by way of neon sign board though it seems capital expenditure. Expenses on travelling for business purpose. Amt. contributed towards welfare fund of employees.
Legal expenditure, C.A fees in connection of matter relating to income tax. Gift or present to employees and customers. Preliminary expenses written of for 5 years . Expenses on festival Illegal expenses is not deductable but loss arising from illegal activities is deductable. Membership fees, association fees paid by professional .
EXPENSES WHICH ARE NOT DEDUCTABLE Any expenses which are related to income chargeable under any other head other than business and profession. Any payment to owner of business or any personal expenses of owner Any expenses not being business expenses. Any capital expenditure like purchase of fixed assets as well as expenses on shifting of factory. Income from speculative transaction is taxable here and speculative loss is deductable only from it. Income which is taxable as business income. Any expenditure which is disallowed by act.