income from pgbp 3 m.pptx

Income from Profits & gains of business/profession

1. INCOME FROM PROFITS & GAINS OF BUSINESS OR PROFESSION ~ PRESENTED BY: ~CA.GEETI GROVER ARORA ~FCA.,B.COM, DISA,PGDBA(FINANCE) ~ 9888337431 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 1

2. Income from ‘Profits and Gains of Business or Profession Sections 28 to 44D Basis of Charge Important rules regarding assessment of PGBP Computation of Profits of Business or profession Deductions expressly allowed Expenses expressly disallowed 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 2

3. The term ‘Business’ & ‘Profession’ Business is an activity of purchase and sale of goods with the intention of making profit. Profession is an occupation requiring intellectual skill. E.g. Doctor, Lawyer, CA etc. Vocation is an activity, which requires a special skill, which is used to earn income. E.g. Painter, Singer etc . For income tax purpose there is no difference between business income, profession income and vocation income. Section 2 (13): Business Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 3

4. To judge a transaction as business transaction, following points should be considered – 1. Nature of commodity 2. Nature of transaction (Whether incidental to a business or not) 3. Intention of the related party 4. Duration of transaction 5. Effort applied in transaction. Sec . 2(36) Profession: Profession means the activities for earning livelihood which require intellectual skill or manual skill, e.g. the work of a lawyer, doctor, auditor, engineer and so on are in the nature of profession. Profession includes vocation. Vocation : Vocation implies natural ability of a person to do some particular work e.g. singing, dancing, etc. Here, no training or no qualification is required but having natural ability. Profits : Excess income over expenditure. Gains : Any incidental revenue from business. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 4

5. Explanation : ‐ Thus business is any activity carried out with the intention to earn profit, whether such an activity is continuous or temporary is immaterial. In determining whether a particular transaction is an adventure in the nature of trade or not, total impression and effect of all relevant facts and circumstances of the transaction have to be seen. To bring a transaction within the term “business”, the transaction must be a “trade” or in the nature of “trade”. Hence everything depends upon the facts and circumstances of the case. E.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 “some” shares or debentures and making gains thereon. In the case of Chennai Properties & Investment Ltd., it was laid out that the rental income from the properties of a company whose main object is of letting out properties, shall be taxable under comes under income from PGBP (Profit & Gains from business & profession) and not income from HP (House Property ). 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 5

6. METHOD OF COMPUTING TAXABLE INCOME 1 . Gross Sales or Gross fees as the case may be, are to be taken as the base, if Receipt and Payment A/c or cash Book is given. From this Gross income, expenses which are specifically allowed by the income tax act are deducted to arrive at taxable income. 2 . If profit & loss a/c or income & expenditure a/c is given Net Profit or (Surplus) is taken as the base and then following adjustments are made: ‐ 1 ) Expenses, which are debited to profit & loss a/c but disallowed by the Income Tax Act and either fully or partially are added back. 2 ) Expenses, which are not debited, to profit & loss a/c but which are allowed by the Income Tax Act are deducted. 3 ) Income that is credited to profit & loss a/c but not taxable at all or taxable under some different head is to be deducted. 4 ) Income that is not credited to profit & loss a/c, but which is chargeable to tax as business income is to be added. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 6

7. BASIS OF CHARGE – Sec.28 The following incomes are chargeable to income tax under the head ‘PGBP’: Revenue Profits from Business or Profession : The profits and gains of any business or profession which was carried on by the assessee at any time during the previous year. Any Compensation due to or received by an agent : Any compensation or other payment due to or received by an agent, managing the whole or substantially the whole of the affairs of any person, at the termination his management. Income of trade association : Income derived by a trade, professional or similar association from specific services performed for its members. Remuneration to partner from the firm Interest on securities Income from speculative transaction : Sec. 43(5) Speculative Transaction : Speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 7

8. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 8 Amount received or receivable for certain agreement : a) Not carrying out any activity in relation to any business or b) Not sharing any know-how, patent, copyright, trade mark, license, franchise or any other business or commercial right of similar nature or information or technique . Keyman Insurance Policy : Any sum received under a keyman insurance policy including the sum allocated by way of bonus on such policy . Receipts in connection with foreign trade : a) Profit on sale of import license. b) Duty Draw back / Duty remission (decrease) scheme / Duty free replenishment (refill) certificate. c) Cash Assistance. d) Profit on sale of Duty Entitlement Passbook. e) Repayment of any customs or excise duty to any person against exports.

9. Computation of Income from Business or Profession According to Section 29, the profits and gains of any business or profession are to be computed in accordance with the provisions contained in Section 30 to 43D . Admissible Deduction (Sec. 30 to 37) Inadmissible Deduction (Sec. 40) Expenses or payments not deduct in certain circumstances (Sec. 40A) Profit Chargeable to Tax (Sec. 41) Other Provisions 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 9

10. Rules for adjustment of Profit and Loss Account prepared by the Assessee The profit and Loss Account prepared by the assessee is not correct from the income tax point – a) Several expenses are charged to it which are wholly or partly inadmissible. b) Some admissible expenses are omitted. c) Some taxable income are not credit d) Some such incomes are credited which are either not taxable under the head PGBP or are not taxable at all . 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 10

11. Proforma for computation of Income under the head PGBP PARTICULARS Rs Rs Profit as per P & L A/c XXX ADD i ) Expenses or losses disallowed but charged in P & L A/c XX ii) Incomes taxable as business income but not credited to the P & L A/c XX iii) Expenses in excess of the allowed amount charged to P & L A/c XX iv) Under valuation of closing stock or over valuation of opening stock XX XXX DEDUCT i ) Expenses or losses allowed but not debited to P & L A/c XX ii) Incomes not taxable as business income but credited to the P & L A/c XX ii) Income exempt from tax but credited in P & L A/c XX iii) Over valuation of closing stock and under valuation of opening stock XX XXX Taxable income from Business XXX 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 11

12. Deductions Expressly Allowed (Sec. 30 to 37) Sec. 30 : Expenses in respect of business premises : Revenue expenses for use of premises for business or profession is allowed. a) Premises are occupied as tenant : Rent, Repair, Insurance and Tax. b) Premises are occupied as owner : Repair, Insurance and Tax. NOTE : If the business premise belongs to the assessee no deduction in respect of rent will be allowed. If the assessee is a partnership firm and the business premises belongs to a partner of the firm, the rent payable to the partner will be an allowable deduction. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 12

13. Sec. 31 : Revenue Expenditure on Plant and Machinery / Furniture and Fixture : Revenue expenditure incurred on current repairs and insurance premium incurred on plant and machinery / furniture and fixture is allowed. [Rent and taxes are allowed u/s 37] NOTE : Capital expenditure shall not be included in repairs. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 13

14. Sec. 32 : Depreciation : Difference between Depreciation under Accounting Rules and Taxation Rules Accounting System Taxation System Charges against profit. . Allowances in nature WDV / SLM method is allowed. Only WDV method is allowed. (Electricity Generation Unit can adopt SLM Method) Depreciation is charged on Individual Asset Depreciation is charged on Block of asset. On the basis of number of days asset USED 50% of normal Depreciation (If asset is used below 180 days) or Normal Depreciation. Only on Tangible Asset. Tangible and Intangible asset Life of the asset. Prescribed rate. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 14

15. Category of Asset : Five categories of asset. I. Building - Residential Purpose (5%) Business Purpose (10%) Installing Plant and Machinery / Temporary Building (40%) II. Furniture and Fittings . – 10% III. Machinery and Plant - General (15%) Motor Car used on hire (15%) Motor Car used for own business (30% ) Remaining Assets (40%) [Books, Computers / etc ] IV. Ships – 20% V. Intangible Asset (Know-how, Patents, Copyrights, Trademarks, Licenses, Franchises or Commercial rights ).- 25% 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 15

16. Format for computation of Depreciation : Opening WDV of block XXX ADD Actual Cost of asset acquired during P.Y XX LESS Money payable in respect of asset sold / discarded / damaged, etc XX WDV for Depreciation XXX LESS Depreciation at prescribed rate XX Closing WDV XXX 50% of normal Depreciation : If any asset is acquired and put to use not to excess of 180 days during same previous year then assessee can get the benefit of depreciation only 50% of normal depreciation . 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 16

17. ADDITIONAL DEPRECIATION Additional depreciation is allowed on any new plant and machinery (other than ships and aircraft) acquired or installed after 31.3.2005 engaged in business of manufacture or production of any article or business of power 20% of actual cost . additional dep @10% ( 50% of 20 % ) , if asset put to use for less than 180 days. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 17

18. ILLUSTRATION: MR X a proprietor engaged in manufacturing business Opening balance of plant and machinery as on 1.04.2021 is Rs 30,00,000. New plant and machinery purchased and put to use on 08.06.2021 Rs 20,00,000 New p /m acquired and put to use on 15.12.2021 Rs 800000 Computer acquired on 02.01.2022 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 18

19. PARTICULARS P/M COMPUTER NORMAL DEPRECIATION 15% ON 50,00,000 ( 30,00,000+20,00,000) 750000 7.5% on 800000 ( 50% of 15% as asset put to use for less than 180 days 60000 20% on 300000 ( 50% of 40% since put to use for less than 180 days ) 60000 ADDITIONAL DEPRECIATION 20% on 2000000 ( new plant and machinery put to use for more than 180 days) 400000 10% on 800000 (50% of 20% since put to use for less than 180 days ) 80000 TOTAL DEPRECIATION 12900000 60000 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 19

20. Sec. 33AB : Tea, Coffee and Rubber Development Account a ) The assessee should deposit in special account with the National Bank for Agricultural and rural Development . b ) The deposit should be made within a period of six months from the end of the PY or before furnishing the return of his income, whichever is earlier. c ) Limit : Sum equal to deposited or 40% of profits of such business (before making deduction under this section and before setting off brought forward business losses), whichever is less. d ) Utilization of funds : Must be used in the same previous year in which it is withdrawn. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 20

21. Illustration: 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 21

22. Solution: 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 22

23. Calculation of Deduction: 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 23

24. Calculation of Deduction: 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 24

25. Sec 33ABA : Site Restoration Fund Deduction will be allowed in respect of prospecting, extraction or production of petroleum or natural gas in India. It is necessary that, agreement with central government. a ) The assessee should deposit in special account with the State Bank of India. b ) The deposit should be made within a period of six months from the end of the PY or before furnishing the return of his income, whichever is earlier. c) Limit : Sum equal to deposited or 20% of profits of such business (before making deduction under this section and before setting off brought forward business losses), whichever is less. 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 25

26. Section 35 : Expenditure on Scientific Research a) Scientific Research : It means activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries. b) Scientific Research Expenditure : It means expenditure incurred on scientific research would include all expenditure incurred for the prosecution or the provision of facilities for the prosecution of scientific research but does not include any expenditure incurred in the acquisition of right in or arising out of scientific research. In-house Research : A deduction of an amount equal to 150% of expenditure (excluding land or building) shall be allowed. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 26

27. SCIENTIFIC RESEARCH SELF Incurred before commencement of business Incurred regularly with business OUTSIDE AGENCY Within 3 years immediately preceding the commencement of Business Revenue Exp. Capital Exp. (Except Land) 100% 100% Social or Statistical Research 100% . Scientific Research 150%. Research Association / National Laboratory / University /College/ IIT . Revenue Exp. 100% Indian Company Capital Exp. (Except Land) 100% 100% 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 27

28. CONTRIBUTION BY AN ASSESSEE TO OTHER OUTSIDE ITS BUSINESS;  Provisions of Section 35(1)(ii)/(iii) allows deduction of Scientific Expenditure, where an assessee does not carry Scientific Expenditure of its own but makes contribution to below mentioned Universities, IITs and organisations . The government has reduced amount of deduction allowed from   AY 2021-22 ; 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 28

29. 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 29

30. 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 30 3. Scientific Research may or may not related to the business of the taxpayer; 4 . The Approved Scientific Research Company must have Scientific Research as its main object 5 . Approved Scientific Research Company must have approval from prescribed authority;   6 . The Approved Scientific Research Company fulfils such other rules and regulations as may be prescribed. 

31. Amendment to sub-section (1A) of section 35 of Income Tax Act, 1961 Sub-section (1A) to section 35 of the Act was inserted by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from the 1st April, 2021. It mandated the research association, university, college or other institution referred to in clause (ii) or clause (iii) or the company referred to in clause ( iia ) of sub-section (1) of section 35 of the Act to file the statement of donations received by these entities from the donors . The present language reads that no deduction shall be allowed to the research association, university, college or other institution referred to in clause (ii) or clause (iii) or the company referred to in clause ( iia ) of sub-section (1) of section 35, if such statement of donations is not filed. However, that was not the intention of the law. The deduction claimed by the donor needs to be dis -allowed in such cases. In section 80G of the Act similar provisions were introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from the 1st April, 2021, whereby the deduction claimed by the donor under this section was disallowed in case the donee fails to furnish the statement of donations. 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 31

32. Amendment to sub-section (1A) of section 35 of Income Tax Act, 1961 Hence, it is proposed to amend sub-section (1A) of section 35 of the Act to provide that the deduction claimed by the donor with respect to the donation given to any research association, university, college or other institution referred to in clause (ii) or clause (iii) or the company referred to in clause ( iia ) of sub-section (1) of section 35 of the Act shall be disallowed unless such research association, university, college or other institution or company files the statement of donations. (iii) This amendment will take effect retrospectively from 1st April, 2021. 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 32

33. Sec. 35 AD : Expenditure on Specified Businesses : For Specified Businesses, Section 35AD provides an investment-linked tax credit. One such specific enterprise is the construction and operation of a cross-country natural gas, cured, or petroleum oil pipeline network for distribution, with storage facilities as a benign component of the network . 100 % expenditure of capital nature is allowed [Excluding land, goodwill, financial instrument] - Deduction is allowed in the year in which business is commenced – a) Expenditure incurred prior to commencement of its operations. b) The amount is capitalised in the books of accounts on the date of commencement of its operations. - Payment of Rs. 10,000 in a day should not be made in cash . 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 33

34. Specified Businesses: 1. setting up and operating a cold chain facility; 2 . setting up and operating a warehousing facility for storage of agricultural produce; 3 . 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; 4 . the business of building and operating anywhere in India, a hotel of two-star or above category, as classified by the Central Government; 5 . building and operating, anywhere in India, a hospital with at least 100 beds for patients; 6 . developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; 7 . developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; 8 . production of fertiliser in India; 9 . setting up and operating an Inland Container Depot or Container Freight Station notified and approved under the Customs Act, 1962; 10 . bee-keeping and production of honey and beeswax; and 11 . setting up and operating a warehousing facility for storage of sugar. 12 . laying and operating a slurry pipeline for the transportation of iron ore; 13 . setting up and operating a semiconductor wafer fabrication manufacturing unit, if such unit is notified by the Board in accordance with the prescribed guidelines; 14 . developing or maintaining and operating or developing maintaining and operating a new infrastructure facility 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 34

35. Illustration: 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 35

36. Solution: 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 36

37. Computation of Income of specified business: 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 37

38. 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 38

39. Sec. 35D : Amortization (paying off) of Preliminary Expenses : Preliminary expenses includes – 1. Preparation of feasibility report, 2. Preparation of project report 3. Conducting market survey. 4. Legal charges for drafting any agreement. 5. Printing charges for the Memorandum and Articles of As Deduction : Deduction is allowed is 1/5 of such expenditure for each of the five successive previous year beginning with the previous year in which the business is commences . 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 39

40. Maximum Limit: 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 40

41. Illustration: ABC ltd. incurred Rs. 7000 as pre-incorporation expenses and it’s paid up capital is Rs. 1,00,000 . And it’s actual cost of a fixed assets lying in the balance sheet as on last day of previous year in which business commence is Rs. 150000. Maximum deduction allowed as per section 35D: Lower of the: a) 7000 or b) (5% * 150000= 7500) or (5%*100000= 5000) Whichever is more for condition b) and i.e. Rs. 7500 Hence, maximum amount that can be claimed on account of preliminary expenses is rupees 7000 only. 09-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 41

42. Sec. 36 : Other deduction : 1. Insurance premium paid for stock which is used for purpose of business / profession. 2. Insurance premium for cattle, Paid by federal milk co-operative society. 3. Insurance premium paid (any mode other than cash) for the health of employees. 4. Bonus or commission to employee. (On actual payment basis) 5. Interest paid on borrowed capital for purpose of business / profession (On actual payment basis). No deduction of ‘interest paid’ for acquisition of asset from the date of borrowing till the date of ‘put to use’. (It would be added to cost of asset). 6. Discount on Zero Coupon Bond allowed as deduction on pro-rata basis. 7. Bad debts – The debt should be incidental to the business. 8. Loss regarding animals (Not for stock in trade) – allowed as deduction. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 42

43. Sec. 37 : General Deduction (Residuary section) : Conditions should be fulfilled – a) Expenses not covered under section 30 to 36. b) Revenue nature expenditure. c) Not of capital nature d) Not of personal nature e) Expenses incurred for running of business / profession. f) Expenditure shall be made during the previous year. Explanation 1 : Expenditure incurred on protection money, hafta , bribes, etc. will not be allowed. Explanation 2 : Expenditure incurred on CSR activities will not be allowed. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 43

44. Sec. 40(a) : Expenses not allowed in any circumstances : 1. Expenditure on advertisement in any souvenir, etc. published by a political party. 2. Payments outside India, in India to a non resident or a foreign company on which TDS is not deducted and has not paid on or before the due date specified. 3. Payment to residents – on which TDS has not been deducted or before the due date of filing the return of income – 30% of such sum shall not allowed as deduction. 4. Wealth tax : Wealth tax chargeable under the Wealth Tax Act shall not be allowed as deduction. 5. Tax on Profits and Gains : Any sum paid on account of any tax levied on the profits and gains of any business or profession shall not be allowed as a deduction. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 44

45. Sec. 40A : Expenses not deductible in certain circumstances : 1. Excessive payment to relatives . 2. Payment in Cash : Payment made to a person in a day is made exceeding Rs. 10,000 other than account payee cheque, bank draft or use of electric clearing system, it will be disallowed. Entire amount will be disallowed. Exception : Where payment is made for plying, hiring or leasing goods carriages, the limit of disallowance shall be exceeding Rs. 35,000. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 45

46. Sec. 43B : Deductions allowable only on actual payment : 1. Any sum payable by the assessee by way of tax, duty, cess or fee. 2. Any sum payable by him as an employer by way of contribution to any provident fund, superannuation fund or gratuity fund or any other fund for the welfare of employees. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 46

47. Certain Allowable Losses 1) Robbery or Dacoity : Loss caused by robbery or dacoity is not deductible But, if it is incidental to business it will be allowed as a deduction and this depends upon the specific circumstances and conditions. For example , if cash is sent for disbursement at different centers by a sugar factory in rural area, it is incidental to business and is, therefore, allowed. 2) Embezzlement ( Misappropriation ), Theft, etc. : The loss of money due to embezzlement by an employee handling the funds of the business while discharging his official duties is allowed as deduction. When an employee goes to bank to deposit the cash and he takes away the money for his own use, even then, the loss is allowable. 3) Loss due to Non-recovery of Advances 4) Penalty paid for infraction of law is not allowed . 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 47

48. Mr. Amitabh prepared the following profit and loss account of his cloth shop for the year ended 31st March, 2019. Find out his income from business for the AY 2019-20 .. PROFIT AND LOSS ACCOUNT PARTICULARS RS PARTICULARS RS Salaries and wages 33000 gross profit 334725 Rent 1600 gift for relative 275 House hold expenses 82000 Income tax 900 Advertisement 800 Postage expenses 600 Gift to relative 900 Gift to relative 900 Fire insurance premium 400 Life insurance premium 2100 Net proft 212700 total 335000 335000 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 48

49. solution: PARTICULARS Rs Rs Profit as per P & L A/c 212700 ADD Household expenses 82000 Income Tax 900 Gifts to relatives 900 Life Insurance Premium 2100 LESS Gift from relatives 275 TAXABLE INCOME FROM BUSINESS 297425 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 49

50. Presumptive Taxation ( 44AD) in case of business Any business which has a turnover of less than Rs 2 crore can opt to be taxed presumptively. They must declare profits of 8% for non-digital transactions or 6% for digital transactions , whichever one is applicable. The following businesses are excluded from presumptive taxation: a. Life insurance agents. b. Commission of any kind. c. Running the business of plying, hiring or leasing goods carriages. If you have opted for the presumptive scheme of tax, you may not be liable to pay advance tax every quarter but you must ensure you are paying all your advance taxes on or before 15 March of the concerned financial year 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 50

51. Example: Lalit Traders have gross receipts of Rs 1.5 Crore for FY 2017-18 and do not maintain books of accounts. Lalit traders have opted for presumptive taxation. During the year Lalit Traders received Rs. 70 Lakhs through non-digital transactions (cash payments) and Rs. 80 Lakhs through digital transactions. What will be the income under the head business and profession? Solution: Income under the business and profession: For non-digital transactions : 70,00,000 * 8% =  Rs. 5,60,000 For digital transactions : 80,00,000 * 6% =  Rs. 4,80,000 Income under the head “Business or Profession” will be =  Rs 10,40,000 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 51

52. Presumptive Taxation in case of profession A professional having a gross revenue upto Rs 50 lakhs can opt for the presumptive scheme of tax wherein he can straightaway offer 50% of the gross revenue as his taxable income and pay taxes as per his slab rates on such income. Once he opts for this scheme, he cannot claim any of the profession related expenses as a deduction again. Further, anyone opting for this scheme is not bound by the mandate of maintaining books of accounts too. While he is also liable to file his return by 31 July of the assessment year, he must file his return in ITR 4. 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 52

53. SEC – 44AE Section 44AE is applicable to individuals or entities engaged in the business of plying, hiring or leasing of goods carriages. These entities – individual,  Hindu United Families , firms or companies – should own  not more than 10 goods carriage vehicles  at any time in a given financial year, to be eligible for presumptive taxation. Those opting for presumptive taxation scheme under Section 44AE can estimate their income at  Rs. 7,500 per month per vehicle  owned, irrespective of whether it is a light goods vehicle or a heavy goods vehicle. For example , if Bharat bhai owns 7 goods carriage vehicles, then his income will be presumed at Rs. 5,25,000 (Rs. 7,500 x 7) per month and Rs. 63 lakh annually. If the actual income is higher than Rs. 7,500, it can be specified in the  Income Tax Return . 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 53

54. When will a businessman or a professional be subject to tax audit? in the case of a businessman, if his total turnover from business exceeds Rs 1 crore, he is liable to an audit under the Income-tax Act under Section 44AB. In case he is a professional, if his gross receipts exceed Rs 25 lakhs, he is liable for a tax audit. AMENDMENT IN SEC 44AB : In case of person whose 1) Aggregate of all amount received included sales , turnover during previous year in cash does not exceed 5% of said amount and 2)Aggregate of all payment made including amount incurred for exp in cash during previous year does not exceed 5% of said amount. This clause shall have effect , if for word one crore, 10 crore substituted 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 54

55. AMENDMENTS MAY -22 Earlier GOODWILL is included in block of asset , but from budget 2022 goodwill related to business and profession is not a depreciable asset . It is not included in block of asset . 08-06-2022 CA GEETI GROVER { FCA,BCOM,DISA,PGDBA (FINANCE) } 55