This document provides an overview of the taxation of profits and gains from business or profession under the Indian Income Tax Act. Some key points: - Profits from any business, profession, compensation payments, export incentives, benefits from business, interest from a partnership, and more are taxable under this head. - Deductions are allowed for expenses like rent, repairs, depreciation, research and development, acquiring telecom licenses, and more. - Depreciation can be claimed on buildings, machinery, vehicles and more. Additional depreciation is available for new machinery. - Certain payments must be on a paid basis per Section 43B, like taxes, contributions, bonuses to claim deductions.

1. Profits and Gains of Business
or Profession
Lecture Notes

2. 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

3. 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 o 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.

4. 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.

5. 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)

6. 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.

7. Depreciation
 Deprecation is allowed in respect of
 a) Building
 b) Plant & Machinery
 c) Furniture
 d) Motor Vehicles
 e) Computers
 f) Intangibles

8. 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.

9. 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.

10. 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

11. Expenditure for Obtaining License to operate
Telecommunication Services U/s 35ABB
 Allowed as Deduction equally over the
number of years of Validity of
Licenses

12. 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.

13. 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)

14. 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

15. 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

16. 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.

17. Disallowance u/s 40a
 Interest Royalty Fees for Professional
Services paid outside India without
deducting TDS

18. 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

19. 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

20. 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

21. Remuneration to Partner
 Is allowed upto the following limits
 First Rs 3,00,000 - 90 % or Rs 1,50000
 which ever is high
 Balance - 60 %

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

23.  Contribution to Non Statutory Funds
 Provision for Unapproved Gratuity
Fund

24. 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