Definition of Business Income

• Business income refers to profits or gains earned from any trade, commerce, manufacturing, or service activity.
  
• It is taxed under the head “Profits and Gains of Business or Profession.”
  
• Includes earnings from sole proprietorships, partnerships, and freelancers.
  
• All income related to regular business operations is covered.
  
• Both goods-based and service-based incomes are included.
  

Computation of Taxable Business Income

• Begin with gross receipts or turnover from business activities.
  
• Deduct expenses that are wholly and exclusively incurred for the business.
  
• Allowable expenses include rent, salaries, raw material, depreciation, utilities, and interest.
  
• Disallow expenses that are personal, capital in nature, or not supported by records.
  
• Net profit after deductions is considered taxable business income.
  

Tax Rates Applicable

• Individuals and HUFs: Taxed at applicable slab rates.
  
• Firms and LLPs: Taxed at a flat rate of 30% plus surcharge and cess.
  
• Companies: Domestic companies pay 22% to 25% (concessional rates may apply under certain sections).
  
• Presumptive taxation: Allowed for small taxpayers under Sections 44AD, 44ADA, and 44AE at fixed rates.
  
• Minimum Alternate Tax (MAT) or Alternate Minimum Tax (AMT) may apply in specific cases.
  

Presumptive Taxation Schemes

• Section 44AD: For small businesses with turnover up to ₹2 crore; 8% (or 6% for digital receipts) of turnover is deemed income.
  
• Section 44ADA: For professionals with gross receipts up to ₹50 lakh; 50% of receipts are deemed as income.
  
• Section 44AE: For transporters owning up to 10 goods vehicles; fixed income per vehicle per month is assumed.
  
• No need to maintain detailed books or audit under presumptive schemes.
  
• Advance tax is still required if liability exceeds ₹10,000.
  

Tax Compliance and Audit Requirements

• Maintain proper books of account as per Section 44AA (unless under presumptive scheme).
  
• Tax audit is mandatory under Section 44AB if turnover exceeds limits (₹1 crore or ₹10 crore depending on cash transactions).
  
• Advance tax must be paid in four installments if tax liability exceeds ₹10,000.
  
• File return using ITR-3 (for regular business income) or ITR-4 (for presumptive income).
  
• Non-compliance may attract penalties and disallowance of expenses.
  

Deductions and Set-Offs

• Business losses can be carried forward for 8 years and set off against future profits.
  
• Depreciation and additional depreciation can reduce taxable income.
  
• Deductions under Section 80C to 80U are available to individuals.
  
• Contributions to employee provident fund and gratuity are deductible.
  
• Expenses must be genuine, necessary, and properly documented.