Indian Tax Act: A Short Article on Business & Professional Income
Professional and Business Income
In this article we will discuss about Professional and Business Income and as interpreted by the Indian Tax Department. We will understand what the Professional and Business income means by definition, identify key differences between the two and how each are interpreted by the Indian Tax Department.
What is Business and Professional Income?
A business income is earned from trade, commerce, manufacture or earnings gained from invested capital on properties, interest from banks, dividends from shares, royalties and rental income. Whereas professional income derives from earnings through an individual’s exploitation of skills and knowledge independently. This could range from earnings derived from working in the field of engineering, architecture, technical consultancy etc.
Income Tax Act criteria for Business and Professionals
As a golden rule for both business and professionals they should maintain the following documents for inspection by Income Tax Department: > Cash book > Journal in case of commercial system of accounting > Ledger > Carbon copies or security foils of all bills issued, being serially numbered > Original copies of all expenditure bills
When is it mandatory to maintain accounts for both business and professionals?
Any business or profession that has an annual turnover/gross receipts in excess of rupees 10 lakh and profit of rupees one lakh twenty thousand, should maintain such books of account and documents from that its financial gain could often moderately be determined by the department.
What sort of deductions a business can be entitled to claim?
The Income tax Act grants you the right for depreciation on your mobile tangible and intangible possessions. The charges of depreciation differs from asset to asset.
Allowable deductions – 1. Rent, Rates, Taxes and Insurance of Building 2. Repairs and Insurance of Machinery, Plant and Furniture etc.
In this article we will discuss about Professional and Business Income and as interpreted by the Indian Tax Department. We will understand what the Professional and Business income means by definition, identify key differences between the two and how each are interpreted by the Indian Tax Department.
What is Business and Professional Income?
A business income is earned from trade, commerce, manufacture or earnings gained from invested capital on properties, interest from banks, dividends from shares, royalties and rental income. Whereas professional income derives from earnings through an individual’s exploitation of skills and knowledge independently. This could range from earnings derived from working in the field of engineering, architecture, technical consultancy etc.
Income Tax Act criteria for Business and Professionals
As a golden rule for both business and professionals they should maintain the following documents for inspection by Income Tax Department: > Cash book > Journal in case of commercial system of accounting > Ledger > Carbon copies or security foils of all bills issued, being serially numbered > Original copies of all expenditure bills
When is it mandatory to maintain accounts for both business and professionals?
Any business or profession that has an annual turnover/gross receipts in excess of rupees 10 lakh and profit of rupees one lakh twenty thousand, should maintain such books of account and documents from that its financial gain could often moderately be determined by the department.
What sort of deductions a business can be entitled to claim?
The Income tax Act grants you the right for depreciation on your mobile tangible and intangible possessions. The charges of depreciation differs from asset to asset.
Allowable deductions – 1. Rent, Rates, Taxes and Insurance of Building 2. Repairs and Insurance of Machinery, Plant and Furniture etc.