Profit/Gain from business and profession carried on by the assesses at any time during the previous year.
In other words, Income from Business & Profession means profits and gains earned by doing business or profession during the year. Now we will learn what is Business & Profession?
What is Business & Profession??
A) Business
In simple term, business is an economic activity that involves exchange , purchase, sale or production of goods or services with view to earn profit. Business does not include income from profession and partnership firm. Business includes following:
- Trade
- Commerce
- Manufacture
- Adventure or concern in nature of trade, commerce or manufacture
For instance , Owning retail shop, running restaurant, real estate business, travel agency, and share broking etc.
B) Profession
Profession includes vocation, which means activity is pursued based upon one’s skill knowledge & talent. Further, it is an systematic learning through education or training. Profession includes following:
- Chartered Accountant
- Engineers
- Doctors
- Architectures
- Lawyers
- Medicals
- and legals
Basis of charge of income under Business & Profession
Business & Profession income is charged under section 28 of income tax act. Charge means taxability of income earned during the year.
Further, Any income generated from business and profession activities is charged under the head ”Income from Business and profession” .There are some income which is taxable under head income from business and profession are as follows:
- Any interest , salary, bonus , commission or remuneration received by partners from partnership firm in which he is a partner.
- Profit or gain of any business which is carried on by assessee at any time during financial year.
- Furthermore, amount received or receivable in cash or kind under an agreement for- not carrying out any activity in relation to any business or profession
- And, value of any benefit or perquisite whether convertible into money or not arising during course of any business or profession.
- Lastly, 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 a mutual association cannot be regarded as income chargeable to tax.
Maintaining books of accounts
In case of business , following criteria are met than maintenance of books of accounts are compulsory
=> Income if more than Rs. 1,20,000
=> Total Turnover,sale or gross receipt are more than Rs. 25,00,000. In any three immediately preceding the previous year.
Besides, there is some relaxation of criteria for the maintenance of books of accounts in case of Individual and Huf are as follows:
=> income is more than Rs. 2,50,000 or
=> Total Turnover,sale or gross receipt are more than Rs. 10,00,000. In any three immediately preceding the previous year.
Consequently For Profession , following criteria are met than maintenance of books of accounts are compulsory
If an assessee carrying out any of the above mentioned professions are requires to maintain books of accounts, if gross receipt from such profession is exceeds Rs.1,50,000 in any three immediately preceding the previous year.
Types of Business covered under “Income from business and profession head”
1.) Speculative Business and Profession
Speculative business means business that invest most of its earning and assets in big risk investment in order to make remarkable profit. As a name indicates, it includes profit/loss from doing speculative transactions.
In addition to above, income from this business is charged under this head and shown separately while filing income tax return.
2.) Non Speculative Business
Any business which is not speculative in nature is a non speculative business. Therefore, it includes profit/loss from business carried out by taxpayer in normal course.
For instance buying and selling of groceries, stationeries, etc. Moreover non speculative means where actual delivery takes place.
3.) Specified Business
Whereas, specified business includes profit and loss from business specified under section 35AD of the income tax act.
In brief ,specified business like setting up and operating cold chain facility and setting up as well as operating warehousing facility specially for storing of agriculture produce etc.
Expenses are allowed and disallowed from business and profession income
| Expenses allowed | Expenses disallowed |
| => Rent and insurance of building | *First, Interest, royalty, fees for technical services, etc, payable to a non-resident or outside India without deducting TDS and its payment; |
| => Depreciation on fixed assets | * Commission, interest, or brokerage, fees for professional services or fees for technical services payable to any resident person without TDS and its payment; |
| =>Next, travelling and conveyance expenses | * Income Tax; |
| =>Office expenses and Printing & stationery expenses | * Wealth Tax; |
| =>Payment for legal & professional services, and communication expenses. =>Preliminary and expenses on scientific research . | * Next ,any payment which is chargeable under the head “Salaries”, if it’s payable outside India, or to a non-resident, and the tax has neither been paid in India nor deducted therefrom; |
| =>Financial charges i.e. interest on loan, bank charges and bank commission expenses. | * Moreover, tax on non-monetary perquisite actually paid by employer on behalf of employee. |
| =>Remuneration, bonus and commission to employees. =>In addition staff welfare expenses. | * Sec. 40 A(2) amount paid by an assessee to a related person shall be disallowed to the extent it is excess or unreasonable as per the Assessing Officer. (Note: Related person includes both “Relative” and “Person having substantial interest”) |
| =>Advertising expenses in relation to promotion of business products. =>Further, business promotion expenses. | *In addition to above, according to the sec. 40 A(3) where any expenditure in respect of which payment is made in excess of Rs. 20,000 at a time otherwise than by account-payee cheque or draft, 100% of such payment shall be disallow. |
On the contrary ,the expenses which are allowes only on payment basis are as under:
According to the section 43B of income tax act certain payment should be allowed to be claimed as an expenses only in the year in which they have been paid not in the year in which they have become due. Thus expenses are allows on payment basis.
- Tax, duty ,cess or fees
- Bonus commission payable to employees
- Leave encashment
- Interest on loan or borrowings
- Remittance to Indian railways
- Interest on loans or advances etc.
- Lastly other payments as may be specified
