Income From Business & Profession

The ways of earning a livelihood are different for different people, and each of their incomes is taxed differently. For instance, employees of a corporation drawing a salary are income from salary, whereas the employers who are the owner of these corporations have income from the business. Also, doctors, lawyers, and chartered accountants neither have income from salary nor from have income from business because they are not employees and employers; they are Professionals and they charge fees for their services. So, as we have already covered income from salary, in this section, we will discuss how taxes are levied on income from businesses and professions.

What is the section under which the Income from Business & Profession is charged?

Section 28 of the Act states the following income to be taxed as income from business & profession.  

• Any kind of compensation received or receivable by certain persons as mentioned in the Act
• Income arising from trade, business or profession for specific services provided to its members.
• Income arising from export business whether received or receivable
• Any benefit or perquisite gained arising from any business or profession
• Any income received or receivable as the partner of the firm, by whatever name called
• Any amount received under Keyman Insurance Policy.
• Any amount received on account of a capital asset being demolished, transferred, discarded or destroyed.
• Amount received under an agreement

Show the pattern of computation of Income under this head?

The computation of income under the head Income from business & profession/ Profits & gins from business or profession (PGBP) is shown below:

Explain the provisions of depreciation.

Section 32 read with rule 5 of the Act allows depreciation as a result of diminution or exhaustion in the value of certain assets. The deduction of depreciation is not subject to the claim made by the assessee; it is a compulsory deduction from the head of income.

• The depreciation allowance is subject to the following conditions:
• The assessee shall be the owner of the asset, whether wholly or partly
• The asset must have been used for the purpose of business or profession during the previous year
• The asset must be a tangible asset such as building, plant & machinery and furniture or fixture
• The asset must be an intangible asset such as patent, copyright etc.

What are the expenses not deductible?

Section 40A of the Act states the following deductions which shall not be allowed under the provisions of the Act:

• Any kind of payment made to relatives
• Amount paid in cash in excess of RS. 10,000 subject to certain conditions as specified in the Act
• As per the provisions of section 40A(7), no deduction shall be allowed in case of any provision made for gratuity
• Any contribution made by the employers to any fund, trust etc.

Books of Accounts & Audit

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Maintenance of books of accounts

As per the provisions of section 44AA of the Act, certain persons are mandatorily required to maintain the books of accounts under the provisions of section 44A

These persons are as mentioned below:

• If the assessee is –
• Engaged in specified profession 
• If the Income from Business or Profession exceeds ₹1,20,000 or the Total Sales/ Turnover/ Gross Receipts exceed ₹10,00,000 in any of the previous 3 years. These limits have been increased to ₹1,50,000 and ₹25,00,000 respectively from Financial Year 2017-18 onwards. (Announcement made in Budget 2017)

Audit of accounts

As per the provisions of section 44AB of the Act, the following persons shall be required to get the accounts audited by a chartered accountant within the dates specified under section 139(1):

Key Points:

Capital receipts are not considered as profit under PGBP

Either can or mercantile system of accounting is followed under this head of income.

Speculative transaction means a transaction of sale and purchase of commodity whereby the transaction is settled otherwise than that of actual delivery. 

Block of asset means group of assets categorised under

• Tangible assets
• Intangible assets

Actual cost of an asset means cost of an asset reduced by any cost incurred by the person other than the assessee.

What is the order of set-off under this head?

• Current year depreciation
• Brought forward losses
• Unabsorbed depreciation

CSR refers to Corporate Social Responsibility (CSR) which is basically the amount expended by the company for the benefit of the society. It is mandatory to be incurred by the companies subject to the conditions mentioned thereto.

Sub-rule (2) of Rule 6F states the books of accounts and documents to be maintained by the assessee.

As per the provisions of section 36, STT shall be allowed as business expenditure.