Business Income Tax

So far we have seen business Income, and "books of accounts" needs to be maintained by Business Owners & professionals.

Now let's see, how to calculate the 'Business Income' for Income Tax purpose.

The computation of income under the head "Profits and Gains of Business or Profession" depends on the particulars and information available.

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Receipts and Payments Account

If you have,

  1. Receipts and Payments Account, or
  2. the particulars of various receipts and payments,

then the computation would be as under: -

Any Income chargeable under this head xxx
Less: Expenses deductible (net of disallowances) under this head xxx
---
Profits and Gains of Business or Profession xxx

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Profit and Loss Account

However, if regular books of accounts have been maintained and Profit and Loss Account has been prepared, then for Income Tax purpose, the computation would be as under

Net Profit as per Profit and Loss Account xxx
Add: Inadmissible Expenses debited to Profit and Loss Account xxx
Deemed Incomes not credited to Profit and Loss Account xxx
---
xxx
Less: Deductible Expenses not debited to Profit and Loss Account xxx
Incomes chargeable under other heads credited to Profit and Loss Account xxx
---
xxx
---
Profits and Gains of Business or Profession xxx
---

The above computation requires further adjustments for different entities like Association of Persons (including Trusts), Firms & Companies.

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Estimation Of Income Under Section 144

The Assessing Officer may make an assessment under section 144 (Best Judgment Assessment), if -

  1. the assessing officer is not satisfied about the correctness or completeness of the accounts maintained by you; or
  2. if you have not followed the method of accounting (Cash or Mercantile) regularly; or
  3. if you have not followed the accounting standards as notified by the Central Government, or
  4. if there is any non-compliance with the valuation of stock as per section 145A.

In summary, to calculate the Business Income Tax, you should be aware of: -

  1. Deductible Expenses,
  2. Inadmissible Expenses,
  3. Deemed Incomes,
  4. Special Provisions, and
  5. Self-Coded Computations.

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