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Taxing Audit(or) !!. Profits and Gains of Business or Profession. Tax audit report signed on or after 10-8-2006 whether in respect of AY 2006-07 or earlier AYs should be in the revised format. Annexure-less IT return regime Vs. Tax Audit Report. Turnover Vs. AS-7
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Profits and Gains of Business or Profession • Tax audit report signed on or after 10-8-2006 whether in respect of AY 2006-07 or earlier AYs should be in the revised format. • Annexure-less IT return regime Vs. Tax Audit Report. • Turnover Vs. AS-7 • Accountant (Para 9.3 of ICAI’s G.N on Tax Audit) • Tax consultants may be tax auditor. • CA writing / maintaining books of the assessee/any partner of such CA / the firm in whom such CA is a partner should not accept tax audit assignment. • If a relative of a director is appointed as tax auditor of a company, such appointment attracts the provisions of S. 314 of the Companies Act. This is because tax auditor is an ‘office of profit’ for the purposes of S. 314. • If a CA gives a tax audit report for a concern in which he or his relatives is substantially interested, the interest must be disclosed in his report. • Tax audit of a firm of CAs cannot be done by any partner / employee of the firm
Profits and Gains of Business or Profession Chargeability U/S. 28 • Profits from business or profession [S.28(i)] • Compensation on termination of a contract of managing agency / vesting in the Government / management of any property or business [S. 28(ii)] • Trade / professional association Income from services for its members. [S. 28(iii)] • Profits on sale of REP license/ Exim scrip, Cash Assistance, Duty Drawback of customs or excise against exports [S. 28(iiia), (iiib) & (iiic)] • Profit on transfer of DEPB Scheme or DFRC [S.28 (iiie)] • Perquisite arising from business or in exercise of a profession [S. 28(iv)] • Interest, salary, bonus, commission or remuneration of a partner of a firm [S. 28(v)]Interest, salary, etc. disallowed u/s 40(b shall be adjusted in partners income [S. 28 (v) Proviso] • Interest, salary, etc., disallowed in the assessment of firm U/s 185 shall not be taxable u/s 28(v) [S. 185] • Income under an agreement for not carrying activity [S. 28(va)] • Amount received from Keyman Insurance Policy referred to u/s 10(10D)[S. 28(vi)]
Chargeability U/S. 28 • Loss, expenditure or trading liability allowed as deduction earlier and subsequently received or remission or cessation of the liability. • Liability unilaterally written off in the accounts is deemed as remission or cessation of liability [S. 41(1), Expl.1] • Profits on sale of a capital asset for scientific research which was allowed U/s 35 earlier [S. 41(3)] • Bad debts allowed u/s 36(1)(vii) in an earlier year. [S. 41(4)] • Note: • Profits from transaction not undertaken in the regular course are taxable as casual income under the head ‘IOS’. • Profits from speculation business should be kept distinct from other business. [S. 28, Expl.2] • Share income of a partner, in the total income of the firm, is exempt u/s 10(2A) Profits and Gains of Business or Profession
Expenses Deductible • Rent, rates, taxes, repairs (excluding capex) & insurance of buildings [S. 30] • Repairs (excluding capex) and insurance of P&M and furniture [S. 31] • Depreciation – • Additional Depreciation @ 20% -New P&M used for manufacture. • Assets used for < 180 days depreciation restricted to 50%. • Business of growing and manufacturing tea or coffee or rubber = Deduction lower of Amount deposited in Tea/Coffee/Rubber Development Account or 40% of its profits from business [S.33AB] • Expenditure on scientific research related to business, (including capex less land cost) [S. 35(1)(i) and (iv)] • 125% of amount paid to approved scientific research association, university, college or other institution for scientific research / research in social science or statistical research.[S.35(1)(ii) and (iii)] Profits and Gains of Business or Profession
Expenses Deductible • 125% of sum paid to a National laboratory or a University or an IIT with a specific direction that it shall be used for scientific research under a program approved in this behalf by the prescribed authority [S. 35(2AA)] • Company in business of bio-technology or manufacture of drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or other notified articles. Deduction upto 125% of expenditure incurred (upto 31.3.2012) on scientific research (excluding land or building) / on in-house R& D facility [S. 35(2AB)] • Capex on acquisition on right to operate telecommunication services allowed as a deduction over the license period [S. 35ABB] – Then no deduction allowed u/s 32 • Expenditure for promoting the social and economic welfare or upliftment of the public paid to PSU, local authority or an approved association. Specified projects include drinking water projects in rural areas and urban slums, construction of dwelling units or schools for the EWS, projects of non-conventional and renewable source of energy systems, bridges, public highways, roads, promotion of sports, pollution control, etc. [S.35AC&Rule1(k)] • Expenditure on payment to association and institution for carrying out rural development programmes or to a notified rural development fund, or the National Urban Poverty Eradication Fund. [S. 35CCA] Profits and Gains of Business or Profession
Expenses Deductible • Preliminary expenses - Deductible in 5 EYI upto a max of 5% of COP or capital employed. • Expenditure upto 31.3.1998 allowable in 10 EMI upto a maximum of 2.5% of COP or capital employed. [S. 35D] • Expenditure incurred on amalgamation or demerger in 5 EYI [S. 35DD] • VRS Expenditure allowable in 5 EYI [S. 35DDA] • Deduction for expenditure on prospecting, etc., for certain minerals [S. 35E] • Insurance premium for stocks or stores. [S. 36(1)(i)] • Insurance premium paid on employees health by any mode other than Cash to GIC or any other insurer and approved by IRDA. [S.36(1)(ib)] • Bonus or commission to employees, irrespective of the limit under the Payment of Bonus Act. [S. 36(1)(ii)] • Interest on borrowed capital. [S. 36(1)(iii)] • Interest paid on borrowing for acquisition of new asset for extension of existing business or profession from the date of borrowing till the date on which such asset is first put to use, shall not be deductible. • Provident and superannuation fund contribution. [S. 36(1)(v),Rules 87 & 88] • Approved gratuity fund contributions. [S. 36(1)(v), Rules 103&104] • Sum received from employees and credited to their account in the relevant fund before due date. [S. 36(1)(va)] Profits and Gains of Business or Profession
Expenses Deductible • Loss on death or becoming permanently useless of animals. [S. 36(1)(vi)] • Bad debt actually written off (Excluding provision for bad debts). [S. 36(1)(vii)] • Family planning expenditure. [S. 36(1)(ix)] • Contributions towards Exchange Risk Administration Fund set up by PFI [S. 36(1)(x)] • BCTT [S.36(1)(xiii)] • Expenditure (Other than Capex or personal or for a purpose which is an offence or is prohibited by law) incurred in furtherance of trade. [S.37(1)] • Following expenditures can also be claimed u/s 37(1), if incurred in furtherance of business and is not of personal or capital nature: • Entertainment expenditure. • Expenditure on presentation articles, • Expenditure on advertisement outside India, incurred in foreign currency, • Travelling expenditure, • Expenditure on maintenance of guest house. Profits and Gains of Business or Profession
Expenses NOT Deductible • Payment of salary to working partnersubject to specified limits and interest on capital (max 12%) to partners - authorized by partnership deed [S. 40(b)] • 1. Partnership deed will not have retrospective effect. • Deduction for remuneration shall not be allowed unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration. • Expenses deductible on actual payment only- 43B • Provision made for payment of contribution to an approved gratuity fund, or for payment of gratuity payable during the year. [S. 40A(7)] • Advertisement in any souvenir, brochure, etc. of political party. [S. 37(2B)] • Interest, royalty, fees for technical services or other sums payable outside India or to NRI, foreign company in India on which TDS is not made or not deposited within the time limit. [S. 40(a)(i)] • Salaries payable outside India or to a non-resident on which TDS is not paid or deducted [S. 40(a)(iii)] • Interest, commission or brokerage, rent, royalty, fees for professional or technical services to resident on which TDS is not deducted or paid within the due date. • For the above 3 cases, where TDS is deducted or paid in any subsequent year, then such sum is deductible in the PY in which TDS is paid [S. 40(a)(ia)] Profits and Gains of Business or Profession
Expenses NOT Deductible • STT [S. 40(a)(ib)] • FBT [S. 40(a)(ic)] • Tax on profits/ gains of business/ profession [S. 40(a)(ii)] • Wealth Tax [S. 40(a)(iia)] • Payment to a PF or other fund established for employees benefit, unless proper arrangements of TDS on any taxable payment out of such fund are made [S. 40(a)(iv)] • Income Tax paid by employer on Perquisites of employee [S. 40(a)(v)] • Interest, salary, bonus, commission or remuneration made by AOP/BOI to its members. • Expenditure > Rs. 20,000 paid otherwise than by account payee cheque/ bank draft (Exception Rule 6DD) [S. 40A(3)] • Where deduction is claimed on accrual basis and payment (exceeding Rs. 20,000) is made in a subsequent year, the payment shall be deemed as profit of the assessee for the year in which the payment is made. Upto A.Y.2007-08, the income was being recomputed and rectification was made u/s154 Profits and Gains of Business or Profession
Expenses NOT Deductible • Annual listing fee paid to stock exchange. • Expenditure incurred by way of stamp paper, underwriting commission, registration fees, lawyer fees etc., for raising debenture issue. • Initial expenditure on installation of fluorescent light. • Expenses on defending any proceedings for breach of any law relating to sales tax. Profits and Gains of Business or Profession
Company cannot be a professional Form No. 3CD – Part B
Books of Account to be maintained • By Specified professionals IFF gross receipts > Rs.1,50,000 • Cash book , Journal, Ledger; • Carbon copies of bills and receipts serially numbered, where sum exceeds Rs. 25, • Original bills and receipts for exp. incurred or, where such bills and receipts are not issued and the expenditure incurred < Rs. 50, payment vouchers prepared and signed by the person, unless the cash book contains adequate particulars in respect of the expenditure; • For medical profession, apart from the above books, a daily case register in Form No.3C and an inventory of stock of drugs, medicines etc. should be maintained. [Rule 6F] • By Businessmen and other professionals (not specified above): • a) Income > Rs. 1.20 Lacs or • b) Total sales, turnover or gross receipt > Rs. 10 Lac No account books have been prescribed by CBDT in case of above. • Besides, where an assessee is covered U/S.44AD, S.44AE, S.44AF, S. 44BB or S. 44BBB & he claims his income is lower than that computed under the respective Sections, he shall compulsory maintain the aforesaid books of account. Penalty for failure to maintain account books, u/s. 271A - Rs. 25,000. Form No. 3CD – Part B
Form No. 3CD – Part B Form No. 3CD – Part B
Form No. 3CD – Part B Form No. 3CD – Part B Form No. 3CD – Part B
Form No. 3CD – Part B Form No. 3CD – Part B Form No. 3CD – Part B Form No. 3CD – Part B
MSMEDA 2006 Micro, Small & Medium Enterprises Development Act *Suppliers – to file a memorandum • Obligations of buyer under the Act: • Pay within agreed time which cannot exceed 45 days from date of acceptance/date of deemed acceptance. If no time for payment has been agreed then payment should be made on or before the appointed time i.e. 15 days from acceptance. • Otherwise - pay compound interest at 3 times of bank rate notified by RBI. • Interest will apply even if contract states otherwise. • Not to claim deduction (under the IT Act) of the interest paid/payable. Form No. 3CD – Part B
MSMEDA 2006 • According to S. 22 of MSMEDA, where any buyer is required to get his annual accounts auditedunder any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts. • The principal amount and the interest due thereon remaining unpaid to any supplier as at the end of each accounting year; • Interest paid by the buyer in terms of S. 16, along with payment amount made to the supplier beyond the appointed day during each accounting ear; • Interest due and payable for the period of delay in making payment • Interest accrued and remaining unpaid at the end of each accounting year; and • The amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure u/s 23. • Tax Auditors duties • The Interest liability/payment under S. 16 if debited to P&L a/c will have to be mentioned by the tax auditor in his tax audit report under clause 17(e) as this amount is incurred for a purpose which is contravention of law. Form No. 3CD – Part B
Place: Date: Name: Address: Form No. 3CD – Part B
