The document discusses various provisions related to business income under the Indian Income Tax Act. It provides details on the meaning of business, basis of charge, expenses allowed as deductions, depreciation allowance, and specific allowances like scientific research. It also discusses the computation of written down value, block of assets, additional depreciation, and weighted deductions for expenditure on scientific research.

2. Scheme of
Provisions in
the head
PGBP
Section Coverage
28 Basis of Charge
30-37(2B) Expense expressly allowed as
Deductions
37(1) Residuary section for incidental
expense deduction
40 and related Expenses expressly disallowed as
deductions
43 and related Deduction on actual payment basis
44 and related Professional firms, presumptive
taxation etc.
68-69 Unexplained income

3. Basis of Charge(Sec-28)
Meaning of Business: Sec-2(13): business
includes any (a) trade, (b) commerce, (c)
manufacture, (d) any adventure or concern in
the nature of trade, commerce or manufacture.
Though the definition is not exhaustive, it
covers every facet of an occupation carried on
by a person with a view to earning profit.
Significance of profit motive
Business and rendering services to others
Business can not be carried on with oneself

4. Profession
► “Profession” includes vocation [Section 2 (36)]
► “Profession” implies professed attainments in special
knowledge as distinguished from mere skill. E.g.- tax
experts, financial accountants, architects, engineers,
etc.
Vocation
► Not defined in the Act
► “Vocation” implies natural ability of person for some
particular work.
The distinction between business, profession and vocation is
however not material since the income from all these activities is
taxable under the same head ie PGBP

5. Scope
► Profits earned from carrying on business at any time during
the previous year
► Any compensation due to or received by:
►Any person managing the whole/ substantial affairs of an
Indian company;
►Any person managing the whole/ substantial affairs of
any other company in India;
►Any person holding an agency in India;
►Where the consideration is for or in connection with
termination or modification of terms of the managing

6. ► Income earned by any trade/ professional association
from specified services provided to members
► Profits on sale of an import license
► Cash assistance against exports
► Customs or excise duty drawback
► Profit on the transfer of the Duty Entitlement Passbook
Scheme, being Duty Remission Scheme
► Any benefit or perquisite whether convertible into money
or not, arising from business/ profession

7.  Any interest, salary, bonus or commission received by partner
of a firm from the firm (excluding any part which has not been
allowed as a deduction to the firm by reason of being in
excess to the specified limits)
► Any sum received under an agreement for
► Not carrying out any activity in relation to business;
► Not sharing any business or commercial rights which are
likely to assist in the business
► (covers basically non-compete fees received under an
agreement)
► Any sum received under a Keyman insurance policy by an
employer in respect of insurance of the employee including
the bonus allocated on such policy

8. FEATURES
 Business includes trade, commerce and
manufacture
 Business includes any adventure in the nature of
trade, commerce and manufacture- Michale A.
Killivayalil v. CIT [1976] 102 ITR 202 (Ker.)
 Export Incentives
 Receipts in the nature of non-compete fees and
exclusivity rights
 Business income not taxable under this head-
Rental Income for house property dealers,
Dividend income in case of share dealers,
winnings from lotteries, interest on compensation
or enhanced compensation

9. Basic Principles to arrive at Business
Income
 Business or profession must be carried on by the
Assessee.
 Must be carried on in the PY
 Tax incidence arises in respect of all businesses
 Legal Ownership v. beneficial ownership
 Real Profit v. Anticipated Profit (stock)
 Real Profit v. Notional Profit (CIT v. B.M. Kharwar)
 Recovery of sum already allowed as deduction
 Mode of book entries not relevant
 Illegal Business
 Losses incidental to trade

10. Losses deductible
 Loss of stock-in-trade as a result of enemy action
 Loss of stock-in-trade due to destruction by an act of
God
 Loss due to failure to accept delivery of goods
 Depreciation in funds kept in foreign country for
purchase of goods
 Loss due to fluctuations in exchange rate
 Loss arising out of sale of securities
 Loss of cash and securities due to dacoity
 Loss incurred on realization of amount advanced
 Loss of security deposited
 Loss of forfeiture of a deposit
 Loss on account of embezzlement

11. Losses deductible
 Loss due to theft
 Loss of precious stones
 Loss arising due to negligence or dishonesty of
employees
 Loss due to insolvency of banker
 Loss due to freezing of stock due to enemy action
 Loss due to forgoing advance
 Loss due to guarantee
 Loss due to seizure and confiscation of illegal
stock in trade

12. Losses not deductible
 Losses not incidental
 Loss due to damage to capital assets
 Loss on sale of shares as investment
 Loss of advance for setting up new business
 Depreciation on funds for capital purposes
 Loss from non recovery of tax(Paid by an agent
on behalf of the non resident)
 Anticipated future losses
 Loss due to discontinuation before
commencement of PY

13. Methods of Accounting
 To be computed according to the accounting
method already employed by the Assessee.
 Mercantile system or cash system

14. Scheme of Deductions and
Allowances
 Expressly and specifically allowed deductions
 Expressly and specifically disallowed
deductions
 Neither expressly allowed nor disallowed
deductions, Deductible or not deductible u/s
37(1)

15. Scheme of Business
Deductions
 Sec 30-37:Expressly allowed Deductions, S.40, 40A and
43B : Non deductible expenses
 Onus of proof
 Allowances are cumulative
 Expenditure should relate to the PY
 Business should Be carried on during PY
 Expenditure should have been incurred in connection
with Assessee’s business
 Benefit of expenditure may extend to somebody else
(insurance premium on leased business)
 Benefit of expenditure may extend beyond relevant PY
 No allowance in respect of exhaustion of wasting assets
 No allowance in respect of expenditure incurred before
setting up business.

16. Scheme of Business
Deductions
 No allowance in respect of non-assessable
business
 Expenditure relating to illegal business
 No allowance in respect of anticipated losses
 No allowance in respect of depreciation of
investment
 Relevance of distinction between capital and
revenue expenditure

17. Expenses expressly allowed as
deductions
Sec (30-37)
 Rent, rates, taxes and repairs and insurance for
building(Sec-30)
 Repair of revenue nature is deductible if assessee is a
tenant, current repairs otherwise
 Land revenue, local taxes and municipal taxes
 Insurance premium
 Arrears of rent of previous tenant paid is not
deductible
 Fluctuating item like share in profit is not deductible
 Painting the outside of a house is treated as repair
 Repairs and insurance of machinery, plant and
furniture (sec-31): The amount of current repairs
is deductible. ‘Current’ can not be interpreted to mean ‘petty’.


18. Depreciation Allowance (Sec-32)
 Conditions for claiming depreciation:
 Asset must be owned by assessee
 It must be used for business or profession
 It should be used during the relevant PY
 Depreciation is available on tangible as well as
intangible assets

19. A. Asset must be owned by Assessee
 Owner or co-owner
 Registered ownership is not necessary
 Sec-53A of TP Act (Power of Attorney transaction)
 Exclusive possession right, to exclude others from enjoyment of
the asset, right to retain possession and defend the same are
characteristics of ownership- Mysore Minerals Ltd. v. CIT [1999]106
Taxman 166 (SC)
 Capital expenditure for improvement, renovation or extension is
depreciable
 In case of a financial lease, the lessee can claim depreciation
 Hire Purchase:
 The HP agreement must show that as long as the hire discharges
his obligation, he has an uninterrupted right over the asset for all
practical purposes.
 The seller will eventually loose all rights, title and interest in asset if
the hirer discharges his obligations.
If the above two conditions are satisfied, depreciation will be available
to he hirer not the seller.

20. B. Asset must be used for business or
profession
 Even if the asset is put to trial production,
depreciation can be claimed.
 Passive v. Active User: Ready to use, onus
 Asset used partly for business purposes:
Proportionate
 Residential Quarters: Even on furniture

21. C. Asset should be used during the relevant
PY
 Normal(full) depreciation is provided on all
assets except the following two conditions
where 50% of normal depreciation is provided.
 a. where an asset is acquired during the PY
 b. it is put to business or profession use for less
than 180 days during that year.

22. D. Depreciation is available on tangible as
well as intangible assets
 One can claim depreciation in respect of the following
assets
 Building means the superstructure only and does not
include site. – CIT v. Alps Theatre [1967] ITR 377 (SC)
 Plant includes ships, vehicles, books(Including technical
knowhow report), scientific apparatus and surgical
equipments used for the purpose of business or profession.
It does not include tea bushes, live stock, buildings,
furniture or fittings.
Tangible Building, Machinery, Plant or Furniture
Intangible
Assets
acquired
after March
31, 1998
Know-how, patents, copyrights, trademarks,
licenses, franchises or any other business or
commercial rights of similar nature.

23. Allowance of Depreciation
 Depreciation is admissible for block of assets
 Method is Written Down Value method
 For tangible assets of power generation and
distribution undertakings straight line method
is applicable.

24. Block of Assets
 https://www.incometaxindia.gov.in/_layouts/15/di
t/mobile/viewer.aspx?path=https://www.incometa
xindia.gov.in/charts%20%20tables/depreciation
%20rates.htm&k=&IsDlg=0

25. Written Down Value- Sec-43(6)
 Written Down Value(WDV) for the AY 2022-23
will be determined as under.
Step-1 Find out the depreciated value of the block as on April 1, 2021
Step-2 To this value add ‘actual cost’ acquired during the PY 2021-22
Step-3 From the resultant figure deduct money received or receivable
(together with scrap value) in respect of that asset (falling
within the block of assets) which is sold, discarded,
demolished or destroyed during the PY 2021-22.

26. Points to be noted
 The resulting amount is WDV of the block of
assets on March 31, 2021 relevant for the PY
2021-22.
 The amount of reduction under step-3 can not
exceed the value of the assets computed under
step-1 and step-2 (WDV cannot be negative).
 One may determine WDV for any other AY on
similar basis.
 In some cases, computation of WDV is based
upon notional figures. (Succession in
business/profession, transfer between holding and
subsidiary company, amalgamation/demerger,
transfer of an asset by a recognized stock
exchange in India to a company under a scheme
of corporatization.

27. Exception to Depreciation Rule
 If WDV of block of asset is reduced to zero,
though the block is not empty: No Depreciation
 If block of assets is empty or ceases to exist
on the last day of the PY, though the WDV is
not zero: No Depreciation
 In the case of imported cars:
 In case of succession etc:
 If asset is acquired in the PY

28. Imported Motor Car
Imported car is used
for
Acquired after Feb
28,1975 but before
Apr 1, 2001
Acquired after March
31, 2001
Running it on hire
for tourists
YES YES
For
Business/Professio
n outside India
YES YES
For
Business/Professio
n in India
NO YES

29. Problem
 X Ltd. owns the following assets on April 1,
2021:
ASSETS ACTUAL COST (Rs.) WDV AS ON APRIL 1,
2021 (Rs.)
Rate of
Depreciat
ion
Building
- A
30,00,000 13,50,000 10
B 6,00,000 2,25,000 10
C 8,00,000 40,000 5
Plant- A 1,70,000 45,100 15
B 3,10,000 68,000 15
C 30,000 7,000 40
D 50,000 31,000 40

30. Contd…
 The company acquires the following assets after April 1,
2021.
ASSET COST (Rs.) Date of
Acquisition
(2021)
Date on
which put to
use (2021)
Rate of
Depreciatio
n
B- D 6,00,000 May 28 June 1 10
B- E 4,00,000 June 8 June 8 5
P- E 4,90,000 July 1 Aug 12 15
P- F 2,10,000 Sep 18 Sep 19 15
P- G 1,50,000 Sep 19 Oct 30 40
B- F 2,00,000 May 10 May 10 10
P- H 1,30,500 June 5 July 6 15

31. Contd…
 The company sells the following assets after April 1,
2021.
 You are required to determine the amount of
depreciation for the assessment year 2022-23.
ASSET DATE OF SALE
(2021)
SALES
CONSIDERATION(Rs.)
B- A May 11 13,00,000
P- B May 16 20,000
P- D Dec-18 2,15,000
P- C Dec- 8 32,000

32. Additional Depreciation
 To claim additional depreciation the following
conditions should be satisfied:
 Additional Depreciation shall be available at the rate of 20%.
In a notified backward area in AP, Tel, BH and WB, additional
depreciation @35% is applicable during Apr 1, 2015- Mar 31,
2020.
C-1 The assessee must be engaged in manufacture or
production of any article or thing or (w.e.f. AY 2013-14)
generation or generation and distribution of power.
C-2 New plant and machinery should be acquired and
installed after March 31, 2005
C-3 It should be an eligible plant and machinery

33. Specific Allowances
 Investment Allowance(32A) is not deductible.
 Investment Deposit Account Scheme(32AB):
Deduction is not available from AY 1991-92
onwards
 Tea/Coffee/Rubber Development
Account(33AB): Self Study
 Site Restoration Fund(33ABA): Self Study
 Reserve for Shipping Business(33AC): No
Deduction from AY 2005-06

34. Weighted Deduction on Expenditure on
Scientific Research (Sec-35)
Expenditure on Research
carried on by the assessee
Contribution to outsiders
Revenue Expenditure[35(1)(i)]
Fully
Contribution to an approved
Research Association
[35(1)(ii)/(iii)] 100%
Capital Expenditure[35(2)] Fully Payment to National Laboratory
[35(2AA)] 100%
Expenditure on an approved in-
house research [35(2AB)] 100%
Contribution to an Indian
Scientific Research Company
100%

35. Expenditure on Scientific
Research(Sec-35)
 35(1)(i): Any expenditure (not being in the nature of capital
expenditure) laid out or expended on scientific research related to the
business.
 Where any such expenditure has been laid out or expended before the
commencement of the business (not being expenditure laid out or
expended before the 1st day of April, 1973) on payment of any salary
[as defined in Explanation 2 below sub-section (5) of section 40A] to
an employee engaged in such scientific research or on the purchase of
materials used in such scientific research, the aggregate of the
expenditure so laid out or expended within the three years immediately
preceding the commencement of the business shall, to the extent it is
certified by the prescribed authority 535 to have been laid out or
expended on such scientific research, be deemed to have been laid out
or expended in the previous year in which the business is commenced.

36. Expenditure on Scientific
Research(Sec-35)
 (ii) Any sum paid to a scientific research association which has as its
object the undertaking of scientific research or to a university, college
or other institution to be used for scientific research :
 Provided that such association, university, college or institution is for
the time being approved for the purposes of this clause by the
prescribed authority by notification in the Official Gazette;
 (iii) Any sum paid to a university, college or other institution to be
used for research in social science or statistical research :
 Provided that such university, college or institution is for the time
being approved for the purposes of this clause by the prescribed
authority by notification in the Official Gazette;

37. To whom contribution can be given Weighted
Deduction
(ii) Any sum paid to a scientific research association
which has as its object the undertaking of scientific
research or to a university, college or other institution
to be used for scientific research related or unrelated to
business of the assessee.
100% of the
actual
expenditure
Any sum paid to a university, college or other
institution to be used for research in social science or
statistical research related or unrelated to business of
the assessee.
100% of the
actual
expenditure

38. Expenditure for Obtaining License to operate
Telecommunication Services U/s 35ABA
 Allowed as deduction equally over the number
of years of Validity of Licenses. Deduction will
start from the year from which actual payment
is made.

39. Expenditure for Obtaining right to use spectrum for
Telecommunication Services U/s 35ABB
 Allowed as Deduction equally over the number
of years of Validity of Licenses

40. Other Expenditures
 35AC : Expenditure on Eligible Projects: No deduction
w.e.f. AY 2018-19
 35AD: Deduction in respect of expenditure on specified
businesses- 35AD provides investment linked tax
incentives.
 35CCA : Expenditure for carrying out rural development
programmes
 35 CCB : Expenditure for carrying out programmes of
conservation of natural resources.
 35CCC: Weighted Deduction for expenditure incurred in
agricultural extension: 150% for AY 2013-14 to 2020-21
 35CCD: Weighted Deduction for expenditure incurred
for skill development: 150% for AY 2013-14 to 2020-21

41. Amortization of Expenditure
 Preliminary Exp deduction is allowed in 5 Years (
Section 35D)
 Amortization of Amalgamation or Demerger
expenses in 5 Years (Section 35DD)
 Amortization of VRS Expenses in 5 Years ( Section
35DDA)
 Expenditure on Minerals Prospecting in 10 Years
(Section 35E)

42. Other Deduction u/s 36
I. Insurance premium paid to cover the risk of
damage or destruction of Stock
II. Bonus or Commission paid to Employees
III. Interest on Borrowed Capital
IV. Contribution to Recognized Provident Fund
V. Contribution to Approved Gratuity Fund
VI. Write off of useless or Dead Animals
VII. Bad Debts
VIII. Expenditure on promotion of Family Planning
among employees

43. General Expenses u/s 37
 Section 37(1) is a residuary section. In order to claim deduction
under this section, the following conditions should be satisfied:
 Condition one: The expenditure should not be of the nature
described under sections 30 to 36.
 Condition two: It should not be in the nature of capital
expenditure.
 Condition three: It should not be personal expenditure of the
assessee.
 Condition four: It should have been incurred in the previous
year.
 Condition five: It should be in respect of business carried on by
the assessee.
 Condition six: It should have been expended wholly and
exclusively for the purpose of such business.
 Condition seven: It should not have been incurred for any
purpose, which is an offence or is prohibited by any law.

44. Advertisement Expenses
( Section 37(2B)
 Deduction is not allowed in respect of
expenditure incurred by an assessee on
advertisement in any souvenir, brochure, tract,
pamplet or like published by a political party.

45. Disallowance u/s 40a
 Interest Royalty Fees for Professional
Services paid outside India without deducting
TDS

46. Disallowance us/s 40 a
Payment to Resident without deducting TDS
Following payments are covered
I. Interest
II. Commission or Brokerage
III. Rent
IV. Fees for Technical or Professional Services
V. Royalty
VI. Payment to Contractor

47. Disallowance us/s 40 a
 SECURITIES TRANSACTION TAX [SEC. 40(a) (ib)] - Securities transaction
tax is not deductible while calculating business income.
 FRINGE BENEFIT TAX [SEC. 40(a) (ic)] - Fringe benefit tax is not
deductible while calculating business income from the assessment year
2006-07.
 INCOME-TAX [SEC. 40(a) (ii)] - Any sum paid on account of income-tax
(i.e., any rate or tax levied on the profits or gains of any business or
profession) is not deductible. Similarly, any interest/penalty/fine for non-
payment or late payment of income-tax is not deductible. This rule is
applicable whether income-tax is payable in India or outside India.
 WEALTH-TAX [SEC. 40(a)(iia)] - Any sum paid on account of wealth-tax
under the Wealth-tax Act, 1957, or tax of a similar nature chargeable under
any law outside India is not deductible. Salary paid outside India without
deducting TDS
 Any other Provident Fund payment without deducting TDS
 Tax on Perquisites paid by the employer

48. Disallowance u./s 40 (b)
Amount not Deductible in case of Partnership Firm
I) Interest exceeding the rate specified in the
Partnership Deed or 12 % whichever is lower
II) Remuneration to Partner
Is allowed up to the following limits of book profit
1. First Rs 3,00,000 - 90 % or Rs 1,50000
which ever is higher
2. Balance - 60 %

49. Disallowance u/s 40 A
 Excessive Payment to Relatives
 Payment exceeding Rs 10,000 in mode
otherwise than Crossed cheque
 (Entire amount is disallowed)

50.  Contribution to Non Statutory Funds
 Provision for Unapproved Gratuity Fund

51. Section 43 B : Deduction on
Payment Basis
Following will be allowed as Deduction on actual paid
basis.
Outstanding amount has to be paid before Due Date of
Filing of Return of Income.
i) Any Tax, Duty paid to government
ii) Contribution to PF
iii) Bonus or Commission
iv) Interest on Loans from financial institution
V) Interest on Loans from Scheduled Bank
Vi) Leave Salary to Employees

52. Presumptive Taxation
 Computation of income on estimated basis in the case of
taxpayers engaged in the business of civil construction [Sec.
44AD] - The provisions of section 44AD are given below—
 WHO IS COVERED BY THE SCHEME OF SECTION 44AD -
Section 44AD is applicable only if the following conditions are
satisfied—
 Condition 1: The taxpayer may be an individual, HUF, AOP,
BOI, firm, company, co-operative society or any other person.
He or it may be a resident or a non-resident.
 Condition 2: The taxpayer is engaged in the business of civil
construction or supply of labour for civil construction work.
The taxpayer may be a contractor or sub-contractor.
 Condition 3: Gross receipts from the above business do not
exceed Rs. 40 lakh.
 S.44ADA

53. 1. From the Profit and Loss Account of X (age : 31 years) for the year ending
March 31, 2023, ascertain his total income and tax liability for the assessment year 2023-24
Rs. Rs.
General expenses 13,400 Gross profits 3,64,500
Bad debts 22,000 Commission 8,600
Advance tax 21,000 Brokerage 37,000
Insurance 600 Sundry receipts 2,500
Salary to staff 26,000
Salary to X 32,000
Interest on overdraft 4,000
Interest on loan to Mrs. X 42,000
Interest on capital of X 23,000
Depreciation 48,000
Advertisement expenditure 7,000
Contribution to RPF 3,000
Net profit 1,60,600
4,12,600 4,12,600
Other information:
The amount of depreciation allowable is Rs. 37,300 as per the Income-tax Rules.5. General
expenses include (a) Rs. 500 given to Mrs. X for arranging a party in honour of a friend who has
recently come from Canada.