Tax liability under Profit and Gains of Business or Profession

Friends,

There are Five heads under Income Tax computation  as per Income Tax Rules. 

1. Income from Salary/Pension Head

2. Income from House Property 

3. Profit and gains of business or profession

4. Capital Gains and 

5. Income from other Sources.

This is one of the five heads of income as specified above and is the most important head in the sense that revenue falling to the Government under this head is more than the revenues under all other heads of income put together. To charge an income under this head, the income must arise from such activities which constitute a business, profession, vocation or occupation.

Basis of charge:

The following income shall be chargeable to income tax under the head ‘Profits and Gains of Business or Profession’:

• The profits or gains 0of any business or profession [SEC. 28(i)]
• Any compensation or other payment due to or received by some specified person [SEC. 28(ii)]
• Income derived by a trade, professional or similar association from specified services performed for its members [SEC. 28(iii)]
• Profits on sale of a license granted under the Import (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 [SEC. 28(iiia)]
• Cash assistance received or receivable by any person against exports under any scheme of the Government Of India [SEC. 28(iiib)]
• Any duty of Custom or Excise repaid or repayable  as drawback to any person against exports under the Custom and Central Excise Duties Drawback Rules, 1971 [SEC. 28(iiic)]
• Any profit on transfer of the Duty Entitlement Pass Book Scheme being Duty Remission Scheme, under the export and import policy formulated and announced under section5 of the Foreign Trade (Development and Regulation) Act, 1992 [SEC. 28(iiid)]
• Any profit on transfer of Duty Free Replenishment Certificate, being Duty Remission Scheme, under the export and import policy formulated and announced under section5 of the Foreign Trade (Development and Regulation) Act, 1992
• The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession [SEC. 28(iv)]
• Any interest, salary, bonus, commission, or remuneration due to or received by a partner of a firm from such firm, if any such sum has been allowed as deduction under section 40(b), the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted [SEC. 28(v)]
• Any sum whether received or receivable in cash or 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, franchise or any other business or commercial right of similar nature or information or technique likely to assist in manufacture or processing of goods or provision for services [SEC. 28(va)]. However the following shall not be chargeable to tax as business income under section 28(va):

Any sum whether received or receivable in cash or in kind on account of transfer of right to manufacture, produce or process any article or thing or right to carry on any business which is chargeable under the head ‘Capital Gain’

Any sum received as compensation from the multilateral fund of the Monteral Portocol on Substances that deplete the Ozone layer under The United Nation Environmental Programme in accordance with the terms of agreement entered in to with the Government of India.

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