Block 3

Salaries-III
BLOCK 3
INCOME FROM HOUSE PROPERTY & PROFITS
AND GAINS OF BUSINESS OR PROFESSION
155
Salaries
BLOCK 3 INCOME FROM HOUSE
PROPERTY & PROFITS AND
GAINS OF BUSINESS OR
PROFESSION
You have studied the computation of income from salary in the previous
block. In this block, you will study in detail the remaining heads of income.
This block consists of four units relating to Income from House Property and
Income from Profit and Gains of Business or Profession.
Unit 8 Income from House Property

This unit mainly explains the various concepts dealing with the Income from
House Property. It also deals with the exempted incomes from House
Property and also explains the concept of Annual value and its computation
and various deductions from Annual Value. This unit describes the provisions
of Loss under the head ‘Income from House Property’.
Unit 9 Income from Profit and Gains of Business or Profession-I

This unit defines the concept of Business or Profession or Vocation and its
Basis of Charge. It also explains the General Principles for Calculating
Business and Profession Income. It also explains the concept of Block of
Assets and also highlights the provisions relating to Depreciation.
Unit 10 Income from Profit and Gains of Business or Profession-II

This unit explains the specific deductions relating to Tea Development
Account, Coffee Development and Rubber Development Account, Site
Restoration Fund, Expenditure on Scientific Research, Amortization of
Spectrum Fee for Purchase of Spectrum, Amortization of Telecom License
Fees etc. This unit also highlights general and other deductions given to
different Business or Profession.
Unit 11 Income from Profit and Gains of Business or Profession-III

This unit mainly explains the Special Disallowances under the Act and
Deemed Profits Chargeable to Tax. It also highlights the Maintenance of Books
of Account and Compulsory Audit of Accounts. It also explains the method
for Computing Business Income in Certain Cases and Computation of Profits
and Gains from Business or Profession.
156
Income from House
UNIT8 INCOME FROM HOUSE PROPERTY Property
Structure
8.0 Objectives
8.1 Introduction
8.2 Income from House Property
8.2.1 Buildings or Land Appurtenant Thereto
8.2.2 Assessee to Pay Tax on Annual Value
8.2.3 Assessee should be the Owner of the House Property
8.2.4 The House Property should not be used for Assessee’s Business or
Profession
8.3 Exempted Incomes from House Property
8.4 Some Important Points
8.5 Annual Value
8.6 Computation of Annual Value
8.6.1 Let out House
8.6.2 Self-occupied House
8.7 Deductions from Annual Value
8.8 Loss under the Head ‘Income from House Property’
8.9 Computation of Taxable Income from House Property
8.10 Let Us Sum Up
8.11 Key Words
8.12 Answers to Check Your Progress
8.13 Terminal Questions/Exercises
8.0 OBJECTIVES
After studying this unit, you should be able to:
• list the incomes chargeable under the head ‘House Property’

• list the exempted incomes from house property
• determine the annual value of house property of different categories
• explain the deductions available in respect of income from house
property, and
• compute the income chargeable under the head house property.
8.1 INTRODUCTION
Income from house property is the second head of income since the omission
of the head interest on securities and its transference to the head ‘income
from other sources’ by the Finance Act, 1988. The provisions of Income Tax
Act, 1961 regarding computation of taxable income from house property are
contained in Section 23 to 27. According to Section 22 of Income Tax Act,
under the head “Income from House Property”, income is charged on the 157
Income from House houses or attached land of which assessee is the owner. Tax is charged on the
Property & Profits
and Gains of Business annual value of the property, but that portion of the property is left out which
or Profession is used by the assessee for the operation of some business or profession on
which income tax is paid. The taxable income from house property is not the
income received as rent but is calculated after making many deductions.
In this unit, you will study the incomes chargeable, and incomes exempted
under the head income from house property. You will also study how the
annual value of the houses of different categories is calculated and what
deductions are allowed to compute the income chargeable under the head
income from house property.
8.2 INCOME FROM HOUSE PROPERTY

According to Section 22 of Income Tax Act, 1961 the assessee has to pay tax
on annual value of the property:
i) Which consists of any buildings or lands appurtenant thereto
ii) Which is owned by the assessee, and
iii) Which is not used for purposes of assessee’s business or profession.
8.2.1 Buildings or Lands Appurtenant Thereto

House property means buildings or land appurtenant thereto, and the income
from such house property is chargeable under the head ‘income from house
property’. The word ‘building’ has not been defined in Income Tax Act,
1961. Building as defined in different leading cases of courts, means a place
surrounded by walls, even if they may be mud walls. Existence of roof is not
necessary to be regarded as building, for example, a stadium, open air
swimming pool, dancing house etc. But a residential house without a roof and
without doors cannot be regarded as building. Land attached to building
means, in case of residential building, the way to the house, chowk, gallery,
kitchen-garden, playground, garage and a place for keeping animals etc.
Temporary hutments on vacant land are not included in buildings and any
income from such hutments is taxable under the head ‘income from other
sources’. Land which is not appurtenant to any building does not become
house property for the purposes of income tax. That means any rental income
from land which is vacant and not attached to building is not chargeable
under the head ‘income from house property’.
Another point which is to be noted is that the location of the building is
immaterial. It may be located in India or abroad. Tax on foreign building is
chargeable from residents only i.e. income from such building is not
chargeable to tax from not ordinary residents and non-residents. However,
there are certain exceptions.
158
Income from House
Exceptions Property
a) Building or staff quarters let out to employees and others: Where the
assessee lets out the building or staff quarters to the employees of
business whose residence there is necessary for the efficient conduct of
business, the rental income from such employees is not taxable as
income from house property, but taxable under profit and gains from
business or profession.
b) Building let out for locating bank, post office, police station etc.: If
building is let out to authorities for locating bank, post office, police
station, central excise office, etc, such an income will be assessable as
income from business provided the dominant purpose of letting out the
building is to enable the assessee to carry on his business more
efficiently and smoothly (CITUS National news print and paper mills
(1978)114ITR388).
c) Composite letting of building with other assets: Where the assessee

lets on hire machinery, plant or furniture belonging to him and also
buildings for a composite rent, and the rent of the buildings is
inseparable from the rent of the said machinery, plant or the furniture;
the income from such letting is chargeable to income tax under the head
‘Income from Other Sources’ or under the head ‘Business or Profession’,
if such letting is his business.
d) Paying-guest accommodation: It is assessable as business income

(Mannohar Singh Vs. CIT (1965) 58 ITR 592).
8.2.2 Assessee to Pay Tax on Annual Value

Another important point regarding income from house property is that it is
the annual value and not the rental value which is put to tax. Annual value is
calculated by making certain deductions from the rental value, reasonable
rent or municipal rent. You will study about the calculation of annual value in
detail in Section 8.3.
8.2.3 Assessee should be the Owner of the House Property

It is only the owner of the house property, who is liable to pay tax, under the
head ‘Income from house property’. Ownership means the legal ownership
and not beneficial ownership. It is not necessary that the owner of a house
must also be the owner of land on which the house is constructed. If there is
any controversy about the ownership of property, the person who receives
rent or the person who possesses the property, will be supposed to be owner
of that house. Any income derived by the assessee by way of sub-letting the
property will be taxable under the head ‘Income from other sources’ and not
under the head ‘Income from house property’. One point which should be
noted is that even if the owner is dealing in the business of letting out of
house property, the income therefrom will be charged under Section 22 as
159
Income from House income from house property and not under Section 28 under business and
Property & Profits
and Gains of Business profession.
or Profession
Deemed owner: According to Section 27 of Income Tax Act, 1961, the
following persons are treated as deemed owner of the house property:
a) An individual who transfers any house property to his or her spouse,

without adequate consideration or not being a transfer in connection with
an agreement to live apart, or to a minor child not being a married
daughter, shall be deemed to be the owner of the house property so
transferred [Section 27 (i)].
b) The holder of an impartible estate shall be deemed to be owner of the

house property, for all properties of the estate [Section 27 (ii)].
c) A member of a cooperative society, to whom a building or a part thereof

is allotted or leased under the house building scheme of the society, is
treated as deemed owner of such property [Section 27 (iii)].
d) A person who is allowed to take or retain possession of any building or

part thereof in part performance of a contract of the nature referred to in
the Transfer of Property Act, shall be deemed to be the owner of that
building or part thereof [Section 27 (iii) (a)].
e) A person who acquires any rights (excluding any right by way of a lease
from month to month or for a period not exceeding one year u/s 269
UA(f) in or with respect to any building or part thereof, shall be deemed
to be the owner of that building or part thereof. (Sec. 269 UA(f)
Prescribes 12 year lease [Section 27 (iii) (b)].
f) A person who takes land on lease and constructs a house upon it.
8.2.4 The House Property should not be used for Assessee’s

Business or Profession
If a property or part of the property is used by the assessee for his business or
profession and income from such business or profession is chargeable to tax,
the annual value of such property or part of the property will not be taxed
under section 22 i.e., Income from house property.
8.3 EXEMPTED INCOMES FROM HOUSE

PROPERTY
i) Building situated in the immediate vicinity of agricultural land, and
occupied by the cultivator as a dwelling house or as a store house is
treated as agriculture income and is fully exempt.
ii) Annual value of any one palace in the occupation of an Ex-Indian
Ruler.
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Income from House
iii) House properties belonging to a local authority, scientific research Property
association, University or other recognized educational institution,
hospital, or Games or Sports Association and Registered Trade Union.
iv) Property belonging to an authority constituted under any law for the
purpose of marketing of commodities and used for letting of godowns
or warehouse for storage of commodities.
v) House property held by a trust established wholly for charitable
purposes.
vi) House property held by a political party.
vii) House property owned by an assessee and used for his own business or
professional purposes.
viii) Self-occupied houses - The Finance Act, 1986 W.e.f. 1.4.1987 provides
that where the property consists of one house or part of a house in the
occupation of the owner for his own residence and is not actually let
out during any part of previous year, the annual value of such a house
shall be taken to be nil.
8.4 SOME IMPORTANT POINTS

i) Income from house property situated abroad: Income from any
house property situated abroad is taxable only in case of residents. Not
ordinary residents and non-residents pay tax on such property only
when it is received in India. A resident will pay tax on foreign property
as if such property is situated in India.
ii) Disputed Ownership: If the title of ownership is disputed in a court of

law, the decision as to who is the owner rests with the income tax
department. Generally, the recipient of rental income or the person who
is in possession of the property is treated as the owner.
iii) Composite Rent: If a building is let out to a person alongwith other
facilities (e.g. Electricity, Gas, Air conditioning, water, Lift, Watch and
Ward etc.) for a composite rent and if the rent of the building can be
separated from the rent of such facilities, rent belonging to the building
only will be taxed under the head ‘House Property’ and that which
belongs to other facilities will be taxed under the head ‘Income from
Other Sources’. If the composite rent cannot be split up, it will not be
taxed under the head ‘House Property’, but under the head ‘Other
Sources.’
iv) Property owned by Co-owners (Section 26): Where a property is
owned by two or more persons jointly and their respective shares are
definite and ascertainable, income from such property shall not be
assessed on such persons as association of persons, but the share of
each person will be calculated and added to their respective total
income.
161
Income from House v) Income from sub-letting: This is chargeable under the head “other
Property & Profits
and Gains of Business sources” as the person sub-letting is not the owner of the property.
or Profession
8.5 ANNUAL VALUE
As stated earlier, the assessee has to pay tax on the annual value of the house
owned by him. Therefore, it is very important to calculate the annual value of
the property. According to Section 23(1) (a) of Income Tax Act, 1961, the
annual value of a house property shall be:
a) The sum for which the property might reasonably be expected to let from
year to year; or
b) Where the property is let and the actual rent received or receivable by the
owner in respect thereof is in excess of the reasonable rent, the actual
amount of rent received or receivable.
Note: Any taxes levied by the local authorities and borne by the owner
should be deducted to calculate the annual value of the property.
The above definition makes it clear that annual value of any house property is
its reasonable rent. But, if the actual rent is higher than the reasonable rent,
then, the actual rent received or receivable will be the annual value. It must
be noted here that annual value is not determined by actual or reasonable rent
alone. In case the rent of house property is fixed by rent controller under the
Rent Control Act, the annual value in such a case cannot exceed the rent
fixed by the Rent Controller. In case, the actual rent exceeds the rent fixed by
the rent controller then the actual rent would be the annual value. From the
above discussion, it is clear that annual value is determined by taking into
account many factors. They are:
i) Municipal valuation, fixed by the local authorities on the basis of
income earning capacity of the property. It is fixed to calculate the
house-tax to be paid by the owners.
ii) Actual rent, received or receivable from the tenant.
iii) Reasonable rent/Fair rent, i.e. the rent of similar properties in the same
locality, and
iv)Standard rent, the rent fixed by the Rent Controller under Rent Control
Act.
Where the standard rent is applicable, reasonable rent and municipal value
will not be taken into consideration even though they are higher than the
standard rent.
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Income from House
Check Your Progress A Property
1) Who are the ‘deemed owners’ of house property?

…………………………………………………………………………….
…………………………………………………………………………….
…………………………………………………………………………….
2) What is composite rent?
…………………………………………………………………………….
…………………………………………………………………………….
…………………………………………………………………………….
3) What is standard rent? How is it different from reasonable rent?
…………………………………………………………………………….
…………………………………………………………………………….
…………………………………………………………………………….
4) Tick mark the correct answers.
i) The liability to pay municipal taxes lies with
a) Owner
b) Tenant
c) Leasee
ii) The assessee should be
a) Beneficial owner
b) Mortgagee
c) Legal owner
iii) Which of the following is treated as business income?
a) Income from house let out for residential purposes
b) Income from a hall let out for entertainment
c) Income from houses let out to employees
iv) Which of the following incomesfrom house property is not charged to
tax?
a) Income from staff flatsallotted to employees
b) Own house property used for business
c) Income from accommodation given to a paying guest.
v) For income-tax purposes, the house means
a) Dwelling house
b) Godown
c) Building for office use
d) All of the above
163
Income from House
Property & Profits 8.6 COMPUTATION OF ANNUAL VALUE
and Gains of Business
or Profession When a person owns a house, he may occupy it for his residence or let it out
for rent. The annual value of house property would be different for the house
which is given on rent, and which is occupied by the owner for his residential
purposes. For the purpose of calculation of annual value, house property is
divided into the following categories:
1) House which is let out

2) House which is occupied by the owners for residential purposes
Let us now discuss each one of them in detail:
8.6.1 Let out House

The house which is let out is divided into following categories:
a) Which is not covered by Rent Control Act.

b) Which is covered by the Rent Control Act.
c) Let-out house which remains vacant for whole or any part of the
previous year.
d) Let-out house which does not remain vacant during any part of the year
but there is unrealised rent.
e) Let-out house, which remains vacant during a part of the previous year
and there is unrealised rent.
a) Calculation of annual value which is not covered by the Rent

Control Act
(1) The actual rental income or the rent at which it might be expected to
be let out or the municipal valuation, whichever is the highest, will be
‘Gross Annual Value’. (2) Any municipal taxes paid and borne by the
owner shall be deducted from the gross annual value and the balance left
will be the ‘Net Annual Value’. (3) The municipal taxes shall be
deducted in the year in which they are actually paid, whether municipal
taxes belong to any financial year.
Look at Illustration 1 and see how the annual value of let out house
which is not covered by the Rent Control Act is calculated.
Illustration 1
Mr. Ashok is the owner of a house (not covered under Rent Control Act)
which is let out at Rs. 1,500 per month. Municipal taxes of the house are
Rs. 1,200 (being 10% of the municipal value) out of which Rs. 700 are
paid by the tenant. The reasonable rent is Rs. 10,000 per annum. What
will be annual value of the house?
164
Income from House
Solution: Property
Annual value is the highest of the following three taxes borne by the
owner:
Rs.
i) Actual rent (1,500 × 12) 18,000
ii) Municipal value (1,200×100 ÷10) 12,000
iii) Reasonable rent 10,000
Annual value
Actual rent 18,000
Less: Municipal taxes borne by the owner
(1,200-700) 500
NetAnnual Value 17,500
b) Which is covered by the Rental Control Act

In this case, standard rent is fixed by the Rent Controller. The annual
value will be the actual rent received or standard rent, whichever is
higher. It will be gross annual value. From the gross annual value, any
municipal taxes or tax levied by any local authority paid by the owner
will be deducted and the balance left will be the net annual value. Look
at Illustration 2 for calculation of annual value of a let-out house covered
under Rent Control Act.
Note: Even if the Municipal value or reasonable rent is higher than

standard rent or actual rent, they will not be considered in this case.
Illustration 2
Mr. X is the owner of two houses (covered under the Rent Control Act)
which are let at Rs. 1,000 p.m. and Rs, 1,500 p.m. Municipal taxes on
these houses are paid by the owner which amount to Rs. 800 and Rs.
1,000 respectively (being 10% of municipal valuation). The Standard
Rents fixed under the Rent Control Act are Rs. 14,000 and Rs. 16,000
per annual respectively. Fair rent of these two houses is Rs. 13,000 and
Rs. 14,000 respectively. What will be their Annual Value?
Solution:
House 1
1st Step
Annual Rent = Rs 12,000
Fair rent = Rs 13,000 Highest Value .i.e. Rs 13,000
Municipal Value = Rs 8,000
165
Income from House 2nd step
Property & Profits
and Gains of Business Actual Rent = Rs 12,000
or Profession Highest Value .i.e. Rs 14,000
Standard Rent =Rs 14,000
Lowest value will be GAV i.e. Rs 13,000

House 2
1st step
Annual Rent = Rs 18,000
Fair rent = Rs 10,000 Highest Value .i.e. Rs 18,000
Municipal Value = Rs 14,000
2nd step
Actual Rent = Rs 18,000
Highest Value .i.e. Rs 18,000
Standard Rent =Rs 16,000
LowestValue will be GAV i.e. Rs 18,000
Note:
In order to arrive at GAV of the house, we should take the highest value of
1st step, and 2nd step which is Rs. 13,000 and Rs. 14,000 in case of 1st house
and Rs. 18,000 for 1st and 2nd step for 2nd house.
After arriving at highest value of 1st step and 2nd step, we must take lowest
value among the two highest values calculated above. Now, this lowest value
of highest values will be the GAV of house. Now, afterarriving the GAV of
the house if we subtract the municipal tax paid by the land lord we shall
arrive at Annual value of house.
c) Let-out house which remains vacant for whole or any part of the
previous year:
a) House remains vacant for full year: In such a case, gross annual
value will be‘nil’.
b) House remains vacant for a part of the previous year:
i) If the actual rent for the let-out period is more than the expected
rent, the actual rent will be the gross annual value;
ii) If the actual rent for the let-out period is less than the expected
rent owing to such vacancy, the actual rent will be the gross
annual value.
Illustration 3
Determine the Annual Value of house of Mr. Parmod for the A.Y. 2023-24
Municipal value Rs. 70,000
House let-out @Rs. 8,000 p.m
Municipal tax paid by landlord Rs. 7,000 (10% of M.V.)
Fair rent Rs. 80,000
166 House remained vacant for 2 months
Income from House
Solution: Property
Computation of A.V. of house of Mr. Parmod for the A.Y. 2023-24

Rs. Rs.
Actual rent for 10-months 80,000
M. value 70,000
Fair rent 80,000
Gross annual value 80,000
Less: Municipal tax paid 7,000
Net Annual value 73,000
d) Let-out house, which does not remain vacant during any part of the
previous year but there is unrealised rent
Gross annual value shall be the expected rent or actual rent, whichever is
higher. From the gross annual value, taxes actually paid by the landlord
and unrealised rent will be deducted to reach at annual value.
Gross Annual Value = Higher of Expected rent or Actual rent

Net Annual Value = Gross Annual Value – Actual taxed paid by landlord
and unrealised Rent
Illustration 4
Determine the annual value of house of Mr. Subhash for the A.Y. 2023-24
Rs.
Municipal value 1,50,000
Fairrent 1, 70,000
Actual rent per month 15,000
Municipal tax paid by landlord 10% of M.V.
Unrealised rent 25,000.
Solution:
Computation of A.V. of house of Mr. Subhash for the A.Y. 2023-24
Rs. Rs
a) Municipal value 1,50,000
b) Actual rent 1,80,000
c) Fair rent 1,70,000
Gross annual value (being highest) 1,80,000
Less: Municipal tax paid by landlord 15,000
Unrealised rent 25,000 40,000
Net Annual value 1, 40,000
167
Income from House
Property & Profits
and Gains of Business Note:
or Profession Gross Annual Value = Higher of Actual Rent Received or Expected Rent
Expected Rent = Higher of Municipal Value or Fair Rental Value but
restricted to the Standard Rent
e) Let-out house, which remains vacant during a part of the previous
year and there is unrealised rent
Gross annual value of such house will be calculated as discussed in (a).
From the gross annual value, taxes actually paid by the landlord and
amount of unrealised rent will be subtracted to reach at annual value.
Treatment of Unrealised Rent [Section 23(1)]
The actual rent received shall not include the amount of rent which the owner
cannot realise, subject to the rules made in this behalf.
Rules for Unrealised Rent
The amount of rent which the owner cannot realize shall be equal to the
amount of rent payable but not paid by a tenant of the assessee and so proved
to be lost and irrecoverable where:
i) The tenancy is bonafide;
ii) The defaulting tenant has vacated, or steps have been taken to compel
him to vacate the property;
iii) The defaulting tenant is not in occupation of any other property of the
assessee.
iv) The assessee has taken all reasonable steps to institute legal proceedings
for the recovery of the unpaid rent or satisfies the assessing officer that
legal proceedings would be useless.
Illustration 5
Determine the annual value of house of Mr. Varun for the A.Y. 2023-24
Rs.
Fair rent 1,80,000
Actual rent (per month) 25,000
House remained vacant for two months during the P.Y. Unrealised rent Rs.
40,000. Municipal tax paid by the landlord Rs. 20,000.
Solution:
Computation of A.V. of the house of Mr. Varun for the A.Y. 2023-24
Rs. Rs.
a) Municipal value 2,00,000
b) Actual rent (Rs. 25,000 × 10) 2,50,000
c) Fair rent 1,80,000
Gross annual value (being highest) 2,50,000
Less: Municipal tax paid by landlord 20,000
Unrealised Rent 40,000 60,000
Annual value 1,90,000
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Income from House
8.6.2 Self-occupied House Property
The owner of house can:
A) Occupy the house for full year

B) Occupy the house for a part of the previous year and for the remaining of
the previous year it is let out
C) Occupy a part of the house for full year and a part of the house for the
part of the year
(i.e. a part of the house is let out for a part of the previous year).
Let us now see how the annual value of the house is calculated in the above
mentioned three cases.
A) When the house is self-occupied for the full year

i) The annual value of the house which is occupied by the owner for
his residential purposes is NIL.
ii) If a part of the house is self-occupied by the owner for full
previous year and the remaining part is let out for full previous
year, the annual value shall be determined as under:
a) From the annual value of the full house, the proportionate
annual value for self-occupied part for whole year will be
deducted;
b) The balance left will be the annual value of the let out part for
full year.
In case the property consists of more than one house in the occupation of
the owner for the purpose of his own residence, the annual value in
respect oftwo such houses, which the assessee may choose, shall be
taken as Nil. The annual value of the remaining self-occupied houses
will be determined as if such houses had been let out.
B) If the whole house is self-occupied by the owner for a part of the

previous year and the whole house is let out for a part of the
previous year,the annual value shall be determined as under:
i) First of all the annual value of the whole house shall be
determined.
ii) Then, the annual value for that period shall be deducted during
which the house is self-occupied by the owner.
iii) The balance left shall “be the annual value of the house”.
Illustration 6 will help you to clearly understand the calculation of the annual
value of the house which is self-occupied for a part of the previous year and
let out for the remaining part of the previous year.
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Income from House Illustration 6
Property & Profits
From the following information of Mr. A, compute the adjusted annual value
or Profession
of the let out period of the house for the Assessment Year 2023-24.
Rs.
Municipal value 20,000
Municipal tax paid 4,000
House was self-occupied for first six months and for the remaining six
months it was let out at the rate of Rs. 2,000 p.m.
Solution:
Gross annual value is highest of the following:
Rs.
Municipal value 20,000
Actual rent (2,000×6) 12,000
Gross annual value (being highest) 20,000
Less: Municipal taxes 4,000
Annual value 16,000
C) If a part of the house is let out for a part of the previous year or a
part of the house property is self-occupied by the owner for full year
and a part is occupied by the owner for a part of the year (i.e. a part
of the house is let out for a part of the previous year), the annual
value shall be determined as under:
i) First of all from the annual value of the full house, the proportionate
annual value of the self-occupied part which is self-occupied for full
year shall be deducted.
ii) The balance left shall be the annual value for let out portion for the
let out period.
Look at Illustration 7 for clear understanding of calculation of annual value
of the above-mentioned category of houses:
Illustration 7
Mr Ajay Kumar has a house property in Allahabad whose Municipal
Valuation is Rs 2, 00,000. Its fair rental value is Rs 2,40,000. This property
was self-occupied by Mr Ajay Kumar from 01/04/2022 to 31/07/2022 w.e.f
1/08/2022, it was let out at Rs 14,500 per month. Compute the annual value
of the house property for the AY 2023-24, if Mr Ajay Kumar has paid the
municipal taxes Rs 20,000 on 28/02/2023.These taxes include Rs 5,000 of
PY immediately preceding the PY.
170
Income from House
Solution: Property
Computation of Annual Value for AY 2023-24 of Mr. Ajay Kumar

The gross annual value of the house property shall be higher of the following
three amounts:
Rs.
a. Municipal valuation 2,00,000
b. Fair Rent 2,40,000
c. Actual rent received for let out period ( Rs 14,500 × 8) 1,16,000
Gross Annual Value 2, 40,000
Net Annual Value 2, 20,000
Note: Municipal Taxes may relate to any previous year, if these are paid
actually in the PY, these shall be deducted from GAV.
8.7 DEDUCTIONS FROM ANNUAL VALUE

For computing the income chargeable under the head ‘Income from House
Property’, following deductions shall be allowed from its annual value under
Section 24.
1) An amount equal to 30% of annual value as standard deduction for

expenses.
2) Interest on loan taken for the purpose of purchasing, construction, repair
and renovation of house property is allowed as deduction even on accrual
basis. Interest on unpaid interest will not be allowed as deduction.
However, interest on a fresh loan raised merely to repay the original
amount of loan taken for the above mentioned purpose will be allowed as
deduction. If the landlord has paid any amount as brokerage or
commission for raising the loan, it will not be allowed as deduction.
Interest for pre-acquisition or pre-construction period: Interest payable in
respect of funds raised for the acquisition or construction of the house
property which belongs to the period prior to the previous year in which such
property has been constructed or acquired shall be allowed in five equal
annual installments starting from the previous year in which the house was
acquired or constructed. This deduction shall be allowed in addition to the
interest of the current year, i.e. the interest allowable shall be the interest for
the current year plus one fifth of the total interest for the previous year prior
to the year in which the house is acquired or constructed. Maximum limit for
the deduction of interest will be Rs. 30,000 where the loan is acquired on or
before 31.3.99 and if it is acquired after 31.3.99, the maximum limit shall be
Rs. 2, 00,000. The acquisition or construction should be completed within
5years from the end of the financial year in which funds were raised. In order
to claim the deduction of interest, the assessee is required to produce a
171
Income from House certificate from the person to whom any interest is payable on the amount of
Property & Profits
and Gains of Business funds raised.
or Profession
Maximum limit of Rs. 30,000/2,00,000 shall be applicable only for the self-
occupied houses.
Illustration 8
Mr. Rajan took loan of Rs 6, 00,000 on 1/04/2000 to construct a house. The
construction of the house was completed in the PY 2004-05.The interest on
this loan @ 16% p.ais Rs 96,000 for the PY 2022-23. Interest for the
preceding years was also paid but not claimed as deduction. Compute the
amount of interest deductible in computing the income from house property
for the AY 2023-24, if, the house is let-out and if Mr. Rajan lives in the
house.
i) If house is let-out
Interest on current PY 2022-23Rs 96,000
Interest for 4 PYs prior to 31st march of
completion of house for 2000-2001,
2001-02, 2002-03 and 2003-04
@ 16% on Rs 6,00,000(4×96,000)
= Rs 3,84,000, deductible in 5 equal
installments of Rs 76,800 each.
But, here no pre-construction interest shall
be deducted as maximum period of 5 years
which has expired on 31/03/2010 Nil
Total amount of interest = Rs 96,000
ii) If Mr. Rajan lives in the house

Although the construction of house has been completed within 5 years
from the date of taking loan, the maximum amount of deduction of
interest will be Rs 30,000 as the loan is taken prior to 1/04/99.
8.8 LOSS UNDER THE HEAD ‘INCOME FROM

HOUSE PROPERTY’
When the total of deductions is more than the adjusted annual value of
house property, the balance is known as loss from house property. It can
be the following two types:
i) Loss in case of self-occupied house:
The annual value of self-occupied house is always Nil and deduction of
interest on loan upto a maximum amount Rs 30,000 is allowed, and after
deducting it, there is loss from house property. Such loss can be set off
out of the profits of those houses which have been let out on rent.
172
Income from House
ii) Loss from house let-out on rent for full year: Property
The houses let out on rent, are given deductions out of their net annual
value and if the total of deductions (except unrealised rent) is more than
the net annual value, the balance amount will be the loss from house
property. This loss can be set-off out of profits of other houses let out on
rent. The unabsorbed loss of house property can be set-off out of any
source of income.
iii) If in any previous year, the amount of loss exceeds Rs 2, 00,000, then,
such surplus shall not be deducted from any other head of income in
such previous year.
8.9 COMPUTATION OF TAXABLE INCOME

FROM HOUSE PROPERTY
Look at Illustrations from 9 to 16 and see how income from house property is
computed.
Illustration 9
CA Pawan owns a house of which 50% portion is let out for the purpose of
residence at Rs 4,400 per month.25% portion is used by him for his
profession and remaining 25% portion is used for his residence.From the
following particulars, find out annual value of the house property:
i) Municipal valuation Rs 60,000
ii) Fair rent of property Rs 70,000
iii) Municipal Taxes 10%
Solution:
Computation of Annual Value
Let out portion (50%) Rs. Rs
i) Municipal Valuation (50% of Rs 60,000) 30,000
ii) Fair rent (50% of Rs 70,000) 35,000
iii) Rent Received (Rs 4,400 ×12) 52,800
Gross Annual Value (Higher of the above) 52,800
Less: Municipal Taxes (50% of Rs 6,000) 3,000
Annual Value 49,800
Note:
a) 25% portion of the house property is used by CAPawan for his own
profession. Its annual value shall not be calculated.
b) 25% portion of the house property is used by CAPawan for his own
residence. Its gross annual value shall be Nil or Zero.
c) All the portion of the house property shall be treated as separate house
independently.
173
Income from House Illustration 10
Property & Profits
and Gains of Business On the basis of the following informationfurnished by Mr. Kalia, determine
or Profession
annual value of the house for A.Y. 2023-24.
1) Two-third portion of the house is self-occupied;
2) One-third portion of the house let-out for Rs. 5,000 p.m.;
3) During the previous year, the let out portion remained vacant for four
months and the tenant did not pay the rent for one month. The landlord
could not fulfill the conditions regarding claim for unrealised rent.
4) Municipal tax paid Rs. 33,000.
5) Municipal value Rs. 1, 30,000.
Solution:
Computation of Annual Value of the House of Mr. Kalia for the
Assessment Year 2023-24.
Rs. Rs.
i) A.V. of self-occupied portion Nil
ii) G.A.V. of let-out portion(Rs. 60,000-20,000) 40,000
Less: Municipal tax (1/3rd of Rs. 33,000) 11,000 29,000
Annual Value 29,000
Note: The unrealised rent is not deductible in computing annual value as the
landlord has not claimed the unrealised rent.
Illustration 11
Ms. Richa is the owner of a house at Mumbai, particulars of which for the
year ended 31st March, 2023 are as under:
Rs.
1) Actual rent received 4,800
2) Municipal Valuation 4,200
3) Total Municipal Tax 630
4) Municipal Tax paid by Ms. Richa 400
5) Municipal Tax paid by the tenant 230
6) Interest on loan taken for renovation of the house 200
Compute Ms. Richa’s Income from House Property for the A.Y. 2023-24.
174
Income from House
Solution: Property
Computation of Income from House Property of Ms. Richa for the
AY2023-24
Rs. Rs.
G.A.V (Actual rent being higher than M.V) 4,800
Less: Municipal Tax paid by owner 400
Annual Value 4,400
Less:Standard Deduction (30% of A.V) 1,320
Interest on Loan 200 1,520
Income from the House Property 2,880
Illustration 12
Aliya is the owner of a house property in Pune. It is let out for Rs. 90,000 p.a.
The municipal tax payable by the owner comes to Rs. 10,000 but the landlord
has taken an agreement from the tenant stating that the tenant would pay the
tax direct to the municipality. The landlord, however, bears the following
expenses on tenant’s amenities under an agreement:
Particulars Rs
Water charges 1,500
Lift maintenance 1,000
Lighting of stairs 800
Gardener’s salary 700
The landlord claims the following deductions:
Repairs 20,000
Land Revenue 2,000
Collection Charges 6,000
Legal expenses incurred in connection with the
purchase of land on which the house is built 24,000
Compute the taxable income from house property for the A.Y. 2023-24.
Solution:
Computation of Taxable Income from House Property of Ms. Aliya for
the Assessment Year 2023-24
Gross annual value of the property is calculated as under: Rs.
Rent realized 90,000
Less: Value of tenant’s amenities
provided by the landlord: Rs.
i) Water charges 1,500
ii) Lift maintenance 1,000
175
Income from House iii) Lighting of stairs 800
Property & Profits
and Gains of Business iv) Gardener’s salary 700 4,000
or Profession
Gross Annual Value 86,000
Less: Municipal tax paid by the owner Nil
Annual Value 86,000
Less: Standard Deduction (30% of A.V) 25,800
Taxable Income from House Property 60,200
Illustration 13
Sambhav is the owner of two houses. He has furnished the following
particulars for the financial year 2022-23.
First House — Its municipal valuation is Rs. 40,000. It is used by Sambhav
for his own residence. He paid Rs. 200 Fire Insurance Premium and Rs.
4,000 Municipal Tax. He also paid interest on loan of Rs. 25,000. This loan
was taken to repay another loan taken for the construction of this house.
Second House — Its municipal valuation is Rs. 24,000 and Standard Rent is
Rs. 30,000 (Rent Control Act applicable). It has been let out at Rs. 3,000 per
month. He made the following payments: Rs.
Municipal Tax 6,000
Repairs 1,000
Land Revenue 200
Annual Charge 3,000
Compute his taxable income from house property for the A.Y. 2023-24.
Solution:
Computation of Taxable Income from House Property of Mr. Sambhav
for the Assessment Year 2023-24.
First House (Self-Occupied) Rs
Annual Value Nil
Less: Interest on loan 25,000
Loss from First house (a) (-) 25,000
Second House:
i) Expected rent Rs. 24,000
ii) Actual rent Rs. 36,000
G.A.V [(i) or (ii), whichever is greater] 36,000
Less: Municipal tax 6,000
Annual Value 30,000
Less:Standard deduction (30% of A.V) 9,000
Income from second house (b) 21,000
Loss from House Property (a-b) (-) 4,000
Note: Other expenses are not allowed.
176
Income from House
Illustration 14 Property
MrKaushal has the following properties:
i) Flat in Mumbai purchased on 1st June, 2022 which was let-out on
monthly rent of Rs 12,000.The building in which the flat is located, was
completed on 31st January, 2019.The flat was let-out from 1st August,
2022
ii) Flat in Delhi constructed in 2010 which is self-occupied.
iii) Godown in Kolkata constructed in 2012 which is let-out at a monthly
rent of Rs 6,000.
The following actual expenses from the rental income are:
At Mumbai At Delhi At Kolkata

(Rs) (Rs) (Rs)
Municipal Taxes 8,000 8,000 18,000
Maintenance Charges 1,000 900 -
Electricity Charges - 1,200 4,800
Collection Charges 700 - 5,400
Insurance Premium - - 600
Repairs 20 1,900 11,000
The following additional information is given below:

1) The flat in Delhi is let-out for godown w.e.f 1/1/2023 which fetches a
monthly rent of Rs 4,000.
2) Mr. Kaushal carries on a business in which he suffered a loss of Rs
10,000 during the year ended on March 31st, 2023.
3) Mr. Kaushal received a consolidated salary of Rs 5,500 per month during
the year from a part time employment which he holds.
Compute Mr. Kaushal’s taxable income from house property for the year
ended on 31st march, 2023.
Solution:
Computation of Income from House Property of Mr. Kaushal for the AY
2023-24
Flat at Mumbai
Rent receivable for 8 months Rs 96,000 -
Less: Municipal taxes Paid Rs 8,000
Net Annual Value Rs 88,000
Less: Admissible deduction u/s 24
Statutory deduction @ 30% of NAV Rs 26, 400
Income from flat at Mumbai Rs 61,600
177
Income from House Godown at Kolkata
Property & Profits
and Gains of Business Annual letting value Rs 72,000 -
or Profession
Less: Municipal taxes Rs 18,000
Less: Admissible deduction u/s 24
Statutory deduction @ 30% of NAV Rs 16, 200
Income from Godown at Kolkata Rs 37,800
Flat at Delhi (Self-occupied for part of the year)
Rent (Rs 4,000 × 12) Rs 48,000 -

Less: Municipal taxes Paid Rs 8,000
Less: Admissible deduction u/s
24
Statutory deduction @ 30% of Rs 12, 000
NAV
Income from flat at Delhi Rs 28,000
Taxable Income from House Property Rs 1,27,400
Note:
i) It is assumed in case of flat in Mumbai that it remained vacant from 1st
June, 2022 to 31st July, 2022.
ii) GAV of Delhi Flat shall be calculated on this assumption that it is let out
for 12 months because the owner of the house lives in this flat for some
months of the year and this flat is let out for remaining part of the year.
Illustration 15
Mr. Ashish is an income tax officer at Bikaner. He owns two residential
houses. The first house is at Delhi. It was constructed on
31stDecember;2010.He has let it out at a rent of Rs 3,000 per month to a
company for its office. The second house is at Bikaner. Its construction was
completed on 1stMarch, 2022 and has been occupied by him for his own
residence since 1st June, 2022. He took a loan of Rs 60,000 on 1st August,
2020 at 12% p.a interest for the purpose of construction of this house. Other
relevant particulars in respect of these houses are given below:
1st house (Rs) 2nd house (Rs)

Municipal Valuation 24,000 18,000
Municipal Tax 10% 6.25%
Expenses on repairs 1,150 -
Fire Insurance Premium 200 -
Ground Rent 175 130
Land and Building tax 1,000 650
Wages of Gardener p.m 100 60
Interest on Loan - 7,200
178
Income from House
The ground rent of Delhi house and municipal tax, land and building tax of Property
Bikaner house are unpaid. Mr. Ashish was transferred to Udaipur on
1stDecember, 2022 where he resides in a house at a monthly rent of Rs 2,400
and his house at Bikaner was let out on the same day at rent of Rs 2,000 per
month.
Calculate the income from house property of Mr. Ashish for the AY 2023-24
Solution:
Computation of income from house property of Mr. Ashish for
Assessment Year 2023-24
First house Rs.
Gross annual value being rent received 36,000
Less: Municipal Tax 2,400
Net Annual Value 33,600
Less: Statutory deduction @ 30% of NAV 10,080
Income from first house 23,520
Second house (Let out for part period and self-occupied for part period)
Gross Annual Value: Higher of the following two:
i) Municipal Value, Rs 18,000 or Fair rent, Rs.24,000
(Whichever is higher) 24,000
ii) Actual Rent received (Rs 2,000 × 4) 8,000
Gross annual value higher of (i) and (ii) above 24,000
Less: Municipal Taxes (Unpaid) -
Less: Deductions u/s 24
a) Statutory deduction @ 30% of NAV 7,200
b) Interest on loan (Rs 7,200 for PY 2020-21
+ Rs 960 for pre-construction interest) 8,160 15,360
Income from second house 8,640
Income from house property = Rs 23,520 + Rs 8,640 = Rs 32,160
Note:
1) Wages of gardener has not been deducted from rent received because it
is not clear in the question that the landlord has provided Gardner under
terms of tenancy agreement
179
Income from House 2) Interest of prior period (from 1/08/2020 to 31/03/2021) for 8 months is
Property & Profits
Rs 4,800. Its one-fifth part shall be allowed as deduction. Deduction of
or Profession total interest =Rs 7,200+ Rs 960 = Rs 8,160.
Illustration 16
Mr Raman is the owner of a big house. Municipal valuation of his house is
Rs. 1, 00,000. He has let out 1/3rd portion of the house on a monthly rent of
Rs 8,000 and occupies remaining 2/3rd portion for his own residence.
Municipal taxes in respect of the whole house were Rs 15,000.He paid Rs
12,000 on insurance of the house. The house is constructed on leased land.
He paid Rs 2,000 as its rent. He had constructed the house with a loan of Rs
15, 00,000 taken on 1st April, 2010, which was completed on 31st March,
2013 on which he pays 12% p.a. interest. Compute his income from ‘House
property’ for the AY 2023-24.
Solution:
Computation of Income from House property of Mr Raman for AY
2023-24
Self-occupied Portion (2/3rd)
Rs.
Annual Value Nil
rd
Less: Interest on loan (2/3 of Rs 1,80,000) 1,20,000
Loss from Self-Occupied house (-)1,20,000
Let-Out portion (1/3rd)

Rental value of (1/3rd portion) being more
than municipal value 96,000
rd
Less: Municipal taxes paid (for 1/3 portion) 5,000
Less: Deductions:
i) Statutory Deductions @ 30% of NAV 27,300
rd
ii) Interest on loan (1/3 of Rs 1,80,000 60,000 87,300
Income from let-out portion 3,700
Loss from house property = Rs 3,700 –Rs 1, 20,000= Rs (-) 1,16,300
Note:
i) Interest of pre-construction period shall not be deducted because its
maximum period of 5 years has expired on 31/03/2018.
ii) Loan has been taken on 1/04/2010 (after 01/04/1999) for construction of
house and construction of the house has been completed within 5 years
from the year of taking loan. The maximum limit of deduction of interest
is Rs 2, 00,000. Therefore, deduction Rs 1, 20,000 shall be allowed.
180
Income from House
Check Your Progress B Property
1) How do you calculate the annual value when the part of a house is let out
for a part of the previous year and self-occupied in the remaining period?
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………
2) Choose the correct answer from the following:
i) Municipal taxes shall be deducted:
a) If its payment has become payable on owner of house.
b) If its payment has actually been done by the owner of the house.
c) If its payment has been done by the tenant.
d) None of these.
ii) How much statutory deduction is allowed in computing taxable
income from house property:
a) 25% of Annual Value
b) 30% of Annual Value
c) 1/5th of Annual Value
d) 1/6th of Annual Value
iii) Unrealised rent shall be deducted from the following:
a) From Net Annual Value
b) From Annual Value
c) From Gross Annual Value
d) None of these
iv) If an assessee has more than one house, the option to choose a house
for self-residence, is given to the following:
a) To an individual assessee
b) To association of persons
c) To a company assessee
d) None of these
8.10 LET US SUM UP

Income from house property is second major head of income. Income from
house property is the annual value of any property which consists of building
and land appurtenant thereto, is owned by the assessee and is not used for
assessee’s business or profession.
Annual value of the property is not the rent received but the reasonable rent;
but where actual rent is higher than the reasonable rent the annual value is the
actual rent received as reduced by the municipal taxes borne by the owner of
the house. 181
Income from House For the purposes of computation of annual value the house property is
Property & Profits
divided into two:
or Profession
i) Let out house
ii) Self-occupied house.
A house which is let out can either be under Rent Control Act or not. When it
is not under Rent Control Act, the annual value is actual rent, reasonable rent
or municipal value, whichever is higher, as reduced by municipal taxes paid
by the owner. When it is under Rent Control Act, the annual value is actual
rent or standard rent (as fixed by rent controller), whichever is higher, as
reduced by municipal taxes paid by the owner.
A self-occupied house can be divided into:
i) Self-occupied house for full year—annual value is nil.
ii) Part of the house is self-occupied and a part is let out for full year-annual
value is calculated as:
Annual value of the full house for full year less annual value of self-
occupied house for full year.
iii) Full house self-occupied for a part of year and let out for the remaining
part of the year. Then, annual value is calculated as follows.
Annual value of full house for full year less annual value of full house for the
period for which it is self-occupied.
Certain deductions are allowed from adjusted annual value to compute
income from house property. These deductions are: (i) standard deduction
equal to 30% of annual value, (ii) interest on loan taken for the purpose of
repairs, construction, and renovation and purchase of the house and interest
for pre-construction or pre-acquisition period.
8.11 KEY WORDS

Annual Value: Annual value of a house property is reasonable rent or actual
rent (if let out), whichever is higher, as reduced by municipal taxes borne by
the owner.
Composite Rent: When the building is let out along with certain facilities
e.g. lift, electricity etc, then the rent includes the rent for the house and these
facilities. Such a rent is called composite rent.
Municipal Value: Value of the property fixed by local authorities on the
basis of its income earning capacity.
Reasonable Rent: Rent of similar properties in the same locality.
Self-occupied House: House occupied by the owner of the property for his
residential purposes.
Standard Rent: Rent fixed by the Rent Controller under Rent Control Act.
Unrealised Rent: Rent not recoverable by the owner.
182
Income from House
8.12 ANSWERS TO CHECK YOUR PROGRESS Property
Check Your Progress A

4 i) a ii)c iii) c iv) b v) d
Check Your Progress B
2. i) b ii) b iii) c iv) a
8.13 TERMINAL QUESTIONS/EXERCISES

1) Define annual value and state the deductions that are allowed from the
annual value in computing the income from house property.
2) Write short notes:
a) Composite rent
b) Unrealised Rent
c) Interest on loan taken for construction of house property
d) Standard Rent
3) How would you determine the annual value of house property, which is
self-occupied for a part of the year only and let out for the remaining
part.
4) Mr Ramesh has two house properties. One is in Mumbai and other is in
Delhi. House at Mumbai is meant for Self-Residence, but he let out his
house since 1stSeptember, 2022 at rent of Rs 4,000 per month. The Delhi
house consists of 2 show showrooms and 2 residential flats. The rent of
each showroom is Rs 5,000 p.m. and that of each flat is Rs 4,000 p.m.
The construction of both the houses was completed on 1st July, 2009and
1st May, 2010 respectively. The municipal tax paid by Ramesh for the
Mumbai and the Delhi houses is 6.25% and 10% of the municipal value
respectively which amounts to Rs 3,100 and Rs 8,500. Compute the net
annual value of house properties for the assessment year 2023-24.
[Answer: NAV= House at Mumbai, Rs 46,500, House at Delhi,
Rs 2, 07,500]
Note:
1) The municipal valuation of both the houses shall be determined on
the basis of municipal taxes paid.
2) House at Mumbai shall be deemed to be let out throughout the year.
5) From the following information, compute the annual value of the house:
Rs.
Fair rent 2,70,000
Standard Rent 4,00,000
Actual rent (per month) 45,000
183
Income from House Building remain vacant for two months during the PY
Property & Profits
and Gains of Business Unrealised rent, Rs 35,000.Conditions of Rule 4 are satisfied
or Profession
Municipal tax paid by the owner, Rs 25,000 and by the tenant, Rs 10,000
[Answer: Annual Value= Rs 3,90,000]
6) Rahat owned a house property at Delhi which is used for his residence.
He was transferred to Hyderabad in June, 2022 and therefore, he let out
the property with effect from 1st July, 2022 on a monthly rent of Rs
3,000.The corporation tax @ 20% payable in respect of the property was
Rs 6,000 of which 50% was paid by him before 31/03/2023.Interest on
money borrowed for the construction of the property amounted to Rs
20,000.Compute the income from house property for the AY 2023-24.
[Answer: Loss from House Property = Rs 3,100]
7) Mr. Vinay owns four houses, the details regarding which are as follows:
1) The first house of the annual rental value of Rs 44,000 was occupied
by him for his residence.
2) The second house of the annual rental value of Rs 56,000 was let out
at Rs 4,000 p.m. He paid Rs 6,000 as interest on money borrowed
for construction of the house, Rs 800 as ground rent and Rs 2,000 as
fire insurance premium.
3) The fair rent of the third house is Rs 46,000 and its actual rent is Rs
44,000 but in respect of this house legal maintenance charge of Rs
12,000 per year exits in favor of his father.
4) The fourth house, the municipal value of which is Rs 60,000 was let
out at Rs 6,000 p.m. It remained vacant for 4 months. The unrealised
rent in respect of this house for previous year was Rs 40,000, which
satisfies all conditions for its allowance.
Find out his income from house property for the AY 2023-24.
[Answer: Income from house property, Rs 71,000, Income from 1st
house, Nil, 2nd house, Rs 33,200, 3rd house, 32,200, 4th house, Rs 5,600]
Note: These questions and illustrations are helpful to understand this

unit. Do efforts for writing the answersto these questions but do not
send your answers to university. It is only for your practice.
184
Income from Profit
UNIT9 INCOME FROM PROFITS AND and Gains of
Business or
GAINS OF BUSINESS OR Profession-I
PROFESSION-I
Structure
9.0 Objectives
9.1 Introduction
9.2 Meaning of Business or Profession or Vocation
9.3 Basis of Charge
9.4 General Principles for Calculating Business and Profession Income
9.5 Computation of Income from Business or Profession
9.6 Specific Deductions-I
9.6.1 Rent, Rates, Taxes, Repairs, and Insurance for Buildings
9.6.2 Repairs and Insurance of Machinery, Plant &Furniture
9.6.3 Depreciation
9.6.3.1 General Principles for Depreciation Allowance
9.6.3.2 Block of Assets
9.6.3.3 Block Formation &Calculation of Written down Value of Asset for
Depreciation
9.6.3.4 Computation of Depreciation Allowance
9.6.3.5 Cases where Written down Value of a Block at the End of Year is
reduced to Nil
9.6.3.6 Depreciation allowance for special cases
9.6.3.7 Unabsorbed Depreciation
9.6.4 Incentive for Acquisition and Installation of New Plant or Machinery in the
Notified Backward Areas in Certain States
9.7 Let Us Sum Up
9.8 Key Words
9.10 Terminal Questions/ Exercises
9.0 OBJECTIVES
• explain the meaning of business, profession, and vocation
• understand the general principles for calculating business and
professional income
• compute depreciation allowance
185
Income from House
Property & Profits 9.1 INTRODUCTION
or Profession Profit and gains of Business or Profession (also known as PGBP) is third
head in computation of income apart from four incomes, namely, income
from salary, income from house property, income from capital gains and
income from other sources. This head is divided into 3 parts since it is one of
the major heads compassing many provisions for computing business or
professional income. In this unit, we will discuss about meaning of business
or profession, basis of charge for charging income tax on such income,
general guidelines for computing business income or professional income and
special deductions allowed under this head including depreciation allowance
in detail.
9.2 MEANING OF BUSINESS OR PROFESSION

OR VOCATION
Section 2 (13) of Income Tax Act, defines business to include any trade,
commerce or manufacture or any adventure or concern in the nature of trade,
commerce or manufacture.
This definition of business is inclusive definition and not an exhaustive one.
The activities of rendering services to others also come under this apart from
activities by way of trade, commerce or manufacture or activities in the
exercise of a profession or vocation. One can’t enter into business
transactions with oneself.
Profession involves the idea of an occupation requiring purely intellectual
skill or manual skill on the basis of some special learning or qualification.
Vocation refers to any activity done to earn the livelihood e.g. Agency work,
story or play writer, brokerage, magic activities, robbery, music, dance etc.
Income under the head profits and gains of business or profession include
income from business, profession and vocation. Therefore, this distinction is
not material.
9.3 BASIS OF CHARGE

Under Section 28, the following incomes shall be chargeable to income tax
under this head and income will be computed in accordance with the
provisions laid down in Sections 29 to 44DB:
• Profits or gains of any business or profession
• Any compensation or other payments due to or received by any person
specified in Section 28 (ii)
• Income derived by a trade, professional or similar association from
specific services performed for its members
• The value of any benefit or perquisite, whether convertible into money or
not, arising from business or exercise of a profession
186
Income from Profit
• Any profit on the transfer of the Duty Entitlement Pass Book Scheme. and Gains of
Business or
• Any profit on the transfer of the Duty Free Replenishment Certificate. Profession-I
• Export incentives for exporters

• Any interest, salary, bonus, commission or remuneration received by
partner from a firm
• Any sum received under Keyman Insurance Policy including Bonus
• Any sum received for not carrying out any activity in relation to any
business or profession or not to share any know-how, patent, copy right,
trademark etc.
• Any sum received or receivable, in cash or kind, on account of any
capital asset (other than land or goodwill or financial instrument) being
demolished, destroyed, discarded or transferred, if the whole of
expenditure on such capital asset has been allowed as a deduction under
section 35AD.
• Income from speculative transaction
9.4 GENERAL PRINCIPLES FOR CALCULATING

BUSINESS AND PROFESSION INCOME
Necessary conditions for income to be chargeable under head ‘Profits and
Gains of Business and Profession’:
Buisness or
Profession
should be there
Charge extends Business or

to any business Profession to
or profession be carried on by
carried on the assessee
Buisness or Profession
Charge should
should be carried on
be in respect of
for some time during
previous year
the previous year
Fig. 9.1: Conditions for chargeable income under PGBP
• Business must be carried on during the previous year. Business may not
necessary be carried out throughout the previous year or till the end of
previous year. If assessee does not carry-on business at all, Section 28
shall not apply and the income so called cannot be assessed as Business
income. However, there are exceptions to this rule and business though
187
Income from House not carried out by the assessee in the year of receipt
receipt, those receipts are
Property & Profits
still taxable as Income from business:
or Profession
Table 9.1
9.1: Receipts taxable as income from business even when Business
is not carried out by the assessee
Section Income
41(1) Recovery against any loss, expenditure or trading
liability earlier allowed as deduction
41(2) Balancing Charge in case of Electricity Companies
41(3) Sale of Capital Asset used for scientific research
41(4) Recovery against Bad Debts
41(4A) Amount withdrawn from Special Reserve
176(3A),(4) Receipt of Discontinued business under Cash system
of Accounting
• Business Loss: A trading loss is deductible in computing the profit

earned by the business if following conditions are satisfied:
Fig. 9.2: Conditions for deduction of Trading

rading Loss
188
Income from Profit
Table 9.2: Losses incidental to trade and Gains of
Business or
Business Loss Deductible from Business Loss Not Deductible Profession-I
income from income
 Loss of Stock –in Trade due to  Loss which is not incidental
enemy action, or arising under to trade or profession, carried
similar circumstances on by the assessee.
 Loss of Stock-in trade because  Loss incurred due to damage,
of destruction by God destruction, etc. of capital
 Loss on account of failure on asset.
the part of the assessee to accept  Loss incurred due to sale of
delivery of goods shares held as investment.
 Depreciation in funds kept in  Loss of advances made for
foreign currency for purchase of setting up of a new business
stock-in-trade which ultimately could not
 Loss due to exchange rate be started.
fluctuations of foreign currency  Depreciation of funds kept in
 Loss arising from sale of foreign currency for capital
securities held in the regular purposes.
course of business.  Loss arising from non-
 Loss of cash and securities in a recovery of tax paid by an
banking company on account of agent on behalf of the non-
dacoit. resident.
 Loss incurred on realisation of  Anticipated future losses.
amount advanced in connection  Provision made by the
with business. assessee in respect of non-
 Loss of security deposit for the performing assets.
purpose of acquisition of stock-  Loss relating to any business
in-trade. or profession discontinued
 Loss due to forfeiture of a before the commencement of
deposit made by the assessee for previous year.
properly carrying out the
contract for supply of
commodities.
 Loss on account of
embezzlement by an employee.
 Loss incurred due to theft or
burglary in factory premises.
 Loss of precious stones or
watches of a dealer while
bringing them from business
premises to his house.
 Loss arising from negligence or
dishonesty of employees.
 Loss incurred on account of
insolvency of banker with which
current account is maintained.
 Loss incurred due to freezing of
the stock-in-trade by enemy
action.
189
Income from House • Income of previous year is taxable during the following assessment year.
Property & Profits
There are, however, certain exceptions to this rule.
or Profession
• There is no distinction between legal or illegal business. Therefore,
profits from illegal business are taxable in a similar manner as legal
business.
• Not only the legal ownership but beneficial ownership is also to be
considered for Section 28.
• Anticipated profits or potential or notional profits are not considered for
calculating taxable income under this head.
• The mode or system of bookkeeping cannot override the substantial
character of a transaction.
Special cases where income from business is not taxable under ‘Profit
and Gains of Business’:
Table 9.3: Cases where income from business is not taxable under ‘Profit
and Gains of Business’
Income Chargeability under Head

Rent from house  Income from Business of owning and
Property letting out of residential houses is taxable
under the head ‘Income from house
property’.
 Residential houses let out to the
employees for efficient conduct of
assessee own business is taxable as
business income.
Dividend Income  Assessee carrying on business in dealing
in shares and securities and earn income
by way of dividend, is taxable under
‘Income from other sources’
Winnings from  Winning from lotteries, races etc. is
Lotteries, races etc. taxable under head ‘Income from other
sources’, if it is derived as a regular
business activity
Interest received on  Interest is taxable under the head ‘
compensation or Income from other sources’
enhanced
compensation
9.5 COMPUTATION OF INCOME FROM

BUSINESS OR PROFESSION
Section 29 states that profits and gains of business and profession which are
chargeable to tax under Section 28 shall be computed in accordance with the
provisions contained in Section 30 to 43 D including sections 44 to 44 D
consisting of special provisions regarding computation of profits and
deduction of expenditure in certain cases.
190
Income from Profit
• General principles for allowing deduction: and Gains of
Business or
a) Expenditure should have been incurred during the previous year. Profession-I
b) Expenditure should be incurred for the purpose of business.
c) Expenditure done before in respect of setting up of business is not
allowed.
d) No expenses in respect of discontinued business is allowed to be
deducted.
e) Reserves/ provisions for contingencies/ anticipated losses cannot be
claimed as a deduction.
f) No deduction is admissible in respect of diminution or exhaustion of
the capital asset from which income is derived.
g) No deduction is allowed in respect of non-taxable business; like
agricultural income in India is exempt.
h) No deduction is allowed in respect of depreciation of investment.
• Method of Accounting :
a) Income to be deducted either on the basis of cash or accrual system
of accounting as followed or employed regularly by the
assessee.[Section 145 (1)]
b) Central Government is empowered to notify income computation
and disclosure standards. [Section 145 (2)]
c) Assessing Officer is empowered to make assessment in the manner
provided in section 144 in certain special cases.[Section 145 (3)]
• Allowances under section 30 to 37 are cumulative and not alternative.
• Scheme of allowing business expenses:
Section 30 to 37 – Expenses expressly allowed
Section 40 – Expenses specifically disallowed
Section 40 A – Expenses or payments not deductible in certain cases
9.6 SPECIFIC DEDUCTIONS-I

Depending on the type of accounting system followed by assessee, expenses
will be allowed or treated. If assessee follows cash basis, expenses will be
treated to be paid only when they have been actually paid and on accrual
basis, it will be treated as paid irrespective of whether they have been paid or
not.
9.6.1 Rent, Rates, Taxes, Repair, and Insurance of Buildings
[Section 30]
Expense Treatment
Rent &  Rent & repairs of building is deductible
Repairs  Allowed only if assessee has occupied the property
as a tenant
 Expenditure is not of capital nature
191
Income from House Municipal  Taxes are deductible subjected to the provisions of
Property & Profits
taxes/land section 43 B i.e. payment should be made actually
or Profession revenue/ Other during the previous year or till the due date of
taxes submission of return of income
Insurance  Insurance against risk of damage or destruction of
the building is deductible.
9.6.2 Repair and Insurance of Machinery, Plant & Furniture

[Section 31]
Expense Treatment
Rent &  Rent & repairs of machinery, plant and furniture for
Repairs business purpose is deductible
 Expenditure is not of capital nature
9.6.3 Depreciation [Section 32]

Depreciation is the diminution in the value of an asset due to normal wear
and tear and due to obsolescence over the useful life of the asset.
Methods for calculating depreciation in financial accounting commonly used
are:
a) Straight line method (SLM)
b) Written Down Value Method (WDV)
The method of claiming depreciation as expense is different in Income tax in
comparison to financial accounting.
Different types of depreciation allowance which are allowed in Income tax
are as follows:
a) Normal depreciation (Block of Assets) – Section 32 (1) (ii)
b) Additional depreciation in case of any eligible new machinery or plant
(other than ship and Aircraft) – Section 32 (1) (iia)
Normal depreciation for an undertaking engaged in the business of generation
or generation and distribution of power –Section 32 (1) (i)
Normal depreciation on written down value method is allowed in case of
Block of assets whereas straight line method is used for calculating
depreciation on every asset separately in case of undertaking engaged in the
business of generation and distribution of power.
In first year of acquiring and installation of asset, additional/extra
depreciation is allowed @ 20%or 35% of the cost of the eligible plant and
machinery. This is allowed to be deducted in calculating written down value
of the asset for next year.
9.6.3.1 General Principles for Depreciation Allowance
• Depreciation is allowed on:
Tangible Building, Machinery, Plant and furniture

Assets
Intangible Know-how, patents, copyrights, trademarks,
Assets licences, franchises or any other business or
commercial rights of similar nature
192
Income from Profit
• Plant may include any other asset as well. and Gains of
Business or
• Depreciation is allowed to owner/co-owner of the asset only. Owner of Profession-I
the asset means who can exercise the right of the owner in his own right
but not on the behalf of the owner. In case of lease, lessor is entitled to
depreciation allowance whereas lessee is not allowed to claim the same.
However, where an assessee carries on a business or profession in
capacity of lessee and incurs capital expenditure on construction of any
structure or any work in relation to the building by way of improvement,
renovation or extension, he will be entitled to depreciation allowance.
• Asset may be owned partially or fully by the assessee.
• Depreciation is allowed if asset is used for the purpose of business or
profession. Building given to the employee for residential purpose is
considered to have been used wholly for the purpose of the employer’s
business. Similarly, fans, refrigerators, air-conditioners and furniture etc.
provided by the employer at the residence of employees shall be
considered to have been used wholly for the employer’s business.
• Allowed on the basis of the actual cost to the owner.
• Allowed on block of assets
• Allowed on written down value method (in case of power generation
undertaking, straight line method is used)
• Computed on written down value method of the asset as on the last day
of the previous year
• The asset must have been used for the purpose of business during the
relevant previous year. If asset is used for few days or few hours during
the year, depreciation will be allowed for the whole year. In first year,
however, in which asset is acquired, the asset should be used for at least
180 days to claim depreciation for whole year. If asset is put to use for
less than 180 days, half year’s depreciation is provided in the first year in
which asset is acquired.
9.6.3.2 Block of Assets [Section 2 (11)]
Block of assets means a group of assets falling with in a class of assets
comprising:
a) Tangible assets, being buildings, machinery, plant or furniture
b) Intangible assets, being know-how, patents, copyrights, trademarks,
licences, franchises or any other business or commercial rights of similar
nature, in respect of which the same percentage of depreciation is
prescribed.
Classes of Asset: There are four types of classes’ i.e.Building, furniture,
plant & machinery and intangible assets.
From assessment year 2018-19, maximum rate of depreciation has been fixed
@ 40 %, thereby reducing the number of blocks from 12 to 10.
193
Income from House Table 9.4: Classes of Assets
Property & Profits
and Gains of Business Block Nature of S. No of Assets to be included in Rate of
or Profession
Number Asset Block Block of Assets Depreciation
1. Building Group 1 Building - for residential 5%
purposes except hotels and
boarding houses.
Group 2 Buildings - other than 10%
covered in block 1 and 3
and not used mainly for
residential purposes.
Group 3 Buildings - temporary 40%
erections such as wooden
structures & building
acquired on or after
September 1, 2002 for
installing Machinery and
plant forming part of water
supply project or water
treatment system and
which is put to use for the
purpose of business of
providing infrastructure
facilities under section 80-
IA (4) (i)
2. Furniture Group 4 Furniture – any 10%
and furniture/fittings including
Fittings electrical fittings
3. Machinery Group 5 Plant & Machinery - any 15%
and Plant plant and machinery [ not
covered by block 6,7,8],
motor cars (other than
those used in a business of
running them on hire)
acquired or put to use on
or after April 1 , 1990, oil
wells
Group 6 Plant & Machinery – 20%
Ocean –going ships,
vessels ordinarily
operating on inland waters
including speed boats
Group 7 Plant & Machinery – Buses, 30%
lorries and taxis used in the
business of running them on
hire, machinery used in
semi-conductor industry,
moulds used in rubber and
plastic goods factories and
lifesaving medical
equipment
194
Income from Profit
Group 8 • Aeroplanes – Aero 40% and Gains of
engines Business or
Profession-I
• Commercial vehicles
which is acquired by
the assessee on or after
1.10.1998 but before
1.4.1999 and is put to
use for any period
before 1.4.1999 for the
purpose of business or
profession
• Specified lifesaving
medical equipment
• Container made of glass
or plastic used as
re-fills
• New Commercial
vehicle which is
1.1.2009 but before
1.10.2009 and is put to
use before 1.10.2009
for the purpose of
business or profession
• Computers including
computer software
• Books, (other than
books (a) being annual
publications, (b) books
owned by assessees
carrying on business in
running lending
libraries)
• Gas cylinders including
values and regulators,
direct fire glass melting
furnaces, plant used in
field operations by
mineral oil concerns
• Energy saving devices,
renewal energy devices,
rollers in flour mills,
sugar works and steel
industry
• Air pollution control
equipments, water
pollution control
equipments, solid waste
control equipments,
recycling and resource
recovery systems
195
Income from House • Wooden parts used in
Property & Profits
artificial silk
or Profession manufacturing
machinery
• Cinematograph films –
bulb of studio lights
• Match Factories –
Wooden match frames
• Tubs, winding ropes,
haulage ropes and sand
stowing pipes, and
safety lamps used in
mines and quarries
• Salt works – Salt pans,
reservoirs and
condensers etc. made of
earthy, sandy or clayey
material or any other
similar material
• Books owned by
assessee carrying on a
profession, being annual
publications
• Books owned by
assessees carrying on
business in running
lending libraries
• Air pollution control
equipment, water
pollution control
equipment, solid waste
control equipments,
solid waste recycling
and resource recovery
system
Group 9 Plant & Machinery-Motor 45%
lorries and motor taxi
(used in a business of
running them on hire)
August 23, 2019 but
before the April1, 2020
and is put to use before
April 1, 2020.
4. Intangible Group Know-how, patents, 25%

Assets 10 copyrights, trademarks,
licences, franchises or any
other business or
commercial rights of
similar nature
196
Income from Profit
9.6.3.3 Block Formation & Calculation of Written Down and Gains of
Value of Asset for Charging Depreciation Business or
Profession-I
Step 1
Formation of Block – One type of class of asset having same rate of
deprecation will be grouped as one block. Once block is formed, determine
the written down value of the entire block at the beginning of the previous
year which will be written down value of that block of assets in the
immediately preceding previous year less depreciation allowed in respect of
that block of assets in relation to the said preceding previous year.
Step 2
Add:Actual cost of any asset falling within the block, acquired during the
previous year.
Step 3
Less:Deduct money received/receivable (together with scrap value) in
respect of the asset of the same block, which is sold or discarded or
demolished or destroyed during the previous year.
Step 3 cannot be more than the sum of step 1 and step 2
Step 4
Final Figure:The figure arrived at will be written down value of the block at
the end of the year for the purpose of charging current year’s depreciation.
Illustration 1
Classify the assets into different blocks of assets:
Asset WDV (Rs) Rate of

Depreciation
Building A 2,40,000 10%
Building B 5,60,000 5%
Building C 4,00,000 10%
Building D 1,25,000 5%
Building E 6,75,000 40%
Building F & G 10,00,000 10%
Plant A and B 1,45,000 15%
Machinery C,D and F 8,45,250 30%
Car –B 8,30,000 15%
Furniture and Fixtures 1,50,000 10%
197
Income from House Solution:
Property & Profits
and Gains of Business Block – Building
or Profession
Block 1 (5%) Rs.
Building B 5,60,000
Building D 1,25,000
Total 6,85,000
Block 2 (10%)
Building A 2,40,000
Building C 4,00,000
Building F & G 10,00,000
Total 16,40,000
Block 3 (40%)
Building E 6,75,000
Total 6,75,000
Block – Furniture & Fixtures
Block 1 (10%)
Furniture & Fixtures 1,50,000
Total 1,50,000
Block – Plant and machinery
Block 1 (15%)
Plant A and B 1,45,000
Car –B 8,30,000
Total 9,75,000
Block 2 (30%)
Machinery C, D &F 8,45,250
Total 8,45,250
Illustration 2
Depreciated value of the block of assets of Dhruv Private Ltd (consisting of
machinery A, B and C) on 01/04/2022 is Rs.25,00,000. Addition of
machinery D was done on 01/09/2022 for Rs.3,00,000 and this machinery
was put to use on 08/09/2022. Cost of machinery E purchased on 24/12/2022
was Rs.5,00,000.Machinery A which was originally purchased on 01/04/2005
for Rs.1,80,000, was sold on 03/03/2023 for Rs.25,00,000.Assuming that the
rate of depreciation on machinery was 15%, find out the admissible
depreciation for the assessment year 2023-24.
Solution:
Block: Machinery (15%) Rs.
Written down value of block as on 01/04/2022 25,00,000
Add: Additions during the previous year:
Machinery D 3,00,000
Machinery E(for less than 180 days) 5,00,000 8,00,000
198 33,00,000
Income from Profit
Less: Asset sold during the previous year:
and Gains of
Machinery A 25,00,000 Business or
Profession-I
Written down value as on 31/03/2023 8,00,000
Depreciation:
On Rs 5,00,000 × 7.5% (Half of 50% of normal rates) 37,500
On (Rs 8,00,000-Rs 5,00,000) = 3,00,000 × 15% 45,000
Total admissible depreciation 82,500
9.6.3.4 Computation of Depreciation Allowance

Depreciation allowance is of two kinds – Normal and Additional Depreciation.
Calculation of Normal Depreciation
Step 1
Calculate written down value of each block on the last day of previous year
Step 2
On the calculated value, compute depreciation at the rate prescribed for each
block
OR
Depreciation Allowance = Written down value on last day x Rate of
depreciation
However, there are certain exceptions to this rule:
a) If WDV of the block of asset is reduced to 0, though block is still exist
b) If block of asset is empty or ceases to exist on last day of the previous
year (WDV is not zero)
c) Imported Cars
d) If in first year of acquisition, asset is put to use for less than 180 days
e) In case of amalgamation, succession, business re-organization or de-
merger
Illustration 3
Mr Kumar owns following machines on 01/04/2022
Machine WDV as on 01/04/2022 Rate of Depreciation

(Rs.)
Machine X 2,10,000 15%
Machine Y 3,28,000 15%
Machine Z 2,52,000 15%
He purchased a new machinery (A) for Rs 1,80,000 on 25/12/2022 and sold

machine (Y) and machine (Z) on 25/03/2023 for consideration of Rs.
3,60,000 and Rs. 2,00,000 respectively.
Compute the depreciation for the assessment year 2023-24 199
Property & Profits
and Gains of Business Block of Machine (15%)
or Profession
WDV of the block as on 01/04/2022 Rs. Rs.
(Rs 2,10,000 + Rs 3,28,000+ Rs 2.52,000) 7,90,000
Add: Machine (A) purchased during the year 1,80,000 9,70,000
Less: Sale proceeds of Machine (Y) and
Machine (Z) ( Rs 3,60,000 + Rs 2,00,000) 5,60,000
WDV of this block as on 31/03/2023 4,10,000
Less: Depreciation:
@7.5% on Rs 1,80,000 13,500
@ 15% on (Rs 4,10,000 –Rs 1,80,000) =
Rs 2,30,000 34,500 48,000
WDV of block as on 01/04/2023 3,62,000
Important Point:
If written down value of the block of asset at the end of the year falls less
than the value of asset which is acquired during the year and put to use for
less than 180 days due to other assets being sold in that block, in that case,
depreciation will be charged @ 50% of normal rate of depreciation on the
entire written down value of that block at the end of the year, provided that
said asset exists in that block.
Asset is
acquired
during the
previous year
Put to use
during the
previous
year
Put to use for less

than 180 days during
the previous year
Fig. 9.3: Depreciation on written down value of the block
200
Income from Profit
Illustration 4 and Gains of
Business or
Compute depreciation as directed in different cases: Profession-I
Particulars Case 1 Case 2 Case 3

WDV as on Rs.3,00,000 Rs. 3,00,000 Rs. 3,00,000
1.4.2022
Asset Machinery A & B Plant X and Y Plant B and Z
Rate of 15% 15% 15%
Depreciation
Addition during Machinery C Plant Z Plant D
year
Date 2.11.2022 2.11.2022 2.11.2022
Cost of asset Rs. 1,50,000 Rs.1,50,000 Rs.1,50,000
Sold During year Machine C Plant X Plant B and Z
Money Received Rs. 2,00,000 Rs. 2,00,000 Rs. 2,00,000
Solution: (Rs.)
Case 1 Case 2 Case 3
WDV as on 1.04.2022 3,00,000 3,00,000 3,00,000
(+) Addition during the 1,50,000 1,50,000 1,50,000
year
(-) Sold during the year 2,00,000 2,00,000 2,00,000
WDV as on 31.03.2023 2,50,000 2,50,000 2,50,000
Depreciation calculation 2,50,000 @ 1,50,000 @ 1,50,000 @ 7.5%
15% 7.5% + + 1,00,000 @ 15%
= 37,500 1,00,000 @ = 11,250 +15,000
15% = = 26,250
11,250 (Although Plant
+15,000 = D only exists in
26,250 the block which
costs
Rs.1,50,000 but
depreciation on
rest written down
value of block
i.e. Rs.1,00,000
will be allowed
@ 15% as block
still exists
Note:
In the previous year, if the asset is used for less than 180 days, 50%
depreciation of normal rates is allowed.
201
Income from House 9.6.3.5 Cases Where WDV of a Block at the End of the Year
Property & Profits
and Gains of Business Shall Be Reduced To Nil
or Profession
Case A
All assets in the block are transferred i.e., block ceases to exist
Table 9.5: Cases where block ceases to exist
Situation 1 Situation 2
Sale price of all assets> WDV + Sale price of all assets< WDV +
Asset purchased during the previous Asset purchased during the previous
year = Short term capital gain year = Short term capital loss
No Depreciation will be allowed No Depreciation will be allowed
since block ceases to exist since block ceases to exist
Illustration 5
Compute short term gain/loss in different situations: Rs.
Situation 1 Situation 2 Situation 3 Situation 4

WDV as on
4,00,000 4,00,000 2,50,000 2,50,000
1.4.2022
Addition
3,50,000 3,50,000 1,00,000 1,00,000
during year
Sale value of
block (all 9,50,000 4,00,000 3,00,000 5,00,000
assets)
Solution:
No Depreciation will be allowed since all assets of the block have been
transferred
Rs.
Situation 1 Situation 2 Situation 3 Situation 4
Sale value of
block(all 9,50,000 4,00,000 3,00,000 5,00,000
assets)
WDV as on
(4,00,000) (4,00,000) (2,50,000) (2,50,000)
1.4.2022
Addition
(3,50,000) (3,50,000) (1,00,000) (1,00,000)
during year
2,00,000 (3,50,000) (50,000) 1,50,000
Loss/Gain (Short term (Short term (Short term (Short term
Capital capital capital Capital
Gain) Loss) Loss) Gain)
Case B
Only a part of block is sold, and the sale price exceeds the value of the block
Sale price (including scrap value) of a part of block of asset >= WDV + Asset
202 purchased during the previous year = Short term capital gain, if any and
Income from Profit
WDV of the block will be nil as certain assets still exist and no depreciation and Gains of
will be charged. Business or
Profession-I
Illustration 6
Calculate WDV of the block and Depreciation allowance:
Rs.
WDV as on
4,00,000 4,00,000
1.4.2022(4 assets)
Addition during year 3,50,000 3,50,000
Sale value of block
8,00,000 7,50,000
(2 assets are sold)
Solution: Rs.
WDV as on 1.4.2022
4,00,000 4,00,000
(4 assets)
Addition during year 3,50,000 3,50,000
Sale value of block
8,00,000 7,50,000
(2 assets are sold)
50,000
WDV as on
(Short term NIL
01.04.2023
Capital gain)
9.6.3.6 Depreciation Allowance for Special Cases

Case 1: Depreciation in case of Power Units [Section 32 (1) (i)] – An
undertaking engaged in the business of generation or generation and
distribution of power can use any one of the methods:
a) Straight line method – In case of tangible assets at the percentage
specified in Appendix IA to the Income tax rules on the actual cost of
individual asset.
b) Written down value method – Like any other assessee, option should
be exercised before the due date of furnishing return of income. Once
opted, it will apply to all subsequent years.
Case 2: Additional Depreciation on New Machinery or Plant [Section 32
(1) (i)] Condition for claiming additional depreciation (in addition to normal
depreciation):
• Engaged in the manufacture or production of any article or thing or
generation, transmission or distribution of power.
• New plant and machinery installed and acquired after 31st March, 2005–
Few exceptions are there where assets are not eligible for additional
depreciation:
a) Ships and aircraft
b) Any machinery or plant which, before its installation by the
assessee, was used either within or outside India or any other person
203
Income from House c) Any machinery or plant which is installed in any office premises,
Property & Profits any residential accommodation, or in a guest house
or Profession d) Any office appliances or road transport vehicles
e) Any machinery or plant, which is eligible for 100% deduction in the
first year
• Additional Depreciation @ 20% of the actual cost of asset acquired and
installed after March 31,2005. If asset is put to use for less than 180
days, then 10% depreciation shall be allowable and rest 10% shall be
allowed in the immediately next year.
• In case for acquisition of any depreciable asset in respect of which a
payment (or aggregate of payments made to a person in a day), otherwise
than by an account payee cheque/ draft or use of electronic clearing
system through a bank account, exceeds Rs.10,000, such payment shall
not be eligible for additional depreciation.
• If new plant and machinery is acquired for setting an undertaking in
notified backward area in Andhra Pradesh, Bihar, Telangana and West
Bengal during April 1, 2015 to March 31,2020, additional depreciation
will be provided @ 35% instead of 20%. The rate will be half if
machinery is used for less than 180 days i.e. 17.5% and rest 17.5% shall
be allowed in the immediately next year.
• Additional Depreciation shall be allowed to be deductible while
computing WDV for the next year.
9.6.3.7 Unabsorbed Depreciation
• If during any previous year, the depreciation cannot be absorbed owing
to no profits or gains from business or due to insufficient profits or gains
during the relevant previous year, then it will be set off in the following
sequence:
a) Current year’s profits or gains as far as possible
b) Income from other heads (Except Income from salary)
c) If still left, then it will be allowed to carry forward to next year
d) In next year, the following sequence will be followed to set off
unabsorbed
Depreciation of last previous years:
i) Current Year’s Depreciation
ii) Brought forward business loss
iii) Unabsorbed Depreciation of previous years
• Depreciation provision shall apply whether or not the assessee has
claimed this deduction in computing total income.
• Unabsorbed Depreciation can be carried forward for infinite time period.
• Depreciation can be carried forward by the same assessee.
204
Income from Profit
• Continuity of business is not relevant for set off and carry forward and Gains of
provisions. Business or
Profession-I
1) State whether the following statements are True or False
a) Decrease in the book value of the asset is called Devaluation
b) Depreciation is a capital loss
c) If an asset is used for less than 180 days, depreciation is charged at
half rates of normal rates.
d) Land is depreciated.
2) Fill in the blanks:
a) The rate of charging depreciation on fully temporary wooden
structure is ……….
b) The rate of depreciation in case of intangible assets is …………….
c) Depreciation is allowed on……………. assets.
d) The assets used for less than 180 days shall be depreciated at half
rates of………rates.
9.6.3.8 Incentive for Acquisition and Installation of New Plant

or Machinery in Notified Backward Areas in Certain
States [Section 32 AD]
• Incentive – 15% of actual cost of new asset being eligible plant and
machinery
• Conditions to be fulfilled –
a) Any company or non-company assessee engaged in the business of
manufacture of an article or thing on or after 01.04.2015 in any
backward notified area by Central Government in state of Andhra
Pradesh, Bihar, Telangana and West Bengal.
b) Acquired and installed new assets on or after 01.04.2015 and
installed on or before 31.03.2020
c) Company can claim both deduction under section 32 AC & 32 AD,
if conditions are satisfied for both
• Deduction shall be allowed in the year of installation of new asset.
1) Match the following:
Expenses as Deductions Section

1) Depreciation Allowance a) Sec 32 AD
2) Repair and insurance of Machinery b) Sec 30
3) Rent, repairs and insurance for Building c) Sec 32
4) Incentive for acquisition/installation of new d) Sec 31
plant by manufacturing company
5) Incentive for acquisition/installation of new e) Sec 32 AC
plant in notified backward area by Central
Government
205
Income from House 2) Fill in the blanks:
Property & Profits
and Gains of Business a) Depreciation is allowable in case of _________ & ________ assets
or Profession
both.
b) Where the entire block of asset is sold for a price less than opening
WDV plus cost of asset acquired during the year, if any, the
balance amount to be treated as _______________.
c) Where a part of the block of asset is sold for a price less than the
opening WDV plus cost of asset acquired during the year, if any,
the balance amount to be treated as _______________.
d) Unabsorbed depreciation which could not be set off in the same
assessment year can be carried forward for _____________.
9.7 LET US SUM UP

Income from profits and gains from business or profession being major third
head is important component of income computation for tax purpose. Income
under the head profit and gains of business or profession includes income
from business, profession and vocation. Though there is distinction between
three, this is not material as all are covered under single head ‘Profits and
gains from business and profession’. Section 28 of Income tax Act
enumerates the income that shall be chargeable under this head and income
will be computed in accordance with the provisions laid down in Section 29
to 44DB. Various expenditures have been allowed under the Act while
computing income as deductions. Sections 30 to 37 discusse about expressly
allowed expenses as deduction whereas Section 40 lists expenses which are
specifically disallowed. There is another section which talks about expenses
or payments which are not deductible in certain cases. Section 32 specifically
explains the procedure of computing depreciation in income tax as
calculating depreciation is way different in financial accounting. Section 32
AC provides special incentive for acquisition and installation of new plant or
machinery by manufacturing company whereas Section 32 AD provides
incentive to assessees engaged in the business of manufacture in notified
backward areas by Central Government in states of Andhra Pradesh, Bihar,
Telangana and West Bengal.
9.8 KEY WORDS

Business: Section 2 (13) defines business to include any trade, commerce or
manufacture or any adventure or concern in the nature of trade, commerce or
manufacture.
Profession: It involves the idea of an occupation requiring purely intellectual
skill or manual skill based on some special learning or qualification.
Vocation: It refers to any activity done to earn the livelihood.
Depreciation: It is the diminution in the value of an asset due to normal wear
and tear and due to obsolescence over the useful life of the asset.
Block of assets: It means a group of assets falling with in a class of assets
206 comprising tangible assets, being buildings, machinery, plant or furniture and
Income from Profit
intangible assets, being know-how, patents, copyrights, trademarks, licences, and Gains of
franchises or any other business or commercial rights of similar nature. Business or
Profession-I
Classes of Asset: It includes four types of classes – Building, furniture, plant
& machinery and intangible assets.
New Asset: It means any new plant or machinery but does not include ships
and aircraft, any machinery or plant which, before its installation by the
assessee, was used either within or outside India by any other person or any
machinery or plant which is installed in any office premises, any residential
accommodation, or in a guest house or any office appliances or road transport
vehicles or any machinery or plant, which is eligible for 100% deduction in
the first year.
9.9 ANSWERS TO CHECK YOUR PROGRESS

1) a. False, b. false, c. True, d. False
2) a. 40%, b.25%, c. Fixed. Normal
i) 1.c 2.d 3. b 4. e 5. a
ii) (a) tangible & intangible (b) short term capital loss (c) WDV (d)
infinite time.

1) List any five incomes that shall be chargeable under head ‘Profits and
Gains of Business or profession’.
2) Explain necessary conditions for income to be chargeable under the head
‘Profit and gains of Business or profession’.
3) State any five business losses which are not deductible from business
income.
4) Explain special cases where income from business is not taxable under
‘Profit and gains of Business or profession’.
5) Name specific deduction allowed under the Income Tax Act while
calculating income from business or profession.
6) Explain general principles to be followed while calculating depreciation
allowance.
7) What do you mean by Block of Assets? Explain various blocks in brief.
8) Write steps for calculating WDV of asset for charging depreciation.
9) Explain the provisions related to providing additional depreciation on
new plant and machinery.
10) Calculate the depreciation for the AY 2023-24, on the basis of the
information furnished by Mr Akash.
207
Income from House a) The written down value of cars as on 01/04/2022Rs 3,00,000
Property & Profits
(The cars were purchased prior to 01/04/1990)
or Profession
b) Car purchased in December 2022 being manufactured in India
Rs 2,00,000 and used in business for taxi purpose
c) Purchased car during the previous year manufactured abroad
Rs 1,50,000
d) Purchased car manufactured in South Korea in July, 2019 and gave
Rs. 4,50,000 hire for tourists.
e) The written down value of a motor taxi on 01/04/2022 Rs 60,000
[Answer: Rs 2, 50,500]
11) FROM the following information given by Goel Ltd., compute
depreciation allowable as per Income Tax Act, 1961 for assessment year
2023-24.
a) Written down value of plant and machinery on 01/04/2022 Rs
3,24,000
b) Additions to plant made on 01/12/2022 to produce an article
Rs 1,00,000
c) Machinery purchased on 31/12/2022 for Rs 1,20,000 which could
not be installed during the PY.
d) Sale proceeds of the machinery which was originally purchased
for Rs. 1,30,000on 01/04/2020 for Rs 1,00,000
e) Machinery destroyed in a fire happening on 30/03/2023.
Its original cost was Rs 50,000 purchased on 01/04/2021
The amount received from Insurance companyRs. 30,000
Rate of depreciation 15%
[Answer:2,21,900]

unit. Do efforts for writing the answersto these questions but do not
send your answer to the University. It is only for your practice.
208
Income from Profit
UNIT10 INCOME FROM PROFITS AND and Gains of
Business or
GAINS OF BUSINESS OR Profession-II
PROFESSION-II
Structure
10.0 Objectives
10.1 Introduction
10.2 Specific Deductions-II
10.2.1 Tea Development Account, Coffee Development and Rubber Development
Account
10.2.2 Site Restoration Fund
10.2.3 Expenditure on Scientific Research
10.2.4 Amortisation of Spectrum Fee for Purchase of Spectrum
10.2.5 Amortisation of Telecom License Fees
10.2.6 Deduction in Respect of Expenditure on Specified Business
10.2.7 Expenditure by Way of Payments to Association and Institutions for
Carrying out Rural Development Programmes
10.2.8 Weighted Deduction of 100% for Expenditure Incurred on Agricultural
Extension Project
10.2.9 Weighted Deduction of 100%for Expenditure Incurred on Skill Development
Project
10.2.10 Amortization of Certain Preliminary Expenses
10.2.11 Amortization of Expenditure in Case of Amalgamation or Demerger
10.2.12 Amortization of Expenditure Incurred under Voluntary Retirement Scheme
10.3 Other Deductions
10.4 General Deductions
10.5 Let Us Sum Up
10.6 Key Words
10.0 OBJECTIVES
• explain various deductions available under Section 33AB to Section
35DDA
• compute expenditure on scientific research and family planning
• discuss other relevant and general deductions related to Section 36
and 37
209
Income from House
Property & Profits 10.1 INTRODUCTION
or Profession In the first unit, we discussed about meaning of business or profession, basis
of charge for charging income tax on such income, general guidelines for
computing business income or professional income and special deductions
allowed under Sections 30 to 32 AD. This unit will deal with various
deductions under Sections 33AB to 37.
10.2 SPECIFIC DEDUCTIONS-II

10.2.1 Tea Development Account, Coffee Development
Account and Rubber Development Account
[Section 33 AB]
• Required Conditions
a) Engaged in the business of growing and manufacturing tea or coffee
or rubber in India
b) Deposit with NABARD in a special account or deposit under a
scheme approved by Tea, Coffee or Rubber Board.
c) Deposit to be made within 6 months from the end of the previous
year or before due date of filing return of income, whichever is
earlier
d) Accounts to be audited by Chartered Accountant
• Deduction – The amount deposited in the above mentioned scheme or 40
% of the profits of the said business (calculated under the ‘Profits and
gains of business or profession’head), whichever is less.
• Profits to be calculated before any deduction under Section 33AB and
adjustment of brought forward loss under Section 72 but after deducting
depreciation of current year.
10.2.2 Site Restoration Fund [Section 33 ABA]

• Required Conditions
a) Engaged in the business of prospecting for, or extraction or
production of, petroleum or natural gas or both in India.
b) Central Government has entered into an agreement with such tax
payer.
c) Deposit with SBI in a special account in a scheme approved by
Ministry of Petroleum and Natural Gas ordeposit in Site
Restoration Account under a scheme approved by Ministry of
Petroleum and Natural Gas. The deposit should be made before the
end of the previous year.
d) Accounts to be audited by Chartered Accountant
210
Income from Profit
• Deduction – The amount deposited in the above mentioned scheme or 20 and Gains of
% of the profits of the said business (calculated under the ‘Profits and Business or
gains of business or profession’ head), whichever is less. Profession-II
• Profits to be calculated before any deduction under Section 33ABA and

adjustment of brought forward loss under Section 72.
10.2.3 Expenditure on Scientific Research [Section 35]

Scientific Research means any activity for the extension of knowledge in the
fields of natural sciences including agriculture, animal husbandry or fisheries
[Section 43 (4)]. Such research may be carried on in two ways:
By Assessee himself By Contribution to Outsiders
• By Assessee Himself
An assessee can claim revenue and capital expenditure as deduction.
• Revenue Expenditure [Section 35 (1) (i)] – An assessee who carries out
any research of scientific nature during the previous year and incurs
revenue expenses in this regard, he shall be allowed to claim such
expenses as deduction provided the research is related to the business.
• All revenue expenses (expenditure on purchase of scientific research
material and salary to employees excluding perquisites to employees)
incurred during three years immediately preceding the commencement of
the business, shall considered to be the expenses of the previous year in
which the business commences and shall be allowed as deduction to the
extent these are certified by the prescribed authority.
Example: If the assessee starts its business on 25.10.2022, then all
revenue expenses on scientific research incurred, on or after 25.10.2022,
will be allowed as a deduction. Also, revenue expenses from 25.10.2019
to 24.10.2022 as prescribed by authority will be allowed as deduction for
previous year 2022-23.
• Capital Expenditure [Section 35 (1) (iv)] - An assessee who carries out
any research of scientific nature during the previous year and incurs
capital expenses other than expenditure on acquisition of land in this
regard, he shall be allowed to claim such expenses as deduction provided
the research is related to the business.
• All capital expenses (expenditure on purchase of plant and machinery,
construction of building, vehicles etc.) incurred during three years
immediately preceding the commencement of the business, shall be
considered as expenses of the previous year in which the business
commences and shall be allowed as deduction.
• Deduction in respect of capital expenditure on scientific research shall be
allowed to the extent of profist from that business. No business loss can
occur due to such deduction. If during any previous year, the capital
expenditure on scientific research cannot be absorbed owing due to no 211
Income from House profits or gains from business or due to insufficient profits or gains
Property & Profits
during the relevant previous year, then, it will be set off in the following
or Profession previous year and known as unabsorbed capital expenditure on scientific
research.
• No business loss can occur due to deduction on account of revenue
expenditure on scientific research.
• Sale of asset used for scientific research
a) Asset is sold without being used for other purpose [Section 41(3)] –
Net sale price of the assets or cost of the asset, which was earlier
allowed as deduction under Section 35 whichever is less, shall be
treated as business income of the previous year in which asset is sold.
Any capital gain i.e., sale price – original cost will be subjected to
capital gain provisions.
If business is not in existence in that previous year, still the
provisions will apply.
b) Asset is sold after being used for other purpose – If asset is used in
business after being used for scientific purpose, since deduction has
already been allowed under Section 35, it will be added to the
relevant block of asset at Nil Value. Later, when it is sold, the
money received will be deducted from block of asset in which it was
included initially.
• By Contribution to Outside Agencies
An assessee may necessarily not carry out research himself but
contribute payment for carrying research by outside agencies –
Contribution Section Weighted

Deduction
 Payment made to certain Sec 35 (1) 100% of actual
association/institutions for (ii) & (iia) expenditure
scientific research – as specified by
Central Government
 Payment made to certain Sec 35 (1) 100% of actual
institutions for research in social (iii) expenditure
sciences or statistical sciences –
association, approved university,
college or other institution
 Payment made to a company to be
used for scientific research
 Payment made to a National Sec 35 (1) 100% of actual
Laboratory or a University or an (iia) expenditure
Indian Institute of Technology or
specified person with a Sec 35 100% of actual
specification that the said sum shall (2AA) expenditure
be used for scientific research
undertaken, under a program
approved by the prescribed
212 authority
Income from Profit
Weighted deduction on in house research and development to a company and Gains of
assessee in certain cases [Section 35(2AB)] Business or
Profession-II
A weighted deduction of 100% will be allowed to a company –
a) Which is engaged in any business of manufacture or business of
production of any article except those specified in the list of the 11th
Schedule of the Income Tax Act.
b) Which has incurred revenue and capital expenditure (excluding land and
building) on in-house scientific research and development facility
approved by the prescribed authority.
Maintenance of account and audit is necessary for claiming such deduction.
If deduction is allowed under this Section, it will not be allowed under any
other Section.
Expenditure on scientific research done after 31.03.2020shall not be eligible
for weighted deduction under this Section.
The expenditure incurred on the acquisition of building (excluding cost of
land) shall be available under Section 35 (1) (iv) @ 100% of the expenditure
incurred.
Illustration 1
Abhimanyu purchased an asset for scientific research for Rs. 10,00,000 in the
previous year 2015-16. During the previous year 2022-23, the said asset
ceased to be used for scientific purpose. The following information is also
available:
Rs.
Profit from business before depreciation 5,00,000
Written down value of block of asset 15% as on 01.04.2022 8,00,000
Depreciation rate is @ 15%
Calculate total income for previous year 2022-23 if scientific asset is sold for
Rs. 20,00,000, assuming asset is sold without using and after using for
business purpose.
Solution:
Asset sold without using for business Asset sold after using for business
• Business Income Rs. • Business Income Rs.
Profit from business 5,00,000 Profit from business 5,00,000
(-) Depreciation @ 15 % 1,20,000 (-) Depreciation @ 15 % NIL
3,80,000 5,00,000
Profit on sale of asset 10,00,000 WDV on 01.04.2022 8,00,000
(cost or sale price whichever 13,80,000 (+) Scientific asset NIL
is less) 8,00,000
(-)Sales price 8,00,000
WDV for charging Dep NIL
213
Income from House • Long term Capital gain • Short term capital Gain
Property & Profits
and Gains of Business Sales Consideration 20,00,000 = 20,00,000 – 8,00,000
or Profession (-)Indexed cost = 12,00,000
(10,00,000×317/240)13,20,833
6,79,167
• Total Income of previous year • Total Income of previous year
=13,80,000 +6,79,167 =5,00,000 +12,00,000
= Rs. 20,59,167 = Rs.17,00,000
Illustration 2
Business income of T Ltd. before allowing expenditure on scientific research
for the previous year 2022-23 is Rs 2,60,000. The company has incurred the
following expenditure on scientific research during the previous year
2022-23.
Rs.
Revenue expenditure on scientific research 2,70,000
Capital expenditure on scientific research 5,00,000
Compute the deduction available on account of scientific research assuming
the company does not have any other income
Solution:
Business income before claiming expenditure Rs.
on scientific research 2,60,000
Less: i. Revenue expenditure on scientific research (2,70,000)
ii. Capital expenditure on scientific research ( 5,00,000)
Business Loss Rs 5,10,000
10.2.4 Amortisation of Spectrum Fee for Purchase of

Spectrum [Section 35ABA]
Any capital expenditure incurred by the assessee for obtaining any right to
use spectrum for telecommunication services either any time during any
previous year or before the commencement of the business and the assessee
has made payment, it will be allowed for each of the relevant previous years,
a deduction equal to the appropriate fraction of the amount of each
expenditure. The provisions contained in sub Section (2) to (8) of Section
35ABB shall apply as if for the word ‘License’, the word ‘Spectrum’ had
been substituted.
If any deduction has been claimed in a previous year and granted to the
assessee under Section 35ABA and subsequently, there is a failure to comply
any of the provisions of this section, then:
a) The deduction shall be treated to have been allowed by mistake.
214
Income from Profit
b) The assessing officer may again compute the total income of the assessee and Gains of
for the relevant previous year and he may take necessary corrections. Business or
Profession-II
For the above purpose, relevant previous year means:
a) Where the spectrum fee is actually paid before starting business, the
previous year beginning with the previous year in which such business
started.
b) In any other case, previous year beginning with the previous in which the
spectrum fee is actually paid.
10.2.5 Amortisation of Telecom License Fees [Section 35ABB]
Required Conditions to be fulfilled to avail deduction under Section 35
ABB (otherwise if conditions are non-fulfilled, then deduction can be
claimed under Section 37 (1) :
a) Expenditure incurred for acquiring any right to operate telecom services
either before the commencement of business or thereafter any time
during any previous year should be of capital nature.
b) Payment has been made to obtain licence.
• Deduction: In equal instalments over the period for which the right to
use licence remains in force and starting from the year in which
payment is made.
• No deduction shall be allowed under Section 32 (1) of the said
expenditure, if claimed under Section 35ABB
10.2.6 Deduction in Respect of Expenditure on Specified
Business[Section 35AD]
• Deduction is available only in case of specified business:
Specified Who should own business Approval (if any)

Business
1. Setting up and Any person Not required
operating a cold
chain facility
2. Setting up and Any person Not required
operating a
warehousing
facility for storage
of agriculture
produce
3. Laying and An Indian company or a Should be approved
operating a cross- consortium of Indian by Petroleum and
country natural gas companies or an authority Natural Gas
or crude or /Board / corporation Regulatory Board
petroleum oil established under any and notified by the
pipeline network Central or State Act. Central
for distribution Government.
including storage 215
Income from House facilities being an
Property & Profits integral part of
or Profession such network.
4. Building and Any person No approval
operating required; however,
anywhere in India hotel should be
a hotel of 2 star or classified by the
above category Central Government
as 2 star hotels or
above category.
5. Building and Any person No approval
operating, hospital required, anywhere
in India with at least
100 beds for
patients.
6. Developing and Any person Developing and
building a housing building housing
project project should be
under a scheme for
slum redevelopment
or rehabilitation
framed by the
Central Government
/ State Government
and notified by the
Board in accordance
with prescribed
guidelines
7. Developing and Any person Developing and
building a housing building a housing
project project should be
under a scheme for
affordable housing
framed by the
Central Government
or a State
Government and
notified by the
Board
8. Production of Any person Not required
fertilizer in India
9.Setting up and Any person As notified or
operating an approved under the
inland container Customs Act
depot or a
container freight
station
10. Bee-Keeping Any person No approval
and production of
honey and
216
Income from Profit
beeswax
and Gains of
11. Setting up and Any person No approval Business or
operating a Profession-II
warehousing
facility for storage
of sugar
12. Laying and Any person No approval
operating a slurry
pipeline for the
transportation of
iron ore
13.Setting up and Any person As notified by the
operating a semi- Board in accordance
conductor wafer with such guidelines
fabrication as may be
manufacturing unit prescribed
14. Developing or An Indian company or The eligible entity
maintaining and consortium of Indian has entered into an
operating a new companies or an agreement with
infrastructure authority/Board/Corporation/ central/ State
facility. any other body established government/Local
or constituted under any authority/Any other
central or state act. statutory body for
developing,
maintaining etc
facility also made
such proportion of
its total pipeline
capacity available
for use on common
carrier basis by any
person other than
the assessee or an
associated person as
prescribed by the
petroleum and
natural gas
regulatory board.
• Cold Chain Facility means a chain of facilities for storage or

transportation of agricultural and forest produce, meat and meat
products, poultry, marine and dairy products, product of horticulture,
floriculture and apiculture and processed food items under scientifically
controlled conditions including refrigeration and other facilities
necessary for the preservation of such produce.
• In case, any capital expenditure in respect of which a payment (or
aggregate of payments made to a person in a day), except by an account
payee cheque/ draft or use of electronic clearing system through a bank
account, exceeds Rs. 10,000, such payment shall not be eligible. Also,
217
Income from House expenditure on acquisition of land or goodwill or financial instrument
Property & Profits
shall also be not allowed.
or Profession
• Deduction
100 % of capital expenditure incurred wholly and exclusively for such
purpose as per Section 35 AD during the previous year.
• In the year of commencement of business, expenditure which is incurred
prior to commencement of operation is capitalized in the books of
account of the assessee shall be allowed as deduction.
• Required Conditions:
a) Not set up by splitting or reconstruction of existing business.
b) Not set up by transferred machinery or plant used previously for any
purpose.
c) Asset in respect of which deduction is claimed shall be used
specifically for specified business for a period of 8 years beginning
from year of acquisition or construction.
• If asset is used for other purpose, then deduction under Section 35 AD
shall stand withdrawn but after allowing depreciation under Section 32
and amount so arrived shall deemed to be the business income of the
previous year in which the asset is so used.
Illustration 3
X Ltd. constructed a building and started operating a hotel of 3-star category
w.e.f. 01.04.2022. The company incurred the following expenditure in this
connection.
Rs.
1. Capital expenditure (including cost of land Rs. 50 1,10,00,000
lakhs) incurred during December, 2021 to March,
2022 which were capitalized in the books of account
31.3.2023
2. Capital expenditure incurred during previous year 1,40,00,000
2022-23 (it includes Rs.20 lakhs paid for Goodwill)
Compute the deduction available under Section 35 AD in the assessment year

2023-24.
Solution:
Particulars Rs.
Capital expenditure incurred before commencement but 1,10,00,000
capitalized in books of account
Less: Cost of land not eligible for deduction under Section 50,00,000
35 AD
60.00.000
Add: Capital expenditure incurred during previous year 1,20,00,000
2022-23 exclusive of value of goodwill
Deduction allowable under Section 35 AD 1,80,00,000
218
Income from Profit
10.2.7 Expenditure by Way of Payments to Association and and Gains of
Institutions for Carrying Out Rural Development Business or
Profession-II
Programmes [Section 35CCA]
• Any sum paid to National Fund for Rural Development set up by the
Central Government or to the National Urban Poverty Eradication Fund
set-up and notified by the Central Government shall be allowed as
deduction to the assessee who is carrying on a business or profession.
10.2.8 Weighted Deduction of 100% for Expenditure Incurred
on Agricultural Extension Project [Section 35 CCC]
Allowed to Any Assessee
Purpose Any expenditure incurred on agricultural extension
project notified by Board
Quantum 100 % of expenditure incurred during the year
Allowability If deduction is claimed under Section 35CCC, it is not
allowable under any other provision of this Act or any
other assessment year
10.2.9 Weighted Deduction of 100% for Expenditure

Incurred by a Company on Skill Development Project
[Section 35 CCD]
Allowed to Company assessee only
Purpose Any expenditure excluding expenses on cost of any
land/building on Skill Development Project notified by the
board
Quantum 100 % of expenditure incurred during the year
Allowability If deduction is claimed under Section 35CCD, it is not
10.2.10 Amortization of Certain Preliminary Expenses

[Section 35D And Rule 6 AB]
Allowed to Indian company or a person other than a company
who is resident in India
Allowability Expenditure incurred before commencement of
business or after commencement in connection with
the extension of existing undertaking or in
connection of setting up a new unit.
Qualifying The following expenses qualify for deduction:
Expenditure a) Expenditure incurred in connection with :
i) Preparation of a feasibility report;
ii) Preparation of a project report;
iii) Conducting market survey or any other
survey necessary for the business of the
assessee;
219
Income from House iv) Engineering services relating to the business
Property & Profits of the assessee;
or Profession b) Legal charges for drafting any agreement
between the assessee and any other person
relating to the setting up conduct of the business
of the assessee;
c) Where the assessee is company, also, expenditure
i) by way of legal charges for drafting the

Memorandum and Articles of Association
of the company;
ii) on printing of the Memorandum and
Articles of Association;
iii) in connection with the issue, for public
subscription, of shares in or debentures of
the company, being underwriting
commission, brokerage and charges for
drafting, typing, printing and advertisement
of the prospectus;
d) Any other as prescribed.
Qualifying Amount Not exceeding 5% of cost of project in case of all
except companies.
Company – 5 % of cost of project or5% capital
employed by company (whichever is beneficial to
company)
Quantum of 5 equal installments beginning with the previous
deduction year of commencement of business or the previous
year in which the extension is completed or new unit
commences production/ operation.
10.2.11 Amortization of Expenditure in case of Amalgamation

or Demerger [Section 35DD]
Allowed to Any Indian Company
Purpose Any expenditure incurred, wholly or exclusively, for
purpose of amalgamation or demerger of an undertaking.
Deduction 1/5th of such expenditure for each of five successive
previous years beginning in the year in which the
amalgamation or demerger take place.
Allowability If deduction is claimed under Section 35DD, it is not
220
Income from Profit
10.2.12 Amortization of Expenditure Incurred Under and Gains of
Voluntary Retirement Scheme [Section 35DDA] Business or
Profession-II
Allowed to Any Assessee
Purpose Any expenditure incurredfor payment of any sum to an
employee regarding his voluntary retirement, in linewith
any scheme or schemes of voluntary retirement.
Quantum 1/5th of such expenditure for each of five successive
previous year
Allowability If deduction is claimed under Section 35DDA,it is not

1) Match the following:
Special Deduction Section

1) Tea Development Account a) Sec 35 ABB
2) Site Restoration Fund b) Sec 35
3) Expenditure on Scientific research c) Sec33AB
4) Amortization of Telecom license fees d) Sec 35 AD
5) Deduction in respect of specified e) Sec 33 ABA
Business
2) State whether following statements are True or False:
a) Profits from speculation are taxable under head ‘Business or Profession’
b) Deduction in respect of Site Restoration Fund is available to those
assesses engaged in the business of extraction or production of
petroleum or natural gas or both in India.
c) Donation made to a National Laboratory or a University or an Indian
Institute of Technology shall be allowed as deduction to the extent
of 100% of actual expenditure or donation so made.
d) Deduction u/s 35ABB is allowed in connection with amortisation of
telecommunication services.
10.3 OTHER DEDUCTIONS

Deductions which are specified under Section 36 include the following:
Insurance premium of • The amount paid for insurance against risk
stocks [Section 36(1)(i)] of damage or destruction of stocks or
stores (for the purposes of the business).
• Paid means actually paid or incurred
according to the method of accounting
adopted.
Insurance premium of • The amount paid by a federal milk
cattle [Section 36(1)(ia)] cooperative society towards insurance on
the life of the cattle owned by a member
of the primary milk co-operative society.
221
Income from House Insurance on health of • The amount of premium paid by any
Property & Profits
employees [Section payment mode except cash by the assessee
or Profession 36(1)(ib)] as an employer forinsurance on the health
of his employees under the scheme framed
by (i) the General Insurance Corporation
of India, or (ii) any other insurer approved
by IRDA and approved by the
Government of India.
Bonus or Commission to • Paid as bonus or commission to employees
employees [Section not as part of profit or dividend.
36(1)(ii)] • Allowed only on payment basis. It can be
claimed on accrual basis also subject to
provisions of Section 43B.
Interest on borrowed • Conditions – Assessee has borrowed
capital [Section 36(1)(iii)] capital for his business, profession or
vocation and interest is paid or payable.
• Paid means actually paid or incurred
according to the method of accounting
adopted.
• Interest on own capital is not deductible.
• Interest means interest payable in any
manner in respect of any money borrowed
or debt incurred (including a deposit,
claim or similar right or obligation) and
includes any service fee or other charge in
respect of money borrowed or debt
incurred or in respect of any credit facility
which has not been utilized [Section 2
(28A)]
• Interest on borrowing for acquisition of an
asset shall not be allowed as revenue
expenditure. Such interest shall be added
to the cost of the asset.
• Interest to financial institutions and
interest on any loan or advance from a
scheduled bank, is allowed as deduction
subject to provisions of Section 43B.
Discount on issue of zero • Zero coupon bonds are bonds issued by an
coupon bonds to be infrastructural capital company or an
allowed as deduction on infrastructural capital fund or a public
pro rata basis [Section bank of a scheduled bank.
36(1)(iiia)] • Deduction is allowed on pro rata basis
spread on the life of such bond.
• Discount = Amount payable on maturity –
Amount received/receivable at the time of
issuing the bond.
• Life of Bond – Period commencing from
the date of issue of bond to the date of
maturity/redemption of such bond.
222
Income from Profit
Employer’s Contribution • Allowed as deduction subject to such and Gains of
to a recognized Provident limits as may be prescribed for the Business or
Fund or Approved purpose of recognizing the provident fund Profession-II
Superannuation Fund or approving the superannuation fund, etc.
[Section 36(1)(iv)] • “Any sum paid” in reference to Section
43Bis such sum payable at the end of the
year whichwill not be allowed as
deduction on due basis unless the payment
of the same is actually made on or before
the due date of furnishing the return of
income prescribed under Section 139(1).
In case, payment is made later than the
due date, it shall be allowed as deduction
in the year in which it is paid.
Employers’ contribution • Employer’s contribution towards NPS is
towards a pension scheme allowed to the extent of 10% of salary of
[Section 36(1) (iva)] employee.
• Salary includes Dearness Allowance, if
terms of employment so provide, but
excludes all other allowances and
perquisites.
Employers’ contribution to • Any sum paid by employer towards
an approved gratuity fund approved gratuity fund created for the
[Section 36(1)(v)] benefit of the employees is subjected to
provisions of Section 43B.
Sums received from • Sum deducted from the salary of the
employees towards certain employee on account of contributions to
welfare schemes if credited any provident fund or superannuation fund
to their accounts before the or ESI or any other fund for the welfare of
due date [Section such employee has to be deposited in the
36(1)(va)] relevant fund under any Act, rule, order or
notification issued there or under any
standing order, award, contract of service
or otherwise by the due date.
• If amount deducted from salary is not
deposited by the employer timely, then it
shall be treated as income of the employer
as per Section 2(24)(x).
Allowance in respect of • Expenditure on purchase of animals
dead or permanently otherwise than as stock in trade for
useless animals [Section purpose of business/profession(less)
36(1)(vi)] amount realised (if any) in respect of
carcasses or sale of animal is allowed as
deduction.
Bad debts [Section • Conditions tobefulfilled to claim
36(1)(vii)] deduction-
a) Such debt or part thereof must have
beenconsidered in computing the
incomeof the assessee of the previous 223
Income from House year or of anearlier previous year, or
Property & Profits
and Gains of Business b) It has been written off irrecoverable
or Profession inthe accounts' of the assessee for that
previous year.
• Important Points –
a) There must be bad debts and of
revenue nature.
b) Debt must be related to the business
or profession.
c) It represents money lent in the
ordinary course of business of
banking or money lending which is
carried on by the assessee.
d) If there is a bad debt on account of
sale made, it will be allowed as a
deduction because sale has been
treated as income.
e) In the case of money lending
business, interest is an income. If that
income is not realizable, it can be
treated as a bad debt. However, in
this case, even the money, which was
lent, if not realized, can be treated as a
bad debt.
f) If there is any advance given for
purchase ofraw material and it is
forfeited by the creditor, itwill not be
treated as a bad debt because it
hasnever been treated as income. It
will, however, be allowed as a loss u/s
28.
g) Provision for bad and doubtful debts
is noteligible for deduction.
h) If any amount has been claimed and
allowed as a bad debt, then if the
amount is subsequently recovered
shall be treated as the income of the
previous year in which it is recovered.
Business may or may not continue in
the previous year in which it is
recovered.
Expenditure on promoting • Allowed only to company assessee.
family planning amongst • Expenditure incurred by a company for the
the employees [Section purpose of promoting family planning
36(1)(ix)] amongst its employees is allowed as
deduction in the year in which it is
incurred.
• In case, it is of capital nature, 1/5th of such
224
Income from Profit
expenditure shall be deducted for the
and Gains of
previous year, in which it was incurred, Business or
and the balance shall be deducted in four Profession-II
equal installments during the subsequent
four years.
• If during any previous year, the capital
expenditure (both revenue and capital) on
family planning cannot be absorbed owing
due to no profits from business or due to
insufficient profits during the relevant
previous year, then it will be set off and
carried forward as unabsorbed capital
expenditure on family planning.
Securities Transaction Tax • If the income arising from taxable
paid to be allowed as securities transactions is included in the
deduction [Section income, then Securities transaction tax
36(1)(xv)] paid by the assessee will be allowed as
deduction.
Commodities Transaction • If the income arising from taxable
Tax to be allowed as a commodities transactions is included in
deduction [Section the income, then commodities transaction
36(xvi)] tax paid by the assessee will be allowed as
deduction.
Illustration 4
For the previous year 2022-23, the business income of X Ltd. before allowing
expenditure on family planning is Rs.3,00,000. The company had incurred
the following expenditure on family planning amongst its employees during
the previous year 2022-23:
Rs.
i) Revenue expenses on family planning 1, 65,000.
ii) Capital expenditure on family planning 9, 00,000.
a) Compute the deduction available for expenditure on family planning to
the company assuming the company has income from other sources
amounting to Rs. 30,000.
b) What will be your answer if the revenue expenditure on family planning
is Rs. 2, 30,000 instead of Rs.1, 65,000?
Solution:
Particulars Rs. Rs.

(a) Profits before deduction 3,00,000
of expenditure on family
planning
Less: Revenue expenses 1,65,000
Capital expenditure (1/5th of Rs. 9,00,000 = Rs. 1,80,000 but allowed to
the extent of business income)
225
Income from House Business Income Nil
Property & Profits
and Gains of Business Income from other sources 30,000
or Profession
Less: Unabsorbed capital 30,000 Nil
expenditure of family
planning
Gross Total Income Nil
The balance unabsorbed capital expenditure on Family Planning of Rs.
15,000 will be carried forward.
(b) Profit before deduction of 3,00,000
expenditure on family
planning
Less: Revenue expenses 2,30,000
1/5th capital expenditure 1,80,000
4,10,000
Deduction limited to 3,00,000 Nil
business income
Balance family planning 1,10,000
expenditure
Set off against income from 30,000
other sources
Unabsorbed family planning 80,000
expenditure carried forward
Income from other sources 30,000
Less: Set off family planning 30,000 Nil
expenditure
Gross total income Nil
10.4 GENERAL DEDUCTIONS

To claim deduction under theSection 37, the following conditions should be
satisfied:
• The expenditure should not be of the nature as under Sections 30 to 36.
• It should not be capital expenditure or personal expenditure of assessee.
• It should have been incurred in the previous year in respect of business
carried on by the assessee.
• It should have been expended wholly and exclusively for the purpose of
such business.
• It should not have been incurred for any purpose which is an offence or
is prohibited by any law.
Few of the approved general deduction u/s 37(1) are given below:
1) Expenses to avail overdraft facilities for the purpose of business.
2) Periodical payments to use goodwill.
226
Income from Profit
3) Any deficiency of cash found in the end of any day.
and Gains of
4) Expenses for registration of trademark. Business or
Profession-II
5) All expenses to maintain tea gardens.
6) Expenses incurred on purchase, sale, production of goods.
7) General advertising expenses for maintaining in sale of trade.
8) Daily expenses relating to business.
9) Expenses incurred on labour welfare.
10) Payment of sales tax and expenses of sale-tax appeal.
11) Contribution to trade union to prevent uneconomical competition.
12) Contribution to association formed to oppose the nationalization of
business of the assessee.
13) Salary and perquisites to employees.
14) Commission to general manager in the form of percentage of profits.
15) Commission to sales representative.
16) Compensation paid to undesirable employees or compensation paid to a
director in company’s interest for relieving him from services.
17) Pension and gratuity paid to employees.
18) Reasonable expenditure on Dussehra, Deepawali etc.
19) Any compulsory contribution, or any other contribution, which is
necessary for business interest.
20) Commission paid for obtaining orders for business.
21) Damages on not to fulfill contract at time.
22) Consultation fees to maintain software.
23) Provision for loss under AS-7.
24) Royalty paid by the assessee to any company to use its logo.
25) Legal expenses in connection with taking loan from financial
institutions.
26) Compensation paid to employees for accident etc.
27) Legal expenses relating to business or profession.
28) Expenses incurred for new telephone/telex connection (As per order of
central board of direct taxes).
29) Expenses incurred in prohibiting nationalization of trade or other such
type of expenses.
30) Interest paid on capital borrowed in connection with asset for the
business (whether it is capitalized in the accounts or not).
31) Legal expenses to protect the capital asset of the business.
32) Legal expenses to protect the business.
33) Provision for payment of excise duty.
34) Expenses on family planning by non-company assessee.
227
Income from House 35) Registration and maintenance expenses of trademark.
Property & Profits
and Gains of Business 36) Expenses of issuing debentures and expenses on taking loans.
or Profession
37) Fines paid for escaping the seizures of goods, which he has no
knowledge that the goods have been imported illegally from foreign
countries.
38) Professional tax, levied by local body, the payment of which was
necessary for operation of trade.
39) Amount paid for the loan of the purchase of house by assessee, is
revenue expenses.
40) Fines and compensation paid to government on account of delay in the
supply of contract.
41) Compulsory contribution of business, e.g., contribution to Chamber of
Commerce.
42) Amount of Royalty
43) Payment of professional tax.
44) Expenses of income tax activities in relation to trade.
45) Revision expenses in Memorandum and Articles of Association due to
company Act.
46) Interest payable on account of late payment of installment under Hire
Purchase system.
47) Interest payable on account of delay in payment of cess to the
government because compensation is payable in failure to pay cess.
48) Expenses on foreign tour of director for the development of trade of
company.
49) Prizes paid to employees on inauguration or on festivals like
Deepawali, white washing, lighting expenses etc.
50) Listing fee of listing the security in stock exchange.
• Instances of expenses not deductible under Section 37(1)
Few instances are given below:
1) Damages and penalty paid for transgressing the terms of agreement
with the State.
2) Penalty and damages paid in connection with infringement of law.
3) Litigation expenditure incurred for curing any defect in title of assets or
completing that title.
4) Litigation expenses for registration of shares.
5) Fees paid for increase of authorized capital.
6) Expenditure on raising equity share capital and preference share capital
(may be redeemable). However, expenditure on issue of bonus shares
is deductible.
7) Amount paid for acquiring technical know-how which is to be utilized
for the purpose of manufacturing any new article and such know-how is
228
Income from Profit
to become the property of the assessee at the end of the stipulated
and Gains of
period. Business or
Profession-II
8) Amount expended for acquiring a business or a right of a permanent
character or an asset which generates income or for avoiding
compensation in business.
9) Payments made for acquisition of goodwill.
10) Expenditure incurred for acquiring right over or in land to win minerals
(where, however, minerals are already on surface, expenditure incurred
for obtaining right to acquire raw material is deductible).
11) Fees paid to obtain license to investigate and search minerals.
12) Payment made in consideration of acquiring a monopoly right to
manufacture a product (royalty payable on the basis of goods produced
under the same arrangement is, however, deductible).
13) Tax paid by the assessee (who is defaulter by not deducting tax at
source under Section 195) on behalf of non-resident.
14) Compensation paid to contracting party with the object of avoiding an
unnecessary investment in capital asset.
15) Expenditure on shifting of registered office.
16) Insurance premium paid by a firm on life insurance policies of its
partner.
17) Amount paid by liquor contractor to police staff and other officer to
enable it to make unauthorized purchases and sales of liquor.
18) Amount paid by a company to the Registrar of Companies as filing fee
for enhancement of capital base of the company.
19) Payment made by the assessee-company which was partner in a firm, to
outgoing partners of firm on account of their agreeing to restrain from
carrying on similar business for a period of 15 years.
1) Fill in the blanks:
a) Interest on loan taken by a partner from a firm shall be taxable under
head………….
b) ………….shall be allowed on the expenditure on technical know-
how after 31/03/98
c) In the business…………..shall be disallowed, if the payment
exceeding Rs 10,000 is done in cash.
d) The maximum deduction to be allowed in case of reserve for
shipping business shall be ……………………
e) Expenses incurred on labour welfare is covered under section………
229
Income from House
Property & Profits 10.5 LET US SUM UP
or Profession Income from profits and gains from business or profession being major third
head is important component of income computation for tax purpose. Section
28 of Income Tax Act enumerates the income that shall be chargeable under
this head and income will be computed in accordance with the provisions laid
down in Section 29 to 44DB. The assesses engaged in different business like
in growing and manufacturing tea or coffee or rubber in India, prospecting
for , or extraction or production of, petroleum or natural gas or engaged in
specified business under Section 35AD are allowed special deduction while
computing their business incomes. Section 35 provides that the expenditure
on scientific research whether in house or contribution to research agencies
and institutions is allowed to be deducted while computing business income.
Sections 36 and 37 lay down the other general deductions to be allowed
under profits and gains from business or profession.
10.6 KEY WORDS

Scientific Research: It means any activity for the extension of knowledge in
the fields of natural sciences including agriculture, animal husbandry or
fisheries.
Cold Chain Facility: A chain of facilities for storage or transportation of
agricultural and forest produce, meat and meat products, poultry, marine and
dairy products, product of horticulture, floriculture and apiculture and
processed food items under scientifically controlled conditions including
refrigeration and other facilities necessary for the preservation of such
produce.
Zero Coupon Bond: It is a bond issued by an infrastructural capital
company or an infrastructural capital fund or a public bank of a scheduled
bank.
10.7 ANSWERS TO CHECK YOUR PROGRESS

1)1. c 2. e 3. b 4. a 5. d
(2)(a)True (b) True (c) True (d) True
1. Profits and gains of business or profession, 2.Depreciation, 3.100%,
4.100%, 5. 37(1)

1) List any five specified businesses as per Section 35AD.
2) List five expenditures as deductions which are allowed and disallowed
under Section 37 (1).
230
Income from Profit
3) Explain the treatment of (a) expenditure on scientific research (b) and Gains of
expenditure on family planning. Business or
Profession-II
4) How would you treat the following while computing business income?
a) Insurance premium of stock
b) Interest on borrowed capital
c) Securities Transaction Tax
d) Bad Debts
5) For the previous year 2022-23, the business income of Nexa Ltd before
allowing expenditure on family planning is Rs 8,00,000. The company
had incurred the following expenditure on family planning amongst its
employees during the previous year 2022-23:
Rs.
a) Revenue expenses on family planning 4,40,000
b) Capital expenditure on family planning 20,00,000
Compute the deduction available for expenditure on family planning to the
company assuming the company has income from other sources amounting to
Rs 80,000
[Answer: Unabsorbed Capital Expenditure- Rs 40,000, Gross total
Income – Rs 40,000]
6) The following is the profit and loss account of Mr. Sumit for the year
ended on 31st March, 2023. Compute his taxable income from business
for that year:
Particulars Rs. Particulars Rs.

Opening stock 15,000 Sales 80,000
Purchases 40,000 Closing Stock 20,000
Salary 16,000 Gift from 10,000
Father
Wages 4,000 Sale of Car 17,000
Rent 6,000 Income-Tax 3,000
Refund
Repairs of Car 3,000
Interest on capital 2,000
Medical Expenses 3,000
General Expenses 10,000
Depreciation on 3,000
Car
Advance Income 1,000
Tax Paid
Profit for the year 27,000
I,30,000 1,30,000
231
Income from House Following further information are given:
Property & Profits
and Gains of Business 1) Mr. Sumit carries on his business in rented premises, half of which is
or Profession
used as his residence.
2) Mr. Sumit bought a car during the year for Rs 20,000. Hecharged 15%
depreciation on the value of car. The car was sold during the year for Rs
17,000. Theuse of the car was one-fourth for personal purposes.
3) Medical expenses were incurred during sickness of Mr. Sumit for his
treatment.
4) Wages includes Rs 250 per month on account of Mr. Sumit’s driver for
10 months.
5) Mr. Sumit paid premium of Rs 4,000 for mediclaim policy in cash for the
benefit of the employee.
[Answer: Taxable Income from Business = Rs 14,375]
7) Mr Sanjay Goel is a practicing Chartered Accountant. He maintains cash
account, the receipt and payment account for the year ended on
31stMarch, 2023:
Receipts Rs. Payment Rs.

Balance b/d 9,300 Office Rent 2,400
Audit Fee 64,700 Salary of Audit Clerk 24,800
Income from other 56,800 Allowance of Articled 1,800
Accounting Work Clerk
Fee for conducting 8,100 Salaries 32,400
Income Tax Appeal
Examiner’s Fee 600 Municipal Expenses 400
(From university)
Dividend 7,840 Personal Expenses 53,500
Rent from Property 4,000 Membership Fee 1,100
Life Insurance 1,500
Premium
Income Tax 2,500
Motor Car purchased 9,000
Expenses of Motor 600
Car
Insurance of House 300
Property
Balance c/d 21,040
1,51,340 1,51,340
232
Income from Profit
Having regard to the fact that one-third of motor car expenses are in
and Gains of
respect of his professional practice, compute the professional income Business or
of Mr Sanjay Goel for the assessment year 2023-24. Depreciation on Profession-II
car is @ 15%.
[Answer: Professional Income Rs 67, 050]

unit. Do efforts for writing the answer to these questions but do not
send your answers to university. It is only for your practice.
233
Income from House
Property & Profits UNIT11 INCOME FROM PROFITS AND
or Profession GAINS OF BUSINESS OR
PROFESSION-III
Structure
11.0 Objectives
11.1 Introduction
11.2 Special Disallowances under the Act
11.3 Deemed Profits Chargeable to Tax
11.4 Maintenance of Books of Account
11.5 Compulsory Audit of Accounts
11.6 Estimated Income Method for Computing Business Income in Certain
Cases
11.6.1 Computation of Income on Estimated Basis in Case of TaxpayersEngaged
in Business
11.6.2 Computation of Income on Presumptive Basis
11.6.3 Computation of Income in Case of Business of Plying, Hiring or Leasing
Goods Carriages
11.7 Computation of Profits and Gains from Business or Profession
11.8 Let Us Sum Up
11.9 Key Words
11.0 OBJECTIVES
• explain the various specific disallowances as per section 40, 40A and
43B under the Act
• discuss deemed profits chargeable to tax
• understand provisions relatedto maintenance of books of account and
compulsory audit of accounts
• compute income under the head 'Profits and gains from business or
profession’.
11.1 INTRODUCTION
In first two units, we discussed the meaning of business or profession, basis
of charge for charging income tax on such income, general guidelines for
computing business income or professional income and special deductions
allowed under sections 30 to 37. This unit will deal with various specific
disallowances under the Act, deemed profits chargeable to tax and method of
calculating income under the head 'Profits and gains from business or
234
Income from Profit
profession’. This unit will also help in understanding provisions related to and Gains of
maintenance of books of account and compulsory audit of accounts. Business or
Profession-III
11.2 SPECIFIC DISALLOWANCES UNDER THE

ACT
The following expenses given by sections 40,40A and 43B are expressly
disallowed by the Act while computing income chargeable under the head
“Profits and gains of business or profession”. They are overriding in nature
which provides that even if an expenditure or allowance comes within
purview of any of the sections 30 to 37 as well as section 40, 40 A and 43B,
section 40, 40 A and 43B provisions will prevail over other sections 30 to 37.
Table 11.1: Specific Disallowances
Nature of Section Disallowance

expenditure
Interest, royalty, fees 40 (a) • Conditions for deducting TDS by
for technical services the assessee –
payable outside India a) Interest, royalty, fees for
or payable to a non – technical services is being paid.
resident b) Amount is chargeable to tax in
India in the hands of the
recipient.
c) Amount is paid or payable to a
non-resident.
• If there is default in deducting
TDS or after deduction has not
been paid before the due date
specified u/s 139(1), the
expenditure is disallowed.
• However, if later, tax is deducted
in any subsequent previous year or
deducted during previous year but
paid after due date, then such sum
shall be allowed as deduction in
which such tax has been paid.
Payment/credit of 40 (a) • If there is default in deducting
interest, commission, (ia) TDS under section 192 to 194LA
rent, technical or after deduction has not been
/professional fees, deposited on or before the due date
royalty and contract specified u/s 139(1), the
payments are given to expenditure is disallowed to the
a resident. extent of 30% of such sum payable
to the resident.
• However, if later tax is deducted in
any subsequent previous year or
deducted during previous year but
deposited after due date, then such
sum of 30% shall be allowed as
235
Income from House deduction in which such tax has
Property & Profits been paid.
or Profession TDS default when 40 (a) • No deduction will be allowed if
salary is paid to a non- (iii) TDS is not deducted
resident or outside • Date of deduction of tax or due
India date is immaterial.
Fringe benefit tax, 40 (a) • These are not deductible.
income-tax, wealth-tax
(including penalty,
fine, interest)
Tax on non-monetary 40 (a) • Not deductible
perquisites paid by (v)
employer
Salary/interest paid by 40 (b) • Interest on capital or loan of
a firm to its partners. partners is allowed as deduction
only when payment of interest is
mentioned in the partnership deed.
• Interest allowed as deduction will
be either as per partnership deed or
12% p.a., whichever is less.
• Any salary, bonus, commission, or
any other remuneration is allowed
as deduction if paid to working
partner as per partnership deed.
• Remuneration shall be minimum
of two limits:
a) Amount paid or payable to
working partners as per
partnership deed.
b) Maximum amount specified
under section 40 (b):
On the first 90% of book
Rs.3,00,000 profit
of book profit orRs.1,50,000,
or in case of a whichever is
loss more
On the 60% of the book
balance book profit
profit
Salary /interest paid by 40 (ba) • Non deductible
an AOP to its
members.
Excessive 40A (2) • Any payment made to certain
unreasonable payment specified persons more than fair
to relatives / inter- market value of the commodity,
connected concerns service or facility or legitimate
need of the business or benefit
derived by accruing to assessee as
a result of the expenditure, to the
236
Income from Profit
extent payment is considered as
and Gains of
excessive or unreasonable, it will Business or
be disallowed by the Assessing Profession-III
officer, if not satisfied.
• Specified persons include relative,
director of company or director’s
relative. Payment made by a
firm/AOP/HUF to a
partner/member or relative of
partner, payment made to an
individual who has substantial
interest in the business of the payer
or relative of such individual are
also included in specified person.
This list is not exhaustive.
• Relative means husband, wife,
brother or sister or any lineal
ascendant or descendant of that
individual.
• Substantial interest means a person
having at least 20% of equity
capital (company) or 20% of
profits of a concern at any time
during the previous year.
Disallowance of 40A (3) • Assessee incurs any expenditure of
expenditure exceeding (a) which payment (single or in
Rs.10,000 paid by a aggregate) is made to a person in a
mode other than day, otherwise than by an account
account payee payee cheque/draft drawn on a
cheque/draft bank or use of electronic system
through a bank account Rs.10,000,
no deduction shall be allowed in
respect of such expenditure.
• If payment is made in any
subsequent assessment year and
expense was allowed as deduction
in any earlier year, the assessee,
therefore made the payment
otherwise than by an account payee
cheque/draft drawn on a bank or
use of electronic system through a
bank account exceeding Rs.10,000,
then such payment shall be deemed
to be the profit of the year under
‘profit or gains of business or
profession’ in the year in which
such payment is made.
• In case of payment for plying,
hiring, or leasing goods carriage,
this limit of Rs.10,000 is raised to
Rs.35,000.
237
Income from House • However, as per rule 6DD, even
Property & Profits
the payment exceeding
or Profession Rs.10,000/Rs.35,000 shall be
allowed as deduction even if
payment is made to a person in
single or aggregate by other mode
than cheque/draft.
a) Payment made to bank (RBI,
SBI, co-operative bank, land
mortgage bank, any primary
agricultural credit society) and
LIC.
b) Payment made to Government.
c) Payment through banking
system (Letter of credit, mail or
TT through bank, Bill of
exchange, electronic clearing
system, credit/debit card).
d) Payment is made by way of
adjustment against the amount
of any liability incurred by the
payee for any goods supplied
or services rendered by
assessee to such payee.
e) Payment is made to the
cultivator for purchase of
agricultural produce, produce
of animal husbandry or poultry
farming, fish or fish products or
the products of horticulture or
apiculture.
f) Payment made to a producer
for purchase of products
manufactured or processed
without the aid of power in a
cottage industry.
g) Payment made to a person who
resides or carries on business in
a village not served by bank.
h) Payment of terminal benefits
(gratuity, retrenchment
compensation etc) not
exceeding Rs.50,000.
i) Payment made on date of
closing of bank due to holiday
or strike.
j) Payment made by any person
to his agent who is required to
make payment in cash for
goods or services on behalf of
238
Income from Profit
such person.
and Gains of
k) Payment by an unauthorized Business or
dealer or a money changer Profession-III
against purchase of foreign
currency or traveler cheque in
the normal course of business.
l) Payment by way of salary (after
deducting tax) made to such
assessee who is temporarily
posted for a continuous period
of 15 days other than normal
place of duty or on a ship and
does not maintain account at
such place or ship.
Provision for Gratuity 40A (7) • Gratuity is a payment made
according to the length of the service
• Not deductible
• Only approved gratuity fund is
deductible
Employer’s 40A (9) • It is not allowed as deduction but
contribution to non- employer’s contribution to
recognized fund or recognized provident fund, statutory
trust provident fund or approved
superannuation fund or approved
gratuity fund is allowable deduction.
Certain deductions to 43B • Deduction in respect of certain
be allowed only on expenditure/payment is allowed only
actual payment if the amount has been paid during
the previous year irrespective of the
previous year to which the liability
to pay was incurred.
• If assessee follows the mercantile
system, the following payments can
be claimed on if payment is made
with in the stipulated period :
a) Any sum payable by way of
tax, duty, cess or fee or
whatever name called
b) Any sum payable by an
employer by way of
contribution to provident fund
or superannuation fund or any
other fund for welfare of
employee
c) Any sum payable as bonus or
commission for services
rendered to an employee
d) Any sum payable as interest on
loan or borrowings from public
239
Income from House institutions (i.e., ICICI, IDBI,
Property & Profits IFCI, SFC etc.)
or Profession e) Any sum payable as interest on
loan or advance taken from a
scheduled bank or cooperative
bank
f) Any sum payable by an
employer in lieu of leave at the
credit of his employee
g) Any sum payable to the Indian
Railways for the use of railway
assets.
The above expenses are deductible in
the year in which payment is made.
• If the aforesaid payment is made on
or before the date of submission of
return of income under section 139
(1), in respect of the previous year
in which the liability to pay such
sum was incurred, then it will be
allowed in the same year.
• If the payment is made after due
date, deduction can be claimed in
the year of payment.
Illustration 1
Surya Ltd is a company who has earned a net profit of Rs.15,00,000 after
deducting all expenses like commission, interest, rent, salary, and license
fees. The due date of filing of return of income of the assessment year 2023-
24is September 30, 2023. The details of tax deducted by Surya Ltd. areas
below:
Expenditure Amount Date on Actual date Date of

(Rs.) which tax is of tax deposit by
required to be deduction by Surya Ltd.
deducted by Surya Ltd.
Surya Ltd.
Commission 1,00,000 July 01, 2022 July 01, 2022 July 30,
2022
Interest 1,50,000 December 01, December 01, November
2022 2022 10, 2023
Rent 2,00,000 June 25, 2022 Not Deducted -
License fees 10,00,000 October May 14,2023 June 06,
10,2022 2023
Salary 15,00,000 January 05, January 05, December
2023 2023 20, 2023
240
Income from Profit
Find out the net income of Surya Ltd. for the Assessment year 2023-24 if (a) and Gains of
Recipient is non resident or foreign company (b) Recipient is resident in Business or
India. Profession-III
Solution:
a)
Expenditure Tax Tax deposited in the Expenditure

Deducted year deductible in the
in the year year 2022-23 from
business income
Commission 2022-23 2022-23 Yes
(Within due date)
Interest 2022-23 2023-24 No, 2023-24
(after due date)
Rent Not Since not deducted, No
Deducted Not deposited
License fees 2023-24 2023-24 No, 2023-24
Salary 2022-23 2023-24 Yes (Date of
deduction/depositing
tax is not relevant in
case of non-resident)
Computation of income: Rs.

Net Profit 15,00,000
(+) Expenses Disallowed
Interest 1,50,000
Rent 2,00,000
Fees 10,00,000
Total 28,50,000
b)
Expenditure Tax Tax deposited in the Amount of

Deducted year Expenditure
in the disallowed in the
year year 2022-23
from business
income(Rs.)
Commission 2022-23 2022-23 Nil
(Within due date)
Interest 2022-23 2023-24 45,000
(after due date)
Rent Not Since not deducted, Not 60,000
Deducted deposited
License fees 2022-23 2022-23 30,000
Salary 2022-23 2022-23 4,50,000
241
Income from House Computation of income: Rs.
Property & Profits
and Gains of Business Net Profit 15,00,000
or Profession
(+) Expenses Disallowed
Interest 45,000
Rent 60,000
Fees 30,000
Salary 4,50,000
Total 20,85,000
Illustration 2
Will the provisions of section 40 A (3) be effective in the following cases:
1) X purchases goods worth Rs. 30,000 from Y against in cash of Rs.
18,000 and Rs.12,000 at different times on same day.
2) X makes a payment of Rs. 30,000 as donation by cheque to National
Defence Fund.
3) X makes a purchase of goods of Rs 52,000 and makes the payment as
under:
a) Rs 25,000 by account payee cheque on 15.12.2022
b) Rs 12,000 in cash on 15.12.2022
c) Rs. 15,000 in cash on 16.12.2022
4) Y, a dealer of machines purchases a machine for Rs. 1,00,000 and makes
the payment by crossed cheque.
5) Y purchases goods from sister Rs. 50,000 (Market value Rs. 38,000)
6) Z purchases goods in cash Rs 30,000 from X, a villager and makes
payment where no banking facility available.
7) G makes payment in cash amounting to Rs. 35,000 to a transporter on
05.10.2020.
Solution:
1) Section 40 A (3) shall apply and Rs. 30,000 shall be disallowed.
2) Section 40 A (3) shall not apply and covered under Deduction chapter VI
A.
3) Section 40 A (3) will be applicable as the payment in cash exceeds Rs.
10,000. Rs. 27,000 (Rs 12,000+ Rs 15,000) shall be disallowed.
4) Disallowed, since not paid by account payee cheque.
5) Rs 12,000 will be disallowed under section 40 A (2) and Rs 38,000 shall
be disallowed under section 40 A (3).
6) As per Rule 6DD, this is allowed.
242
Income from Profit
7) Nothing shall be disallowed as payment is made to a transporter which and Gains of
can be made otherwise than by an account payee cheque up-to Rs. Business or
35,000. Profession-III
Illustration 3
The following expenses were due for the year 2022-23and charged to profit
and loss account but have been paid after 31.03.2023. The due date of filing
of return is 31.07.2023 Ascertain the previous year in which such deduction
can be claimed.
S.No Expenses Amount Paid details

(Rs) (Rs)
1. Sales Tax 25,000 • 10,000 paid
on20.07.2023
• 15,000 paid on
10.10.2023
2. Excise Duty 90,000 • 30,000 paid on
20.07.2023
• 30,000 paid on
10.10.2023
• 30,000 paid on
10.11.2023
3. Bonus to staff 40,000 • 38,000 paid on
15.07.2023
• 2,000 paid on
10.12.2023
4. Employers contribution 60,000 • 30,000 paid on
to Provident fund 21.07.2023
• 20,000 paid on
31.07.2023
• 10,000 paid on
10.01.2023
Solution:
Expenses Date of Amount of Previous year in

Payment Payment(Rs) which deductible
Sales Tax 20.07.2023 10,000 2022-23
10.10.2023 15,000 2023-24
Excise Duty 20.07.2023 30,000 2022-23
10.10.2023 30,000 2023-24
10.11.2023 30,000 2023-24
Bonus to staff 15.07.2023 38,000 2022-23
10.12.2023 2,000 2023-24
Employers 21.07.2023 30,000 2022-23
contribution to 31.07.2023 20,000 2022-23
Provident fund
10.01.2023 10,000 2023-24
243
Income from House
Property & Profits 11.3 DEEMED PROFITS CHARGEABLE TO TAX
or Profession The following receipts are chargeable to tax:
1) Recovery against any • In case a deduction was allowed to

deduction [Section 41 (1)] the assessee in any previous year
on account of loss, expenditure or
trading liability incurred and
during the current year, the
assessee has obtained a refund of
such loss or expenditure or has
obtained some benefit in respect of
such trading liability by way of
remission or cessation thereof, then
such amount obtained shall be
deemed to be profits and gains of
business and profession and
chargeable to tax as the income of
that previous year.
• Even if business is not in existence
in the year of recovery, it shall be
taxable.
• In case of amalgamation/demerger,
it shall be taxable in the hands of
successor.
• Example: If Rs.1,00,000 is paid as
sales tax during the previous year
2021-22 and the same is allowed as
deduction. The assessee claims a
refund of Rs.10,000 on June 2022
after a court case decision. The
same Rs.10,000 shall be taxable in
the year 2022-23.
2) Sale of assets used for • Asset is sold without being used for
scientific research [Section other purpose – Net sale price of
41 (3)] the assets or cost of the asset,
which was earlier allowed as
deduction under section 35,
whichever is less, shall be treated
as business income of the previous
year in which asset is sold.
Any capital gain i.e. sale price –
original cost will be liable to
provisions of capital gain.
This provision will apply even if
business is not in existence in that
previous year.
3) Recoveryof bad debts • If any amount has been claimed

[Section 41 (4)] and allowed as bad debt, and the
amount is subsequently recovered,
244
Income from Profit
it shall be treated as the income of
and Gains of
the previous year in which it is Business or
recovered. Business may or may Profession-III
not continue in the previous year in
which it is recovered.
4) Amount withdrawn from • If any amount is withdrawn from
specific reserve created and reserve subsequently, then itshall
maintained by certain be deemed to be profits and gains
financial of business and profession and
institutions[Section 41 chargeable to tax as the income of
(4A)] that previous year.
5) Recovery after • Any sum received after the
discontinuance of business discontinuance of the business or
or profession profession, shall be deemed to be
[Section 176 (3A)] profits and gains of business and
profession and chargeable to tax as
the income of that previous year.
11.4 MAINTENANCE OF BOOKS OF ACCOUNT

BECOMES COMPULSORY
• A person carrying on specified profession (Section 44AA(1)) such as
legal, medical, engineering, architectural, accountancy, technical
consultancy, interior decoration, authorized representative, film artist,
company secretary and information technology, or any other profession
as notified by the board in the official Gazette is required compulsorily
to keep and maintain such books of account and documents as may
enable assessing officer to compute his total income in accordance with
the provisions of the Income Tax Act.
• Rule 6F prescribes books of account to be maintained by such assessee.
• The prescribed books are (a)cash book (b) a journal (c) a ledger (d)
carbon copies of bill (e) original bills or vouchers in case the expenditure
incurred does not exceed fifty rupees.
• In case of person carrying on medical profession, in addition to above
books, a daily case register in Form No 3C and an inventory under broad
heads, as on the first and last day of the previous year, of the stock of
drugs, medicines and other consumable accessories used for the purpose
of his profession.
• Books to be kept at principal place of profession and to be maintained for
6 years from the end of the relevant assessment year.
• Exceptions where maintaining books is not mandatory/necessary if his
total gross receipts in the specified profession do not exceed Rs.1,50,000
in any one of 3 years immediately preceding the previous year or newly
set up specified profession where total receipts in the profession for that
year are not likely to exceed Rs.1,50,000.
245
Income from House • However, such person shall have to maintain such books of account to
Property & Profits
enable Assessing Officer to compute total income.
or Profession
• A person carrying on non-specified profession [Section 44AA(2)] shall
maintain books of account in following cases-
a) If his total income from business or profession exceeds
Rs.1,20,000 or his total sales/gross receipts/turnover exceeds
Rs. 10,00,000 in any of the three years immediately preceding the
relevant previous year shall keep and maintain books of account
and other documents.
b) In case of individuals and HUF, the monetary limits of income and
total sales or turn over or gross receipts, etc, specified above for
maintenance of books of accounts has been increased from Rs
1,20,000 to Rs 2,50,000 and from Rs 10,00,000 to Rs 25,00,000,
respectively.
c) If business or profession is newly set up and his total income is
likely to exceed Rs. 1,20,000 or his total sales/gross receipts
exceed Rs. 10,00,000 during the relevant previous year, shall keep
and maintain books of account and other documents.
d) If profits and gains from business or profession are deemed to be
profits and gains under section 44 AE, 44 BB and 44 BBB and
business income is claimed lower than the income computed under
these on estimated basis.
e) If provisions of section 44 AD (4) are applicable in this case and
his income exceeds the maximum amount which is not chargeable
to income tax in any previous year, he shall have to keep and
maintain records.
• Any failure to keep and maintain books of account and not retaining
them for prescribed period will attract penalty @ Rs.25,000 under
Section 271 A.
11.5 COMPULSORY AUDIT OF ACCOUNTS

• The following persons are required to get their accounts compulsorily
audited by a chartered accountant under Section 44 AB-
a) A person carrying on business if the total sales/turnover/gross
receipts in business exceed Rs.2 crore
b) A person carrying on profession, if the gross receipts in profession
exceeds Rs.50 lakhs
c) If profits and gains from business are deemed to be profits and gains
under section 44 AE, 44 BB and 44 BBB and business income is
claimed lower than the income computed under these on estimated
basis
246
Income from Profit
d) If person covered under section 44 AD or 44 ADA, claims that the and Gains of
profits from business or profession is lower than the income Business or
computed under these sections and if his income exceeds the Profession-III
exemption limit.
e) If provisions of section 44 AD (4) are applicable in case of any
person and his income exceeds the maximum amount which is not
chargeable to income tax in any previous year.
• Audit report should be uploaded on or before due date of furnishing
return of income under Section 139 (1).
11.6 ESTIMATED INCOME METHOD FOR

COMPUTING BUSINESS INCOME IN
CERTAIN CASES
11.6.1 Computation of Income on Estimated Basis in the Case
of Taxpayers Engaged in a Business [Section 44AD]
• This scheme is applicable to individual, HUF and partnership firm who
is a resident but does not include, company, LLP, AOP or BOI.
• The following are not eligible to avail any benefit under this:
a) A person carrying on specified profession as referred to in Section
44AA (1),
b) A person earning income in the nature of commission or brokerage,
c) A person carrying on agency business,
d) A person who is in the business of plying, hiring or leasing goods
carriage as per section 44 AE,
e) An assessee availing deduction under section 10 AA or section 80-
IA to 80RRB
• Amount deemed profits and gains of business – 8% of the total
turnover/gross receipts in the previous year on account of such business
or as the case may be, a sum higher than the aforesaid sum claimed to
have been earned by the eligible assessee shall be deemed to be the
profits and gains of such business.
• This 8% will reduce to 6% (presumptive rate) only if the amount of such
total turnover or gross receipts is received by an account payee cheque or
account payee bank draft or use of electronic clearing system through
bank account during the previous year or before the due date specified in
Section 139(1) in respect of that previous year.
• No deduction is allowable under section 30 to 38. It shall be considered
to be already given effect and no deduction shall be allowed under these
sections.
• The WDV of any asset shall be deemed to be calculated as if the eligible
assessee had claimed and had been allowed the deduction in respect of
247
Income from House the depreciation for each relevant assessment years. Salary and interest to
Property & Profits
partners is not deductible.
or Profession • Advance tax to be paid on or before 15th March during each financial
year.
• Exempted from maintenance of books of account that opts for this
scheme.
• If profits are declared under this scheme for previous year and for five
consecutive previous year relevant to the previous year, if assessee
declares profit not in accordance with Section 44 AD (1), then he shall
not be eligible to claim the benefit of this Section 44 AD for the five
assessment year subsequent to the assessment year relevant to previous
year in which the profit has not been declared in accordance with the
provisions of section 44 AD (1).
11.6.2 Computation of Income on Presumptive Basis
[Section 44ADA]
• Any assessee who is resident and engaged in a profession referred to in
Section 44 AA (1) such as legal, medical, engineering, architectural,
accountancy, technical consultancy, interior decoration, authorized
representative, film artist, company secretary and information
technology, or any other profession as notified by the Board in the
official Gazette [Section 44ADA(1)].
• Gross receipts from the profession do not exceed Rs.50 lakhs.
• If above two points are satisfied, income of the assessee shall be
calculated on estimated basis at a sum equal to 50% of the total gross
receipts [Section 44 ADA (4)].
• The assessee can voluntarily declare higher income in the income tax
return.
• No deduction is allowable under section 30 to 38. It shall be considered
to be already given effect and no deduction shall be allowed under these
sections [Section 44 ADA (2)].
• The WDV of any asset shall be deemed to be calculated as if the eligible
assessee had claimed and had been actually allowed the deduction in
respect of the depreciation for each relevant assessment years [Section
44 ADA (3)].
• Salary and interest to partners is not deductible.
• If assessee declares his income to be lower than the deemed profits and
gains as above, he has to maintain the books of account as per section 44
AA, if his total income exceeds the exemption limit and get his books
audited asper section 44 AB.
248
Income from Profit
11.6.3 Computation of Income in Case of Business of Plying, and Gains of
Hiring or Leasing Goods Carriages Business or
Profession-III
[Section 44AE]
• The provision of this section is applicable in case of assessee carrying on
business of plying, hiring or leasing goods carriages and does not own
more than 10 goods carriages at any time during the previous year.
• In case of heavy goods vehicles, i.e., more than 12 MT gross vehicle
weight, the income would be equal to Rs 1,000 per tonne per gross
vehicle weight or unladen weight for every month or part of a month
during which the heavy goods vehicle is owned by the assessee in the
previous year or amount actually earned, whichever is higher.
• In case of vehicles other than heavy goods vehicle, the profits and gains
of each carriage shall be computed @ Rs.7,500 for every month or part
of month during which the goods carriage is owned by the assessee in the
previous year or amount claimed to have been actually earned by the
vehicles, whichever is higher.
• No further deduction except salary and interest to partners is allowed.
• If assessee declares his income to be lower than the deemed profits and
gains as above, he has to maintain the books of account as per section 44
AA, if his total income exceeds the exemption limit and get his books
audited as per section 44 AB.
11.7 COMPUTATION OF PROFITS AND GAINS

FROM BUSINESS OR PROFESSION
COMPUTATION OF BUSINESS INCOME Amount (Rs.)

Balance as per Profit and Loss Account XXXXX
(+) Expenses claimed but not allowed XXXXX
• All provisions and reserves
• All taxes except sale tax, excise duty and
local taxes of premises used for business
• Rent paid to self
• All capital expenses except on scientific research
• All capital losses
• All charities and donation
• All expenses relating to other heads of income
• Any interest on capital unless the amount is
borrowed
• Any personal expenses (drawing etc.)
• Any depreciation if wrongly debited
• Gifts and presents
• Any type of fine or penalty
• Any payment to a partner (In case of firms only by
249
Income from House way of salary, interest, bonus, commission or
Property & Profits
remuneration excess over prescribed limits)
or Profession • Past losses
• Salary paid to self or other members of family
• Personal life insurance premiums
• Speculation loss
• Bad debts still recoverable
• Legal expenses on criminal case, acquiring title an
of asset
• Loss by theft from residence
• Employer’s contribution to unrecognised provident
fund
• Expenses disallowable u/s 40 & 40 A
• Preliminary expenses being capital expenses
• Amount to be treated as income though not credited
to P & L A/c
(-) Amount credited to P & L P&L A/C but not to be (XXXXX)
included under this head
• Actual bad debts not charged to P & L A/c
• Depreciation not charged to P & L A/c
• Differences due to under debiting of stock
(-) Expenses which are allowable but have not been (XXXXX)
debited to P & L A/c
(-) Income exempted from tax/ taxable under other (XXXXX)
heads
• Post office saving bank account
• Agricultural receipts
• Gifts from relative
• Income tax refund
• Bad debt recovered – disallowed earlier
• Any capital receipts
• Interest on securities
• Rent from House property let
• Capital gains
• Dividend, Bank Interest, Winnings from lotteries,
racecourse etc.
Profits And Gains of Business or Profession XXXXX
(There are other items also which can be added or deducted from Profit or
Loss Account)
250
Income from Profit
COMPUTATION OF PROFESSIONAL INCOME and Gains of
Business or
In case of Doctor/Medical Practitioner Amount (Rs.) Profession-III
Professional Receipts XXXXX

(+) Consultation/operating/Visiting fees XXXXX
Examiner’s Fees
Gifts from patients
Nursing home receipts
Sale of Medicines
Any other professional receipts
(-) Dispensary Expenses (Rent, lighting, water, salary (XXXXX)
to staff)
Cost of Medicines
Depreciation on surgical equipment and X-ray
machines etc.
Cost of books for professional purposes
Motor Car expense
Nursing home expenses
Any other expenditure
PROFESSIONAL INCOME XXXXX

1) State whether provision of Section 40 A(3) be attracted in the following
cases:
a) X makes a payment of Rs.40,000 by account payee cheque and Rs.
15,000 in cash for purchase of Rs.55,000.
………………………………………………………………………..
………………………………………………………………………..
b) Z purchases goods in cash Rs.30,000 from X, a villager and makes
payment where banking facility is available.
………………………………………………………………………..
………………………………………………………………………..
c) G purchases goods in cash from brother for Rs.25,000 whose market
value is Rs.20,000.
………………………………………………………………………..
………………………………………………………………………..
d) S is a commission agent and purchases goods forRs.30,000 on
commission basis.
………………………………………………………………………..
………………………………………………………………………..
251
Income from House 2) Ascertain the previous year in which deduction will be claimed with due
Property & Profits
date 31.07.2023:
or Profession
S. Expenses Amount Paid details
No (Rs.) (Rs.)
1. Sales Tax 35,000 • 20,000 paid on 20.06.2023
• 15,000 paid on 01.10.2023
2. Excise Duty 60,000 • 30,000 paid on 25.07.2023
• 30,000 paid on 05.11.2023
3. Bonus to staff 70,000 • 68,000 paid on 05.06.2023
• 2,000 paid on 05.12.2023
4. Employers 40,000 • 30,000 paid on 21.07.2023
contribution to • 10,000 paid on 07.02.2023
Provident fund
Illustrations
Illustration 4
From the Profit and Loss account of Mr. Kundan for the year ended
31stMarch, 2023, find his total business income:
Dr. Cr.
Particulars Rs. Particulars Rs.
To Office Expenses 40,000 By Gross Profit 6,40,000
To General Charges 16,000 By Interest on 11,200
Govt.Securities
To Interest on loan 4,000 By Discount 16,000
To Interest on Capital 12,000 By Bad debts 800
recovered
To Audit Fees 4,000 By Sundry receipts 16,000
To Rent 20,000 By Dividends 16,000
To Income tax 16,000
To legal expenses 4,000
To Charity 8,000
To Compensation to 20,000
retrenched employee
To Extension to 36,000
building
To sales tax 8,000
To Net profit 5,12,000
7,00,000 7,00,000
Adjustments:
i) General charges include an amount of Rs 8,000 spent on purchasing an
old typewriter for the office which has been put to use during the year.
252
Income from Profit
ii) Legal expenses include an amount of Rs 1,600 being penalty imposed by and Gains of
custom authorities. Business or
Profession-III
iii) Rent includes an amount of Rs 8,000 paid as rent of the house in which
the assesse lives.
iv) Depreciation of office furniture, plant and machinery and old building is
not shown in the Profit and loss Account but amount of Rs 16,800 is
allowed in this respect.
Solution:
Rs. Rs.
Net Profit as per P & L account 5,12,000
(+) Interest on capital 12,000
Rent for residential house 8,000
Income tax 16,000
Charity 8,000
Legal Expenses (Penalty) 1,600
Extension to building (Capital expenditure) 36,000
Typewriter 8,000 89,600
6,01,600
(-) Depreciation 16,800
Interest on Securities 11,200
Dividend 16,000 –44,000
Income From Business 5,57,600
Illustration 5
Sri Ramesh is the owner of a business. Following is his P & L A/c for the
year ended on 31.3.2023
Profit and Loss Account for the year ended 31.03.2023
Dr. Cr.
Particulars Rs Particulars Rs
Establishment charges 2,555 Gross Profit 25,435
Rent, rates and taxes Interest on Govt.
1,450 Securities (Gross) 2,675
Sundry expenses 3,525 Rent from Property 2,700
Household expenses 940
Provision for bad debts 600
Loss on sale of motor
car (used for private
purpose) 900
253
Income from House Insurance premium
Property & Profits
(including life insurance
or Profession of Rs 1,790) 1,440
Interest on bank loan 690
Provision for
Depreciation 3,200
Net Profit 15,510
Total 30,810 Total 30,810
Additional information:
i) Bad debts wirtten off during the year –Rs 325
ii) Admissible depreciation as per Income-tax rules – Rs 800
iii) The assessee is running his business in a rented property, half of which is
used byhim for his own residence. Rent of Rs 1,200 in respect of entire
houses is included in rent, rates and taxes. The balance of Rs 250 is on
account of municipal tax paid for property given on rent.
Compute the Gross Total Income for the assessment year 2023-24.
Solution:
Particulars Amount Amount

Rs Rs
Income from house property
Rent received 2,700
Less: Municipal taxes 250
2,450
Less: Standard deduction @ 30% 735
1,715
Proft and Gains from Business or Profession
Profit as per P & L account 15,510
Add: Inadmissible expenses
Rent (50% for personal use) 600
Household expenses 940
Provision for bad debts 600
Loss on sale of car 900
Life insurance premium 895
Provision for depreciation 3,200
M. taxes for let out house property 250 7,385
22,895
Less: Expenses allowed but not debited to
P & L A/c.
Bad debts 325
Depreciation 800 1,125
21,770
254
Income from Profit
Less: Incomes not taxable under this head but and Gains of
credited to P & L a/c. Business or
Interest on govt. securities 2,675 Profession-III
Rent from property 2,700 5,375

16,395
Income from other sources:
Interest on Govt. securities 2,675
Gross Total Income (1,715 +16,395 + 2,675) 20,785
Illustration 6
From the Profit and Loss Account of Mr Kuldeep for the year ending March
31,2023, ascertain his total business income for the assessemnt year 2023-24:
Dr. Cr.
General Expenses 6,700 Gross Profits 2,07,750
Bad debts 11,000 Commission 4,300
Advance tax 2,500 Brokerage 18,500
Insurance 300 Sundry receipts 1,250
Salary to staff Bad debt recovered
(earlier allowed as
13,000 deduction) 5,500
Salary to Mr X Interest on debentures
(i.e. net amount Rs
11,250 + tax deducted
24,000 at source: Rs 1,250) 12,500
Interest on overdraft Interest on deposit
with a company (non-
trade) (net interest : Rs
5,850 + tax deducted
2,000 at source: Rs 650 6,500
Interest on loan to Mr
X 21,000
Interest on capital of
Mr X 11,500
Depreciation 24,000
Advertisment
expenditure 3,500
Contribution to
employees’ recognised
provident fund 6,500
Net Profit 1,30,300
Total 2,56,300 Total 2,56,300
255
Income from House Other information:
Property & Profits
and Gains of Business 1) The amount of depreciation allowable is Rs.18,650 as per the Income-tax
or Profession
Rules. It includes depreciation on permanent sign board.
2) Advertisment expenditure includes Rs.1,500, being cost of permanent
sign board fixed on office premises.
3) Income of Rs.2,250, accrued during the previous year, is not recorded in
the Profit and Loss Account.
4) X pays Rs. 3,000 as premium on own life insurance policy of Rs.35,000.
5) General expenses includes (a) Rs.250 given to Mr. Xfor arranging a
party in honour of a friend who has recently come from cuba (b) Rs.500
being contribution to a political party.
6) Loan was taken from Mrs. X for payment of arrears of income-tax.
Solution:
Particulars Rs.
Net Profit as per Profit & Loss Account 1,30,300
Adjustments -
(+) Expenses for arranging personal party 250
Contribution to a political party 500
Advance tax 2,500
Salary to X 24,000
Interest on capital of X 11,500
Interest on loan taken for payment of income-tax 21,000
Capital expenditure on advertisment 1,500
Excess depreciation (i.e. Rs 24,000 – Rs 18,650) 5,350
Income not recorded in the profit and loss
account 2,250
1,99,150
(-)Interest on debentures 12,500
Interest on company deposit 6,500 (19,000)
Business income 1,80,150
Illustration 7
Mr.RamNath is practising as a Chartered Accountant in Delhi. He deposits
all receipts in his bank account and pays all expenses by account payee
cheque. Following is the analysis of his bank account for the year ending
31.3.2023.
256
Income from Profit
Dr. Cr. and Gains of
Business or
Particulars Rs. Particulars Rs. Profession-III
Balance b/f 3,625 Salaries 15,07,000

Professional 25,70,000 Rent of Chamber
Receipts 3,42,250
Dividend from 4,000 Professional
U.T.I. Expenses 11,500
House Rent 11,250 Telephone
Expenses 25,500
Horse race Income 6,000 Misc. Office Exp.
(Gross) 27,750
Share of Income in 3,375 Motor car exp.
HUF 4,000
Loan from wife 50,000 Purchase of car
for purchase of car 57,500
Advance Income-
tax 20,000
Donation to Delhi
University 5,000
Personal Expenses 22,750
House Property
Exp.
Taxes 2,500
Repairs 750
Insurance 750
Collection 1,000
Charges 5,000
Balance c/d 6,20,000
Total 26,48,250 Total 26,48,250
Compute the Gross Total Income after taking into account the following:
i) 1/4th of the motor car expenses relate to personal use.
ii) Car was purchased on 15.6.2021 and rate of depreciation on car is 15%.
iii) He stays in his house, the municipal value of which is Rs 4,000.
Following are the expenses which have been included in the above
account in respect of this house: Insurance premium Rs 250; Municipal
tax Rs 1,200.
257
Property & Profits
and Gains of Business Computation of Gross Total Income of Mr Ram Nath for the assessment
or Profession
year 2023-24.
Particulars Rs Rs Rs
Income from house property
Annual Value (Rent received) 11,250
Net Annual value 9,950
Less: Standard deduction 30% 2,985 6,965
Profit and Gains from Business or

Profession:
Professional receipts 25,70,000
Salary 15,07,000
Rent of chamber 3,42,250
Audit fee 11,500
Telephone expenses 25,500
Misc. Office exp. 27,750
Motor car expenses 3,000
(3/4th of Rs 4,000) to be allowed
Depreciation on car 6,469 19,23,469 6,46,531
(Rs 1,15,000×15/100×3/4th)
Income from other sources:

Dividend from U.T.I. Exempt
Horse racing income 6,000 6,000
Gross Total Income 6,59,496
11.8 LET US SUM UP

Income from profits and gains from business or profession being major third
head is important component of income computation for tax purpose. Section
28 of Income Tax Act enumerates the incomes that shall be chargeable under
this head and income will be computed in accordance with the provisions laid
down in Section 29 to 44DB. Various expenditures are allowed as deduction
from Section 30 to 37. Sections 40, 40A and 43B relate to provisions of
various specific disallowances under the Act whereas Sections 44AD to
44AE relates to estimated income method for computing business income in
certain cases like taxpayers engaged in a business, computation of income on
presumptive basis and in case of business of plying, hiring or leasing goods
carriages.
258
Income from Profit
11.9 KEY WORDS and Gains of
Business or
Specified person: It includes relative, director of company or director’s Profession-III
relative.
Relative: It means husband, wife, brother or sister or any lineal ascendant or
descendant of that individual.
Substantial interest: A person having at least 20% of equity capital
(company) or 20% of profits of a concern at any time during the previous
year.
Gratuity: It is payment made according to the length of service.
Specified profession: It includes legal, medical, engineering, architectural,
accountancy, technical consultancy, interior decoration, authorized
representative, film artist, company secretary and information technology, or
any other profession as notified by the board in the official Gazette.
11. 10 ANSWERS TO CHECK YOUR PROGRESS

1) a) Section 40 A (3) will be applicable as the payment in cash exceeds
Rs.10,000. Hence Rs.15,000 will be disallowed.
b) Rs.30,000 will be disallowed.
c) Rs.5,000 will be disallowed under Section 40 A (2) and Rs.25,000
shall be disallowed under Section 40 A (3)
d) No because such payment is not expenditure for agent.
2)
Expenses Date of Amount of Previous year in

Payment Payment which deductible
(Rs.)
Sales Tax 20.06.2023 20,000 2022-23
01.10.2023 15,000 2023-24
Excise Duty 25.07.2023 30,000 2022-23
05.11.2023 30,000 2023-24
Bonus to staff 05.06.2023 68,000 2022-23
05.12.2023 2,000 2023-24
Employers 21.07.2023 30,000 2022-23
contribution to
Provident fund 07.02.2023 10,000 2022-23
259
Income from House
Property & Profits 11.11 TERMINAL QUESTIONS/ EXERCISES
or Profession 1) Mr Anish is the owner of a business. Following is the profit and loss
account for the year ended on 31/03/23
Profit and loss acoount for the year ended 31/03/2023
Dr. Cr.
Establishment charges 5,110 Gross Profit 50,870
Rent, Rates and taxes 2,900 Interest on 5,350
Govrenment
secuirties(Gross)
Sundary Expenses 7,050 Rent from property 5,400
Household expenses 1,880
Provisons for bad debts 1,200
Loss on sale of motor car 1,800
(Used for private purpose)
Insuarnce Premium 2,880
(Including life insurance of
Rs 1,790)
Interest on Bank Loan 1,380
Provision for depreciation 6,400
Net profits 31,020
61,620 61,620
Additional Information:
i) Bad debts written off during the year – Rs 650
ii) Admissible depreciation as per income tax rules –Rs 1,600
iii) The assessee is running his business in rented property, half of which is
used by him for his own residence, rent of Rs 2,400 in respect of entire
house is included in rent, rates and taxes.The balance of Rs 500 is on
account of municipal tax paid for property given on rent.
Compute his Gross total income for the assessment year 2023-24.
[Answer: Rs 41,570]
2) Mr Bankey Bihari owns the following commercial vehicles:
a) 2 light commercial vehilces- One for 9 months and two days and
other for 12 months.
b) 2 heavy good vehicles-One (whose gross vehicle weight in 13 MT)
for 6 months and 25 days and the other (Whose unlaiden is 14MT)
for 11 months and 12 days.
c) 2 medium goods vehicles- One for 6 months and the other for 8
months and 15 days.
260
Income from Profit
i) Compute the income from business if Mr Bankey Bihari opts and Gains of
for the scheme under section 44AE. Also compute his tax Business or
liability for the AY 2023-24, if he deposits Rs 20,000 in PPF Profession-III
account during the previous year.
ii) What will be the income if the trucks were not used for business
for 2 months during the year due to strike?
[Answer: Tax payable (rounded off) - Rs 16,430]
3) Mr Rajan, a leading tax consultant, who maintans books of account on
cash basis, furnishes the following particluars of income and expenditure
for the Assessment year 2023-24.
Balance b/d 12,400 Purchase of a 6,000
typewriter
Fee from clients: Car expenses 18,000
Of 2019-20 1,30,500 Office expenses 40,000
Of 2020-21 11,500 Salary of staff:
Of 2021-22 13,000 Of 2018-19 32,000
Presents from clients 24,000 Of 2019-20 11,000
Loan from a client 38,000 Repairs 12,000
Interest on loan 10,000
Income tax payment 2,000
Life insurance 6,000
premium
Balance c/d 92,400
2,29,400 2,29,400
Depreciation on car is Rs 6,000.Car is partly used for official purposes
(40%) and partly for private purposes (60%).Determine the income
from’Business and Profession’ head of Mr Rajan for the assessment year
2023-24.
[Answer: Rs 63, 500]
4) From the particulars given below, compute the gross total income of Mr
Nitin for the assessment year 2023-24.
Profit and Loss Account for the year ended 31/03/2023
Dr. Cr.
Interest 1,800 Gross Profit b/d 1,22,700
Repairs and Renewals 2,200 Interest on debentures 10,000
of an Institutions
(Gross)
Insurance 4,200 Rent from House 36,000
property
Depreciation 5,600
Compensation 10,200
261
Income from House Law charges 5,100
Property & Profits
and Gains of Business Labour Welfare 3,800
or Profession Expenses
Subscriptions 5,800
Net Profit 1,30,000
1,68,700 1,68,700
Other relevant informtion:

a) Interest includes Rs 200 on loan taken for purchasing debentures of a
company and Rs 300 on loan taken for reconstruction of house property
let out.
b) The expenses relating to house property let-outare 40% of the repairs
and renewal expenses.
c) Depreciation includes Rs 1,200 on house property let out.
d) Compensation was paid to an employee whose dismissal was in business
interest.
e) Insurance includes 30% for fire insurance of the house property let out,
30% for workers accident insurance and the balance for life insurance.
f) Law charges include Rs 2,000 relating to a petition filed against breach
of contract and the balance regarding sales tax appeal.
g) Subscriptions include Rs 2,000 given for election purpose to political
parties.
h) The amount not debited to profit and loss account are as follows:
i) Expenses incurred on the occasion of Deepawali Rs 500.
ii) Theft of cash from iron safe Rs 1,500
iii) Expenses for new telephone connection in the business Rs 2,000
[Answer: Gross Total Income- 1, 22,220]

unit. Do efforts for writing the answer to these questions but do not
send your answers to University. It is only for your practice.
262
Income from Profit
SOME USEFUL BOOKS – LATEST EDITION and Gains of
Business or
Jain, R.K. Income Tax Law and Accounts, SBPD Publications, Agra Profession-III
Aggarwal, B.K and Agarwal, R,Income Tax Law and

Accounts,NirupamSahityaSadan, Agra
Ahuja and Gupta, Simplified Approach to Income Tax,Flair publications (P)
Ltd, New Delhi
Gaur and Narang, Income Tax Law and Practice,Kalyani Publishers,
Ludhiana
Mehrotra, H.C. Income Tax Law and Accounts,Shitya Bhawan Publishers &
Distributors (P) Ltd, Agra.
263

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Salaries-III

Unit 8 Income from House Property

Unit 9 Income from Profit and Gains of Business or Profession-I

Unit 10 Income from Profit and Gains of Business or Profession-II

Unit 11 Income from Profit and Gains of Business or Profession-III

• list the incomes chargeable under the head ‘House Property’

8.2 INCOME FROM HOUSE PROPERTY

8.2.1 Buildings or Lands Appurtenant Thereto

c) Composite letting of building with other assets: Where the assessee

d) Paying-guest accommodation: It is assessable as business income

8.2.2 Assessee to Pay Tax on Annual Value

8.2.3 Assessee should be the Owner of the House Property

a) An individual who transfers any house property to his or her spouse,

b) The holder of an impartible estate shall be deemed to be owner of the

c) A member of a cooperative society, to whom a building or a part thereof

d) A person who is allowed to take or retain possession of any building or

8.2.4 The House Property should not be used for Assessee’s

8.3 EXEMPTED INCOMES FROM HOUSE

8.4 SOME IMPORTANT POINTS

ii) Disputed Ownership: If the title of ownership is disputed in a court of

1) Who are the ‘deemed owners’ of house property?

1) House which is let out

Let us now discuss each one of them in detail:

8.6.1 Let out House

a) Which is not covered by Rent Control Act.

a) Calculation of annual value which is not covered by the Rent

b) Which is covered by the Rental Control Act

Note: Even if the Municipal value or reasonable rent is higher than

Lowest value will be GAV i.e. Rs 13,000

LowestValue will be GAV i.e. Rs 18,000

Computation of A.V. of house of Mr. Parmod for the A.Y. 2023-24

Gross Annual Value = Higher of Expected rent or Actual rent

The owner of house can:

A) Occupy the house for full year

A) When the house is self-occupied for the full year

B) If the whole house is self-occupied by the owner for a part of the

Computation of Annual Value for AY 2023-24 of Mr. Ajay Kumar

8.7 DEDUCTIONS FROM ANNUAL VALUE

1) An amount equal to 30% of annual value as standard deduction for

ii) If Mr. Rajan lives in the house

8.8 LOSS UNDER THE HEAD ‘INCOME FROM

8.9 COMPUTATION OF TAXABLE INCOME

At Mumbai At Delhi At Kolkata

The following additional information is given below:

Flat at Delhi (Self-occupied for part of the year)

Rent (Rs 4,000 × 12) Rs 48,000 -

1st house (Rs) 2nd house (Rs)

Let-Out portion (1/3rd)

8.10 LET US SUM UP

8.11 KEY WORDS

Check Your Progress A

8.13 TERMINAL QUESTIONS/EXERCISES

Note: These questions and illustrations are helpful to understand this

9.2 MEANING OF BUSINESS OR PROFESSION

9.3 BASIS OF CHARGE

• Export incentives for exporters

9.4 GENERAL PRINCIPLES FOR CALCULATING

Charge extends Business or

Fig. 9.1: Conditions for chargeable income under PGBP