What does the word ‘business’ mean?
Income from Business or Profession:An assessee who engages in economic activity for profit has engaged in a business.
Any trade, commerce, manufacturing activity, or any adventure or concern that entails these activities is considered to be a business or economic activity.
Business can be classified as speculative or nonspeculative.
A speculative business income is a revenue generated from intraday equity trading. An intraday trade is one where the transaction takes place on .the same day.
In other words, the amount received (net amount from it) can fluctuate. Investing in shares, for instance.
Profits from Futures & Options trading are treated as non-speculative business income. These instruments are also non-speculative since they can be used for both hedging and taking or giving delivery of underlying contracts.Income from Business or Profession
Therefore, the amount (net profit/loss from it) remains constant over time. Any manufacturing/trading business, for example.
The existence of constant transactions in a business is not mandatory. It is therefore not essential for business transactions to be repeated or continued.
How would you define ‘profession’?
Professionals are individuals with specialized knowledge, skill, and expertise such as accountants, lawyers, doctors, engineers, architects, etc. To put it another way, he or she earns a living through intellectual or physical skills.
It refers to a person’s special knowledge that distinguishes it from simple skill.
Business and profession-related income
In the profit and loss account of an assessee’s business or profession, ‘Income from business & profession’ refers to the total of all income, expenses, and expenses.
Positive (profit) and negative (loss) incomes also comprise the income. As a result, ‘profits and gains’ represent plus income while ‘losses’ represent minus income. Taxable income from legal and illegal business is usually equal.
Assessees are liable to pay tax on their income from previous years. In an assessment year, the assessee in charge of a business or profession must report income no later than 31 July.
Business and professions – the basis of charging income
Accordingly, profit and gain from business or profession are chargeable income:
- Any profit or gain realized by the assessee during the previous year from the conduct of a business/profession
- Any compensation received or payable by, an Indian company manager, by whatever name, following the termination of his management or the modification of the terms of employment, or at any time thereafter.
- Specifically performed services that an association obtains from its members
- Value of any perk or benefit that arises from a business or profession, whether or not it is monetary
Partners of a firm may receive interest, commissions, salaries, remuneration, or bonuses from their firms
- In addition to any sum received under the Keyman policy, bonuses are also included
Speculative transaction income
- You may receive or receive in kind or cash the following sums:
1.Neither conducting business nor engaging in any activity pertaining thereto
2.No sharing of knowledge, patents, copyrights, trademarks, licenses, franchises, or commercial rights
- The profit that arises from transferring Duty-Free Replenishment Certificates
- From transferring the Pass Book scheme, profits may be reaped
- Gains earned under the Imports and Exports (Control) Act, 1947 (18 of 1947) on the sale of a license issued under the Imports (Control) Ordinance, 1955.
Businesses and professions: nontaxable incomes
Now that we have examined business or profession-related non-taxable income:
- Rental income from houses: This is taxable under the “Income from houses” heading. It does not matter whether the property is the recipient’s stock-in-trade or if he is in the business of renting properties out.
- Taxable as “Income from other sources” is the deemed dividend on shares. A shareholder receiving a dividend from an Indian company is not liable to tax on the dividend.
- If you are the winner of a lotto or racing event, your winnings are taxable under “Other income.”. The activity can be considered a regular business one.
This concludes our post on business and professional income. Comment below with your views and questions.Income from Business or Profession.
Accounting Methodology:Income from Business or Profession
In accordance with Sec.145, the method of accounting regularly followed by the assesses shall be used to calculate income under Business & Profession. Accounting is done using the Cash system and the Mercantile system.
All costs and income are recorded when they are received in the cash system.
All transactions are recorded on an accrual basis in the merchant system of accounting.
Business which carries speculative transactions is called speculative business. Separate business is considered.
The term speculative refers to any transaction involving the sale or purchase of shares or stocks.
Assume the following: Trade practices that result in losses.
2. Non-business-related expenses.
3. Costs associated with capital assets
4. Shares sold at a loss.
5. Losses Anticipated in the Future
6. A contribution towards the start of a new, unestablished business
The calculation of business profits is as follows:
The profit of the business should be determined through profit and loss account. Under Income Tax Act, some expenses are partially allowed or disallowed in Profit & Loss Account. Under the head Business/Profession, there are a few sources of income that are tax-free or non-taxable on the Credit side.
Balance based on profit & loss account (+)
Amount of loss (-)
Charges not covered by the law but claimed
1. Amount pertaining to all provisions (provision for bad debts, depreciation, and income)
2. Sales Tax, Excise, and Wealth Tax (Except Income Tax)
3. Taxes on business premises, including duty and local taxes.
4. Charity & Donation Information
5. Expenses incurred by the individual
6. Fines or penalties of any kind
7. Losses resulting from speculation
8. Losses on all investments
9. Loss & Profit Accounts
10. Expenses from last year
11. Rental income for a self-employed individual
12. Other income-related expenses
13. The amount paid to the partner (for salary, commission, and so on.)
14. Scientific research does not count as capital expenditures
15. Theft loss
16. Fraudulent Business Expenses
17. Residential portion of the rent
18. Among other things, interest on income tax and TDS
Profit or loss is determined by adding or subtracting these items:Income from Business or Profession
For the purpose of calculating the Profit or Loss of Professionals, all receipts are recorded as their income & irrespective of that, all the expenses incurred in providing the services, and all the office expenses are deducted from the income.