The word,’ business’ is defined under Section 2(13) of the Income Tax Act. According to it, business means any trade, commerce or manufacture or concern in the nature of trade, commerce or manufacture. The word ‘profession’ is described in Section 2(36) of the Income Tax Act. According to it, the profession includes vocation. For taxability purposes, Income Tax Act dissects the taxable income of an assessee into five different categories. Business profits come under the third category, head of income. The present article deals with detailed overview regarding this topic in reference to the Income Tax Act.<\/p>\n\n\n\n
Income from the assessee is divided into five categories, also known as the five heads of income under the Income Tax Act. This is done for the proper facilitation, convenience and for easy computation of taxes. It is also done for smooth and seamless cash flow. The five main heads of income under the Income Tax Act are mentioned below:-<\/p>\n\n\n\n
The income under the salary head involves an individual’s or an employee’s advanced salary, basic wages, pension, commission, gratuity, annual bonus etc.<\/p>\n\n\n\n
This head includes the rental income that an individual or a landlord derives from the rent and by giving his house on lease. This includes the income derived from both commercial and residential properties.<\/p>\n\n\n\n
This head includes all sorts of income that an individual earns from carrying a business or a profession. This also includes salaries, bonuses and profits earned from a business organisation’s partnership.<\/p>\n\n\n\n
It includes the transfer and sale of any capital gains as an investment. It is taxable under the head of capital gains.<\/p>\n\n\n\n
Any income which does not follow under any of the above-mentioned income heads falls in the income from other sources. This category includes income from lottery, gambling, gaming etc.<\/p>\n\n\n\n
Business income is nothing, but it is the sum of the profits that are earned from carrying out any business or profession. This profit deduced from carrying out any business is taxable under the head of profits and gains of business or profession. It can be calculated using a simple formula.<\/p>\n\n\n\n
Total Revenue – Total Expense = Profit \/ Income that is Taxable from Business<\/strong><\/p>\n\n\n\n Business profits are defined under Section 28 of the Income Tax Act. According to this section,<\/p>\n\n\n\n According to Section 29 of the Income Tax Act 1961, all the incomes mentioned under section 28 of the Income Tax Act shall be charged in accordance with the provisions and rules laid out from Section 30 to Section 43D of the Income Tax Act, 1961.<\/p>\n\n\n\n There are certain cases in which an individual or a taxpayer is unable to identify the type of income mentioned under section 28 of the Income Tax Act, of 1961. In these cases following conditions or ways can be used to identify whether the income falls into the income head of profit and gains of business or profession or not.<\/p>\n\n\n\n Section 28 lays down specific prerequisites that are needed for an income to fall under the income head category of profits and gains of business or profession. These conditions are given below:-<\/p>\n\n\n\n However, the foremost and main point to determine whether income falls under the head of capital and gains of business or not is if a business or a profession was carried on by the assessee or the taxpayer at any time during the financial year. Though it is not necessary that the business or profession was continued throughout the financial year or till the end of it.<\/p>\n\n\n\n Earlier in this article, we talked about the main or primary requirement for an income to be classified under the head of profits and gains of a business or profession as the existence of a business or profession. However, there are certain exceptions to this above-mentioned rule.<\/p>\n\n\n\n Following incomes fall under the income head of profits and gains of business or profession even if the business wasn’t carried on by the assessee or the taxpayer during the previous financial year. These are mentioned below:-<\/p>\n\n\n\n The following incomes are not taxable under Section 28 of the Income Tax Act 1961<\/strong>, under the income head of ‘profits and gains of business or profession’. These are mentioned below:-<\/p>\n\n\n\n These are some of the incomes which are not taxable under the head of profits and gains of business or profession.<\/p>\n\n\n\n The article dealt with the specific income head mentioned under Section 28 of the Income Tax Act, 1961, i.e. ‘Income Tax<\/a><\/strong> on Profits and Gains of Business or Profession’. For the income to fall in this category, it is required for the existence of a business or profession. That business or profession should have been carried out by the taxpayer during a particular financial year. We also discussed exceptions to this above-mentioned rule.<\/p>\n\n\n\nBusiness Income Taxable under Income Tax Act<\/h3>\n\n\n\n
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Cases in Which the Taxpayer is Unable to Find the Type of Income in the Above List<\/h2>\n\n\n\n
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Exceptions to the Above-Mentioned Rule<\/h2>\n\n\n\n
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Business Income Not Taxable Under Income Tax Act<\/h2>\n\n\n\n
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Conclusion<\/h2>\n\n\n\n