1.

Profits and Gains of Business or Profession Lecture Notes

2. Basis of Charge (Section 28) Following Incomes shall be charged to tax under this
head 1. Profit and Gains of any business or Profession carried on by the assessee 2.
Any Compensation or other payments due or received by assessee, for loss of agency,
due to termination or modification in terms and conditions of such agency 3. Income
derived by a trade, professional or similar association, for specific services performed;
for its members. 4. Export Incentives received by Exporter such as Sale of licenses,
Cash Assistance, Duty Drawback

3. Basis of Charge (contd.) 5. Value of any benefit or perquisite, whether convertible

into money or not, arising from business or the exercise of a profession 6. Interest,
Salary, Bonus, Commission or remuneration due o or received by, a partner of a firm
from such firm. 7. Sum Received or receivable in cash or kind for a) not carrying out
any activity b) not sharing any knowhows, patent etc. 8. Sum Received under
Keyman Insurance Policy 9. Income from Speculative Business.

4. Business & Profession Business includes any Trade, Commerce or Manufacture or

any adventure in the nature of Trade, Commerce or Manufacture. Profession: means an
occupation requiring specialised Knowledge and Skill. Vocation: is an activity in which
an assessee has specialised skill for earning Income.

5. Deduction Allowable 1. Rent, Rates, Taxes and Insurance of Building ( u/s 30) 2.
Repairs and Insurance of Machinery, Plant and Furniture (u/s 31)

6. Depreciation (u/s 32) Following conditions are to be fulfilled. a) Assessee must be

owner of the Asset. b) Asset must be used for the purpose of business or Profession.
c) Such use must be in the relevant previous year.

7. Depreciation Deprecation is allowed in respect of a) Building b) Plant &

Machinery c) Furniture d) Motor Vehicles e) Computers f) Intangibles

8. Depreciation Depreciation is allowed on the Written Down Value of Block of Assets

Opening WDV XX Add : Purchases during the year XX Less : Sales during the year
XX Closing WDV XX Note : If the Asset is put to use for less than 180 Days in the
year, depreciation will be allowed at 50 % of the eligible rate.

9. Additional Depreciation Additional Deprecation @ 20 % of Actual Cost of

Machinery acquired after 31.03.2002 for a) New Industrial Undertaking b) Existing
Industrial Undertaking Note : If the Asset is put to use for less than 180 Days in the
year, depreciation will be allowed at 50 % of the eligible rate.

10. Expenditure of Scientific Research U/s 35 Any Expenditure (other than Cost of
Land) expended on scientific research related to the business. Contribution to i)
Association, university, college for the purpose of Scientific Research ii) National
Laboratory eligible for 175 % Deduction iii) Association, university, college for the
purpose of research in social sciences or statistical research eligible for 125 %
Deduction In House Research in specified industries eligible for 200 % Deduction

11. Expenditure for Obtaining License to operate Telecommunication Services U/s

35ABB Allowed as Deduction equally over the number of years of Validity of Licenses

12. Other Expenditures 35AC : Expenditure on Eligible Projects 35CCA : Expenditure

for carrying out rural development programmes 35 CCB : Expenditure for carrying
out programmes of conservation of natural resources.

13. Amortisation of Preliminary Exp deduction is allowed in 5 Years ( Section 35D)

Amortisation of Amalgamation or Demerger in 5 Years (Section 35DD) Amortisation of
VRS Expenses in 5 Years ( Section 35DDA) Expenditure on Minerals Prospecting in
10 Years (Section 35E)

14. Other Deduction u/s 36 i) Insurance premium paid to cover the risk of damage or
destruction of Stock Ii) Bonus or Commission paid to Employees Iii) Interest on
Borrowed Capital iii) Contribution to Recognised Provident Fund iv) Contribution to
Approved Gratuity Fund V) Write off of useless or Dead Animals Vi) Bad Debts
Vii) Expenditure on promotion of Family Planning among employees

15. General Expenses u/s 37 Conditions to be fulfilled i) Expenditure should not be in

the nature prescribed u/s 30 to 36 ii) Not a Capital Expenditure iii) Not Personal
Expenditure iv) for the purpose of Business

16. Advertisement Expenses ( Section 37(2B) Deduction is not allowed in respect of

expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract,
pamplet or like published by a political party.

17. Disallowance u/s 40a Interest Royalty Fees for Professional Services paid outside
India without deducting TDS

18. Disallowance us/s 40 a Payment to Resident without deducting TDs Following

payments are covered I) Interest II) commission or Brokerage III) Rent Iv) Fees
for Technical or Professional Services V) royalty VI) Payment to Contractor

19. Disallowance us/s 40 a Securities Transaction Tax Fringe Benefit Tax Income
Tax Wealth Tax Salary paid outside India without deducting TDS Provident Fund
payment without deducting TDS Tax on Prequisites paid by the employer

20. Disallowance u./s 40 (b) Amount not Deductible in case of Partnership Firm I)
Interest exceeding the rate specified in the Partnership Deed or 12 % whichever is lower
II) Remuneration to Partner

21. Remuneration to Partner Is allowed upto the following limits First Rs 3,00,000 - 90
% or Rs 1,50000 which ever is high Balance - 60 %

22. Disallowance u/s 40 A Excessive Payment to Relatives Payment exceeding Rs

20,000 in mode otherwise than Crossed cheque (Entire amount is disallowed)

23. Contribution to Non Statutory Funds Provision for Unapproved Gratuity Fund

24. Section 43 B : Deduction on Payment Basis Following will be allowed as Deduction

on actual paid basis. Outstanding amount has to be paid before Due Date of Filing of
Return of Income. i) Any Tax, Duty paid to government ii) Contribution to PF iii)
Bonus or Commission iv) Interest on Loans from financial institution V) Interest on
Loans from Scheduled Bank Vi) Leave Salary to Employees

1. Deductions from Gross Total Income

2. IntroductionProvided by the Income Tax Act, 1961.Contained in Chapter VI A and in

the formof deductions from section 80C to 80U.They are the permissible amount by
whichthe gross total income is reduced to arriveat the total income liable to tax.They are
intended to act as incentive to theassessee for achieving certain economicobjectives.

3. Basic Rules Rule 1 The aggregate amount of deductions under sections 80C to 80U
cannot exceed gross total income. Rule 2 These deductions are to be allowed only if the
assessee claims these and gives the proof of such investments/ expenditure/ income.

4. Categories of Deductions 1. To encourage savings 2. For certain personal expenditure

3. For socially desirable activities 4. For physically disabled persons

5. Deduction u/s 80CFrom AY 2007-08 onwards.Applicable only to Individual &

HUF.This section provides for deduction inrespect of certain expenditure/investments
paid or deposited by theassessee in the previous year.

6. The gross qualifying amount under this section refer to the payment/investment under
some of the following schemes:- Life Insurance Premium Paid. Deferred Annuity
Contract. Statutory Provident Fund and Recognized Provident Fund. 15 Year Public
Provident Fund. Approved Superannuation Fund. National Savings Certificates. Unitlinked Insurance Plan (Ulip). Dhanraksha Plan of LIC Mutual Fund. Jeevan Dhara,
Jeevan Akshay, New Jeevan Dhara. Notified Units of Mutual Fund or UTI.

7. Amount of Deduction 100% of the amount invested or Rs. 1,00,000/- whichever is

lower.

8. Deduction u/s 80CCC Deduction in respect of Contribution to Certain Pension Funds.

Individual Eligible Amount amount paid/deposited under an annuity plan of the Life
Insurance Corporation of India or any other insurer for receiving pension.

9. Conditions Taxable income. This must not be allowed as deduction u/s 80C. Any
amount withdrawn or pension received from the plan is taxable in the hands of the
assessee or nominee in the year of receipt.Amount of Deduction Amount paid or Rs.
10,000/- whichever is lower.

10. Deduction u/s 80CCD Deduction in Respect of Contribution to Pension Scheme of

Central Government. Individual who is an employee of Central Government on or after
1.1.2004. Eligible Amount Deposit made under a pension scheme notified by the
Central Government.

11. Conditions No deduction must have been claimed u/s 80C. Any amount received from
the scheme, is taxable in the hands of the assess in that year or receipt. Salary for the

purpose of this section includes dearness allowance if under the terms of

employment.Amount of Deduction Aggregate of amount deposited by the employee and
the Central government, or 10% of the salary, whichever is lower.

12. The aggregate amount of deductions under 80C, 80CCC and 80CCD put together
cannot exceed Rs.1,00,000

13. Deduction u/s 80D Deduction in respect of Medical Insurance Premia.

Individuals/HUF. Eligible Amount - Insurance premium paid in accordance with the
scheme framed by the General Insurance Corporation of India and approved by the
Central Government.

14. Conditions The amount should be paid by cheque out of the taxable income. The
policy is taken on the health of the assessee, on the health of spouse, dependent parents or
dependent children of the assessee. In case of HUF on the health of any member of the
family.Amount of Deduction 100% of premium paid subject to a maximum of: Rs.
15,000 in case of senior citizens (above 65 years) Rs. 10,000 in case of others.

15. Deduction u/s 80DD Deduction in respect of dependent relative. Individuals/HUF

who is a Resident of India. Eligible Amount expenditure incurred on medical treatment
OR/AND amount paid or deposited under any scheme framed by the LIC of India or any
other insurer for the payment of an annuity or a lump sum amount for the benefit of such
dependent

16. Conditions The assess shall have to furnish a certificate in the prescribed form.
Dependant means the spouse, children, parents and siblings in case of individuals, or any
member of the family in case of HUF. Person with severe disabilities means a person
suffering from 80% or more of one or more disabilities.Amount of Deduction Rs. 50,000
in case of normal disabilities and Rs. 75000 in case of severe disabilities, This is
irrespective of the amount expended.

17. Deduction u/s 80DDB Deduction In Respect Of Medical Treatment Individuals/HUF

who is a Resident of India. Eligible amount expenditure incurred for the medical
treatment of such diseases specified in Rule 11D(e.g. Parkinsons disease, malignant
cancers, full blown AIDS, chronic renal failure, etc) for self or dependant individual.

18. Conditions The concerned assessee must attach a copy of certificate in the prescribed
Form no. 10-1 along with the return of income. Dependant again means the spouse,
children, parents and siblings in case of individuals, or any member of the family in case
of HUF. The deduction shall be reduced by the amount received, if any, under an
insurance from an insurer for the medical treatment of person mentioned in this section or
reimbursed by the employer.

19. Amount of Deduction 100% of the expenses incurred subject to a maximum of Rs.
60,000 in the case of expenses incurred for senior citizens (above 65 years) Rs. 40,000 in
the case of others.

20. Deduction u/s 80EDeduction in respect of repayment of loantaken for higher

education.IndividualEligible Amount any amount paid by way ofinterest on loan taken
from any financialinstitution or any approved charitableinstitution for higher education.

21. Conditions Amount is paid out of his income chargeable to tax. Higher education
means full-time studies for any graduate or post-graduate course in engineering,
medicine, management or for post-graduate course in applied science or pure sciences
including mathematics and statistics. the deduction shall be allowed for the previous year
in which the assessee starts repaying the loan or interest thereon and seven previous years
immediately succeeding it or until the loan together with interest thereon is paid by the
assessee in full ,whichever is earlier.

22. Financial institution means banking company or financial institution notified by the
central government. Approved Charitable Institutions means an institution referred u/s
10(23C) of the act.Amount of Deduction Actual interest paid or Rs. 40,000 whichever is
lower.

23. Deduction u/s 80GGDeduction in respect of amount of rentpaid.Any assessee other

than assessee havingincome allowance consisting HRA.Eligible Amount Any
expenditure incurredby him on payment of rent in excess of 10%of his total income.

24. Conditions The assessee files a declaration in Form No. 10BA regarding the payment
of rent. Such accommodation is occupied by him for his own residence. Deduction under
this section can be claimed even if accommodation at concessional rent is provided by the
employer. Adjusted Gross Total income( Adj.GTI) for this purpose means his gross total
income minus long-term capital gain, short term capital gain taxable u/s 111A, and all
deductions u/s 80CCC to 80U except any deduction under this section.

25. Amount of Deduction The amount of deduction under this section will be the least of
the following- excess of actual rent paid over 10% of adjusted gross total income: 25% of
his adjusted gross total income; and Rs. 2,000 p.m.

26. Deduction u/s 80UDeduction in case of person with disability.Individual resident of

India.Eligible amount Flat deduction to a personwith disability.

27. Conditions He is certified by the medical authority to be a person with disability, at

any time during the previous year. He furnishes a certificate issued by the medical
authority in the prescribed form along the return of income.Amount of Deduction A fixed
deduction of Rs. 50,000 in case of a person with disability Rs. 75,000 in case of a person
with severe disability. ( having any disability over 80%)

28. ConclusionUnder the income tax act first of all income undereach head is
computed.The aggregate of income under each head is knownas Gross Total
Income.Out of this gross total income certain deductionsare allowed.The income after
such deductions is called TotalIncomeThe total deductions from section 80 C - 80
Ucannot exceed the total income.

Section 80C:
This section has been introduced by the Finance Act 2005. Broadly speaking, this section
provides deduction from total income in respect of various investments/ expenditures/payments
in respect of which tax rebate u/s 88 was earlier available. The total deduction under this section
(alongwith section 80CCC and 80CCD) is limited to Rs. 1.50 lakh only (Increased from Rs.
1.00 lacs w.e.f. 01.04.2014).

Life Insurance Premium For individual, policy must be in self or spouse's or any child's
name. For HUF, it may be on life of any member of HUF.

Sum paid under contract for deferred annuity For individual, on life of self, spouse or any
child .

Sum deducted from salary payable to Govt. Servant for securing deferred annuity for
self-spouse or child Payment limited to 20% of salary.

Contribution made under Employee's Provident Fund Scheme.

Contribution to PPF For individual, can be in the name of self/spouse, any child & for
HUF, it can be in the name of any member of the family.

Contribution by employee to a Recognised Provident Fund.

Sum deposited in 10 year/15 year account of Post Office Saving Bank

Subscription to any notified securities/notified deposits scheme. e.g. NSS

Subscription to any notified savings certificate, Unit Linked Savings certificates. e.g.
NSC VIII issue.

Contribution to Unit Linked Insurance Plan of LIC Mutual Fund e.g. Dhanrakhsa 1989

Contribution to notified deposit scheme/Pension fund set up by the National Housing

Scheme.

Certain payment made by way of instalment or part payment of loan taken for
purchase/construction of residential house property.
Condition has been laid that in case the property is transferred before the expiry of 5
years from the end of the financial year in which possession of such property is obtained
by him, the aggregate amount of deduction of income so allowed for various years shall
be liable to tax in that year.

Contribution to notified annuity Plan of LIC(e.g. Jeevan Dhara) or Units of UTI/notified

Mutual Fund. If in respect of such contribution, deduction u/s 80CCC has been availed of
rebate u/s 88 would not be allowable.

Subscription to units of a Mutual Fund notified u/s 10(23D).

Subscription to deposit scheme of a public sector, company engaged in providing housing

finance.

Subscription to equity shares/ debentures forming part of any approved eligible issue of
capital made by a public company or public financial institutions.

Tuition fees paid at the time of admission or otherwise to any school, college, university
or other educational institution situated within India for the purpose of full time education
of any two children. Available in respect of any two children

Section 80CCC: Deduction in respect of Premium Paid for

Annuity Plan of LIC or Other Insurer
Payment of premium for annuity plan of LIC or any other insurer Deduction is available upto a
maximum of Rs. 100,000/-. (This limit has been increased from Rs. 10,000/- to Rs. 1,00,000/w.e.f. 01.04.2007).
The premium must be deposited to keep in force a contract for an annuity plan of the LIC or any
other insurer for receiving pension from the fund.
Note: The limit for maximum deduction available under Sections 80C, 80CCC and 80CCD(1)
(combined together) is Rs. 1,00,000/- (Rs. one lac only). An additional deduction upto a
maximum of Rs. 20,000/- will be available from Assessment Year 2011-12 (FY 2010-11) for
investment in Infrastructure Bonds.

Section 80CCD (1): Deduction in respect of Contribution to

Pension Account (by Assessee}
Deduction available for the amount paid or deposited in a pension scheme notified or as may be
notified by the Central Government subject to a maximum of :
(a) 10% of salary in the previous year in the case of an employee (b) 10% of gross total income
in any other case.

Section 80CCD (2): Deduction in respect of Contribution to

Pension Account (by Employer}

Deduction available for the amount paid or deposited by the employer of the assessee in a
pension scheme notified or as may be notified by the Central Government subject to a maximum
of 10% of salary in the financial year.

Section 80CCG: Rajiv Gandhi Equity Saving Scheme

(RGESS)
As per the Budget 2012 announcements, a new scheme Rajiv Gandhi Equity Saving Scheme
(RGESS) will be launched. Those investors whose annual income is less than Rs. 10 lakh
(proposed Rs. 12 lakh from A.Y. 2014-15) can invest in this scheme up to Rs. 50,000 and get a
deduction of 50% of the investment. So if you invest Rs. 50,000 (maximum amount eligible for
income tax rebate is Rs. 50,000), you can claim a tax deduction of Rs. 25,000 (50% of Rs.
50,000). View key features of Rajiv Gandhi Equity Saving Scheme (RGESS).

Section 80D: Deduction in respect of Medical Insurance

Deduction is available upto Rs. 20,000/- for senior citizens and upto Rs. 15,000/ in other cases
for insurance of self, spouse and dependent children. Additionally, a deduction for insurance of
parents (father or mother or both) is available to the extent of Rs. 20,000/- if parents are senior
Citizen and Rs. 15,000/- in other cases. Therefore, the maximum deduction available under this
section is to the extent of Rs. 40,000/-. From AY 2013-14, within the existing limit a deduction
of upto Rs. 5,000 for preventive health check-up is available.

Section 80DD: Deduction in respect of Rehabilitation of

Handicapped Dependent Relative
Deduction of Rs. 50,000/- w.e.f. 01.04.2004 in respect of
1. Expenditure incurred on medical treatment, (including nursing), training and
rehabilitation of handicapped dependent relative.
2. Payment or deposit to specified scheme for maintenance of dependent handicapped
relative.
Further, if the defendant is a person with severe disability a deduction of Rs. 100,000/- shall be
available under this section. The handicapped dependent should be a dependent relative suffering
from a permanent disability (including blindness) or mentally retarded, as certified by a specified
physician or psychiatrist. Note: A person with 'severe disability' means a person with 80% or
more of one or more disabilities as outlined in section 56(4) of the 'Persons with disabilities
(Equal opportunities, protection of rights and full participation)' Act.

Section 80DDB: Deduction in respect of Medical

Expenditure on Self or Dependent Relative
A deduction to the extent of Rs. 40,000/- or the amount actually paid, whichever is less is
available for expenditure actually incurred by resident assessee on himself or dependent relative
for medical treatment of specified disease or ailment. The diseases have been specified in Rule
11DD. A certificate in form 10 I is to be furnished by the assessee from any Registered Doctor.

Section 80E: Deduction in respect of Interest on Loan for

Higher Studies
Deduction in respect of interest on loan taken for pursuing higher education. The deduction is
also available for the purpose of higher education of a relative w.e.f. A.Y. 2008-09.

Section 80EE: Deduction in respect of Interest on

Residential House Property
The deduction under this sub-section is available w.e.f. AY 2014-15. The maximum deduction
available is Rs. 1 lac. In a case where the interest payable for the financial year 2013-14 is less
than Rs. 1 lac, the balance deduction amount shall be available in AY 2015-16.
The deduction under sub-section (1) shall be subject to the following conditions :
1. the loan has been sanctioned by the financial institution during the period beginning on
the 1st day of April, 2013 and ending on the 31st day of March, 2014;
2. the amount of loan sanctioned for acquisition of the residential house property does not
exceed twenty-five lakh rupees;
3. the value of the residential house property does not exceed forty lakh rupees;
4. the assessee does not own any residential house property on the date of sanction of the
loan.
If deduction for Housing Loan Interest is availed under this section, no deduction can be availed
for such interest under any other provisions of the Act for the same or any other assessment year.

Section 80G: Deduction in respect of Various Donations

The various donations specified in Sec. 80G are eligible for deduction upto either 100% or 50%
with or without restriction as provided in Sec. 80G

Section 80GG: Deduction in respect of House Rent Paid

Deduction available is the least of
1. Rent paid less 10% of total income
2. Rs. 2000/- per month i.e. Maximum Deduction available is 24,000/3. 25% of total income, provided
o Assessee or his spouse or minor child should not own residential accommodation
at the place of employment.
o He should not be in receipt of house rent allowance.
o He should not have self occupied residential premises in any other place.

Section 80GGA: Deduction in respect of certain donations

for scientific research or rural development
Section 80GGC: Deduction in respect of contributions given
by any person to political parties
Section 80QQB: Royalty Income on patents.
Maximum deduction Rs. 3,00,000/-

Section 80RRB: Royalty Income to author of certain books

other than text books.
Maximum deduction Rs. 3,00,000/-

Section 80 TTA: Deduction from gross total income in

respect of any Income by way of Interest on Savings account
Deduction from gross total income of an individual or HUF, upto a maximum of Rs. 10,000/-, in
respect of interest on deposits in savings account ( not time deposits ) with a bank, co-operative
society or post office, is allowable w.e.f. 01.04.2012 (Assessment Year 2013-14).

Section 80U: Deduction in respect of Person suffering from

Physical Disability
Deduction of Rs. 50,000/- to an individual who suffers from a physical disability(including
blindness) or mental retardation. Further, if the individual is a person with severe disability,
deduction of Rs. 100,000/- shall be available u/s 80U. Certificate should be obtained from a
Govt. Doctor. The relevant rule is Rule 11D.