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 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.

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.

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)

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.

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
ii) National Laboratory
eligible for 175 % Deduction
iii) Association, university, college for the purpose of
research in social sciences or statistical research
eligible for 125 % Deduction
In House Research in specified industries eligible for
200 % 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 ( Section 35D)
Amortisation of Amalgamation or Demerger
in 5 Years (Section 35DD)
Amortisation of VRS Expenses in 5 Years
( Section 35DDA)
Expenditure on Minerals Prospecting in 10
Years (Section 35E)

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
iii) Contribution to Recognised Provident
Fund
iv) Contribution to Approved Gratuity Fund
V) Write off of useless or Dead Animals
Vi) Bad Debts
Vii) Expenditure on promotion of Family
Planning among employees

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

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.

Disallowance u/s 40a

Interest Royalty Fees for Professional
Services paid outside India without
deducting TDS

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

Disallowance us/s 40 a
Securities Transaction Tax
Fringe Benefit Tax
Income Tax
Wealth Tax
Salary paid outside India without deducting
TDS
Provident Fund payment without deducting
TDS
Tax on Prequisites paid by the employer

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

Remuneration to Partner
Is allowed upto the following limits
First Rs 3,00,000 - 90 % or Rs 1,50,000

which ever is high

Balance
- 60 %

Disallowance u/s 40 A
Excessive Payment to Relatives
Payment exceeding Rs 20,000 in
mode otherwise than Crossed cheque
(Entire amount is disallowed)

 Contribution to Non Statutory Funds

Provision for Unapproved Gratuity
Fund

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