profit and gain from business and profession, provisions,and deductions

1. PROFITS AND GAINS
FROM BUSINESS AND
PROFESSION

2. DEFINITIONS:-
 BUSINESS: SEC.2 (13) ANY TRADE, COMMERCE
OR MANUFACTURE OR CONCERN IN THE
NATURE OF TRADE, COMMERCE OR
MANUFACTURE.
 PROFESSION : ALL SUCH HUMAN ACTIVITIES,
WHICH REQUIRE INTELLECTUAL SKILL AND
TECHNICAL EXPERTISE.
 VOCATION: IT INCLUDES BOTH BUSINESS AND
PROFESSION AND ANY SUCH ACTIVITY UPON
WHICH A PERSON SPENDS MAJOR PART OF HIS
TIME IN ORDER TO EARN FOR HIS LIVING.

3. CHARGING PROVISION (SEC 28):-
INCOME FROM BUSINESS AND
PROFESSION
COMPENSATION DUE OR RECEIVED
INCOME OF TRADE OR PROFESSIONAL
ASSOCIATIONS
PROFIT ON SALE OF LICENCE
VALUE OF BENEFIT

4.  INCOME FROM SPECULATION
 INTEREST, SALARY ETC. RECEIVED BY A
PARTNER FROM THE FIRM
 ANY SUM RECEIVED UNDER A KEYMAN
INSURANCE POLICY
 PROFIT EARN FROM AN ILLEGAL
BUSINESS.

5. COMPUTATION OF INCOME FROM
BUSINESS
 NET PROFIT AS PER PROFIT AND LOSS
ACCOUNT
ADD: INADMISSIBLE EXPENSES (MEANS
EXPENSES AND LOSSES DEBITED TO PROFIT
AND LOSS ACCOUNT BUT NOT ALLOWED AS
DEDUCTION)
ADD: INCOMES CHARGEABLE UNDER THIS
HEAD BUT NOT CREDITED TO PROFIT AND
LOSS ACCOOUNT
LESS:EXPENSES ALLOWED BUT NOT DEBITED
TO PROFIT AND LOSS ACCOUNT
LESS: INCOMES FROM OTHER SOURCES BUT
CREDITED TO PROFIT AND LOSS ACCOUNT

6. INCOME FROM PROFESSION
 ALL TAXABLE INCOMES
LESS : ALL DEDUCTIBLE EXPENSES AND
LOSSES

7. GENERAL PRINCIPLES TO COMPUTE INCOME FROM
BUSINESS AND PROFESSION:-
 EXPENSES ARE RELATED TO THE PREVIOUS
YEAR
 EXPENSES ARE RELATED TO BUSINESS OR
PROFESSION
 PRINCIPLE OF COMMERCIAL EXPEDIENCY
 BUSINESS OR PROFESSION MUST BE CARRIED
DURING THE PREVIOUS YEAR
 NO ANTICIPATED LOSSES
 INCLUDES ILLEGAL BUSINESS ALSO
 NO DEDUCTION FOR PENALTIES FOR BREACH
OF LAW
 DEDUCTION RELATED TO TAXABLE PROFITS
ONLY

8. DEDUCTIONS ALLOWED:-
 RENT, RATES, REPAIRS AND INSURANCE FOR
BUILDINGS (SEC. 30)
 RENT, REPAIRS AND INSURANCE OF
MACHINERY, PLANT AND FURNITURE (SEC.
31)
 DEPRECIATION (SEC. 32)
DEPRECIATION IS ALLOWED ON TANGIBLE
AND INTANGIBLE ASSETS BOTH.
ASSETS ARE DIVIDED ON THE BASIS OF
BLOCK OF ASSETS (BUILDINGS, FURNITURE,
PLANT AND MACHINERY AND INTANGIBLE
ASSETS)

9. RATES OF DEPRECIATION:-
 BUILDINGS
BLOCK 1: USED FOR RESIDENTIAL PURPOSE - 5%
BLOCK 2: FOR OTHER PURPOSES - 10%
BLOCK 3: TEMPORARY ERECTIONS - 100%
 FURNITURE & FITTINGS INCLUDING ELECTRICAL
FITTINGS
- 10%
 INTANGIBLE ASSETS INCLUDE KNOW HOW,
PATENTS, COPYRIGHTS, TRADE MARKS,
LICENCES, FRANCHISES ETC. - 25%

10. BLOCK 1: MOTOR CARS - 15%
BLOCK 2: SHIPS, VESSELS, TUGS, BARGES ETC - 20%
BLOCK 3: TAXIS, MOTOR BUSES, MOULDS ETC - 30%
BLOCK 4: AEROPLANES & SPECIFIED LIFE
SAVING MEDICAL EQUIPMENTS - 40%
BLOCK 5: CONTAINERS MADE OF GLASS,
PLASTIC ETC - 50%
BLOCK 6: COMPUTERS INCLUDING SOFTWARE,
BOOKS OTHER THAN ANNUAL
PUBLICATIONS OR USED BY
LIBRARIES - 60%
PLANT & MACHINERY:-

11. BLOCK 7: ROLLERS, ENERGY SAVING DEVICES,
GAS CYLINDERS ETC - 80%
BLOCK 8: WATER TREATMENT SYSTEM,
CINEMATOGRAPH FILMS, MATCH
FACTORIES, SALT WORKS, BOOKS
BEING ANNUAL PUBLICATIONS OR
USED IN THE LIBRARY,
POLLUTION CONTROL
EQUIPMENTS - 100%

12.  TEA, COFFEE & RUBBER DEVELOPMENT
ACCOUNT (SEC 33AB)
QUANTUM OF DEDUCTION WILL BE THE
AMOUNT DEPOSITED WITH NABARD IN A
SCHEME APPROVED BY TEA, COFFEE RUBBER
BOARD OR 40% OF THE PROFIT OF SUCH
BUSINESS WHICHEVER IS LESS.
 SITE RESTORATION FUND (SEC 33ABA)
QUANTUM OF DEDUCTION WILL BE THE
AMOUNT DEPOSITED WITH SBI IN A SPECIAL
ACCOUNT OR SITE RESTORATION ACCOUNT
OF THE MINISTRY OR 20% OF PROFIT OF
SUCH BUSINESS WHICHEVER IS LESS.

13.  EXPENDITURE ON SCIENTIFIC RESEARCH
(SEC 35)
1. QUANTUM OF DEDUCTION IS 100% OF THE
EXPENDITURE IN GENERAL INCLUDING
CAPITAL EXPENDITURE
2. DONATION TO SCIENTIFIC RESEARCH
ASSOCIATIONS, NATIONAL LABORATORY,
UNIVERSITY OR AN IIT ETC - 125%
3. IN HOUSE RESEARCH IN THE AREA OF BIO
TECHNOLOGY, DRUGS, PHARMACEUTICALS,
COMPUTERS ETC - 150%

14.  EXPENDITURE FOR OBTAINING LICENCE TO
OPERATE TELECOMMUNICATION SERVICES
(SEC 35ABB)
QUANTUM OF DEDUCTION WILL BE ALLOWED
IN EQUAL INSTALMENTS OVER THE PERIOD
FOR WHICH THE LICENCE REMAIN IN FORCE
SUBJECT TO THE MAXIMUM OF AMOUNT
ACTUALLY PAID.
 EXPENDITURE ON ELIGIBLE PROJECTS OR
SCHEMES (SEC 35AC)
QUANTUM OF DEDUCTION WILL BE THE
AMOUNT SPENT ON APPROVED PROJECTS OR
PAID TO AN APPROVED ASSOCIATION DURING
THE PREVIOUS YEAR

15.  AMORTIZATION OF EXPENDITURE IN CASE OF
AMALGAMATION OR DEMERGER (SEC 35DD)
IF ANY INDIAN COMPANY INCURS ANY
EXPENDITURE ON OR AFTER 1.4.1999 WHOLLY
OR EXCLUSIVELY FOR THE ABOVE MENTIONED
PURPOSE QUANTUM OF DEDUCTION WILL BE
1/5TH OF SUCH EXPENDITURE FOR 5 YEARS
BEGINNING WITH THE PREVIOUS YEAR IN
WHICH THE AMALGAMATION OR DEMERGER
TAKES PLACE.

16.  AMORTIZATION OF EXPENDITURE INCURRED
UNDER VOLUNTARY RETIREMENT SCHEME
(SEC 35DDA)
QUANTUM OF DEDUCTION WILL BE 1/5TH OF
SUCH EXPENDITURE FOR 5 YEARS
 AMORTIZATION OF EXPENDITURE ON
PROSPECTING ETC. FOR DEVELOPMENT OF
CERTAIN MINERALS (SEC 35E)
QUANTUM OF DEDUCTION WILL BE 1/10TH OF
SUCH EXPENDITURE FOR FIRST 10 YEARS

17. OTHER DEDUCTIONS (SEC 36):-
 INSURANCE PREMIUM OF STOCKS
 INSURANCE PREMIUM OF CATTLE
 INSURANCE ON HEALTH OF EMPLOYEES
 BONUS OR COMMISSION TO EMPLOYEES
 INTEREST ON BORROWED CAPITAL
 DISCOUNT ON ISSUE OF ZERO COUPON BONDS
TO BE ALLOWED AS DEDUCTION ON PRO RATA
BASIS
 EMPLOYERS CONTRIBUTION TO RECOGNIZED/
APPROVED PROVIDENT FUND.

18.  EMPLOYER’S CONTRIBUTION TO AN
APPROVED GRATUITY FUND
 SUMS RECEIVED FROM EMPLOYEES
TOWARDS CERTAIN WELFARE SCHEMES IF
CREDITED TO THEIR ACCOUNTS BEFORE
THE DUE DATE
 LOSS ON ACCOUNT OF DEAD OR USELESS
ANIMALS
 ACTUAL BAD DEBTS
 REVENUE EXPENDITURE ON PROMOTING
FAMILY PLANNING AMONGST THE
EMPLOYEES BY A COMPANY

19.  CAPITAL EXPENDITURE ON PROMOTING
FAMILY PLANNING AMONGST THE
EMPLOYEES (QUANTUM OF DEDUCTION
WILL BE 1/5TH OF SUCH EXPENDITURE FOR 5
YEARS)
 BANKING CASH TRANSACTION TAX PAID

20. GENERAL DEDUCTIONS (SEC 37)
 REMUNERATION TO EMPLOYEES
 PENALTY, DAMAGES ETC. DURING THE COURSE
OF BUSINESS
 LEGAL EXPENSES
 EXPENDITURE ON RAISING LOANS
 EXPENDITURE ON ADVERTISEMENTS
 DIWALI AND MAHURAT EXPENDITURE
 PAYMENT FOR TELEPHONE CONNECTION
 PREMIUM PAID ON LOSS OR PROFIT POLICIES
 CONTRIBUTION TO TRADE ASSOCIATIONS
 PAYMENT TO REGISTRAR OF COMPANIES
 EXPENSES ON TRAINING OF STAFF
 CIVIL DEFENCE EXPENSES
 INDIRECT TAXES

21. EXPENSES NOT ALLOWED AS
DEDUCTIONS (SEC 37)
 EXPENSES IN CONNECTION WITH ISSUE OF
DEBENTURES OR SHARES
 ANY CAPITAL EXPENDITURE
 BANK GUARANTEE COMMISSION
 PUGREE OR PREMIUM PAID TO OBTAIN
TENANCY RIGHT
 EXPENDITURE ON SHIFTING OF OFFICE
 AMOUNT PAID TO WARD OFF COMPETITION
IN BUSINESS TO A RIVAL
 ADVERTISEMENT TO POLITICAL PARTIES

22. DEDUCTION FROM COMMISSION EARNED BY LIC, UTI,
POST OFFICE & MUTUAL FUNDS AGENTS
 WHERE COMMISSION EARNED IS LESS THAN RS
60,000
LIC AGENTS - FIRST YEAR COMMISSION 50% OF
THE COMMISSION, SUBSEQUENT YEAR- 15% OF
THE COMMISSION, IF DIFFICULT TO SEPARATE
THE TWO COMMISSIONS THEN 33.33% OF THE
COMMISSION (TO THE MAXMIMUM OF RS 20,000)
OTHER AGENTS - 50% OF THE COMMISSION
 WHERE COMMISSION EARNED IS MORE THAN RS
60,000 THEN ASSESSEE SHOULD MAINTAIN THE
NECESSARY RECORDS AND CAN CLAIM
DEDUCTION FROM SEC 30-37

23. EXPENSES NON DEDUCTIBLE (SEC 40)
 ANY INTEREST, ROYALTY, FEES ETC PAID
OUTSIDE INDIA WITHOUT DEDUCTION OF
TAX AT SOURCE
 INTEREST ON CAPITAL / LOAN TO PARTNERS
IN EXCESS OF 12% P.A
 UNREASONABLE EXPENSES TO RELATIVES IF
THE ASSESSEE IS HAVING SUBSTANTIAL
INTEREST
 ANY EXPENDITURE EXCEEDING RS. 20,000
OTHERWISE THAN BY AN ACCOUNT PAYEE
CHEQUE

24.  SECURITY TRANSACTION TAX
 FRINGE BENEFIT TAX
 DIRECT TAXES
 TAX ON PERQUISITES PAID BY THE
EMPLOYER
 CONTRIBUTION TOWARDS NON RECOGNIZED
PROVIDENT FUNDS

25. DEDUCTION ONLY ON ACTUAL PAYMENT
EVEN AFTER 31ST MARCH BUT BEFORE
THE DUE DATE OF FILING THE RETURN
(SEC 43B)
 TAXES, DUTY, CESS OR FEE
 CONTRIBUTION TO PROVIDENT FUND,
GRATUITY FUND, ETC.
 PAYMENT OF BONUS, COMMISSION ETC. TO
EMPLOYEES

26. DEEMED PROFIT (SEC 41)
 RECOVERY AGAINST ANY ALLOWANCE OR
DEDUCTION ALLOWED EARLIER
 SALE OF CAPITAL ASSETS USED FOR
SCIENTIFIC RESEARCH
 RECOVERY OF BAD DEBT

27. MAINTAINENCE OF ACCOUNTS (SEC 44AA)
 A PERSON CARRYING ON SPECIFIED
PROFESSION SHALL BE REQUIRED TO
MAINTAIN ACCOUNTS IF HIS GROSS RECEIPTS
IN THREE PRECEDING YEARS EXCEEDS RS
1,50,000 OR IN CASE OF NEW BUSINESS IT IS
LIKELY TO EXCEED RS. 1,50,000 IN THAT
PREVIOUS YEAR
 FOR OTHER PERSONS WHERE THE TOTAL
INCOME EXCEEDS RS 1,20,000 OR SALE EXCEEDS
RS 10,00,000 IN ANY OF THE PRECEDING 3
YEARS OR IN CASE OF NEW BUSINESS LIKELY TO
EXCEED THE SAME DURING THE CURRENT
PREVIOUS YEAR

28. COMPULSORY AUDIT OF ACCOUNTS
(SEC 44AB)
 IN CASE OF BUSINESS TOTAL SALES OR
GROSS RECEIPTS EXCEEDS RS 40 LAKHS IN
ANY PREVIOUS YEAR OR IN CASE OF
PROFESSION EXCEEDS RS 10 LAKHS IN ANY
PREVIOUS YEAR

29. PRESUMTIVE SYSTEM OF TAX (NO
ACCOUNTS ARE PREPARED)
 PROFITS AND GAINS OF BUSINESS OF CIVIL
CONSTRUCTION (SEC 44AD) – DEEMED
PROFIT= 8% OF GROSS RECEIPTS IF THE
RECEIPTS DO NOT EXCEED RS 40 LAKHS
DURING ANY PREVIOUS YEAR

30.  PROFITS AND GAINS OF PLYING, HIRING OR
LEASING GOODS CARRIAGES (SEC 44AE) –
IF ASSESSEE OWNS NOT MORE THAN 10
GOODS CARRIAGES DURING THE PREVIOUS
YEAR THEN DEEMED PROFIT WILL BE RS
3,500 EACH VEHICLE FOR EVERY MONTH OR
PART OF A MONTH IN CASE OF HEAVY
VEHICLES AND RS 3,150 EACH VEHICLE FOR
EVERY MONTH OR PART OF A MONTH IN
CASE OF LIGHT VEHICLES

31.  PROFITS AND GAINS OF RETAIL BUSINESS (SEC
44AF)- DEEMED INCOME WILL BE 5% OF THE
TOTAL TURNOVER IF TURNOVER DOES NOT
EXCEED RS 40 LAKH DURING THE FINANCIAL
YEAR
 PROFITS AND GAINS OF SHIPPING BUSINESS IN
CASE OF NON RESIDENTS (SEC 44B) - DEEMED
INCOME WILL BE 7.5% OF THE FREIGHT
 PROFITS AND GAINS OF BUSINESS OF OPERATION
OF AIRCRAFT IN CASE OF NON RESIDENT (SEC
44BBA) - DEEMED INCOME WILL BE 5% OF THE
AMOUNT RECEIVED/ RECEIVABLE

32. THANK YOU