13 General principles regarding computation of business income:-
The following are the most relevant 13 General principles regarding computation of business income which should be kept in mind while assessing income chargeable under the head of income.
1. Business or Profession carried by an assessee:-
Income earn by an assessee from business whether he carries on it or through any agent or employees.
2. Business or profession should carried on during previous year:-
Business or profession most carried an assessee during the relevant previous year. But it is not necessary that business profession carried on throughout the year till the end of previous year. However it is taxable but there are few exception to this rule.
3. Speculative and non-speculative business:-
Incomes from both speculative and non-speculative business are taxable under the head of income from business and profession, but speculative loss cannot be set of against non-speculative profit.
4. Tax on aggregate income from all business:-
Tax is charge on the sum total of profit and gain from all business and profession carried during the previous year. Income from different business and profession are not taxable separately or individually, because the loss from one business can be st off against the profit from another business.
5. Profits from an illegal business:-
In income tax purpose there is no distinction between legal an illegal business. Incomes earned from both businesses are taxable. Income from illegal business is computed according to the provision of legal business. But the loss illegal business can’t be set of against profit from legal business.
6. Profit in case of winding up:-
Profit made by an assessee in case of winding of a business or profession are not taxable as business profit rather as capital gain.
7. Notional profit:-
National profit means profit made by a person with himself as another way. For example if an assessee is carried on business in his own building, than he can’t claim deduction of rent paid to himself as owner of building.
8. Anticipated profit:-
In income tax purpose real profit earn by the assesse are taken in to account. And anticipated profit which may occur in the feature are not taken into account for taxable profit of previous year.
9. Recovery of sums earlier allowed as deduction:-
If an assessee receives any sum which was allowed as deduction during previous year ,than such amount receive is taxable under income from business and profession.
10. Deduction in respect of profitable business is taxable:-
Expenses and losses are allowed as deduction only if the profits of such business are taxable. If the income of a particular business is exempt from tax, than expenses of such business may not be allowed as deductions.
11. Deduction can be done on previous year expenses or losses :-
If the assesse maintain his book of account than actual expenses only paid during the previous year care allowed as deduction whether they are relate to current, preceding, succeeding year .but in case of capital expenditure paid during the previous year is not deductible.
12. Depreciation of investment will not be deductible:-
The depreciation of investment will not be deductible under income from business and profession .
13. Fines and penalties:
Fine and penalty imposed for breach of law not be allowed as deduction.
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