Understanding Taxable Income from Business or Profession

The Income Tax Act categorizes income from business as revenue generated through trade, commerce, manufacture, or similar ventures. Profession, however, encompasses occupations demanding specialized skills and knowledge, such as law, architecture, or auditing. While the taxation approach for business and profession income is identical, this discussion highlights the tax implications.

Taxable Income from Business or Profession:

The following income types are taxable:

• Profits and gains from any business or professional activities conducted in the previous year.
• Compensation or payments received by certain individuals.
• Income from trade associations delivering specified services to members.
• Profits from selling licenses under the Imports (Control) Order 1955.
• Cash incentives received against exports under various government schemes.
• Customs or excise duties refunded as a drawback for exports under Customs and Central Excise Duties Drawback Rules, 1971.
• Gains from transferring Duty Entitlement Pass Book Scheme or Duty-Free Replenishment Certificates.
• The value of benefits or perks derived from a business or profession.
• Interest, salary, bonus, commission, or remuneration due to firm partners.
• Non-compete fees for avoiding specific business or professional activities.
• Fees for withholding any know-how, patent, copyright, or business information sharing.
• Sums from a Keyman Insurance policy, including bonuses.
• Profits from converting inventory into capital assets.
• Amounts received for demolition, destruction, or transfer of capital assets, assuming full expense deduction under Section 35AD.

Expenses Allowed under Business and Profession:

The following expenses may be deducted:

• Rent, rates, taxes, repairs, and building insurance (Section 30).
• Insurance and repair of plant, machinery, and furniture (Section 31).
• Depreciation on tangible and intangible assets (Section 32).
• Additional depreciation on plant and machinery (Section 32).
• Deposits in Tea/Coffee/Rubber development accounts (Section 33AB).
• Deposits in a special account with SBI or Site Restoration accounts (Section 33ABA).

Expenses Allowed under Sections 36 to 37:

The following expenses qualify for tax deductions:

• Insurance premiums for stock damage or destruction (Section 36(1)(i)).
• Cattle insurance premiums by Federal Milk Cooperative Societies (Section 36(1)(ia)).
• Employer-paid health insurance (Section 36(1)(ib)).
• Bonuses or commissions for employees (Section 36(1)(ii)).
• Deductions for borrowed capital (Section 36(1)(iii)).
• Discounts on Zero-Coupon Bonds (Section 36(1)(iiia)).
• Contributions to recognized funds—provident, superannuation, or gratuity (Section 36(1)(iv) & (v)).
• Contributions to pension schemes (Section 36(1)(iva)).
• Employee fund deposits under Provident, Superannuation, or Employee State Insurance Act 1948 (Section 36(1)(va)).
• Allowances for deceased or permanently useless animals (Section 36(1)(vi)).
• Bad debts write-off (Section 36(1)(vii) and (viia)).
• Special deductions for eligible business entities (Section 36(1)(viii)).
• Expenditure for employee family planning (Section 36(1)(ix)).
• Corporate expenditure for specified purposes (Section 36(1)(xii)).
• Contributions to credit guarantee trust funds for Micro & Small Industries (Section 36(1)(xiv)).
• Deductions for Securities Transaction Tax (Section 36(1)(xv)).
• Deductions for Commodities Transaction Tax (Section 36(1)(xvi)).
• Expenditures by cooperative societies on sugarcane purchases (Section 36(1)(xvii)).
• Losses marked to market as per Income Computation and Disclosure Standards (Section 36(1)(xviii)).

Note: This guide offers a general understanding of taxable business or profession income and allowable tax deductions. It's advisable to consult a tax professional for personalized advice based on specific circumstances.