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Introduction: 

Business involves the buying and selling of goods with the aim of making a profit. Profession refers to an occupation demanding intellectual skills, such as that of a doctor or lawyer.. For income tax purposes, there is no distinction between business income, professional income

Business:

A business is just an activity that a person engages in with the intention of making money. Income from a profession or partnership firm is not included in the term “business.” The company does business with any Commerce, trade and manufacture

Businesses meeting specified criteria must maintain books of accounts in compliance with the income tax act.

• The requirement for maintaining books of accounts arises when the total sales, turnover, or gross receipts exceed INR 10,00,000 in any of the three immediately preceding previous years.

• Earnings exceeding INR 1,20,000.

Furthermore, individuals and Hindu Undivided Families (HUFs) are now exempt from this condition, no longer bound by the mandate to maintain books of accounts. if

• Maintenance of books of accounts is required if the total sales, turnover, or gross receipts surpass INR 25 Lakhs in any of the three immediately preceding years.

• Earnings exceeding INR 2.5 Lakhs 

Profession:

A profession is characterized as a vocation or job that demands thoughtful consideration, skill, and specialized knowledge. It pertains to activities through which individuals earn their livelihood by applying intellectual or manual skills

Eg: Doctor, Engineer, Architect etc.

Professionals engaged in the mentioned occupations must adhere to Rule 6F of the Income Tax Rules, necessitating the maintenance of books of accounts when gross receipts exceed  INR 1.5 Lakhs in any of the three immediately preceding years.

Income from Business and Profession Taxation :

Income earned by a taxpayer with the aim of making a profit falls under the category of business and profession. The Income Tax Act classifies businesses/professions into three defined types:

• Speculative Businesses encompass profits or losses from speculative transactions, such as those conducted without taking actual delivery of goods. While profits from speculative business activities (e.g., share trading) are chargeable under this head, it is important to maintain and report them separately when filing the income tax return .

• Specified Businesses comprises profits or losses generated by businesses defined under Section 35AD of the Income Tax Act, such as affordable housing projects, water fabrication manufacturing units, and more.

• Non-Speculative Businesses/Profession covers profits or losses from regular business activities conducted by a taxpayer. Any salary, remuneration, commission, etc., received by a partner from a partnership firm is also regarded as business and professional income. Nevertheless, such income is exempt from tax in the hands of the partner.

The following incomes are not considered taxable as income from business and profession:

• Income received by a company director, including salary, remuneration, bonus, etc., is categorized as Salary Income rather than business and professional income.

• Profits from activities unrelated to the above mentioned businesses should be categorized as casual income and reported under “Income from Other Sources.”

Allowable expenses Business and Profession Income:

Any expenses incurred exclusively and entirely in connection to the business and profession will be permitted as deductions against the income derived from said business and profession. Here are some of them:

• Bonuses, commissions, etc., for employees.
• Travel and transportation expenditures.
• Postage expenditures.
• Employee welfare costs
• Bank charges/commission expenditures.
• Advertising costs for promoting business products.
• Communication expenditures
• Expenditures on scientific research for business initiatives.
• Payment for intellectual property rights, including know-how, patents, copyrights, trademarks, and licenses.
• Building rent and insurance.
• Print and stationery costs.
• Entertainment and business promotion expenditures.
• Financial charges, such as interest on loans.
• Customer discounts granted.
• Fees for membership.
• Interest and remuneration for working partners, subject to specific conditions.
• Expenditures on legal and professional services.
• All other expenses relating to business/profession.
• Expenditures contributing to Provident Fund, Employees’ State Insurance premium, Gratuity Fund, or other employee welfare funds.
• Interest on loans obtained from public financial institutions, state financial corporations, or scheduled banks.
• Payment of bonuses, commissions, or leave encashment to employees.
• Any taxes, duties, cess, or fees

Conclusion:

In conclusion, managing taxes related to business and profession involves careful consideration of the applicable forms and regulations. Choosing the right Income Tax Return (ITR) form, such as ITR-3 for individuals or Hindu Undivided Families (HUF) engaged in business or profession, is crucial. Additionally, professionals can explore the presumptive taxation scheme, specifically through ITR-4, simplifying the process by declaring a percentage of their gross receipts as income. Staying informed about tax audit requirements and adhering to the applicable tax laws ensures a smooth and compliant experience for businesses and professionals alike.