Income from business

1. Income from business/Profession By Prof. Augustin Amaladas M.Com., AICWA.,PGDFM., B.Ed. www.professoraugustin.com

2. Charging Section[Sec.28] Profits and gains of any profession/profession Any compensation received related business Income received from members of similar profession Any benefit or perquisites from business /profession Export incentives from government www.professoraugustin.com

3. Charging -Continue Any interest, salary, bonus, commission or remuneration received by a partner from firm. Sum received(compensation) from other company not to carry on any business for know how, patent, copy right, trademark. Profits and gains of managing agency www.professoraugustin.com

4. Meaning of business Profit motive Business and rendering services to others Business cannot be carried on with oneself www.professoraugustin.com

5. Export incentives Duty drawback import entitilement licences Are taxable u/s 28-Business/profession www.professoraugustin.com

6. Business income not taxable u/s 28 1. Rental income in case of dealer in property taxable under the head income from house property[u/s22]. 2. Dividend on shares in case of a dealer in shares- taxed under income from other sources [u/s 56]. 3. winning from lotteries (lottery business) taxed u/s 56-income from other sources. www.professoraugustin.com

7. Losses deductible from business income Loss due to natural calamity Loss due to non acceptance of goods Reduction in value of foreign currency which is meant for purchase of stock. Loss of cash/goods due to embezzelment, burglary, forfeiture of deposits. Loss of forgoing advance given by sugar industries to formers due to monsoon failure www.professoraugustin.com

8. Loss not deductible from business Loss due to destruction of Capital asset. Loss on sale of investments held as investment. Loss of advance to set up a business but business could not be started. Depreciation in value of foreign currency for capital purpose Anticipated future losses. Loss of discontinued business Loss from illegal business[T.A.Qureshiv.CIT(2006)SC] www.professoraugustin.com

9. Computation of assessable profits/loss for tax Net profit as per P/L Account Add: Amount debited to P/L A/c in respect of the following Loss of earlier years Capital losses Personal expenses (such as drawings) Income tax, surtax, wealth tax, gift tax, estate duty[Direct taxes], tax penalty, penal interest, fine. www.professoraugustin.com

10. Continues Add: Charity and donation Gifts and presents to others All reserves/provisions such as tax provision, Reserve for dividend, provision for bad debts except provision for depreciation All expenses related to other heads of income www.professoraugustin.com

11. Continues Add: Expenses not deductible u/s 40 and 40A Expenses debited to P/L A/C not admissible u/s 30 to 40A Add: Amount not credited to P/L A/c Deemed income Deduct :Income credited to P/L A/c but not chargeable under other heads www.professoraugustin.com

12. Continues Less: Salary income( income from salary(u/s 15) Rental incomeIncome from House property(u/s22) Capital gain(u/s 45) Dividend[ Income from other sources(56)] Direct taxes refund such as Income tax, Wealth tax, estate duty, surtax refunds Bad debts, excise duty recovered not allowed as expenditure preceding previous years Deduct: Expenses not debited to P/L A/c but allowed u/s 30 to 40A Depreciation u/s 32 Income chargeable under income from business/profession. www.professoraugustin.com

13. Specific deductions expressly allowed u/s 30 to 37 1.Rent (Sec.30) Repairs(including painting of a house ) Land revenue, local taxes and municipal taxes Insurance against risk of damage or destruction Not allowed: a) arrears of rent b) share of profit instead of rent c. www.professoraugustin.com

14. Repairs and insurance of machinery, plant and furniture(sec.31) Revenue repair-allowed Capital expenditure – not allowed Quantum of expenditure is not important www.professoraugustin.com

15. Depreciation Allowances(sec.32) Conditions: Asset must be owned by the assessee(Registration is not important),full control over asset,right to retain the possession and defend are characteristics of ownership. Used or ready to use for business purpose Used in the previous year Both tangible and intangible assets Right on occupancy on Lease property is entitled for depreciation If hirer purchaser has right over asset and hire seller will loose all rights- Depreciation is allowed. www.professoraugustin.com

16. Depreciation-Continues Insurance premium, repairs and other expenditure incurred on leased business asset are deductible in the hands of lessor. If any asset is fully controlled such as lease the capital expenditure incurred by lessee can provide depreciation[32(1)(ii). www.professoraugustin.com

17. Lease property Registered ownership is not necessary Sec. 53A of the transfer of property Act. If the assessee can be the co-owner to claim depreciation Any capital expenditure incurred by the person who takes building can provide depreciation on capital expenditure. Rules of Accounting Standard (AS19) not applicable for depreciation as per IT Act. www.professoraugustin.com

18. Hire purchase Conditions: Hire purchaser can provide depreciation if hire purchaser has uninterrupted right over the asset. The seller looses his right Who can provide depreciation? Hire purchaser. www.professoraugustin.com

19. Residential quarters If used by the assessee’s employees –depreciation is allowed. www.professoraugustin.com

20. 50% of rate of depreciation If an asset acquired during the previous year. Put into use or ready to use for less than 180 days. Exceptions:1. Put into use for less than 180 days but ready to use for more than 180 days –full rate of depreciation If asset purchased in the preceding year to current previous year but put into use for less than 180 days during the current previous year what is the rate of depreciation rate? If an asset is not used at all-No depreciation not only for first year but also for subsequent period www.professoraugustin.com

21. Full rate of depreciation. Can depreciation be provided on intangible assets such as know- how, patent rights, copy right, trade mark, licences, franchises etc. depreciation? www.professoraugustin.com

22. Meaning of Building and Plant Building means: Super structure only. It does not include site. Plant : Includes ships, vehicle, books, technical know-how report, scientific apparatus and surgical equipment. It does not include tea bushes or livestock or building or furniture and fittings. If assessee does not claim depreciation whether is depreciation available? www.professoraugustin.com

23. Method of depreciation Yes. Block asset method. What is block asset method? Similar nature of asset having the same rate of depreciation are clubbed together. www.professoraugustin.com

24. 100% depreciation? 1. Building acquired on or after September 1, 2002 forming part of water supply project 2. Pollution control equipments 3. waste control equipment 4.wooden parts used in artificial silk manufacturing machine 5.cinimatograph films 6. Books www.professoraugustin.com

25. Commercial vehicle If acquired and used before 31,March 2002. -Rate of depreciation is 50% . www.professoraugustin.com

26. calculation of depreciation Block value in the beginning Add:- Purchase of asset of the same block Less:- Net sale value of the consideration received/receivable in cash /cheque/draft if any of the block of assets sold during the year www.professoraugustin.com

27. Continuation Calculate depreciation of the balance amount. If it reaches to Zero value no more depreciation is allowed. If net sale consideration exceeds the block it amounts to short term capital gain. www.professoraugustin.com

28. continues Once asset is depreciated the gain on sale of block never be a long term gain Index can not be used for the calculation of capital gain. If all assets of the assets sold out but block continues it amounts to short term capital loss. www.professoraugustin.com

29. ###Intangible assets Depreciation is allowed at the rate of 25% Include: know- how, patent rights, copy rights, trade mark, licenses, franchises etc. www.professoraugustin.com

30. Imported Cars Purchased between March 1, 1975 and March 31, 2001 for hire for tourist- no depreciation is allowed if used in India for business purposes other than for hire for tourist Used outside india for business-alowed For hire for tourist-allowed After 31st March 2001- all purposes depreciation is allowed www.professoraugustin.com

31. Change in the ownership in any part of the year due to amalgamation , absorption or demerger Calculate depreciation for the previous year as if no amalgamation/re-organization taken place Apportion between the companies on time basis. www.professoraugustin.com

32. ###Computation of additional depreciation Manufacture or production of any article Purchased entirely new machinery Not used any part of the world Acquired and installed after March 31, 2005 Rate-20% If used less than 180 days-Half of the rate Excludes ships and aircrafts, used in the guest house, or office road transport vehicles www.professoraugustin.com

33. Actual Cost Total cost-subsidy Includes: interest on money borrowed before the asset is put into use Bank charges Loading Unloading www.professoraugustin.com

34. Actual cost-continues Modification before first put into use Training of staff to operate the machine Other related expenses required such as cold storage. Traveling expenses to acquire the asset www.professoraugustin.com

35. Un-absorbed depreciation Deduct the depreciation of the previous year from income from business or profession Deduct it from other heads of income except salary If not able to absorb-carry over to subsequent assessment year (s) – No time limit. www.professoraugustin.com

36. Subsequent assessment years Order of priority to set off: 1. current depreciation 2.Brought forward business losses 3. Un-absorbed depreciation Note: Continuity of business is not relevant. The same assessee only can carry forward www.professoraugustin.com

37. Depreciation on Straight Line basis/WDV Applicable to Power units(generating and distribution of power) Assets acquired after 31st march 1997. www.professoraugustin.com

38. Terminal depreciation If straight line depreciation method followed on power generating units sold after the use of such asset more than one previous year Terminal depreciation=WDV> Net Sale consideration Capital gain=Net sale>WDV www.professoraugustin.com

39. Tea, coffee and rubber development account[Sec.33AB] Deposit with NABARD or Deposit account of tea, coffee or rubber Board With in 6 months from the end of the previous year or before the last date of filing of returns whichever earlier Exemption: Amount deposited or 40% of profit whichever is less Can amount be withdrawn? www.professoraugustin.com

40. withdrawal Only for the purpose stated If unutilised within the previous year it is treated as income If business closed or dissolved-treated as taxable profit If death of the taxpayer/partition of HUF/liquidation of company will not be treated as income Purpose: installed in plant and machinery in low priority sector or entitled to get 100% depreciation. Maximum 8 years www.professoraugustin.com

41. Site restoration fund[sec.33ABA] Production of Petroleum /Natural gas in India Deposit with SBI/account opened as per petrolem and Natural Gas Commission In a scheme specified Before the end of the previous year Amount withdrawn should be used for low priority sector/100% depreciated and utiled within 8 years at the end of previous year. www.professoraugustin.com

42. ###Scientific research[Sec.35] In house research All Revenue expenditure and Capital expenditure related to one’s business during the current previous year or even 3*** preceding previous years allowed [Except Land] Even asset is not put into use –it is allowed. No depreciation is allowed on such capital asset If such asset is sold what could be the consequences? www.professoraugustin.com

43. If scientific asset sold? If not used for any other purpose: ***Sale or deduction already allowed whichever is less taxed as business profit. Capital gain=Sale-Cost (index if required) www.professoraugustin.com

44. Contribution to National laboratory Including University, IIT Weighted deduction= 1.25 times of contribution can be treated as Expenditure. ***Even approval is withdrawn after the payment to such institution the assesssee who contributed can enjoy the benefit www.professoraugustin.com

45. Expenditure on Patent rights and copy rights[35A] Capital Expenditure incurred before 1st April 1998 14 instalments After 1st April 1998-Depreciation can be claimed-25% Revenue expenditure-Fully allowed expenditure in the year such expenditure incurred. www.professoraugustin.com

46. Technical know how Only depreciation 25% allowed www.professoraugustin.com

47. Amortisation of telecom license fees[35ABB] Conditions Capital Expenditure Acquiring any right to operate telecommunication services Incurred before or after commencement of Business Mainly incurred to obtain license. If conditions fulfilled claim can be done u/s 35ABB otherwise u/s 37(1) as business expenditure. www.professoraugustin.com

48. Payment to associations and institution for rural development program Institutions approved before 1st March 1983 Deduction up to the amount paid www.professoraugustin.com

49. Amortisation of preliminary expenses Indian Company or resident non corporate assessee Foreign company excluded Legal charges on MOA, AOA,printing of MOA, AOA,Registration fees,expenses connected to issue of shares or debentures Is there any limit? www.professoraugustin.com

50. Limit of preliminary expenses