Income from business and profession is chargeable to tax under the head ‘Profits and Gains of Business or Profession‘ as per the Income Tax Act. The Act allows deductions for various business expenses under Sections 30 to 37, covering items like rent, salaries, repairs, insurance, and depreciation. However, certain expenses may be expressly disallowed, and the deductibility of expenses is generally based on the actual payment basis. Additionally, there are specific provisions applicable to non-resident/foreign companies, and businesses may opt for presumptive taxation if they meet certain criteria. Proper maintenance of accounts and audits are required as per the Act. In this Article we have discussed briefly Different Provisions Applicable to Income from Business and Profession at one place.
Profits and Gains of Business or Profession
1. Chargeability:
The following incomes are chargeable to tax under the head Profit and Gains from Business or Profession:
| S. No. | Section | Particulars |
| 1. | 28(i) | Profit and gains from any business or profession carried on by the assessee at any time during the previous year |
| 2. | 28(ii) | Any compensation or other payment due to or received by any specified person |
| 3. | 28(iii) | Income derived by a trade, professional or similar association from specific services performed for its members |
| 4. | 28(iiia) | Profit on sale of a license granted under the Imports (Control) Order 1955, made under the Import Export Control Act, 1947 |
| 5. | 28(iiib) | Cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of Government of India |
| 6. | 28(iiic) | Any duty of Customs or Excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971. |
| 7. | 28(iiid) | Profit on transfer of Duty Entitlement Pass Book Scheme, under Section 5 of Foreign Trade (Development and Regulation) Act, 1992 |
| 8. | 28(iiie) | Profit on transfer of Duty Free Replenishment Certificate, under Section 5 of Foreign Trade (Development and Regulation) Act 1992 |
| 9. | 28(iv) | Value of any benefits or perquisites arising from a business or the exercise of a profession. |
| 10. | 28(v) | Interest, salary, bonus, commission or remuneration due to or received by a partner from partnership firm |
| 11. | 28(va) | a) Any sum received or receivable for not carrying out any activity in relation to any business or profession; or |
• Recovery of trading liability by successor which was allowed to the predecessor shall be chargeable to tax in the hands of successor. Succession could be due to amalgamation or demerger or succession of a firm succeeded by another firm or company, etc.
In case of contract for providing services with duration of not more than 90 days, the profits and gains shall be determined on basis of project completion method.
i) The subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of Section 43;
2. Deductions under Sections 30 to 37
Amount deductible, while computing, Profits and Gains of Business or Profession are:-
| Section | Nature of expenditure | Quantum of deduction | Assessee |
| 30 | Rent, rates, taxes, repairs (excluding capital expenditure) and insurance for premises | Actual expenditure incurred excluding capital expenditure | All assessee |
| 31 | Repairs (excluding capital expenditure) and insurance of machinery, plant and furniture | Actual expenditure incurred excluding capital expenditure | All assessee |
| 32(1)(i) | Depreciation on |
i) buildings, machinery, plant or furniture, being tangible assets;
i) buildings, machinery, plant or furniture, being tangible assets;
– manufacture or production of any article or thing; or
Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, then deduction of additional depreciation would be restricted to 50% of actual cost in the year of acquisition and balance 50% would be allowed in the next year
Note:
1. Manufacturing unit should be set-up on or after 1st day of April, 2015.
1) New asset should be acquired and installed during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020.
2) Manufacturing unit should be set-up on or after 1st day of April, 2015.
a) Amount deposited in account with National Bank for Agricultural and Rural Development (NABARD) or in Deposit Account of Tea Board, Coffee Board or Rubber Board in accordance with approved scheme; or
b) 40% of profits from such business before making any deduction under section 33AB and before adjusting any brought forward loss.
a) Amount deposited in Special Account with SBI/Site Restoration Account; or
b) 20% of profits from such business before making any deduction under section 33ABA and before adjusting any brought forward loss.
Capital expenditure incurred within 3 years before commencement of business is allowed as deduction in the year of commencement of business.
i. Capital expenditure excludes land and any interest in land;
a) Setting up and operating a cold chain facility
b) Setting up and operating a warehousing facility for storage of agricultural produce
c) Building and operating, anywhere in India, a hospital with at least 100 beds for patients
d) Developing and building a housing project under a notified scheme for affordable housing
e) Production of fertilizer in India
100% of capital expenditure will be allowed to be deducted from the assessment year 2018-19 onwards
Note: If such specified businesses commence operations on or before 31-03-2012 but after prescribed dates, deduction shall be limited to 100% of capital expenditure.
a) 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;
b) Building and operating, anywhere in India, a hotel of two-star or above category;
c) Developing and building a housing project under a scheme for slum redevelopment or rehabilitation
d) Setting up and operating an inland container depot or a container freight station
e) Bee-keeping and production of honey and beeswax
f) Setting up and operating a warehousing facility for storage of sugar
g) Laying and operating a slurry pipeline for the transportation of iron ore
h) Setting up and operating a semi-conductor wafer fabrication manufacturing unit
i) Developing or maintaining and operating, or developing, maintaining and operating a new infrastructure facility
Note: Such deduction is available to Indian company in case of following business, namely;-
i) Business of laying and operating a cross-country natural gas or crude or petroleum oil pipeline network
a) National Fund for Rural Development; and
Note
(a) In case of scheduled and non-scheduled banks: Sum not exceeding aggregate of 8.5% of total income (before any deductions under this provision and Chapter VI-A) and 10% of aggregate average advances made by rural branches of such bank;
(b) In case of Financial Institutions: Up to 5% of total income before any deductions under this provision and Chapter VI-A; and
(c) In case of foreign banks: Up to 5% of total income before any deductions under this provision and Chapter VI-A
a) Financial Corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India; or
b) Public company registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of residential houses in India.
a) Amounts transferred to special reserve account
b) 20% of profits derived from eligible business
a) Actual purchase price of sugarcane, or
3. Amount expressly disallowed under the Act
| Section | Description |
| 40(a)(i) | Any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it was paid without deduction of tax at source or if tax was deducted but not deposited with the Central Government till the due date of filing of return. Where deductor has failed to deduct the tax and he is not deemed to be an assessee in default under first proviso to section 201(1), then it shall be deemed that the deductor has deducted and paid the tax on the date on which the payee has furnished his return of Income.However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year. |
| 40(a)(ia) | Any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it was paid without deduction of tax at source or if tax was deducted but not deposited with the Central Government till the due date of filing of return. |
However, where in respect of any such sum, Equalisation levy is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.
1) Salary, bonus, commission or remuneration paid to non-working partners;
2) Remuneration or interest paid to the partners is not in accordance with the terms of the partnership deed;
3) Remuneration or interest to partners is in accordance with the terms of the partnership deed but relates to any period prior to the date of the deed;
4) Interest to partners is in accordance with the terms of the partnership deed but exceeds 12% per annum;
5) Remuneration to partners is in accordance with the terms of the partnership deed but exceeds the following permissible limit:
a) On first Rs. 3 Lakhs of book profit or in case of loss – Rs. 1,50,000 or 90% of book profit, whichever is more;
4. Expenses deductible on actual payment basis
The following expenses shall be allowed as deduction if such expenditure are actually paid on or before the due date of filing of return of income:-
| Section | Particulars |
| 43B(a) | Any Tax, Duty, Cess or Fees under any Law |
| 43B(b) | Any contribution to Provident Fund/Superannuation Fund/Gratuity Fund/Welfare Fund |
| 43B(c) | Bonus or Commission paid to employees which would not have been payable as profit or dividend |
| 43B(d) | Interest on Loan or Borrowings from Public Financial Institutions/State Financial Institutions etc. |
| 43B(da) | Interest on loan from a deposit taking NBFC or systemically important non-deposit taking NBFC |
| 43B(e) | Interest on loan or advance from bank |
| 43B(f) | Payment of Leave Encashment |
| 43B(g) | Sum payable to the Indian Railways for the use of railway assets. |
| 43B(h) | Sum payable to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 |
1) No deduction shall be allowed under section 43B if any interest has been converted debenture or any other instrument by which liability to pay interest is deferred to a future date.
2) Any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in Section 15 of MSMED Act shall be allowed in the previous year in which such sum is actually paid.
5. Other provisions
| Section | Particulars | Provision |
| 42 | Special allowance in case of business of prospecting etc. for mineral oil (including petroleum and natural gas) in relation to which the Central Government has entered into an agreement with the taxpayer for the association or participation (Subject to certain conditions). | Following deductions shall be allowed as deductions: |
a) Any infructuous exploration expenditure
b) Expenditure on drilling or exploration activities or services, etc.
6. Provisions applicable to Non-Resident/Foreign Company
| Section | Particulars | Limit of exemption or Computation of income/deduction | Available to |
| 44B read with 172 | Income from shipping business shall be computed on presumptive basis (Subject to certain conditions). | 7.5% of specified sum shall be deemed to be the presumptive income | Non-resident engaged in shipping business |
| 44BB | Income of a non-resident engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils shall be computed on presumptive basis (Subject to certain conditions). | 10% of specified sum shall be deemed to be the presumptive income | Non-resident engaged in activities connected with exploration of mineral oils |
| 44BBA | Income of a non-resident engaged in the business of operation of aircraft shall be computed on presumptive basis (Subject to certain conditions). | 5% of specified sum shall be deemed to be the presumptive income | Non-resident engaged in the business of operating of aircraft |
| 44BBB | Income of a foreign company engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with turnkey power projects shall be computed on presumptive basis (Subject to certain conditions). | 10% of specified sum shall be deemed to be the presumptive income | Foreign Company |
| 44C | Deduction for Head office Expenditure (Subject to certain conditions and limits) | Deduction for head-office expenditure shall be limited to lower of following: |
a) 5% of adjusted total income*
b) Head office exp. as attributable to business or profession of taxpayer in India
* In case adjusted total income of the assessee is a loss, adjusted total income shall be substituted by average adjusted total income
7. Accounts and Audit
| Section | Particulars | Threshold |
| 44AA | Compulsory maintenance of prescribed books of account – Specified Profession |
Note: The threshold limit of Rs. 1 crore shall be increased to Rs. 10 crore in case where the cash receipt and payment made during the year does not exceed 5% of total receipt or payment the business
2) If gross receipts exceeds Rs. 50 Lakhs in any previous year, in case of profession.
Note:
8. Presumptive Taxation
| Section | Nature of business | Presumptive income |
| 44AD | Income from eligible business can be computed on presumptive basis if turnover of such business does not exceed two crore rupees. |
Note: If the amount of cash received during the previous year does not exceed 5% of the total turnover or gross receipt of such year then the threshold limit for total turnover or gross receipt shall be taken as Rs. 3,00,00,000 instead of Rs. 2,00,00,000.
Note: If an assessee opts out of the presumptive taxation scheme, after a specified period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter. [section 44AD(4)]
Note: If the amount of cash received during the previous year does not exceed 5% of the total gross receipt of such year then the threshold limit for total gross receipt shall be taken as Rs. 75,00,000 instead of Rs. 50,00,000.
Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by assessee.
For Other Goods Vehicle:
Rs. 7,500 for every month or part of a month during which the goods carriage is owned by assessee.
Also Read:-
[As amended by Finance Act, 2024]