Profit and Gains of Business of Profession

8/10/2019 Profit and Gains of Business of Profession

1/12

5. Profit and Gains of Business or Profession

CHAPTER OUTLINESection Particulars

2830

31

32

32 (1)(iia)

32 (2)

33 AB

33 ABA

35

35 A35 ABB

35 AC

35 AD

35 CCA

35 D

35 DD

35 DDA

35 E

36 (1)

37 (1)

40 (a)

40 (b)

40 A(2)

40 A(3)

43 B

44 AA

Chargeable under the head business or ro!ession"ent# rates# ta$es# re airs and insuran%e !or buildings

"e airs and insuran%e o! &a%hiner'# lant and urniture

De re%iation

Additional De re%iation

*et+o!! and Carr' or,ard o! unabsorbed de re%iation

-ea De.elo &ent A%%ount

*ite "estoration und A%%ount

E$ enditure on *%ienti!i% "esear%h

E$ enditure on a%/uisition o! atent "ightE$ enditure !or obtaining -ele%o&&uni%ation i%ense

Donation !or eligible ro e%t

n.est&ent lin ed ta$ in%enti.e !or s e%i!ied business

Donation !or "ural De.elo &ent

reli&inar' E$ enses

E$ enditure in %ase o! a&alga&ation

E$ enditure in%urred under .oluntar' retire&ent s%he&e

E$ enditure on ros e%ting !or %ertain &inerals

ther Dedu%tion

eneral Dedu%tion

E$ enses not Dedu%tible

Disallo,an%e !or artnershi !ir&

a'&ent to s e%i!ied ersons

Cash a'&ent in res e%t o! e$ enditure e$%eeding "s 20#000

Dedu%tion based on a%tual a'&ent

aintenan%e o! a%%ounts


2/12


3/12

Bloc4 of Assets #ection ./ 1: -t &eans a grou o! assets !alling ,ithin %lass o! assets %o& rising o! =(i) -angible assets being buildings# lant &a%hiner' or !urniture(ii) ntangible assets being no,+ho,# atents# %o 'rights# trade&ar s# li%enses# !ran%hises or an' other business

or %o&&er%ial rights o! si&ilar nature li e good,illn res e%t o! ,hi%h the sa&e er%entage o! de re%iation is res%ribed

t &a' be noted that the de re%iation is not allo,ed on the !ollo,ing assets as the' are not !ollo,ing ,ithin the&eaning o! tangible and intangible asset;

- Land- Li0estoc4- Intan*ibles ac3uired upto $ 5%$5 667

(ates of depreciation for 0arious bloc4s of assets: -T+pes of Assets (ate of !epreciation

/I1

Building ;"esidential 5 @>on "esidential 10 @-e& orar' *tru%ture 100 @

/II1 urniture ittings 10 @/III1 lant a%hiner' ;

eneral rate o! lant &a%hiner' 15 @Boo s o,ned b' assesses %arr'ing on a ro!ession(annual ubli%ation) and boo s o,ned b' a librar' 100 @

otor Car# buses# lorries et% used !or hire 30 @otor %ar used !or Business ro!ession 15 @Co& uter 60 @*hi s 20 @

/I81 ntangible Assets 25 @

Period of use:1 Asset Ac3uired during the re.ious 'ear and used !or a period of less than 7% da+s + de re%iation allo,ed !or

hal! the eriod2 Asset Ac3uired during the re.ious 'ear and used !or a period of 7% da+s and more - de re%iation shall be

allo,ed !or %o& lete 'ear

Proportionate !epreciation: -

?here in an' re.ious 'ear# there is ;(i) *u%%ession o! a ro rietar' %on%ern 9 artnershi !ir& b' a %o& an'(ii) *u%%ession o! an' business e g trans!er b' : to &e&ber(iii) A&alga&ation 9 De&erger o! a %o& an'(i.) Con.ersion o! ri.ate %o& an' 9 unlisted ubli% %o& an' into li&ited liabilit' artnershi b' satis!'ing

%onditions o! se%tion 47 ($iiib) , e ! A 2011+12 and(.) A&alga&ation or de&erger o! %o+o erati.e ban s

-he dedu%tion shall be a ortioned bet,een su%%essor and rede%essor shall not e$%eed the a&ount o! de re%iationas i! su%h su%%ession 9 a&alga&ation 9 De&erger did not ta e la%e

2xe5 .5 : - Computation of !epreciation(A) Anil is o,ner o! t,o buildings ,hi%h are used b' hi& !or his o,n business -he ,ritten do,n .alue o! these

building is "s 5#00#000 on 1 4 2013 and the rate o! de re%iation allo,able on this blo% is 10 @ eur%hased another building on 1 12 2013 !or "s 2#50#000 and sold one o! the t,o old building on 1 3 2014 !or "s F#50#000


4/12

Co& ute the allo,able de re%iation !or the assess&ent 'ear 2014+15(B) ?hat ,ould ha.e been the di!!eren%e had the building been sold !or "s 3#50#000G

Additional !epreciation #ection $./ 1/iia1: -/ 1 2li*ible Asset: -

a) *hi s#b) Air%ra!t%) An' lant and &a%hiner' installed in o!!i%e re&ises or residential a%%o&&odation or guest house

/.1 Additional !epreciation: +

.% 9 of actual cost of machiner+ or plant5/$1 Condition to be satisfied: -(a) t is in addition to the nor&al de re%iation(b) t is allo,ed to all the assessees(%) t is allo,ed in the 'ear it is ut to use

2xpenditure on #cientific (esearch #ection $ : -

/ 1 In case of contribution to outsiders ;

Contribution toational aborator'# ndian instituteo! te%hnolog' or an a ro.ed resear%h asso%iation !orthe ur ose o! %ondu%ting s%ienti!i% resear%h relatedor unrelated to the business o! assesses *e% 35(1)(ii)

200 @

=eneral !eduction ;

/.1 2xpenditure incurred b+ the assesses for his business: -(A) n all %ases o! in+house resear%h = 100 @ o! the !ollo,ing e$ enses being =

An' re.enue e$ enditure and %a ital e$ enditure (other than %ost o! a%/uisition o! an' land) ons%ienti!i% resear%h incurred durin* the +ear and

An' e$ enditure in%urred during the $ +ears immediatel+ precedin* the date o! %o&&en%e&ent o! business# being salar' to an e& lo'ee or ur%hase o! &aterials used in su%h s%ienti!i% resear%h oran' %a ital e$ enditure (e$%e t %ost o! a%/uisitions o! an' land) shall be allo,ed as dedu%tion andthe dedu%tion %an be %lai&ed in the 'ear o! %o&&en%e&ent o! business

/B1 In case of companies in specified business /in house1 ; #ection $ /.AB1-his assessee is a %o& an'


5/12

Co& anies engaged in the business o! bio+te%hnolog' or an' business o! &anu!a%ture or rodu%tiono! an' arti%le or thing# not being an arti%le or things s e%i!ied in the list o! the Ele.enth *%hedule %an%lai& ,eighted dedu%tion under this se%tion200 @ o! an' /(e0enue and Capital1 e$ enditure (other than e$ enditure on %ost o! land building)-o %lai& this dedu%tion assessee is also re/uired to !ul!ill the ne%essar' %onditions as are res%ribed!ro& ti&e to ti&e b' the go.ern&ent

2xe5 5 :- 2xpenditure on #cientific (esearch "#ection $ '

-he !ollo,ing are the details o!


6/12

/>1 Maximum permissible expenditure : "#ection $ !/$1'(a) n %ase o! compan+ # 5@ o! %ost o! ro e%t or 5@ o! %a ital e& lo'ed# (,hi%he.er is higher)(b) n %ase o! an' other assessee# 5@ o! the %ost o! ro e%t

/ 1 Amount of deduction ; + -he &a$i&u& er&issible e$ enditure or a%tual e$ enditure (,hi%he.er is lo,er),ill be allo,ed as a dedu%tion in 5 e/ual install&ents

/@1 Capital emplo+ed H ssued share %a ital I debentures I long ter& borro,ings/&1 Cost of the pro ect &eans a%tual %ost o! !i$ed assets li e land# buildings# leaseholds# lant and &a%hiner'#

!urniture and !ittings and rail,a' sidings as sho,n in the boo s o! the assesses on the last da' o! the re.ious

'ear in ,hi%h the assesses %o&&en%es business/71 Audit (eport: - n %ase o! non+%or orate assesses# the assesses is re/uired to !urnish the audit re ort along,ith the return o! in%o&e !or the !irst 'ear

2xpenditure incurred under 0oluntar+ retirement scheme #ection $ !!A: - An' assesses in%urs e$ enditure !or a'&ent o! su& under .oluntar' retire&ent s%he&eDedu%tion shall be allo,ed o! su%h e$ enditure in !i.e e/ual annual install&ents starting !ro& the 9 in ,hi%hamount paid5

2xpenditure in case of amal*amation or !emer*er #ection $ !!: -ndian %o& an' shall be allo,ed dedu%tion o! su%h e$ enses in !i.e install&ents !or !i.e 'ears starting !ro& the'ear in ,hi%h a&alga&ation ta es la%e

ther !eduction #ection $@/ 1: -Nature of 2xpenditure: -(1) nsuran%e re&iu& on ris o! da&age or destru%tion o! sto% s 9 *tores used in business

Dedu%tion allo,able onl' in the 'ear o! a'&ent(2) nsuran%e re&iu& on li!e o! cattle o,ned b' a &e&ber o! a ri&ar' %o+o erati.e so%iet'

Dedu%tion ,ill be allo,ed onl' in the 'ear o! a'&ent(3) nsuran%e re&iu& aid on health o! e& lo'ees

re&iu& %an be aid b' an+ mode other than cash under in a ro.ed s%he&e o! eneral insuran%eCor oration o! ndia or "DA

(4) Bonus or %o&&ission aid to e& lo'ees Allo,able as dedu%tion onl' i! su%h su& is not a'able as ro!it or di.idend

a'&ent shall be made on or before due date of filin* return5 "#ection >$B'5

(5) nterest aid on borro,ed %a italone' should be borro,ed !or ur ose o! business nterest on ro rietor %a ital is not allo,ed

(6) E& lo'erJs %ontribution to re%ogniKed or A ro.ed *u erannuation und-he a'&ent shall be made on or before due date of filin* return5 "#ection >$B'

(7) Contribution to appro0ed gratuit' !und %reated under irre.o%able trust !or the bene!it o! the e& lo'ee-he a'&ent should be &ade on or before the due date of filin* return o! in%o&e

(8) Contribution !ro& e& lo'ees to,ards ,el!are !und a%%ounts (li e %ontribution to,ards # E* C# et%)-he re&ittan%es &ust be &ade on or be!ore the due date under the rele0ant Act for the rele0ant fund5

(F) Allo,an%e is res e%t o! dead or er&anentl' useless ani&als ,hi%h ,ere used !or the ur ose o! business-he ani&als shall not be held as sto% +in+trade

A&ount o! dedu%tion H A%tual %ost o! ani&al = A&ount realiKed on sale+o! the ani&al or their %ar%asses/ %1Bad debts /excludin* pro0ision for bad debts1

-he debt &ust be in%idental to the business*u%h debt should be re.enue in naturet &ust ha.e been ta en into a%%ount in %o& uting the in%o&e o! the assesses-he bad debt &ust ha.e been ,ritten o!! in the boo s o! the assesses-he business in ,hi%h su%h debt is in%urred should be %ontinued during the re.ious 'ear

/ 1 ro&oting !a&il' lanning a&ongst e& lo'ees /onl+ for compan+ assesses1"e.enue e$ enditure is !ull' allo,ed as dedu%tionCa ital e$ enditure in%urred ,ill be allo,ed in 5 'ears in e/ual install&ents %o&&en%ing !ro& the re.ious'ear in ,hi%h it ,as in%urred

=eneral !eduction #ection $&: -


7/12

(i) -he e$ enditure should ha.e been in%urred ,holl' or e$%lusi.el' !or the ur ose o! the business orro!ession

(ii) -he e$ enditure not being in the nature o! ersonal e$ enditure o! the assesses(iii) E$ enditure should not be o! Ca ital >ature(i.) -he e$ enditure should ha.e been in%urred during the 9(.) t should not be %o.ered b' *e%tion 30 to 36

Note: -(1) An' e$ enditure in%urred b' an assesses !or an' ur ose# ,hi%h is an o!!en%e# or ,hi%h is rohibited b' la,

shall not be dee&ed to ha.e been in%urred !or the ur ose o! business or ro!ession and no dedu%tion shallbe allo,ed in res e%t o! su%h e$ enditure

(2) enalt' !or in!ra%tion o! an' la, not dedu%tibleE$a& le; + enalt' under *ales -a$ A%t# E$%ise A%t et% are also not allo,able as dedu%tion

(3) enalt' in nature o! %o& ensation = Allo,able as dedu%tionE$a& le; + enalt' !or Brea%h o! Contra%t = Allo,able as dedu%tion sin%e there is no in!ra%tion o! la,

(4) nterest aid under n%o&e+ta$ a%t and ?ealth ta$ a%t = >ot allo,able(5) nterest aid under an' other la, allo,able as a dedu%tion i! interest is %o& ensator' in nature ! interest is in

nature o! enalt' then no dedu%tion is allo,ableE$a& les; + enal interest aid to ban is allo,able as dedu%tion sin%e enal interest is a'able as er theagree&ent bet,een ban er and borro,er -here is no in!ra%tion o! la,

(6) nterest on loan ta en to a' the in%o&e ta$ is not allo,able as dedu%tion

Note: as per #ection $7: -! an' building# &a%hiner'# lant or !urniture (or other e$ enditure) is not e$%lusi.el' used !or business orro!ession# the dedu%tions shall be restri%ted to su%h ro ortion as deter&ined b' assessing o!!i%er

2xpenses not !eductible #ection >%/a1/i1: Nature of expenditure

An' su& %hargeable under this a%t other than salar' is a'able to an' erson outside India or a !oreign %o& an'( C) or a non resident non %or orate in ndia1 A&ount aid has to be ta$able in the hands o! the a'ee in ndia# onl' than this se%tion shall be a li%able2 -hree situations to understand

Tax deducted for the period April to Feb and

deposited till 31st

March

Deduction allowed inthe previous year ended

on 31 st March

TDS due for March paid till 30th

AprilDeduction allowed in

the previous year endedon 31 st March

All other situations Allowed in the year of payment

!eductions not allo?ed as per #ection >%/a1/ia1

Payments made to residents (other thansalary)

Tax deducted from April to march and paid tillreturn llin! date

Deductionallowed in theprevious yearended on 31 st March


8/12

Any other situation Deductionallowed in yearof payment

!eductions not allo?ed under #ection >%/a1/iii1*alar' i! a'able to an' erson outside ndia or to a non+resident non+%or orate in ndia-his se%tion o! disallo,an%es get attra%ted onl+ if -D* on salar' is not dedu%ted and not aid to go.ern&ent b'

the due date /Limited scope1

2xpenses not allo?ed as deductions under #ection >%/a1 Income tax %A/.15! a'&ent o! e$ enditure has been &ade to s e%i!ied ersons

A &a' disallo, so &u%h e$ enditure as he %onsider e$%essi.e or unreasonablea.ing regard to !air &ar et .alue o! goods# ser.i%e# !a%ilit' !or ,hi%h a'&ent &ade and legiti&ate needs o!

in%o&e

e+ Notes: -/i1 #pecified Persons for this section

ndi.idual; + (i) "elati.e (ii) erson in ,hose business the indi.idual or his relati.e has substantialinterest

/ii1 Compan+ ; + (i) Dire%tor (ii) "elati.e o! Dire%tor (iii) erson in ,hose business the %o& an'# dire%tor oran' relati.e o! su%h dire%tor has substantial interest

/iii1 Meanin* of (elati0e ; + * ouse# An' Brother# *ister# lineal as%endant or des%endant o! su%h indi.idual

Cash Pa+ments in respect of expenditure exceedin* (s5 .%)%%% #ection >%A/$1: -?here an assesses in%urs an' e$ enditure in res e%t o! ,hi%h a'&ent in e$%ess o! "s 20#000 is &adether,ise than b' A%%ount a'ee %he/ue or A%%ount a'ee De&and dra!t100@ o! su%h e$ enditure shall not be allo,ed as a dedu%tion! the aggregate a'&ent (other,ise than b' an a%%ount a'ee %he/ue 9 dra!t) to the same person durin* a da+ exceeds (s5 .%)%%% # the ro.isions o! se%tion 40A(3) ,ill a l' and the entire a&ount o!su%h a'&ent ,ill be disallo,edEnhan%e&ent o! li&it !or disallo,an%e o! e$ enditure &ade other,ise than b' an a%%ount a'ee %he/ueor a%%ount a'ee ban dra!t !or l'ing# hiring or leasing goods %arriages in the %ase o! trans orters to "s35#000 !ro& the e$isting li&it o! "s 20#000

2xceptions to #ection >%A/$1: -(ule @!!: -(i) a'&ent &ade to ban and !inan%ial institutions e g DB # :- et%(ii) a'&ent &ade to o.ern&ent e g *ales -a$# Custo& Dut' et%(iii) a'&ent &ade on a ban ing holida'(i.) ?here an' a'&ent is &ade to an e& lo'ee o! assesses or the heir o! an' su%h e& lo'ee# on or in

%onne%tion ,ith the retire&ent# retren%h&ent# resignation# dis%harge or death o! su%h e& lo'ee# on a%%ounto! gratuit'# retren%h&ent %o& ensation or si&ilar ter&inal bene!it and the aggregate o! su%h su&s a'able toe& lo'ee or his heir does not e$%eed "s 50#000


9/12


10/12

Audit is re3uired to be done b+ the due date of return and the applicabilit+ of section >>A has to bere0isited e0er+ +ear

Additional Euestions:/discussed in class1

5 ,rom the PFL Account of G /resident1 indi0idual /a*e$ 1)ascertain his total income and tax liabilit+

=eneral expenses $)>%% =ross profits $) ) %%

Bad debts ..)%%% Commission 7)@%%

Ad0ance tax .)%%% Bro4era*e $&)%%%

Insurance @%% #undr+ receipts .) %%

#alar+ to staff .@)%%% Bad debts reco0er+

/earlier allo?ed asdeduction1

)%%%

#alar+ to G )%%% Interest on debentures/T!# .) %%) Net amountrecei0ed ?as ..) %%

. )%%%

Interest on o0erdraft >)%%% Interest on deposit /Netinterest recei0ed is)&%% and T!# ?as)$%%1

$)%%%

Interest on loan to Mrs5G

>.)%%%

Interest on capital of G .$)%%%

!epreciation >7)%%%

Ad0ertisementexpenditure

&)%%%

Contribution toreco*niHed fund $)%%%

Net profit )@%)@%%

ther information:5 !epreciation as per income tax is $&)$%%5 It includes depreciation of si*n board.5 Ad0ertisement expenditure include (s $)%%% bein* the cost of permanent si*n board$5 LIC premium on o?n life @)%%%>5 =eneral expenses include /a1 %% *i0en to Mrs5 G for arran*in* a part+ in honour of a friend /b1 )%%%

contribution to political part+


11/12

5 Loan ?as ta4en from Mrs5 G for pa+ment of arrear of income tax

5 ,rom the PFL Account of Mrs G /resident1 indi0idual /a*e$ 1)ascertain his total income and tax liabilit+

Profit and Loss for the +ear ended $ st March .% $-.% >

#alar+ to staff $>)%%% =ross profit @)7@)%%%

=eneral expenses >7)%%% Commission anddiscount

.) &).%%

Bad debts ?ritten off )%%% #undr+ receipts >$)%%%

(eser0es for losses .)%%% #hort term profit on saleof in0estment

$ )%%%

,ire insurance premium >.%%

Ad0ertisement expenses .)>%%

Add outstandin* )@%% >)%%%

Interest on GDs capital $) %%

Interest on ban4 loan >) %%

2xpenditure on ac3uisition of a patentac3uired in une $

&)%%%

Bou*ht no?-ho? in March > @%)%%%

!epreciation on plant and machiner+ .7)%%%

utstandin* sales tax and excise dut+ $)%%%

Net profit &)$>)%%%

ther Information:

5 Ad0ertisement expenses includes (s $)>%% bein* cost of . diaries /cost of each bein* (s5 &%% presentedto customers1

.5 !epreciation on plant and machiner+ accordin* to income tax pro0ision is (s .6)&%%


12/12

$5 #alar+ to staff includes pa+ment of (s5 7)%%% to a relati0e ?hich is unreasonable to the extent of (s $)%%%

>5 =eneral expenses include /a1 expenditure of (s5 >)7%% incurred b+ G on trainin* of his emplo+ees) /b1commission of (s5 %)%%% for securin* a business order / C1 Compensation of (s5 @%%% paid to anemplo+ee on his termination

5 ut standin* sales tax and excise dut+) (s $)%%% is paid on ul+ %) .% > and (s 7)%%% is paid on ctober$) .% >5 The balance is not +et paid5 !ue date for filin* of return is ul+ $ ) .% >

@5 Insurance paid to LIC on $rd

April .% > for his o?n life .>)%%%

&5 Interest on #elf occupied hose paid durin* the +ear )@ )%%% and principal paid is $ )%%%

75 Amount of municipal tax paid is $) %%

65 2xpenditure done for a dependent parent for se0ere blindness ?orth .$)%%% and bou*ht a medicalinsurance for himself F spouse . )%%%

%5 Made donation to IIT ?orth . )%%% durin* the pre0ious +ear

Profit and Gains of Business of Profession

Documents

Transcript of Profit and Gains of Business of Profession