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.

1. if the old partner receives the share of good will from the new in coming partners it will be not taxable.
2. income of non – professional artist, writer is not taxable.
3. bar council enrollment and examination  fee is not chargeable to tax.
4. 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