21_27_business_income.ppt

Income from business/Profession
By
RAVIKISHORE
Ravikishore

Charging Section[Sec.28]
 Profits and gains of any profession/profession
 Any compensation received related business
 Income received from members of similar
profession
 Any benefit or perquisites from business
/profession
 Export incentives from government
Ravikishore

Charging -Continue
 Any interest, salary, bonus, commission or
remuneration received by a partner from firm.
 Sum received(compensation) from other
company not to carry on any business for know
how, patent, copy right, trademark.
 Profits and gains of managing agency
Ravikishore

Meaning of business
 Profit motive
 Business and rendering services to others
 Business cannot be carried on with oneself
Ravikishore

Export incentives
 Duty drawback import entitilement licences
 Are taxable u/s 28-Business/profession
Ravikishore

Business income not taxable u/s 28
 1. Rental income in case of dealer in property
taxable under the head income from house
property[u/s22].
 2. Dividend on shares in case of a dealer in
shares- taxed under income from other sources
[u/s 56].
 3. winning from lotteries (lottery business) taxed
u/s 56-income from other sources.
Ravikishore

Losses deductible from business
income
 Loss due to natural calamity
 Loss due to non acceptance of goods
 Reduction in value of foreign currency which is
meant for purchase of stock.
 Loss of cash/goods due to embezzelment,
burglary, forfeiture of deposits.
 Loss of forgoing advance given by sugar
industries to formers due to monsoon failure
Ravikishore

Loss not deductible from business
 Loss due to destruction of Capital asset.
 Loss on sale of investments held as investment.
 Loss of advance to set up a business but business could
not be started.
 Depreciation in value of foreign currency for capital
purpose
 Anticipated future losses.
 Loss of discontinued business
 Loss from illegal business[T.A.Qureshiv.CIT(2006)SC]
Ravikishore

Computation of assessable
profits/loss for tax
 Net profit as per P/L Account
 Add: Amount debited to P/L A/c in respect of
the following
 Loss of earlier years
 Capital losses
 Personal expenses (such as drawings)
 Income tax, surtax, wealth tax, gift tax, estate
duty[Direct taxes], tax penalty, penal interest,
fine.
Ravikishore

Continues
 Add: Charity and donation
 Gifts and presents to others
 All reserves/provisions such as tax provision,
Reserve for dividend, provision for bad debts
except provision for depreciation
 All expenses related to other heads of income
Ravikishore

Continues
 Add: Expenses not deductible u/s 40 and 40A
 Expenses debited to P/L A/C not admissible
u/s 30 to 40A
 Add: Amount not credited to P/L A/c
 Deemed income
 Deduct :Income credited to P/L A/c but not
chargeable under other heads
Ravikishore

Continues
 Less:
 Salary income( income from salary(u/s 15)
 Rental incomeIncome from House property(u/s22)
 Capital gain(u/s 45)
 Dividend[ Income from other sources(56)]
 Direct taxes refund such as Income tax, Wealth tax, estate
duty, surtax refunds
 Bad debts, excise duty recovered not allowed as
expenditure preceding previous years
 Deduct:
 Expenses not debited to P/L A/c but allowed u/s 30 to 40A
 Depreciation u/s 32
 Income chargeable under income from
business/profession.
Ravikishore

Specific deductions expressly
allowed u/s 30 to 37
 1.Rent (Sec.30)
 Repairs(including painting of a house )
 Land revenue, local taxes and municipal taxes
 Insurance against risk of damage or destruction
 Not allowed: a) arrears of rent b) share of profit
instead of rent c.
Ravikishore

Repairs and insurance of machinery,
plant and furniture(sec.31)
 Revenue repair-allowed
 Capital expenditure – not allowed
 Quantum of expenditure is not important
Ravikishore

Depreciation Allowances(sec.32)
 Conditions:
 Asset must be owned by the assessee(Registration is not
important),full control over asset,right to retain the
possession and defend are characteristics of ownership.
 Used or ready to use for business purpose
 Used in the previous year
 Both tangible and intangible assets
 Right on occupancy on Lease property is entitled for
depreciation
 If hirer purchaser has right over asset and hire seller will
loose all rights- Depreciation is allowed.
Ravikishore

Depreciation-Continues
 Insurance premium, repairs and other
expenditure incurred on leased business asset are
deductible in the hands of lessor.
 If any asset is fully controlled such as lease the
capital expenditure incurred by lessee can
provide depreciation[32(1)(ii).
Ravikishore

Lease property
 Registered ownership is not necessary Sec. 53A
of the transfer of property Act.
 If the assessee can be the co-owner to claim
depreciation
 Any capital expenditure incurred by the person
who takes building can provide depreciation on
capital expenditure.
 Rules of Accounting Standard (AS19) not
applicable for depreciation as per IT Act.
Ravikishore

Hire purchase
 Conditions:
 Hire purchaser can provide depreciation if hire
purchaser has uninterrupted right over the asset.
 The seller looses his right
 Who can provide depreciation?
 Hire purchaser.
Ravikishore

Residential quarters
If used by the assessee’s employees –
depreciation is allowed.
Ravikishore

50% of rate of depreciation
 If an asset acquired during the previous year.
 Put into use or ready to use for less than 180 days.
 Exceptions:1. Put into use for less than 180 days but ready
to use for more than 180 days –full rate of depreciation
 If asset purchased in the preceding year to current previous
year but put into use for less than 180 days during the
current previous year what is the rate of depreciation rate?
 If an asset is not used at all-No depreciation not only for
first year but also for subsequent period
Ravikishore

 Full rate of depreciation.
 Can depreciation be provided on intangible
assets such as know- how, patent rights, copy
right, trade mark, licences, franchises etc.
depreciation?
Ravikishore

Meaning of Building and Plant
 Building means: Super structure only. It does
not include site.
 Plant : Includes ships, vehicle, books, technical
know-how report, scientific apparatus and
surgical equipment.
 It does not include tea bushes or livestock or
building or furniture and fittings.
 If assessee does not claim depreciation whether
is depreciation available?
Ravikishore

Method of depreciation
Yes.
Block asset method.
What is block asset method?
Similar nature of asset having the
same rate of depreciation are
clubbed together.
Ravikishore

100% depreciation?
 1. Building acquired on or after September 1,
2002 forming part of water supply project
 2. Pollution control equipments
 3. waste control equipment
 4.wooden parts used in artificial silk
manufacturing machine
 5.cinimatograph films
 6. Books
Ravikishore

Commercial vehicle
If acquired and used
before 31,March 2002.
-Rate of depreciation is
50% .
Ravikishore

calculation of depreciation
 Block value in the beginning
 Add:- Purchase of asset of the same block
 Less:- Net sale value of the consideration
received/receivable in cash /cheque/draft if any
of the block of assets sold during the year
Ravikishore

Continuation
 Calculate depreciation of the balance amount.
 If it reaches to Zero value no more depreciation
is allowed.
 If net sale consideration exceeds the block it
amounts to short term capital gain.
Ravikishore

continues
 Once asset is depreciated the gain on
sale of block never be a long term gain
 Index can not be used for the
calculation of capital gain.
 If all assets of the assets sold out but
block continues it amounts to short
term capital loss.
Ravikishore

###Intangible assets
Depreciation is allowed at the
rate of 25%
Include: know- how, patent
rights, copy rights, trade mark,
licenses, franchises etc.
Ravikishore

Imported Cars
 Purchased between March 1, 1975 and
March 31, 2001 for hire for tourist- no
depreciation is allowed if used in India for
business purposes other than for hire for
tourist
 Used outside india for business-alowed
 For hire for tourist-allowed
 After 31st March 2001- all purposes
depreciation is allowed
Ravikishore

Change in the ownership in any part of the
year due to amalgamation , absorption or
demerger
Calculate depreciation for the
previous year as if no
amalgamation/re-organization
taken place
Apportion between the
companies on time basis.
Ravikishore

###Computation of additional
depreciation
 Manufacture or production of any article
 Purchased entirely new machinery Not used any part
of the world
 Acquired and installed after March 31, 2005
Rate-20%
 If used less than 180 days-Half of the rate
 Excludes ships and aircrafts, used in the guest house,
or office road transport vehicles
Ravikishore

Actual Cost
Total cost-subsidy
Includes: interest on money
borrowed before the asset is put
into use
Bank charges
Loading
Unloading
Ravikishore

Actual cost-continues
 Modification before first put into
use
 Training of staff to operate the
machine
 Other related expenses required
such as cold storage.
 Traveling expenses to acquire the
asset Ravikishore

Un-absorbed depreciation
 Deduct the depreciation of the
previous year from income from
business or profession
 Deduct it from other heads of income
except salary
 If not able to absorb-carry over to
subsequent assessment year (s) – No
time limit. Ravikishore

Subsequent assessment years
 Order of priority to set off:
 1. current depreciation
 2.Brought forward business losses
 3. Un-absorbed depreciation
 Note: Continuity of business is not relevant.
 The same assessee only can carry forward
Ravikishore

Depreciation on Straight Line
basis/WDV
Applicable to Power
units(generating and distribution
of power)
Assets acquired after 31st march
1997.
Ravikishore

Terminal depreciation
 If straight line depreciation method followed on
power generating units
 sold after the use of such asset more than one
previous year
Terminal depreciation=WDV> Net
Sale consideration
Capital gain=Net sale>WDV
Ravikishore

Tea, coffee and rubber development
account[Sec.33AB]
 Deposit with NABARD or Deposit account of
tea, coffee or rubber Board
 With in 6 months from the end of the previous
year or before the last date of filing of returns
whichever earlier
 Exemption:
 Amount deposited or 40% of profit whichever is less
 Can amount be withdrawn?
Ravikishore

withdrawal
 Only for the purpose stated
 If unutilised within the previous year it is treated as
income
 If business closed or dissolved-treated as taxable profit
 If death of the taxpayer/partition of HUF/liquidation
of company will not be treated as income
 Purpose: installed in plant and machinery in low priority
sector or entitled to get 100% depreciation.
 Maximum 8 years
Ravikishore

Site restoration fund[sec.33ABA]
 Production of Petroleum /Natural gas in India
 Deposit with SBI/account opened as per
petrolem and Natural Gas Commission In a
scheme specified
 Before the end of the previous year
 Amount withdrawn should be used for low
priority sector/100% depreciated and utiled
within 8 years at the end of previous year.
Ravikishore

###Scientific research[Sec.35]
In house research
 All Revenue expenditure and Capital expenditure related
to one’s business during the current previous year or even
3***preceding previous years allowed
[Except Land]
 Even asset is not put into use –it is allowed.
 No depreciation is allowed on such capital asset
 If such asset is sold what could be the consequences?
Ravikishore

If scientific asset sold?
If not used for any other purpose:
***Sale or deduction already
allowed whichever is less taxed as
business profit.
Capital gain=Sale-Cost (index if
required) Ravikishore

Contribution to National laboratory
 Including University, IIT
 Weighted deduction= 1.25 times of
contribution can be treated as Expenditure.
 ***Even approval is withdrawn after the
payment to such institution the assesssee
who contributed can enjoy the benefit
Ravikishore

Expenditure on Patent rights and
copy rights[35A]
 Capital Expenditure incurred before 1st
April 1998
14instalments
 After 1st April 1998-Depreciation can be
claimed-25%
 Revenue expenditure-Fully allowed
expenditure in the year such expenditure incurred.
Ravikishore

Technical know how
Only depreciation
25%allowed
Ravikishore

Amortisation of telecom license
fees[35ABB]
Conditions
 Capital Expenditure
 Acquiring any right to operate telecommunication
services
 Incurred before or after commencement of Business
 Mainly incurred to obtain license.
 If conditions fulfilled claim can be done u/s 35ABB
otherwise u/s 37(1) as business expenditure.
Ravikishore

Payment to associations and institution
for rural development program
Institutions approved before
1st March 1983
Deduction up to the amount
paid
Ravikishore

Amortisation of preliminary expenses
 Indian Company or resident non corporate
assessee
 Foreign company excluded
 Legal charges on MOA, AOA,printing
of MOA, AOA,Registration fees,expenses
connected to issue of shares or debentures
 Is there any limit?
Ravikishore

Limit of preliminary expenses
Corporate assessee Non-Corporate assessee
5% of cost of project or
5% of capital employed
Whichever is More(dil
monge more)
5% of the cost of the
project
Actual cost= costs incurred initially and additional
costs after commencement
Of business
Ravikishore

Preliminary Exp. Continue
 The value on the last day of the previous year in
which the business of the assessee commences.
 Deduction: 1/5 of the qualifying
expenditure
Ravikishore

Expenses on issue of
shares/Debentures
 New company even Old industrial
company issue shares - u/s 35 D
 Old company-- u/s 37(1) except issue of shares)
 Old industrial company issue shares-35D
 Non industrial company – All expenses related to bonus
issue, issue of debentures or raising of long term or short
term loans
 Note: old non industrial company-
Expenditure related to issue of shares
can not be claimed
Ravikishore

Amortisation of expenditure incurred
for amalgamation[35DD]
Indian company
Deductions in five
successive installments
Ravikishore

Amortisation of expenditure under voluntary
retirement scheme[35DDA]
 Any assessee
 Deduction 1/5every year
 Voluntary retirement scheme need not be
accordance with guidelines prescribed under
section 10(10C)
Ravikishore

Amartisation of expenditure on development of
certain minerals[35E]
Indian companies and
Resident assessee
I/10 every year allowed
Ravikishore

Insurance premium to protect the
asset or employees[36(1)(i)]
Allowed
Bonus to
employees[36(1)(ii)]
Ravikishore

Interest on borrowed capital[36 (1)(iii)
 Interest on own capital is not allowed.
 Interest paid by a firm to partner is deductible- 12%
per annum Simple interest
 Interest paid to wife and daughter- allowed
 Interest before the asset is put into use to be
capitalised
Ravikishore

Interest paid outside India without
deducting TDS
 Not allowed
Ravikishore

Discount on Zeeero coupon
Discount Bonds[36(1)(iiia)]
 Issued after June 1, 2005
 Minimum 10 years and Maximum 20 years
 Deduction on pro rata basis.
Ravikishore

***Unpaid liabilities
Includes:
1. Local taxes, duty cess or fee under any law
2. Sum payable to employees such PF, Gratuity,
superannuation fund to employees, BONUS, OR
COMMISSION
3. Interest on loan borrowed from public financial
institution such as ICICI,IFCI, IDBI,LIC AND
UTI ONLY
DEDUCTION ALLOWED ON PAYMENT BASIS
OR ACCRUAL BASIS?
Ravikishore

Payment/ Accrual?????
 No payment- Not allowed
 If depositedEVEN before the last
date of filing of returns with
Proof for payment-fully
allowed(page 336)
Ravikishore

****Employees’ contribution towards staff welfare
scheme such as PF[36(1)(va)]
 Amount received by employer-
Included with the
assessee’s Income
If Paid to the
employees’s account???
Ravikishore

If paid !!!!!
 Due date ####as per the PF rules or
Gratuity rules Usually with in a month of
deduction from employees.
*****not as per IT rules
Ravikishore

Written off of allowance for animals
[36(1)(vi)]
 If died /useless
 Used as capital asset
 Allowed loss = Original cost- Carcasses
or ( sale of animals)
No depreciation is allowed
any time on animals
Ravikishore

Bad debts [36(1)(vii)] !!!
If actual- allowed
Provision –Never allowed
If recovered[41(4)]-----If earlier
allowed it is taxable
If earlier denied - not taxable
Ravikishore

Provision for Bad and doubtful debts to rural branches of
scheduled and non scheduled commercial
banks[36(1)(vii)]
bank and Institution bank
Non scheduled
 Scheduled Financial Foreign
7.5% of income 5% 5%
10% of advances --- ---
made by rural
branchs
Ravikishore

Transfer to SPECIAL RESERVE
[36(1)(viii)]
 Long term (5 years or more) financial corporation/public
company/government company
 Finance for industry/agriculture/infrastructure facilities in
India.
 Deduction: Whichever is less
 1. amount transferred to such account or
 2. 40% of profit from business activities before such
deductions
 3. 200% of paid up capital and reserve on the last day of
PY(- )amount in special reserve account in the beginning of
the PY
Ravikishore

Family planning expenditure [36(1)(ix)]
 For Company assessee
 Revenue expenditure- Fully allowed
 Capital Expenditure - 1/5th every year
 Non-corporate assessee can claim u/s
32(Depreciation on capital expenditure) and
37(1)(Revenue expenditure)
Ravikishore

Advertisement Expenditure[37(2B)]
 Advertisement In publication of political
party------Not allowed
All advertisements --Allowed
Ravikishore

Expenses incurred by commission agent
from insurance UTI agents etc. If
commission less than 60,000
commission Adhoc deduction Max. deduction
1 2 3
LIC –first year
Renewal commission
First & renewal Commission
Bonus commission
UTI/agents of specified
securities, mutual funds
authorised agent
50% of commission
15% OF THE COMMISSION
33 1/3%
No deduction
50%
20,000
Ravikishore

Contribution towards Exchange risk
Administration fund [36(1)(x)]
By Public financial
institution
Deductible upto the
assessment year 2007-08
Ravikishore

Benefits to public financial
institutions
Ravikishore

General deductions[37(1)]
 It should not be a capital expenditure or
 Not personal
 Not prohibited by law such as fine, penalty
 Not be an illegal expenditure
 Can we see some of the expenditures allowed as
per various case laws?
Ravikishore

Expenses allowed
 *Litigation expenses to protect the trade or business
/asset/or to retain title of asset
 *Legal expenses to receive loan
 *Litigation expenses in restoring trade mark
 ***Legal expenses to alter the AOA in conformity with
the changes brought about
in the companies ACT
****Damages paid to workers/fulfil the contract
***Damages for breach of contract
Ravikishore

Expenses allowed
 **Contribution to the union formed to oppose the
nationalisation of assessee’s business
 **Expenses incurred during festival
 ***Premium paid for loss of profit
 *Professional tax paid
 All maintenance expenditure
 **Expenses incurred to register trade marks
 *****Entertainment expenses
 **Periodical payment for the use of goodwill
Ravikishore

Expenses allowed-case laws
 ###Estimated probable liability for free maintenance
CIT vs Modi Olovetti ltd.(2004)
 ***Expenditure to car even it is huge[CIT vs
Mangalchand premchand& co.[2004]
 **Repairs to maintain building taken on lease
[Sumitomo Corpn. India (p) ltd.
 Expenditure on civil work on leased asset [Hero Honda
motors vs CIT
 ***Interest on delayed payment of Provident fund[CIT
vs Ishwari Khetan Sugar Mills (P0 ltd.(2004)
Ravikishore

Important notes & controversial
issues
 Expenditure to issue of shares fees paid to Registrar to
increase the authorised capital disallowed[Brook
Bond India ltd Vs CIT(SC)
 Retrenchment compensation payable at the time of
partial closure of business Is deductible. But at
the time of closure of industry is not
deductible[CIT vs MGF India(2004)
Ravikishore

Expenses allowed
****Expenditure to issue of
debentures
bonus shares allowed
Ravikishore

Controversial Continues
***Foreign study expenses
incurred by the company even
though the employee is a
director’s son-allowed [J.B
Advani& co Vs CIT](2005)
Ravikishore

 Medical expenses of wife employee
of cine actor-Allowed [Ajay Singh
Deol Vs CIT]
 Payment on account of
membership fees for health club
and also paid membership fees for
an another club-Allowed [Sterlite
Industries (India) Vs CIT(2006)
Ravikishore

Controversial- Continues
###Provision made for
contribution towards Provident
Fund maintained by Government
of Tamilnadu sent on deputation to
the assessee corporation-allowed[
CIT Vs Kattabomman Transport
Corporation Ltd.(2004)
Ravikishore

 ***Interest on arrears of tax , sales tax
compensatory in nature and not penal
– allowed(Lachmandas Vs CIT(SC)
(2002)
 ***Interest paid for late payment of
tax is disallowed. Even Income-tax
itself disallowed.
Ravikishore

Disallowed Expenditure
 *****Interest paid on borrowed funds
to pay Income tax is disallowed
 Interest paid on installment of the
price of property
 *****Expenditure to raise capital
 ***Expenditure on shifting of
registered office
Ravikishore

Penalty/fine /interest on penalty
 *#*#*#Disallowed
Ravikishore

Important question to be asked!!!
****Protecting Business
or protecting the title to
capital asset.
Capital Expenditure or
revenue expenditure
Ravikishore

Expressly disallowed expenditures
 Interest, Royalty, fees for technical
services payable outside India
 ***TAX TO BE DEDUCTED
AND PAID WITHIN 7 DAYS
FROM THE LAST DAY OF THE
MONTH IN WHICH TAX WAS
DEDUCTED OR
Ravikishore

Expressly disallowed expenditures
 AMOUNT PAID TO GOVERNMENT
IN THE FINANCIAL YEAR IF NOT
PAID WITHIN 7 DAYS FROM THE
LAST DAY OF THE MONTH.
 Anything paid after the financial year and
after the expiry of 7 days FROM THE
LAST DAY OF THE MONTH -
deductible only in the year of payment.
Ravikishore

Fringe benefit tax
Fringe benefit tax, Income tax,
wealth tax, securities transaction
tax- Not Taxable
Ravikishore

Salary payable outside India without
TDS
 Outside India both resident and non-resident
 In India to NON-REDIDENT
NOT ALLOWED
Ravikishore

Payment from provident fund
If TDS not done- Not allowed
Ravikishore

Tax on perquisites paid by the
employer
 Tax paid by employer- Not taxable to
employees
 Perquisites paid- Not deductible to
employer
 (Non monetary)
 See illustration- para 82.1.8- page 328
Ravikishore

Payment to relatives[ Sec. 40A(2)]
Excess or
unreasonable -
disallowed
 Relative: husband, wife, brother or sister or lineal
ascendant or descendant of that individual.
 Substantial interest:- at least 20% of equity or 20%
profits of a concern at any time during the year
Ravikishore

Expenditure exceeding Rs. 20,000
 Should be paid account payee crossed
cheque or account payee demand draft.
 If not - 20% of such payment is
disallowed.
 Note: on the same day any number of
cheques less than 20,000 each can be given
 Partly cash, partly cheque without account
payee crossed cheque without exceeding
20,000 each. Ravikishore

Payment to unapproved gratuity by
employer
Not deductible
expenditure.
Ravikishore

Recovery of earlier deductions
If recovered in the subsequent
assessment years it is taxable
even there is no business and
taxed in the hands of
recepient.
Ravikishore

Undisclosed income
 Cash credit[sec.68]
 Undisclosed investment[sec.69]
 Unexplained money [sec. 69A]
 Amount of investments not fully disclosed
[sec.69B]
 Unexplained expenditure [sec.69C]
 Amount borrowed or repaid on hundi[sec.69D]
 They are deemed income of the current previous
year. Ravikishore

Maintenance of books
compulsory[Sec.44AA]
 Legal medical, engineering, architectural, accountancy,
Film artist technical consultancy, or interior decoration
and other notified profession [Specified professional]
 If gross receipts exceed 1,50,000 in any of the three
years preceding the previous year.
 Non-specified professional- Income exceed Rs.
1,20,000 and total gross receipts exceed 10,00,000
 What are those books maintained?
Ravikishore

Specified Books to be maintained
 Cash book
 A Journal on mercantile basis
 Ledger
 Carbon copies of machine numbered bills
exceeding Rs. 25 issued by the person
 Original bills if exceed Rs. 50. If bills are not
issued payment vouchers signed by the person
Ravikishore

Medical practitioner
 Additional books required:
Daily cash register showing date,
patient’s name, nature of
professional services rendered, fees
received and date of receipt
Stock register for medicines and
other consumable accessories .
Ravikishore

Audit of Accounts[sec.44AB] if
crossed limit
Business-Gross receipts
/sales exceed 40 lakhs
Profession- gross receipts
exceed 10 lakhs
Ravikishore

Audit compulsory with out any limit
of income/receipt
 Person engaged in:
 1. civil construction[44AD]- 8% of gross receipts
 2.Business of plying, leasing or hiring trucks[44AE]-
Heavy vehicles Rs. 3500 pm (owned months), other
vehicles- 3150 pm (not owned more than 10 vehicles
any time during the previous year.-No expenditure is
deductible .
 Retail traders[44AF]- 5% of turnover is considered as
income
Ravikishore

Important points to solve problems
 Bonus-before last date of filing
 Depreciation- permitted as per income tax
 Direct taxes-disallowed
 Indirect taxes-allowed if paid before due date of filing
 Capital expenditure-disallowed
 Bad debts recovered-if allowed earlier taxable
 Income from other heads such as salary, house
property etc-if included in the P/L /A/c deduct.
Ravikishore

Points to solve problems
Outstanding statutory liability-
before due date to be paid
 statutory penalty-disallowed
Contractual penalty-allowed
Personal expenditure-disallowed
Ravikishore

Entertainment expenditure-fully
allowed
Maintenance of guest house-fully
allowed
Revenue advertisement including
gift to customers-fully allowed.
Ravikishore

 Capital expenditure on advertisement-
depreciation is allowed.
 Amount paid for expenses beyond 20,000
without crossed a/c payee cheque or draft -
20% disallowed
 Any expenditure incurred (traveling) out side
india –allowed to the extent of RBI’s permission
Ravikishore

paid on borrowing-Not allowed
Expenditure to audit-allowed
Expenditure to prepare
accounts for IT –allowed
interest
Ravikishore

 Interest on borrowing to pay direct tax such as
Income tax-disallowed
 Copy right , technical know how, patent right-
amount paid disallowed but depreciation 25%
only allowed.
 Employee’s contribution to PF- treated as
income
 If such employee’s contribution is paid before
due date as per the PF act- allowed.
Ravikishore

 Capital expenditure on travelling-disallowed
 Traveling expenditure to buy stock-allowed
 Insurance to asset or employees-fully allowed
expenditure
 Profit on sale of capital asset which is included
in the P/L /a/c- disallowed
Ravikishore

 Rent received from outsider other than
employee- credited to P/L A/c-
disallowed income-subtract from net
profit-Income from House property.
 Any payment to
workers/Government-Before the last
date of filing returns is allowed
Ravikishore

 All reserves/provision except depreciation
provision-disallowed
 Interest on own capital-disallowed
 Direct taxes refund like It refund shown in P/L
A/C –disallowed income= subtract from profit
 Revenue repair to building , furniture even
leasehold –allowed expenditure
Ravikishore

 Capital expenditure on family planning- 1/5 is
allowed
 Loss of cash, goods-allowed.
 Donation and charity-disallowed
 Fringe benefit tax-disalowed
 Expenditure on issue of shares-disallowed
;where as expenditure on issue of debentures,
arrangement of loan (borrowed capital)- allowed
Ravikishore

 Income from other heads-inadmissible income
 Advance payment of tax, provision for tax,
income tax refund-disalloed
 Life insurance premium of owner paid from
business-disallowed
 Scientific Research (in house)-fully allowed
including capital expenditure
 Family planning revenue expenditure-allowed
Ravikishore

Unapproved statutory funds-
disallowed
Closing stock and opening stock to
be valued in the same manner
Ravikishore

particulars Amount
Rupees
particulars Amount
Rupees
Salaries
Rent and rates
Office expenses
Stock destroyed
Depreciation
Discount
Advertisement
Interest on loan
Scientific research expenses
Bad debts
RBD
Insurance on building
Insurance stock
Income tax
Gross profit
Interest on bonds
Dividend received
Rent
Rent paid in advance
Profit on sale of
investment
discount
10,00,000
Profit and loss account
Ravikishore

Closing stock is 10% less than the actual value
Opening stock was over valued by 8%
Advance payment of tax
provision for tax
 income tax refund
Loss of cash, goods
Capital expenditure on family planning
Loss of cash, goods
Donation and charity
Fringe benefit tax
Expenditure on issue of shares
expenditure on issue of debentures,
arrangement of loan on borrowed capital
Bonus paid on 2nd september
Copy right
technical know how
patent rights
Cash Amount paid for expenses 25000
Ravikishore

 Bad debts written off recovered (earlier
disallowed)
 statutory penalty
 Contractual penalty
 Personal expenditure
 Interest paid on borrowed funds to pay
Income tax
 Interest paid on installment of the price of
property
 Expenditure to raise capital
 Expenditure on shifting of registered office
Ravikishore

THANK YOU
ALTERNATIVE WORK IS REST
Happiness by giving but not receiving
Learn every day
No bad day. It depends upon our mind set
Contact me at
ravikishoreforall@yahoo.com
Accepting failure leads to success
Enjoy whatever you do
Everyone is good
Ravikishore

21_27_business_income.ppt

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21_27_business_income.ppt