Income chargeable under the head Business and profession
As per the section 28, income from any business and profession shall be taxable under the head business and profession. The following income shall also be taxable under the head Business/profession
1. Income from speculation business
2. Gift in connection with business/profession any gift has been received from client it will be considered to be income under the head business and profession.
3. Payment for not pursuing any business activity /non –compete fee if any person has received any payment from any other person for not pursuing any business
activity. If any payment has been receiving for not using any patent right or technical know-how or other similar right it will be considered income under the
head business and profession.
4. Export incentive if any manufacturer is exporting the goods manufactured by him in such cases he may be given certain incentives by the government. And
such incentives are called export incentives and shell be considered as income of the assessee under the head business and profession.
5. Payment under key man insurance policy
Maintaining Books of Accounts
If any business met any of the following criteria then maintaining the books of accounts as per income tax act is mandatory
Compulsory maintenance of prescribed books of account - Specified Profession
- Persons carrying on specified profession and their gross receipts exceed Rs. 1,50,000 in all the three years immediately preceding the previous year
Compulsory maintenance of books of account - Other business or profession
- If total sales, turnover or gross receipts exceeds Rs. 25,00,000 in any one of the three years immediately preceding the previous year; or
- If income from business or profession exceeds Rs. 2,50,000 in any one of the three years immediately preceding the previous year
Note:
The penalty for non-maintenance of books of accounts If you have not maintained the accounting records which you should have maintained as per law, you would be liable for a penalty of up to Rs 25,000.
Presumptive Taxation
Business
Income from eligible business can be computed on presumptive basis if turnover of such business does not exceed two crore rupees.
Presumptive income of eligible business shall be 8% of gross receipt or total turnover.
Note: Presumptive income shall be calculated at rate of 6% in respect of total turnover or gross receipts which is received received
through banking channels.
Note: If an assessee opts out of the presumptive taxation scheme, after a specified period, he cannot choose to revert back to the
presumptive taxation scheme for a period of five assessment years thereafter. [section 44AD(4)] (Subject to conditions)
Profession
Income from eligible profession u/s 44AA(1) can be computed on presumptive basis if the total gross receipts from such profession do not exceed fifty lakh rupees in a previous year.
Presumptive income of such profession shall be 50% of total gross receipt.
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Presumptive income from business of plying, hiring or leasing of goods carriage if assessee does not own more than 10 goods carriage.
For Heavy Goods Vehicle:
Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by assessee.
For Other Goods Vehicle:
Rs. 7,500 for every month or part of a month during which the goods carriage is owned by assessee.
Compulsory Audit of books of accounts
- If total sales, turnover or gross receipts exceeds Rs. 2 Crore in any previous year, in case of business; or
- If gross receipts exceeds Rs. 50 Lakhs in any previous year, in case of profession
Provisions applicable to Non-Resident/Foreign Company
| Section |
Particulars |
Limit of exemption or Computation of income/deduction |
Available to |
| 44Bread with 172 |
Income from shipping business shall be computed on presumptive basis (Subject to certain conditions). |
7.5% of specified sum shall be deemed to be the presumptive income |
Non-resident engaged in shipping business |
| 44BB |
Income of a non-resident engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils shall be computed on presumptive basis (Subject to certain conditions). |
10% of specified sum shall be deemed to be the presumptive income |
Non-resident engaged in activities connected with exploration of mineral oils |
| 44BBA |
Income of a non-resident engaged in the business of operation of aircraft shall be computed on presumptive basis (Subject to certain conditions). |
5% of specified sum shall be deemed to be the presumptive income |
Non-resident engaged in the business of operating of aircraft |
| 44BBB |
Income of a foreign company engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with turnkey power projects shall be computed on presumptive basis (Subject to certain conditions).
|
10% of specified sum shall be deemed to be the presumptive income |
Foreign Company |
| 44C |
Deduction for Head office Expenditure (Subject to certain conditions and limits) |
Deduction for head-office expenditure shall be limited to lower of following:
a) 5% of adjusted total income*
b) Head office exp. as attributable to business or profession of taxpayer in India In case adjusted total income of the assessee is a loss, adjusted total income shall be substituted by average adjusted total income
Adjusted total income or average adjusted total income shall be computed after prescribed adjustments i.e. unabsorbed depreciations, carry forward losses, etc.
|
Non-resident |
| 44DA |
Deduction of expenditure from royalty and FTS received under an agreement made after 31-03-2003 which is effectively connected to the PE of non-resident in India (Subject to certain conditions) |
Expenditure incurred wholly and exclusively for the business of PE or fixed place of profession in India shall be allowed as deduction. |
Non-resident |
Due Date
a. Due date for filing of tax audit report – 30th September of the assessment year
b. Due date for return filing (if tax audit is applicable) – 30th September of the assessment year
c. Due date for return filing (if tax audit is not applicable) – 31st July of the assessment year
Freelancers Income
Freelancers who are into any of the specified or non-specified professions, get covered under the same rules as applicable to any other full-time
specified or non-specified professional be it rules of computation of taxable income and tax liability, maintenance of books of accounts, presumptive tax,
return filing etc.
Frequently Asked Questions
Professions for the purpose of Indian tax laws
- Engineering
- Legal
- Architectural profession
- Accountant
- Medical
- Technical consultant
- Interior decoration
Government has prescribed penalty under section 271B of the Income Tax Act for those who are required to get their accounts audited under section 44AB but fails to do so before the specified due date. The quantum of penalty will be equal to or 0.5% of the turnover or gross receipts subject to a maximum penalty of Rs. 1, 50,000.
Government has prescribed ITR-3, ITR-4, ITR-5, ITR-6 and ITR-7 for Income Tax filing of business and profession. Depending on the type of business, a particular type of ITR form should be used from the forms mentioned earlier.
An individual carrying on a business or profession must file his return of income on or before 31 July of an assessment year. If he is subject to tax audit, he can file his return anytime on or before 30 September of the assessment year. These due dates apply in the normal course unless there is an extension of due dates announced by the Central Board of Direct Taxes (CBDT).
In the case of a businessman, if his total turnover from business exceeds Rs 1 crore, he is liable to an audit under the Income-tax Act under Section 44AB. In case he is a professional, if his gross receipts exceed Rs 25 lakhs, he is liable for a tax audit.
Yes. If your turnover from business exceeds Rs 25 lakhs in any one of the immediately 3 preceding years, you must maintain books of accounts. Not doing so can attract a penalty of Rs 25,000.
If you have opted for the presumptive scheme of tax, you may not be liable to pay advance tax every quarter but you must ensure you are paying all your advance taxes on or before 15 March of the concerned financial year. Further, any taxes paid before the 31 March will be considered as advance taxes only.
No. Once a person declares the prescribed percentage of his gross receipts or turnover as income, he cannot once again claim any other expenses as a deduction.
No. A person opting for presumptive income scheme under Section 44AD, 44ADA, 44AE etc, need not maintain any books of accounts.
Once you opt for this scheme, you must follow it for the next 5 years. Opting out of it for any 1 year during these 5 years will make you ineligible to again opt for it the 5 years immediately following the year when you opted out of it.
For example, an assessee claims to be taxed on presumptive basis under Section 44ADfor AY 2016-17. For AY 2017-17 and 2018-19 also he offers income on basis of presumptive taxation scheme. However, for AY 2019-20, he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim benefit of presumptive taxation scheme for next five AYs, i.e. from AY 2020-21 to 2024-25.
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