PROJECT01

PRAHLADRAI DALMIA LIONS COLLEGE COMMERCE & ECONOMICS
Chapter 01 :- INTRODUCTION OF PROFITS AND GAINS

OF BUSINESS OR PROFESSION
Introduction
“Profit and gains of business or profession” is one of the heads of income under Income Tax. While filing
income tax return, the taxpayer must declare the amount of profits and gains of business or profession. In this
article, we look at the procedure for calculating Profits and Gains of Business or Profession in detail.
List of Incomes Chargeable to Profits and Gains of Business or Profession
The following incomes will be chargeable to income tax under the head “Profits and gains of business or
profession”:
1. Profit and gains of any business which was carried on by the assessee at any time during the previous
year
2. Any compensation or other payment due to or received by:
 Any person in connection with termination/modification of his/her agreement for managing the
whole or substantially the whole of affairs of an Indian company or any other company.
 Any person holding an agency in India for any part of the activities relating to the business of
any other person at or in connection with the termination or modification of the terms of the
agency.
 Any person for or in connection with the vesting in the Government, or in any corporation
owned by or controlled by the Government, under any law for the time being imposed, of the
management of any property or business.
3. Income derived by trade, professional or similar association from specific services performed for its
members. This is an exception to the general principle that a surplus arising to mutual association
cannot be regarded as income chargeable to tax.
4. Export incentives which include:
 Profits on sales of import licenses granted under Imports (Control) Order on account of
exports.
 Cash assistance, by whatever name called, received or receivable against export.
 Duty drawbacks of Customs and Central Excise duties.
 Any profit on the transfer of the Duty Entitlement Pass Book Scheme.
 Any profit on the transfer of the Duty Free Replenishment Certificate.
Profits and Gains From Business or Profession 1

5. Value of any benefit or perquisite, whether convertible into money or not, arising during the course of
the carrying on of any business/profession.
6. Any interest, salary, bonus, commission or remuneration due to or received by a Partner of a Firm from
the firm in which he is a partner.
7. Any sum received or receivable in cash or in kind under an agreement for:
 Not carrying out activity in relation to any business or profession.

 Not sharing any know-how, patent, copyright, trademark, license, franchise or any other
business or commercial right of similar nature or information or technique likely to assist in
the manufacture or processing of goods or services.
8. Any sum received under a Keyman Insurance Policy including the sum allocated by way of bonus on
such policy.
9. Any sum whether received or receivable, in cash or kind, on account of any capital asset being
demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset
has been allowed as a deduction under Section 35AD.
Classifying Income Under Profits and Gains of Business or Profession
In case you weren’t able to find a types of income under the list above, the following conditions can be used to
verify if an income would fall under Profits and gains of business or profession. According to Section 28, the
following are the main clause that requires an income tot be charged under profits and gains of business or
profession:
1. There should be a business or profession.

2. The business or profession should have been carried on by the assessee.
3. The business or profession should be carried on for sometime during the previous year.
4. The charge is in respect of the profits and gains of the previous year of the business or profession.
5. The charge extends to any business or profession carried on.
Under Section 28, one of the main aspects on determining if an income must be classified under profits and gains
of business or profession is that if a business was carried on by the assessee at anytime during the previous year.
It is however, not necessary that the business be carried out throughout the previous year or till the end of the
previous year.
Other Income Classified as Profits and Gains of Business
There are certain exceptions to the above rules. The following incomes must be classified under Profits and
Gains of Business, even if a business was not carried on by the assessee during the previous year.

 Recovery against any loss, expenditure or trading liability earlier allowed as a deduction.
 Balancing charge in case of electricity companies.
 Sale of capital asset used for scientific research.
 Recovery against bad debts.
 Amount withdrawn from Special Reserve.
 Receipt of discontinued business under cash system of accounting.

CHAPTER 02:- MEANING OF BUSINESS
WHAT IS MEANING OF BUSINESS
Business
A business is an organization where people work together. In a business, people work to make
and sell products or services. Other people buy the products and services. The business owner is the person who
hires people for work. A business can earn a profit for the products and services it offers. The
word business comes from the word busy, and means doing things.
Originally, individual trades people were qualified, and they hired assistants. The invention of the joint-
stock company meant a new era in business.[1] By this means, some people put up the money as capital, and
others used it to run the business. There is a law which says this kind of company is a "legal entity": it has a legal
life separate from its owners or shareholders. In this way, a company can outlive the people who started it. This
idea was invented in medieval times, but really flowered in the 19th century.[2] It has spread around the world
since then.
Most businesses are created for commerce. There are big and small businesses. For example, one person can
open a small barber-shop. A big business, like Microsoft, employs thousands of people all over the world.
Some businesses need fixed locations. Examples are an office, store, or farm. For some businesses the worker
goes to different locations. Examples are carpenters or electricians. They usually bring everything they need for
work in their truck.
Business can also mean the work or current state of a business. A business owner might say: "I am doing a lot of
business" or "My business is good" or "Business is bad".
The term can also be used in a more general way. As a noun, it can be used, for example, to speak about a broad
area of activity

Chapter 03:- MEANING OF PROFESSION
WHAT IS MEANING OF PROFESSION
PROFESSION
A profession is something a little more than a job, it is a career for someone that wants to be part of society, who
becomes competent in their chosen sector through training; maintains their skills through continuing professional
development (CPD); and commits to behaving ethically, to protect the interests of the public.
We all rely on professionals at many points of our lives – from dentists to teachers, from pension managers to
careers advisers, from town planners to paramedics. We rely on professionals to be experts and to know what to
do when we need them to.
Back in the nineteenth century, the professions were defined as law, religion, and medicine. Nowadays, the
number of professions is much wider and ever-increasing, as occupations become more specialised in nature and
more ‘professionalised’ in terms of requiring certain standards of initial and ongoing education – so that
anything from automotive technicians to web designers can be defined as professionals.

Chapter 04:- MEANING OF PROFIT OR GAIN
WHAT IS MEANING OF PROFIT OR GAIN
Profit
Profit is a financial benefit that is realized when the amount of revenue gained from a business activity
exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the
business's owners, who may or may not decide to spend it on the business. Profit is calculated as
total revenueless total expenses.
Gain
Gain also called a capital gain, is an increase in the value of an investment. It is the difference between the
purchase price (the basis) and the sale price of an asset.
Thus the formula for gain is:
Sale Price - Purchase Price = Gain
Note that this formula assumes the sale price is higher than the purchase price. If an investor sells an asset for
less than he or she paid, this is called a loss.
HOW IT WORKS (EXAMPLE):

Let's assume you purchase 100 shares of Company XYZ for $1 per share. After three months, the share price
increases to $5. This means the value of the investment has increased from $100 to $500, for a gain of $400.
WHY IT MATTERS:
Gains are taxable, but only when they are realized. That is, they only become taxable when the asset is sold.
Until that point, any gains are considered unrealized and are not taxable. The IRS considers nearly every asset
owned by individuals and companies as capital assets and thus subject to capital gains taxes.

Chapter 05:- THE DIFFERENCE BETWEEN GAIN AND

PROFIT
What is the difference between gain and profit?
Basically, the word profit and gain is used differently, Profit is used to describe the surplus arrived
from any business/professional activity whereas gain is generally used to describe any surplus derived
from the sale of any asset or investment.
If you study chargeability section under the head PGBP or Profits and Gains from Business and
Profession there are many incomes which are “gains” such as Surplus from the sale of Import License,
Surplus from the sale of depreciable assets (in case of power generating units) etc.
Similarly, if you check the chargeability section under the head Capital Gains it clearly states that “any
profit or gain arising from the Sale or Transfer of a Capital Asset”
That’s the reason the lawmakers have called it Profits and Gains from business and profession because
the charging section under that head included both profits and gains from business activities as
described under that.
profit: Income derived from the regular business activity,by deploying caplital labour and time.In other words it
is the return on the capital employed after deducting all working capital and fixed expenses. usually appears on
the liabilities side of the balance sheet.
Gain: Income derived on investment over a period of time time not falling under regular business activity.it the
return derived on investment.

Chapter 06:- THE SECTIONS UNDER PROFIT AND GAINS

FROM BUSINESS OR PROFESSION
Profit and gains from business or profession

SECTIONS CONTENTS
28 Income chargeable as ‘PGBP’
29 Computation sheet of ‘PGBP’
30 Deduction for expenses in relation to Building
31 Deduction for expenses in relation to Plant, Machine and furniture
32(1)(i) Depreciation by SLM for Electricity Company
32(1)(ii) Depreciation by WDV for Other assessee
32(1)(iia) Deduction for Additional Depreciation for Manufacturing concern
32(1)(iii) Deduction for Terminal Depreciation (under SLM)
32(2) Deduction for unabsorbed depreciation
33AB Special Deduction for Tea Growing and Manufacturing Concern
33ABA Deduction for Site Restoration Fund
35 Deduction for the activities of Scientific Research
35A Deduction for Expenses on Patent and copy right (Old provision)
35ABB Deduction for acquisition of Tele communication license
35AC Deduction in respect of eligible project
35AD Deduction in respect of expenditure on specified business
35CCA Deduction in respect of donation to ‘RDP’ or NUEF’
35D Deduction for preliminary expenditure
35DD Deduction for expenses on Amalgamation and demarger
35DDA Deduction for payment on VRS to employee
36(1) Other (Revenue) deduction
37(1) General deduction
37(2B) Disallowance of payment to political party
38 Disallowance of expense on assets not wholly for business
40(a) Certain Expenditure disallowed
40(b) Remuneration and Interest allowed to Partner from Firm
40A(2) Disallowance of payment made to related party
40A(3) Disallowance @ 20% on Certain Cash payment
40A(7) Disallowance of provision for Gratuity
41(1)/(2)/(3)/(4) Certain income chargeable to tax as ‘PGBP’
43(1) Actual cost of Depreciable asset under different situation
43(6) Meaning of WDV for charging depreciation on WDV method
43B Certain expenses allowed on payment basis only
44AA Requirement of Maintenance of Books of Accounts
44AB Requirement of Tax Audit
44AD/AE/AF Presumptive Taxations
50 Capital Gains on Depreciable Asset (WDV method)
50A Capital Gains on Depreciable Asset (SLM method)
145 Method of Accounting (Cash or Mercantile system)

Sec 28- chargeability

The following incomes shall be chargeable to tax under the head “Profit & Gains from Business or
Profession”
1) Profit and gains of any business or profession carried on by the assessee during the previous
2) year.
3) Income of any trade or professional association from specific services performed to its
4) members.
5) Profit on sale of import entitlements license or EXIM scrip.
6) Cash assistance [CCS]
7) Duty drawback
8) The value of any benefit or perquisite arising from any business or profession.
9) Any interest, salary, bonus, commission or remuneration received/due to a partner from
10) Moolpartnership firm.
11) Any sum received under an agreement for
 not carrying out any activity in relation to any business or
 not sharing any Know-how, patent, copyright, trade-mark, license, franchise or any other
business or commercial right of similar nature or information or technique likely to assist in the manufacture or
processing of goods or provision for services.
Note: Where above receipts are chargeable to tax under the head “Capital Gain” would not be taxable as profits
and gains of business or profession.
9) Any sum receives under Key man insurance policy.
10) Profits and gains derived from any Speculation business are also chargeable to tax under the head „PGBP‟.
But as per explanation 2 to section 28, the speculation business shall be deemed to be transaction in which the
following conditions are satisfied:-
(a) The Transaction should be a contract for the purchase or sale of stocks, shares or commodities,
(b) This contract is periodically or ultimately settled ; and
(c) The settlement would not be by actual delivery or transaction or commodities or script, generally, it is
settled through exchanging the difference in prices on the date of delivery.
11) any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than
land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the
whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD;
[Sec 28(vii)]

SEC 29 - Method of calculating taxable profit:

Preparing a statement of profit or loss or income-expenditure adjustment:-
The profit and loss account or income and expenditure account as prepared by an assessee is adjusted as per
previous of the Income-tax Act, Profits or losses as shown by any of these accounts are adjusted as follows:-
Balance as per profit and loss or Income - expenditure account
Add:
(i) Expenses expressly disallowed but debited to P& A/c
(ii) Expenses not allowed but debited to P&L A/c
(iii) Incomes or receipts taxable under this head but not credited to P& L A/c
(iv) Capital expenses debited to P & L A/c
(v) Personal expenses debited to P & L A/c
(vi) Expenses in excess of the allowed amount, debited to P & L A/c
(vii) Losses not allowed but debited to P & L A/c
(viii) Expenses not relating to the previous year but debited to P & L A./c
(ix) Under-valuation of closing stock or over-valuation of opening stock
Less:
(i) Expenses expressly allowed but not debited to P & L A/c
(ii) Expenses relating to the previous year but not debited to P & L A/c
(iii) Losses allowed but not debited to P & L A/c
(iv) Incomes or receipts not taxable under this head but credited to P & L A/c
(v) Capital receipts credited to P & L A/c
(vi) Incomes or receipts taxable under other head but credited to P & L A/c
(vii) Over-valuation of closing stock or under-valuation of opening stock
(viii) Profits taxable under the head incomes from business or profession.

SEC 30 - Rent, Rates, Taxes, Repairs and insurance for building
In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or
profession, the following deductions shall be allowed—
(a) where the premises are occupied by the assessee—
(i) as a tenant, the rent paid for such premises ; and further if he has undertaken to bear the cost of revenue
repairs to the premises, the amount paid on account of such repairs ;
(ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises ;
(b) any sums paid on account of land revenue, local rates or municipal taxes ;
(c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the
premises.
Expenditure incurred by :
 Tenant Rent, Revenue Repairs

 Owner Revenue Repairs
SEC 30 - Repairs and insurance of machinery, plant and furniture.

In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or
profession, the following deductions shall be allowed—
(i) the amount paid on account of current repairs thereto;
(ii) the amount of any premium paid in respect of insurance against risk of damage or destruction
thereof.
SEC 32(1)(i) - Depreciation for Power Generating undertakings
1) The undertaking engaged in the business of generation or generation and distribution of power, have the
option to claim depreciation on
 SLM on each asset or

 WDV on block assets.
2) Provision in respect of assets put to use less than 180 days shall be the same as block of assets.
3) The aggregate amount of depreciation allowed shall not exceed the actual cost of the asset.

4) It is open to such an undertaking to opt the depreciation under WDV method.
5) Where the option is not exercised, the depreciation shall be allowed on the basis of SLM.
SEC 32(1)(ii) - Depreciation on WDV Method

In respect of
Tangible [Building, plant & machinery & furniture]
Intangible [Know-how, copyright, trademark, franchises etc.]
 Assets owned wholly or partly by the assessee

 And used for the purpose of business
 Depreciation shall be allowed on WDV
 Of the “Block Of Assets”
 At the prescribed percentage.
SEC 32(1)(iii) -Terminal Depreciation
Where an asset on which depreciation has been claimed u/s 32(1)(i) and which is sold, destroyed or discarded;
and
If [Sales Consideration] < [Actual cost - Depreciation allowed]
then, difference between above two factors shall be allowed as terminal depreciation in the previous year in
which it is sold; destroyed or discarded.
SEC 32(2) - Set off and carry forward of Unabsorbed depreciation
 The current year depreciation shall be set off against the income from „PGBP‟ and the balance, if any,
against the income under any head for that P.Y.
 Depreciation which cannot set off shall be carried forward to the next AY and set off against the
income from PGBP and the balance if any against the income under any heads of income.
Note: - The unabsorbed depreciation can be C/F for indefinite period.

SEC 33AB - Tea Development Account, coffee development account and

rubber development account .
(1)
 If an assessee who is carrying on the business of growing and manufacturing tea or coffee or rubber in
India
 has deposited any amount with National Bank ( special account ) under a scheme approved by Tea
Board or the Coffee Board or the Rubber Board ; or
 deposited any amount in “Tea Deposit Account” opened under the scheme approved by Tea Board (
deposit scheme ) with previous approval of Central Government.
before the expiry of 6 months from the end of the previous year or before the due date of furnishing the return of
his income, whichever is earlier.
 then he shall be liable to allowed a deduction of amount, equal to:- Amount Deposited
or
40% of PGBP before allowing 33AB whichever is lower
(2) The account should be audited by a Chartered Accountant and certificate should be filed along with return of
income.
(3) Any amount standing in the special account or the Deposit Account shall not be allowed to be withdrawn
except for the purposes specified in the scheme or, in the circumstances specified below:-
(a) Closure of the business.
(b) Death of assessee.
(c) Dissolution of partnership firm.
(d) Partition of HUF.
(e) Liquidation of company.
(4) where any amount standing to the credit of the assessee in the special account or in the Deposit Account is
released during any previous year by the National Bank or withdrawn by the assessee from the Deposit Account
and such amount is utilised for the purchase of—
(a) any machinery or plant to be installed in any office premises or residential accommodation;
(b) any office appliances (not being computers);
(c) any machinery or plant, the whole of the actual cost of which is allowed as a deduction;

The whole of such amount so utilised shall be deemed to be the profits and gains of business of that previous
year and shall accordingly be chargeable to income-tax as the income of that previous year.
(5) Where any amount, standing in the special account or in the Deposit Account, is withdrawn during any
previous year by the assessee in the circumstance specified in clause (a) or clause (c) of sub-section (3),
the whole of such amount shall be deemed to be the profits and gains of business or profession of that previous
year.
(6) Where any amount, standing in the special account or in the Deposit Account, which is released during any
previous year is not so utilised, within that previous year, such amount which is not so utilised shall be deemed
to be profits and gains of business of that previous year.
(7) If any asset acquired in accordance with the scheme is transferred in any previous year before the expiry of 8
years from the end of the previous year such part of the cost of asset shall be deemed to be the PGBP of the
previous year in which asset is transferred except in the following cases:-
SEC 33ABA - Site Restoration Fund
 If an assessee who is carrying on business, consisting of prospecting or extracting or

production of petroleum or natural gas in India
 and in respect of which the Central Government has entered into an agreement with
the assessee.
 and the assessee has before the end of the previous year deposited with
(a) State Bank of India in a scheme approved by Ministry of Petroleum and Natural Gas ;or
(b) Site Restoration Fund account
 then, the assessee shall be liable to allowed a deduction of amount equal to Amount
Deposited 20% of current year profit of such business
 Rest provisions are same as section 33AB
SEC 35 - Expenditure on Scientific Research

In respect of expenditure on scientific research, the following deductions shall be allowed.
Sec. 35(1)
1. Revenue expenditure related to business, however, any revenue expenditure has been incurred before the
commencement of the business within the 3 years immediately preceding the date of commencement of
business, shall be allowed as deduction in P/Y in which business is commenced, to the extent certified by the
prescribed authority.

2. Capital expenditure on S/R related to business. However, no deduction is admissible in respect of expenditure
incurred on acquisition of any land.
3. Where any capital expenditure is incurred before the commencement of the business, within the 3 years
immediately preceding the commencement of business shall be allowed as deduction in the P/Y in which the
business is commenced.
SEC 35ABB - Expenditure for Obtaining license to Operate

Telecommunication Services.
In respect of any capital expenditure incurred for acquiring any right to operate telecommunication services and
for which payment has actually been made to obtain a license, shall be allowed as deduction in equal instalments
during the number of years for which the license is in force.
Note:- If the payment is made before the commencement of business, the deduction shall be allowed
commencing from the year of commencement of business; and in any other case, the deduction shall be allowed
commencing from the year of payment.
SEC 35AC - Expenditure on eligible projects or schemes
(1) Where an assessee incurs any expenditure by way of payment to Public Sector Company or a local authority
or to an association or institution approved by the National committee for carrying out any eligible project or
scheme, the assessee shall be allowed a deduction of the amount of such expenditure.
(2) The company may, for claiming the deduction, incur expenditure either by way of contribution as aforesaid
or directly on the eligible project or scheme.
Note:- “eligible project “or scheme” means such project or scheme for promoting the social and economic
welfare of, or the uplift of, the public as the central Government may, by notification in the Official Gazette,
specify in this behalf on the recommendations of the National Committee.
(3) The deduction u/s 35AC shall not be allowed unless the assessee furnishes along with his ROI a certificate -
in Form no. 58A from the entity in respect of contribution made.
In case where the expenditure is directly incurred (only for co.), a certificate from the
Chartered Acc
35AD - Deduction in respect of expenditure on specified business

1. Section 35AD provides 100% deduction in respect of the any capital expenditure (excluding Land, Goodwill
and Financial Instruments) incurred by assessee engaged in specified business, during the previous year in which
such expenditure is incurred.
Specified Business:—
(a) setting up and operating cold chain facilities for specified products;
(b) setting up and operating warehousing facilities for storage of agricultural produce;

(c) laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution,
including storage facilities being an integral part of such network.
2. The benefit will be available
(a) in a case where the business relates to laying and operating a cross country natural gas pipeline network for
distribution, if such business commences its operations on or after the 1st day of April, 2007 and
(b) in any other case, if such business commences its operation on or after the 1st day of April, 2009.
3. This section applies to the specified business which fulfills all the following conditions, namely :—
(i) it is not set up by splitting up, or the reconstruction, of a business already in existence;
(ii) it is not set up by the transfer to the specified business of machinery or plant previously used for any
purpose;
(iii) where the specified business is of the nature of poin (c),—
(a) it is owned by a Indian company;
(b) It has been approved by the Petroleum and Natural Gas Regulatory Board;
(c) It has made not less than such proportion of its total pipeline capacity as specified by regulations made by the
Petroleum and Natural Gas Regulatory Board established under sub-section (1) of section 3 of the Petroleum and
Natural Gas Regulatory Board Act, 2006 available for use on common carrier basis by any person other than the
assessee or an associated person; and
4. The assessee shall not be allowed any deduction in respect of the specified business under the provisions of
Chapter VIA;
5. No deduction in respect of the expenditure in respect of which deduction has been claimed shall be allowed to
the assessee under any other provisions of the Income-tax Act.
6. Any sum received or receivable on account of any capital asset, in respect of which deduction has been
allowed under section 35AD, being demolished, destroyed, discarded or transferred shall be treated as income of
the assessee and chargeable to income tax under the head “Profits and gains of business or profession”.
7. Any loss computed in respect of the specified business shall not be set off except against profits and gains, if
any, of any other specified business. To the extent the loss is unabsorbed the same will be carried forward for set
off against profits and gains from any specified business in the following assessment year and so on.
“cold chain facility” means a chain of facilities for storage or transportation of agricultural and forest produce,
meat and meat products, poultry, marine and dairy products, products of horticulture, floriculture and apiculture

and processed food items under scientifically controlled conditions including refrigeration and other facilities
necessary for the preservation of such produce;
SEC 35CCA - Deduction in respect of donation to ‘RDP’ or NUEF’

Expenditure by way of payment to associations and institutions for carrying out rural development program
where an assessee incurs any expenditure by way of contribution made to approved association/institution for
implementation of rural development program and contribution to:-
(i) National fund for Rural Development
(ii) National Urban poverty Eradication fund,
The assessee shall be allowed a deduction of the amount of such expenditure incurred during the previous year .
SEC 35D - Deduction for Preliminary Expenditure
Where an Indian company or resident non corporate assessee incurs any expenditure on SPECIFIED
PURPOSES,
(i) before commencement of his business, or
(ii) after commencement of his business , IN CONNECTION WITH EXTENSION OF HIS INDUSTRIAL
UNDERTAKING OR IN CONNECTION WITH SETTING UP NEW INDUSTRIAL UNIT.
Cost of Project means: actual cost of fixed assets on the last day of P/Y in which business is commenced.
Capital Employed means: Share capital + Debentures + Long term borrowings as on the last day of P/Y in
which the business is commenced.
Specified Purposes for Sec. 35D
The expenditure on specified purposes means the following expenditure incurred on:-
(i) Preparation of Feasibility report / Project report.
(ii) Conducting Market survey or any other survey necessary for the business.
(iii) Legal charges for drafting any agreement/registering the co.
(iv) Legal charges of drafting MOA/AOA
(v) Printing of MOA/AOA
(vi) In connection with the issue, for public subscription of shares or debenture, underwriting commission.
(vi) Engineering services relating to the business of the assessee.
Provided that the work in connection with the preparation of the feasibility report or the project report or the
conducting of market survey or of any other survey or the engineering services referred to in this clause is
carried out by the assessee himself or by a concern which is for the time being approved53 in this behalf by the
Board;

SEC 35 DD - Expenditure on Amalgamation / Demerger
Where an Indian company, incurs any expenditure for the purpose of amalgamation or demerger of an
undertaking, the assessee shall be allowed a deduction of an amount equal to 1/5th of such expenditure for five
years.
SEC 35DDA - Expenditure incurred on compensation under VRS
Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee in
connection with his voluntary retirement, in accordance with any scheme or schemes of voluntary retirement,
one-fifth of the amount so paid shall be deducted in computing the profits and gains of the business for that
previous year, and the balance shall be deducted in equal instalments for each of the four immediately
succeeding previous years.
SEC. 35E - Deduction for expenditure on prospecting etc. for certain

minerals
If an Indian company or a resident non-corporate assessee incurs some expenditure, wholly and exclusively in
prospecting for any mineral specified in the seventh schedule (Part A or Part B) or on development of a mine or
other natural deposit of any such mineral, such expenditure shall be allowed as deduction in 10 equal annual
instalments beginning with the previous year in which commercial production of mineral begins. The
expenditure eligible for the deduction must be incurred during 5 years period ending with the year of
commercially production.
But if any portion of such expenditure is met directly or indirectly by any other person or authority and any sale,
salvage, compensation of insurance money is realised by the assessee in respect of any property or right brought
into existence as a result of such expenditure, the amount of expenditure so met or so realised shall not be
allowed as deduction. Thus, deductible expenditure shall be the total expenditure incurred minus the expenditure
so met or so realised.
SEC 36(1) - Other Deduction
The following deductions shall be allowed u/s 36 :-

(i) Fire insurance premium against the risk of damage of stocks;
(ii) Any insurance premium paid by paid by any mode of payment other than cash by an employer on the health
of employees;

Note 1:- Insurance paid on the life of partners is not allowed. It is a personal expenditure.
Note 2:- Insurance premium paid under the KEYMAN INSURANCE POLICY will be allowed u/s 37(1).
(iii) Any sum paid to an employee as bonus or commission;
Note: - There is no restriction on the amount of bonus. It may exceed the payment under bonus Act.
(iv) The amount of interest paid in respect of capital borrowed for the purposes of business or profession;
(v) Discount on „ZERO COUPON BOND‟ will be deductible on pro rata basis.
(vi) Employer‟s contribution to RPF or approved superannuation fund.
(vii) Employer‟s contribution to approved gratuity fund.
(viii) Any sum received by the assessee u/s 2(24)(x) will be allowed as deduction only if such amount is credited
to the employee account in relevant fund on or before the date prescribed under such fund.
Employee‟s contribution to Provident Fund, Superannuation fund and other fund for the welfare of
Employees.
Sec 2(24)(x) :- Income includes any sum received by the assessee from him employee as contributions to any PF
or SAF or any fund set up under the provisions of Employees‟ State Insurance Act or any other fund for the
welfare of the employee.
(ix) In respect of animals, which are used for the purpose of business or profession and have died, the actual cost
less amount realised on the sale of animal is allowable as deduction.
(x) The amount of any bad debt which is written off as irrecoverable in the accounts of the assessee for the
previous year;
Conditions:-
a. Particular debtor should be write off; and
b. Amount of debts has been treated as income in the year of written off or earlier year.
Note 1:- condition no. (b) is not applicable for Banking Co. or Financial institution.
Note 2:- Provisions for bad debts is not allowed.
(xi) Any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its
employees

Provided that where such expenditure or any part thereof is of a capital nature, one-fifth of such expenditure
shall be deducted for the previous year in which it was incurred; and the balance thereof shall be deducted in
equal instalments for each of the four immediately succeeding previous years
(xii) Securities Transaction Tax in respect of the taxable securities transactions entered into in the course of his
business will be allowed.
SEC 37(1) - General Deduction
Any expenditure other than specifically mentioned in Sec. 30 to 36 shall allowed as deduction, if the following
conditions are satisfied.
a) It is not in the nature of capital expenditure;
b) It is not in the nature of personal expenses of the assessee, and
c) It is laid out wholly and exclusively for the purpose of the business of the assessee;
d) It should not have been incurred for any purposes, which is an offence or is prohibited under any law.
SEC 37 (2B) - Disallowance of payment to political party
According to this section, any expenditure incurred by an assessee on advertisement in any souvenir, broacher,
tract, pamphlet or the like, published by a political party is not allowed.
Note : - Donation to political party is not allowed as deduction.
SEC 40(a) - Expenses Expressly Disallowed
The following amounts shall not be deducted in computing the income chargeable under the head Profits and
gains of business or profession,
(i) in the case of any assessee, any interest, royalty, fees for technical services or other sum chargeable under
this Act, which is payable,
(A) outside India; or
(B) in India to a non-resident,
On which TDS is deductible and such TDS has not been deducted or, after deduction, has not been paid
within time allowed in TDS chapter. Provided that where in respect of any such sum, TDS has been deducted in
any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry
of the time prescribed, such sum shall be allowed as a deduction in computing the income of the previous year in
which such tax has been paid.
(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical
services payable to a resident, or amounts payable to a contractor or subcontractor, being resident, for
carrying out any work (including supply of labour for carrying out any work), on which TDS is deductible

and such TDS has not been deducted or, after deduction, has not been paid on or before the due date of ITR;
or Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been
deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such
sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been
paid.
(ii) Income tax paid or Provision thereof is not allowable;
(iia) Wealth tax paid is not allowable;
Note1:- Valuation fees paid for getting the valuation of assets for the purpose of Wealth tax/Income tax is
ALLOWABLE as revenue expenses u/s 37(1).
Note2:- Litigation exp. in relation to income tax cases and tax audit fees is allowable expenditure u/s 37(1).
(iii) any payment which is chargeable under the head Salaries, if it is payable
(A) outside India; or

(B) to a non-resident,
and if the TDS has not been paid thereon nor deducted therefrom.
(v) Any tax paid by an employer referred to in section 10(10CC) will not be allowed.
SEC 40 (b) - Interest and Remuneration to partners
(1) Payment of salary, bonus, commission (called as remuneration) is to a working partner, will be allowed
as under,
Conditions for allowance of remuneration:-

(a) The payment should be authorised by partnership deed.
(b) It should be for the period falling after the date of the partnership deed.
(c) The payment should be made to working partners
(2) The payment of interest to a partner (whether working or non-working) will be allowed to the extent of
12% per annum simple interest.
Conditions for allowance of Interest

(i) The payment should be authorized by the partnership deed
(ii) The payment of interest should relate to a period falling after the date of partnership deed.

Explanation 1 to sec. 40 (b):-

Where an individual is a partner in a firm on behalf of any other person as a representative capacity, then,
 The interest paid to such individual as representative capacity will be allowed to the extent specified
in sec.40 (b)
 The interest paid to such individual as otherwise than representative capacity will not be taken into
consideration for sec.40 (b).
Explanation 2 to sec. 40 (b):-

Where an individual is a partner in a firm as otherwise than representative capacity, the interest paid to such
individual by firm to such individual shall not be taken into consideration for sec. 40 (b), if such interest is
received by such individual on behalf of any other person.
SEC 40A (2) - Payment to Specified Persons
Where the assessee incurs any expenses in respect of which,

 Payment had been made to certain specified person
 the A.O. may disallow so much of the expenses,
 as he considers to be unreasonable having regard to the,
 FMV of goods or services.
SEC40A (3) - Cash expenditure exceeding Rs. 20,000
Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a
person in a day, otherwise than by an account payeee cheque or account payeee bank draft, exceeds Rs. 20,000,
no deduction shall be allowed in respect of such expenditure.
SEC 40A (3A):-
Where an allowance has been made in the assessment for any year in respect of any liability incurred by the
assessee for any expenditure and subsequently during any previous year, the assessee makes payment in respect
thereof, otherwise than by an account payee cheque or account payee bank draft, the payment so made shall be
deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income
of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty Rs.
20,000:
Provided that no disallowance shall be made under sub-section (3) and (3A), in such cases and under such
circumstances as may be prescribed (Rule 6DD).
SEC 40A (7) - Provision for Gratuity will not allowed

No deduction shall be allowed in respect of any provision made for gratuity.

Exceptions:-
1) Payment towards an approved gratuity fund is allowed subject to Sec. 43B.
2) Provision for gratuity actually became payable during the P/Y.
Note:1- Contribution to unapproved gratuity fund is not allowed.

Note:2- If a policy is taken from LIC to provide for gratuity of employees, the actual premium paid is allowed as
revenue expenditure u/s 37 (1).
SEC 41(1) - Profit Chargeable to Tax
(a) Where any loss or expenditure has been allowed as deduction and subsequently any amount is received, then
the amount so received shall be deemed to be the Income of the P/Y in which such amount is received.
(b) Where a deduction has been allowed in respect of a trading liability and subsequently there is a remission or
cessation of the trading liability then the amount of trading liability so ceased shall be deemed to be the income
of the P/Y in which such remission or cessation took place.
The above provisions shall apply even if the business is not in existence
SEC 41(2) - Balancing Charge
Where an asset on which depreciation has been claimed u/s 32(1)(i) and which is sold, destroyed or discarded;
and
If [Sales Consideration] > [Actual cost - Depreciation allowed]
Then, least of following will be treated as income from PGBP Balancing Charge. as
 Cost less WDV
 Sales considerations less WDV
SEC 41(3) - Capital Gain on the Transfer of Scientific Asset
Where the scientific research asset has been sold without having been used for other purposes, then least of
following shall be charged under PGBP in the year of sale.
I. Sale proceeds
II. Deductions u/s 35
This shall apply even if the business is not in existence.

Notes:- If the scientific research asset sold without having been used for other purpose, AND
Sales Proceeds “more than Actual Cost “
Then; sales proceeds Less Indexed COA/COA = Capital Gains
In respect of the unabsorbed capital expenditure on scientific research, the provisions of set off and carry
forward will be applied in the same manner as that of unabsorbed depreciation. [Sec 35(4)]
SEC 41 (4) - Recovery of bad debts

Where a deduction has been allowed in respect of bad debts and the bad debts is subsequently recovered,
then the amount so recovered shall be deemed to be the income of P/Y in which the amount is recovered.
This shall apply even if business is not in existence.
SEC 43(1) - Actual Cost
“Actual cost” means the actual cost of assets to the assessee, reduced by that portion of cost thereof, if any as
has been met directly or indirectly by any other person or authority.
Explanation 1 to Section 43(1) :-
Where an asset is used in the business after it ceases to be used for scientific research the actual cost of the asset
will be reduced by the amount of deduction u/s 35(1). In other words, actual cost of assets for the purpose of
depreciation after the end of use in scientific research shall be taken nil.
SEC 43(6) - Written down value [WDV]
Opening WDV of the block XXX

Add : Actual cost of assets acquired and put to use XXX
during the previous year.
Less: Money payable‟ in respect of any assets (XXX)
which is sold, discarded or destroyed
WDV for the purpose of depreciation XXX
Less: depreciation at the prescribed percentage (XXX)
Closing WDV of the block XXX
Note: - Money payable means only cash/cheque/bank overdraft etc.

SEC 44A - Special provisions regarding Mutual Concern
Mutual Concern
Trade/Professional Other
Specific services to General services to General/ Specific General/ Specific General/ Specific
members members services to non- services to services to non-
members members members
taxable exempt taxable exempt taxable
Note : - The tax rate applicable to a mutual concern shall be the same as applicable to an individual (except
where the Mutual Concern is incorporated as a company).
SEC 44AA - Maintenance of Accounts by certain persons carrying on

profession or business.
(1) Any assessee carrying on business or profession other than the profession notified under Rule 6F, the books
of accounts are required to be maintained, If,
(a) Where income from business or profession exceed Rs.120000 in any of the 3 preceding previous year or
likely to exceed during current year,
OR
(b) Where the turnover or sales or gross receipts exceed Rs.10 lacs in any of the preceding 3 year or likely to
exceed during the current year,
OR
(c) Where the assessee has claimed lower income than as prescribed u/s 44AE/44BB/44BBB.
OR
(d) where the assessee has claimed such income to be lower than as prescribed u/s 44AD and his income exceeds
the maximum amount which is not chargeable to income-tax during such previous year.”.
Note:- The assessee whose covered above are required to maintain such books of account and documents as may
enable the A.O. to compute the total income in accordance with the provisions of the Income Tax Act, 1961.
(2) Any assessee carrying on the profession of law, medicine, accountancy, architecture, interior decoration,
authorised representative, film artist, engineering, technical consultancy or IT,
the specified books of account are required to be maintained,
If,
the gross receipts have exceeds Rs.1,50,000 in all the 3 P.Y. immediately preceding the PY or is likely to exceed
Rs.1,50,000 during the current previous year (where the profession is newly setup)

Specified Books to be maintained:-

(a) Cash book
(b) Ledger
(c) Journal
(d) Bills and vouchers in respect of expenses incurred
(e) Copies of bills issued exceeding Rs.25
(f) For medical practitioner, the following additional books are to be maintained:-
 Daily case register (Form 3C)
 Medicine Inventory Register
Note:- The above books of account are required to be kept at the principal place of business and for a period of 6
years from the end of the relevant A.Y.
SEC 44AB - Tax Audit
Every person,
(a) Carrying on business shall, if his total sales, turnover or gross receipts as case may be, in business exceeds
Rs.60 lakhs in any P.Y. OR
(b) Carrying on profession shall, if his gross receipts in profession exceeds Rs.15 lakhs in any P.Y. OR
(c) Carrying on the business referred to in Sec. 44AE and claiming his income from any such business to be
lower than the income computed in accordance with relevant section;
(d) Where the assessee has claimed such income to be lower than as prescribed u/s 44AD and his income
exceeds the maximum amount which is not chargeable to income-tax during such previous year.”
get his accounts of such relevant previous year audited by a chartered accountant before the specified date and
the audit report obtained under this provision is required to be furnished by that date.
Notes:-
(1) Specified date means 30th September of the relevant A.Y.
(2) This section does not apply to persons who derived income referred u/s 44B or 44BBA.
(3) In case of an agent who earns only commission income, the audit of account is required only if the gross
commission exceeds Rs. 60 lakhs.

(4) Consequence of non-compliance of sec. 44AB.

(i) Defective return: - where the audit report obtained u/s 44AB is not filed along with the return of income
then the A.O. may treat the return as defective return.
(ii) Penalty u/s 271B:-
@ 0.5% of the gross turnover or Rs.1,50,000, whichever is less.
(5) The audit report shall be submitted in the following forms:-

(i) In case of a person who carries on business or profession and who is required by or under any law to get
his accounts audited
* Audit Report  Form No. 3CA
* Statement particulars  Form No. 3CD
(ii) In case of person who carries on business or profession but not being a person referred to point no. (i)
* Audit Report  Form No. 3CB
* Statement particulars  Form No. 3CD
SEC 44AD - Deemed income from “Eligible business”
(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible
assessee engaged in an eligible business, a sum equal to 8% of the total turnover or gross receipts of the assessee
in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum
claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business
chargeable to tax under the head “Profits and gains of business or profession”.
Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this
section.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section
(1), be deemed to have been already given full effect to and no further deduction under those sections shall be
allowed;
Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted
from the income computed under sub-section (1) subject to the conditions and limits specified in section 40(b).
(3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if
the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for
each of the relevant assessment years. FCA Ranjeet K unwar
(4) The provisions of Chapter XVII-C (Advance Tax) shall not apply to an eligible assessee in so far as they
relate to the eligible business.
(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who
claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-
section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall

be required to keep and maintain such books of account and other documents as required under section 44AA(2)
and get them audited and furnish a report of such audit as required under section 44AB.
Explanation.—For the purposes of this section,—

(a) “eligible assessee” means,—
(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited
liability partnership firm as defined under section 2(1)(n) of the Limited Liability Partnership Act, 2008;
and
(ii )who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under
any provisions of Chapter VIA under the heading “C —Deductions in respect of certain incomes” in the
relevant assessment year;
(b) “eligible business” means,—
(i) any business except the business of plying, hiring or leasing goods carriages referred to in section
44AE; and
(ii) whose total turnover or gross receipts in the previous year does not exceed an amount of Rs. 60
lakhs‟.
SEC 44AE - Deemed income from “Transport operation business”
(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee, who
owns not more than ten goods carriages at any time during the previous year and who is engaged in the business
of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head
“Profits and gains of business or profession” shall be deemed to be the aggregate of the profits and gains, from
all the goods carriages owned by him in the previous year, computed in accordance with the provisions of sub-
section (2).
(2) For the purposes of sub-section (1), the profits and gains from each goods carriage,—
(i) being a heavy goods vehicle, shall be an amount equal to five thousand rupees for every month or part
of a month during which the heavy goods vehicle is owned by the assessee in the previous year or an
amount claimed to have been actually earned from such vehicle, whichever is higher;
(ii) other than a heavy goods vehicle, shall be an amount equal to four thousand five hundred rupees for
every month or part of a month during which the goods carriage is owned by the assessee in the previous
year or an amount claimed to have been actually earned from such vehicle, whichever is higher.
(3) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section
(1), be deemed to have been already given full effect to and no further deduction under those sections shall be
allowed:

Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the
income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40
(4) The written down value of any asset used for the purpose of the business referred to in sub-section (1)
shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the
deduction in respect of the depreciation for each of the relevant assessment years.
(5) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred
to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case
may be, the income from the said business shall be excluded.
(6) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and
produces evidence to prove that the profits and gains from the aforesaid business during the previous year
relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier assessment year, are
lower than the profits and gains specified in sub-sections (1) and (2), and thereupon the Assessing Officer shall
proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the
assessee on the basis of assessment made under sub-section (3) of section 143.
(7) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim
lower profits and gains than the profits and gains specified in sub-sections (1) and (2), if he keeps and maintains
such books of account and other documents as required under sub-section (2) of section 44AA and gets his
accounts audited and furnishes a report of such audit as required under section 44AB.
Explanation.—For the purposes of this section,—

(a) The expression “Heavy goods vehicle” means any goods carriage the gross vehicle weight of which
exceeds 12000 kgs.
(b) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on instalments
and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such
goods carriage.
SEC 50 - Special Provision for Computation of Capital Gains in case of

Depreciable Assets.
where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been
allowed the capital gain shall be computed as under :-
(1) Where the sales consideration arising from the transfer of the any capital asset falling within the block of
assets exceeds the aggregate of the following amounts:-
(a) the WDV of the block of assets at the beginning of the previous year and

(b) the actual cost of any assets falling within the block of assets acquired during the previous year,
(c) cost of transfer; then
such excess shall be deemed to be the short term capital gains (profit)
(2) Where any block of assets does not exist for the reason that all the assets in that block are transferred during
the previous year,
SEC 50A - Capital Gain on the transfer of Capital Asset on which SLM
depreciation charged
Where the sales consideration in respect of assets mentioned above, exceeds the actual Cost of such assets, then
Capital gain shall be arise on the above transaction.
Capital Gains = Sales Consideration less Actual cost of asset
SEC. 145 - Method of Accounting
Income chargeable under the head “PGBP” or “Income from Other Sources” shall be computed in accordance
with either CASH or ACCRUL system of accounting regularly employed by the assesee.
Note 1:- The assessee can adopt cash system for one business and accrual system for another business [Same is
applicable for “IFOS”].
Note 2:- An assessee can change the method of accounting followed by him provided that the change is for a
“BONAFIDE REASON” and the changed method is followed consistently by the assessee.
Accounting Standards Notified u/s 145

The following accounting standards are notified to be followed by all assessee following mercantile system of
accounting namely:-
1. Accounting standard I relating to disclosure of accounting policies.
2. Accounting standard II relating to disclosure of prior period and extraordinary items and changes in
accounting policies

Chapter 07 :- CASE STADY
QUESTIONS
Case 1
Mr. Y (age 50 years) has provided the following figures for the previous year 2010-11:
1. Net profit as per profit and loss account ` 4,50,000.
2. The following amounts have been debited to the profit and loss account while calculating net profit:
a. Household expenses ` 7,000.
b. Rent of own building ` 1,30,000 (half of the building is in personal use and half in business use).
c. Municipal taxes of the building ` 4,000 paid on 1-05-2011.
d. Expenditure on repairs of the building ` 5,000.
e. Premium paid for insurance of the building ` 3,000.
f. A car purchased for ` 3,00,000 on 1-01-2011 and was out to use the same day. The car was used for
both personal as well as business purpose. He also debited ` 5,000 as petrol expenses.
Mr. Y has debited ` 30,000 as amount invested in PPF.
Compute his taxable income and tax liability for the assessment year 2011-12.

Solution:
Computation of net taxable income of Mr. Y for the assessment year 2011-12
Particulars Amount (`)
Net profit as per profit and loss account 4,50,000
Add: Expenses disallowed:
Household expenses 7,000
Rent of own building 1,30,000
Municipal taxes 2,000
Repair 2,500
Insurance 1,500
Car 3,00,000
Petrol 2,500
Public provident fund 30,000
9,25,500
Less: Depreciation of car 11,250
Gross total income 9,14,250
Less: Deduction under section 80C (PPF) 30,000
Net taxable income 8,84,250

Chapter 08:- REFERENCES AND WEBLIOGRAPHY
REFERENCES:
 Singhania, Vinod. K. and Singhania, Monica, “Students Guide to Income-tax”, Taxmann Publications
Pvt.Ltd. (latest edition).
 Ahuja, Girish and Gupta, Ravi, “Simplified Approach to Income-tax”, Flair Publications (latest edition).
 Ranjeet K unwar- “Income from PGBP”
 S. P Manadalrs- “Welingkar Education”
 WEBSITE:
 www.google.com
 TaxGuru, www.quora.com
 www.wikipedia.org
 www.vittampravinagurushala.in
 www.businessdictionary.com
 www.quora.com



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PRAHLADRAI DALMIA LIONS COLLEGE COMMERCE & ECONOMICS

Chapter 01 :- INTRODUCTION OF PROFITS AND GAINS

List of Incomes Chargeable to Profits and Gains of Business or Profession

Profits and Gains From Business or Profession 1

 Not carrying out activity in relation to any business or profession.

Classifying Income Under Profits and Gains of Business or Profession

1. There should be a business or profession.

Other Income Classified as Profits and Gains of Business

Profits and Gains From Business or Profession 2

Profits and Gains From Business or Profession 3

CHAPTER 02:- MEANING OF BUSINESS

WHAT IS MEANING OF BUSINESS

Profits and Gains From Business or Profession 4

Chapter 03:- MEANING OF PROFESSION

WHAT IS MEANING OF PROFESSION

Profits and Gains From Business or Profession 5

Chapter 04:- MEANING OF PROFIT OR GAIN

WHAT IS MEANING OF PROFIT OR GAIN

Thus the formula for gain is:

Sale Price - Purchase Price = Gain

HOW IT WORKS (EXAMPLE):

Profits and Gains From Business or Profession 6

Chapter 05:- THE DIFFERENCE BETWEEN GAIN AND

What is the difference between gain and profit?

Profits and Gains From Business or Profession 7

Chapter 06:- THE SECTIONS UNDER PROFIT AND GAINS

Profit and gains from business or profession

Profits and Gains From Business or Profession 8

Sec 28- chargeability

9) Any sum receives under Key man insurance policy.

(b) This contract is periodically or ultimately settled ; and

Profits and Gains From Business or Profession 9

SEC 29 - Method of calculating taxable profit:

Balance as per profit and loss or Income - expenditure account

(i) Expenses expressly disallowed but debited to P& A/c

(ii) Expenses not allowed but debited to P&L A/c

(iv) Capital expenses debited to P & L A/c

(v) Personal expenses debited to P & L A/c

(vi) Expenses in excess of the allowed amount, debited to P & L A/c

(vii) Losses not allowed but debited to P & L A/c

(ix) Under-valuation of closing stock or over-valuation of opening stock

(i) Expenses expressly allowed but not debited to P & L A/c

(iii) Losses allowed but not debited to P & L A/c

(v) Capital receipts credited to P & L A/c

(vii) Over-valuation of closing stock or under-valuation of opening stock

Profits and Gains From Business or Profession 10

SEC 30 - Rent, Rates, Taxes, Repairs and insurance for building

profession, the following deductions shall be allowed—

(a) where the premises are occupied by the assessee—

 Tenant Rent, Revenue Repairs

SEC 30 - Repairs and insurance of machinery, plant and furniture.

profession, the following deductions shall be allowed—

(i) the amount paid on account of current repairs thereto;

SEC 32(1)(i) - Depreciation for Power Generating undertakings

 SLM on each asset or

Profits and Gains From Business or Profession 11

4) It is open to such an undertaking to opt the depreciation under WDV method.

SEC 32(1)(ii) - Depreciation on WDV Method

Tangible [Building, plant & machinery & furniture]

Intangible [Know-how, copyright, trademark, franchises etc.]

 Assets owned wholly or partly by the assessee

SEC 32(1)(iii) -Terminal Depreciation

If [Sales Consideration] < [Actual cost - Depreciation allowed]