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Unit 9: Income under the Head Business and Profession

The second category deals with employers’ contribution to provident fund superannuation Notes
fund, gratuity fund or any other fund for the welfare of employees. No deduction on this account
shall be allowed unless payment is made to the appropriate authority like the Provident
Commissioner in case of PF contribution on or before the due date set out in the relevant statute
like the PF Act. In case, the payment was made otherwise than by cash; the sum should have been
realised within 15 days of such due date.

Example: If PF contributions are to be handed over to the relevant authority within a
month from the end of the month in which it was deducted from employees’ salary and the
employer for the month of August ‘99 deductions makes the payment say in the month of
October ‘99, he will lose the benefit of deduction in so far as contributions to PF for the month of
August ‘99 are concerned.
However, Finance Act, 2003 has omitted the second proviso and therefore PF and ESI contribution
will be allowed as deduction even if they are not paid within due date specified under relevant
Acts.

Self Assessment

Fill in the blanks:
21. Under ……………………..deduction is not allowed in respect of an interest, royalty, fees
for technical services or other sum chargeable under the Income-tax Act.
22. Any interest, commission or brokerage, rent, royalty, fees for professional services or fees
for technical services payable to a resident, or amounts payable to a contractor or
sub-contractor for carrying out any work on which tax is deductible at source under
………………………….
23. Under Section 40(a)(ii), any sum paid by the assessee on account of any tax or rate levied
on profits on the basis of or in proportion to the profits and gains of any business or
profession, would be disallowed in ……………………….
24. Any wealth-tax paid or payable by the assessee in respect of his business assets would
be………………………

9.7 Depreciation

In computing income from business, one of the most important items of allowances is the
allowance for depreciation provided by Section 32 of the Income-tax Act. The deduction towards
depreciation is very essential to arrive at the income of the assessee and also to amortise the
capital cost of the amount invested in buildings, machinery, plant and furniture. The purpose of
allowing depreciation is to provide in course of time for the replacement of asset with the help
of the capital cost of the asset which is allowed to be amortised over a period of time. The
provisions for allowing depreciation are contained in Section 32 and are regulated under Rule 5
of the Income tax Rules. The rates of depreciation are also provided in the Income-tax Rules.

9.7.1 Conditions for Allowing Depreciation

In order that the depreciation is allowable, the following conditions must be fulfilled:

1. Classification of Assets: The assets in respect of which depreciation is claimed must be
buildings, machinery, plant or furniture. In addition to these tangible assets intangible
assets like know how, patent rights, copy rights, trade marks, licences, franchises or any
other business or commercial right of similar nature acquired on or after 1.4.1998 are
eligible for depreciation.

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