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INCOME FROM
BUSINESS
TOPIC
INCOME FROM
BUSINESS
ADEEL KHAN
BUSINESS
[SECTION 2(9)]
TRADE
MANUFACTURING
COMMERCE
PROFESSION OR VOCATION
CONCERN
ADVENTURE
NOTE
The business does not include
employment.
It includes:
Profit and gain in tax year
Any income derived by trade,
professional, AOP from sale of good or
services
Income from hire or lease of tangible
movable property
INCOME CHARGE
Profit on debt
Management fee derived by management
company
Fair market value of any benefit or perquisite
derived in the course of business relationship
TYPES OF BUSINESS:
SPECULATION BUSINESS:
SEC 2 (61)
CATEGORIES OF INCOME
The income from business are to be
shown separately under the following
sub-heads:
Income from speculation business
Income from non-speculation
business
TAXABILITY OF SPECULATION BUSINESS
[SECTION 19]
Treated as separate block of income
Profits or gains are computed separately
The principles of apportionment of expenditures
shall be applied (Section 67).
Any profit and gains arising from the speculation
business for a tax year shall income from business
loss from speculation business can only be set off
against the income of any other speculation
business carried on by person (Section 58).
.
WHAT IS DEDUCTION?
Any item or expenditure subtracted from gross
income to reduce the amount of income subject
to tax.
ADMISSIBLE DEDUCTIONS
Expenses incurred for the purposes of
business
Loss on animal used for business
Depreciation & amortization of assets
Amalgamation expenses incurred by an
amalgamated company
Example
- Salary
- Interest
- Training expenses
- Insurance premium
- Loss of animals
- Rent for premises
- Bad debts
- Repair charges
[SEC20(1A)]
EXAMPLE
Detail
Amount
1,00,000
4,000
96,000
DEPRECIATION AND AMORTIZATION ON ASSETS
[20(2)]
EXAMPLE
Mr. Zahid has a taxable salary of Rs. 3, 60,000/- during the year.
He was also running a Manufacturing concern of which the annual sales were
Rs.80,00,000/.
The Gross profit was 25% of the annual sales. Following are further details
regarding
expenses
of this business:
Sr.#
EXPENSES
TOTAL
TRANSACTI
MODE OF
Requirement: Find out tax liability of Mr.Zahid
ON
PAYMENT
1.
Utility bills
80,000
5,000
40,000
5,000
30,000
Cash
Cross Cheque
Cross Cheque
Cash
2.
20,000
8,000
12,000
Cross Cheque
Cross Cheque
3.
Building repair
60,000
4.
Machinery repair
40,000
5.
20,000
5,000
5,000
20,000
30,000
15,000
5,000
5,000
15,000
12,000
Cross cheque
Cash
Cross Cheque
Cash
Cash
Cash
Cross Cheque
Cross Cheque
Cash
8,000
Cash
SOLUTION
Income from salary
Income from Business:
Sales
Gross Profit 80,000@ 25%
20, 00,000
LESS: Admissible Deductions
Utility Bills
Building Repair
Machinery Repair
18,50,000
TOTAL INCOME
22,10,000
3, 60,000
80, 00,000
40,000
80,000
30,000
1, 50,000
Tax Calculation
Initial tax
Add
(22, 10,000-15, 00,000)@20%
1, 47,500
1, 42,000
2, 89,500
NOTES
Fine or Penalty
[Section 21(g)]
Personal
Expenditure [21(h)]
Salary exceeding
prescribed [sec
21(m)]
Capital expenditure
Transfer to Reserve
Fund [21(i)]
Reward of Members
of AOP [21(j)]
Any Expenditure
Exceeding Prescribed
Limit [21(l)]
PROBLEM:
XYZ private limited has a taxable income of Rs. 6, 00,000/- for the
tax year 2014. Its turnover during the year was Rs 5, 00, 00,000/-.
Find its tax liability.
SOLUTION:
Problem:
M/S ABC Enterprises is an Association of Persons it is doing the business of
constructing and selling building. During the year the income from the business is Rs.
8, 00,000/-. During the year actually M/S ABC Enterprises sold and booked 24,000
square feet of area.
Find out the tax liability of M/S ABC Enterprise:
Solution:
Income from business of construction is equal to 8, 00,000
Tax on 8, 00,000
Initial........................................................... 35,000
(8, 00,000-7, 50,000) @ 15% ..................... 7,500
Total Tax
42,500
Minimum Tax Liability on Builders (Rs. 25 per square feet booked or sold)
= Square feet booked or sold x 25
= 24,000 x 25 = 6, 00,000
Minimum Tax liability of Rs. 6, 00,000 calculated being a builder is higher than of the
Normal Tax Rs. 42,500 hence tax payable is Rs. 6, 00,000.