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Business or Profession
Unit 5 Profits and Gains of Business or Profession
Structure:
5.1 Introduction
Objectives
5.2 General principles
5.3 Adjustments to P&L account
5.4 Alternative method
5.5 Specific deductions
Self assessment Questions I
5.6 Other deductions
5.7 General deductions
5.8 Expenses expressly disallowed
5.9 Expenses not deductible
Self assessment questions II
5.10 Deductions allowable only on actual payment
5.11 Depreciation
Block of assets
Methods of depreciation
Additional depreciation
Rates of Depreciation
Unabsorbed depreciation
1. Business or Profession carried on by the assessee. Tax is chargeable from the person
who carries on the business or profession. The essential requirement is that he should be
entitled to carry on the business.
2. Tax is chargeable on the aggregate income from all businesses or professions carried
on by an assessee. The profits and gains of different business or professions carried on by
an assessee are not taxable separately; but tax is chargeable under one head on the
aggregate income from all businesses or professions carried on by the assessee. The
essence of this rule is that, if in a year he earns profit in one business and sustains loss in
the other, he can set-off his loss of one business against the profits of the other, and the
balance of amount shall be income of the assessee under this head.
3. Profits and Losses of speculation business are kept separate. if there is a loss in a
speculation business it can be set-off only against profits of speculation business and not
against profits of any other business.
4. No tax is payable on anticipated or notional profits.
5. Tax is payable on the income of every business or profession whether legal or illegal.
Expenses concerned with illegal business are to be allowed as deduction out of the
income earned from illegal business. However, penalties levied for violation of law and
expenses incurred in defense of criminal proceedings are not allowed.
6. General commercial principles to be kept in view while determining the real profits of
a business.
7. Sums previously allowed as deduction are taxable, if recovered during the previous
year e.g. bad debts recovered, disallowed earlier.
8. Only those expenses and losses are allowed as deductions which were incurred or
sustained during the relevant previous year.
9. These losses and expenses should be incidental to the operation of the business. Only
the expenses incurred in connection with the business of the assessee are allowed as
deductions.
10. If a business has been discontinued before the commencement of the previous year,
its expenses cannot be allowed as deduction against the income of any other running
business of the assessee.
11.There are some essential expenses though neither expressly allowed nor disallowed,
but are deductible while computing the profits of business or profession on the basis of
general commercial principles provided these are not expenses or losses of a capital
nature or personal nature.
A weighted deduction of an amount equal to one and one- half times of expenditure
incurred by a company on in-house research and development facility shall be allowed.
It is, however, not admissible if expenditure is incurred on land or building;
Admissibility of expenditure on eligible project or scheme: Sec. 35AC a deduction is
allowed for an eligible project for promoting social and economic welfare or upliftment
of the public.
Payment to associations & institutions for carrying out Rural Development
Programmes is fully allowed: Sec. 35CCA
Amortization of preliminary expenses: Sec. 35D Expenditure in connection with
preparation of feasibility report, project report, market survey, expenses on issue of
shares and debentures etc.: One fifth of the qualifying amount is allowed in each of five
successive years beginning with the year in which the business commences or the
extension of the undertaking is completed.
The qualifying amount cannot exceed:
5% of the cost of the project or 5% of capital employed whichever is less in case of
corporate assesses, 5% of cost of project in case of non-corporate assesses.
Expenditure on voluntary retirement (Sec. 35 DDA).
Where an assessee pays any sum to an employee in any previous year in connection with
his voluntary retirement, he shall be allowed a deduction of 20% of such expenditure for
each of five successive previous years beginning with the year in which the expenditure
was incurred.
Self assessment Questions I
Answer the following statements whether true or false:
1) Sums paid for social and scientific research to an approved university etc., is allowed
to the extent of 125% 0f sums paid.
2) Capital expenditure on scientific research incurred by the assessee is not allowed to be
deducted.
3) Sums previously allowed as deduction are taxable if recovered during the previous
year.
4) Income of illegal business or profession is not taxable
5.6 Other Deductions: Under section 36:
The following other deductions are permissible while computing profits of business or
profession.
Insurance Premium, The amount of any premium paid in respect of insurance against
risk of damage or destruction of stocks or stores used for the purpose of business or
profession, is allowed as deduction.
Insurance premium for Cattle paid by a federal milk co-operative society. The amount of
any premium paid by a federal milk co-operative society on the life of the cattle owned
by a member of a primary milk co-operative society affiliated to the federal milk cooperative society is allowed as deduction.
Premia for insurance on health of employees
Bonus or Commission to employees for services rendered .
Interest on borrowed capital.
Contribution to Provident Fund, Approved Gratuity Fund, Employees Contribution to
Provident Fund
Bad debts.
Expenditure on family planning. Any expenditure incurred by a company for the
purpose of promoting family planning amongst its employees is allowed as a deduction.
If such expenditure is of a capital nature it shall be allowed as a deduction in five equal
annual installments commencing from the previous year in which the expenditure is
incurred.
Banking cash transaction tax( applicable from assessment year 2006-07)
5.7 General deduction [Sec. 37(1)
It is a residuary section:
Under section 37(1), the following conditions should be fulfilled, in order that a
particular item of expenditure may be deductible under this head:
The expenditure should not be of the nature described in section 30 to 36.
It should be in respect of a business or profession carried on by the assessee and the
profits and gains of which are to be computed and assessed.
It should not be in the nature of personal expenses of the assessee
It should have been paid out or expended wholly and exclusively for the purpose of such
business or profession.
It should not be in the nature of capital expenditure
It should relate to the previous year concerned
The following are the few examples of admissible general deduction under sec 37:
1) Expenses incurred in the purchase, manufacture and sale of goods.
2) General expenses incurred in the day to day running to the business.
3) Expenses incurred in defending a case for damages for breach of contract.
4) Amount of sales-tax paid and expenses incurred in connection with sales-tax
proceedings including appeals.
5) Compensation paid to an undesirable employee for the retrenchment of his services or
to a director to get rid of his services.
6) Contribution made to provident fund maintained for the benefit of employees under an
Act and with the previous approval of a state Government may not be allowable u/s 36(1)
(iv) but allowable u/s 37(1).
7) Commission, etc. paid for securing orders for the business.
Compensation paid to employees in connection with injury sustained by them or
accident met by them while on duty.
9) Royalties paid in connection with mines.
10) Insurance premium paid under a policy insuring its employees against injury or
against liability for compensation in respect of accident to its workmen.
11) Reasonable expenses incurred on the occasion of Dussehra, Diwali, commencement
of the business, etc.
12) Compulsory subscription or a subscription given to an association in the interest of
the business.
13) Legal expenses incurred in connection with the business or profession.
14) Legal expenses incurred by a director of a company in defending a suit brought
against him to challenge the validity of his election as a director; as it is incurred to save
his income from the source.
15) Interest on unpaid purchase price of any business assets purchased by an assessee and
put to use will be allowed.
16) Expenditure incurred to oppose nationalization or to prevent extinction of business.
17) Under executive instructions, cost of installing new telephone.
18) Normal advertisment expenditure incurred to maintain the sales.
19) Penalty paid by the assessee for saving from confiscation the good which he
purchased from a third party without knowing that they had been illegally imported.
20) Amount paid by a director of a company in liquidation for compounding misfeasance
proceeding started against him by the liquidator.
21) Welfare expenditure incurred by the assessee.
22) Payment of excise duty.
23) Guarantee fee paid to he Government for loan obtained for purchase of machinery.
24) Expenditure incurred in connection with alterations made in the Memorandum or
Articles of Association of a company if therse alterations are warranted by the changes
made in Companies Act.
25) If an asseessee stand ss surety for the debt of another and it is usual in this trade to
guarantee debts, any payment made as a result of such guarantee may be allowed as a
business losss.
26) Professional tax levied by local authorities the payment of which is a necessary
condition for the carrying on the business within the area of a local authority.
27) Rebate granted by co-operative stores to their members on the value of the purchases
made by them.
28) The interest payable on arrear of cess is in the nature of compensation paid to the
Government of delay in the payment of cess and not as penalty, hence it is deductible.
Similarly, interest paid for delay in payment of municipal taxes is also allowable as
deduction.
29) Amount spent by an assessee in purchasing loom hours is deductible as revenue
expenditure.
30) Amount paid as damages to the Government Department for delay in the execution of
contracts was held to be allowable deduction, if the delay was inherent in the nature of
business carried on by the assessee.
31) Annual listing fee paid to Stock Exchange by public limited company is allowable.
32) Interest levied for failure to pay installment of the assets purchased on hire-purchase
basis is allowable.
33) Expenditure incurred on inauguration ceremony is allowable.
34) Expenditure incurred on foreign tour of director for purposes of expansion of
business of the managed company is allowable.
35) Wife of chairman-cum-managing director accompanying him for fulfilling social
aspects. Expenses incurred on foreign tour of wife are deductible.
36) Liability to pay debenture premium is to be spread over the years between date of
issue and date of redemption.
37) Payment towards Flat Day Fund is deductible.
38) Cash shortage found in business at the end of the day.
39) Deposit made under own your telephone scheme.
40) Expenses in connection with income tax, sales tax proceedings
5.8 Expenses Expressly Disallowed
The following expenses are expressly disallowed by the Act while computing income
chargeable under the head profits and gains of business or profession.
Expenditure on advertisement in any souvenir, etc. published by a political party in the
case any assessee
(i) Payments outside India. Royalty, fees for technical services, etc. which tax is
deductible at not been paid during the previous year or in prescribed time. shall not be
allowed as a deduction.
(ii) Payments to residents. any interest, commission or brokerage, fees for professional
services or feeds for technical and such tax has not been deducted or, after deduction.
Any sum paid on account of securities transaction tax.
Any sum paid on account of fringe benefit tax .
Wealth tax. chargeable under Wealth Tax Act.
Tax on Profits and Gains. Any sum paid on account of any tax levied on the profits and
gains of any business or profession
Salaries Payable outside India or to a non-resident, if tax has not been paid thereon nor
deducted at source.
Payment to P.F., etc. Any payment to a provident or other funds shall not be allowed as a
deduction unless it is ensured that tax shall be deducted at source from any payment
made from the fund provided it is chargeable to tax
Tax on perquisites of employee.
5.9 Expenses not deductible in certain circumstances
Excessive payments. of an expenditure to a relative it to be excessive or unreasonable to
be disallowed.
Payments in cash: Any expenditure in respect of which payment is made exceeding Rs.
20,000 otherwise that by a crossed cheque drawn on a bank or by crossed bank draft will
be disallowed to the extent of 20%.Further, the limit of Rs. 20,000 applies to the payment
made to a party at a time and not the aggregate of the payments made to a party in the
course of a day.
No deduction shall be allowed in respect of any sum paid by the assessee as an
employer towards the setting up of, or as contribution to, any unapproved fund.
Drawings of proprietor or partners.
Personal expenses of the proprietor for partners.
Capital expenditure.
Any provision or transfer to reserve except transfer to reserves as provided in the Act.
Amounts paid as charity or presents.
Past losses charged to Profit & Loss Account.
Any expenditure not incurred wholly and exclusively for the purposes of the business or
profession.
Income tax, wealth tax and other taxes on income
Expenditure incurred to buy off competition, e.g., a sum paid by a company to a retiring
director or a managing agent in consideration of their agreement not to complete with the
company.
(d) Any sum payable by the assessee as interest on any loan or borrowings from any
Public Financial Institution or a State Financial Corporation or a State Industrial
Investment Corporation.
(e) Any sum payable by the assessee as interest on any loan or borrowing from any Public
Financial Institution or a State Financial Corporation or a State Industrial Investment
Corporation
(f) Any sum payable by the assessee as interest to a scheduled bank on any loan or
advance from a scheduled bank.
(g) Any sum payable by the assessee in lieu of earned leave.
If the amount is paid after the due date of furnishing the return, the deduction will be
allowed in the year of payment.
5.11 Depreciation
Depreciation means a diminution in the value of assets due to wear and tear, obsolescence
etc. caused by their use over a period of time. Its cost is spread over its life by charging
depreciation every year against the profits of business.
Assets eligible for depreciation:
A. Tangible assets: (i) Building, (ii) Machinery or Plant, and (iii) Furniture.
B. Intangible assets: (i) Patents, (iii) Copyrights, (iv) Trademarks,
(v) Licenses, (vi) Franchises, (vii) any other business or commercial rights of similar
nature.
Other assets such as investments, goodwill, etc., do not qualify for depreciation
allowance
Building means only the superstructure and does not include the land on which it is
constructed, as the land does not depreciate by use. Building includes roads, bridges,
culverts, wells and tube wells. The term plant includes ships, vehicles, books scientific
apparatus etc.
Conditions for allowance of depreciation:
(i) Asset should be owned, wholly or partly by the assessee
(ii) It should be used for the purpose of the assessees business or profession.
(iii) Depreciation is allowed on the block of assets:
=>Block of Assets
The term Block of Assets means a group of assets falling within a class of assets
comprising:
-tangible assets, being building, machinery, plant or furniture,
-intangible assets, being know-how, patents, copyrights, trademarks, licenses,
Franchises or any other business or commercial rights of similar nature, acquired on or
after 1.4.1998, in respect of which the same percentage of depreciation is prescribed.
=> Methods of Depreciation:
(i) In the case of assets of an undertaking engaged in generation or generation and
distribution of power, depreciation may be claimed at the prescribed rates on the actual
cost thereof, i.e., on the basis of Straight Line Method.
(ii) in any other case on any block of assets at the prescribed rates on the written-down
value of such block of assets.
Assets acquired and put to use during the previous year:
In the case of an asset acquired and put to use in the business during the previous year,
only 50% of the normal depreciation will be allowed if it is used in the business for less
than 180 days during the previous year.
Tax Planning: As for as possible, the assessee should purchase and put to use the net
asset on which depreciation is allowed upto 2nd October in the previous year. This will
entitle to him full depreciation for the relevant previous year.
Meaning of Written down Value of an asset
Written-down value means:
(a) in the case of asset acquired in the previous year the actual cost to the assessee; and
(b) In the case of assets acquired before the previous year, the actual cost to the assessee
less depreciation actually allowed to him.
The amount of unabsorbed depreciation carried forward is treated as depreciation actually
allowed.
(c) Depreciation is calculated on the block of asset instead of individual assets. In the
case of any block of assets, the written-down value shall be computed as under:
(i) The aggregate of the W.D.V. of all the assets falling within a block which were
acquired during the previous year.
(ii) Add to it the actual cost of any asset falling in that block which was acquired during
the previous year.
(iii) The sum arrived at in (ii) shall be reduced by the moneys receivable together with
scrap value in regard to any asset falling within that block which is sold, discarded,
demolished or destroyed during the previous year. The amount of such reduction cannot
exceed the amount arrived at as per (ii) above. If it exceeds the written-down value will
be taken as nil.
(iv) The balance under (iii) shall be the W.D.V. for computation of depreciation for that
previous year.
If the full block of the assets is transferred and the monies payable is less than the W.D.V.
under (iii), the loss shall be treated as short term capital loss. When the money payable in
respect of a full block of assets or its part is more than written down value under (iii), the
excess shall be treated as short term capital gains.
=>Additional depreciation on plant or machinery (I.e. 2006-07)
On new plant or machinery (other than ships and aircraft), which has been acquired and
installed after 31.3.2005, by an assessee engaged in business of manufacture or
production of any article or thing, additional depreciation shall be allowed @ 20% @
10% if the asset is put to use for less than 180 days in the year in which it is acquired) of
the actual cost of it:
However, the deduction shall not be allowed in respect of:
(a) any machinery or plant which, before its installation by the assessee, was used either
within or outside India by any other person; or
(b) any machinery or plant installed in any office premises or any residential
accommodation, including accommodation in the nature of a guest house; or
(c) any office appliances or road transport vehicles or
(d) any machinery or plant, the whole of the actual cost of which is allowed as a
deduction (whether by way of depreciation of otherwise) in computing the income
chargeable under the head Profit and gains of business or profession of any one
previous year.
=>Rates of Depreciation
Rates of Depreciation on Written-down Value Method
I. Building
Rates % of W.D.V.
100
10
15
80
100
100
100
60
100
50
60
20
20
20
Intangible Assets
still, the whole amount of current depreciation allowance is not deductible on account of
the insufficiency of the other taxable income, the remaining unabsorbed amount is called
Unabsorbed Depreciation.
If unabsorbed depreciation cannot be wholly set-off, the amount of depreciation not setoff shall be carried forward to the following assessment year.
The unabsorbed depreciation shall be added to the depreciation allowance for the
following previous year or for the succeeding previous years till such time it is fully
deducted. In other words the unabsorbed depreciation shall be treated as part of the
current years depreciation.
Illustration
The following are the particulars of the assets of a limited company as on Ist April, 2008;
W.D.V. on
Actual cost
Rate of Dep.
Buildings:
10,00,000
1.4.2008
8,10,000
Ananth
16,00,000
15,04,800
10%
5%
Bhagvan
The company sold the following assets during the financial year 2008-09
Buildings:
Rs.
Date of Sale
Ananth
9,00,000
15.3.2009
Bhagvan
Plants Machinery:
19,00,000
4,50,000
1.7.2008
1.9.2008
Rathna
5,00,000
1.2.2009
Queen
Compute the written-down value and the amount of depreciation for the Assessment year
2009-10. Assessee is entitled to additional depreciation on machinery on which
depreciation is allowable @ 15%.
Solution:
Computation of W.D.V. and Depreciation allowance
I Block-Building (Rate of Depreciation 10%)
15,04,800
3,00,000
18,04,800
Less: Sale consideration of Building Bhagvan sold during the year
(not to exceed Rs. 18,04,800)
18,04,800
Balance
NIL
Since the sale consideration exceeds the W.D.V. in the II block,
the excess Rs. (19,00,000 less 18,04,800) 95,200 will be the short
term capital gain taxable under section 50 (1)
III Block-Plant & Machinery (Rate of Depreciation 15%) Rs.
6,37,500
Add: Cost of Plant & Machinery Shanthi acquired during the year 3,00,000
on 1.12.2008
9,37,500
Less: Sale consideration of Plant & Machinery Rathna sold during 4,50,000
the year
W.D.V. for A.Y. 2009-10
Less: (i) Depreciation n Rs. 1,87,500 @ 15% 28,125
4,87,500
(i) Depreciation on Rs. 3,00,000 @ 7.5% (onehalf normal depreciation as the machinery is acquired
and used in the business for less than 180 days
during the Previous Year) 22,500
(III) Additional depreciation on Rs. 3,00,000 @ 10% 30,000
80,625
Balance
4,06,875
Tax planning
Capital assets may be purchased even on the last day to claim 50% of normal
depreciation. Business assets if are to be purchased during Sept. or Oct., one may see that
it is used for a minimum period of 180 days to claim full depreciation allowance. Since
no depreciation on the assets sold during the previous year is allowed, the sale of the
asset may be postponed to the beginning of the next year.
Illustration
The following is the profit and loss account of the United Plastic for the
P.Y. 2008-09
Rs.
Rs.
To Op. Stock
30,000
By Sales
6,10,000
Purchases
1,59,000
Dividends (Gross)
6,000
7,000
Rent
20,000
50,000
Securities
10,000
Closing. Stock
25,000
Advertisement
5,000
Depreciation on
Machinery
5,000
Wealth tax
Interest
7,000
7,000
* Reserve for IT
7,000
Sales Tax
15,000
Insurance
2,000
Donation
25,000
45,000
2,80,000
7,10,000
7,10,000
You are required to compute taxable income for the assessment year 2009-10 after taking
into account the following information:a) Both opening and closing stocks are undervalued by 10%
b) Bad debts amounted to Rs. 2000
c) Purchases include Rs. 25,000 paid in cash.
d) Traced embezzlement by an employee in business Rs. 3,000
e) Allowable depreciation amounted to Rs. 4,000, excluding computer.
f) Interest of Rs. 7,000 includes interest on loan taken to buy shares:
Rs. 3,000
g) Donations charged above paid in cash are deductible u/s 80 G.
Solution
Computation of Business income for the assessment year 2009-10
Rs.
Rs.
Salary to staff
34,000
Gross profit
1,86,000
General expenses
48,000
Commission and
discount
2,17,200
15,000
Sundry receipts
43,000
2,000
Short-term profit on
sale of investment
31,000
3,700
4,000
Add: Outstanding 1,600
Interest on Xs capital
3,500
500
14,500
13,000
Net Profit
2,34,000
4,77,200
4,77,200
Other information:
1. Depreciation on plant and machinery according to income-tax provision comes to Rs.
29,700.
2. Salary to staff includes payment Rs. 8,000 to a relative which is unreasonable to the
extent of Rs. 3,000
3. General expenses include (a) expenditure Rs. 4,800, incurred by Shantharam on
training of his employees, (b) commission of Rs. 10,000 for securing a business order,
and (c) compensation of Rs. 6,000 paid to an employee while terminating his service in
the business interest.
4. Out of outstanding sales tax and excise duty, Rs. 3,000 is paid on July 10,2009 and Rs.
8,000 is paid on October 3, 2009. The balance is not paid as yet. Due date of filling return
of income is July 31,2009.
5. Income of Shantharm from company deposit is Rs. 12,000, which is not shown in the
above Profit and Loss Account.
Determine the taxable income and tax liability of Shantharam for the assessment year
2009-10.
Solution:
Notes:
Expenditure on training of employees is a deductible expenditure Likewise, commission
for securing a business order is deductible.
Advertisement expenditure (being expenditure of revenue nature) is fully deductible
under section 37(1).
Compensation payable for terminating service of an employee is deductible.
It is assumed that the evidence of payment of sales tax on July 10,2007 is submitted
along with return of income
Illustration
Mr. Nagaraja (age: 26 years), a leading tax consultant, who maintains books of account
on cash basis furnishes the following particulars of income and expenditure for the
assessment year 2009-10.
Receipt and Payment Account for the year ending March 31, 2009.
Rs.
Balance brought down
12,400
Purchase of a typewriter
6,000
Car expenses
18,000
2,30,500
Office Expenses
40,000
11,500
Salary to staff:
Rs.
2008-09
2010-11
13,000
of 2009-10
32,000
24,000
of 2010-11
11,000
2,38,000
46,000
60,000
Repairs of office
12,000
15,000
Interest on loan
10,000
Income-tax payment
2,000
8,000
2,77,400
6,62,400
6,62,400
Car is party used for official purposes (40%) and partly for private purposes (60%)
Determine the taxable income and tax liability of X for the assessment year 2009-10.
Solution:
Note: As books of account are maintained on the basis of cash system, income is taxable
on receipt basis and expenditure are deductible on payment basis.
Illustration
From the Profit and Loss Account of Sriram (age : 31 years) for the year ending March
31, 2009, ascertain his total income and tax liability for the assessment year 2009-10.
Rs.
Rs.
General expenses
13,400
Gross profits
3,15,500
Bad debts
22,000
Commission
8,600
Advance tax
21,000
Brokerage
37,000
Insurance
600
Sundry Receipts
2,500
Salary to staff
26,000
Salary to Sriram
32,000
Interest on overdraft
4,000
13,000
Interest on Capital of
Sriram
23,000
Depreciation
48,000
Advertisement
expenditure
Contribution to
7,000
13,000
employees recognised
provident fund
Net profit
1,60,600
4,12,600
4,12,600
Other information:
1. The amount of depreciation allowable is Rs. 37,300 as per the income-tax Rules. It
includes depreciation on permanent sign board.
2. Advertisement expenditure includes Rs. 3,000, being cost of permanent sign board
fixed on office premises.
3. Income of Rs. 4,500, accrued during the previous year, is not recorded in the profit and
Loss Account.
4. Sriram pays Rs. 6,000 as premium on own life insurance policy
Rs. 70,000.
5. General expenses include (a) Rs.500 given to Mrs. Sriram for arranging a party in
honor of a friend who has recently come from Canada (b)
Rs. 1,000 being contribution to a political party.
6. Loan was taken from Mrs. Sriram for payment of arrears of income-tax.
7. Interest on debentures is paid to Sriram on December 31, 2008.
Solution
Rs.
Net profit as per Profit & Loss Account
Rs.
1,60,000
500
1,000
Advance tax
21,000
Salary to Sriram
32,000
23,000
42,000
3,000
10,700
1,33,200
2,93,800
4,500
25,000
13,000
Business Income
38,000
2,60,300
2,60,300
38,000
company deposit)
Gross total income
Less: Deductions under section 80C (payment of
insurance premium)
2,98,300
6,000
7,000
Net Income
2,91,300
14,130
Add: Surcharge
Nil
14,130
424
Tax
14,554
24,876
Tax refund
10,322
4) Depreciation for the asset purchased on 23rd Dec. 2008 is allowed to the extent of
during the previous year 2008-09
5.12 Summary
Business or profession head is the biggest source of revenue to the Govt. The
admissibility of expenditure as deduction is generally governed by the general principles.
Hence there are chances of claiming personal expenses as business expenses, outstanding
dues as expenses paid during the year. Hence restrictions are placed for some
expenditure, allowed to be deducted on payment basis only. This unit briefly explains as
to how a business or professional income can be calculated for tax purposes, in the light
of income tax provisions.
5.13 Terminal questions
1. Mr. Vikas is a practicing accountant. He also took 40 lectures in a college at Rs. 100
per lecture. His receipts and payments a/c is given bellow:
Rs.
Rs.
To bal b/d
9,500
By Office expenses
25,000
Audit Fees
1,60,000
Municipal taxes
500
Remuneration for
lectures
4,000
Personal expenses
5,000
Examiners fees
1,500
Membership fees
500
Interest on securities
1,550
LI Premium
2,000
3,000
Scooter Purchased
24,500
Royalty on a book
5,000
Scoter expenses
12,000
Balance c/d
1,15,050
1,84,550
1,84,550
a) Office expenses include Rs. 500 paid as typing charges for preparing manuscript of his
book.
b) of the scooter expenses relate to personal use.
3. 2009-10
4. 50% of normal depreciation
Terminal Questions:
1. Hints: 80C 2,000; 80 QQB:4,500; Int. on securities: 1,550-775=775100/79.6=974;
lectures income and examiners fees treated professional income.
(Ans.: Income from house property: Rs. 1,750; Prof. income Rs. 1,32,662; other sources
Rs. 5,474; TTI: Rs. 1,31,636)
2. Refer to section 5.8
3. a) not allowed b) not allowed c) allowed d) not allowed
e) allowed
4. Refer to sections 5.11.1, 5.11.3, and 5.11.5