PowerPoint Presentation : INCOME FROM BUSINESS & PROFESSION 1 ST Method :- Reverse method/ Indirect method (P&L A/C, Income & Expenditure A/C) Net profit as per P&L A/C (Question) XX Add : Dissallowable Expenses (P&L A/C – Dr.) XX XX Less : Allowable Expenses (Adjustment) ( XX ) XX Add : Income Chargable (Adjustment) XX XX Less : Income not Chargable (P&L A/C – Cr.) ( XX ) Income From Business XX 2 nd Method :- Pick-N-Choose method/ Direct method (Cash book, Bank book, Receipt & Payment A/C, Pointwise, Paragraphwise ) Income Chargable XX Less : Allowable Expenses ( XX ) Income From Profession XX
PowerPoint Presentation : Allowable Expenses : Rent, Rates, Repairs, Insurance & Taxes of Building u/s 30 Repairs and Insurance of Plant, Machinery & Furniture u/s 31 Depreciation u/s 32 Insurance premium on stock in trade u/s 36(1)(i) Insurance premium paid by Fedral milk co-op society u/s 36(1)(ia) Premium paid by employer for medical insurance on the health of his employees u/s 36(1)(ib) { if paid by cheque } Bonus & commission to employees u/s 36(1)(ii) { on actual payment basis }
PowerPoint Presentation : 10. Contribution to approved gratuity fund u/s 36(1)(v) { on actual payment basis } Employees contribution to providend fund u/s 36(1)(va) Write off allowance for animals u/s 36(1)(vi) Baddebts u/s 36(1)(vii) Family plannings expenditure u/s 36(1)(ix) General Deduction u/s 37(1) 8. Interest on borrowed capital (i.e, loan) u/s 36(1)(iii) { paid or payable } 9. Employers contribution to recognised providend fund or approved superannuation Fund u/s 36(1)(iv) { on actual payment basis }
PowerPoint Presentation : Dissallowable Expenses : Advertisement expenses in relation to a political party u/s 37(2B) Building, plant & machinery or furniture not used for business u/s 38 Taxes & TDS u/s 40(a) Any remuneration, salary, bonus, commission paid to partner by his partnership firm u/s 40(b) Excessive payment made to specified person u/s 40A(2) {Relative or Person having substantial interest i.e, holding at least 20% voting power} Expenses paid is cash in excess of Rs. 20,000 u/s 40A(3) {100% Disallowed} Provision for gratuity u/s 40A(7) Contribution to URPF & Superannuation fund u/s 40A(9,10,11) Deduction on Actual payment basis u/s 43B
PowerPoint Presentation : A) Depreciation u/s 32 :- under the income tax act, depreciation is calculated on the concept of “Block of Assets”. “ Block of Asset is defined as a group of assets following within the same class of asset in respect of which same rate of depreciation is charged”. This bocks can be for building, machinery, furniture & fixture etc. Depreciation has to be calculated on the following format : Opening wdv as on 1 st April XX Add : Asset purchased during the year XX Combined wdv XX Less: Asset sold during the year ( XX ) Amount available for depreciation XX Depreciation of the year ( XX ) Closing wdv as on 31 st March XX
PowerPoint Presentation : 4. Deduct the full sale value of the asset sold from the block of assets 5. Any profit (STCG) or (STCL) can arise in the following 2 cases :- Case I – All assets in a block are sold STCG = sale revenue > combined wdv STCL = sale revenue < combined wdv Case II – All assets in a block are not sold STCG = sale revenue of part of the block > combined wdv of full block STCL = does not arise in this case The following rules are to be applied in case of calculating depreciation as per income tax act, In the year of purchase, if the asset purchased is used for 180 days or more then the full rate of dep is charged. However if it is used for less then 180 days then only half rate of depreciation is allowed. 2. In the year of sale do not calculate depreciation on the asset sold. 3. Do not calculate individual profit or loss on sale of a particular asset.
PowerPoint Presentation : B) General Deduction u/s 37(1) :- 1. Such expenditure should not be specifically covered u/s 30 to 36 (ie. Point no -1 to 14 of allowable expenses) 2. It should be incurred for the purpose of business or profession 3. It should be revenue exp. & not capital exp. 4. It should not be personal exp. 5. It should not be in the nature of penalties for breaking any laws. 6. Such business or profession should be continues in current year. 7. Expense incurred by the assesee in the previous year.
PowerPoint Presentation : C) Taxes & TDS u/s 40(a) :- Any income tax, wealth tax, advance tax, surcharge tax and any salary, commi- -ssion, royalty, interest if paid outside india without deduciton of TDS then such amount is not allowed as deduction. D) Any remuneration, salary, bonus, commision paid to partner by his partnership firm u/s 40(b) Partner Working partner Sleeping partner Interest rate Allowable expense Book Profit/Loss % of amount of deduction loss or profit upto Rs. 3,00,000 Rs. 1,50,000/- or 90% of Book Profit whichever is more on the balance 60% of book profit No Remuneration Exceeding 12% Disallowed