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The word ‘Business’ is defined in section 2(13) to include any trade, commerce
or manufacture or any adventure or concern in the nature of trade, commerce or
manufacture. Sections 30 to 37 cover expenses which are expressly allowed as
deduction while computing business income, sections 40, 40A and 43B cover expenses
which are not deductible.
Rent, rates, taxes, repairs and insurance for building [Section 30]:
Under section 30, the following deductions are allowed in respect of rent, rates, taxes,
repairs and insurance for premises used for the purpose of business or profession:
a. The rent of premises, the amount of repairs (not being capital expenditure), if he
has undertaken to bear the cost of repairs (this is applicable if the assessee has occupied
the property as a tenant);
b. The amount of current repairs (not being capital expenditure) (if the assessee has
occupied the premises otherwise than as a tenant);
c. any sum on account of land revenue, local rates or municipal taxes; and
d. amount of any premium in respect of insurance against risk of damage or
destruction of the premises.
2. An association or institution which has its object the training of persons for
implementation of a rural development programme approved before March 1, 1983;
3. The National Fund for Rural Development set up by the Government; and
4. the National Urban Poverty Eradication Fund set up and notified by the Central
Government.
Capital employed:
It means the aggregate of the issued share capital (sum total of share capital and
amount outstanding as share premium account), debentures and long-term borrowings
(repayable for not less than 7 years) as on the last day of the previous year in which
the business of the company commences.
9. Banking cash transaction tax and securities transaction tax [Sec. 36(1)(xv)]:
These taxes are deductible under section 36.
10. Advertisement expenses [Sec. 37(2B)]:
Deduction is not available in respect of expenditure incurred by an assessee or
advertisement in any souvenir, brochure, tract, pamphlet or the like published by a
political party.
6. It should have been expended wholly and exclusively for the purpose of
such business.
7. It should not have been incurred for any purpose which is an offence or
prohibited by any law.
SPECIFIC DISALLOWANCES:
The following expenses given by sections 40, 40A and 43B are expressly disallowed
by the Act while computing income chargeable under the head “Profits and gains of
business or profession”. Besides these expenses, no deduction is permissible under
sections 28 to 44D in respect of income referred to in sections 115A, 115AB, 115AC,
115AD, 115BBA and 115D.
Condition 2: The evidence of such payment is submitted along with the return of
income. But no annexure is possible with the new Income-tax return forms; so
such evidence should be kept by the tax payer himself and it can be produced
before the Assessing Officer whenever he is required to produce it.
It is to be noted that where the last day of filling return of income or loss is a day
on which the office is closed, the assessee can file return on the next day afterwards on
which the office is open and, in such cases, the return will be considered to have been
filed within the specified time limit.
SPECIAL PROVISIONS:
Computation of income on ESTIMATED BASIS in case of taxpayers engaged in
the business of retail trading or civil construction or any other business [Section
44AD] :
This section will be applicable to any business (whether it is retail trading or civil
construction or any other business).
Salary income
Rental income ……….
Capital gain ……….
Dividend ……….
Income tax, wealth tax, gift tax, ……….
estate duty, surtax, CDS refunds ……….
Rs. Rs.
To salary 15,000 By Gross profit 1,60,000
To General expenses 15,000 By Bad debts recovered 2,000
(disallowed earlier)
Advertisements 4,000 Profit on sale of residentia l 3,25,000
house
Interest on capital 2,000 Rent received 3,000
Interest on bank loan 500 Dividend on Indian company 3,000
shares
Bad debts 2,000 Interest on POSB A/c 1000
Fire insurance 100
premium on LOP
Depreciation 4000
Reserves for Sales tax
Income tax 6,000
Donation to NDF 1,000
Local tax on LOP 500
Motor car expenses 1,000
Wealth tax 3,500
Net profit 4,29,400
494000 494000
Other information:
1. General expenses include Rs. 20,000 spent in U.K. where she had gone to learn latest
techniques in surgery.
2. Mrs. Rao celebrated the marriage of her daughter by spending Rs. 2,00,000. But when
questioned by ITO she could account only for Rs. 1,00,000.
3. Mr. Vikram Varma is a practising accountant. He also took 40 lectures in a college at Rs.
100 per lecture. His receipts and payments a/c is given below
. Rs.
To bal. bid 9,500 By office expenses 25,000
" Audit fees 5,60,000 " Municipal taxes 500
Remuneration for lectures 4,000 " Personal expenses 5,000
Examiner’s fees 1,500 Membership fees 500
Interest on securities 1,550 LIC Premium 12,000
Rent from LOP 3,000 Car Purchased 4,24,500
Royalty on a book 15,000 Car expenses 12,000
Balance c/d 1,15,050
5,94,550 5,94,550
a) Office expenses include Rs. 500 paid as typing charges for preparing manuscript of his book.
b) 1/2 of the car expenses relate to personal use.
c) Car purchased on 1-6-of PY being P&M, depreciation is allowed @15%.
d) Interest of securities include Rs. 775 being interest on Tax Free Government Securities.
Compute his total income.
4. Given below is the income and expenditure ale of Sri Vadiraja Shetty, an Advocate and MP.
5. Mr. Vittal Shenoy furnishes the particulars of his P/L ale for the PY. He commenced his business on 1st
April of the PY
Rs. Rs.
To Salaries 30,000 By G/p 1,50,000
Rent of business premises owned 6,000 Net loss 75,000
by assessee
Taxes and insurance for business 1,000
premises
Interest on loan 8,000
Commission for arranging loan 1,000
Provision for depreciation 6,000
Reserve for bad debts 5,000
Bad debts 2,000
Preliminary expenses
incurred before 1st April 25,000
2,25,000 2,25,000
After considering the following items compute his income from business:
1) The cost of the project on the last day of the PY is Rs. 4,00,000.
2) Expenditure on scientific research includes Rs. 20,000 towards construction of a building
for this purpose.
3) Legal expenses include cost of litigation amounting to Rs. 4,000 for curing the defect in
the title of a business asset.
4) General expenses include –
a) Rs. 6,000 drawn by the assessee for persona/ use.
b) Rs. 1,000 robbed from an employee of the business who was asked to make some
purchases for the business.
5) Depreciation allowable as per income tax rules is Rs. 8,800 excluding on patent
rights.
Rs. Rs.
To Salary to staff 15,000 By Gross profit 17,200
Advertisements 8,000 Rent of house property 30,000
Repairs to house property 2,000 Dividends from an Indian company 12,500
Municipal Taxes of Property 3,000 Net Loss 16,600
Fire Insurance:
House Property 1,600
Office & Godown 2,000
Office expenses 4,500
Life insurance premium 3.000
Depreciation:
House property 6,000
Business assets 13,400
Gift tax 2,000
Wealth tax 4,000
Interest on loan for business 3,800
Interest on loan for construction of 5,000
house property
Donation PMNRF 2,000
76,300 76,300
Mr. Mahapatra owns a house property. Fifty percent of the floor area is let-out to a tenant at Rs.
2,500 p.m. 25% is used for own residence and in the remaining 25% he carries on his business. Compute
his total income.
7. From the following Profit and Loss Account of Vineeth Salve ascertain the taxable profits from business
and the gross total income.
To Office Salaries 10,000 By Gross Profit 4,59,500
Proprietor's salary 5,000 Profit on sale of
2000 • Residential house 2,40,000
Interest on Capital
General expenses 5,000 Interest from Govt.
Bad debts 2,000 Securities 5,000
Advertisements 4,500 Dividends from agri-
Fire Insurance premium 2,000 cultural companies 2,500
Depreciation 4,000 (Entire income exempt)
Reserve for future losses 10,000 Bad debts recovered 5,000
Income tax on last
assessment 4,000
Advance I.T. paid 2,000
Donations to National
Laboratory 1,000
Legal charges for
defending suit for 5600
alleged breach of contract
Motor Car Expenses 1,000
Net Profit 6,59,000
7,12,000 7,12,000
General expenses include Rs. 1,000 paid as compensation to an old employee whose services were
terminated as his continuance in service was considered detrimental to the profitable conduct of the business
and Rs. 200 by way of help to poor university student. The depreciation is found to be in excess by Rs. 1,800.
The advertisement cost includes one wooden show case Rs. 1,000, calendars and diaries Rs. 1,500. Motor-car
expenses include Rs. 500 as Motor-car expenses for private use of car. The assesses has received demand notices
of sales tax amounting to Rs. 10,000 and he has not disputed this liability. Reserve for future losses is meant for
this liability. The net consideration received on the sale of residential house is Rs. 10,00,000. It was acquired in
2001-02 for Rs. 2,60,000. (CII for 2001-02: 100; 2018-19: 282).
8. Given below is the summary of cash transactions of Mr. Varun Patil, a practising chartered
Accountant (The books of account are maintained under cash system) :
Rs. Rs.
To Audit fees By Office expenses:
2016-17: 2,000 for 2016-17 1,000
2017-18: 5,56,000 for 2017-18 9,000
2018-19: 1,210 Office rent 4,500
Consultation fees 10,000 Salaries & Wages 1,12,550
App. Tribunal appearance 15,000 Subscription to journals 3,000
Miscellaneous 20,000 Books bought 6,300
Interest on Govt. securities 10,000 Travelling expenses 5,800
Interest on Govt. securities 10,000 Interest on bank loan 3,000
Presents from clients 9,050 Donation 5,000
Bad debts recovered previously 1,000 balance 4,82,110
disallowed
6,34,260 6,34,260
You are required to compute taxable income after taking into account the following information: -
a) Stock undervalued 10%.
b) Bad debts amounted to Rs. 2000.
c) Purchases include Rs. 25,000 paid in cash.
d) Traced embezzlement by an employee in business Rs. 3,000.
e) Allowable depreciation amounted to Rs. 4,000, excluding computer.
f) Interest of Rs. 7,000 includes interest on loan taken to buy shares - Rs. 3,000.
g) GST due was paid on 30th July of AY.