This presentation discusses the taxation of profits and gains from business or profession under the Indian Income Tax Act. It covers the basis of charging such income, what constitutes a business, basic principles for arriving at business income, methods of accounting, concepts of block of assets and depreciation, examples of deductible and non-deductible expenses, and how to calculate taxable business/profession income. The key topics covered include profits and other payments considered business income, the definition of business, principles of determining taxable profits, and rules around depreciation of assets used in business.

1. PRESENTATION ON
PROFIT AND GAIN OF
BUSINESS OR PROFESSION
Presented By :- GROUP-6
RAJAN PATEL (104143)
BRIJESH PATEL (104106)
SOHAN LASKARI (104153)

2. 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

3. 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.

4. 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

5. 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.

6. TWO CONCEPTS
 Block of assets method of providing depreciation on
fixed assets
 Calculation of taxable business/ profession income.

7. 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:-

8.  Opening W.D.V
add : addition made during the year
Less : sale proceed on assets sold , discarded ,
demolished or destroy
---------------------------------------------------------------
= depreciation amount
less : deprecation
----------------------------------------------------------------
closing W.D.V

9. 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.

10. 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.

11. 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 etc
However subsidy is received it would be deducted from
total cost.

12. 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.

13. 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 400000
Compute advisable depreciation for year 2011-12
???????????????

14. SOLUTION
PARTICULAR AMOUNT TOTAL AMOUNT
W.D.V OPENING 800000
+ ADDITION DURING
THE YEAR :
19/6/2011 180000 + 20000 200000
300000 300000
19/11/2011(AFTER)
- SALE DURING THE 400000
YEAR
BASE OF 900000
DEPRECIATION

15. ADVISABLE DEPRICIATION

16. 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.

17.  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 .

18. 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.

19. Thank you………