Sec. 2(13) defines “business” to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.
Sec. 2(36) defines “profession” to include vocation. i.e. income earned not on the basis of professional degree but also on the basis of inborn talent.
Method of accounting
Sec.145, income under this head shall be computed in accordance with the method of accounting regularly followed by the assessee.
The two recognized methods are Cash system and Mercantile system of accounting.
Sec.43(2) defines the term “paid” to mean actually paid or incurred by the assessee according to the method of accounting upon the basis of which the Profits and gains of business or profession are computed.
CHARGEABILITY Sec. 28
1. Profits or gains of any business or profession carried on by the assessee at any time during the previous year.
2. Profit on sale of import entitlements or EXIM Scrip.
3. Any profit on transfer of duty entitlement pass book scheme/replenishment certificate.
4. Any interest salary, bonus due to or received by a partner of a firm from such firm.
5. Any compensation or other payment due to or received by a person in connection with :-
- Termination or modification of contract
Where an assessee carries on speculative transactions which constitute a business , such business shall be considered as a separate and distinct business.
Speculation transaction mean a transaction in which a contract for purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scrips
COMPUTATION OF INCOME
DEDUCTIONS NOT ADMISSIBLE
· Which are not connected with business.
· Which are related to capital asset
· Loss on sale of shares held as investmen.
· Advance money, being paid for set up a new business which has not commenced.
· Anticipated future losses.
· Loss due to illegal trade practices (infringement of law)
· Not in nature of trading loss unless specific provisions made.
(a) Rent of a building (land revenues, repairs, insurance pre.) excluding capital nature expenses.
(b) Repair & insurance exp. Of machine, plant, furniture.
DEPRECIATION U/S 32
(A) The assessee must be the owner of the asset.
(B) It must be used during the previous year for business.
(C) Allowed on tangible and intangible assets
BLOCK OF ASSETS
Assets which are of same group in terms of rate of depreciation and nature both.
COST OF ASSET
It includes actual cost of acquisition of asset to bring it to that location and also interest up to the date of first use less any amt. reimbursed by any person.
WRITTEN DOWN VALUE
For the A.Y.2009-10 WDV of the asset will be calculated as :-
WDV as on Apr.2008
xxxx (+) additional purchase
xxxx (-) Net sale consideration
xxxx of the
asset sold/discarded/obsolete including
WDV as on Apr.2008 xxxx
(+) additional purchase xxxx
(-) Net sale consideration xxxx
of the asset sold/discarded/obsolete
including scrap value
WDV IN CASE OF SLUMP SALE
When one or more asset transferred on lump sum consideration.
The steps as stated above for calculation of WDV are same except “Net sale consideration”.
In the following conditions for A.Y.
2009-10, depreciation not allowed as deduction, if as on 31 march, 2009 :-
(a) Physically no asset in the block, or
(b) Zero WDV in the block , or
(c) Both (a) & (b)
CALCULATION OF DEPRECIATION
1. It is calculated on WDV as on 31 March, 2009.
2. In case where the asset used for less than 180 days then depreciation will be charged at half of the specified rate
1. Assessee engaged in mfg. or production (listed in XI schedule or not)
2. Acquired and Estabilished a new plant or machinery after 31 March, 2005.
3. Rate of additional depreciation 20%p.a.
4. On the following assets additional depreciation not allowed :
- Which used in india earlier.
- Personal or official asset
- Motor vehicle or road transport vehicle
1. If the amt. of depreciation cannot be adjusted in the previous year total income other than income from salary, such amt. of depreciation is known as unabsorbed depreciation.
2. This amt. may be set off from income of next year other than salary.
Depreciation on Power Generation Plant
1. SLM method used for calculation of depreciation.
2. In case such asset sold in any year, then the balance will charged as terminal depreciation.
- WDV – sale price – scrap value
3. In the following cases terminal depreciation/balancing will be treated as short term capital loss/gain :
- Asset has not used for business purpose (partly/wholly)
- Asset sold in the year in which it is acquired.
4. Balancing charge : In case there is profit on transfer of above asset then up to the WDV of such asset will be taxable and over the same will STCG.
Following are the depreciation rates applicable for A.Y. 2009-10 :
- 05% Non residential
- 10% Others(not in permanent nature, Acq. On or after
sep.2002 for water supply)
Residential - 05%
Non residential - 10%
Others(not in permanent nature, Acq. On or after sep.2002 for water supply)
Furniture - 10%
Plant & Machinery/Motor Car
Any P &M
- 15% Motor Car (not used on hire)
- 15% Ships, high speed vessels
- 20% Buses, taxies,lorries
- 30% Computer or software
- 60% Air/water pollution equip.
Any P &M - 15%
Motor Car (not used on hire) - 15%
Ships, high speed vessels - 20%
Buses, taxies,lorries - 30%
Computer or software - 60%
Air/water pollution equip. - 100%
If acquired after 31 Mar.1998 - 25%
(know-how, patent, copyright-trademark, franchises, license, other rights)
TEA/COFFEE/RUBBER DELEVOPMENT A/c u/s 33AB
1. Assessee engaged in the production and growing of tea, rubber, coffee in India.
2. Amt. deposited in the following a/c’s
- SPECIFIED A/C approved by CG and Board.
3. The amt. should be deposited within six months from the end of previous year or prior to filing of return whichever is earlier.
4. Deductible amt.
- 40% of such income or
- Amt. deposited in such a/c
(whichever is less)
5. The said amt. deposited must be utilized only for the specified purpose, otherwise taxable.
6. In case where the business has been closed then any amt. withdrawn from will be taxable .
7. In the following cases the amount withdrawn is not taxable.
- Death of assesee
- Division of HUF
- Liquidation of companies.
8. If any asset purchased but sold within the year of sale.
SITE RESTORATION FUND U/S 33 ABA
1. Engaged in the working of petroleum, or natural gas.
2. Other rules same as per sec. 33AB.
EXPENSES ON SCIENTIFIC RESEARCH U/S 35
v REVENUE EXPENSES
1. Expenses incurred by assessee
- It is deductible if connected with his own business.
- Any exp. Incurred before 03 yrs. from the commencement of business is deductible in the previous year of business started (salary & material expenses)
v CAPITAL EXPENSES
- These exp. are deductible whether such asset utilized or not in the same year.
- Depreciation u/s 32 has not allowed on such capital asset.
- Cost of land is not the part of scientific research.
- Prior to 03 years all exp. are deductible.
v DONATION TO OUTSIDERS
- assesee to the outsiders will be allowed at 1.25 times of the amt. contributed
- it has been approved by the CG.
- it is not mandatory that such exp. must be related to his own business.
- Nature of exp. is irrelevant.
IN-HOUSE DEVELOPMENT OR RESEARCH EXPENSES
Ø Applicable only for company
Ø Engaged in the production or mfg. of drugs, computer or any other specified product.
Ø Approved and audited.
Ø Deduction allowed at 1.5 times.
In case of inadequate profits or loss then only capital nature expenses will be carried forward as like depreciatiousin.
EXPENSES ON ACQUISITION OF PATENT OR COPY RIGHT U/S 35A
Ø Incurred before Apr.1998.
Ø It is in capital nature.
Ø Deduction allowed in 14 equal installments.
TELE COMMUNICATION LICENCE FEE
Ø Any expenses of capital nature will be deductible in equal installments as per licence period.
Ø If such exp. incurred before commencement of business then for the balance period deduction will be allowed.
Ø Treatment on sale of licence
- If sale consideration is less than unabsorbed expenses then balance will be allowed as deduction.
- If sale consideration is resulted in profit then will taxable under this head.
- Partly sale will resulted in partly deduction or in income.
EXPENDITURE BY WAY OF PAYMENT TO ASSOCIATION & INSTITUTIONS FOR CARRYING OUT RURAL DEVELOPMENT PROGRAMMES U/S 35CCA
Any institution or association approved before Mar.1983 for the above purpose then any contribution will be deductible.
PRELIMINARY EXPENSES U/S 35D
· This deduction is allowed only to Indian company or non-corporate resident assesee only.
· If these expenses incurred after commencement business then it should be related to expansion of business or establishment of new unit.
· Deduction :
ü For corporate assesee :
a) 5% of the cost of project or
b) 5% of the capital invested.
Whichever is higher is deductible in five equal installments.
ü Non-corporate assesee
5% of the cost of project deductible in five equal installments.
· Deduction will be allowed from the year in which the project completed or business commenced.
· Share issue expenses (not bonus issue) will always preliminary expenses.
EXPENDITURE INCURRED ON VOLUNTARY RETIREMENT SCHEME U/S 35DDA
1. Deduction allowed in the year of actual payment made.
2. It is given in five equal installments.
OTHER DEDUCTIONS U/S 36
1. INSURANCE PREMIUM : if actually paid for stock or other loss for business purpose.
2. Health insurance premium paid for their employees if in any form other than cash.
3. Commission or Bonus to employees (actually paid)
4. Interest on capital borrowed which used for business is deductible if actually paid.
5. Amt. borrowed for payment of direct tax, interest thereon is not deductible.
6. Contribution to RPF or annuity fund by employer on actual payment basis.
7. Contribution to approved gratuity fund.
8. Employees own contribution will be taxable in the hands of employer if the same will not deposited within specified date.
9. Amt. of bad debt written off as irrecoverable, the business must be continued.
10. Bad debt connected with scheduled banks.(see para no.81.28)
11. Profits credited in special reserve account (para 81.29)
12. Family planning expenses
- actually incurred by the company is fully deductible.
- But where such expenses are of capital nature then deduction allowed in five equal installments.
- It can also c/f as unabsorbed dep.
13. Advertisement exp. made in the brochure, books published by the political parties are not allowed as deduction.
14. Banking cash transaction tax(BCTT), Goods transaction tax, Security transaction tax (STT) is business exp. and deductible from A.Y.2009-10.
15. LIC, UTI, POST OFFICE,GOVT. SECURITY AGENT, MF AGENT
Ø Where commission less than Rs.60000/= DEDUCTION WILL BE
- For LIC agent
Both(not given sprtly)33.33%
N.D. (maximum Rs.20000)
1. First year 50%
2. Renewal 15%
3. Both(not given sprtly)33.33%
4. Bonus N.D.
- AGENT OF UTI /SPECIFIED SECURITIES/MF 50%
Ø Where commission is more than Rs.60000 then no deduction will be allowed.
GENERAL DEDUCTION U/S 37
1. It is not being part of other section.
2. Not of capital/personal nature.
3. Incurred during previous year.
4. Connected with the business or profession.
EXPENSES NOT DEDUCTIBLE
· Penalties or fine for prohibited acts.
· Fees for increase in share capital.
· Payment for acquisition of goodwill.
· Transfer of regd. Office.
· Payment made to non-resident without deducting TDS.(see para no.82.1.1)
· Fringe benefit tax(FBT), Income Tax. Wealth tax, are not deductible.
· Any amt. paid to relative or to a person of substantial interest (SI)
- Relative – any person
- SI – 20% or more voting power in case companies or profits.
· EXPENSES OVER Rs.20000/=
- Amt. of invoice over Rs.20000.
- Payment made other than account payee cheque or draft.
- Applicable only exp. covered u/s 30 to 37.
Note : the following are not under the ambit of this section :
1. When the amt. of invoice is not over Rs.20000 but total amt. paid over Rs.20000.
2. Where banking facility is not available.
3. The date on which payment made is holiday/strike.
Provision made towards payment for gratuity fund will not be deductible and in case where payment made towards approved gratuity fund.
DISALLOWANCE FOR NON-PAYMENT OF DEBTS U/S 43B
1. This section is applicable when books are kept on due basis.
2. Deduction allowed if the following conditions satisfied :
- Payment made in the p.y. or before the date of filing return.
- Evidence attached with the return of income.
3. This rule is applicable in case where deduction are allowed on actual payment basis.
4. Date of filing return in case of audit – 30 Sep. otherwise 31 July.
1. Any amt. recovered during the previous year which earlier allowed as deduction will be taxable in the year of receipt.
2. If any amt. recovered which earlier allowed as deduction can be set-off with unabsorbed loss of business subject to the following conditions :
- Loss is not connected with speculation purpose.
- Business loss can be set off only of the year of business terminated.
- It can be set off also when the return of loss has not filed in time.
UPKEEP OF BOOKS U/S 44AA
The following persons are need to maintain the books of account :
– if the gross receipt is more than Rs.150000 in any previous year out of three pre. Year, or
– In case new established profession gross receipt will be more than Rs.150000.
- Income over Rs.120000 or the turnover exceeds Rs. ten lakh in any previous year out of preceding three years or
- In case new estabilished business gross receipts or turnover will be more than the aforesaid limit.
SPECIFIED BOOKS OF ACCOUNTS
1. Cash book, ledger.
2. Journal, (in case due basis)
3. sCarbon copies of bill issued over Rs.25.
AUDIT OF BOOKS U/S 44AB
1. Where the gross receipts are more or equal to Rs.40 lac
2. In case of profession, where gross receipt more or equal to Rs.10 lac
3. Where the assessee claim that his total income is less than specified u/s 44AD. 44AE, 44AF.
CIVIL CONSTRUCTION U/S 44AD
1. Civil construction includes construction or repairs of dam, bridge, building etc.
2. Gross receipts does not exceed Rs.40 lac.
3. Total income of business will be deemed at 8% of total receipts.
4. He may claim more income than aforesaid above.
5. No further deduction will be allowed in case sec. 44AD is applied.
PLYING OF TRUCKS, ON LEASE OR ON HIRE U/S 44AE
1. Applicable on those person does not own more than 10 trucks in the previous year.
2. In case heavy goods vehicle then @3500/= p.m. and for others @ Rs.3150/= p.m. per vehicle.
3. Heavy goods vehicles mean to weight more than 12000 kgs.
INCOME OF RETAIL TRADER U/S 44AF
1. Turnover of the assessee does not over Rs.40 lac.
2. Engaged in the business of retail trade.
3. Taxable profits @5% of turnover.
4. No further deduction will be allowed in case sec. 44AD is applied.