Dit Business n Profession

7/25/2019 Dit Business n Profession

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PROJECT REPORT

ON

INCOME FROM BUSINES & PROFESSION

Mcom Part - 2

SEMESTER 3

SUBMITTED TO

UNIVERSITY OF MUMBAI

Pr!ar" #$%

Mcom Part - 2

RO NO'

UNDER (UIDANCE OF%

PROF'


2/22

DECARATION

I) M*++ ------------------------------------- St,"t o. ------------------ co//a0)

Mcom Part -2' 13 - SEMESTER r#$ "c/ar+ tat I a4 com!/t"

t !ro5ct o INCOME FROM BUSINESS & PROFESION * t

aca"m*c $ar 2678 9 267:'

T *.ormat*o +,#m*tt" *+ tr, a" or*0*a/ to t #+t o. m$

;o


3/22

AC=NO>ED(EMENT

A great teacher is not simple one who imparts knowledge to his

student, but one who awakens their interest in it and makes them eager to

pursue for themselves.

This idiom without doubt, fit with Prof. who has been

my teacher guide. She guide me and gave knowledge in detail & help me to

make a very effective project. So this project work from bottom of my heart

! thank her for her precious time that she spent for me for my project work.

!t is a matter of utmost pleasure to e"press my ineptness & deep sense

of gratitude, to various persons who e"tend their ma"imum help to supply

the necessary information for present these that became available account of

most selfless co#operation. ! am grateful to my parents & friends who

encouraged & inspired me at every stage of present work by providing

immeasurable love affection care & moral support.


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INDE?

Sr'No T*t/

7 E?PANATION

2 MET@ODS OF COMPUTIN( TA?ABE INCOME

3 BASIC OF C@AR(E% SECTION 2

DEDUCTION FOR E?PENSES SECIFICAY AO>ED

SEC' 36 TO 3 D

8 PROBEM

: E?PENSES OR PAYMENT NOT DEDUCTIBE IN

CERTAIN CASES UNDER SEC 6 A


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MET@OO(Y

T*+ !ro5ct *+ m*t,r o. tort*ca/ a+


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INCOME FROM BUSINESSPROFESSION

$usiness is an activity of purchase and sell of goods with the

intention of making profit. Profession is an occupation re%uiringintellectual skill. .g. 'octor, (awyer etc. )ocation is an activity,

which re%uires a special skill, which is used to earn income. e.g.

Painter, Singer etc. *or income ta" purpose there is no difference

between business income, profession income and vocation income.

Section + - / 0 $usiness

$usiness includes any trade, commerce or manufacture or any

adventure or concern in the nature of trade, commerce ormanufacture.

"planation0

Thus business is any activity carried out with the intention to

earn profit, whether such an activity is continuous or temporary is

immaterial.

!n determining whether a particular transaction is an

adventure in the nature of trade or not, total impression and effectof all relevant facts and circumstances of the transaction have to be

seen. To bring a transaction within the term 1 business2, the

transaction must be a 1trade2 or in the nature of 1trade2. 3ence

everything depends upon the facts and circumstances of the case.

.g. A person making investment of surplus funds in shares or

debentures cannot be deemed to be carrying on the business of

trading in shares although occasionally he may be selling 1some2

shares or debentures and making gains thereon.


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MET@ODS OF COMPUTIN( TA?ABE

INCOME

-. 4ross Sales or 4ross fees as the case may be are to betaken as the base if 5eceipt and Payment A6c or cash $ook is

given. *rom this 4ross income e"penses which are specifically

allowed by the income ta" act are deducted to arrive at ta"able

income.

+. !f profit & loss a6c or income & e"penditure a6c is given

7et Profit or Surplus/ is taken as the base and then following

adjustments are made0

-/ "penses, which are debited, to profit & loss a6c, but

disallowed by the !ncome Ta" Act and either fully or partially are

added back.

+/ "penses, which are not debited, to profit & loss a6c but

which are allowed by the !ncome Ta" Act are deducted.

/ !ncome that is credited to profit & loss a6c but not ta"able

at all or ta"able under some different head is to be deducted.

8/ !ncome that is not credited to profit & loss a6c, but which ischargeable to ta" as business income is to be added.

BASIS OF C@AR(E% SECTION 2

9nder Section +: following are the income chargeable to ta"

under the head Profits or 4ains from $usiness or profession0

-/ Profits and 4ains of any business or profession that is

carried on by the assessee at any time during the previous year.

+/ Any compensation or other payment due to or received by

an assessee for loss of agency due to termination or modification of

terms.

/ !ncome derived by a trade, professional or a similar

association for specific services performed for its members.

8/ Any profit on sale of a license granted under !mports

controls/ ;rder -


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=/ Any cash assistance by whatever name called/ received or

receivable against e"ports under any scheme of 4overnment of

!ndia.

?/ Any duty of customs or e"cise repaid or repayable asdrawback to any person against e"ports under the @ustoms and

@entral "cise 'utys 'rawback 5ules --.

>/ Any profit on the transfer of the 'uty entitlement pass

book scheme under e"port import policy.

:/ Any profit on the transfer of the 'uty free replenishment

certificate under e"port import policy.


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depreciation on such asset shall be restricted to =BE of the normal

depreciation.

7o depreciation is allowed on motor car which is

manufactured outside !ndia and ac%uired on or after -st Darch-= but before -st April +BB-. 3owever, this restriction does not

apply if0

-/ Assessee carries on a business of running the car on the

hire for tourist, or

+/ !f assessee is using the car outside !ndia for his business in

another country.

!f business is carried on in a building not owned by theassessee but ac%uired on lease or any other occupancy right and

any capital e"penditure is incurred by him in respect of this

building, such e"penditure will be considered as cost of asset as if

he is the owner of such property.

A'MET@OD OF CACUATIN(

DEPRECIATION

-. @onsider total F.'.). of assets falling in a particular block

of assets at the beginning of the year.

+. Add cost of assets purchased during the previous year.

. 'educt Sale Price or Scrap value/ of asset sold, discarded,

demolished or destroyed during the year.

8. ;n the balance amount i.e. -G+, calculate depreciation at

the given rate. !f F') becomes negative, no depreciation is

allowed. !f all assets in the block are sold depreciation is notallowed even if block has any balance F').

$. !n the first year if asset ac%uired is used for less than -:B

days depreciation is restricted to =BE of normal depreciation.

@. F.e.f. A.H. -


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8/ ;ne machine F.'.). of which at the beginning was I >,BB

B was sold for I -?,BBB. =/ 5ate of depreciation -=E.

iii/

-/ $lock of assetPlant & Dachinery

+/ F.'.). on -st April +B- I =B,BBB.

/ Dachines purchased during the year

a/ ;n -=th Day +B- I +B,BBB

b/ ;n -:th ;ct +B- I 8,BBB

8/ 5ate of depreciation -BE

iv/

-/ F.'.). as on -st April +B- I ?B,BBB

+/ Purchases on Bth Darch +B-8 I -B,BBB

/ Sales F.'.). I :,BBB, Selling Price I =,BBB.

8/ 5ate of depreciation -=E. =/ $lock of Assets0 *urniture

v/ !f selling price is I ?+,BBB in case iv/ find the amount of depre

ciation.

vi/ F') on -.8.+B- I -?,BBB

All assets sold for I 8,BBB

5ate of depreciation -BE

vii/ *ollowing assets were ac%uired for a new business . *orm blo

ck of assets & calculate depreciation0

Particulars 5ate of 'epreciation @ostI/

-. $uilding =E ?B,BB,BBB+. Dachinery +BE +,BB,BBB

. Dachinery 8BE ,BB,BBB

8. Dachinery =BE -,BB,BBB

I4+tmt A//o


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This deduction is allowed for A.H. +B-8-= & +B-=-? only

to a @ompany engaged in manufacture and invests more than I -BB

crores in new plant and machinery during the period between -st

April +B- & -st Darch +B-=. This deduction is allowed inaddition to normal and additional depreciation.

Act,a/ D",ct*o0 a. !n A.H. +B-8-= -=E of actual cost of

new assets ac%uired and installed in the previous year +B--8 b. !n

A.H. +B-8-= -=E of actual cost of new assets ac%uired from -st

April +B- to -st Darch +B-= as reduced by deduction allowed in

A.H.+B-8-=.

!f asset on which this deduction is claimed is transferred

within = years from the date of installation then the amount thatwas allowed as deduction shall be treated as business income in the

year in which it is transferred.

E!"*t,r o Sc*t*.*c R+arc US 38

Scientific 5esearch means any activities for the e"pansion of

knowledge in the fields of natural or applied science including

agriculture, animal husbandry or fisheries. The followinge"penditure on scientific research is allowed as deduction0

a/ 5evenue e"penditure incurred for scientific research

related to assessees business will be fully allowed. This may be the

payment of any salary to the persons engaged in scientific research

or purchase of materials for use in such scientific research.

b/ @apital e"penditure incurred on scientific research related

to assessees business, will be allowed in full, however purchase of

land is not allowed. 7o depreciation is allowed u6s + in respect ofsuch asset during the previous year and subse%uent year.

c/ @ontribution made to approved scientific research

association or college or university or other approved institutions

for scientific research and to approved university, college or

institution for for the use of scientific research is allowed. Above

may or may not be related to assessees business & a weighted

deduction of -.>= times of amounts paid is allowed as a

deduction.


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d/ @ontribution made to approved university, college or

institution for research in social science or statistical research is

allowed. Above may or may not be related to assessees business &

a weighted deduction of -.+= times of amounts paid is allowed as adeduction.

e/ Any sum paid to a 17ational laboratory2 or !.!.T. or a

university or a specified person approved by prescribed authority,

to be used for scientific research under an approved program, will

be allowed deduction of + times of the amount so paid J Sec.

=+AA/K.

f/ !n case of a company engaged in manufacture or

production of any drugs pharmaceuticals, electronic e%uipments,computers, telecommunication e%uipments, chemicals or any other

article or thing notified by the board, incurs any e"penditure on

scientific research e"cluding the cost of land and building/ or in

house research and development facility as approved by the

prescribe authority, a weighted deduction of + times of such

e"penditure shall be allowed. The weighted deduction which was

allowed in respect of such e"penditure u6s =A$/ will not be

considered for any deduction under any other provision of this Act.This weighted deduction is allowed subject to the condition that the

research and development facility is approved by the prescribed

authority and the company has entered into an agreement of

cooperation and for audit of the accounts maintained for this

purpose. The prescribed authority shall submit the report of the

approval of the said facility to the director 4eneral in such form

and within such time as may be prescribed. This sub section is

amended to allow the said deduction in respect of e"penditureincurred upto -st 'ay of Darch +B-+.

' D",ct*o ,+' 3: & 3G%

-. !nsurance0 Section ?-/ i/ Premium paid to cover the

risk of damage or destruction of stocks, stores, cattle and on health

of employees under the approved scheme.


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+. !nsurance Premium paid by *ederal milk coop. society on

the lives of cattle owned by the members of a Primary Dilk @oop,

Society affiliated to it. Section ?-/ ia/

. Premia for insurance on health of employees in accordance

with scheme framed by 4!@ & approved by @entral 4overnment or

any other insurer & approved by the !nsurance 5egulatory &

'evelopment Authority only if paid by che%ue/ Section ?-/ ib/.

8. $onus or commission paid to mployees0 Section ?-/

ii/0 !t is allowed as deduction so far as they are not paid as profit or

dividend.

=. !nterest on borrowed capital0 Section ?-/ iii/0 !t is

allowed as deduction. 3owever, interest paid by firm to its partners

is allowed subject to provisions of Sections 8Bb/.

?. 'iscount on Lero coupon bonds is deductible by issuing

@ompany on pro rata $asis Sec.?-/iii a/

>. @ontribution to recognised Provident fund or an approved

super annuation fund0 Section ?-/iv/.Any sum paid by the

assessee as an employer by way of contribution towards pension

scheme.

:. @ontribution to Pension Scheme0 Sectlon ?-/iv a/ Any

contribution by an employer by way of contribution towards a

pension scheme for an employee up to -BE of salary shall beallowed as deduction.


16/22

allowed as deduction when such contribution is credited to

employees a6c on or before the due date. !t is allowed as deduction

not because it is an e"penditure of the assessee. !n fact, it is not at

all an e"penditure of the assessee. $ut when this amount isdeducted from salary of employees, it is treated as an income under

section ++8/"/. Therefore, deduction is allowed when payment is

made by the due date.

--. Animals used for the business0 Section ? -/

vi/0 'eduction is allowed when animals have died or have

become permanently useless. Amount of deduction will be

difference between actual cost of the animals and amount realisedif any in respect of carcasses of the animals. 'eduction is allowed

only if animals are used for the purpose of business but not as stock

in trade.

-+. $ad debts0 Section ?-/vii/ and Section ?+/0

'eduction is allowed on this account if debts have arisen out of

business transaction. !t is the responsibility of the assessee to prove

to the satisfaction of income ta" officer that such debts areirrecoverable.

-. "penditure for promoting family planning0 Section ?-/

i"/0 ;nly a company can claim this deduction. Any e"penditure

incurred by a company to promote family planning among its

employees is allowed as deduction fully, provided it is revenue

e"penditure. Any capitale"penditure on this account is allowed as

deduction in = e%ual instalments. !f profit is not sufficient to absorbthis e"penditure it can be carried forward to be set off in future. 7o

depreciation can be claimed under section + on capital assets used

for promoting family planning and allowed as deduction under

section ?-/i"/.

-8. Any amount of banking cash transaction ta" paid during

the year. ?-/"iii/ -8. 4eneral "penditure for the purpose of

business or profession Section >0 Any other e"penditure not

covered by section B to ? which is of revenue nature will be


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allowed as deduction provided it is incurred e"clusively for the

purpose of business or profession. e. g

-. mbeLLlement of cash.

+. "penses on local festival such as 'iwali, Duhurta etc.. @ash shortage found in the business at the end of the day.

8. ntertainment "penses

=. Advertisement "penses

?. Travelling "penses

>. 4uest 3ouse "penses.

:. (awful e"penses related to illegal business.


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+. 5.'.'. $ut deduction is allowed for actual bad debts

+8. Personal motor e"penses

+=. (.!.@. on own life.

+?. Any !nvestments+>. Any e"penses related to let out house property.

+:. "penditure on Advertisement Section >+$/0 !t is

allowed as deduction. 3owever, as per Section > +$/, any

e"penditure incurred by an assessee on the advertisement in any

souvenir, brochure, pamphlet etc. published by a political party will

not be allowed as deduction.

+


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deduction. . !nterest to partners M !nterest on capital of

partners is allowed as deduction provided it is authoriLed by

the partnership deed & rate of interest does not e"ceed -+E

p.a.

E?PENSES OR PAYMENTS NOT DEDUCTIBE IN

CERTAIN CASES UNDER SECTION 6 A

7' Pa$mt+ to crta* !r+o+


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!f e"penses are incurred in earlier years and remained

outstanding in that year but deduction was allowed on accrual

basis and if actual payment e"ceeding I +B,BBB/ is made in the

ne"t year in cash it will be considered as if e"penditure allowedearlier as deduction was wrong & necessary amount will be

added to income of year in which it is paid.

3owever, 5ule ?'' provides for e"ceptional or unavoidable

circumstances where payments e"ceeding I +B,BBB are to be

made in cash. Taking into consideration genuineness of such

transaction they will be allowed as deduction.

Fith effect from ;ctober -, +BB


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Any contribution mentioned above shall not be allowed as

deduction. This provision does not apply to contributions to

recognised P*, approved gratuity & super annuation fund etc.

:' D",ct*o ,"r +ct*o 3%

D*+a//o


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