Small Business Taxes

What is Business as per Income Tax Act in India?

As per Income Tax Act, Business includes, any

  1. trade, or

  2. commerce, or

  3. manufacture, or

  4. any adventure in the nature of trade, commerce or manufacture.

What Incomes are taxable under the head "Business or Profession" in India?

Any Income you earned by carrying on a business or profession is taxable u/s 28 of the Income Tax Act. Let's see what amounts are taxable under the head "Business or Profession".

  1. Value of any benefit or perquisite, arising from business or profession,

  2. Profits on sale of licence granted under the Import Entitlement licences,

  3. Cash assistance received from Government of India against exports under any scheme,

  4. Customs or excise duty repaid or repayable as drawback,

  5. Profit on transfer of the Duty entitlement Pass Book Scheme,

  6. .
  7. Profit on transfer of the Duty Free Replenishment Certificate,

  8. Any sum received, under Keyman Insurance Policy, including the sum allocated as bonus on such policy, by the employer, and

  9. Any amount received/receivable for not carrying out any activity in relation to any business or for not sharing any intangible assets likely to assist in the manufacture or process of goods or providing services.

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What is Speculation Business?

Let's see what's speculation transaction means.

A transaction in which

  • a contract for the purpose of purchase or sale of any commodity, including stocks and shares,

  • is periodically or ultimately settled otherwise than by the actual delivery, or transfer of the commodity or scrip, is speculation transaction.

However, the following transactions are not treated as speculative transactions.

  • a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard aginst loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured or sold by him, or

  • a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of such stocks and shares through pricve fluctuations, or

  • a contract entered into by a member of forward market or stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard aginst loss, which may arise in the ordinary course of his business as such member, or

  • an eligible transaction in respect of trading in derivatives referred to in sec 2(ac) of the Securities Contracts Act, carried out in a recognised stock exchange.

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When profits and gains from business or profession are taxable?

  • The profits and gains from business or profession would be taxable, only if the business or profession is carried on during the previous year.

  • Mere erection of plant and machinery, without actual production during the previous year, does not amount to carrying on business.

  • Expenditure incurred up to the date of actual commencement of business can be capitalised.

  • If the business is ready for commencement or running, it can still be treated as carried on during the previous year, even though the commercial operations are not carried out.

    In such case, expenditure incurred after the business is ready for commencement is to be allowed as deduction.

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