What is Business and Profession in income tax?

Income from Business & Profession

Sole Proprietor


What is Business?

  1. It referred to any economic activity carried for earning profits.
  2. Economic activity refers to any trade, Commerce, Manufacturing Activity, Trading Activity or any other concern in nature of all.

What is Profession?

  1. It refers that a person provides services against their skill & knowledge like that of CA, Doctor, Engineer, etc.
  2. In Profession a person can earn their livelihood through their intellectual or manual skills.

Sole Proprietor

  1. The sole proprietorship is the simplest business form under which one can operate a business.
  2. The sole proprietorship is not a legal entity.
  3. It simply refers to a person who owns the business and is personally responsible for its debts.

Advantages of Sole Proprietorship

  1. Owners can establish a sole proprietorship instantly, easily and inexpensively.
  2. Sole proprietorship carry little, if any, ongoing formalities.
  3. Whole Profit will be taken by Owner
  4. Self- Decision Taking
  5. Keep Secrecy

Disadvantages of Sole Proprietorship

  1. Owners are subject to unlimited personal liability for the debts, losses and liabilities of the business.
  2. Owners cannot raise capital by selling an interest in the business.
  3. Sole proprietorship rarely survive the death or incapacity of their owners and so do not retain value.


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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.

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