Income from Business or Profession

Income from business or profession

The term business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Its primary purpose must be to make profit. In order to constitute a business neither repetition nor continuity of similar transactions is necessary. Single or isolated transaction entered into with the idea of making profit would be a business

Profession means the activities for earning livelihood which requires intellectual or manual skill, the term profession u/s 2(36) includes any vocation.

The profit and loss account prepared by the assessee is not correct for income tax purpose, so in order to ascertain correct profit, profit and loss account should be adjusted in the following manner

Profit as per profit and loss account

Add

1.          Expenses or losses disallowed but charged in P&L A/c

2.         Incomes taxable as business income but not credited to the P&L A/c

3.         Expenses in excess of the allowed amount charged in P&L A/c

4.         Under valuation of closing stock or Overvaluation of opening stock

Deduct

1.          Expenses or losses allowed but not debited to P&L A/c

2.         Incomes not taxable as business income but credited to the P&L A/c

3.         Incomes exempt from tax but credited in P&L A/c

4.         Overvaluation of closing stock and Undervaluation of opening stock

Taxable income from Business or Profession

Income tax act stipulates that only expenses and incomes related to business or profession will be allowed to include in profit and loss account.

Section 29 specified that losses due to embezzlement by the employee, losses arising out of theft or robbery, losses resulting from destruction of assets ,loss of stock in trade in transit by fire ,loss of stock due to ravages of white ants, loss resulting from negligence or fraud on the part of employees etc…

Following are the deductions allowable

1. Expenses in respect of business premises
2. Repairs and insurance of machinery, plant and furniture (sec. 31)
3. Depreciation (sec. 32)
4. Tea /Coffee /Rubber Account (sec. 33AB)
5. Site restoration fund (sec. 33ABA)
6. Expenditure on scientific Research (sec. 35)
7. Expenditure on Acquisition of patent rights or copyrights(sec. 35A)
8. Capital expenditure on telecom license(sec.35ABB)
9. Expenditure on eligible project or scheme (sec. 35AC)
10. Expenditure on specified business(sec.35AD)
11. Expenditure on rural development programmes (sec. 35CCA)
12. Expenditure on conservation of natural resources  programmes (sec. 35CCB)
13. Amortization of preliminary expenses(sec. 35D)
14. Etc…