The document discusses key aspects of income from business and profession under the Income Tax Act in India. It defines business, profession, and vocation. It outlines essential features of a business like regular transactions, profit motive, use of labor and skill. It also discusses what constitutes a business under section 2(13) and explains concepts like trade, commerce, and manufacture. The document then covers important points about income from business like the business must be carried out by the assessee during the previous year, and income includes losses. It also discusses the cash and mercantile systems of accounting and conditions for claiming depreciation.

1. Income from Business &
Profession
Dr. P. Ravichandran
M.Com., M.B.A., M.A (Astrology)., M.Phil., Ph.D.,
D.C.P., D.L.L & A.L., P.G.D.C.A., P.G.D.P.M & I.R.,
S.B.K. College, Aruppukottai – 626101.
 9443424090 & 9080030090
 e-mail id.- prcapk@gmail.com

2. A business (also known as an enterprise,
a company (or) a firm) is an
organizational entity involved in the
provision of goods and services to
consumers.
The word ‘business’ can refer to a
particular organization (or) to an entire
market sector (for example: “the
financial sector”) (or) to the sum of all
economic activity (“the business sector”).

3. Essential features of
business
Regularity of transactions (or) continuity of
activities;
Objective of earning profits (profit motive);
Application of labour and skill;
Business rendering services to others;
Business cannot be carried on with oneself.

4. U/S 2(13), ‘Business’ includes any –
 (a) trade,
 (b) commerce,
 (c) manufacture, (or)
(d) any adventure (or) concern
in the nature of trade,
commerce (or) manufacture.

5. Trade
 It means purchase and sale of goods carried on with
profit motive.
Commerce
 It means trade carried on a large scale.
 i.e., trade and all other activities that are associated
with the trade.
Manufacture
 Making of new and different article out of input
material by physical (or) mechanical labour.

6. Profession [Sec.2(36)]
Profession means an occupation requiring
specialized Knowledge and Skill.
These type of persons also have a separate
and specialized course to attain
professional knowledge.
Ex: Doctors, Engineers, Lawyers and Auditors.

7. Vocation
Vocation is an activity in which an assessee
has specialized skill for earning Income.
It implies natural ability of a person for some
particular work.
It may (or) may not be profit.
There is no need for systematic and organized
activity.
Ex: Tax experts, Journalists, Architects, Cost
and Management accountants etc.,

8. Income from Business & Profession
- Key Points -
 Must be carried on by Assessee.
 Must be carried on during the previous year.
 Only profit of the previous year are to be taxed.
 Income includes negative income i.e. Loss.
 Relevance of method of accounting [Cash (or) Mercantile]
 A Person cannot do business with one self. Hence, notional
profit is not taxable. If a proprietor withdraws goods
costing ₹ 50,000 for personal use at an agreed value of
₹ 60,000 then profit of ₹ 10,000 shall not be taxable.
 There is no difference between legal & illegal business for
taxation purpose. Even income from illegal business
shall be taxable.

9. Maintenance of accounts
Cash & Mercantile system
Choice exists with a assessee to adopt a
method only in case of “Profits and
gains of business and profession”
and “Income from other sources”.
In other heads the method is not relevant
in computing taxable income.

10. Mercantile system
Income and expenses recorded at the time
of occurrence during previous year.
Profit calculated is actually earned
though not realized.
Gives an idea of how the business is doing.
Does not allow for blatant manipulation.

11. Cash system
Receipts and expenses (payments)
recorded only if received and paid
during the year.
Excess of receipts over disbursements.
A Cruder system.
Shows cash flow of the business.
Allows for manipulation.

12. Choice of method of accounting lies
with assessee, but once a
particular method is adopted he
must follow it consistently.
Accounting practice cannot override
any provisions of the Act.

14. 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.

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

16. 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.

17. 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.

18. 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

19. Computation of Income from Business
Particulars Amt Amt
Net profit as per P&L account xxx
ADD:
1. Inadmissible Expenses: (Not allowed but Debited to P&L a/c) xx
2. Admissible Incomes: (Allowed but not Credited to P&L a/c) xx
3. Admissible Incomes: (Allowed but not Credited to P&L a/c) xx
4. Over Valuation of opening Stock xx
5. Under valuation of closing Stock xx xxx
xxxx
LESS:
1. Admissible Expenses: (Allowed but not Debited to P&L a/c) xx
2. Inadmissible Incomes: (Not allowed but Credited to P&L a/c) xx
3. Admissible Incomes: (Allowed but not Credited to P&L a/c) xx
4. Under Valuation of opening Stock xx
5. Over valuation of closing Stock xx xxx
Income from Business XXXX