In this write-up we would like to discuss briefly different provisions applicable to Income from Business and Profession at one place
Incomes chargeable as Profits and Gains of Business or Profession:
Profit and gains from any business or profession carried on by the assessee at any time during the previous year.
Any compensation or other payment due to or received by any specified person
Income derived by a trade, professional or similar association from specific services performed for its members
Cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of Government of India
Any duty of Customs or Excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971.
Value of any benefits or perquisites arising from a business or the exercise of a profession.
Interest, salary, bonus, commission or remuneration due to or received by a partner from partnership firm
Any sum received or receivable for not carrying out any activity in relation to any business or profession
Any sum received or receivable for not sharing any know-how, patent, copyright, trademark, license, franchise, or any other business or commercial right or information or technique likely to assist in the manufacture of goods or provision of services.
Any sum received under a Key man Insurance policy including the sum of bonus on such policy
Any profit or gains arising from conversion of inventory into capital asset.
Income from speculative transactions. However, it shall be deemed to be distinct and separate from any other business.
Any foreign exchange gain or loss arising in respect of specified foreign currency transactions shall be treated as income or loss.
Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Govt. or State Govt. or any authority or body or agency to the assessee would be included. However, in the following cases subsidy or grant shall not be treated as income:
The subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset
The subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be.
Expenses Allowed as Deductions against Profits and Gains of Business or Profession
- Rent, rates, taxes, repairs (excluding capital expenditure) and insurance for premises
- Repairs (excluding capital expenditure) and insurance of machinery, plant and furniture
- Depreciation on buildings, machinery, plant or furniture, being tangible assets;
- Amortization know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature, being intangible assets
- Additional depreciation on new plant and machinery (other than ships, aircraft, office appliances, second hand plant or machinery, etc.).
- Deduction under section 32AC is available if actual cost of new plant and machinery acquired and installed by a manufacturing company during the previous year exceeds Rs. 25/100 Crores, as the case may be available to Company engaged in business or manufacturing or production of any article or thing.
- Investment allowance for investment in new plant and machinery if manufacturing unit is set-up in the notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal for All assessee who acquired new plant and machinery for the purpose of setting-up manufacturing unit in the notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal.
- Amount deposited in Tea / Coffee / Rubber Development Account by assessee engaged in business of growing and manufacturing tea/Coffee/Rubber in India.
- Amount deposited in Special Account with SBI / Site Restoration Account by assessee carrying on business of prospecting for, or extraction or production of, petroleum or natural gas or both in India.
- Revenue expenditure on scientific research pertaining to business of assessee is allowed as deduction.
- Contribution to approved research association, university, college or other institution to be used for scientific research shall be allowed as deduction.
- Contribution to an approved company registered in India to be used for the purpose of scientific research is allowed as deduction.
- Contribution to approved research association, university, college or other institution with objects of undertaking statistical research or research in social sciences shall be allowed as deduction.
- Capital expenditure incurred during the year on scientific research relating to the business carried on by the assessee is allowed as deduction
- Payment to a National Laboratory or University or an Indian Institute of Technology or a specified person is allowed as deduction. The payment should be made with the specified direction that the sum shall be used in a scientific research undertaken under an approved programme.
- Any expenditure incurred by a company on scientific research (including capital expenditure other than on land and building) on in-house scientific research and development facilities as approved by the prescribed authorities shall be allowed as deduction. Expenditure on scientific research in relation to Drug and Pharmaceuticals shall include expenses incurred on clinical trials, obtaining approvals from authorities and for filing an application for patent.
- Capital expenditure incurred and actually paid for acquiring any right to use spectrum for telecommunication services shall be allowed as deduction over the useful life of the spectrum.
- Capital expenditure incurred for acquiring any license or right to operate telecommunication services shall be allowed as deduction over the term of the license.
- Expenditure by way of payment of any sum to a public sector company/local authority/approved association or institution for carrying out any eligible scheme or project. Deduction in respect of `expenditure on specified businesses, as under:
- Setting up and operating a cold chain facility
- Setting up and operating a warehousing facility for storage of agricultural produce
- Building and operating, anywhere in India, a hospital with at least 100 beds for patients
- Developing and building a housing project under a notified scheme for affordable housing
- Production of fertilizer in India
- Deduction in respect of expenditure on specified businesses, as under:
- Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network;
- Building and operating, anywhere in India, a hotel of two-star or above category;
- Developing and building a housing project under a scheme for slum redevelopment or rehabilitation
- Setting up and operating an inland container depot or a container freight station
- Bee-keeping and production of honey and beeswax
- Setting up and operating a warehousing facility for storage of sugar
- Laying and operating a slurry pipeline for the transportation of iron ore
- Setting up and operating a semi-conductor wafer fabrication manufacturing unit
- Developing or maintaining and operating, or developing, maintaining and operating a new infrastructure facility
- Payment to following Funds are allowed as deduction:
- National Fund for Rural Development; and
- Notified National Urban Poverty Eradication Fund
- Expenditure incurred by a company (not being expenditure in the nature of cost of any land or building) on any notified skill development project is allowed as deduction
- An Assessee can amortize certain preliminary expenses (up to maximum of 5% of cost of the project or capital employed, whichever is more)
- Expenditure incurred after 31-3-1999 in respect of amalgamation or demerger can be amortized by an Indian Company
- Expenditure incurred under Voluntary Retirement Scheme is allowed as deduction.
- Insurance premium covering risk of damage or destruction of stocks/stores
- Medical insurance premium paid by any mode other than cash, to insure employee’s health under scheme framed by GIC of India and approved by Central Government; or scheme framed by any other insurer and approved by IRDA
- Bonus or commission paid to employees which would not have been payable as profit or dividend if it had not been paid as bonus or commission
- Interest on borrowed capital
- Employer’s contributions to recognized provident fund and approved superannuation fund
- Any sum paid by assessee-employer by way of contribution towards a pension scheme, as referred to in section 80CCD, on account of an employee.
- Employer’s contribution towards approved gratuity fund created exclusively for the benefit of employees under an irrevocable trust shall be allowed as deduction
- Deposit of employee’s contributions in their respective provident fund or superannuation fund or any fund set up under Employees’ State Insurance Act, 1948
- Bad debts which have been written off as irrecoverable
- Expenditure incurred by a company on promotion of family planning amongst employees is allowed as deduction.
- Any expenditure incurred by a notified corporation or body corporate constituted or established by a Central, State or Provincial Act, for the objects and purposes authorized by the respective Act is allowed as deduction.
- Securities Transaction Tax paid
- Amount equal to commodities transaction tax paid by an assessee in respect of taxable commodities transactions entered into in the course of his business during the previous year is allowed as deduction
- Amount of expenditure incurred by a co-operative society engaged in the business of manufacture of sugar for purchase of sugarcane.
- Any other expenditure [not being personal or capital expenditure and expenditure mentioned in sections 30 to 36] laid out wholly and exclusively for purposes of business or profession.