Page 205 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes Expenses deductions under section 30 to 37 are of two types. The first is specific deductions
which are covered under section 30 to 35 and second is general deductions which are covered
under section 36 and 37. Specific deductions are allowed only to some of the businesses while
general deductions are allowed to all the businesses.
There are certain provisions which allow an assessee to calculate the profit on the presumptive
basis, i.e., the profit is presumed on certain basis. These provisions are contained under
section 44.

11.7.1 Steps to Compute the Income from Business

Section 29 lays down that the income referred to in Section 28 shall be computed in accordance
with the provisions contained in Section 30 to Section 43D. It may be added that the provisions
of sections 44 to 44D are also to be taken into account in this context as they make certain special
provisions regarding the computation of profits and deductions of expenditure in certain cases.

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Caution It is important to note that specific allowances and deductions stated in these
sections are not exhaustive. Besides these deductions, other deductions are also available
on the general commercial framework while computing profit and gains of business or
profession.
Following general commercial principles, losses of a capital nature which are incidental to the
trade and arise expectedly in the regular course of business would be deductible, even though
there may not be specific provision in the Act for such deductions. Examples of such losses are
embezzlement of cash, theft of cash, robbery, destruction of assets, loss of stock in transit by fire
or ravages of white ants, or by enemy action during war etc.
Further profits chargeable under the head “Profits and Gains of business or profession”
should be computed in accordance with the method of accounting regularly employed by the
assessee – accrual basis or receipt basis or a mixture of the two.
1. The profit of a trade or business is the surplus by which the receipts from the trade or
business exceed the expenditure necessary for the purpose of earning those receipts. The
tax is upon income, profits or gains; it is not a tax on the gross receipts. From the charging
provisions of the Act, it is discernible that the words ‘income’ or ‘profits and gains’ should
be understood as including losses also, so that, in one sense ‘profits and gains’ represent
‘plus income’ whereas losses represent ‘minus income’. In other words, loss is negative
profit. Both positive and negative profits are of a revenue character. Both must enter into
computation, wherever it becomes material, in the same mode of the taxable income of
the assessee.
2. The general rule of determining taxable business or professional income is that from the
gross income or gross receipts or gross sales, expenses incurred for earning that income
will be allowed as a deduction. The balance of profit remaining after claiming all the
allowable expenses as a deduction will be the taxable income from business.

3. Expenses will be allowed as a deduction from gross receipts only if they have been incurred
in the relevant previous year. Expenses incurred before setting of the business will not be
allowed except where specifically provided by law.
4. Typical steps for computation of income under this head can be listed as below:
a. Find out Profit as per P & L A/c

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