INCOME FROM BUSINESS

OR PROFESSION

Income from Business or Profession

Income from any business or profession is taxable under this head.
Business includes any trade, commerce or manufacture or any venture

or concern in the same nature of trade, commerce or manufacture.

Profession involves an exercise of intellect and skill based on learning

and experience like work of lawyer, doctor, CA etc. It includes vocation

also.

Chargeability: Section 28
The following incomes shall be chargeable under this head:

Profits of any business or profession which was carried by assessee at

any time during P/Y.
Compensation due or received
for termination or modification of agreement for managing a
company.
for termination or modification of terms of agency.
Profit on sale of license
Cash assistance
Duty draw back of customs & central excise

 Value of any benefit or perquisite arising during the course

of carrying on of any business or profession.

Interest, salary, bonus, commission or remuneration due or
received by a partner of a firm in which he is a partner.
Value of any benefit in lieu of services by a professional like
gifts for a doctor by his patients.
Any sum received under key man insurance policy
including bonus on such policy.
Any other income incidental to business or profession.

METHOD OF ACCOUNTING
There are two system of accounting:

Cash System of Accounting

Mercantile (Accrual) System of Accounting

Note:- U/s 145 the assessee can use any of

above method to compute PGBP but once
chosen it is not allowed to be changed.

HOW TO COMPUTE PGBP

Profit as per P&L A/c
XXX
Add: 1. Exp. Debited to P&L A/c
but not allowed
XXX
2. Income not shown in P&L A/c XXX
Less: 1. Expenses allowed but not
deducted
XXX
2. Income credited to P&L A/c but
taxable under other head or Tax
free income
XXX
Business Income
XXX

EXPENSES/DEDUCTIONS ALLOWED

Section 30
Expenses in respect of Business Premises

As a Tenant :- Rent, Repair, Municipal Taxes,

Insurance Premium etc.
As a Landlord :- Repair, Municipal Taxes, Insurance
Premium
Note :- Repair does not include any capital
expenditure.

Section 31

Expenses on Plant, Machinery, Furniture etc. : Repair, Insurance Premium, Hire Charges etc.
Section 32
Depreciation :Dep. is allowed on
i.
Block of Assets
ii. Owned by Assessee(Wholly or Partly)
iii. Used for B or P
iv. on WDV
v. at prescribed rates.

 Remuneration to the staff : salary is allowed as deduction

on due basis.
Medical & Health insurance premium paid by the employer
on behalf of the employees is allowed as deduction.
Employers contribution to PF or superannuation fund is
allowed as deduction.
Employees contribution to PF or superannuation fund is
allowed as deduction when the amount is remitted to the
competent authority.
Interest on amount borrowed from individuals, banks,
Govt., Financial institutions, friends, relatives etc. is
allowed as deduction.
Legal expenses incurred in protecting the business are
allowed as deduction.

Expenses incurred on the occasion of diwali

Audit fee
Presentation of gifts or articles for promoting the business sales.
Travelling expenses
Professional tax
Expenditure for obtaining the license to operate

telecommunication services
Payment under VRS
Bad debts.
Securities transaction tax: allowed as deduction if income from
taxable securities & the income is included in the income from
business or profession.

Tea/coffee/ Rubber development Account: 33AB

Conditions to be fulfilled by the assessee:

Assessee must be engaged in the business of tea, coffee or
rubber plantation in India.
2. Amount must be deposited in a special account
3. The deposit should be made within specified limit
4. The account should be fully audited.
Amount of deduction: least of following
(I) Amount deposited
(II) 40% of the profit of the business before any adjustment
u/s 33AB & Sec. 72
1.

Site restoration fund: 33ABA

The amount deposited in site restoration fund
including interest thereon or 20% of profits,
whichever is less, in case of an assessee carrying on
the business of prospecting for, extraction or
production of petroleum or natural gas or both.

Expenditure on Scientific Research

Contributions for scientific research expenditure:
a.
1.
2.

b.
c.

Contribution to:
Scientific research association
College, University or other institutes notified by the Central Govt,
for scientific, social & statistical research.
Contribution to laboratory, University, IITs specifically for scientific
research program approved by by the prescribed authority.
Contribution to: a company registered in India & approved by
prescribed authority to carry out scientific research is eligible for
deduction.

Quantum of Deduction
S.
No.

Research

Quantum of
Deduction
Of actual
expenditure

In- House research expenditure

100%

Contribution made to outsiders

(I)

Contribution to an approved research association, which has as its 175 %

object, undertaking of scientific research related or unrelated to the
business of assessee
An approved university, college or other institution for the use of 175%
scientific research related or unrelated to the business of assessee
An approved association which has as its object the undertaking of 125%
research in social science or statistical science or an approved
university, college or other institution for the use of research

*Revenue & capital expenditure( except land and interest paid on

borrowing for land) related to research are allowed as deduction.

Inadmissible expenditure
interest, salary, royalty for beneficial services or any

other sum payable outside India is not deductible

unless tax is deducted at source.
Income tax and wealth tax are not deductible.
Ay tax paid by the employer on the perquisites not
provided by way of monetary payment is not
deductible .
Any advertisement expenditure incurred by a
political party.

In which cases books of accounts are required to be

maintained by assessee?
In case of any assessee carrying on business or profession, other than the

profession notified under Rule 6F, the books of accounts are required to be
maintained in the following cases:
1. Where the income from business or profession has exceeded Rs. 1,20,000
in any of the 3 preceding previous year or is likely to exceed Rs 1,20,000
during the current previous year.
2. If the turnover or sales or gross receipts has exceeded Rs 10,00,000 in any
of the 3 preceding years or is likely to exceed Rs 10 lakh during the current
previous year.
3. Where the profits and gains from the business are deemed to be the profits
and gains of the assessee u/s 44AD, 44AE or 44BB, 44BBB & assessee has
claimed his income lower than the income prescribed in these provisions
during the previous year.
4. In case of notified professions under Rule 6F if gross receipts have
exceeded Rs. 1.5 Lacs in any of 3 preceding previous year

In which cases audit of accounts is compulsory u/s

44AB of Income Tax Act, 1961

In case of any person:

Carrying on business where the turnover exceeds Rs. 40 Lakhs
2. Carrying on profession where the gross receipts exceed Rs. 10
Lakhs; or
3. Carrying on the business referred to in Section 44AD (civil
construction) OR 44ae (Plying goods vehicle) or 44AE (retail
trade) and claiming his income from any such or 44BBB and
claiming business to be lower than the presumed income.
1.

* The books of accounts for the relevant previous year are required
to be audited by a Chartered Accountant before the due date for
filing of return. The audit report should be filed along with the
return of income of the assessee.

PROFITS & GAINS of business of Civil Construction (Sec. 44AD)

Applicable only if the gross receipts paid or payable

does not exceed Rs 40 Lakhs.
Income: 8% of the gross receipts. However, f the
assessee, declares higher income, that shall be
considered.

Simplified procedure for computing the

profits and gains of retail traders (44 AD)
This scheme is applicable to an assessee who is engaged in any

business i.e. whole sale or retail trading, or civil construction or

any other business except for the road transport business of cargo.
Turnover or gross receipts doesnt exceed Rs. 1 crore in the
previous year.
The scheme is optional.
The scheme is available to existing assessee also.
The income is ascertained by taking the higher of the following 2
amounts:
1. 8% of the turnover.
2. Actual income shown in the return.
. Basic books like Cash Book, Cash/ Credit bills are to be
maintained i.e. no need to maintain the other books of accounts.
The accounts need not to be audited.

Computing income on estimated basis u/s 44 AEFor Plying & hiring trucks business
If an assessee derives the income from the business of plying or leasing
or hiring trucks, then income from the business is estimated. The
conditions to be calculated are as follows:

The scheme applies to a person owning less than 10 trucks or

goods carriages.
2. The income from each goods carriage of heavy vehicle is
estimated at Rs 5000 pm or actual amount earned whichever is
higher, part of a month during which the goods carriage is
owned by the asssessee.
3. The income from each goods carriage of medium goods
vehicle or light vehicle is estimated at Rs 4500pm or part of a
month during which the goods carriage is owned by the
assessee.
1.

SPECIAL PROVISIONS
UNABSORBED

DEPRECIATION:

There cannot be loss under business head due to depreciation.

If such depreciation could not be set off under business head
then it can be set off from any other head except salary in the
same year, and if still it could not be set off it can be carried
forward indefinitely to succeeding years for set off in the
similar manner.

Deduction for amalgamation/ demerger and VRS

Quantum: -1/5 of expenditure in each successive year but it is

to be noted that VRS is allowed only when amount is actually
paid which is not a case Amalgamation demerger.
Other Deductions in PGBP (Profits and Gains from Business or
Profession)

 AMORTIZATION OF CERTAIN PRELIMINARY

EXPENSES SEC 35D:

Company assessee: 5% of cost of project or 5% of cost of capital
whichever is beneficial to the assessee.
Others: 5% of cost of project
Before commencement of business: For setting up any
Business
After setting up of business: Extension or setting up of new
undertaking. List of specified expenditure including documents
like feasibility report, project report, market survey, engineering
services, legal charges , Drafting and printing of MOA and AOA,
registration fees, issue of shares and debentures, underwriting
commission, expenditure on prospectus have to be submitted.

Income from Partly Agriculture and partly business

S.No. Rule

Income related to

% of such business
income liable to tax

Rule 7A

Manufacture of rubber

35%

Rule 7B

Manufacture of coffee

40%

Rule 8

Manufacture of tea

40%