Income from Business & Profession
What is Business?
- It referred to any economic activity carried for earning profits.
- Economic activity refers to any trade, Commerce, Manufacturing Activity, Trading Activity or any other concern in nature of all.
What is Profession?
- It refers that a person provides services against their skill & knowledge like that of CA, Doctor, Engineer, etc.
- In Profession a person can earn their livelihood through their intellectual or manual skills.
- The sole proprietorship is the simplest business form under which one can operate a business.
- The sole proprietorship is not a legal entity.
- It simply refers to a person who owns the business and is personally responsible for its debts.
Advantages of Sole Proprietorship
- Owners can establish a sole proprietorship instantly, easily and inexpensively.
- Sole proprietorship carry little, if any, ongoing formalities.
- Whole Profit will be taken by Owner
- Self- Decision Taking
- Keep Secrecy
Disadvantages of Sole Proprietorship
- Owners are subject to unlimited personal liability for the debts, losses and liabilities of the business.
- Owners cannot raise capital by selling an interest in the business.
- Sole proprietorship rarely survive the death or incapacity of their owners and so do not retain value.
COMPUTATION OF INCOME FROM BUSINESS & PROFESSION
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Computation of Income:
- 1.Losses due to illegal trade practices.
- 2. Expenses not related to the business.
- 3. Expenses related to Capital Assets
- 4. Loss on sale of shares.
- 5. Future Anticipated Losses
- 6. Advance paid for commencement of new business which is not established
Computation of Business Profits:
- Balance as per P & L A/c (+) Profit
(-) Loss Amount
- Add Expenses claimed but not allowed under the Act
- All Provisions & Reserves (Provision for Bad Debt/Depreciation/Income)
- All personal Expenses
- Any type of Fine / Penalty
- Speculative Losses
- All Capital Losses
- Rent for Residential portion
- Any Difference in Profit & Loss Account
- Total of these Items is added to the profit or adjusted from loss
- While calculating the Profit/Loss of Professional all receipt is recorded as their Income & irrespective of that all the expenses paid in providing the services, office expenses are deducted from the Income.
3 thoughts on “What is Business and Profession in income tax?”
Brilliant I can Easily Understand it.👌
thanks a lot for learning continuously
thanku so much for understand.