Income from profits and gains of business or profession, how computed

Are you looking to understand Income from profits and gains of business or profession, how computed? 

This detailed article will tell you all about Income from profits and gains of business or profession, how computed.

Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have vast experience in filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions, and tax planning.

Generating revenue through profits and gains from business or profession is a crucial aspect for both individuals and companies. The method of computing such income is a multifaceted process that involves considering various factors.

Initially, it is vital to comprehend the definition of a business or profession as stated by the Income Tax Act. A business refers to any commercial or trade activity, whereas a profession pertains to an individual’s employment or vocation. Income generated from such activities falls under the category of income from profits and gains of business or profession, which is taxable under this head.

The computation process comprises several steps, commencing with the calculation of total gross income, which includes all revenue earned during the financial year. The next step involves calculating the net profit by deducting all business expenses from the gross receipts. Expenses that can be deducted include rent, wages, repairs, interest, depreciation, and other expenses related to the business.

After computing the net profit, the amount of depreciation is adjusted, and allowable expenses are deducted. Deductions can include expenses related to research and development, scientific research, salaries, and depreciation on business assets.

Further, all the expenses which are allowed to be deducted from revenue are given under Income Tax per se in a detailed manner.

The final step is to calculate the taxable income by deducting allowable expenses from the adjusted net profit. Tax liability is then computed on the taxable income at the applicable tax rate, which varies depending on the total income earned during the fiscal year.

To ensure compliance with the Income Tax Act, individuals and companies must understand the process of computing income from profits and gains of a business or profession. It is crucial to maintain accurate records of business expenses and seek professional assistance whenever necessary.