TAXATION

GROUP 3
ALISHA
MAURIS
PRANALI
REHMAT
VANSHITA
LIMBERLY
YASHVARDHAN
INTRODUCTION

• Taxes are an important and largest source of income for the government. The government uses the
money collected from taxes for various projects for the development of the nation. The Indian tax
system is well structured and has a three-tier federal structure.

• The tax structure in India is divided into direct and indirect taxes.

• While direct taxes are levied on taxable income earned by individuals and corporate entities, the
burden to deposit taxes is on the assesses themselves. On the other hand, indirect taxes are levied
on the sale and provision of goods and services respectively and the burden to collect and deposit
taxes is on the sellers instead of the assesses directly.
DEFINITON OF BUSINESS AND PROFESSION
Business
• Business is an activity of purchase and sell of goods with the intention of making profit.
• Business includes any trade, commerce or manufacture or any adventure or concern in
the nature of trade, commerce or manufacture.

Profession
• “Profession” is defined as a vacation, or a job requiring some thought, skill and special
knowledge. So, profession refers to those activities where the livelihood is earned by
the persons through their intellectual or manual skill.
• E.g., Doctor, Lawyer, Engineer, Architect, C.A. etc.
THE DOCUMENTATION REQUIRED WHILE FILING

Documents needed for Business and Profession Income:

• PAN Card
• Aadhar Card
• Bank Account Statement
• Books of accounts
• Cash Register
• Form 26AS
 WHAT IS TAXABLE
• Profits and Gains of any business or profession that is carried on by the
assesse at any time during the previous year.

• Any compensation or other payment due to or received by an assesse for

loss of agency due to termination or modification of terms.

• Income derived by a trade, professional or a similar association for specific

services performed for its members.

• Any profit on sale of a license granted under Imports (controls) Order 1955
made under Imports & Exports (control) Act of 1947.

• Any cash assistance (by whatever name called) received or receivable

against exports under any scheme of Government of India.

• Any duty of customs or excise repaid or repayable as drawback to any

person against exports under the Customs and Central Excise Duty’s
Drawback Rules 1971.
• Any profit on the transfer of the Duty entitlement pass book scheme under export import policy.

• Any profit on the transfer of the Duty-free replenishment certificate under export import policy

• The value of any benefit or perquisite whether convertible into money or not arising from business or
exercise of a profession e.g. A gift received by the lawyer from his client.

• Any interest, salary, bonus, commission or remuneration due to or received by partner of firm from such
firm.

• Sum received or receivable in cash or in kind under an agreement for not carrying out any activity in
relation to any business or not sharing any know how, patent, copyright, trade mark, license franchise.

• Any sum received including bonus under Keyman Insurance Policy.

• Any sum received (or receivable) in cash or kind, on account of any capital asset (other than land or
goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of
the expenditure on such capital asset has been allowed as a deduction under section 35AD.

• Income from a speculative business

BUSINESS EXPENSES NOT TAXABLE UNDER
THE HEAD “PROFITS AND GAINS OF
BUSINESS:
• Advertisement expenses incurred by an assesse on advertisement in any souvenir, magazine,
pamphlet published by political party.

• Interest, royalty, fees paid outside India without TDS shall be disallowed

• Any amount of income tax, Arrears of income Tax or Advance income tax paid is disallowed

• Wealth tax paid on the wealth of an assesse

• Payment of provident fund paid outside India without TDS

• Payment to a relative by way of salary, provident fund, or Interest

• Any Expenditure paid in cash or through bearer cheque exceeding Rs. 20,000 will be disallowed

• Capital expenditures
BUSINESS EXPENSES NOT TAXABLE UNDER
THE HEAD “PROFITS AND GAINS OF
BUSINESS:
• All types of provisions, reserves and • Life insurance premium on the life of
fund proprietor
• Drawing of proprietor • Expenditures on raising capital
• Personal expenses of proprietor • Expenditure on shifting registered office
• Fines and penalties • Gifts made on personal consideration
• Past losses and provisions for losses • Travelling and conveyance expenses
• Charity and Donation • Discount allowed to customer
• Registration expenses of business • Bank charges/ bank commission expenses
assets • Staff welfare expenses
• Legal expenses related to capital assets • Postage expenses
DEDUCTIONS FOR EXPENSES SPECIFICALLY
ALLOWED SECTION 30 TO SECTION 43D:
 Rent, rates, taxes, repairs and insurance of building (Section 30):

• If assesse has occupied the premises as a tenant, rent of the premises and if he has agreed
to bear cost of repairs, such cost is allowed as deduction, provided it is not of capital nature.
• If assesse has occupied premises as the owner; repairs, land revenue, local taxes, insurance
premium etc. are allowed as deduction. However, no expenditure in form of capital
expenditure is allowed.

 Repairs & Insurance of machinery, Plant & Furniture (Sec.31):

• Amount paid on account of repairs and insurance premium against risk of damage in respect
of machinery, plant & furniture are allowed as deduction provided, they are not of capital
nature.
Depreciation u/s 32:
 To claim this deduction following conditions should be satisfied:
• Assesse should be owner of the asset.
• Asset must be used for the business.
• Such use must be in the previous year.

 Depreciation is allowed not on individual asset items, but on block of assets under following
categories:
1. Buildings, Plant & Machinery
2. Furniture
3. Intangible Assets acquired after March 31, 1998 such as know‐ how, Patents, Trademarks, licenses, franchises or any
other business or commercial rights of similar nature.

• The term PLANT includes ships, vehicles, books, scientific apparatus and surgical
equipments used for the business but excludes tea bushes or live stock.
NOTE
• If any asset falling in block of assets is acquired during the year and put to use during
the previous year for less than 180 days depreciation on such asset shall be
restricted to 50% of the normal depreciation.
TAX EXEMPTIONS
Tax exemptions in India are offered under various categories. Some are fully exempt; others
are partially exempt
• 10 (1)
Income from agriculture
• 10 (2)
Share from income of Hindu Undivided Family (HUF)
• 10 (2A)
Profit from a firm if it files separate income returns
• 10 (3)
Income up to Rs. 5,000 received casually. For income through horse race, should not exceed
Rs. 2,500
• 10 (4)
Interest from notified bonds or NRE account
• 10 (6)
Income of foreign citizens such as diplomats and ambassadors of foreign countries
• 10 (7)
Perks received while serving the Indian government abroad
• 10 (8)
Payments received from foreign governments for duties in India provided it is under cooperative technical
assistance programme. exemption also applies to income from outside India provided tax on that income is
paid by the government.
• 10 (10)
Gratuity received by a government employee on retirement or death
• 10 (10A)
Commuted pension received from the government or statutory body
• 10 (10AA)
Leave encashment for state and central government employees
• 10 (10B)
Compensation received by employees for retrenchment
• 10 (10d)
Income from life insurance policy
• 10 (11)
Income from EPF
• 10 (12)
Amount received from recognized provident funds to the extent provided in rule 8 of Part A of 4th schedule
• 10(15) (i) (ii-b) (ii-c)
Interests, premiums, redemptions or any other payments from notified securities, bonds, capital investment
bonds, relief bonds, etc.
• 10(15) (iv) (h)
Interest paid on bonds, debentures by public sector company
• 10(15) (iv) (i)
Interest paid by the government on deposits made by employees of central and state government or public sector
employees for retirement under notified schemes.
• 10(15) (vi)
Interest received on notified gold deposit bonds
• 10(15) (vii)
Interest received on notified local authorities’ bonds
• 10 (16)
Scholarship to meet the cost of education
• 10 (17A)
Approved awards, rewards from state or central government
• 10(18)
Pension received by winners of gallantry awards
• 10 (19)
Pension received by the family of armed forces personnel
• 10 (23D)
Income from tax-free mutual funds
• 10 (26)
Income earned in the states of the North East or Ladakh by members of scheduled tribes
• 10 (26A)
Income earned by a resident oF Ladakh in Ladakh or outside India
• 10 (30)
Subsidy from the Tea Board
• 10 (31)
Replantation subsidy approved by a board
• 10 (32)
Up to Rs 1500 in income of a minor when clubbed with an adult’s income
• 10 (34A)
Income from buyback of shares (under 115QA)
• 10 (35)
Income or dividends from UTI and MFs
• 10 (37)
Income from the acquisition of agricultural land by the government
• 10 (38)
Income from sale or transfer of shares on which STT has been paid
• 10 (A)
10 years of profits of companies operating in free trade zones and electronic, software or technology
park
• 10 (B)
Profits from the export of manufactured products or software for 10 years
• 10 (C)
Profits from new undertakings in IIDC or IGC in the North East for 10 years
• 10 (18)
Pension
Partially Exempt Incomes
• 10 (5)
LTA or Leave Travel Allowance
• 10 (10)
Income received by non-government employees through pension, gratuity, leave encashment
or retrenchment compensation is subject to prescribed limits
• 10 (13A)
House rent allowance
• 10 (13)
Payments received from approved superannuation funds
• 10 (14)
Allowances like Children’s Education Allowance, Transport Allowance etc.
DEPRECIATION [Sec. 32]:
Depreciation is the diminution in the value of an asset due to normal wear and tear or due to
obsolescence. In order to allow depreciation as notional expenses in computing profits and
gains of Business or Profession,

The following conditions are to be fulfilled:

It is allowed only on Capital assets: It may be classified into two types.

• Tangible assets: Buildings, machinery, plant or furniture
• Intangible assets: Know-how, patents, copy rights, trademarks, licenses, franchise or any
other business or commercial right of similar nature acquired on or after 1st April, 1998.

Depreciation is a mandatory deduction in the profit and loss statements of an entity using
depreciable assets and the Act allows deduction either using the Straight-Line method or
Written Down Value (WDV) method that is widely used.
Conditions For Claiming Depreciation
• The assets must be owned, wholly or partly, by the assesse.

• The assets must be in use for the business or profession of the taxpayer. If the assets are not used
exclusively for the business, but for other purposes as well, depreciation allowable would be
proportionate to the use of business purpose. The Income Tax Officer also has the right to determine the
proportionate part of the depreciation under Section 38 of the Act.

• Co-owners can claim depreciation to the extent of the value of the assets owned by each co-owner.

• If opted for presumptive taxation scheme, the deemed profit is said to have considered the effect of
depreciation.

• Depreciation under the Companies Act, 1956 is different from that of Income Tax Act. Therefore,
depreciation rates prescribed under the Income Tax Act are only allowed irrespective of the depreciation
rates charged in the books of accounts.
Written Down Value
• The asset is acquired in the previous year, the actual cost of the asset shall be treated as
WDV.

• Where the asset is acquired in an earlier year, the WDV shall be equal to the actual cost
incurred less depreciation actually allowed under the Act.

Block of Assets
Depreciation is calculated using the WDV of a Block of assets. A block of assets is a collection
of assets from the same asset class that includes-
• Buildings, machinery, plants, and furnishings are examples of tangible assets.
• Intangible assets include know-how, patents, copyrights, trademarks, licenses, franchises, and
any other comparable business or commercial rights.
 DEPRECIATION ON ASSETS CLASS
Assets Rates of Depreciation

Residential Building 5%

Non-residential Building 10%

Furniture and Fitting 10%

Computers and Software 40%

Plant and Machinery 15%

Personal Use Motor Vehicle 15%

Commercial Use Motor Vehicle 30%

Ships 20%

Aircraft 40%

Intangible Assets 25%

RATE OF DEPRICIATION
1st year of Acquisition
• Assets used 180 days or more---Full Rate of depreciation
• Assets used less than 180 days-----Half of the normal rate of
depreciation

Subsequent Year------ Full Rate of Depreciation

DEPRECIATION ON MANUFACTURING ,
PRODUCTION OR GENERATION / DISTRIBTUTION
OF POWER
1. Additional depreciation on assets installed post 31st march 2005

2. Rate of additional depreciation-20% of the actual cost of plant or machinery

3. Note: if the newly acquired asset is “put to use” for a period of

less than 180 days during the previous year, in which it is
acquired, the rate of additional depreciation shall be provided at
50% of the normal rate = 50% × 20% = 10%
UNABSORBED DEPRECIATION [SEC. 32(2)]

ADJUSTMENT OF UNABSORBED DEPRICIATION

1. Un- absorbed depreciation can be set-off from the profits of other business or
profession during the same year.
2. The profits of any other business or profession are unable to absorb the amount of
depreciation, the same may be adjusted against the income under any other head of
that year.
3. The balance if any can be forward to be set- off against the assessable incomes of
subsequent years.

PARTICULAR AMOUNT
BUSINESS PROFITS OF CURRENT YEAR xxx
LESS: DEPRECIATION FOR CURRENT YEAR
LESS: B/F BUSINESS LOSS
LESS: B/F UNABSORBED DEPRECIATION xxx
xx
THANK YOU !