Business & Profession

• Business:
Includes any Trade, Commerce or Manufacture or any adventure in the nature of
Trade, Commerce or Manufacture.

Profession:
Means an occupation requiring specialized Knowledge and Skill.

Vocation:
Is an activity in which an assesse has specialized skill for earning Income.
 METHOD OF ACCOUNTING-(SEC-145)
• Profits and gains of Business and Profession

1. Cash\Accural
2. Mercantile
 Basis of Charge (Section 28)
• Following Incomes shall be charged to tax under this head

– 1. Profit and Gains of any business or Profession carried on by the assesse

– 2. Any Compensation or other payments due or received by assesse, for loss of agency,
due to termination or modification in terms and conditions of such agency

– 3. Income derived by a trade, professional or similar association, for specific services

performed; for its members.

– 4. Export Incentives received by Exporter such as Sale of licenses, Cash Assistance, Duty
Drawback
 Basis of Charge (contd.)
– 5. Value of any benefit or perquisite, whether convertible into money or not, arising
from business or the exercise of a profession

– 6. Interest, Salary, Bonus, Commission or remuneration due or received by, a partner of

a firm from such firm.

– 7. Sum Received or receivable in cash or kind for

a) not carrying out any activity
b) not sharing any know-hows, patent etc.

– 8. Sum Received under Key man Insurance Policy

– 9. Income from Speculative Business.

 Deduction Allowable
• 1. Rent, Rates, Taxes and Insurance of Building ( u/s 30)

• 2. Repairs and Insurance of Machinery, Plant and Furniture (u/s 31)

 Depreciation (u/s 32)
• It is mandatory. Hence allowed even if the assessee has not claimed the
deduction.
• Conditions for claiming depreciation:
• Assessee must be the owner of the asset
 Exception: Tenant can capitalise the Major repairs as Building
• Asset must be used for the purpose of carrying on the business or profession.
• Asset must be used during the relevant previous year.
• Asset must be used under the eligible class of assets viz:
– Building, Machinery, Plant & Machinery etc.
– Know‐how, patent, copyright
– trademark & license etc
 Block of Assets
• Block of Assets means class of assets falling within a class of assets comprising of:
• Tangible Assets like Building, Machinery, Plant , Vehicle or furniture of a particular
percentage.
• Intangible Assets like Know how, patents , copyrights, trademarks etc. of a
particular percentage.
• Depreciation is to be calculated based on Block of Assets.
• Addition and Sale of Assets to be taken as per the Block.
• Profit or Loss on Sale of Assets to be calculated based on BOA
Actual Cost : Section 43 (1) WDV : Section 43(6)
• Cost of Purchase or Construction • Depreciation is allowed on the
XXXX Written Down Value of Block of
• Less: Subsidy /grant Assets
XXXX
• Add: Interest on Loan payable till the date of • Opening WDV
• Acquisition of Assets XX
XXXX • Add : Purchases during the year
• Add: Expenses incurred for Acquiring Assets XX
XXXX
• Add: Expenses incurred for installation and • Less : Sales during the year
Commissioning of the Assets XX
XXXX • Closing WDV XX
• Actual Cost
XXXX • 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.
 Expenditure on Scientific Research : Section 35

• Expenditure on Scientific Research ◦

• In‐house research
– Revenue Expenditure
– Capital Expenditure
– In case of companies in Specified business‐ Section 35 (2AB)
• Payment to Outsiders
– An Approved Research Association undertaking of Scientific Research related or unrelated to
business of Assesse
– An Approved University or College or Institution for the use of Scientific Research related or
unrelated to business of Assesse.
– An approved University or College or Institution for the use of research in Social Science or statistical
research related or unrelated to business of Assesse.
– Contribution to an approved national laboratory {35(2AA)}
 Disallowance us/s 40 a
• Interest Royalty Fees for Professional Services paid outside India without
deducting TDS
• 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
 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