Profits and Gains from Business or Profession

Business means the following activities: -

  • Trade
    Manufacture, or
    Any adventure or concern in the nature of trade, commerce or manufacture.

The above definition of business is not exhaustive, it covers every facet of an occupation carried by a person with a view to earning profits.

Profession means professed attainment in special knowledge as distinguished from mere skill. "Special Knowledge " which is to be acquired only after patient study and application. As profits and gains of a business or profession are chargeable to tax under the head "Profits and gains of business or profession " distinction between business and profession does not have any material significance while computing taxable income.

Deductions: -

Rent, rates, taxes, repairs and insurance of building used for the purpose of business or profession. (See 30) Repairs and insurance of machinery plant and furniture used for the purpose of the business or profession. (Sec 31)

Depreciation (Sec 32) under Income Tax

In order to claim depreciation, an assessee has to fulfill the following condition:

a) The asset should be owned (wholly or partly) by the assessee.

b) The asset, in respect of which depreciation is claimed, must have been
used for the purpose of business.

One can claim depreciation in respect of the following assets:

Tangible assets – Building, Machinery, Plant or Furniture

Intangible assets – Know how, patents, copyrights, trademarks, licenses, franchises etc.

Acquired after 31st March 1999 but before I st April' 2000

Building” means the superstructure only and does not include site. "Plant" includes ships, vehicles, books (including technical know‑how report), scientific apparatus and surgical equipment used for the purpose of business or profession but does not include tea bushes and livestock.

Depreciation is admissible on the basis of block of assets. To ascertain the amount of depreciation, one should find out the following –

Written down value of block of asset
Rate of depreciation

Meaning of Block of asset under Income Tax

Block of asset means "a group of assets falling within a class of assets, being building machinery, plant or furniture, in respect of which the same percentage of depreciation is prescribed.

Written down value under Income Tax Act

Written down value for the assessment year will be determined as under:

Step I‑ Find out depreciated value of assets on April 1,2012.

Step 2‑ To this value add "actual cost" of the asset (Falling in the block) acquired during the previous year ending March 31,2013 relevant for the assessment year 2013-14

Step 3‑ From the resulting figure, deduct money received, receivable (together with scrap value) in respect of that asset (falling within the block of asset) which is sold, discarded demolished or destroyed during the previous year ending March 31,2013 relevant for the assessment year 2013-14. However the amount of deduction cannot exceed the value of block of assets computed up to step 2. The resulting amount is the written down value of the block of assets on March 31, 2013 relevant for the assessment year 2013-14.

Depreciation shall be restricted to 50% of the amount calculated at the percentage prescribed, only when the following two conditions are satisfied:

If the asset is "acquired " during the previous year.
It is put to use for a period of less than 180 days.

Rates of depreciation under Income Tax Act

Residential Buildings 5%
Building not used for residential purpose 10%
Furniture and fittings including electrical fittings 10 %
Plant and machinery 15%
Plant and machine (buses, lorries, taxes) 30 %
Cars 15%
Computers 60%

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