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Business and Profession Tax Guide

The document outlines the taxation framework for profits and gains from business and profession, detailing the definitions, chargeable incomes, and computation methods. It specifies allowable deductions, disallowed expenses, and highlights key amendments in the tax audit report. Additionally, it provides a summary table for quick reference on the treatment of various expenditures.

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12 views5 pages

Business and Profession Tax Guide

The document outlines the taxation framework for profits and gains from business and profession, detailing the definitions, chargeable incomes, and computation methods. It specifies allowable deductions, disallowed expenses, and highlights key amendments in the tax audit report. Additionally, it provides a summary table for quick reference on the treatment of various expenditures.

Uploaded by

jtamboli144
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Dr.D.Y.

Patil Institute of Management and Entrepreneur Development


MBA - Semester III -
Income under the Head “Profits and Gains of Business and Profession”- Chapter -3
Subject Name /Code- SE FIN - 06: Direct Taxation 309 FIN (DT609ME)

1. Meaning of Business and Profession


Business [Section 2(13)]

Includes:

 Trade
 Commerce
 Manufacture
 Any adventure or concern in the nature of trade

Profession

Activities requiring special skill or knowledge, such as:

 Legal
 Medical
 Engineering
 Accountancy
 Architecture
 Consultancy

2. Basis of Charge (Section 28)


The following incomes are chargeable to tax under PGBP:

1. Profits and gains of any business or profession carried on during the previous year
2. Compensation received for termination or modification of business contracts
3. Income from speculative business
4. Value of any benefit or perquisite, whether convertible into money or not, arising
from business or profession
5. Interest, salary, bonus, commission, or remuneration received by a partner from
the firm
6. Any sum received under Keyman Insurance Policy

👉 Income is taxable on accrual or receipt basis, whichever is earlier.


3. Chargeable Incomes under PGBP
 Trading profits
 Professional fees
 Export incentives
 Duty drawback
 Cash assistance
 Remuneration and interest from partnership firm
 Recovery of bad debts earlier allowed
 Sale of scrap or wastage

4. Computation of Profits and Gains of Business or


Profession
General Rule

Net Profit as per P&L Account


+ Disallowed expenses
– Allowable expenses/incomes not credited
= Taxable Business Income

5. Expenses Expressly Allowed as Deduction


(A) Specific Deductions (Sections 30 to 36)

Section 30 – Rent, Rates, Taxes, Repairs (for rented premises)

 Rent
 Municipal taxes
 Repairs (not capital in nature)

Section 31 – Repairs & Insurance of Machinery, Plant & Furniture

Section 32 – Depreciation

 Allowed on tangible and intangible assets


 As per prescribed rates
 Allowed even if asset is used for part of the year

Section 35 – Scientific Research Expenditure

 Revenue expenditure – fully deductible


 Capital expenditure (except land) – allowed
Section 36 – Other Deductions

 Insurance premium of stock


 Bonus or commission to employees
 Interest on borrowed capital
 Bad debts written off
 Employer’s contribution to PF, ESI (subject to timely payment)

6. General Deductions (Section 37)


Any expenditure:

 Not covered under Sections 30–36


 Laid out wholly and exclusively for business or profession
 Not capital or personal in nature
 Not illegal or prohibited by law

Examples:

 Advertisement expenses
 Audit fees
 Legal expenses
 Business promotion expenses

7. Expenses Specifically Disallowed


(A) Section 40 – Absolute Disallowances

 Income tax
 Salary to partner not as per partnership deed
 Excess remuneration or interest to partners
 Payment made outside India without TDS

(B) Section 40A – Conditional Disallowances

 Cash payment exceeding ₹10,000 (₹35,000 for transporters)


 Excessive or unreasonable payments to relatives
 Payments without proper justification

(C) Section 43B – Allowed Only on Actual Payment

 GST, customs duty


 Employer’s contribution to PF, ESI
 Bonus or commission to employees
 Interest to financial institutions

8. Amounts Not Deductible


 Capital expenditure
 Personal expenses
 Provisions for future losses
 Penalties and fines
 Illegal expenses (bribes, protection money)
 Income tax and wealth tax
 CSR expenditure (as per Explanation to Section 37)

9. Specific Deductions under Chapter VI-A (Relevant to


Business)
 Section 80JJAA – Employment of new employees
 Section 80IA / 80IB – Infrastructure and industrial undertakings
 Section 80G – Donation (if allowed)

10. Revision of Tax Audit Report – 2021 (Key Highlights)


As per Form 3CD amendments:

 Disclosure of cash transactions


 Reporting of Section 43B payments
 Reporting of GST-related expenditure
 Details of disallowed expenses under Section 40(a)
 Reporting of interest income on income-tax refund
 Disclosure of ICDS adjustments

11. Summary Table


Particulars Treatment
Business profits Taxable
Capital expenditure Not deductible
Revenue expenditure Deductible
Illegal expenses Not deductible
Depreciation Allowed
Particulars Treatment
Cash expenses > ₹10,000 Disallowed
Employer PF (late payment) Disallowed

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