What Constitutes Taxable Income in Business and Profession?

Summary

Understanding Taxable Income from Business or Profession The Income Tax Act defines income from a business as revenue earned through trade, commerce, or manufacturing activities, among others. In contrast, a profession involves occupations that require specialized skills and knowledge, such as law, architecture, or auditing.

Understanding Taxable Income from Business or Profession

The Income Tax Act defines income from a business as revenue earned through trade, commerce, or manufacturing activities, among others. In contrast, a profession involves occupations that require specialized skills and knowledge, such as law, architecture, or auditing. Though the tax assessment for income from business and profession follows the same principles, this explanation focuses on the tax consequences.

Taxable Income from Business or Profession:

Profits and gains from any business or professional activities undertaken in the preceding year.
Compensation or payments received by specific individuals.
Earnings from trade associations providing particular services to their members.
Gains from selling licenses under the Imports (Control) Order 1955.
Cash bonuses for exports under various government initiatives.
Customs or excise duties reimbursed as a drawback on exports under the Customs and Central Excise Duties Drawback Rules, 1971.
Benefits from transferring the Duty Entitlement Pass Book Scheme or Duty-Free Replenishment Certificates.
The value of any advantages or perks derived from a business or profession.
Interest, salary, bonus, commission, or remuneration owed to partners within a firm.
Non-compete fees for refraining from certain business or professional tasks.
Fees for restricting the dissemination of any know-how, patent, copyright, or business details.
Sums from a Keyman Insurance policy, inclusive of bonuses.
Profits originating from transforming inventory into capital assets.
Amounts gained from the demolition, destruction, or transfer of capital assets if complete expense deduction is assumed under Section 35AD.

Expenses Allowed under Business and Profession:

Rent, rates, taxes, repairs, and building insurance (Section 30).
Insurance and repair of plant, machinery, and furniture (Section 31).
Depreciation on both tangible and intangible assets (Section 32).
Additional depreciation on plant and machinery (Section 32).
Deposits in Tea/Coffee/Rubber development accounts (Section 33AB).
Deposits in specific accounts with SBI or Site Restoration accounts (Section 33ABA).

Expenses Permissible under Sections 36 to 37:

Insurance premiums for stock damage or destruction (Section 36(1)(i)).
Cattle insurance premiums by Federal Milk Cooperative Societies (Section 36(1)(ia)).
Health insurance paid by employers (Section 36(1)(ib)).
Bonuses or commissions rewarded to employees (Section 36(1)(ii)).
Deductions for borrowed capital (Section 36(1)(iii)).
Discounts on Zero-Coupon Bonds (Section 36(1)(iiia)).
Contributions to recognized provident, superannuation, or gratuity funds (Section 36(1)(iv) & (v)).
Contributions to pension schemes (Section 36(1)(iva)).
Deposits to employee funds under the Provident, Superannuation, or Employee State Insurance Act 1948 (Section 36(1)(va)).
Allowances for deceased or permanently useless animals (Section 36(1)(vi)).
Writing off bad debts (Section 36(1)(vii) and (viia)).
Special deductions available for selected business entities (Section 36(1)(viii)).
Expenditure on employee family planning initiatives (Section 36(1)(ix)).
Corporate spending on certain eligible purposes (Section 36(1)(xii)).
Contributions to micro and small industry credit guarantee trust funds (Section 36(1)(xiv)).
Deductions for Securities Transaction Tax (Section 36(1)(xv)).
Deductions for Commodities Transaction Tax (Section 36(1)(xvi)).
Sugarcane purchase expenditures by cooperative societies (Section 36(1)(xvii)).
Marked-to-market losses aligned with Income Computation and Disclosure Standards (Section 36(1)(xviii)).

Note: This guide delivers a basic overview of taxable business or profession income and the specific deductions allowed. For tailored advice based on individual situations, consulting a tax expert is recommended.

* [RBI]: Reserve Bank of India * [MSMEs]: Micro, Small and Medium Enterprises * [NSE]: National Stock Exchange * [BSE]: Bombay Stock Exchange * [UX]: User Experience * [NPAs]: Non-Performing Assets * [NRI]: Non-Resident Indian * [RTGS]: Real-Time Gross Settlement * [IMPS]: Immediate Payment Service * [NEFT]: National Electronic Funds Transfer * [EMIs]: Equated Monthly Installments * [IVR]: Interactive Voice Response * [HUF]: Hindu Undivided Family * [NRIs]: Non-Resident Indians * [PAN]: Permanent Account Number * [TPA]: Third-Party Administrator * [TDS]: Tax Deducted at Source * [STT]: Securities Transaction Tax * [CPC]: Central Processing Centre * [BOI]: Body of Individuals * [AOP]: Association of Persons * [LLP]: Limited Liability Partnership * [OCI]: Overseas Citizens of India * [Income Tax Act]: Income Tax Act * [NBFC]: Non-Banking Financial Company * [IRDAI]: Insurance Regulatory and Development Authority of India * [NBFCs]: Non-Banking Financial Companies * [HLPP]: Home Loan Protection Plan * [GST]: Goods and Services Tax * [ RBI]: Reserve Bank of India * [IMF]: International Monetary Fund * [KWD]: Kuwaiti Dinar * [INR]: Indian Rupee * [SGD]: SGD * [MAS]: Monetary Authority of Singapore * [GBP]: British Pound Sterling * [EMI]: Equated Monthly Installment * [OD]: Overdraft * [EBLR]: External Benchmark Lending Rate * [MCLR]: Marginal Cost of Funds Based Lending Rate * [FATCA]: Foreign Account Tax Compliance Act * [OECD]: Organisation for Economic Co-operation and Development * [HUFs]: Hindu Undivided Families * [PPF]: Public Provident Fund * [EPF]: Employees’ Provident Fund * [UPI]: Unified Payments Interface * [PMJJBY]: Pradhan Mantri Jeevan Jyoti Bima Yojana * [PMSBY]: Pradhan Mantri Suraksha Bima Yojana * [APY]: Atal Pension Yojana * [SIP]: Systematic Investment Plan * [Interactive Voice Response]: IVR * [ RTGS]: Real-Time Gross Settlement * [TDR]: Ticket Deposit Receipt * [RAC]: Reservation Against Cancellation * [CIBIL]: Credit Information Bureau (India) Limited * [MICR Code]: Magnetic Ink Character Recognition Code * [F&O;]: Futures and Options * [KYC]: Know Your Customer * [F&O]: Futures and Options * [VAT]: Value-Added Tax * [IFSC]: Ifsc Code * [MICR]: Magnetic Ink Character Recognition * [IRDA]: Insurance Regulatory and Development Authority of India * [GRN]: Goods Received Note * [PIN]: Personal Identification Number * [OTP]: One-Time Password * [SEBI]: Securities and Exchange Board of India * [RTO]: Regional Transport Office * [PUC]: Pollution Under Control * [Indian Succession Act, 1925]: Indian Succession Act, 1925 * [HNIs]: High-Net-Worth Individuals * [UIDAI]: Unique Identification Authority of India * [NSC]: National Savings Certificate * [Sukanya Samriddhi Yojana]: Sukanya Samriddhi Yojana * [ PAN]: Permanent Account Number * [ATM]: Automated Teller Machine * [ MSMEs]: Micro, Small and Medium Enterprises * [HSN]: Harmonized System Nomenclature * [URN]: Update Request Number * [SSUP]: Self-Service Update Portal * [ETF]: Exchange-Traded Funds * [Folio No.]: Folio Number * [SFB]: Small Finance Bank * [NGO]: Non-Governmental Organization * [KEGF]: Kerala Evangelical Graduates Fellowship * [MED]: Micro Enterprises Development * [Muhurat Trading]: Muhrat Trading * [PDF]: Portable Document Format * [EPFO]: Employees’ Provident Fund Organization * [EPS]: Employee Pension Scheme * [LIC]: Life Insurance Corporation * [NSDL]: National Securities Depository Limited * [PFRDA]: Pension Fund Regulatory and Development Authority * [NEAT]: National Exchange for Automated Trading * [AuM]: Assets Under Management * [REITs]: Real Estate Investment Trusts * [ETFs]: Exchange-Traded Funds * [UPI PIN]: Unified Payments Interface Personal Identification Number * [Folio Number]: Folio Number * [SWIFT]: Society for Worldwide Interbank Financial Telecommunication * [AUM]: Assets Under Management * [ESG]: Environmental, Social, and Governance * [ATMs]: Automated Teller Machine * [NRE]: Non-Resident External Accounts * [GSM]: Global System for Mobile Communications * [NAVs]: Net Asset Values * [NPS]: National Pension System * [**RBI**]: Reserve Bank of India * [AMC]: Asset Management Company * [NAV]: Net Asset Value * [AMCs]: Asset Management Companies * [Reserve Bank of India]: Reserve Bank of India * [SUKANYA SAMRIDDHI YOJ]: Sukanya Samriddhi Yojana * [KRA]: Know Your Customer * [CDSL]: Central Depository Services Limited * [CGST]: Central Goods and Services Tax * [ CBIC]: Central Board of Indirect Taxes and Customs * [Experian]: Experian Information Services (India) Private Limited * [PSU Banks]: Public Sector Undertaking * [ & O ]: Options * [CBIC]: Central Board of Indirect Taxes and Customs * [PMAY]: Pradhan Mantri Awas Yojana * [MRHFL]: Mahindra Rural Housing Finance Limited * [IT Act]: Income Tax Act * [TCS]: Tax Collected at Source * [Form 16]: Form 16 * [SEIS]: Service Exports from India Scheme * [MEIS]: Merchandise Exports from India Scheme * [DGFT]: Directorate General of Foreign Trade * [FMS]: Focus Market Scheme * [FPS]: Focus Product Scheme * [VKGUY]: Vishesh Krishi Gramin Udyog Yojana * [MLFPS]: Market Linked Focus Product Scheme * [FOB]: free-on-board * [EDI]: Electronic Data Interchange * [BRC]: Bank Realisation Certificate * [RCMC]: Registration cum Membership Certificate * [ITC (HS)]: Indian Trade Classification (Harmonized System) * [SEZ/EOU/EHTP/FTWZ]: Special Economic Zones/Export Oriented Units/Electronic Hardware Technology Park/Free Trade and Warehousing Zones * [DTA]: Domestic Tariff Area * [NREGA]: National Rural Employment Guarantee Act * [NPR]: National Population Register