Taxation Exam > Taxation Notes > Income Tax for assessment (Inter Level) > Computation of Profit from Business - Taxation
Computation of Profit from Business - Taxation | Income Tax for assessment (Inter Level) PDF Download
Computation of Profit from Business - Taxation
Fees from Clients | 7,90,000 |
Professional Gift | 7,000 |
Income earned from Charitable Institution | 6.000 |
Total | 8,03,000 |
Less : Expenses allowed as deduction |
|
(-) Salary to staff | (3,20,000) |
(-) ER’s contribution towards RPF | (60,000) |
(-) Interest on overdraft facility | (4,000) |
Profit from Business | 4.19.000 |
Computation of Total Income
Profit from Business | 4,19,000 | ||
Income from Other Sources | Interest on fixed deposits | 23,500 |
|
Fees from publishing articles | 17,200 | 40,700 | |
Gross Total Income | 4,59,700 | ||
Less : Deduction u/s 80C | (15,000) |
Less : Deduction u/s 80G (50% of 6,000) | (3,000) |
Total Income | 4,41,700 |
Deductions Expressly Allowed
Section 30. Deduction relating to building which is used for the purpose of business or profession
In respect of premises, used for the purposes of the business or profession, the following deductions shall be allowed:
(a) Any sum on account of land revenue, local taxes or municipal taxes subject to section 43B is allowed as deduction.
(b) Where the premises is taken on lease, rent of the premises is allowed as deduction.
- Notional rent paid by proprietor to himself is not allowed as deduction.
- Rent paid by firm to its partner for using his premises is allowed as deduction.
- Where the premises is owned by the assessee, it can claim depreciation u/s 32(1).
(c) Insurance charges against the risk of damage or destruction of building.
(d) Current repairs if the assessee bears the cost of repairs.
- Capital repairs incurred by the assessee are not as allowed as deduction whether premises is occupied as a tenant or as a owner. However the assessee can claim depreciation on capital repairs.
Meaning of Current Repairs and Capital Repairs
a. Expenditure incurred for replacing the part of the asset is current repairs.
b. Expenditure incurred for replacing the whole of the asset is capital repairs.
c. Expenditure incurred for addition of the asset is a capital expenditure.
d. Renovation of assets which effects the sales is current repairs.
Section 31. Deduction relating to plant, machinery & furniture
(a) Amount paid on account of current repairs to the plant, machinery and furniture is allowed as deduction.
Note 1: However capital repairs incurred by the assessee are never allowed as deduction whether plant is leased or is purchased. But depreciation can be claimed u/s 32.
(b) Insurance premium paid for insurance against the risk of damage or destruction of plant, machinery or furniture is allowed as deduction.
Note 2: Rent of P & M & furniture is covered u/s 37 and not in section 31.
Deductions u/s 36
1. Section 36(1)(i). Insurance of stocks:
The amount of insurance premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purpose of the business is allowed as deduction. Purchase of stock is allowed as deduction u/s 37.
2. Section 36(1)(ib). Insurance premium on health of employees
a. The employer takes group health insurance of all its employees.
b. Premium is paid under a scheme framed in this behalf by the General Insurance Corporation of India and approved by the Central Government or any other insurer and approved by IRDA.
c. The premium is paid through cheque (account payee cheque / bearer cheque) or demand draft.
Note 1 : Where premium is paid in cash deduction is not allowed.
Note 2 : Life insurance premium or accident insurance premium paid by employer for employee is allowed as deduction u/s 37.
3. Section 36(1)(ii). Bonus or commission paid to employees
Any sum paid to an employee as bonus or commission for services rendered, is allowed as deduction subject to section 43B.
Note 1 : Bonus by whatever name called like Diwali bonus, Production bonus shall be covered under this section only.
Note 2 : Where such bonus or commission represents profits or dividend then not allowed as deduction. In other words distributing dividend as bonus is not allowed as deduction.
Note 3 : Salary or allowances or perquisites is allowed as deduction in the hands of employer u/s 37.
4. Section 36(1)(iii). Interest paid on money borrowed for the purpose of business or profession
The amount of interest paid in respect of capital borrowed for the purposes of the business or profession shall be allowed as deduction. If loan is borrowed from banks / FI then allowability of interest is subject to section 43B.
Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Therefore capitalised this interest as per explanation 8 to S 43(1). Depreciation can be claimed.
Note : Interest paid after the asset is put to use is allowed as deduction.
Other points
a. The sum of money should be borrowed from another assessee. The loan may be borrowed from any Bank, financial institution, Govt. public, friends or relatives. Loan may be in the form of debentures or deposits etc. Interest on capital or loan to proprietor is not allowed as deduction since the loan is not borrowed from another person.
b. Where the amount of loan is used for personal purpose it is not allowed as deduction.
c. Income tax department cannot question the need of borrowing and the rate of interest.
d. Interest other than interest on borrowing can be claimed as deduction under section 37.E.g. Interest on late payment of sales tax, Interest on overdraft facility etc.
e. Interest before commencement of business (Trial Run) is not allowed as deduction. Business shall be treated commenced from the date of completion of trial run.
5. Section 36(1)(iv). Employer’s contribution towards Recognised provident fund or an approved superannuation fund
Employer’s contribution paid towards recognised provident fund or an approved superannuation fund is allowed as deduction subjected to section 43B.
Note 1: As per section 40A(9) contribution towards any Non-Statutory fund or unapproved fund is not allowed as deduction.
Note 2: Where contribution is made towards any other fund or for welfare of employees in any form without specific requirement of law then such contribution is not allowed as deduction.
6. Section 36(1)(iva). Employer’s contribution towards pension scheme referred in section 80CCD
W.e.f. AY 12-13 it provides that an assessee shall get a deduction in respect of contribution towards a new pension scheme referred in section 80CCD on account of an employee to the extent it does not exceed 10% of the salary of the employee in the previous year subject to section 43B.
For this purpose, ‘salary’ includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
Note 1: The limit of 10% has to be observed for each employee. E.g. an employer has two employees (X & Y) drawing ₹ 4,00,000 each and he contributes to the fund ₹ 44,000 (11%) for employee X and ₹ 36,000 (9%) for employee Y, he will face disallowance of ₹ 4,000 (₹ 44,000 less ₹ 40,000, being 10%) for employee X.
7. Section 36(1)(v). Employer’s contribution paid towards an approved gratuity fund
Employer’s contribution towards an approved gratuity fund created by the employer exclusively for the benefit of his employees under an irrevocable trust is allowed as deduction subject to section 43B.
Note 1: As per section 40A(7) contribution towards unapproved gratuity fund is not allowed as deduction.
Note 2: Where employee retires during the year gratuity is payable to such employees during the year is allowed as deduction if no deduction was claimed earlier.
The document Computation of Profit from Business - Taxation | Income Tax for assessment (Inter Level) is a part of the Taxation Course Income Tax for assessment (Inter Level).
All you need of Taxation at this link: Taxation
|
405 videos|72 docs
|
FAQs on Computation of Profit from Business - Taxation - Income Tax for assessment (Inter Level)
| 1. How is profit from business computed for taxation purposes? |  |
Ans. Profit from business is computed for taxation purposes by subtracting all allowable business expenses from the gross revenue generated by the business. This includes deductions for expenses such as salaries, rent, utilities, advertising, and other costs directly related to the operation of the business. The resulting amount is the taxable profit that is subject to income tax.
| 2. What are some examples of allowable business expenses that can be deducted from the gross revenue? | |
Ans. Allowable business expenses that can be deducted from the gross revenue include salaries and wages paid to employees, office rent and utilities, business insurance premiums, advertising and marketing costs, travel and entertainment expenses directly related to business activities, professional fees paid to consultants or lawyers, depreciation of business assets, and interest paid on business loans or credit cards.
| 3. Are there any expenses that cannot be deducted from the gross revenue when computing profit for taxation? | |
Ans. Yes, there are certain expenses that cannot be deducted from the gross revenue when computing profit for taxation. These include personal expenses that are not directly related to the operation of the business, fines or penalties imposed by government authorities, political contributions, and expenses that are considered lavish or extravagant. It is important to consult with a tax professional or refer to the tax regulations specific to your jurisdiction for a complete list of non-deductible expenses.
| 4. How does taxation on profit from business work for sole proprietorships compared to corporations? | |
Ans. Taxation on profit from business differs for sole proprietorships and corporations. In a sole proprietorship, the profit is considered personal income of the owner and is subject to individual income tax rates. The owner reports the profit and pays taxes on their personal income tax return. In contrast, corporations are separate legal entities, and the profit is subject to corporate income tax rates. The corporation files its own tax return and pays taxes on the profit. If the corporation distributes dividends to shareholders, those dividends may also be subject to individual income tax for the shareholders.
| 5. Are there any tax incentives or deductions available for businesses to reduce their taxable profit? | |
Ans. Yes, there are various tax incentives and deductions available for businesses to reduce their taxable profit. These can include deductions for research and development expenses, investment in certain qualified property or equipment, hiring certain categories of employees, and contributing to retirement plans or employee benefit programs. Additionally, some jurisdictions offer tax credits for specific industries or activities, such as renewable energy projects or historic preservation. It is important for businesses to consult with tax professionals or refer to the specific tax laws applicable to their jurisdiction to take advantage of these incentives and deductions.
Related Exams
About this Document
|
Nov 16, 2024 Last updated |
Document Description: Computation of Profit from Business - Taxation for Taxation 2024 is part of Income Tax for assessment (Inter Level) preparation.
The notes and questions for Computation of Profit from Business - Taxation have been prepared according to the Taxation exam syllabus. Information about Computation of Profit from Business - Taxation covers topics
like Computation of Profit from Business - Taxation and Computation of Profit from Business - Taxation Example, for Taxation 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises and tests below for Computation of Profit from Business - Taxation.
Introduction of Computation of Profit from Business - Taxation in English is available as part of our Income Tax for assessment (Inter Level)
for Taxation & Computation of Profit from Business - Taxation in Hindi for Income Tax for assessment (Inter Level) course.
Download more important topics related with notes, lectures and mock test series for Taxation
Exam by signing up for free. Taxation: Computation of Profit from Business - Taxation | Income Tax for assessment (Inter Level)
Description
Full syllabus notes, lecture & questions for Computation of Profit from Business - Taxation | Income Tax for assessment (Inter Level) - Taxation | Plus excerises question with solution to help you revise complete syllabus for Income Tax for assessment (Inter Level) | Best notes, free PDF download
Information about Computation of Profit from Business - Taxation
In this doc you can find the meaning of Computation of Profit from Business - Taxation defined & explained in the simplest way possible. Besides explaining types of
Computation of Profit from Business - Taxation theory, EduRev gives you an ample number of questions to practice Computation of Profit from Business - Taxation tests, examples and also practice Taxation
tests
|
Explore Courses for Taxation exam
|
|
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
Related Searches
Extra Questions
,practice quizzes
,Previous Year Questions with Solutions
,Viva Questions
,Semester Notes
,Computation of Profit from Business - Taxation | Income Tax for assessment (Inter Level)
,video lectures
,MCQs
,study material
,Summary
,Free
,Computation of Profit from Business - Taxation | Income Tax for assessment (Inter Level)
,Sample Paper
,Objective type Questions
,ppt
,past year papers
,shortcuts and tricks
,mock tests for examination
,Important questions
,Exam
,Computation of Profit from Business - Taxation | Income Tax for assessment (Inter Level)
;
Additional Information about Computation of Profit from Business - Taxation for Taxation Preparation
Computation of Profit from Business - Taxation Free PDF Download
The Computation of Profit from Business - Taxation is an invaluable resource that delves deep into the core of the Taxation exam.
These study notes are curated by experts and cover all the essential topics and concepts, making your preparation more efficient and effective.
With the help of these notes, you can grasp complex subjects quickly, revise important points easily,
and reinforce your understanding of key concepts. The study notes are presented in a concise and easy-to-understand manner,
allowing you to optimize your learning process. Whether you're looking for best-recommended books, sample papers, study material,
or toppers' notes, this PDF has got you covered. Download the Computation of Profit from Business - Taxation now and kickstart your journey towards success in the Taxation exam.
Importance of Computation of Profit from Business - Taxation
The importance of Computation of Profit from Business - Taxation cannot be overstated, especially for Taxation aspirants.
This document holds the key to success in the Taxation exam.
It offers a detailed understanding of the concept, providing invaluable insights into the topic.
By knowing the concepts well in advance, students can plan their preparation effectively.
Utilize this indispensable guide for a well-rounded preparation and achieve your desired results.
Computation of Profit from Business - Taxation Notes
Computation of Profit from Business - Taxation Notes offer in-depth insights into the specific topic to help you master it with ease.
This comprehensive document covers all aspects related to Computation of Profit from Business - Taxation.
It includes detailed information about the exam syllabus, recommended books, and study materials for a well-rounded preparation.
Practice papers and question papers enable you to assess your progress effectively.
Additionally, the paper analysis provides valuable tips for tackling the exam strategically.
Access to Toppers' notes gives you an edge in understanding complex concepts.
Whether you're a beginner or aiming for advanced proficiency, Computation of Profit from Business - Taxation Notes on EduRev are your ultimate resource for success.
Computation of Profit from Business - Taxation Taxation Questions
The "Computation of Profit from Business - Taxation Taxation Questions" guide is a valuable resource for all aspiring students preparing for the
Taxation exam. It focuses on providing a wide range of practice questions to help students gauge
their understanding of the exam topics. These questions cover the entire syllabus, ensuring comprehensive preparation.
The guide includes previous years' question papers for students to familiarize themselves with the exam's format and difficulty level.
Additionally, it offers subject-specific question banks, allowing students to focus on weak areas and improve their performance.
Study Computation of Profit from Business - Taxation on the App
Students of Taxation can study Computation of Profit from Business - Taxation alongwith tests & analysis from the EduRev app,
which will help them while preparing for their exam. Apart from the Computation of Profit from Business - Taxation,
students can also utilize the EduRev App for other study materials such as previous year question papers, syllabus, important questions, etc.
The EduRev App will make your learning easier as you can access it from anywhere you want.
The content of Computation of Profit from Business - Taxation is prepared as per the latest Taxation syllabus.
|
© EduRev
|
Education Revolution
|
Follow Us
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup