PROFITS AND GAINS FROM BUSINESS AND PROFESSION

Definition of Business :
The term “business” has been defined in section 2(13) to “include any trade,
commerce or manufacture or any adventure or concern in the nature of trade,
commerce or manufacture”.

Definition of Profession :
The term “profession” has not been defined in the Act. It means an occupation
requiring some degree of learning. The term ‘profession’ includes vocation as well
[Section 2(36)]

 Thus, a painter, a sculptor, an author, an auditor, a lawyer, a doctor, an architect

and even an astrologer are persons who can be said to be carrying on a
profession but not business.
 However, it is not material whether a person is carrying on a ‘business’ or
‘profession’ or ‘vocation’ since for purposes of assessment, profits from all these
sources are treated and taxed alike.
 Business necessarily means a continuous exercise of an activity; nevertheless,
profit from a single venture in the nature of trade may also be treated as
business.
Section 28 : CHARGING SECTION
The incomes chargeable to tax as income under the head ‘PGBP’ are as under:

1. Any profit or gain of any Business/Profession.

2. Profit on sale of import entitlement license.
3. Cash compensatory support or duty drawback.
4. Profit on sale of DEPB [duty entitlement pass book scheme] or Duty-Free
Replenishment certification [DFRC]
5. Any amount received under Key-Man insurance policy
6. Any gift/ benefit/perquisite arising due to business or profession.
7. Any interest, salary, bonus, commission received by partner from partnership firm
[to the extent allowed u/s 40(b) to firm]
8. Non-compete Fees [not carrying out any activity in relation to any business or
profession or not sharing any know-how, patent, copyright, trade-mark etc.].
9. Income derived by a trade, professional or similar association from specific service
perform for its member.
10. FMV of inventory as on the date on which it is converted into Capital asset.
Clouse (via) [Added by FA 18].
11. Any compensation or other payment due to or received by, any person, at or in
connection with the termination or modification of the terms and conditions, of
any contract relating to his business.

Accordingly, any compensation received or receivable, whether revenue or capital,

in connection with the termination or the modification of the terms and conditions
of any contract relating to its business shall be taxable as business income.

Speculation Business
It means a transaction in which a contract for the purchase or sales of any
commodity including stocks and shares, is periodically or ultimately settled otherwise
than by the actual delivery or transfer of the commodity or scrips.

Transaction not deemed to be speculative transaction :

a. Hedging contract in respect of raw materials or merchandise or stocks and shares.
b. Forward contract.
c. Trading in derivatives through recognised stock exchange.
d. Trading in commodity derivatives through recognized association, which is
chargeable to commodities transaction tax (CTT). However, the requirement of
 chargeability of commodities transaction tax is not applicable in respect of trading
in agricultural commodity derivatives from A.Y. 2019-20.

Note : Speculative business shall be treated as separate and distinct business.

Section 29 : How to compute PGBP

PGBP are to be computed in accordance with the provisions contained in sections 30
to 43D.

Section 30
Rent, Rates, Taxes, Repairs & Insurance of Building
Rent Rates & Insurance Revenue Capital Repair
Taxes Repair
Owner Not allowed Allowed Allowed Allowed Not Allowed
Tenant Allowed Allowed Allowed Allowed Not Allowed

Added to cost of Asset

Section 31
Insurance & Repair of Plant & Machinery & Furniture
Rent Insurance Revenue Repair Capital Repair
Owner Not allowed Allowed Allowed Not Allowed
Tenant Allowed Allowed Allowed Not Allowed
[as per Sec. 37]
Added to cost of Asset

Note:
(1) Expenses u/s 30 & 31 allowed only if asset used for business or profession
(2) Capital repair by tenant is treated as Deemed Building & depreciation allowed
to Tenant.
 Section 32: Depreciation
A. CONDITIONS TO CLAIM DEPRECIATION
(i) Asset should be used for business/ profession purposes (active or
passive)
(ii) Assesses should be Owner of such asset (wholly or partly)

Note:
(1) Deprecation is allowed if assesses is beneficial owner.
(2) In case of Lease, Depreciation is always claimed by lessor whether it is
Financial lease or Operating lease [CBDT circular]
(3) In case of Hire Purchase, assesses gets the ownership only after payment
of last instalment but he can claim depreciation from beginning,
assuming assesses is the owner from beginning.
(4) Depreciation on asset partially owned by the assesses shall be allowed
to him to the extent of his share in asset.
(5) In case of stand by machinery and emergency spares, the depreciation
shall be allowed even if they are ready for use & not put to use.

B. CLASSIFICATION OF DEPRECIABLE ASSETS

Tangible Assets Intangible Asset

Building Furniture Plant & Machinery Class IV

Class I Class II Class III

C. RATES OF DEPRECIATION

Assets Rate
(%)
1. Building.
(i) Residential 5
(ii) General 10
(iii) Temporary Structure 40
2. Furniture & Fittings. 10

3. Plant & Machinery.

(i) Motor Vehicles
(a) Used in a business of running them on Hire. 30
Acquired & put to use between 23.08.19 to 31.03.20. 45
(b) Other motor vehicles. 15
Acquired & put to use between 23.08.19 to 31.03.20. 30
(ii) Ships 20
(iii) Aircraft 40
(iv) Computer / Laptop 40
(v) Books
(a) Owned by assessees carrying on a profession. 40
(annual publications or other than annual publications)
(b) Libraries business. 40
(vi) Windmills & its equipments
(a) Installed before 01.04.2014. 15
(b) Installed on or after 01.04.2014. 40
(vii) Pollution control equipment’s 40
viii) Other plant & machinery. 15
(ix) Oil wells. 15
4. Intangible assets.(other than Goodwill) 25
 Notes:
(1) Mandatory to claim depreciation for all assesses.
(2) EPABX & Mobile phone are not computers; hence Depreciation 40% is NOT
eligible.
(3) Depreciation is allowed even if cost is less than ₹5,000/-
(4) No depreciation on goodwill of business or profession shall be allowed (purchased or
self generated).
(5) Depreciation rate for computers accessories is 40% i.e., UPS, printer, scanners etc.
(6) Depreciation allowed when asset actually put to use & not ready to use.
(7) As per Sec, 43(3) plant includes ships, vehicles, books, scientific apparatus &
Surgical equipment used for business or profession but does not include tea
bushes, live-stock, building, furniture å fitting.

D. METHOD OF DEPRECIATION

Business of Generation Other Assessee

OR
Generation & Distribution of Power

Option of follow SLW or WDV Always Follow WDV Method

E. SYSTEM OF DEPRECIATION

WDV Method SLM Method

Block of Asset System Individual Asset System Shall
Shall Apply Apply (Power Units)

 Block of asset means "Group of assets having Same Rate of dep within the
Same Class Of Asset"
BLOCK OF ASSET = SAME RATE + SAME CLASS
  Individual assets system: Depreciation calculated on Individual asset Same as
Account

F. CALCULATION OF DEPRECIATION (BLOCK OF ASSET/ WDV METHOD]

Particulars ₹
Opening WDV of block XX
Add: actual cost of asset acquired during Py
 put to use 180 days or more XX
 put to use less than 180 days XX
XX
 acquired but not put to use
XX
Less: Money payable (selling price of asset] (XX)
Less: WDV of assets transferred in Slump sale (compute (XX)
WDV of asset assuming this is only asset in block)
 WDV of block for Depreciation XX
Less: Dep actually allowed (XX)
Closing WDV of block XX

 WDV of block for Depreciation

Asset acquired but Cost of asset used for Balance

not put to use less than 180 Days

No Depreciation Half rate depreciation Full Rate

of depreciation

Notes :
(1) If asset acquired during current PY & not put to use then depreciation shall not
be allowed for such asset but that asset should be added to Block of asset.
(2) Actual sale price of asset shall be reduced and not the FMV of asset sold.
(3) If assesses transferred building then actual sale price shall be reduced and NOT
SDV.
 However, if section 50 attracts then SDV shall be considered for computation
of capital gain.
(4) Money payable means sale price or insurance compensation in respect of asset
sold, discarded, demolished or destroyed during the PY and the amount of
scrap value.

# Proviso to Sec. 32(1)

Depreciation is restricted to 50% if asset put to use for less than 180 days in the year
of acquisition, Restriction applies only in the year of acquisition,
Year of acquisition Year of put to us Depreciation Rate
less than 180 days Allowed
P.Y. 2020-21 P.Y. 2020-21 P.Y. 2020-21 Half Rate
P.Y. 2020-21 P.Y. 2021-22 P.Y. 2021-22 Full Rate

G. Proviso To Sec. 32(1);

(1) Depreciation in case of Amalgamation / Demerger/ Succession In these cases
depreciation is calculated normally & after that it shall be distributed between
Amalgamating co. Demerged co./ Predecessor AND Amalgamated co./
Resulting co./ Successor in the Ratio of the number of days for which assets
were used by them.

Succession means:
(i) Firm / Proprietorship ----- Company Sec. 47(xiii)/(xiv)
(ii) Company -------------------- LLP Sec. 47 (xiib)
(ii) Any other succession other than death

H. Section 50 : Sale of asset / capital gain in case of depreciable assets [block of asset]
(a) Where a Block of assets ceases to exist [all asset transfer]
₹ No. ₹ No.
Opening WDV of block 6,00,000 5 6,00,000 5
(+) actual cost of Asset acquired 2,00,000 2 2,00,000 2
8,00,000 7 8,00,000 7
(-) sale value of assets (5,20,000) 7 (8,00,000) 7
Capital loss 2,80,000 -
Sales price 5,20,000 7 9,30,000 7
* WDV can be nil but Assets No Assets No
Never negative WDV Yes WDV No
 Depn No Depn NO
Cap. Gain Yes Cap. Gain Yes
Computation of capital gain ₹ ₹
FVOC 5,20,000 9,30,000
(opening wdv + asset acq, during (8,00,000) (8,00,000)
PY
(2,80,000) 1,30,000
STCL STCG
Note: IN CASE OF DEPRECIABLE ASSETS THERE IS ALWAYS STCG / STCL

(b) where some assets of block are transferred

₹ No ₹ No
Opening WDV of block 6,00,000 5 6,00,000 5
(+) actual cost of asset acquired 2,00,000 2 2,00,000 2
8,00,000 7 8,00,000 7
(-) sale value of asset 8,00,000 4 6,20,000 4
X 3 1,80,000 3
Sale Price 9,10,000 6,20,000
Asset Yes Asset Yes
WDV No WDV Yes
Depn NO Depn Yes
Cap Gain YES Cap Gain No

Computation of capital gain

FVOC 9,10,000
(8,00,000) Normal
STCG 1,10,000 Depreciation
Will Be
Allowed

I. Section 32(1) (iia) Additional Depreciation

# Assesses engaged in the business of manufacture of any article or generation
transmission or distribution of power

# Additional depreciation @20% allowed on plant & machinery Excluding following:

(i) Second hand P & M
(ii) Any P & M installed in office premises or residential accommodation.
(iii) Ships, aircraft & transports vehicles
(iv) P & M on which 100% deduction allowed

# Additional depreciation is allowed Only in the First year in which it is put to use If
put to use for less than 180 days than 10% depreciation shall be allowed
[20%x 50%]

Notes:
(1) IF additional depreciation allowed at Half Rate [asset used less than 180 days]
then balance half rate depreciation shall be allowed in Next year.
(2) Forklift truck used in factory is not treated as transport vehicle so it is eligible
for additional depreciation.
(3) Business of printing or printing and publishing amounts to manufacture or
production of an article or thing and is, therefore, eligible for additional
depreciation (CBDT Circular)
(4) Additional depreciation is allowed only if assesses follow WDV method. If is not
allowed to Power units if they follow SLM method.

J. Sec. 43(1): Actual cost

Actual cost of asset means
₹
Cost of asset (purchase price) XXX
(+) Installation charges XXX
Transportation expenses for asset XXX
Trial run/test run expenses XXX
XXX
Taxes & duties (if ITC not available)
XXX
Interest on loan taken for acquisition of asset XXX
(upto the date of asset put to use)
XXX
(-) Amount recd. on sale of trial run product (XXX)
XXX
(-) Subsidy / Govt Grants recd. for acquisition of assets (XXX)
Actual cost (XXX)
 Where an assesses incurs any expenditure for acquisition of any asset or part
there in respect of which a payment or aggregate of payments made to a
person in a day, otherwise than by an a/c payee cheque or a/c payee DD or use
of electronic clearing sys or any other mode as may be prescribed exceeds
₹10,000, such expenditure shall form part of actual cost of such asset.

# Explanation to Sec. 43(1) Actual Cost in special cases.

Cases Actual Cost
1 Asset previously used for Scientific Actual cost = NIL [because deduction
research brought in to regular already claimed u/s 35)
business.
1A Stock converted into Capital asset and FMV on the date of conversion
used for Business or Profession
2 Asset acquired by way of gift/ Will/ Actual cost to the previous owner less
Inheritance. depn already allowed to him.
3 Asset acquired with an intention to Amount determined by A.0, with the
claim higher depreciation approval of Joint Commissioner (JC)
(Normally AO take FMV of such asset)
4 Re-acquisition of asset sold. (i) WDV at the time of sale
(ii) Reacquisition cost
4A Asset Purchased & Leased back to the WDV of the previous owner (Lessee)
same person.
5 Building was used for personal Original Cost XX
purpose now brought into business. (-) Notional Depn till date (XX)
at Current depn rate
Actual Cost. XX
6 Capital asset transferred by holding Cost / EDV to the transferor Co.
Co. to 100% subsidiary Co. or 100%
Subsidiary Co. to holding Co. [Sec. 47
(iv)/(V)]
7 Transferred by amalgamating Co. to Cost/WDV to amalgamating Co.
amalgamated Co.
7A Transferred by demerged Co. to Cost/WDV to demerged Co.
resulting Co.
8 Asset acquired out of Borrowed fund. Interest upto first put to use form part
of actual cost.
9 Excise duty, Custom duty,GST etc. Duty in respect of which Cenvat/ITC
claim not allowed forming part of
actual Cost
10 Govt Grant/ Subsidy If related to any asset then reduce from
actual cost.
11 Asset brought into India by NR for use Actual Cost XX
in his Business or Profession - Dep. calculated at the rate
in force as if the asset was
used in India from date of
acquisition. (XX)
XX
12 Any capital asset acquired under Cost/WDV of AOP/BOI
Scheme of corporatization of
recognized stock exchange.
(AOP/BOI to Company)
13 Actual Cost allowed as deduction Actual cost for transferee shall be NIL
under sec. 35AD and capital asset
transferred to non-specified business
after 8 years from the year of
acquisition or transfer by way of
transactions referred in section 47.

# Explanation 7 of Section 43(6)

In cases of 'composite income', for the purpose of computing written down value of
assets, the total amount of depreciation shall be computed as if the entire composite
income of the assessee is chargeable under the head "PGBP". The depreciation so
computed shall be deemed to have been "actually allowed'" to the assessee

# Example
As per rule 8 income derived from the sale of tea grown and manufactured by seller
shall be computed as if it were income derived from business, and 40% of such
income shall be deemed to be income liable to tax. If the turnover is, say, ₹20 lakh,
the depreciation ₹1 lakh and other expenses ₹4 lakh, then the income would be ₹15
lakh. Business income would be ₹6 lakh (being 40% of ₹15 lakh). As per earlier Court
decisions, only the depreciation "actually allowed" i.e., ₹40,000, being 40% of ₹1 lakh,
has to be deducted to arrive at the written down value but as per this explanation
total 1 lakh shall be reduce to compute WDV.

K. Depreciation for Power Generating undertaking /Sale of Assets/SLM

method/Individual asset system.
If power units follow SLM method then they are subject to individual asset system
profit & loss is calculated on every sale.
For better understanding let’s take an example:
Actual cost of asset = ₹100 Rate of depn = 10% SLM
In 3rd year suppose asset sold for a) 72 b) 89 c) 117

Calculation of depreciation for 2yrs

Actual cost 100
(-) depn for 1s" year (10)
90
(-) depn for 2nd year (10)
Opening WDV in 3rd year 80

# Tax treatment in the year of sale (3rd year)

a) Sale value 72
(-) WDV (80)
Loss - P&L (Dr side) (8) Terminal depn allowed as deduction u/s 32(1)(iii)
b) Sale value 72
(-) WDV (80)
Loss -P&L (Cr side) 9 Balancing charge taxable as income under
PGBP u/s 41(2)
c) Sale value 117
(-) WDV (80)
Profit 37

20 [up to cost of asset] 17 [SP> Cost]

Balancing charge - taxable u/s 41(2) STCG u/s 50A

# Taxation of Grants/Subsidies from Govt.

Any subsidy, grants, cash incentive, duty drawback, waiver etc by CG or SG or any
Authority or Body [other than referred in explanation 10] shall be treated as Income
Sec. 2(24)(xviii).

Notes:
1. If subsidy received for acquiring an asset, it shall be deducted from Actual cost
of asset.
2. Any other subsidy waiver of loan / Govt. Grant from Govt's. / any authority
/body will be taxable under PGBP
 3. Any subsidy / grant received by trust or institution (established by CG/SG) as a
Corpus fund from Central Govt shall not be treated as income.
4. If loan taken for acquisition of asset is waived then such loan shall be reduced
from Actual cost of asset [block of asset] [Steel Authority of India Ltd).
5. Above provision Not applicable on LPG subsidy or any other subsidy which is
for the welfare of the individual.

# Treatment of interest on loan taken for acquiring asset

New company & new existing business/ extension

business is Being set up not case of extension

upto the date After the date upto the date after the date
of commercial the asset is first the asset is first the asset is first
Production put to use put to use put to use

added to allowed as Added to allowed as

actual cost revenue expense Actual cost revenue expense

Summary:
Interest upto the date of asset first put to use: add to actual cost.
Interest after the date of asset first put to use: allowed as revenue exp.

L. Section 38(2): Asset partly used for other purpose

If asset is not exclusively used for the purpose of Business/ Profession then deduction
uls 30,31,32 shall be restricted to a proportionate part as determined by A.0
Example:
Opening WDV of car (01/04/20) = 4,00,000
Suppose, CAR 60% used for business purpose & 40% used for personal purpose

Dep 15% = 60000 Block of asset ₹

Opening WDV = 4,00,000
(-) Depn actually
60% 40% allowed = (36,000)
₹ 36000 ₹ 24000 Closing WDV 3,64,000

Allowed Disallowed
# DEPRECIATION ON GOODWILL OF BUSINESS OR PROFFESSION (AMENDMENT BY FA’21
W.E.F AY 21-22)
1) Goodwill of a business or profession is not eligible for depreciation from PY 20-21.
2) If the value of Intangible block of assets on 1st April,2020 includes goodwill of a
business or profession(on which depreciation was obtained by the assessee in upto PY
19-20),then depreciated value of goodwill shall be reduced from the value of the
intangible block of assets. For this purpose, depreciated value of goodwill shall be
calculated as if goodwill was the only asset in the relevant block of assets.
3) SEC 55: if goodwill of the business or profession ( on which depreciation claimed till PY
19-20) is transferred during PY 20-21 or thereafter then cost of acquisition of goodwill
for the purpose of capital gain shall be actual cost minus depreciation claimed.
4) Rule 8AC- Computation of STCG on goodwill and WDV of Intangible assets block for PY
20-21
This rule provides that where the goodwill of the business or profession was the only
asset or one of the assets in the block of asset “intangible” for which the assessee
obtained depreciation upto PY 19-20,the WDV of this block of an asset for the PY 20-21
shall be determined as follows:

Opening WDV of an intangible block of assets as on 01-04-2020 xxx

Add: actual cost of the asset (other than goodwill) acquired during PY xxx
______
Less: money recd (Sale value) xxx
Less:WDV of goodwill (calculated on the assumption that goodwill is only xxx
asset in the block of assets)
---------
WDV OF GOODWILL xxx
Less: depreciation actually allowed (xxx)
---------
CLOSING WDV XXX
# Section: 33AB / 33ABA [EXCLUSIVE FOR CMA]
33AB: Deduction for Tea, Coffee, 33 ABA: Deduction for
Rubber Business Petroleum & Natural Gas
Business
Assesses All assesses engaged in the All assesses engaged in the
business of Growing & Mfg of tea, business of Prospecting
coffee, rubber in India. extraction production of
natural gas or petroleum in
India
Deposit Ded" is allowed if some amount is Ded" is allowed if some amt is
deposited in NABARD upto the deposited in SBI [Site
due of return filing or 6 months Restoration A/C) upto the end
from end of PY, whichever earlier. of the P.y.
Deduction (i) Actual amt deposited or (i) Actual amt deposited or
amount (ii) 40% of PGBP (before this (ii) 20% of PGBP (before this
deduction) deduction)
Utilization Deposited amount should be Deposited amount should be
utilized for purposes prescribed utilized for purposes prescribed
by Tea, Coffee Rubber Board by Ministry of Petroleum &
Natural Gas Govt of India
Mis- If deposited amount is mis- If deposited amount is mis-
utilization utilized then deduction allowed utilized then deduction allowed
earlier shall be withdrawn & earlier shall be withdrawn &
taxable under PGBP taxable under PGBP

# Some common points of Sec. 33AB/33 ABA

1. If any amount is withdrawn from NABARD/ Site Restoration Alc should be utilized
in year of withdrawal only, otherwise such amount shall be taxable.
2. If any amount is utilized for following purposes then deduction claimed earlier
shall be withdrawn:
*For P & M used in office premises or residential accommodation
*For office appliances [not being computer]
*P & M on which 100% deduction already allowed under the head PGBP.
3. When amount utilized [as per scheme] for revenue expenses then such expenses
shall not be allowed as deduction under PGBP
4. When amount utilized [as per scheme] for purchase of any P&M then
depreciation shall be allowed on such P&M
5. Where asset purchased is sold/ transferred before expiry of 8 years from end of
P.Y. in which it was acquired, such part of asset as is relatable to deduction
 allowed, shall be deemed to be income of P.Y. in year of sale / transfer of asset.
Restriction of 8 years shall NOT apply: -
(i) Where asset is sold/ transferred to Govt/ Local Authority/ Statutory
corporation, Government Company.
(ii) Transfer is by secession of firm to company whereby all assets and liabilities
of firm are transferred to company and all shareholders of the company
were partners of the firm immediately before succession,
6. For the purpose of section 33AB withdrawal of Deposit
(i) Closure of business Taxable
(ii) Dissolution of the firm; Taxable
(iii) Death of an assesses Not Taxable
(iv) Partition of a HUF Not Taxable
(v) Liquidation of a company Not Taxable
 Part-A-in-house Research [self-spending] [Research related to business of assessee]

Research after commencement of business Research before commencement

of business Maximum 3 yrs before
the date of commencement of
Assessee – Company other assessee business expenses allowed.
Engaged- Manufacturing
or Bio-technology business
Research- Approved Revenue exps Capital exps
Sec. 35[2AB] Sec. 35(1)(i) Sec. 35(1)(iv)

Revenue exps Capital exps Salary other exps Land other

[excluding Perks] exps
Material
100 % dedn
Land Building other Capital not allowed not allowed
Exps 100% Dedn
n
100% ded
No Dedn 100% Dedn
u/s 35(1)(iv)
100% dedn

Revenue exps Capital expenses

Sec .35(1)(i) Sec. 35(1)(iv)

100% dedn
Land other capital exps

No dedn 100% dedn

 Part B: Contribution to outsiders

To Approved To I.I.T.To To Approved Indian Co.

R- Research association National laboratory Engaged in R&D
I - Institute
C- College
U – University For Scientific research For Scientific research
Sec. 35(2AA) Sec. 35(1) (iia)

For Scientific For Social & 100% dedn 100% dedn

Research Statistical Research
Sec.35(1)(ii) Sec. 35(1)(iii)

100% dedn 100% dedn

Notes:
1. The deduction u/s 35(1i)/(ii)/35(2AA) shall not be denied if approval of such
institution has been withdrawn after payment of sum by assessee.
2. No depreciation allowed on assets if deduction u/s 35 claimed.
3. If L&B purchased through a composite agreement then the cost of L&B shall be
bifurcated on the basis of FMV because cost of land is not allowed as deduction.
4. Unabsorbed research capital expenditure can be set off & carried forward same as
un-absorbed depreciation.
5. Deduction u/s 35(1)(ii), 35(2AA) & 35(2AB) shall be 100% from AY 2021-22

Section 35AC: expenditure on eligible projects or schemes [EXCLUSIVE CMA]

Where an assessee incurs any expenditure by the way of payment of any sum
- to a public sector company or a local authority or an association or institution
- approved by the national committee for carrying out any eligible project or scheme for
promoting the social and economic welfare of or the uplift of the public as the Central Govt.
may specify the amount so paid shall be allowed as deduction provided a certificate in form
no. 58A/58B is obtained from the said institution and furnished along with the return of
income.

DEDUCTION = 100%
# Section 35A BB: Expenses for obtaining Telecommunication License (FOR CMA)

License obtained before license obtained after

commencement of Business commencement of
business [license fees already paid]

Dedn shall be allowed from P.Y. Dedn shall be allowed from P.Y. in
in which business commences till which fees paid till the P.Y. in which
P.Y. in which license expires. license expires.

EXAMPLE: Idea commenced business of telecommunication service during 1995-96

assessee acquired telecommunication license on 01/7/2018 for ₹1,00,000 life of
license loyrs [till 30/6/2028]
deduction amount for P.Y. 2018-19
= ₹1,00,000 =9,091
11 Years
[from P.Y 2018-19 to P.Y 2028-29]

# Tax treatment on sale of License

For better understanding we are going to take an example
Cost of license = ₹100 [total amount paid in the beginning]
Life of license = 10years
Suppose license sold in 3rd year at a) 72 b) 89 c) 117
(I)Full licence sold (II) Part licence sold.

# Full license sold ₹

Cost of license 1200
(-) dedn 1st year u/s 35ABB 10
Un-amortised fees 90
(-) dedn 2nd year u/s 35ABB 10
Opening un-amortised fees 80
a) SP 72 b) SP 89
(-) un-amortised Fees (80) (-) un-amortised Fees (80)
(8) 9
P & L (Dr side) P & L (Cr side)
allowed as deduction u/s 35ABB in the Taxable under PGBP in the year of
year of sale sale.

c) SP 117
(-) Un-amortised fees (80)
37

20 [upto cost] 17 > cost

Taxable under PGBP in the Capital Gain [ STCG/LTCG

year of sale (P&L Cr side) depends on POH]

Part II: Part License

sold
(a) SP 72
(-) unamortised fees (80)
8

Un-amortised fees - Sale value: = 80-72 = 1 for every year for 8 years,
Residual Period 8 Yrs

(b) & (c) same as part (I) [Full License transfer]

# Section 35ABA [EXCLUSIVE FOR CMA]: Expenses for obtaining Telecommunication

spectrum As provision contained in section 35ABB, shall apply as if for the word
"Licence” the word "Spectrum" had been substituted.

# Common points for Sec. 35 BA/ABB

1. Depreciation u/s 32 shall not be allowed for Telecommunication licence &
Spectrum.
 2. If there is a Amalgamation or Demerger, then remaining deduction shall be
allowed to Amalgamated Company / Resulting company as they would have
allowed to Amalgamating Co. / Demerged Co.

# Section 35CCC Expenditure on Agriculture Extension Project (CMA EXCLUSIVE)

Under this section deduction 150 % allowed, if expenses (except L&B as per CBDT
Notification) incurred for notified agriculture extension project. This deduction is allowed
to all assessees [ 100% deduction from A.Y.21-22]

# Section 35CCD (CMA EXCLUSIVE)

Expenditure for Skill Development Project Under this section deduction 150%
allowed, if any expenditure incurred (except Land & Building) for notified skill
development project. This deduction is allowed only to companies. [100% deduction
from A.Y. 21-22]

# Section 35D: Preliminary expenses

1. Meaning:a) Preparation of feasibility study/ project report
b) Market survey
c) Engineering services
d) Drafting & printing of MOA/AOA.
e) Legal fees
f) Expenses related to public issue of shares & Debenture
g) other expenses may be notified by CBDT

2. Deduction allowed to resident assessee who incurs preliminary exps before

commencement of business or after commencement for extension or for setting
up a new unit.

3. Amount of deduction

Indian Co. Other Resident

(i) Actual Preliminary Exps XX (i) Actual Preliminary Exps
XX
(i) 5% of COP / CE** XX (i) 5% of COP
XX
Whichever is Lowers Whichever is Lowers
** COP or CE, whichever is Higher
Notes:
1. Above deduction is allowed in 5 equal instalments
2. COP =Cost of project [Amount invested in fixed asset of new project or extension
or setup new unit.]
3. CE Capital employed [share capital + debentures + long term borrowing for new
project or extension or setup new unit]
4. Reserve and surplus (including security premium) shall not be part of CE.
5. Audit is mandatory for the year in which such expenses incurred except company
and co-operative society.

# Sec. 35DD: [EXCLUSIVE CMA]

Expenses on Amalgamation & DemergerAssessee:
only Indian Company
Deduction allowed in 5 equal instalments.
Note: deduction is allowed to the assessee who has incurred such expenditure.

# Sec. 35DDA: Expenditure on Voluntary Retirement

SchemeAssessee: All Assesses
Deduction allowed in 5 equal instalments.

Note: 35D & 35DDA

1. If there is Amalgamation / Demerger, then remaining Deduction shall be
Allowed to Amalgamated Company/ Resulting Company
2. U/s 35DDA remaining deduction allowed to successor in case of succession
referred u/s 47(xiii)/(xiv)/(xiiib).

# 35AD: Specified Business

No. Business Commencement % of
on or after dedn
1 Setting up & operating a cold chain facility. 01.04.2009 100
2 Setting up & operating al warehousing facility for 01.04.2009 100
agricultural produce.
3 Laying & operating cross country pipeline for 01.04.2009 100
distribution of petroleum oil, natural gas.
4 Building &operating a Hotel of 2 star or above 01.04.2010 100
5 Building & operating a Hospital with minimum 100 01.04.2010 100
patient beds
6 Developing & building a Housing project under Slum 01.04.2010 100
development scheme.
7 Developing & building a housing project under 01.04.2011 100
 affordable housing scheme.
8 Production of Fertilizers in India 01.04.2011 100
9 Setting up & operating inland container depot or 01.04.2012 100
container freight station.
10 Bee keeping and production of bee's honey &wax. 01.04.2012 100
11 Setting up & operating a warehousing) facility v for 01.04.2012 100
sugar.
12 Laying & operating a slurry pipeline for 01.04.2014 100
transportation of Iron ore.
13 Setting up & operating a Semi – conductor wafer 01.04.2014 100
fabrication manufacturing unit.
14 developing or maintaining and operating or 01.04.2017 100
developing, maintaining and operating a new
infrastructure facility (Note)

# Conditions/ Notes
1. Not formed by splitting or reconstruction of existing business means business
should be New.
2. P & M should be New.
(1) Exception: Imported old P&M (P&M on which dep. not claimed under IT
Act.)
(2) 20% of total P&M can be old (Second Hand).
3. If assessee is in the business of Laying cross country Pipeline then some
portion of pipeline should be made available for use of others on common
carrier basis.
4. Deduction allowed on all Capital expenses except (a) Land (b) Goodwill (c)
Financial instruments.
Further, any expenditure in respect of which payment or aggregate of payment
made to a person of an amount exceeding 10,000 in a day otherwise than by
a/c payee cheque or an a/c payee DD or use of electronic clearing system
through a bank account would not be eligible for deduction or any other mode
as may be prescribed.
5. Depreciation not allowed if deduction claimed u/s 35AD.
6. Loss of specified business can be carried forward indefinitely. As per FA 2016
assessee has to file ROI upto due date of ROI for c/f of losses.
7. If asset (on which deduction claimed u/s 35AD is allowed) sold, then the entire
sales price shall be taxable as PGBP [Section 28]
8. loss of specified business can be set off only against specified business income
irrespective of whether the latter is eligible for deduction under section 35AD.
 Example: A assessee can therefore, set-off the losses of a hospital or hotel
which begins to operate after 1/04/2010 and which is eligible for deduction
section 35AD against the profits of the existing business of operating a hospital
(with atleast 100 beds for patients) or a hotel (of two-star or above category)
started before 1/04/2010. even if the latter is not eligible for deduction under
section 35AD.
9. If deduction u/s 35AD is claimed then deduction u/s 80IA to 80RRB & 10AA
deduction shall not be allowed.
10. In case of Hotel (2 star or more) if assesse transfers operation to another
person, then assessee shall be deemed to be carrying on the specified business.
11. Infrastructure facility means:
(i) A road including toll road, a bridge or a rail system.
(ii) A highway project including housing or other activities being an integral
part of the highway project.
(iii) water supply project, water treatment system, irrigation project,
sanitation and sewage system or solid waste management system.
(iv) A port, airport, inland waterway, inland port or navigational channel in
the sea.
12. Business of cross-country pipeline and new infrastructure facility should be
owned by Indian Company or consortium of such companies or by an authority
or a board or corporation or any other body established or constituted under
any Central or State Act.
13. Business of cross-country pipeline should be approved by the Petroleum and
Natural Gas Regulatory Board and notified by the Central Government. Under
New infrastructure facility entity should have entered into an agreement with
the CG/SG/Local Authority or any other Govt body.
14. Asset (on which deduction claimed u/s 35AD) should be exclusively used for
specified business for minimum 8 yrs. from the year of acquisition.
If it is used for non-specified business within 8 yrs. then following shall be
taxable under PGBP.
Amount of deduction claimed u/s 35AD earlier XXX
(-) depreciation that would have been allowable if Sec. 35AD not there (XXX)
PGBP XXX
Notes:
1. The above amendment is not applicable if Company becomes sick industrial
Company.
2. If asset is transferred from specified business to non-specified business within
8 years then Actual cost for non-specified business shall be-
Cost of such asset XXX
Less: depreciation allowable if such asset used for non- (XXX)
specified business from acquisition
XXX

#Section 35E: Taxation of Mining of Coal Limestone /Iron / Zinc, etc. (CMA)
1. Assesses: Engaged in prospecting extraction /production of minerals like coal
limestone, iron, gold, zinc etc.
2. Deduction allowed for expenses incurred on-
 Any operation of prospecting for any minerals
 development of mine or other natural deposit of any mineral
3. Such expenditure should be incurred during the year of commercial production
and 4years immediately preceding that year.
4. Deduction allowed over a period of 10 years from the year in which
commercial production started.
5. This deduction is restricted to income from PGBP of mines.
6. Deduction not allowed on expenses incurred for acquisition of mines/sites or
building , P&M, furniture on which depreciation is allowed.

# Section 36: Certain deduction u/s 36

#Section 36(1)(i): Premium for insurance of stock -in-trade

It is allowed as deduction.

#Section 36(1)(ib): Health insurance premium for employees.

it is allowed as deduction if premium paid in any mode other than cash.

#Section 36(1)(ii): Bonus or commission to employees

It is allowed as deduction subject to Sec. 43B
There is no restriction on the amount of bonus and it may exceed the bonus
payable under the Payment of Bonus Act, 1965
# Section 36 (1)(iii): Interest on Loan:

Loan taken for business Personal purpose

/profession purpose

Not allowed
Loan from Schedule Bank, PFI, Loan from
State Financial Corp., State others
Industrial Investment Corp., NBFC

Allowed Also allowed

[subject to sec. 43B]

# Section 36(1) (iiia): Discount on Zero Coupon Bonds (ZCB) Pro-rata amount of
discount shall be amortized over the life (calendar months) of ZCB.

Example:
KRK Ltd issued 1,00,000 ZCB on O6/12/21 @ ₹ 80. Face value of bond is 100. ZCB
redeemable after 10 months. Compute deduction allowed for P.Y. 2021-22.
Solution: Total Discount= 1,00,000 x 20= ₹ 20,00,000
Monthly Discount= 20,00,000= ₹ 2,00,000 p.m
10 Months
Discount for P.Y. 2021-2022= 200000 x 4 months = ₹ 8,00,000
(Dec-21 to Mar-22)

Note: If any calendar month part is 15 days or more, it shall be increased to one
calendar month & if such part is less than 15 days it shall be Ignored. Suppose in
above example if ZCB issued on 16/12/21 then we will take 11 calendar months
because period is 15 days, or more in the month of issue and redemption.

Monthly discount=20,00,000 = 1,81,818

11 months
Deduction for PY 21-22= 1,81,818 x 4 months = 7,27,273
# Sec. 36(1)(iv)/(v) Employer's contribution for the benefit of the Employee.

-Statutory Provident fund (SPF) -Unrecognized Provident fund (URPF)

-Recognized Provident fund (RPF) -Unapproved Super annuation fund (UASF)
-Approved Super annuation fund (ASF) -Unapproved Gratuity fund (UAGF)
-Approved Gratuity fund (AGF)- -Any other fund
-Any other fund as per law

Allowed as deduction Not allowed

[Subject to Sec. 43B]

# Sec. 36(1)( iva): Employer contribution towards Pension scheme referred us 80CCD
Deduction allowed to employer [subject to sec 43B]
(i) Actual contribution
(ii) 10% of salary [Basic +DA (Terms)
whichever is lower

# Sec. 36(1) (va): Employees contribution towards welfare fund.

Any sum received by Employer from Employee as contribution to PF, super annuation
fund, ESI etc. is deemed to be PGBP if such sum is not deposited in respective fund up
to the due date to such fund.
NOTES
1) PF due date is 15 th of next month.
2) If any amount deposited after due date of fund,then it will be treated as PGBP
income of employer and never be allowed as deduction to employer.
3) As clarified by FA’21,here due date means due date of fund & not a due date of
ROI as per section 43B.

Contradictory case law: AIMIL (Delhi H.C) / Kiccha sugar Co. Ltd. (2013).
It is allowed even if it is deposited up to due date of return filing as per Sec. 139(1).
# Sec. 36(1)(vii)
Bad debts

Actual Bad Debts Prov. for Bad debts

Related to sales Related to loan Not allowed

[Exception -Banks u/s 36(1)(viia)]
Allowed Not allowed
(Exception -money lending business)

Notes:
1. Bad debts should be written off in the books of A/c's of Assesses in the P.Y. in
which deduction is claimed.
2. The debt should have been taken into account for computing income for P.Y. or
earlier P.Y.
3. No need to prove that the debts have become bad
4. Where the amount of such debt has been taken into account in computing the
income for PY or earlier PY (on the basis of ICDSs without recording the same in
the accounts), Such debt shall be allowed in the previous year in which such debt
becomes bad and It shall be deemed that such debt has been written off as
irrecoverable in the accounts.

# Sec. 41(4): Bad-Debts Recovery

Where deduction has been allowed in respect of bad debts, recovery shall be taxable
as PGBP in the year of recovery, this shall apply even if the business or profession is
not in existence in the previous year in which recovery.

1. Example Bad debts: 1,00,000

Allowed by A.O. 60,000 Disallowed by A.O. 40,000

Recovery of Bad debts during PY 21-22: 62,000
Taxable amount = Recovery disallowed earlier
22,000 = 62,000 - 40,000

2. Firm claims bad debts- Firm dissolved- Partner recovered bad debts-
# Section 41(4) NOT applicable because it is applying only if Assesses who claims the
bad debts and Assesses who recover is same.

# Section 36 (1) (viia): Provision for bad debts of banks [CMA]

Indian banks *Foreign banks

* Public financial institutions (PFI)
8.5 % of GTI (before this dedn) * State financial corporation (SFC)
+ * State Industrial Investment C
10% of aggregate Avg. Advance *Non-banking financial Co. (NBFC)
made by Rural branches
5% of GTI (before this dedn)

Notes:
1. No deduction is allowed for actual bad debts u/s 36(1)(vii)
2. Actual Bad debts should be debited to Prov. for Bad debts A/c
3. If Prov for bad debts is less than actual bad debts, then remaining bad debts
allowed us 36(1)(vii)
4. Assesses should maintain only one account in respect of provision for bad and
doubtful debts and such account shall relate to all types of advances including
advances made by rural and urban branches.
# Sec. 36 (1)(ix): Expenses on Promotion of Family Planning of employees.
Assesses: Only Company

Revenue expenses Capital expenses

100% Deduction allowed allowed in 5 equal installments

# Sec. 36(1)(xv)/(xvi): Securities Transaction Tax (STT)/Commodities Transaction Tax

(CTT)
It is allowed as deduction if Assesses held shares /Units/ Commodities as stock in-
trade.

# Sec. 36(1)(viii): Transfer to Special Reserve [CMA]

This deduction is allowed to Financial Corporation engaged in providing Long term
finance (5 yrs or more)
Amount of Deduction -
(i) Actual amount transferred to special reserved
(ii) 20% of PGBP (before this deduction)
(iii) [200% of (share capital+ general reserve)]- opening Balance in special reserve
whichever is lower,
Note: Any amount withdrawn from reserve shall be taxable under PGBP. Sec. 41(4A)

# Sec. 36(1)(xvii): Purchase of sugar cane. [CMA]

Expenditure incurred by cooperative society engaged in business of manufacturing of
sugar for purchase of sugarcane at a price which is equal to or less than the price
fixed by Govt allowed as deduction.

# Sec 36(1)(xviii): Marked to market loss or other expected loss

As per ICDS Allowed
MTM Loss/Expected
Loss Other NOT Allowed As per sec 40A (13)
# Sec. 37: General Deduction
Any expenditure [other than covered u/s 30 to 36] shall be allowed as deduction if
following conditions are satisfied:
1. Expenses should be incurred wholly or exclusively for the purpose of Business
or Profession.
2. Expenses should be revenue in nature.
3. Expenses should be Legal (It should not be illegal like Hafta, Bribes, secret
commission, etc.)

# Corporate social Responsibility (CSR) expense.

It is not treated as Business expense, so not allowed.

# Allowability of some expenses

a. Advertisement in brochure, souvenir, newspaper, pamphlet published by
political party-
Not allowed
b. Gift to employee- Allowed
c. Customary expenses (Puja at the time of new year, Diwali) – Allowed
d. Expenses incurred by CA's for attending CPE seminars- Allowed.
e. Dividend & DDT -Not Allowed.
f. Provision for loss of subsidiary, Provision for deferred tax, Provision for
diminution in value of asset, Provision for un-ascertain liability - Not Allowed.
g. Shares /Debentures issue expenses
Expenditure incurred

I.P. O Buy back of shares

F.P. O Bonus shares
Right shares Debenture or loan issue expenses

Capital expenses Revenue expenses

Allowed Not Allowed

(change in capital) (No change in capital)
 h. Taxes, Interest & Penalties
Tax Interest Penalty
Direct taxes (Income tax, Not Not Not
etc.) allowed allowed allowed
Indirect taxes (GST etc.) Allowed Allowed Not
allowed

[subject to Sec. 43B]

Penalty Breach of law - Not Allowed
Breach of Contract (Contract of Revenue Nature) - Allowed

i. Freebies (gifts, cash, travel facility provided by Pharmaceutical company to

doctors illegal expenses -Not allowed
j. Interest on loan taken for payment of income tax -Not allowed
k. Tax audit fees or litigation exp in relation income tax cases- Allowed
l. Premium paid by the firm on the Keyman Insurance policy of a partner-
Allowed

# Sec. 40: Amount specifically Not deductible

# Sec. 40(a)i): Payment made to Non-Resident
Amount paid or credited to Non-resident or foreign Co. & if:
a) TDS has not been deducted in P.Y. or,
b) TDS deducted but not paid to Govt up to due date of return filing, then such
sum (100%) shall not be allowed as deduction in current P.Y.

# Sec. 40(a)(ia): Payment made to Resident.

Any amount paid or credited to Resident & if:
c) TDS has not been deducted in P.Y. or,
d) TDS deducted but not paid to Govt upto due date of return filing, then 30% of
such sum shall not be allowed as deduction in current P.Y.
Notes
1. If TDS deducted in subsequent year or deducted in P.Y. but paid to Govt. after
due date of return filing then such sum (100% NR)/(30% Resident) shall be
allowed as a deduction in the P.Y. in which such TDS has been paid to Govt.

2. Exception to Sec. 40(a)(ia) & 40(a)(i)

 If any amount paid /credited to Resident payee without deduction of TDS but
such payee
-Furnishes his ROI.
-Takes into account such amount in total income.
- Has paid the tax due on such income
- Payer furnishes a certificate from CA to this effect then it shall be deemed
that the payer has deducted TDS & paid to Govt on date of furnishing of return.
by payee & deduction of such expenditure shall be allowed accordingly. [30%
/100 % disallowed in current year and will be allow in the year in which payee
file his ROI]. However, payer has to pay interest u/s 201(1A) 1% p.m or part of
the month on the amount of TDS not deducted from the date on which the
TDS was So deductible till the date on which payee furnish his ROI.

# Sec. 40(a)(iib): Royalty, fees etc. charged by State Govt.

If any royalty, Fees, service charge etc. is exclusively collected by state Govt from
state govt undertaking then such expense is not allowed to such state Govt
undertaking

# Sec. 40(a)(iii) TDS on salary payable outside India or NR:

Any salary payable outside India or to NR in India and if:
a) TDS not deducted or,
b) TDS deducted but not paid to Govt upto due date of TDS payment,
- then such sum shall not be allowed as deduction
Note: If TDS deposited late even by one day, the salary shall not be allowed as
deduction

# Sec. 40(a)(V) Tax on Non-Monetary Perquisite

If employer offers some Non-Monetary perquisite to the employee, then tax on such
Non-Monetary perquisite is the responsibility of the employee. But instead of
employee, if employer decides to pay tax on such Non-Monetary perquisite from his
pocket, then that Tax is Not Allowed as deduction because its Exempt in hand of
Employee u/s 10(10CC).

# Sec. 40A(2): Payments to specified Persons (Relatives)

If payment of expenditure made to relative then A.O can disallow excessive or
unreasonable amount.

*Specified Person (Relative) for Sec. 40A(2)

Assesses Relative Individual
1 Individual S, M, F, B, S, LA, LD
2 HUF Member & their relatives
3 Firm/LLP Partner & their relatives
Company
4 Company Director & their relatives
5 AOP/BOI Member & their relatives
6 Substantial interest

Any person (Assesses) Any person

(relative)

Substantial interest
Substantial interest

Company Firm/AOP/BOI
20% or more shareholding 20% or more PSR
7
Subsidiary co
Holding Co. Relative
Subsidiary co
# Sec. 40A(3) Cash payment> 10,000 to single person in a single Day
If Assesses makes payment for any expenditure to any person otherwise than A/C
Payee Cheque or Demand Draft or use of electronic clearing system through a bank
account or any other mode as may be prescribed. is more than ₹10,000 in a single
day then such expenditure shall be disallowed.

Note:
1. If payment made to transporter then limit is ₹35,000.
2. If the expenditure is claimed as deduction in earlier year con due basis) & if
such expenses is subsequently paid in cash or bearer cheque then deduction
allowed earlier shall be withdrawn& taxable as PGBP.
3. If expenditure paid by Cross cheque then also deduction not allowed.
4. This sec shall not apply to any payment made by a commission agent to receive
goods for sale on commission basis (as commission treated as income of agent).
However, if commission agent purchase goods on his own account, then provisions
of this section shall apply.
5. Where any payment in respect of any expenditure is required to be made by an A/C
cheque/DD etc. in order that such expenditure may not be disallowed u/s
40A(3),then the payment may be made by such mode.No person is allowed to
raise,in any suit or other proceeding, a plea based on ground that the payment was
not made in cash.

Exceptions of Sec. 40A(3) [Rule 6DD]

1. Payment made to RBI /LIC/Banks/Govt.
2. Payment made through NEFT/RTGS/Debit card /ECS /credit card.
3. Payments by book entry (adjustment).
4. Payment of producers of agriculture product, forest product, poultry product,
fish product, live-stock etc.
5. Payment required to be made on a day when banks are closed
6. Payment of Retirement benefits, provided such payment is up to ₹50000.
7. Payment of salary to an employee who is posted to any other place for 15 days
or more other than his normal place of duty.
8. Payment made where Banking facility not available. payment is made by any
person to his agent who is required to make payment in cash for goods or
services on behalf of such person.
9. Payment is made by an authorised dealer or a money changer against purchase
of foreign currency or travelers cheques in the normal course of his business.
10. Payment for purchase of product manufactured or processed without aid of
power in a cottage industry, to the producer of such product.
# Sec. 40A(7): Provision of Gratuity- Not Allowed
Only payment to Approved Gratuity Fund or provision for gratuity actually become
payable during the P.Y. (due basis) is allowed as Deduction.
# Sec. 43B: Expenses allowed on Payment Basis
Following expenses are allowed only if they are PAID up to the due date of return
filling as per Sec. 139(1).
a) Any tax, Duty, Cess
b) Employer's contribution towards SPF, RPF, Approved Gratuity Fund, Approved
Super Annulation Fund, New pension scheme, any fund as per Law
c) Bonus or Commission to Employees
d) Interest on loan to any PFI, State Financial crop. state industrial Investment
Corp scheduled Banks [scheduled bank includes co-operative bank other than a
primary agricultural credit society or a primary co-operative agricultural and
rural development bank]
e) Leave encashment (Leave salary) to employees
f) Any sum payable to Indian railways for use of railway assets.
g) Interest on any loan or borrowing from a deposit taking non-banking financial
Company or systemically important non-deposit taking NBFC.

Note: if payment made after due date of return filing then such expenses shall be
allowed in the year of actual payment.
Notes:
(i) (“deposit taking NBFC" means a NBFC which is accepting or holding public
deposits and is registered with the RBI.
(ii) "systemically important non-deposit taking NBFC" means a NBFC which is not
accepting or holding public deposits and having total assets of not less than
500 crore rupees as per the last audited balance sheet and is registered with
the RBI.
(iii) Where the interest is payable on loans has been converted into a loan or
borrowing,it shall not be deemed that the interest is paid off.Interest shall only
be allowed as deduction in the PY in which installments are paid.

# Section 43CB: Income from construction and service contract [CMA]

The profits and gains arising from a construction contract or a service contract shall
be computed on the basis of percentage of completion method (POCM) in
accordance with the notified ICDS. However, the profits and gains arising from a
service contract shall be computed on the basis of
Method Condition
Project completion If the duration of the contract is not more than 90
Method Days
Straight line method If the contract involves indeterminate number of acts
over a specific period of time
For the purpose of percentage of completion method, project completion method or
straight line method-
(i) the contract revenue shall include retention money;
(ii) the contract cost shall not be reduced by any incidental income in the nature
of interest, dividends or capital gains.

Section 43D: Interest income on NPA (Bad & Doubtful Debts) [CMA]
(a) In case of public financial institution or State Financial Corporation or State
Industrial Investment Corporation or a Scheduled bank, or a deposit taking
NBFC or a systemically, important non-deposit taking NBFC the income by way
of interest in relation to specified categories of bad or doubtful debts,
prescribed by the RBI;
(b) In case of a public company, the income by way of interest in relation for
specified categories of bad and doubtful debts, prescribed by National Housing
Bank; shall be chargeable to tax.
(i) In the PY in which it is credited by the Assesses to its profit and loss
account for year or
(ii) In the PY in which it is actually received by the Assesses whichever is
earlier.

Sec. 43A: Asset acquired from foreign [CA]

If any asset is acquired from a foreign country through a loan in foreign currency or
foreign suppliers’ credit, any loss/gain arising at the time of payment shall be
adjusted with the Block of asset.
Notes:
 1. Adjustment is made only at the time of actual payment of foreign loan or
supplier s credit.
2. If there is gain then reduce from block of asset & if there is loss then added to
the block of asset.
3. Profit or Loss on hedging contract for meeting out the loss in foreign currency
payment towards asset acquired from outside India shall also be reduced or
added to cost of asset.

# Sec. 41: Deemed PGBP:

# Sec. 41(1) Recovery against any deductions already claimed

If Assesses was allowed a deduction in a earlier P.Y. by way of expenditure, loss,
trading liability & now during the current P.Y. Assesses has obtained a refund of such
liability or there is remission /cessation of such trading liability, then such refund
/remission shall be taxable under PGBP
Example: a) Sales Tax Refund b) stock in trade is destroyed by fire & allowed as
trading9
loss & later on insurance compensation is received by Assesses.

Note: Sec. 41(1) will be attracted in case of waiver of working capital loan (Principal)
# Sec. 41(3): Sale of Scientific Research Asset

Sale without use in Business Sale after use in Business

(i) Sale price Add to Block of asset

(ii) Deduction already claimed u/s 35(1)(iv) Actual cost Nil
whichever is lower Exp1n 1 of Sec. 43(1)

Taxable as PGBP at the time of sale Sec. 50 will arise

If SP> Cost then capital gain also arise. [full block /part block sold]

Sec. 41(2): Balancing charge

Already discussed with the power unit’s depreciation

Sec. 41(4): Recovery of Bad debts.

Recovery amount shall be taxable in the year in which it is recovered
Sec. 44AA: Compulsory maintenance of Books of accounts

Part A: Specified /notified Profession

In case of specified profession, if gross receipt is more than 1,50,000 in all 3 years
preceding the previous year or likely to exceed if the profession is newly setup then,
Assesses is required to maintain books of accounts as per Rule-6F, otherwise he is
required to maintain such books of accounts or documents from which AO is able to
complete the assessment.
Specified Professions
1. Medical
2. Legal
3. Accountancy
4. Film Artist
5. Engineering
6. Technical consultancy
7. Architectural
8. Interior decorator
9. Company secretary
10. Any other profession which may be notified by CBDT

Specified books as per Rule 6F

1. Cash book
2. Journal
3. Ledgers
4. Carbon copies of bill exceeding 25/-
5. Original bill for expenditure exceeding R 50/
In case of Medical Practitioner (profession) additional books i.e. daily case register &
medical inventory register has to be maintained.

Part B: Other Assesses (business)

In case of other Assesses, if PGBP is more than 1,20,000/- or Total Sales /Gross
receipt is more than 10,00,000/- in any of the 3 years preceding the previous year or
likely to exceeding in case of newly setup business/ profession, then Assesses is
required to maintain any books of accounts or documents from which AO is able to
complete the assessment otherwise the Assesses is not required to maintain any
books of accounts However, in case of individual & HUF, limit will be T 2,50,000 for
total income for business or profession and R 25,00,000 for Turnover or Gross
Receipts.

Note: As per Sec. 271A, If the Assesses fails to maintain books of accounts as per
Sec. 44AA then penalty of T 25,000 may attract.

Sec. 44 AB: Compulsory audit of Books of A/c’s (Tax audit)

Tax audit is compulsory in following cases:
(a) Business If T/O» ₹1 crore during the P.Y.
NOTE: FA’21 –The turnover limit shall be 10 cr in the following case:
1) Out of total receipts, cash receipt is upto 5% during the P.Y. &
2) Out of total payments, cash payment is upto 5% during the P.Y.
(b) Profession - If Gross receipts » T 50 lakhs during the P.Y.
(c) If Assesses covered by Sec. 44AD & his turnover / gross receipts is upto 2
crores or Sec. 44ADA and Assesses claimed incomeless than 8%/ 6% or 50% &
his Total income is more than Basic exemption
(d) If Assesses covered by Sec. 44AE, 44BB, 44BBB and Assesses claimed income
less than PGBP deemed under those sections.

Note:
1. Audit can be done by CA
2. Due date 30/9 of AY
3. Penalty u/s 271B if Assesses fails to get A/cs audited
(i) 0.5% of T/o or Gross receipts
(ii) ₹ 1,50,000
Whichever is lower,
Presumptive Taxation
Sec. 44AD: Profit & Gains of Business on Presumptive Basis
(a) Eligible Assesses: Resident Individual/Resident HUF /Resident firm (excluding
LLP) who has not claimed dedn u/s 10AA or 80IA to 80RRB
(b) This Section is applicable for any Business except
-Sec. 44AE Business
-Agency Business
-Commission & Brokerage business
and Turnover/Gross Receipts is up to 2 crores.
(c) Presumptive PGBP income = Turnover/Gross receipt x 8%
"If Turnover/ Gross Receipts realized by Account Payee Cheque/DD/ Electronic
payment through Bank Account or any other electronic as mode may be
prescribed upto due date of Return Filing then PGBP = T/O x 6%"
(d) The eligible Assesses is required to pay Advance tax. However, there will be
only one instalment i.e. 15" March of Financial year
(e) if section 44AD is applied then deduction of expenditure u/s 30 to 38 shall not
be allowed (assume it deemed to be already allowed)
(f) Partners Remuneration, Salary, interest etc as per Sec. 40(b) shall not be
deductible while computing income under Sec. 44AD
(g) If Assesses declares income as per Sec. 44AD and whose T/o is up to 2cr then
Assesses is not required to maintain books of account & get it audited.
(h) If Assesses declares income for any P.Y as per 44AD & he doesn't declare
income as per 44AD in any of the five consecutive P.Y.s, then he shall not
eligible to claim benefit of sec. 44AD for 5 years subsequent to the year in
which Assesses not declare income as per Sec. 44AD
(i) If point (h) is applicable &NTI of Assesses is more than basic exemption then
Assesses is required to maintain books of accounts & get it audited.
 Example:
Let us consider the following particulars relating to a resident individual, Mr. A
being an eligible Assesses whose Gross Receipts do not exceed 2 crores in any
of the assessment years between A.Y. 2017-18 to A.Y. 2019-20.
Particulars A.Y2017-18 A.Y 2018-19 A.Y 2019-20
Gross receipts (₹) 1,80,00,000 1,90,00,000 2,00,00,000
income offered for Taxation (₹) 14,40,000 15,20,000 10,00,000
% of gross receipt 8% 8% 5%
offered incomes as per 44AD YES YES NO

In the above case Mr. A an eligible Assesses, opts for presumptive taxation u/s 44AD
for A.Y. 2017-18 & A.Y. 2018-19 and offer income of ₹14.40 lakh & ₹15.20 lakh on
gross receipts of ₹1.80 crore & ₹1.90 crore respectively. However, for A.Y 2019-20,
he offers income of only T 10 lakh on turnover of ₹ 2 crore, which amounts to 5% of
his gross receipts. He has to maintains books of accounts u/s 44AA & gets the same
audited u/s 44AB. Since he has not offered income is accordance with the provisions
of Sec. 44AD, for five consecutive A.Y. after A.Y. 2017-18, he will not be eligible to
claim the benefit of Sec. 44AD for next five AY succeeding A.Y. 2019-20 i.e. from A.Y.
2020-21 to 2024-25.

Note: Sec. 44AB makes it obligatory for every person carrying on business to get his
accounts of any previous year audited if his total sales, turnover or gross receipts
exceed ₹1 crore. However, if an eligible person opts for presumptive taxation scheme
as per Sec. 44AD, he shall not be required to get his accounts audited if the total
turnover or gross receipts of the relevant previous year does not exceed 2 crores.
 Sec. 44ADA: PGBP on presumptive basis for professionals
Eligible Assesses: Resident individual / firm (excluding LLP) engaged in profession as
referred in Sec.44AA
(a) This section is applicable if Gross Receipt is upto ₹ 50lakhs
(b) PGBP Income Gross receipt x 50%
(c) Deduction of expenses u/s 30 to 38 shall not be allowed
(d) If Assesses declares income as per Section 44ADA then, he is not required to
maintain books of accounts & get it audited
(e) If Assesses declares income lower than 50% & his NTI is more than basic
exemption he is required to maintain books of A/cs á get it audited.
(f) Eligible Assesses is now required to pay advance tax by 15th March of the
financial year.
(g) Partners remuneration, salary, interest etc. as per 40(b) shall not be deductible
while Computing income u/s 44ADA.

Sec. 44AE: Presumptive Taxation for Transporters.

If assesses engaged in the business of plying, hiring leasing such goods carriage
then PGBP will be-

Heavy goods Vehicle: ₹1,000 per ton of gross vehicle weight or unladen weight, as
the case may be, for every month or part of a month
Other Vehicle: ₹7,500 for every month or part of a month
The Assesses can also declare a higher amount in his return of income. In such case,
the latter will be considered to be his income.

Notes:
1. This section is applicable if Assesses owns Max 10 vehicles. If Assesses owns
more than 10 vehicles at any time during the P.Y. then this section shall not
apply.
2. Income calculated even vehicle not put to use but own by Assesses.
 3. Partners remuneration, salary, interest etc. as per 40(b) shall be deductible
while computing income u/s 44AE
4. Heavy goods vehicle means any goods carriage, the gross vehicle weight of
which exceeds 12,000 kilograms (12 tons)
5. As per CBDT clarification we have to consider gross vehicle weight for
calculating income however if gross vehicle weight not available then we have
to consider unladen weight like tractor.

6. Assessees opting for presumptive taxation are not required to maintain books of
account as per Sec 44AA or get them audited u/s 44AB. However, where an Assessee
wishes to declare income lesser than as computed u/s 44AE, he is required to
mandatorily maintain books of account and get the same audited.
7. Deduction u/s 30-38 shall not be allowed (Assume its deemed to be already allowed).
8.WDV is to be calculated considering notional dep every PY.

# Sec 40(b): Payment of Interest, Bonus, Commission or Remuneration.

Interest & Remuneration paid by Firm/LLP is allowed as deduction if following
conditions are satisfied:
1. Remuneration paid to only Working Partner.
2. Remuneration & Interest should be authorised by Partnership deed.
3. Remuneration & Interest should relate to period falling after the date of Partnership
deed. That means it should not be retrospective.
4. Interest on partner's capital & loan allowed max@ 12% p.a. simple interest.

5. Remuneration allowed on Book profit basis.*

Book Profit (B.P)

On First 3 lakh B.P balance B.P

i) BP x 90%
ii)* 150000 at the rate 60%
whichever is higher

Meaning of Book Profit

Net Profit under PGBP XXX
(-) Current year+ b/f deprecation (XXX)
XXX
(+) Remuneration (if debited to p&l a/c) XXX
 XXX
In simple terms: Book Profit means PGBP before Remuneration.

#Explanation to see 40(b)

(1) if any individual is a partner in a Firm on individual capacity &receiving interest on
Representative's capacity, then sec 40(b) not applicable on such interest.
(2) If any individual is a partner in a Firm on Representative's capacity & receiving
interest on individual capacity, then sec 40(b) not applicable on such interest.

Note:
The above explanation is applicable only for Interest. If any individual is partner on
representative capacity or individual capacity and received any remuneration then
on such remuneration limit of section 40(b) shall apply.

Sec 40(ba): Interest, salary, bonus, commission paid by AOP/BOI while computing
PGBP Shall be disallowed.

Note: If any interest is recd. from the member to whom any interest is paid then only
the Net Interest shall be disallowed.