Question

Task 3:

Amur started his own business in 2015. For the Accounting year ended 31/3/2020, he prepared Profit and Loss Account for his business. He had other incomes such as rental income, interest income, dividend income and profit on sale of fixed asset. He included all these incomes in his Profit and Loss Account. Also, he has deducted various expenses while calculating Net Profit in the Profit and loss Account. He is not sure how to calculate the adjusted trading profit for the purposes of taxation.

Question:

As you are dealing taxation issues in his office, prepare a report explaining clearly the various expenses, which are deductible, and which are not deductible and the treatment of various other incomes included in the Profit and loss account, while calculating the adjusted trading profit for tax purposes.

Answer 1

ANSWER AS PER INDIAN  INCOME TAX ACT 1961

As per income tax act,a person can have 5 sources of income say income from salary,income from house property,income from business / profession,capital gain and income from other source.All the income has to be categorised as above.

.Any income which Amur has recieved in connection with business is considered as business income.Net income from business is arrived after allowing the cost of goods sold and all other expenses releated with the business.

Following is the computation of total income of Amur

a)Income from Business

Net profit as per trading and profit and loss account   

Less:Income under other heads

Rental Income   

Dividend Income

Interest Income   

Profit on sale of fixed asset

Total Income from Business

b)Income from houseproperty

Rental Income

Less:30% Standard deduction allowed to income from house property)

c)Capital Gain

profit on sale of fixed asset

d)Income from other source

Dividend Income

Less:Exempted from tax(dividend income from domestic comapny is exempt from tax)

Interest Income

GROSS TOTAL INCOME(a+b+c+d)

Note: Amur can compute his income from business/profession by taking only those incomes and expenses related with his business.