INCOME FROM BUSINESS OR PROFESSION [P.G.B.P]
Income from business or profession is chargeable to tax under the head of B/P.
UNDER SECTION 2(13)
Business includes any trade commerce, manufacture and also any adventure or concern in the nature of trade, commerce and manufacture.
UNDER SECTION 2(36)
Profession includes vocation. Profession means rendering of specialize service acquired through a profession qualification.
Section 28 following incomes are chargeable under the head, Profit and Gains of business or profession
(i) Profit of any business which was carried on by assesssee at any time during previous year.
(ii) Compensation due or received
(a) For termination / modification of agreement for managing a company
(b) For termination / modifications of term of agency.
(c) For vesting of management of any property or business is govt. etc under any law
(iii) Income from specific services performed for its members by a trade, professional on similar association
(iv) Export incentives i.e.
(a) Profit on sale of import license.
(b) Cash assistance by whatever name called.
(c) Duty drawback of customs and central excise.
(v) Value of any benefit or perquisite arising during th course of carrying on of any business or profession.
(vi) Interest, salary, bonus, commission or remuneration due or received by a partner of a firm in which he is a partner.
(vii) Any sum received under keyman insurance policy including
(viii) Income from such speculation business.
METHOD OF ACCOUNTING
Profit are to be computed in accordance with the cash or mercantile method of accounting regularly employed in accordance with Accounting Standard notified by the Central Govt.
|1. Section 30||Rent, Repairs. Taxes and Insurance premium paid for building|
|2. Section 31||Repairs and Insurance premium paid for Machinery, Plant and Furniture|
|3. Section 32||Depreciation|
|4. Section 33 AB||Tea Development Account|
|5. Section 33 ABA||Site Development Account|
|6. Section 33 AC||Reserve for shipping business|
|7. Section 35||Expenditure for scientific research|
|8. Section 35 ABB||Expenditure for obtaining license to operate telecommunication services|
|9. Section 35 ABB||Expenditure on eligible project / schems for promoting the social and|
|economic welfare of public|
|10. Section 35AC||Payments to institutions for rural development programs|
|11. Section 35CCB||Payments to institutions for carrying out programs of conservation of|
|12. Section 35D||Preliminary expenses|
|13. Section 35E||Expenditure on prospecting, extraction, production of minerals|
|14. Deductions u/s 36 (1)|
(i) Insurance premium paid
(a) against risk of damage or destruction of stock-in-trade.
(b) by a milk co-operative society on the life of cattle by a member of the society
(c) by cheque, on the health of employees
(ii) Bonus or commission to employees if would have not been payable as profit to employees
(iii) Interest on borrowed capital
(iv) Employer’s contribution to recognised provident fund or approved superannuation fund
(v) Employer’s contribution to approved gratuity fund.
(vi) Any sum received from employees as contribution to any provident fund/ESI or any other welfare fund if Such sum is credited to the employees account in the relevant fund on of before due Date
(vii) Bad debt
(ix) Provision for bad and doubtful debts for rural branches of banks.
(x) Special reserve credited by financial corporations
(xi) Family planning expenditure for employees by a company
15. General Deduction u/s 37
RENT, RATES, TAX, INSURANCE & REPAIRS FOR BUILDING: -
1. If assessee occupied the property as Tenant then all type of Repair will be allowed as Deduction
2. If assessee take Premises on lease and agree to Pay arrear of rent whether under legal obligation or Voluntarily not deductible.
3. A fluctuating item like share in Profit cannot be treated as rent.
REPAIRS & INSURANCE OF PLANT & MACHINERY & FURNITURE: -
Replacement of Old diesel engine with New diesel engine will be Treated as current Repair.
Section 32 DEPRECIATION
TO CLAIM A DEDUCTION OF DEPRECIATION ASSESSEE SHOULD SATISFY THE FOLLOWING CONDITIONS.
1. Assets must be owned by assessee should satisfy the following conditions.
a. He may be a co-owner of assets.
b. If assessee incurred any capital expenditure in a building taken on lease or right of occupancy, he is ended to depreciation, in respect of capital
The new accounting standard (as19) on “leases” issued by the institute of chartered
accountant of india required capitalization of the assets by the lasses in financial lease
transaction. by itself, the accounting standard will have no implication on the
allowance of depreciation on assets under the provisions of the income tax act- circular
no. 2 of 2002, dated february 9, 2002. 2. assets used by assessee for business or
a. If assessee used the assets partly for business purpose then under section 32(1) shall be restricted to a fair proportionate part there of which the assessing officer may determine.
b. When occupation of residential quarters by the assessee’s employees is subservient to and necessary for the purpose of his business.
3. Assets must be used by assessee during the previous year. (However, depreciation allowance is limited to 50% of normal depreciation, if the following two conditions are satisfied: -
1. Where assets is acquired during the previous year; and
2. It is put to use for the purpose of business or profession for less than 180 days
during that year.
3. Depreciation is eligible for tangible or Intangible assets (Patent Right, copy right,
trade marks. Knowhow,
licences and franchises etc
(1) Block of asset:- It means a group of assets falling within a class of assets in respect of which same percentage of depreciation is prescribed
(2) Prescribed percentage:- Under income tax act depreciation is allowed on the basis of w.d.v. And the rates of depreciation shall be as under
|Furniture & Fittings||10%|
|Car for commercial purpose||30%|
|Building (for infrastructure)||100%|
|Books of professional||100%|
|Pollution control equipment||100%|
2. Written Down Value
W.D.V of the Block at the beginning of the previous year
Add: Acurat cost of the assets raning within the block acquired during the previous year
Less: Sale price of assets falling within the block sold, destroyed during the p.year and S. Value
3. Computation of short-term Capital Gain for depreciable assets
(i) If Sale consideration on transfer of one of one or more capital assess in the block exceed the value of the block i.e. Opening w.d.v.
Add: Cost of assets acquired during the year
Less: Expenditure on transfer such excess shall be S.T.C.G
(ii) If entire block is transferred following shall be STCG
Less: Opening w.d.v
Add: Cost of assets acquired during the year
Less: Expenditure on transfer STCG.
4. Actual cost section 43(1)
(i) It means actual cost of the assets to the assessee, reduced by the cost met directly or indirectly by any other person or authority.
(ii) Challapali Sugar Mills: - latest paid before the commencement of production on the amount borrowed For the assets forms part of actual cost. Interest for acquisition of an assets is first to put to use shall not be included in actual cost.
(iii) If an asset is used in business after is ceases to be used for scientific research the
actual cost shall be reduced by deduction under section 35.
(iv) If an assets is acquired by way of gift, will the etc. the actual cost to the assesses shall be actual cost to the previous owner as reduced by depreciation as if it was only assets in the block.
(v) Any amount incurred on assets on before the commencement of business treated as actual cost.
5. Depreciation for undertaking engaged in generation and distribution of power Such undertaking can claim depreciation on the basis of W.D.V. however in case power generating unit option is given to claim depreciation either on the basis of W.D.V or on the basis of S.L.M.
If the depreciation has claimed on the basis of w.d.v. Depreciation shall be computed in the similar manner as mentioned in above para.
But if the depreciation has been claimed on the basic of S.I.M. depreciation shall be computed in the manner given below s
(a) Depreciation shall be allowed at the rates prescribed under Income Tax Act.
(b) concept of 180 days shall apply in the normal manner.
(c) Depreciation shall be computed on the basis of individual assets.
(d) If there is any loss on sale of assets sit will be called Terminal Depreciation and shall be allowed to be debited to the Profit and loss Account on the same year without any limit and if there is any gain to the extent depreciation has been claimed it will be called Balancing charge under section 41(2) and shall be considered to be Income under the head of business or profession and, it there is
any gain in excess of balancing charge, it will be called short term capital gain u/s 50A.
Example I: - ABC Ltd., a power generating to has purchased one plant & Machinery for Rs. 16,20,500 on 1-9-2011 & it was put use on 7-10-2011 and rate of depreciation is 20% by SLM. Discuss its tax treatment in the following 3 situation:
St-I The machine is sold for Rs. 10,00,000 on 1-10-2013.
St-II The machine is sold for Rs. 15,25,000 on 1-10-2013.
St-III Machine is sold for Rs. 20,00,000 on 1-10-2013.
Ans. St-I = 1,34,350 (TD), St-II = 3,90,650 (BC), St-III 3,79,500 (CG).
Example II:- X ltd. Is a power generating unit. On December 20,2012, it purchases a plant for Rs. 20 Lakh which is eligible of depreciation @ 12.77 per cent on straight line basis. The plant is sold for (a) Rs. 30,000 or (b) Rs. 18,72,300 (c) Rs. 19,00,000 or (d) Rs. 21,50,000 on May 20,2013.
Ans. (a) Rs. 18,42,300 (T.D), (b) nil, (c) 27,700 (B,C), (d) Rs. 1,50,000 (C.G).