This e-Lecture was Recorded on:

March 19, 2015

Profits and Gains From

Business and Profession
CA Final Course Paper 7 Direct Tax
Laws Chapter 6

ASSESSMENT YEAR
2015-16
PROF. (Dr.) C.K.SHAH

The Institute of Chartered Accountants of India

1
2
3

This lecture has been delivered by faculty members to supplement

the Study Material, Practice Manual and other content

The views expressed in this lecture are of the Faculty Member.

The content of this video lecture has not been specifically discussed
by the Council of the Institute or any of its Committees and the
views expressed herein may not be taken to necessarily represent
the views of the Council or any of its committees

ICAI, 2015

This e-Lecture was Recorded on:

March 19, 2015

The e-Lectures, PPT, Podcasts

and Video lectures on ICAI
Cloud Campus aim to
supplement the Study Material,
Practice Manual and
Supplementary Study Material

The lecture recordings are made

according to the syllabus and
laws existing/ applicable as on
the date of recording.

Due to changes in law, there is

likely to be some time gap
between these changes and the
recording of updated lectures.

Hence, students are advised to

refer to the Study Material
including Supplementary Study
Material, if any, and other
relevant legislation for latest
provisions/ amendments
required for forthcoming
examination.

ICAI, 2015

Sources of Income
Income

from
Income from
Income from
Profession
Income from
Income from

Salaries
House Properties
Business and
Capital Gain
other Sources

ICAI, 2015

All Business Incomes

All Professional Income
All Vocational Income
Profit on sale of Depreciable Assets

Cost Price of AssetRs.1000000

Written Down Value...Rs. 480000
*If Selling Value Rs. 620000
Profit on sales
Rs. 140000 (B&P)
*If Selling Price is
Rs. 1040000
Profit.
Rs. 560000
Rs. 40000 is Capital Gain and Rs. 520000 is
Business Profit

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CONTINUE
Salary,

interest, Bonus, Commission or any

remuneration from partnership firm to a
partner
Interest from customers for delay in
payments
Discount on Purchase (on payment)
Commission
Perquisites
or
Benefit
because
of
Profession
Sum received for not carrying out business
or Not share any knowledge, Patent,
Copyright, Trademark etc.
ICAI, 2015

CONTINUE
Compensation

or other payment received

because of Termination of Agency or
Changing in terms and condition of Agency
Profit on sale of Import Licence granted
under Import and Export (Control) Act.
Cash Assistance by any person against
export under any scheme of the
Government
Duty Drawback under Customs and Excise
Acts
Duty entitlement Pass Book Scheme
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Continue

Bad

debts recovered
Non-monetary Income (Air Ticket, Prizes
etc)
Profit from Speculation Business
Income from Illegal Business
Recovery of expenses which was allowed
earlier
Recovery of Bad debts incase of Purchase
of Business or Business acquired in
succession
ICAI, 2015

 Sale

proceeds from an asset used for

Scientific Research
Unexplained Cash Credit
Unexplained Investments
Unexplained Wealth
Unexplained Expenditures
Amount borrowed or paid on HUNDI
Rent from house received from employees
Let out of HP for smooth and efficient
running of the business.
ICAI, 2015

 Income

of Service Providing Concern

Beneficial

ownership vs. Legal ownership

Key man Insurance Policy
Lottery Prize (If engaged in lotteries
Business)
Prizes or Gifts from Government or any
other Institutions
Rent from let out of Business Assets
Profits on sale of Investments if kept as
business Investments
Future Profit
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Income not Taxable

under
Profits and Gains of Business
Income

from Horse and Horse Races

Dividend received from foreign company
even Assessee is engaged in the business of
shares
Salary received by owner as partime or full
time service
Rent from house acquired as personnel
capacity

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11

Continue
Any

sum whether received or received or

receivable (in cash or kind) on account of
any capital asset (other than Land,
Goodwill Financial instruments) being
demolished, destroyed, discarded or
transferred if whole of the capital asset has
been allowed as deduction u/s35AD.

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12

General Principles

Operator

/ Owner of the business

All together all business incomes
Sale of assets after winding up of business
Business should be operated during the
previous year
Future Profit
Legal owner Vs. Beneficial ownership

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13

 Previous

Year
Adoption of System of Accounting
*Mercantile System
*Cash System
Valuation of Closing Stock
Conversion of personal asset into stock
Keeping of Books of Accounts (Section
44AA)

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14

Compulsory
Maintenance of
Books of
Accounts

Specified

Professionals

Rule 6F

Legal, medical, engineering, technical consultant,

interior decoration, film artist, Company secretary,
Information technology
Gross receipt exceeds Rs. 150000 in all the preceding 3
years

Other
Income from such profession or Business is exceed
by Rs. 120000 or gross receipt is exceed by Rs. 1000000

Penalty

Rs. 25000
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15

Audit
of
Books of Accounts

person carrying on Business

If Gross receipt or turnover in the

business exceeds Rs. 1 crore
A

person carrying on profession

If the gross receipts in

profession exceeds Rs. 25 Lakh

the

person covered u/s 44AE,

44BB or 44BBB

(Plying of trucks, Exploration of minerals oils,

Foreign airlines)
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Continue
Audit of
Books of Accounts
If such person claims that the profits
and gains from the business are lower than
the profits and gains computed under these
sections, irrespective of turnover
A

person covered under section 44AD

(small business)

If such person claims that the profits

and gains from the business are lower than
the profits and gains computed in
accordance with the provisions of section
44AD(1) and the income is more than by
the minimum taxable limit
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Continue
Audit of
Books of Accounts
Penalty

-0.5% of gross turnover

-Rs. 100000
Which ever is less

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18

 Share

of Profit of Partner from partnership

firm
Share of Profit of Members from HUF
Specific Prizes to Artist

(Literacy award, Sports award, Scientist award, Artistic

award etc)
Income

from marketing of Khadi and village

industrial products
Profit from Newly established industrial
undertaking established in SEZ
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19

Agricultural

Income

Land must be
situated in India.
It should be an
agricultural land.
All the preliminary
work must be done.
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 Rent

from agricultural land

Rent from house situated on agricultural
land
Insurance compensation on policy taken on
agricultural crops
Remuneration to partners from partnership
firm engaged in agricultural work
Interest on loan to partners by partnership
firm to partner
Sale of agricultural product, wood, grass,
leaves etc. if cultivated
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21

 Tea

cultivation
Rubber Cultivation
Coffee Cultivation
after shorting
Coffee Cultivation
after grinding, roasted
etc.
Other agricultural products

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60:40
65:35
75:25

60:40

22

Applicable to the Assessee (Resident

Individual, HUF and partnership Firm
except limited liability Firm) who does
not maintain the books of accounts,
Section 44AD and 44AE is inserted in
the act to calculate their taxable
income.
Small Business:
All the business, where the gross receipt is not
more than Rs. One crore, Except:
*Operating and leasing of trucks
*Commission Agent or Broker
*All Professional persons

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Continue
Presumptive Income

Applicable

on the businessman whose gross

receipt during the previous year does not
exceed by Rs. One Crore
Presumptive Income 8% of Gross Receipt

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24

Operating and Leasing Trucks:

Maximum 10 Trucks under ownership

including acquired under Hire Purchase agreement

For

Heavy Vehicle Rs. 5000 p.m.

Weight of empty truck is more than 12000 Kg

For

other Vehicle Rs. 4500 p.m.

From

the Assessment Year 201516 the presumptive income will

be Rs.7500 p.m. irrespective of
type of vehicles.
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25

No Deduction under the head B & P

Except Salary and Interest on Capital to
the partners.
Eligible for deduction u/s 80
Notional Depreciation
No need to maintain the books of
Accounts
No deduction will be allowed, if presumptive
income option is adopted. If assessee is
interested to take the benefit of all the
provisions of Business and Profession head
then has to maintain the books of accounts
Exempt from the payment of advance tax

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26

 Commission

from Insurance New Business

100/90 if more than Rs. 20000
Commission on Lottery Tickets including
Prize
100/90 if more than Rs. 1000
Other Commission & Brokerage
100/90 if more than Rs. 5000
If PAN is not provided than 100/80
in all above cases
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Continue
TDS
Consultancy

charges for Technical Know-

how
100/90 if more than by Rs. 30000
If PAN is not provided than 100/80
Contract and Subcontract receipt
100/99 if more than Rs. 30000 in single
transaction or Rs. 75000 in the Financial
Year
Advertisement Job work
100/98
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28

General Rules to Allow an expenses

An expenses which fulfills all of the

following conditions
1. Expenses must be related to the
previous year
2. Expenses must be of Revenue nature
3. Expenses must be related to the
Business
4. No deduction for discontinued Business
5. Expenses incurred before setting up of
Business
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29

Depreciation:

(a) only on Plant & Machineries, Building,

Intangible asset and Furniture
(b) Assessee must be the owner (Wholly or
Partially) of the above assets
(c) It must be used for the purpose of own
Business or Profession
(d) Asset must be used during the Previous
Year
(e) Asset acquired during the previous year
(f)Aggregate amount of depreciation can not
be exceed by the cost of the asset
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30

 Asset

acquired on lease
Joint owner of Asset
Asset must be in useable condition
Proportionate Depreciation on conversion
of business
Straight Line Method of Depreciation to the
Power Generating / Supplying industry
Depreciation will be calculated by WDV
method
FIFO method, incase of sale of asset
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Continue
In

case of old asset, whole year

depreciation will be allowed, even it is
used for a day only.
In case of asset acquired during the year,
the whole year depreciation will be
allowed if it is used at least for 180 days
otherwise 50% of the allowable rate of
depreciation will be allowed.
Asset acquired prior to the previous year
but put into the use during the previous
year, the whole year depreciation be
allowed even it is used for a day only.
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*Depreciation will not be allowed on

individual asset but will be allowed on
Block of Assets. The Block will be created
on the basis of nature of assets and on the
basis of rate of depreciation.
*Main Block will be on the basis of nature
of assets
Plant and Machineries
Furniture
Buildings
Intangible Assets
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33

continue

Building

include roads, bridges, wells, tube

wells and culverts.
Furniture include electrical fittings
including fans etc.
Machinery and Plant includes pipes needed
for delivery from the source of supply of
raw water to the plant and from the plant
to the storage facility.

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34

 *Sub

Block will be created on the

basis of rates of depreciation
applicable on such asset:

BLOCK OF BUILDING
1. Mainly residential

(2/3)

5%

2.Hotel, Boarding house

3.Business use
4.Partially residential/ Business
5.Temporary Building

10%
10%
10%
100%

6.Water works Building

100%

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35

BLOCK OF PLANT & MACHINERIES

*General and official Car
15%
*Internal Ships and Speed Boats
20%
*Taxi Car, Motor Bus, Trucks, Moulds
30%
*Aero plane, Aircraft, Commercial Vehicles
purchased before 31-3-1999 and special
Plants
40%
*Refill Containers of glass or plastics,
Commercial Vehicles, Textile Plant purchase
under Technical Development Scheme 50%
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 Continue

Plant and Machineries:

*Vehicles purchased on replacement

of 15 years old vehicles, Computers
and Software, Professional Books,
Gas Cylinder, Fire glass melting
Furnace, Plants used for operation
of mineral oil
60%

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Continue Plant and Machineries:

*Rollers used in flour mills, sugar mills and steel

industry, Energy savings plants and devices 80%

*Annual publications for professional use,

Books and other publication provided on rent,
Pollution control plants, wooden frames used
for production of artificial silk, Picture film,
Bulb, Studio lights, Items used in mining, water
tank
used
in
salt
industry
100%

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 Depreciation

on Books:

*Annual Publication Purchased by

Professionals
100%
*Books providing on rent
100%
*other than above
60%

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39

CINTUNUE
If

car is purchased from abroad and used

for own business purposes (Other than
Taxi) then rate of depreciation will be:
*Purchased between 1-4-1967 & 28-21975, the cost cannot be exceed by Rs.
25000
*Purchased between 1-3-1975 and 31-32001 then No depreciation will be allowed
*Purchased after 31-3-2001 then there is
no difference between Indian and foreign
car 15%
*OHRER VEHICLES
15%
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40

 BLOCK

OF Furniture and Fitting

10%

May

be of Wooden or Plastic
May be used in the office, factory, house
Doors and Windows in the building is part
of building
False ceiling for centralized AC and
Partition work is Furniture

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41

 BLOCK

OF INTANGIBLE ASSETS

25%

Patent,

Trademark, Goodwill, Copyrights,

Route Permit, Licenses, Franchises, Know
how, Commercial right

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42

Depreciation Continue

As

whole there will be 13 Block of Assets

according to the nature and rates of
depreciation prescribed:
Building: 3 Blocks (5%, 10% and 100%)
Furniture: one Block (10%)
Plant and Machinery: 8 Blocks (150%,
30%, 40%, 50%, 60% and 80%)
Intangible Assets: One Block (25%)
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43

Proportionate Depreciation
Succession

of a partnership firm by a

company
Conversion of private company or unlisted
company into LLP
Succession of proprietary concern by a
company
Succession of any business other than on
death.
Amalgamation of companies
Demerger of any company
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44

 If

Purchased:
Purchases price + Carrying expenses +
Installation expenses + Repair expenses on
purchases of asset + Heavy repair expenses
+ Interest on loan upto the date of
acquisition and put into the use + Legal
expenses + Sum paid to release the asset
Subsidy received from the Government or
any institutions

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If Asset is acquired free of Cost

Asset acquired from abroad
Asset acquired on Hire Purchase System
Personal use asset put into the business
Asset repurchase
Asset sold and received on hire
Scientific used asset is put in business use

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46

 Asset

used in Business after it

ceases to be used for Scientific
Research
Assets transferred by Holding
Company to 100% Subsidiary
Company or vice versa where
transferee is an Indian Company
Assets transferred under the scheme
of Amalgamation
Cenvatable Asset
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47

 WDV

at the beginning of the year of a

particular Block
(+) Cost of assets acquired during the
Previous Year of the same block
(-) Selling Value of assets sold /destroyed /
discarded /demolished during the previous
year of the same block
----------------------BALANCE
----------------------- ICAI, 2015

48

 If

above balance is Positive:

Depreciation will be allowed by applicable
rate
If above balance is Negative:
No depreciation will be allowed and
balance will be treated as STCG
If whole block is sold:
No depreciation
Positive balance
STCL
Negative balance
STCG
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49

Plant & Machinery of 15% Depreciation

WDV on 1/4/2014 Rs5 Lakhs

Bought during the FY 2014-15 of same block:

P&M

Date of
Purchases

Date of Put into Cost Rs.

Use

5/1/2014

14/1/2015

50000

5/4/2014

15/5/2014

100000

15/5/2014

31/1/2015

200000

15/11/2014

27/3/2015

150000

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50

Four Machines of this block (Other than those which were acquired
and put to use for less than 180 days) were sold for
Rs.400000.
Calculate amount of depreciation for the assessment year
2015-16.
(B)What would be the answer if machines are sold for Rs.700000
instead of Rs.400000.(C) sold for Rs1200000.

SOLUTION:
WDV at the beginning of the year
Add Purchases during the year
P (Depreciation for One year)
50000
Q( Depreciation for One year) 100000
R & S(Depreciation for 6 Months 350000 500000

500000

1000000
400000
600000

Less Machines sold

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51

 Depreciation

as balance is Positive @ 15%

0n 250000 for one year

37500

On 350000 for 6 months

26250

(B)If sold for Rs 700000:

Balance will be Rs 300000 is also positive then the depreciation

will be allowed on the basis of FIFI method @ 15% for 6 months
Rs.22500.

(c)If sold for Rs1200000:

The balance will be negative by Rs200000. No depreciation

will be allowed and this balance will be treated as STCG.

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52

 Available

on Plant and Machineries used for

Production of articles except:
-Cooking Food in hotel
-Hatching of Eggs
-Cutting & Polishing of Diamonds
-Mining Work
-Power generating Machine
-Medical treatment in hospital
-Imparting Education

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53

Only on New Plant & Machineries which put

into use during the previous year
20% if purchase and use for 180 days or more
otherwise 10% on cost of Plant & Machinery
Additional depreciation will not be deducted to
find WDV for next year depreciation
Additional depreciation will be provided even
balance of block of asset is negative or nil
No additional depreciation if plant is sold in
the year of purchase

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54

Continue
Additional
Depreciation
From

the assessment Year 2013-14, the

additional depreciation is also available to
the assessee who engaged in the
Generation or Generation and Distribution
of Power.

Additional

Depreciation will be allowed to

such Assessee, who claims the Normal
Depreciation by Written Down Value
Method
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55

 It

is mandatory to claim Depreciation

If Business profit is not sufficient, it
can be set off from any source of
income except salary during the
same previous year
In case there is still balance left
over, is known as Unabsorbed
Depreciation and this can be set off
in the subsequent years

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56

 Option

to the assessee to choose the

method of depreciation.

The

total of depreciation during life

time of asset can not be exceed by
the cost of asset.
If SLM of depreciation is used, then
the depreciation can not be charged
on the basis of block of asset.

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57

Continue

If

asset is sold /discarded /destroyed

/obsolescence then the difference of WDV
and Realisable value of individual asset will
be:
Balancing Charge: If realisable value is
more than WDV and this will be a business
income and taxable under the head Profit
and Gain of Business or Profession.
Terminal Depreciation: If WDV is more than
the realisable value and the difference will
be allowed as Business expenses
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58

 If

SLM of depreciation is used and asset is

sold in the previous year in which it was
acquired then there will not be any
Balancing Charge or Terminal Depreciation.
The difference between Selling Value and
Cost of Asset is known as Capital Gain /
Loss and chargeable under the head Capital
Gain.
Additional
Depreciation will also be
available to such companies if they are
charging depreciation by WDV method.
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59

new section (Section 32AC) is added from

the previous year 2013-14 to encourage
the substantial investment in new Plant
and Machineries.
This allowance will be in addition to
Normal and Additional Depreciation.
This allowance is allowable to Company
Assessee engaged in the manufacturing of
any article or things.

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The new Plant and Machinery should be

acquired from 1st April, 2013 to 31st March,
2015
New Plant and Machinery does not include the
following:
*Old Plant and Machinery
*Plant and Machinery installed in Office
Premises and Residential accommodation
including Guest House.
*Any Vehicle
*Ship and Aircraft
*Whole P & M are deductible in the year of
purchase

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61

 The

aggregate amount of New Plant and

Machinery acquired and installed in
between 1st April, 2013 and 31st
March,2015 must be exceed by Rs.100
Crore.
The amount of Investment Allowance will
be 15% of the actual cost of P &M.
During P.Y. 2013-14, if investment in above
P & M is more than Rs. 100 Crore than 15%
of total cost of P & M will be allowed as
deduction. Otherwise no deduction by the
name IA.
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 During

Financial Year 2014-15, the amount

of Investment Allowance will be calculated
as follows:
Particulars

Amount

15% of Actual Cost of P & M acquired and

Installed during 1-4-2013 and 31-3-2015
(A)

***

Less: Investment Allowance provided in

the Financial Year 2013-14 (B)

***

Investment Allowance allowable in the

Financial Year 2014-15 (A - B)

***

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63

If company acquires and installs eligible Plant

and Machineries on or after 1-4-2014 and
aggregate amount of cost of acquisition is more
than 25 crore during the previous year then
the deduction u/s 32AC will be provided.
The Assessee, who were eligible were eligible
under the existing provisions of limit of Rs.100
crore of investments made during the previous
years 2013-14 and 2014-15 will get this
deduction also even the investment during
2014-15 is below Rs.25 crore but the
aggregate investments during these two years
must be more than 100 crore.

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 Illustration:
2013-14

2014-15

2015-16

2016-17

Amount
invested

30

90

Deduction

Nil

18

Amount
Invested

30

30

Deduction

Nil

4.5

Amount
Invested

120

20

Deduction

18

3
-

S.
No

Particulars

1.

2.

3.

4.

Amount
60
Invested ICAI, 2015

22

65

 Illustration

5.

6.

Continue:

Deduction

Nil

Nil

Amount
Invested

40

30

30

40

Deduction

Nil

4.5

4.5

Amount
Invested

140

20

80

20

Deduction

21

12

Nil

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66

 This

new amended deduction will be

allowed up to the assessment year 201718. In other word the deduction will be
allowed on investment made in eligible
Plant and Machineries up to 31st March,
2017.

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Continue
Investment Allowance
Withdrawal

of Investment Allowance
The new Plant and Machinery should not
be sold or otherwise transferred within a
period of 5 years from the date of
installation.

If sold or otherwise transferred, then the

investment Allowance provided earlier will
be the deemed income of the year in
which such Plant & Machinery sold or
otherwise transferred in addition to the
capital gain.
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 The

deduction U/S 33AB is available to the

assessee who engaged in the growing and
manufacturing tea / coffee / rubber in
India.
Assessee has to deposit an amount within 6
months from the end of the previous year
or date of submission of return of income,
whichever is earlier in any of the following
special account, with an intension that the
deposit amount will be used for the
development of Tea, Coffee or Rubber.
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Continue

*Deposit with National Bank for Agricultural and

Rural Development (NABARD)
OR

Deposit any amount in the scheme approved

by the Tea / Coffee / Rubber Board
Amount of deduction
*Amount deposited in the specified account
OR

*40% of Profit before allowing this deduction

Whichever is less
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Continue

Profit

will be calculated according to the

provisions of Income Tax Act without
providing the deduction of this section and
without set off and carry forward of losses.
If separate records are not kept for the
above
mentioned
businesses
then
proportionate profit on the basis of
turnover will be taken for this deduction.
If deduction under this section has been
claimed by the assesse then no deduction
will be allowed on aforesaid income on any
other section of the Income Tax Act,
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Continue
Additional

Rules
The Account of the assessee must be
audited by the Chartered Accountant and
report must be filed along with the return
of income in Form 3AC
No deduction for the same in any other
section
Excess amount deposited can not be
adjusted in the subsequent year

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Continue

Application

of deposit amount
*For the development of Tea or Coffee or
Rubber according to the scheme framed by
the respective Board.
*In any of the following situations:
- Death of the Taxpayer
- Partition of HUF
- Liquidation of Company

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Continue

Consequences

effects
In the following cases amount withdrawn
will be taxed as income from business:
*Closure of Business
* Dissolution of Firm
* Amount not used according to the
scheme
prepared for the deduction
* New Asset purchased according to the
scheme, transferred within 8 years
of acquisition
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Continue
Deduction

for this section will be allowed

from total profit of business of growing and
manufacturing Tea or Coffee or Rubber .
After providing of this deduction the
remaining income will be divided in the
two parts i.e. Agricultural Income and
Business Income.
Incase of withdrawn of this deduction,
only Business income will be retax not
the whole amount.
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 Assessee

must be engaged in the business

of Prospecting for, or extraction or
production of, Petroleum or natural gas or
both in India.
There must be an agreement with the
Central Government for such business.
The assessee has to deposit an amount
before the end of the previous year with
SBI in specified scheme approved by the
Government of India.
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 The

accounts of assessee must be audited

by the Chartered Accountant and audit
report must be filed along with return of
income in Form No. 3AD.
amount of deduction:
Amount deposited in the specified bank
account
OR 20% of the amount of
Business Profit, before this deduction.
Whichever is less.

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The amount deposited must be utilised for the

purpose mentioned in the scheme.
The amount, which is withdrawn or released
by the bank and not utilised for the purpose of
the scheme, will be treated as business income
of the previous year in which it is withdrawn
or released.
In case of discontinuation of business, the
balance of amount after reducing any amount
payable to the Government as share of profit,
will be taxed as business income.
If any asset is acquired according to the
scheme, then same should not be transferred
within 8 years.

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 Deduction

of Actual Capital and

Revenue Expenses ( Section 35 ):
* Expenses in own Laboratory:
(1)All revenue and capital expenses
incurred during the previous year will be
allowed if such expenses are related to the
own business.
(2)For
Future
business:
Following
expenses incurred in the just preceding 3
years will be allowed in the year in which
business is started:
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Continue
Scientific Research Expenditure
Following

Revenue Expenses:
*Salary of employees engaged in the
scientific research excluding perquisites.
*Material used for scientific research
purpose.
Following Capital Expenses:
*All Capital expenses except Land

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Continue
Scientific Expenses
Company and In-house Expenses
A manufacturing company produces an
article other than mentioned in Scheduled
Eleventh
200% of the following expenses will be
allowed:
All Revenue Expenses
All Capital Expenses (except L & B )
On Building 100%

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Continue
Scientific Research Expenses

Unabsorbed

Capital expenses of
scientific research:
During Current Year:
From any heads of Income except from
Salary
In subsequent Years:

Same as Unabsorbed Depreciation

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Scientific Research Expenditure

Sale of Scientific Research Asset:

Asset used for scientific Research is sold without any

other use in the business, then the less of the following
will be treated as business income of the year in which
such asset is sold:
*Selling Price + Deduction allowed in this
respect of such asset Cost of asset
* Deduction allowed in this respect
( If selling price is more than cost of asset then
the difference between selling price and cost of
asset will treated as Capital Gain.

125% deduction was allowed on capital expenses

incurred before 1-4-1984.)

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Continue
Scientific Research Expenditure

Sale

of scientific research asset after

use in the Business:
It will be added to the respective Block of
Assets at zero value and then after the
treatment on sale of asset will be same as
discussed with depreciation.

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Continue
Scientific Research
Donation

to outside Institution:
(a)Research Association, University,
College for Scientific Research:
175% of amount paid ( Research may or
may not be related to business of assessee)
(b)Research Association, University,
College for Social Science :
125% of amount paid (Research may or may
not be related to the business of assessee)

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Continue
Scientific Research
Expenditure

(c ) Payment made to Indian Company

125% of amount paid
(d) Contribution to national
laboratory, university, Indian
institute of technology:
200% of amount paid for approved program
175% of amount paid for other program

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Scientific Research Expenses
No

weighted deduction:
-Donation for Rural Development
Programme
-Donation to National Fund for Rural
Development
-Donation to National Urban Power
Eradication Fund
-Donation for social and economic
upliftment or Public welfare Project

Note: Donation in Kinds are disallowed

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 No

depreciation on Animals
Loss is allowed as Business Expenses
After subtracting any realising Value (If
any)
If animals are kept as Stock in Trade
then such loss will not be allowed but
automatically allowed U/S 37 on valuation
of stock

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88

Bad debts written off in the books of accounts

is an allowable expenses subject to:
i.
Debtors or Loan must be actual.
ii.
Such must be written off in books of
accounts
iii. Bad debts will be written off if such debtors
are shown in books of accounts as an Income
iv. Loss from loan can only be written off by
Financial Institutions
v.
In case of purchases of running business then
the loss from bad debtors of vendors
business can not be written off.

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Continue

VI. Provision for Bad Debts are not allowable to

the Business but it is allowable to Banks and
Financial Institutions. Provisions for Bad and
Doubtful Debts is restricted to:
*7.5% of Gross Total Income to Eligible Banks
*10% of aggregate average advance made by
the Rural Branches of such Bank.
*5% of Gross Total Income of Foreign Banks
and Financial Institutions
VII. Actual Bad Debts will be written of first from
such provision and balance from P.&L.
Account. ICAI, 2015
90

Commodity Transaction Tax

Such transactions are entered during the

course of the business.
From the Assessment Year 2014-15, It will
be allowed if income related to the such
transaction is included in the books of
income and taxable under the head
Business or Profession

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 Capital

Expenditure
Incurred before 1-4-1998:
*14 Equal Installments ( Not important from
A.Y. 2014-15)
*If sold, then the difference between
Selling Price and Book value will be the
business profit or Business loss. But if
Selling value is more then the Cost of such
asset then such difference will be taxed as
Capital
Incurred after 31-3-1998 Intangible Asset
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Licence
To
Telecommunication Services
Capital

Expenses
Allowed in Equal Installments during the
lifetime of Licence
If sold then the difference between Selling
Value and Book Value is known as Business
Profit or Business Loss
Incase Selling Price is more than Cost of
such Licence then the difference is known
as Capital Gain

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Continue
If

part of Licence is sold:

*If Selling Value is less than the remaining
book value of Licence then the difference
will be allowed in equal installments during
remaining life of the Licence including
current year.
In case of Amalgamation or Absorption, the
deduction will be allowed in same manner
to the new company.

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Eligible Project / Scheme: Promoting the Social

and Economic Welfare of / upliftment of the
public as the Central Government may notify in
Official Gazette.
The expenses incurred on above eligible
project or scheme will be allowed as follow:
*To Company: Amount distributed to Local
Authorities or Union for the above purposes.
The amount may be distributed directly to the
public.
*To other Assessee: Amount distributed to the
Local Authorities or Union

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Continue

Assessee

has to produce the following

documents along with the return of
income:
*Certificate of receipt of amount by the
above organizations in Form 58A. Incase
the payment is made by a company directly
then the certificate from the Chartered
Accountant in Form 58B.

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 This

deduction is allowed to the following

Specified Business only subject to
fulfillment of certain conditions:
*1.Setting up and operating a cold chain
facility for storage or transportation of
agricultural and forest products, meat or
meat products, poultry, marine and dairy
products,
product
of
horticulture,
floriculture and apiculture and processed
food items on or after 1-4-2009.
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Continue:

2.Setting

and operating a warehousing

facility for storage of agricultural produce
on or after 1-4-2009.
3.Laying and operating a cross-country
natural gas or crude or petroleum oil
pipeline network for distribution and
storage facilities: It is allowable to an
Indian Company or consortium of Indian
Companies or an authority, board,
corporation established under any law and
started on or after 1-4-2009 ( In case of
pipelines on or after 1-4-2007)
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Continue
4.Building and operating anywhere in India a
hotel or 2 Stars above category set up newly
on or after 1-4-2010
5.Building and operating anywhere in India any
hospital with atleast 100 beds for patients on
or after 1-4-2010.
6.Developing and building a housing project on
or after 1-4-2010 and should be under a
scheme
for
slum
redevelopment
or
rehabilitation.
7.But, if the project under the affordable
housing framed by the Central Government
then on or after 1-4-2011.

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Continue
8.Production

of fertilizer in India on or
after 1-4-2011.
9.Setting up and operating an inland
container depot or a container freight
station (approved under the Customs Act.)
on or after 1-4-2012.
10.Bee-keeping and production of honey
and beeswax on or after 1-4-2012.
11.Setting up and operating a ware housing
facility for storage of sugar on or after 1-42012.
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Continue

Following

two
businesses
are
included from the Previous Year
2014-15 (Finance Bill 2014) The
business must be started on or after
1-4-2014 :
1. Laying and operating a slurry
pipeline for the transportation of iron
ore.
2. Setting up and operating a
semiconductor
waste
fabrication
manufacturing unit
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Continue

Amount of Deduction:
Incase of Project No.1,2,5,7 and 8 the allowable
expenditure will be the 150% of qualifying
expenditure from the Assessment Year 2013-14, If
operation is commenced on or after 1-4-2012,
subject to:
*Expenditure incurred on acquisition of land,
goodwill and financial instrument are not eligible
for any deduction under this section.
*Expenditures incurred before the commencement
of operation of business, will also be allowed in the
year in which such business is started.

In all other cases the deduction will

be 100% of qualifying amount.
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Continue
Note:
If

deduction is claimed under this section

then no deduction be allowed in any other
sections.
No deduction u/s 80HH to 80RRB for the
same.
If any capital expenditure is allowed under
this section then, the amount received on
sale, destroyed, discarded, demolished
etc. will be treated as business income.
Any loss computed from the such business,
such cannot be set off and carried forward.
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Continue

The

assets on which this deduction is

provided must be used in the same
business up to next eight year from the
date of acquisition.
If asset is used otherwise in the business
then the amount of deduction which were
provided earlier will be treated as income
and taxable under the head B & P. By this
amount we shall subtracts the amount of
depreciation allowable on such asset u/s 32
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 Payment

made to:
*Any Association or Institution for carrying
out Rural Development Programme.
*Any Association or Institution for Training
of Persons for implementation of RDP
*National Fund for Rural Development
*National Urban Poverty Eradication Fund

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 150%

of actual expenditure incurred on

notified agricultural extension project
No deduction for the same under any
section of the Income Tax Act

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 Allowable

to Company Assessee
150% of amount spent on notified skill
development project
Cost
of land is deductible but the
depreciation on building will be allowed.
No deduction on the same will be allowed
under any other section of the Income Tax
Act.

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 Allowable

to Indian Company and Resident

Non Corporate Assessee
Preliminary expenses means:
*Expenses incurred before commencement
of Business
*Expenses incur for the development of
undertaking or establishment of new
undertaking

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Continue
Preliminary

Expenses includes:
*Preparation of Project
*Market Survey and inquiry
*Engineering Services
*Feasibility Report
*Preparation MOA and AOA
*Company Registration Expenses
*Publication of Prospectus
*Brokerage and Underwriting Commission
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Deductible Amount:
*For Newly set up of Business: The amount of
expenses cannot be exceed by:
-5% of Cost of Project / Cost of Fixed
Assets
-Actual Preliminary Expenses
Whichever is less
*For new Project or Unit:
-5% of Cost of New Project/ Increase in
Fixed Assets or Actual P. Expenses.
Whichever us less
The allowable Expenses will be allowed in
five equal installments.

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 Allowable

to Indian Company
Actual expenses on merger or demerger
will be allowed in five equal installments

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 VRS

should be framed in accordance with

the guidelines of Section 10(10C).
The payment made on VRS will be allowed
in 5 equal installments.
Incase of amalgamation or conversion of
business, the remaining installments will
be allowed to the new business

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Allowable to Indian Company and Resident

Assessee only.
Engaged in Prospecting, production of minerals
Minerals must be related to the Scheduled-VII
Expenses incurred in the previous year and in
the preceding four previous year will be
allowed but The following are not included in
the expenses:
*Cost of land (Mine)
*Plant and Machinery used operating
expenses to get the mineral out.
The allowable expenses will be allowed in 10
equal installments.

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The bonds issued by the Infrastructure Capital

Company /Fund or Public Sector Company or
Scheduled Banks on or after June 1, 2005.
No payment is made by the issuing authority to
the holder before maturity of bonds.
Bonds should be notified by the Central
Government in the Official Gazette.
Discount means the difference between the
maturity value and issued price.
Life of bonds should be atleast 10 Years and
maximum 20 years.

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Continue

The amount of discount will be the difference

between the redemption value and the issue
price of the bond.
The amount of discount will be written off on
pro rata basis. This pro rata amount will be
calculated on the basis of life of the bond.
Life will be calculated in the rounded months
(15 days or more is equal to a month). Every
year amount of discount will be written off on
the basis of months in that year.
No TDS.
The amount receivable by investor is known as
transfer value and accordingly LTCG will be
calculated.

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 Company

Assessee only.
For the promotion of Family Planning
among the employees.
Revenue expenses allowed fully.
Capital expenses allowed in five equal
installments.

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 Recognized

Provident Fund
Approved Superannuation Fund
Approved Gratuity Fund
Employees State Insurance
Labour Welfare Fund

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 Banking

Transaction Tax is now not

applicable.
Commodities Transaction Tax is allowable
from the AY 2014 15.
Securities
Transaction Tax now it is
allowable in Business and Profession head.
Earlier it was allowed u/s 88E.

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Expenditure
on
Advertisement
Except

following

all

expenditures

are

allowed:
*Advertisement in any souvenir, brochure,
tract, pamphlet etc. published by political
parties
*Donation to Political parties. Now it is
deductible u/s 80GGB if given by the Indian
Company otherwise it is deductible u/s
80GGC.
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Payment to Partners
If Permitted by Partnership Deed
Interest on Capital... ... Maximum 12% p.a.
Remuneration to partners:
-Only to Working Partners
- Maximum Remuneration:
*Incase of Loss
Rs. 150000
*Incase of Profit:
-on first Rs. 300000 of Book Profit:
90% of Book Profit or Rs.150000
whichever is more
-on Balance of Profit 60% extra

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scheduled bank other than foreign banks,

co-operative banks other than primary
agricultural credit society and co-operative
agricultural & rural banks will get a
deduction equal to the sum of the
following two items:
7.5% of profit before this deduction

10% of advance made by the rural branches

of such banks

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Continue

bank incorporated by or under any

foreign law, Public Financial Institution,
State Financial Corporation and State
Industrial Investment Corporation will get
deduction:
5% of Total
Income

If amount of actual bad debts of

above two is more than by the
amount of provision then the
balance will be allowed u/s 36(i)(vii)

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 This

deduction is available to the following

concerns who provides Long Term Finance
for Industrial and Agricultural Development
or Development of Hosing in India or
Development of Infrastructure Facilities in
India:
1.
2.
3.
4.

Financial Corporation
Banking Company
Co-operative Bank
Housing Finance Company

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 Amount

of Deduction:
*20% of amount of Profit (Maximum) of the
aforesaid business.
*Till the balance of this reserve is equal to
200% of the amount of paid up capital +
reserve.
*Whenever the amount is withdrawn from
this reserve, such withdrawals will be
treated as income and taxable under the
head Business & Profession.
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Capital Expenses
Allowed as
Revenue Expenses

Loss

on Dead and Incapable Animals

Expenses on reopen of Business
Expenses to change transformer of cold
storage
Expenses on Fencing
Expenses on conversion of engine of car
Expenses on Change of old wiring and
Tube-Lights
Expenses on development of Crossing on
Public place
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Continue
Capital expenses as Revenue
Expenses
Expenses

to reopen business
Consultation expenses to improve plant
capacity
Conversion on car engine from Petrol to
diesel
Administrative charges for obtaining loan

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Deduction
of
Presumptive Expenses
Commission

Agent:
*LIC Commission:
50% of commission for New Business
15% incase of renewal business
OR
33 1/3 % of aggregate Commission
Maximum deduction for expenses Rs.
20000
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Continue
Presumptive Expenses

*PPF, NSC, UTI, Post office and notified mutual

fund agent etc Commission Agent:
*If Commission is not more than Rs.60000
then presumptive expenses will be 50% of
amount of commission
*If amount of commission is more than
Rs.20000 then there will be TDS @ 10%
*LIC + PPF +NSC
Deduction will be of Rs. 30000
*Royalty income to author
If not more than Rs.25000 then the
deduction will be 25% of royalty or Rs. 5000
Which ever is less

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Disallowed
Expenses
Payment

made outside India without TDS

Tax on Profits and Gains from B & P
Wealth Tax
Tax on perquisites paid by employer
Payment without TDS
Interest on Capital to Partners
Salary to Idle Partners
Excess Payment to relatives
All reserves and provisions
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Continue
Disallowed Expenses

Penalty
Commission

to get Capital
Cash Payment above Rs. 20000 ( Incase of
Operator of Goods Transport and who
provide the same on lease or on hire then
Rs. 35000)
Provision for gratuity except payable for
the PY
The
expenses
which
was
allowed
previously on due basis.
Ex gratia payment
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Disallowed Expenses

Penalties

for infringement of Law and legal

charges to protect against such penalties
Illegal Expenses for legal business
Preparation of partnership deed
Journey to purchase of Plant and
Machineries
Expenses to provide Bank Guarantee for
purchases of machinery
Payment made to partner on Leaving firm

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Continue
Disallowed Expenses

Expenses

related to the income which is

not taxable
Loss due to fire, flood, theft or any natural
calamity ( Except Raw Material )
Donation of goods for religious purpose
Contribution to URPF
Contribution to Labour Welfare Fund
Use of material to create/ construct an
asset
Theft after Business Hours
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Disallowed Expenses

Interest

on late payment of Direct Taxes

Interest on loan on purchase of asset upto
the date of installation
Donations
Preparation of Partnership deed
Expenses on Tube well
Expenses window in the office/factory
Installation of Tube lights (First time)

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 Sales

Tax, Excise, Custom, VAT, Local Taxes

Bonus and Commission to employees
Interest on loan taken from Financial
Institutions, State Financial Corporation,
State Industrial Finance Corporation,
Scheduled Commercial Banks, Cooperative
Banks
Earned Leave Salary to employees
Contribution to PF, Superannuation Fund,
Gratuity
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Above

all expenses will be allowed on cash

payment bases if it is paid up to the date of
submission of Return of Income:
*For Company
30th September
*For Assessee Where
audit is compulsory 30th September
*For Partners, if audit
is compulsory to Firm 30th September
*For other Assessee
31st July
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 ACCORDING

TO SECTION 40A(3)(a)
Payment of expenses or aggregate payment
made to a person in a day exceeds Rs
20000 (Rs 35000 in case of the person who
plying, hiring or leasing of goods carriages)
must be payable by account payee cheques
or demand draft, otherwise these expenses
will be disallowed full.

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 Payment

made to Government, LIC, Banks,

Primary or agricultural credit society
Purchases of agricultural, forest, animal
husbandry, dairy, poultry and fish products
Payment to cottage industry to purchase the
products produced without help of power
Payment to the place where banks are not
situated
Payment on bank holiday or strike
Up to Rs. 50000 on retirement of employee
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Continue
Disallowed Expenses

Employees Contribution to PF
-on deduction ... ... An Income
-On deposit on due date of deposit ... ...
Allowable Expenses ( + 5 days grace )
Payment of interest, royalty, fees for technical
services or other payment which are
chargeable under the IT Act. Outside India
without deducting the tax at source. If amount
of tax is deposited till the submission of IT
return then it will be allowed. If such tax is
deducted in the subsequent year then the
expenses will be allowed in which such tax has
bee deposited.

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 Amount

Payable to Resident as interest,

Commission, Brokerage, rent, royalty, fess
for professional services, fees for technical
services and any amount payable to the
contractor, on which tax to be deducted at
source u/s 193-194, shall not be allowed as
deduction in the previous year in which
such expenses are incurred if in respect of
such expenses:
*Tax has not been deducted at source or
*Tax is not deposited till the submission
of return of income
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 If

such tax is deducted or deposited in the

subsequent year then such expenses will
be allowed in the year in which such tax is
deposited.
Amendment by the Finance Bill 2014:
If either tax is not deducted or not
deposited then 30% of the expenses will be
disallowed not 100%. In any subsequent
year if the tax is deducted and deposited
then above disallowed 30% will be allowed
in the year in which tax is actually
deposited.
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 According

to Companies Act, 2013 A

company whose Net worth is Rs. 500 crore
or more or turnover of Rs. 1000 crore or
more or Net profit is 5 crore or more
during any Financial year are required to
spend a certain percentage of profit on
activities related to Corporate Social
Responsibility (CSR).
As such expenses are not related to the
business activities of the company, hence
will be disallowed.
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Multiple Choice
Questions

(1)Which accounting system cannot be adopted by a

businessman?
(a)Cash system
(b) mercantile system
(c)Hybrid system
(d) None of the above
(2)Gifts received from clients is a . Income:
(a)Personal
(b) Professional
(c)Casual
(d) Salary
(3)When a professional has to audit the books of accounts?
(a)Gross Receipt < Rs. 2500000
(b) Gross Receipt > Rs. 2500000
(c)Net profit > 8% of capital
(d) Net profit
> 8% of capital
(4)Rent received from employees is taxable as:
(a)House property income (b) Agricultural income
(c) Business income
(d) Personal income
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Continue MCQ

(5)An assessee engaged in growing and manufacturing tea

in India. The agricultural income should be:
(a)60% of total business income
(b) 40% of total business income
(c) 60% of this business income
(d) 40% of this business income
(6)An assessee opts for section 44AD / 44AE then assessee
shall:
(a)Not be entitled for any deduction U/s 30 to 37.
(b)Be entitled for deduction U/s 30 to 37.
(c)Not be entitled for any deduction U/s 30 to 37 except
interest
on capital and remuneration to partners
according to section 40(b)
(d)Be entitled all deduction U/s 30 to 37 along with
section 40(b)
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Continue MCQ

(7)Where the entire block of the depreciable asset is

transferred after 36 months of holding, there will be:
(a)Short term capital gain
(b)Long term capital gain
(c)Long term capital gain / Long term capital
loss
(d)Short term capital loss / Short term capital
gain
(8)Deduction U/s 40 (b) shall allowed on account of
remuneration paid to:
(a)Any partners
(b)Major partners
(c)Working partners
(d)Employees
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Continue
MCQ

(9)A firms income is Nil / negative. It shall still

be allowed deduction for salary to working
partners to the maximum of:
(a)Actual remuneration paid to partners
(b)Rs. 150000
(c)Rs. 50000
(d)Rs. 150000 or amount provided in the
partnership deed, whichever is
less.
(10)Persons carrying on profession, the tax audit
is compulsory, if the gross receipt is exceeds:
(a)Rs. 50 Lakhs
(b) Rs.40 Lakhs
(c)Rs. 10 Lakhs
(d) Rs. 25 Lakhs
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(11)Persons carrying on business, the audit of

books of accounts are compulsory, if gross
receipt is exceeds:
(a)Rs. 10 Lakhs
(b)Rs. 1 crore
(c)Rs. 40 Lakhs
(d)Rs. 50 Lakhs
(12)The presumptive income of small trader is:
(a)5% of gross receipt
(b)10% of gross receipt
(c)11% of gross receipt
(d)8% of gross receipt
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(13)In case of an assessee engaged in the business of

Plying, Hiring and hiring of goods, the presumptive
income U/s 44AE is applicable if the assessee is
owner of maximum of:
(a)10 goods carriages
(b)5 goods carriages
(c)Indefinite goods carriages
(d)Section 44AE is not applicable
(14)Interest on borrowed capital for acquisition of
asset pertaining to the period after asset is put into
use is to be:
(a)Included in the cost of asset
(b)Treated as revenue expenses
(c)Included in fictitious asset
(d)Included in intangible asset
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MCQ

(15)Preliminary expenses incurred are allowed:

(a)In 10 equal installments
(b)Fully in the previous year
(c)In 5 equal installments
(d)Not allowed
(16)Incase assessee adopts mercantile system of
accounting the bonus and commission payable to
employees is allowed as deduction:
(a)On due basis
(b)On cash payment basis
(c)In salary head
(d)On cash payment subject to the condition
of section
43B
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MCQ

(17)Expenses incurred on family planning is

allowed
to:
(a)All assessee
(b)All resident assessee
(c)Cooperative society
(d)Company only
(18)Unabsorbed depreciation which could not be
set off in the previous year, can be carried
forward to:
(a)8 assessment years
(b)4 assessment years
(c)10 assessment years
(d)Indefinite period
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(19)Expenditure incurred on purchases of animals for the

purpose of the business is subject to:
(a)Depreciation in the block of Plant and machineries
(b)Fully deductible in the year of purchase as
revenue
expenses
(c)Deductible in the year in which animals are died
or
disabled
(d)Depreciated by creating a separate block
(20)Bad debts previously disallowed, now recovered:
(a)Is an income of the year of recover and included in
P. & L.
account
(b)Is an income of the year of recover and treated as
capital
receipt
(c)Is not an income but taxable as business income
(d)Is not an income and not taxable
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Continue
MCQ

(21)If the profit of the firm before providing

remuneration to the partners is Rs.10 Lakhs, the
amount of remuneration payable to the partners will
be:
(a)Nil, if not permitted by partnership deed
(b)Nil, when all the partners are non-working
(c)Amount given in the deed or Rs. 690000
whichever is less
(d)Above all
(22)The following expenses is fully disallowed under
the head
Business or Profession:
(a)Securities Transaction Tax
(b)Custom duty
(c)Excise duty
(d)Income tax
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MCQ

(23)A car is used for the purpose of the business or

profession purposes of the assessee and its engine is
changed during the previous year. The expenses of change
of engine will be allowed:
(a)As revenue expenses in the year of change
(b)As capital expenses in 10 installments
(c)By creating separate block for depreciation
(d)By included in the block of car
(24)Capital expenditure on technical know-how is
deductible:
(a)As revenue expenses in the year in which it is
incurred
(b)In 5 equal installments
(c)In 10 equal installments
(d)25% depreciation will be allowed after including to
the block of intangible assets.
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25.Payment made to resident on which tax is suppose to

be deducted but not deducted. What amount of
expenses will be disallowed?
(a) 100%
(b) 50%
(c) 70%
(d) 30%
26.What would be the presumptive income incase of
plying, hiring and leasing goods carriages from the
assessment year 2015-16?
(a) Rs. 4500
(b) Rs.5000
(c) Rs. 7500
(d) Rs.8000
27.What would be the amount of investment allowance if
investment in the plant and machinery is Rs. 40000
during the 2014-15?

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(a) Rs.40000
(b) Rs. 6000
(c) Rs.8000
(d) Rs. 4000
28.The tax deducted at source during 2014-15 from the
amount of brokerage paid to non resident must be
deposited by:
(a) 31st March,2015
(b)30th October,2014
(c) Till submission of IT return (d)30th June,2015

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Continue MCQ
Answer:

(1)a
(4)c
(7)d
(10)d
(13)a
16) d
(19)c
(22)d
(25)d
(28)c
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(2)b
(5)c
(8)c
(11)b
(14)b
(17)d
(20)
(23) a
(26) c

(3)b
(6)c
(9)d
(12)d
(15)c
(18)d
(21)d
(24)d
(27)b

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THANK
YOU
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