Profits and Gains from Business and Profession |
Posted: July 2, 2019 |
Both Individuals and entities in India are required to pay tax to the government on a certain amount of income they have earned of their respective sources. Also, while filing Income Tax Return these individuals and entities have to file details of their business activities performed and profits earned thereof during the year under the head Income from Profits and Gains from Business or Profession. As the head suggest Income from Profit and Gains of Business or Profession, it also specifies for inclusion of income of professionals who are rendering their services to others. In this article, you will get to know all about details to be filed and related provisions to be taken care off while filing the head Income from Profit and Gains from Business or Profession in your ITR form. Key Terms Business: As per Income tax act, Business is considered as any economic activity carried out for earning profit. Economic transactions here include any type of: a) Trade b) Commerce c) Manufacturing d) Or any adventure or concern related to the above activities. Profession: As per IT Act, Profession implies attainment of specialized knowledge as distinguished from mere skill acquired through study, practice, and application. Profit and Gains: Surplus receipts received from business or profession exceeding the expenditure necessary for earning those receipts. Chargeable Incomes Income from the following sources (Section 28 to Section 44) are chargeable under Profit and Gains of Business or Profession: - Profits and gains received out of total expenditure incurred from business or profession by the taxpayer. - Any compensation or payment received by any person on account of o Termination/modification of his or her agreement for wholly or substantially managing the affairs of any Indian Company or any other company. o Holding any agency in India for serving any part of activities or in relation to any termination or modification of contract with such agency. o Managing any company or entity owned or controlled by the government or in management of any property of the government. - Income derived by trade, profession or similar association from any specific services performed for its members. - Export incentives received including profits or gains on selling of import licenses, cash assistance received/receivable or as the case me be in relation to exports, duty drawbacks of customs and central excise duties, profit on transfer of duty entitlement passbook schemes or against certain related duty-free replenishment certificates. - Prerequisites or benefits received whether in cash or kind or in any other form in course of business or profession. - Interest, Bonus, Salary or profit received by any partner from his associated partnership firm. - Any sum received in cash or kind in the agreement of – non-carrying any activity in business or profession or not sharing any confidential information of business or profession. - Any sum received against any keyman insurance policy including additional amounts received with such policy like bonus etc. - Any sum received on account of demolishing, discarding or transferring of any capital asset (Section 35AD). Computation of Income from Profit and Gains of Business or Profession Step 1: Determine profit derived from business or profession Step 2: Make adjustment related to allowable expenses and non-allowable expenses as per IT Act. Step 3: Add Expenses not allowed as per Income tax act to be deducted - back to profits Step 4: Debit all allowed expenses to be deducted but not debited to profit and loss account. Step 5: Add incomes chargeable to tax to profits and remove non-taxable incomes under the head. = Net Income from Profit and Gains of Business or Profession Deductions allowed from Profits or Gains of Business or Profession To compute income under the head Income from Profit or Gains of Business or Profession the following deductions are permissible to be deducted (Section 30 to 37, Section 43): - Rent, rates, taxes, insurance paid for premises actually incurred for business or profession (excluding any capital expenditure) - Expenses incurred for repairs, not of capital nature. - Depreciation charged on specified tangible and non-tangible assets (Section 32(1). - A specified percentage of cost of new asset placed for business or profession (Section 32AC) - For investment made in plant and machinery in any notified region or backward area (Section 32AD). - Expenses incurred on Scientific research related to business ( Section 35(1)). - For Investment made in any Tea/Cofee/Rubber manufacturing plant ( Section 33AB) or deposited in any Special Site Restoration Fund ( Section 33ABA). - For expenditure incurred on notified agriculture development projects ( Section 35CCC). - For amortization of expenses incurred on preliminary activities ( Section 35AD) - For insurance paid to cover different risks of business or profession ( Section 36). - Other expenditure not of capital, personal or out of all stated above sections, made for the smooth running of business or profession. ( Section 37). Received Capital Gains ? Want assistance in ITR Filling Online ? TaxGoal is a one-stop solution for all your tax worries online. Working as the leading Income tax service provider in Delhi, we holds expertise of dealing with veiling tax problems of our clients. Our experts guide and provide assistance on all business financial matters whenever required. Email us at [email protected]
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