Profits and Gains of Business or Profession

Flashcards based on lecture notes about Profits and Gains of Business or Profession under Section 28.

What is trade?

Purchase and sale of goods with profit motive.

What is commerce?

Large scale trade.

What is trade?

Purchase and sale of goods with profit motive.

What is commerce?

Large scale trade.

What is manufacturing?

New article made by material and machine.

What is taxable under Sec 28(i)?

Profit or gain arising from business/profession carried on by assessee.

Profession

Needs qualification, restricted entry, regulatory body, code of conduct.

Vocation

No qualification needed, open entry, no regulatory body, no code of conduct.

What is taxable under Sec 28(ii)?

Compensation received by any person for a) modification/termination of management contract of any Indian company

b) modification/termination of management contract of other company in India

c) modification/termination of agency contract relating to business in India

d) vesting of management of any property/business by govt

e) modification/termination of any other contract relating to business.

Sec 28 (iii)

What is taxable income from trade /professional association?

From rendering specific services to members (on payment basis).

What is taxable under Sec 28 (iii a - iii e)?

a) Profit on sale of import entitlement license

b) cash assistance by Govt. of India - received/ receivable

c) Customs duty/excise duty drawback - repaid / repayable

d) Profit on transfer of Duty Entitlement Pass Book Scheme

e) Profit on transfer of Duty Free Replenishment Certificate.

What is taxable under Sec 28(iv)?

Value of benefit or perquisite, whether convertible into money or not, whether in cash and partly in kind or partly in cash and partly in kind.

What is taxable under Sec 28(v)?

Interest, salary, bonus, commission, remuneration received by partner of a firm.

What is taxable under Sec 28(va)?

Any sum received/receivable in cash/kind under agreement for not carrying out any activity or not to share any know-how, patent copyright trade mark, license, franchise etc & technique.

What is an exception of sums received in cash for not carrying out business?

1. For transfer of right to manufacture or carry on business or profession (received/receivable) - Taxable under head Capital gains.

2. Any sum received as compensation from multilateral fund

Under Sec 28 (vi), what happens to a key man insurance taken out by an employer?

Key man insurance - taxable under PGBP if retained by employer entirely.

What is taxable under Sec 28 (via)?

Conversion of SIT to capital asset - Taxable based on fair market value of inventory on date of its conversion.

Under Sec 28 (vii), what is taxable concerning a capital asset for which 35 AD deduction has been allowed?

Any sum received/receivable - Taxable under PGBP.

What is a speculation transaction [Sec 43(5)]?

Transaction in which contract for purchase or sale of any commodity including stocks & shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip.

What are exceptions deemed to NOT be speculative transactions?

Hedging contract, forward contract, trading in derivatives.

According to Sec 13, if an assessee carries on speculative business, what condition applies?

That business must be deemed as distinct & separate from any other business.

Losses in speculative business cannot be set-off __.

against profit of any business other than a speculative business.

PGBP is __.

computed in accordance with accounting standards prescribed by central govt or Income Computation and Disclosure Standards (ICDS).

According to Sec 145A, income chargeable under PGBP for determining __.

Valuation of purchase and sales of goods and inventory should be inclusive of indirect taxes.

Computation of PGBP should be __.

Computed with provisions in Sec. 30 to 43D.

If changed, the assessing officer must be informed, and any one method should be __.

Should be followed consistently.

What revenue expenditures related to a building, used for B/P, that are allowable deductions?

Repairs & Maintenance, Insurance premium, Taxes related to building, Rent.

Sec 31 concerns repairs and insurance of __.

Plant, Machinery & Furniture.

What is allowed for buildings, plant, machinery & furniture, know-how, copyrights, licenses, patents, trademarks, franchises and other commercial rights of similar nature?

Depreciation is allowed for Tangible assets and Intangible assets.

Plant includes __

ships, vehicles, books, scientific apparatus & surgical equipments, tea bushes, livestock

Method of Depreciation assessee involed in Generation & Distribution of Power is __

On the basis of actual cost to owner.

What is calculated to compute depreciation on a block of assets?

WDV (Written Down Value).

What are the conditions for 50% Depreciation?

1. Asset acquired during previous year, 2. put to use in previous year, 3. used for period < 180 days in previous year

What does not form part of actual cost?

The cost which has been met directly/indirectly by others.

What are prescribed electronic modes of payment?

Credit card, debit card, Net banking, IMPS, UPI, RTGS, NEFT, BHIM, Aadhar pay.

Notional cost for asset used in business after it ceases to be used for Scientific Research is __

Nil - Actual Cost.

Actual cost of asset acquired by way of gift/inheritance is __

WDV to previous owner.

Actual cost for the buyer for asset previously used (by seller) is acquired (by buyer) but leased back to the seller is if .

Depreciation is allowed.

Building - Nominal depreciation of dep'n rate @ time of conversion IF __

if used for Business purpose subsequent to acquisition.

If you acquire a modvatable asset, is the tax included in the cost?

If input tax credit is allowed, the tax will not form part of cost of the asset.

For What Assets is Depreciation Allowed?

Tangible Assets (Buildings, Plant, Machinery & Furniture) and Intangible Assets (Know-how, Copyrights, Licenses, Patents, Trademarks, Franchises)

Sale value less opening WDV & additions & transfer expenses in PGBP is __.

Always Short Term Capital Gain.

Special provisions for depreciation in case of an undertaking engaged in distributing of power are ___.

Special provisions for depreciation in case of an undertaking engaged in distributing of power.

Sale of WDV in PGBP may result in __.

Terminal Depreciation, Capital Gain (STCG/LTCG).

Depreciation rates are prescribed by Rule 5(1). What percentages are assigned to given buildings?

Blocks 1-4 are Buildings; Block 1: 5%, Blocks 2-4: 10%

Calculating Proportionate Depreciation.

Calculate as if organization did not take place, Split the total allowable dep proportionately based on number of days assets were used by each entity.

With Increased rate of depreciation, What are the conditions to be eligible?

The right to use such technology to manufacture such article is obtained from owner of laboratory, The return filed by the assessee for the py in which the machinery is acquired should be accompanied by certificate from Secretary DSIR, Such article is manufactured by using such technology developed in such lab or has been invented in that lab. P&M is not used for production of that article specified in Eleventh schedule

Additional depreciation is allowed to assessee's engaged in __

for manufacture/production article - Generation, transmission & distribution of Power printing & publishing.

What is additional depreciation NOT allowed for?

Ships and Aircrafts, Second hand machinery, P&M installed in office premises/residential acc/guest house, Office appliances/Road transport vehicles.

What happens when the unabsorbed depreciation is carried forward to an indefinite period?

When the profits/gains in the previous year are not sufficient to give full effect to depreciation.

What is the order of set off depreciation?

Current year depreciation, Brought forward Business loss, Unabsorbed depreciation.

What does Expenditure on Scientific Research includes?

In house Research and Outside Contribution (Donation).

Where research work relates to Business, Revenue expenses incurred in 3 years before commencement to the assessee is allowed if incurred on __

Salary to research staffs (excluding perquisites), Purchase of material used in Scientific Research.

Under capital gains a sale price that __ is taxable

net sale price - capital gains (short term)

Under Section 35 AD (7A), shall assets be used / transferred? What happens otherwise?

Business should be used only for specified purpose, If transferred for other purpose W/IN 8 yrs, deductions are not allowed

Which business qualifies for a deduction in regards to specialized business?

Lay & operate pipeline network

What two parameters are used when classifiying Micro & Small Enterprises?

Micro enterprise, Small enterprise.

What is Section 35 DDA for?

1/5th amount of VRS that is payable will be deducted from PGBP of that PY, balance is further deducted into 4 years

Are bonus & commision deducted under

insurance on health, insurance prem, bonus, capital borrowed

how allowances are made in interest payments in Section 36

if accured method is followed, If paid on / before ITR due date -> deduction is allowed in year on of accrual

What are allowed deductions for Section 36(1)(xv)?

Recognized stock exchange, trading in shares/stocks

What kind of expenditures NOT allowed w/s 37 (1)

Bribes, not being specifically covered under Section

What amounts CANNOT be deducted (disallowed) Section 40

Advertising to political parties, Royalty charges

To be elgible Under dis allowance restrictions only firms Section 40 (b), how do requirements change interest restrictions

it should be paid to working partners. it should be mentioned in the deed.. Paid after the deed date.Actual remuneration to working partners

To be elgible Under dis allowance restrictions only firms Section 40 (b) explanation(2)[S.M firmSantosh & MadhanLoan $10,00,000Interest @ 18%

40(b) - not applicable

What if any Under Section 40A(2)

Expenses / payments not deductibleWhere it is made to relatives

Section 40A(3). 100 Disallowance of exp if payment is made by any mode other than A/c payee cheque / draft. What is applicable what is not

Payment is made in relation to expenditure [R.E] such payment is made if person does not follow proper banking channels.

List the tax scenarios regarding

Under Section 41 if Under (1) Recovery against any allowance or deduction allowed earlier. (sec41 (1) Any loss, or trading liability. Any amount, benefit are received in subsequent years taxable to PGBP what happens here

how are comptence maintenance rules applied Section 44AA

journal if followed on mercantile basis., LedgesCash bookCarbon copies of bills First last day inventory

List applicable parameters Under

Section 44 AE 10 or Less, assessees should not owning more than ten vechiles. What does that section apply to

Under Section 44 AB, list Audit of all factors

44 ADif 5 . total receipts46 and477/Total payment4%Receipt not proper for auditing process