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Profits and Gains of Business

or Profession

Lecture Notes
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 assessee
 2. Any Compensation or other payments due or
received by assessee, 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 o 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 knowhows, patent etc.
 8. Sum Received under Keyman 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)
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 specialised
Knowledge and Skill.

Vocation:
is an activity in which an assessee has
specialised skill for earning Income.
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.
Depreciation
 Deprecation is allowed in respect of
 a) Building
 b) Plant & Machinery
 c) Furniture
 d) Motor Vehicles
 e) Computers
 f) Intangibles
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.
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.
Tea Development Account u/s 33 AB
 Applicable only for Assessee carrying on
business of growing and Manufacture of tea in
India
 Condition : Deposit of amount in NABARD
account within 6 months or due date of Filing
Return which ever is earlier.

 Deduction : 40 % of Profit of such business


 OR
 Amount Deposited
 whichever is less
Site Restoration Fund u/s 33 ABA
 Applicable only for Assessee carrying on
business of prospecting, extraction of,
petroleum or natural gas or both
 Condition : Deposit of amount in SBI account
within 6 months or due date of Filing Return
which ever is earlier.

 Deduction : 20 % of Profit of such business


 OR
 Amount Deposited
 whichever is less
Expenditure of Scientific Research U/s 35
 Any Expenditure (other than Cost of Land)
expended on scientific research related to the
business.
 Contribution to
 i) Association, university, college for the purpose of
Scientific Research, research in social sciences or
statistical research
 ii) National Laboratory
 eligible for 125 % Deduction

 In House Research in specified industries eligible


for 150 % Deduction
Expenditure for Obtaining License to operate
Telecommunication Services U/s 35ABB

 Allowed as Deduction equally over the


number of years of Validity of
Licenses
Other Expenditures
 35AC : Expenditure on Eligible Projects

 35CCA : Expenditure for carrying out rural


development programmes

 35 CCB : Expenditure for carrying out


programmes of conservation of natural
resources.
Amortisation of
 Preliminary Exp deduction is allowed
in 5 Years

 Amortisation of Amalgamation or
Demerger

 Amortisation of VRS Expenses


 Expenditure on Minerals Prospecting
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) Contribution to Recognised Provident
Fund
 iv) Contribution to Approved Gratuity Fund
 V) Expenses on Animals
 Vi) Bad Debts
 Vii) Expenditure on Family Planning
General Expenses u/s 37
 Conditions to be fulfilled
 i) Expenditure should not be in the
nature prescribed u/s 30 to 36
 ii) Not a Capital Expenditure
 iii) Not Personal Expenditure
 iv) for the purpose of Business