Chap IV-D: INCOME UNDER HEAD BUSINESS OR PROFESSION

Sec 2(13) Business: business includes any trade, commerce or manufacture or

any adventure in the nature of trade, commerce or manufacture.
Sec 2(36) Profession: Profession includes vocation.

Sec 28 – Chargeability
The following incomes are chargeable to tax under head “Profits and gains of
business or profession”.
i) Profits and gains of business or profession carried on by the assessee
during the previous year.
ii) Income of any trade, professional or similar association from specific
services
iii) Any compensation in connection with termination or modification of any
terms relating to affairs of company, agency business or any other business
iv) in case of an assessee carrying on export business, the following export
incentives
a) profit on sale of import entitlements or EXIM scrip
b) Cash assistance
c) Excise or customs duty drawback.
v) The value of benefit or perquisite, whether convertible into money or not,
arising from business or profession
vi) Any interest, salary, bonus, commission or remuneration due to or received
by a partner of a firm from such firm.
vii) Any sum received under keyman insurance policy including the sum
allocated by way of bonus on such policy.
viii) Income from speculative transaction
ix) Any sum whether received or receivable in cash or in kind for
a) not carrying out any activity in relation to any business
b) not sharing any know-how, patent, copyright, trademark, licence, 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 of services.

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 A. COMPUTATION OF INCOME FROM BUSINESS:
1) The taxable income under the head income from business or profession is
computed on either of following basis
i. Estimation method (presumptive income) in case of specified category
of persons and subject to conditions.
ii. Regular method based on financial statements prepared as per regular
books of accounts and applying the provisions contained in Section 29 to
Section 43D of the income tax act.
2) The estimation of income by eligible assessee is optional and not
compulsory.

B. ESTIMATED INCOME IN CERTAIN CASES:

1) Sec 44AD:
a. Eligible Assessee : Individual, HUF and Partnership Firm (other than LLP
b. Eligible business : Any business not being specified profession; Agency
business; hiring or leasing of goods carriages or income in the nature of
commission or brokerage
c. Turnover Limit : Total turnover or gross receipt should not exceed 200
Lakhs
d. Rate of Tax : 8% of total turnover or gross receipts. However in case of
amounts received through bank during previous year or before due date of
filing income tax return, the rate shall be 6% of gross receipts. Assessee can
declare higher rate of income.
e. Other points:
i) All deductions under section 30 to 38 including depreciation are
deemed to be have been allowed
ii) The written down value of the fixed assets is deemed to have been
calculated
iii) Assessee is not required to maintain books of account as required
under section 44AA
iv) Not required to get his accounts audited
v) Advance tax need to be paid in instalments but can be paid by 15 th
March of financial year.
vi) If declares income lower than prescribed rate, then has to maintain
books of accounts and compulsorily get the accounts audited
irrespective of turnover

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 vii) If the assessee opts out of presumptive income scheme then for the
next five assessment years he cannot opt for the presumptive income
scheme

2) Sec 44ADA– SPECIFIED PROFESSIONALS

a. Eligible Assessee : Individual, HUF and Partnership Firm (other than LLP)
engaged is specified professions like legal, medical, engineering,
architect, accounting, etc.,
b.Turnover Limit : Total turnover or gross receipt should not exceed 50
Lakhs
c. Rate of Tax: 50% of total turnover or gross receipts. Assessee can
declare higher rate of income
d.Other points : Same as Section 44AD

3) Section 44AE – TRANSPORT BUSINESS

a. Eligible Assessee : Any person engaged in business of plying or hiring of
goods carriages and owning less than or equal to 10 goods vehicles.
b. Rate of Tax: In case of heavy goods vehicle Rs. 1,000 per month per ton
of vehicle weight. In case of other vehicles, 7,500 Per month per vehicle.
Assessee can declare higher rate of income
c. Other points : Same as Section 44AD

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 C. BUSINESS / PROFESSION INCOME UNDER REGULAR METHOD

1) Sec 29 – The income referred to u/s 28 will be computed in accordance with

the provisions of Sec 30 to 43D

2) Expenses that are expressly allowed Sec 30 – 37

2.1 Sec – 30 Expenditure relating to building

Tenant Owner
Rent paid, Land revenue, local rates,
Repairs property taxes
Insurance premium on building
Current repairs only

2.2 Sec – 31 Expenses relating to machinery, plant and furniture:

a) Current repairs.
b) Insurance premium.

2.3 Sec – 32 Depreciation:

1) Depreciation is allowed in respect of block of assets.

2) Sec 2(11) Block of assets: means group of assets falling within class of
assets comprising
a) Tangible assets being building, machinery, plant or furniture
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 b) Intangible assets being know-how, patents, copyrights, trademarks, licence,
franchise or any other business or commercial right of similar nature.

3) Points / Conditions on depreciation:

i. Assessee should be the owner. Fractional ownership recognized
ii. Asset should be used in the previous year for the purpose of business. If
acquired & put to use for less than 180 days, 50% of normal depreciation
is allowed
iii. Depreciation allowed under WDV method. However undertakings
engaged in generation or generation & distribution of power can claim
depreciation under SLM.
iv. The asset the value of which is more than 10,000 should NOT be
purchased by cash
v. Additional depreciation. A further depreciation of 20% in addition to
normal depreciation is allowed subject to following conditions:
a) assessee engaged in manufacture of any article or thing
b) Allowed only on plant and machinery, installed for production
purpose.
c) Plant and machinery should not be a used / old one
d) Not allowed on office appliances and vehicles

4) Written down value:43(6)

Opening value of block as on 1st day of previous year xxxx
Add: Actual cost of assets acquired during the previous year in
the same block xxxx
Lee: Monies payable in respect of any asset which is sold,
discarded, demolished or destroyed in that block including any
scrap value xxxx
Written down value for the purpose of depreciation xxxx
Less: Depreciation xxx
Closing WDV Xxx
x

5) Rates of Depreciation:
Nature of asset Rate
- Residential buildings 5%
- Non residential buildings including hotels 10%
- Purely temporary erections such as wooden structure 40%
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- Furniture & fittings including electrical fittings 10%
- Motor cars, other than running them on hire 15%
- Motor buses; motor lorries; and motor taxies used in business
of running them on hire 30%
- Aeroplanes, Aero engines 40%
- Computers including computer software 40%
- Air pollution, water pollution or solid waste control 40%
equipments
- Energy Saving devices; renewal energy devices; rollers in 40%
flour mills,; sugar works & steel industry 15%
- Plant & machinery 40%
- Books including annual publications or used in libraries 25%
- Intangible assets

2.4 Sec 35 Expenditure on Scientific Research:

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2.5 Sec 36 – Other deductions : The following deductions are permitted to
be claimed:
- Insurance premium Stocks and stores
- Insurance premium of health of employees
- Bonus or commission to employees
- Interest paid on borrowed capital
- Contribution from Employees towards welfare fund account
- Allowance for dead or permanent useless, animals used for the business\
- Bad debts
- Contribution to approved welfare fund like PF ESI etc of employees
- Provision for bad debts by banks & Public Financial institutions subject to
conditions.

2.6 Sec 37 – General expenditure :

Any expenditure
a) not being expenditure specified in sec 30-36
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 b) not being capital or personal nature
c) not being for any purpose which is an offence or is prohibited by law
d) expended wholly or exclusively for purpose of business
shall be allowed in computing the income chargeable under the head business or
profession. However the following expenses are not allowed even if all above
conditions are satisfied
a) Expenses incurred for any purpose which is an offence or which is
prohibited by law.
b) expenditure incurred on advertisement in any souvenir, brochure, pamphlet
or the like published by a political party.
c) Corporate Social responsibility (CSR) expenditure incurred by companies
under companies act

3) Inadmissible Expenditure:

1) Sec 40(a) :Any interest, royalty, fees for technical services or any other
sum chargeable to tax payable outside India or to non resident, on which
tax is not deducted at source. If remitted in subsequent previous year,
deduction allowed in that previous year.

2) Sec 40(a) : Any sum claimed as expenditure on TDS is deductible but not
deducted or tax so deducted not paid within the same previous year or
within due date of filing return of income, then 30% of such expenditure
shall be disallowed. If remitted in subsequent previous year, deduction
allowed in that previous year.

3) Sec 40(a) : Income Tax, wealth Tax, tax on perquisite of employee,

including interest thereon.

4) Sec 40A(2) : Payments made in respect of goods, services or facilities

provided by specified persons which is considered to excessive and
unreasonable shall be disallowed. Specified person for individual means
Relative & person in whose business the individual or his relative has
substantial interest, that is 20% of share in profits.

5) Sec 40A(3) : Any payment for expenditure in respect of which payment in

respect of Rs.10,000 is made in a day otherwise than by electronic modes.
However in respect of payment made for plying, hiring or leasing goods
carriages, the limit is Rs.35,000. There are few exceptions to this provision
contained in Rule 6DD of Income Tax Rules.

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 6) Sec 40A(7) Provision made in respect of payment of gratuity except for
approved gratuity fund.

7) Sec 40A(9) Contribution made to unrecognized or non-statutory welfare

funds.

8) Sec 43B: The following expenses if not actually paid during the previous
year or within the due date of filing return of income: -
a) tax, duty, cess, or fee, by whatever name called under any law for time
being in force
b) Bonus or commission to employees
c) Interest on loan or advance from a PFI, SFC’s, SIIC, or scheduled bank
including co-op bank
d) Leave salary
e) contribution to any provident fund or superannuation fun or gratuity
fund or any other welfare fund of employees
f) Amount payable to Indian Railways
If these payments are made in any subsequent year, the same will be
allowed as deduction in that year.

4) Sec 44AB Audit of accounts:

It is compulsory in the following cases to get the books of accounts audited by a
Chartered Accountant.
a) In case of any person having turnover exceeding Rs. 10 Crore provided
95% of receipts and 95% of expenditure is received and paid through
electronic modes.
If not covered in (a) above and
b) If total sales, turnover or gross receipts from business in case of a person
OTHER THAN individual, HUF or Firm exceeds Rs. 1 Crore
c) In case of individual, Partnership (not LLP) or HUF covered under business
as per Sec 44AD and having turnover of more than 2 crores.
d) In case of Individual or Firm, if gross receipts from specified profession
exceeds Rs. 50 lacs
e) If the business or profession of Assessee is covered u/s 44AD, 44ADA,
44AE, 44BB, 44BBB and has claimed his income to be lower than the
deemed profits.

Practice Questions

Question 1

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From the following information on plant and machinery used by assesse for his
business, Calculate the eligible depreciation as per section 32 of the Income Tax
Act for Previous year 2022-23
- Opening written down value of Machine A – Rs. 13,50,000 and Machine B –
8,00,000
- Machinery C purchased on 18.09.2022 – Rs. 4,00,000
- Machinery B sold on 20.09.2022 – Rs. 6,00,000
- Machinery D purchased on 15.03.2023 – Rs. 7,00,000
- Rate of depreciation 15%
Will the assessee be eligible for any other benefit if he is engaged in manufacture

Question 2
RR is engaged in business of transportation goods furnishes the details of his transactions relating to
the vehicles used in transportation for the year ending 2022-23
OPENING WRITTEN DOWN VALUE
- Motor lorry A –Rs. 12,20,000
- Motor lorry B –Rs. 6,30,000
- Motor lorry C –Rs. 15,00000
PURCHASED DURING THE YEAR
- Motor lorry D- Rs. 16,00,000 on 01.07.2022
- Motor lorry E –Rs. 8,50,000 on 04.09.2022
- Motor lorry F – Rs. 12,00,000 on 30.03.2023
SOLD DURING THE YEAR
- Motor lorry B –Rs. 7,50,000 on 01.05.2022
- Motor Lorry C – Rs. 12,00,000 on 30.03.2023
Calculate Depreciation (rate of depreciation 30%) for FY 2022-23 and WDV as on 31.03.2023

QUESTION 3

M furnishes the following particulars of the assets used for his business:
a) Written down value as on 01.04.2022:
- Furniture and fixtures (10%) – Rs. 3,30,000
- Motor vehicles – (15%) Rs. 6,85,000
- Computer, laptops and printers (40%)– Rs. 94,000
b) Assets purchased during the year
- Motor car – Rs. 4,40,000 on 16.09.2022
- Computer Rs. 65,000 on 20.09.2022
- Software Rs. 1,20,000 on 25.02.2023
c) A part of furniture which originally had cost Rs. 68,000/- was scrapped on
28.02.2023 and amount realised Rs. 1,000

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Calculate depreciation for Assessment year 2023-24

QUESTION 4
Calculate depreciation allowable for assessment year 2023-24 from the following information in case
of BB Ltd engaged in manufacture of computers:
i. Factory Building – Opening WDV 10% 5,00,000
ii. Plant & Machinery Opening WDV 15% 18,00,000
Additions :
30.06.2022 1,00,000
31.12.2022 1,00,000
31.01.2023 60,000
Sale – 01.12.2022 4,00,000
iii. Furniture Opening WDV – 10% 1,00,000
iv. 2 Computers purchased on 01.01.2023 – 40% 1,60,000
v Motor Car Opening WDV – 15% 1,20,000
One of the computer is installed for manufacturing process. The Machinery purchased on 31.12.2022
is a used machinery. The Net profit as profit and loss account before depreciation is Rs. 3,50,000. Also
calculate the unabsorbed depreciation for AY 2023-24

QUESTION 6
Mr. Banerjee is sole proprietor engaged in manufacture of cylinders. He submits you the following
information for calculating depreciation to be claimed.
i. Block A Plant & Machinery: Opening WDV Rs.7,80,000 consisting of three machines i.e., X,
Y & Z. A new machinery W was purchased on 16th July 2022 at a cost of Rs.6,00,000 and
Rs.60,000 was spent on transportation and installation. During the year Rs.17,000 were spent
on maintenance of this machine after commencement of production. Further on 1st January
2023 Machine V was purchased in exchange of Machine Y and paying additional amount of
Rs.1,20,000. The FMV of machine Y on date of exchange was Rs.3,30,000. Depreciation rate
is 15%.
ii. Block B Transport Vehicle : Opening WDV Rs.4,50,000. A new transport vehicle purchased
in Dec 2022 comprised of following costs – Basic chassis price Rs.12,00,000, GST Rs.
3,60,000, body building cost with gst Rs. 4,60,000, Road tax and insurance for one year Rs.
1,09,000. Depreciation rate is 30%.
iii. Block C Intangible Assets : Opening WDV Rs.4,60,000. During the year in December 2022
Mr.Banerjee acquired a patent for Rs. 2,30,000 Depreciation rate is 25%.
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Calculate Depreciation allowable for assessment year 2023-24

Question 7
Printer is engaged in marketing business and submits the following is the profit and loss account for
the previous year ending 31st March 2023
Particulars RsParticulars Rs
To Business Expenses 145000By Commission received 1200000
To Salaries 336000By Bad debts recovered 63000
By Refund of
To Income Tax Payable 10000Income Tax 42000
To Interest on Income Tax 5000By Interest on FD 18000
To GST 90000
To Depreciation 60000
To Employers Contribution to
RPF 12000
To Commission 24000
To Staff welfare 82000
To Provision for Bad Debts 7000
To Bad debts 5000
To Sundry Expenses 120000
To Net Profit 427000

13,23,000 13,23,000
Additional Information:
a) Salary include Rs. 18,000 paid to his son who works on part time basis in his business
b) 25% of Income Tax and GST have been paid before the due date of Furnishing Return and
balance still unpaid
c) The depreciation as per income tax rules is Rs. 23,000
d) TDS is not deducted on commission.
e) Salary include an one time payment of Rs. 15,000 by cash
f) Staff welfare includes an office outing cost of Rs. 29,000/-
g) Sundry expense includes Rs. 14,000/- towards gift of articles given to customers, and Rs. 6,000
towards gift to his son.
h) Printer incurred Rs. 51,000/- towards travel and stay expense on trip to dubai. The trip was to
explore business opportunity which could not materialise.
i) Contribution Provident fund is yet to be paid
Compute the taxable business Income for the assessment year 2023-24

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Question 8
Mr Maruti a manufacturer in Chennai gives the following Manufacturing, Trading and Profit and loss
account for the year ending 31st March 2023
Particulars Rs. Particulars Rs.
To Opening Stock 71,000 By Sales 2,32,00,000
“ Purchases 2,16,99,000 “ Closing Stock 2,00,000
“ Wages 5,70,000
“ Gross profit 10,60,000
2,34,00,000 2,34,00,000
To Administrative 3,26,000 By Gross Profit 10,60,000
“ GST penalty 5,000
“ GST paid 1,10,000
“ General Expenses 54,000
“ Interest on Bank 60,000
“ Depreciation 2,00,000
To Net profit 5,00,000
12,55,000 12,55,000
Following are the further information
i. Administrative charges include Rs. 46,000/- paid as commission to his brother. The
commission amount at market rate is Rs. 35,000
i. The closing stock has been undervalued by Rs. 40,000
ii. He paid Rs. 33,000 in cash to a transport carrier and included in wages. He also paid one
time cash payment of Rs. 85,000 on purchases
iii. Raju received a gift in kind valued Rs. 18,000 from one of his customer.
iv. Wages include Rs. 90,000 on which tax is not deducted at source
v. General expense include Raju’s life insurance premium of Rs. 8,000/- and staff medical
insurance premium Rs. 4,000
vi. Interest on bank actually paid up to 31.03.2023 is Rs. 20,000/-; Rs. 15,000 paid in June
2023 and balance yet to be paid.
vii. The opening WDV of Plant and Machinery is Rs. 12,00,000/- and during the year
4,00,000/- value of new plant and machinery is added of which Rs. 1,50,000/- is put to use
for less than 180 days.
Compute income under the head business or profession for the AY 2023-24 and state any other
condition to be complied by maruti for computing his business income.

QUESTION 9

System, an individual carries on own business. An analysis of his trading and profit and loss account
for the year ended 31st March 2023 revealed the following information:
The net profit was Rs. 11,20,000

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 - The amounts credited to P/L Account include Dividend from UTI 22,000; Interest on
debentures 17,500 & winning from races Rs. 15,000
- It is found that some stocks were omitted from opening stock valued Rs. 8,000 and closing
stock valued 12,000
- Rs.1,00,000 debited to profit and loss account being contribution to university approved
under section 35
- Advertisement includes 15 gift packets of dry fruits costing Rs. 1000 each given to
important customers
- Car expense Rs. 78,000 debited to p/l. 3/4th is for business purpose
- Misc expenses include Rs. 30,000 paid by cash to goods transport operator and Rs. 28,000
paid towards advertisement
- Depreciation debited to books was Rs. 55,000. Depr as per income tax rules was Rs.
50,000.
- No deduction of tax at source has been made on interest of Rs. 95,000/- paid
- Bonus of Rs. 84,000 debited to p/l account is still not paid
- Rs.81,000 towards contribution to Recognised provident fund of employees of which Rs.
24,000 is only paid.
- GST penalty of Rs. 24,000 is debited to profit and loss account
- Drawings Rs. 10,000 debited to p/l account
- Rs. 14,000/- for sponsoring education of a poor child debited to P/L a/c
- NSC Purchased Rs. 15,000 debited to p/l account.
Compute Income from business of M for Assessment year 2023-24

Question 10

Dr. Niranjana, a resident individual, aged 60 years is operating a clinic. Her

income and Expenditure Account for the year ending March 31 st, 2023 is as
under:
Expenditure Rs. Income Rs.
To Medicine consumed 5,38,400 By Consultation and 58,85,850
Medical charges
To Staff salary 13,80,000 By Income tax 5.450
refund(principal Rs.5,000,
interest Rs.450)
To Clinic consumables 1,10,000 By Dividend from units of 10,500
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 UTI
To Administrative expenses 2,55,000 By Winning from game 35,000
show on T.V (net of TDS
of Rs.15,000)
To Rent paid 90,000 By Rent 1,27,000
To Amount paid to scientific 1,50,000
research association
approved under section 35
Net profit 34,40,000
59,63,80 59,63,80
0 0
- Rent paid includes Rs.30,000 paid by cheque towards rent for her
residential house.
- The opening WDV of Clinic equipments is Rs. 3,88,000; Computer and printer
Rs. 84,000 and motor car Rs. 11,80,000/- 25% of usage of car is attributable
for personal use
- Rent received relates to property situated at surat, the Municipal value of
which is Rs. 1,30,000. The municipal tax of Rs. 2,000, paid in december
2022, has been included in “administrative expenses”.
- She works as as part time employee for 2 hrs daily and received salary of
Rs.27,500 p.m from “full cure Hospetal” which has not been included in the
“consultation and medical charges”
Compute the Gross Taxable income of Dr Niranjana for AY 2023-24

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