by Profit and Gains of Business and Profession is one of the five heads of income under the Indian Income Tax Act, 1961.
It is important to note that taxpayers engaged in business or profession are required to maintain proper books of accounts and records as per the provisions of the Income Tax Act. The books of accounts should reflect the true and fair view of the business or profession, and should include details of all transactions related to the business or profession.
Taxpayers are also required to file their income tax returns on time, and pay the applicable tax and other dues within the due dates specified under the Act. Non-compliance with the applicable provisions may result in penalties and interest charges.
It is important for taxpayers to keep themselves updated with the changes and amendments made to the Income Tax Act from time to time, and to seek professional advice in case of any doubts or queries.
The following is a brief explanation of each section under Profit and Gains of Business and Profession:
- Section 28: Chargeability of Business Income; This section deals with the chargeability of income from business or profession to tax. It specifies that any income arising from a business or profession shall be taxable under this head, subject to the provisions of the Act.
- Section 29: Computation of Business Income; This section specifies the method for computing the taxable income from business or profession. It allows for various deductions such as expenses incurred for earning the income, depreciation on assets used in the business, and bad debts.
- Section 30 to 43D: Specific Deductions Allowed; This section provides for specific deductions that can be claimed by taxpayers engaged in certain business or profession. For example, Section 35 allows for deductions for expenditure on scientific research, while Section 36 allows for deductions for insurance premiums and contributions to employee welfare funds.
- Section 44AA to 44AD: Presumptive Taxation Scheme; These sections provide for a presumptive taxation scheme that allows small businesses and professionals to declare their income based on certain presumptions, without the need for maintaining detailed accounts.
- Section 44AB: Tax Audit; This section deals with the requirement for tax audit for businesses and professionals whose turnover or gross receipts exceed a certain limit. It specifies the format of the tax audit report and the due date for filing the report.
- Section 44ADA: Presumptive Taxation for Professionals; This section provides for a presumptive taxation scheme for professionals, such as doctors, lawyers, and architects, who have a gross receipt of up to Rs. 50 lakh in a financial year.
- Section 44AE: Presumptive Taxation for Goods Transport Agency; This section provides for a presumptive taxation scheme for owners of goods transport agency who own up to ten goods carriage vehicles.
It is important for taxpayers to understand the provisions under each section and comply with the applicable provisions to avoid penalties and interest charges. It is always advisable to seek professional advice for effective tax planning and compliance with the applicable tax laws and regulations.
| Date | Particulars | Amount (Rs.) |
| 01/04/2022 | Purchase of raw materials | 1,00,000 |
| 05/04/2022 | Payment to suppliers | 50,000 |
| 15/04/2022 | Sale of finished goods | 2,00,000 |
| 20/04/2022 | Payment to employees | 20,000 |
| 30/06/2022 | Rent paid for office space | 25,000 |
| 31/12/2022 | Purchase of machinery | 1,50,000 |
| 31/03/2023 | Depreciation on machinery | 20,000 |
| 31/03/2023 | Sale of old machinery | 50,000 |
| 31/03/2023 | Payment of income tax | 30,000 |
The various transactions related to a business are listed along with the date of the transaction and the corresponding amount. The first entry represents the purchase of raw materials, the second entry represents the payment made to suppliers for the purchased raw materials, the third entry represents the sale of finished goods, the fourth entry represents the payment made to employees, the fifth entry represents the rent paid for office space, the sixth entry represents the purchase of machinery, the seventh entry represents the depreciation on machinery, the eighth entry represents the sale of old machinery and the ninth entry represents the payment of income tax.
Based on the above transactions, the net profit or loss for the year can be calculated by subtracting the total expenses from the total revenue. In this case, the total revenue is Rs. 2,00,000 and the total expenses are Rs. 3,45,000, resulting in a net loss of Rs. 1,45,000 for the year. This loss can be carried forward and set off against future profits, subject to certain conditions.
