PROFITS AND GAINS OF BUSINESS OR

PROFESSION”
SECTION 28, 29 TO 44D

CA. DIPAYAN DAS

Business definition- It includes any trade, commerce, manufacture, any adventure or concern in
the nature of trade, commerce or manufacture. It is not an exhaustive definition.
Basic principles for arriving at business income
1. It should be carried on by the assessee
2. It should be carried on during previous year
3. Income of previous year is taxable during the following year, i.e AY
4. Tax incidence arises in respect of all businesses or professions – Income from one business to
be set off against loss from another , to arrive at Net Income on which tax to be paid.
5. Legal Ownership vs. beneficiary ownership- Its not the legal ownership rather who is the
ultimate beneficiary of the business to be considered and taxed accordingly.
6. Recovery of sum already allowed as deduction-Earlier allowed expenses if recovered in
subsequent year, then the same has to be taxed as business income.
7. Income from illegal business or profession is also taxable.
SPECIFIC
•
DEDUCTION
Rent, Rates, taxes, Repair and Insurance for building ( Sec-30):
• Repair of building of capital nature not deductible. However, painting is allowed.
• Municipality taxes, insurance against risk of damage or destruction of premises
• Repairs and insurance of machinery, plant and furniture ( Sec-31)
• Depreciation allowance ( Sec-32): There are certain conditions
• Asset must be owned by the assessee
• It must be used for the purpose of business or profession
• It should be used during the relevant previous year.( If the asset is used for 180 days or more, full year depreciation is allowed)
• Depreciation is available on tangible as well as intangible assets.
• Basic concepts for computation of depreciation allowance of Units other than Power Units
• Depreciation is admissible for block of assets. ( Assets which are same percentage of depreciation)
• Method of depreciation is written down value method ( Depreciated value as on 1 Apr 2021+ Newly acquired assets cost(-) money
received/receivable ( together with scrap value) in respect of that asset falling within the block which is sold, discarded, demolished or
destroyed during P.Y)
• There are ten different blocks of assets from A.Y 2022-23.
Note-
• Expenditure incurred in procuring a depreciable asset in respect of which payment made to a person in a day exceed Rs.
10,000, such expenses are ineligible for depreciation.
SPECIFIC DEDUCTION

•Even though gross block value is existing but there is no asset in that block, no depreciation is allowed on that block.
Unabsorbed Depreciation
1.Depreciation allowance of the previous year is first deductible from the income chargeable under the head “Profits
and gains of business or profession”
2.If depreciation allowance is not fully deductible under Business or Profession Head because of absence or inadequacy
of profits, it is deductible from income chargeable under other heads of income ( Except under Salary) for the same
A.Y.
3.If depreciation allowance is still unabsorbed, it can be carried forward to the subsequent A.Y by the same assessee.
•No time limit is fixed for the purpose of carrying forward unabsorbed depreciation. It can be carried forward indefinite
•In subsequent years, unabsorbed depreciation can be set off against any income whether chargeable under the head
Business or Profession or under any other head ( Except Salary). The following order of priority is followed-
• Current depreciation
• B/F business losses
• Unabsorbed depreciation
•Continuity of business is not relevant for the purpose of above set off and carry forward
 SPECIFIC DEDUCTION

• Deduction in respect of expenditure on specified business ( Sec 35AD)- It is investment-linked tax incentives
For availing deduction, following three conditions to be fulfilled-
1. It should be a specified business as mentioned in the Act.
2.Specified business should be new business (It should not be set up by splitting up, or the reconstruction of a
business already in existence)
3. Audit of books of account- Assessee should have to do his/its/her books of account audited.
Amount of Deduction-
1. 100% of capital expenditure incurred wholly and exclusively for the purpose of specified business by an
assessee
Specified is deductible in the previous year in which expenditure
Business Who is incurred.Approval
( However, if assessee
(If any) Datehas
of paid excess of
should commencement of
Rs. 10,000 to a single person in a day in cash, such expenses are
ownnot allowed. Purchase of land not allowed)
business

1. Setting up and operating a cold chain facility Any Person Not Required On or After 1 Apr2009

2.Setting up and operating a warehouse for storage of agri Any Person Not Required On or After 1 Apr2009
produce
 SPECIFIC DEDUCTION
Specified Business Who Approval (If any) Date of
should commencement of
own business

Building and operating anywhere in India a hotel of 2 star or Any Person No Approval On or after 1 Apr 2010
above category
Building and operating anywhere in India, any hospital with at Any Person No approval On or after 1 Apr 2010
least 100 Beds for patient
Developing and building a housing Project Any Person Under Slum On or After 1 Apr 2010
redevelopment
Scheme of CG/SG
Developing and building a housing Project Any Person Under affordable On or After 1 Apr 2011
housing scheme
of CG/SG
Bee-keeping and producing of honey and bees wax Any Person No Approval On or After 1 Apr 2012
Setting up and operating a warehousing facility for storage of Any Person No Approval On or After 1 Apr 2012
sugar
SPECIFIC DEDUCTION
An Indian company or a resident non-corporate assessee can
• Amortization of preliminary expenses (Sec 35D)-
claim deduction in respect of preliminary expenses. Such expenses may be incurred before
commencement of the business or setting up a new unit. Qualifying expenditure are as follows
• Legal charges for drafting any agreement , MoA, AoA,
• Printing expenses of MoA/AoA.
• Registration fees of a company under provision of the Companies Act.
• Feasibility report, preparation of Project Report, conducting a market survey
• Qualifying Expenditure- Maximum Ceiling
• In case of Corporate assessee
• 5% of the cost of projects, or
• 5% of capital employed , whichever is more
• In case of non-corporate assessee
• 5% of cost of project
• Amount of deduction- One-fifth of the qualifying expenditure is allowable as deduction in each of the
five successive years beginning with the year in which the business commences, or new set up/unit
commences its business. ( start business on 1 Apr 2021 , Preliminary exp allowed from 1 Apr- 2021-22
till 2026-27)
• Audit Report- In the case of a person ( other than a company/co-operative society), deduction is
available only if a report of audit is obtained in Form No 3AE from a CA.
SPECIFIC DEDUCTION

Insurance Premium [Sec 36 (1)]- Insurance premium is deductible in the following cases-
1. Any premium paid in respect of insurance against risk of damage or destruction of stocks or
stores, used for the purpose of business or profession.
2. Insurance premium paid by a federal milk co-operative society on the lives of cattle, owned by
the members of a primary milk co-operative society affiliated to it.
3.Health insurance premium of employees paid by employer by any mode other than cash.
Bonus or commission to employee [Sec 36(1)(ii)]- It is deductible on payment basis during the
previous year or on or before due date of furnishing return of income u/s 139.
Interest on borrowed capital [ Sec 36(1)(iii)]- If following conditions are satisfied , it is allowed
1. Assessee must have borrowed money
2.The money so borrowed must have been used for the purpose of business
3. Interest is paid or payable on such borrowing.
SPECIFIC DEDUCTION

• Employer’s contribution to Recognized Provident Fund and superannuation fund- It is allowed

Nature of Expenses Disallowances

TDS default when payment/credit is given to resident. 30% of such payment or credit is not deductible
( ABC LTD transport , “B” is given his truck to ABC LTD.
ABC LTD has to deduct 2000 while paying to B. But ABC
did not. ABC ltd will be allowed 70000 as expense.)
Amount paid in cash exceed 10,000 in a day to a 100% of such payment is disallowed ( 1000- 300 = 700,
person 300 not allowed, 1000 pay tax on 1000 )
MISC PROVISIONS

• Amount not deductible in respect of certain unpaid liabilities (Sec -43B): Certain
expenses are deductible on payment basis. The following expenses are deductible on payment basis-
1. Any sum payable by way of tax, duty, cess,or Fee
2. Any sum payable as bonus or commission to employees
Exception- If aforesaid payment is actually made on or before the due date of submission of return of income,
deduction can be claimed on accrual basis.
• How and when undisclosed income/investments are taxed
1. Cash Credit ( Sec 68)- Where any sum is found credited in the books of an assessee maintained for any previous
year and the assessee offers no explanation about the nature and source thereof or explanation offered by him is
not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the
income of the assessee of that P.Y.
2. Unplaned Investment ( Sec 69)- If assessee fails to provide a satisfactory reply for its investment on source of
fund, then such value of investment may be deemed to be the income of the assessee of such P.Y.
3. Unexplained expenditure (Sec 69C)- Where an assessee has incurred any expenditure and he offers no
explanation about the source of such expenditure , amount covered by such expenditure , may be deemed to be
the income of the assessee for such financial year.
 SECTION 44AA, 44AB, 44AD, 44ADA AND 44AE
When maintenance of books of account becomes compulsory (Sec 44AA)-
A.
1. Annual Gross Receipt does not exceed Rs. 1,50,000 in any 1 or more of preceding 3 years- A person
engaged in :Specified profession” such as Medical, engineering, architectural, accountancy, technical
consultancy, or interior decoration, film artist, Company Secretary and IT professional needs to maintain
such books of account as enable Assessing Officer to compute his taxable income under IT Act.
2. Annual Gross Receipt Exceed Rs 1,50,000 in all the preceding 3 years- Above specified professional
needs to maintain books as such as Cash Book, Journal, Ledger, Copies of bills issued by the taxpayer, etc.

B . Person carrying on “Non-specified professions” or any business- If annual income does not exceed Rs.
1,20,000 ( for Individual /HUF, the limit is Rs. 2,50,000) and annual gross receipt does not exceed Rs.
10,00,000 ( For individual/HUF, the limit is Rs 25,00,000) of all preceding 3 years, the taxpayer is not
required to maintain any books of account. ( Books are not prescribed by Board).

C. Persons covered by section 44AD, 44ADA, 44AE, 44BB, 44BBB- If it is claimed that business income is
lower than the income computed under these sections on estimated basis, or the assessee is covered by
section 44AD(4), the tax payer will have to maintain such books of account as may be enable Assessee
Officer to compute his taxable income ( Books are not prescribed by Board). This rule is applicable
irrespective of turnover.
 SECTION 44AA, 44AB, 44AD, 44ADA AND 44AE
When Audit of Accounts by Certain Persons is compulsory ( Sec 44 AB)-
Different Taxpayers When they are covered under Audit (Sec 44AB)

A person carrying on business If the total sales, turnover or gross receipt in business
for the P.Y exceeds Rs. 1 Crore. ( Rs. 2 Cr. For 44 AD(1)
business)
A person carrying on profession If his gross receipts exceeds Rs. 50 Lakh

A person covered u/s 44AE, 44BB or 44BBB If such person claims his profits from business are
lower than profits under these sections

A person covered u/s 44ADA If such person claims profits are lower than the profits
in accordance with sec 44ADA and if his income
exceeds the maximum amount which is not
chargeable to tax
A person covered u/s 44AD (4) If a person carrying on business is covered by
provision of sec 44 AD (4) ad his income exceeds the
maximum amount which is not chargeable to IT in P.Y
SEC 44AD
Section 44 AD-
1.Asseesee should be either a resident individual, HUF or a partnership firm ( not LLP).
2. Assesse is into business other than negative list business . ( Negative list )
3. The annual Turnover should not exceed Rs.2 Crore.
4. If above all conditions are fulfilled, income is taken on presumptive basis;8% of the Turnover .
If Turnover is received through banking channel, then 6% of TO can be considered as
presumptive income.( Income received before due date of filing return for the previous year is
also considered for this purpose)
5. A tax payer can declare higher income under this section
6. If an assessee declares profit for any previous year under this scheme of section 44AD, he
cannot declare lower profit for the next 5 consecutive subsequent A.Y. If he declares lower profit,
then he shall not be eligible to claim the benefit of provisions of 44 AD for 5 subsequent A.Y
7. If lower income is declared, following are the consequences
a. He will have to maintain books of accounts
b. He will have to get his books of account audited under section 44AB ( irrespective of
Turnover)
SEC 44ADA
Section 44 ADA- Computation of professional income on estimated
basis
1. The assessee is engaged in a profession referred in sec 44AA(1)
2. Gross receipts of the assessee from the profession does not exceed Rs 50
Lakh
3. If above two conditions are satisfied, income of the assessee shall be
calculated on estimated basis at a sum equal to 50% of the total gross
receipts
4. The assessee can voluntarily declare a higher income in his return
5. “NO” deduction is allowed in this case
6. If assessee declares lower income, following consequences are applicable –
a. He will have to maintain books of accounts
b. He will have to get his books of account audited under section 44AB
( irrespective of Turnover)
44AE
Section 44 AE- Taxpayer engaged in the business of plying, leasing or hiring trucks
1. (S)He/It is into plying, leasing or hiring trucks and (s)he /it does not own more than 10 goods
carriage at any time during the previous year.
2. Income to be calculated on estimated basis ;
1. For Heavy Goods vehicle- Profits/gains shall be an amount equal to Rs. 1,000 per ton of gross vehicle weight
( or unladen weight) for every month ( or part of a month) or an amount claimed to have been actually
earned from such vehicle, whichever is higher
2. Other than Heavy goods vehicle- Profits/Gains shall be an amount equal to Rs. 7,500 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 goods carriage, whichever is higher.
3. No further deduction is allowed.

Definition- Heavy Goods vehicle- Means any goods carriage the gross vehicle weight of which exceeds 12,000
Kg.
“Gross vehicle weight” means in respect of any vehicle the total weight  of the  vehicle and load certified and
registered by the registering authority as permissible for that vehicle (Section 2(15) of M.V. Act ).
Unladen Weight :- “unladen  weight” means  the weight  of a vehicle or trailer including all  equipment
ordinarily  used with  the vehicle or trailer when working,  but excluding  the weight of a driver or attendant;
and where alternative  parts or  bodies are used the unlade weight of the vehicle means  the weight  of  the 
vehicle  with  the  heaviest  such alternative part or body (Section 2(48) of M.V. Act )