Define the term Business and Profession and discuss the taxability and scope of business or profession also writes the deductions admissible under this head
Business;-
Business means any trade.commerce,marketing,manufacturing
process or commercial activity which deals with the sale and purchase of goods.
Profession;-
Intellectual skill or manual labour controlled by
intellectual ability is called profession.
Example;-
income of a doctor or professor.
Note;-
All the professions are business but all type of business are not professions.
Tax ability :-
If an assessee receives the income from business or
profession it will be chargeable to tax under this head. Following are the
important incomes which are chargeable tax to under this head.
(1) during the income year at any time profits and gains
received by assessee from any business profession,will be taxable.
(2) any benefit or perquisite arising from business or
profession is also chargeable to tax.
(3) income of trade
professional association received from specific service which were performed,
for its members is also chargeable to tax.
Scope of Business or Profession
under the head of ‘business or profession’’ following
incomes are not taxable.
- if the old partner receives the share of good will from the new in coming partners it will be not taxable.
- income of non – professional artist, writer is not taxable.
- bar council enrollment and examination fee is not chargeable to tax.
- income of a professional examiner is not taxable.
Deductions Admissible
following
deductions are admissible.
(1). Depreciation
If any building furniture or plant is used for
the business purposes and its value depreciates such depreciation is allowable
for deduction.
(2). Loss
of Animal
If any animal is kept for business
purposes and it dies or becomes disabling such loss is also allowable
deduction.
(3). Interest
on Loan
If the loan is borrowed for the
business purpose then interest paid on that loan will be allowable deduction.
(4). Rent
of Building
If building is used for the
business purposes then its rent which is paid will be allowable deduction.
Note:-
The building should not be for the
residential purposes by the assessee.
(5). Bonus
or Commission;-
amount paid in the
from of bonus or commission to the
employees of the business, such
amount is allowable deduction.
(6). Irrecoverable Debts
the amount of bad debt which is actually written off by the
assessee will be decided by the income tax officer and it will be deductible.
(7) Insurance Premium
if insurance premium is paid against the risk
of damage or destruction to the asset of the business such amount is deductible
from the profit of the business.
(8) Research Expenditure
if the amount is spent by the assessee on the
scientific research of business related to Pakistan
will be also deductible.
(9) Special Reserve
special reserve is maintained only
with the approval of central board of revenue.the amount may not exceed then 10
of the total income including the amount of special reserve.it will be also
deductible amount.
(10) Expenditure on trade
Development
any amount which spent on trade
fares trade delegations and sampling are allowable deduction . but important
condition is that such expenditure should be only for the business purposes.
(11) Expenditure on hospital &
Education;-
any assessee spends the money on
the establishment of hospital or
educational institutions for the welfare of his employees.such amount will be
deductible.
(12) Payment to Modarba
the amount which is paid to a
modarba or PTC holder for the borrowed funds purposes is deductible.
(13) Payment under Musharika
Scheme
payment made under musharika scheme
bank is also deductible.provided that such scheme should represent its share in
the profits of the musharika.
(14) Industrial worker Training
Expenditure
if any organization (govt . or
recognized) spends the money on the training of industrial worker that
will be also deductible.
(15) Other Business Expenses
all the revenue expenses like electricity bill, telephone
bill, are allowable deductions up to certain limits
(16) Payment of Local Tax
if any local tax is paid to any
local authority or Govt. on account of such business is an allowable deduction.
(17) Current Repairs
the amount which is spent on the
current repair of any plant or machinery which is used for
the business purpose is deductible.
Note : -
Any expenditure ( personal or other ) which is not
clearly mentioned as an allowed expenditure can not be deducted for the
business income unless it is decided by court 
