In India, your income is taxed based on different categories, and one important category is “Income from Business & Profession.” This category includes earnings that are derived from running a business or practicing a profession like medicine, law, or accountancy. Let’s break it down in simpler terms:
What Counts as Business Income?
This is the money you make from activities like running a store, a restaurant, or any other type of business. If you buy and sell products or provide services, the earnings you get from these activities is considered as business income.
What is Professional Income?
Professional income is the money you earn from offering specialized services. This includes earnings for work done by professionals such as doctors, lawyers, or consultants. If you’re providing expert services or advice based on your skills, this income also falls under professional income.
How is It Taxed?
The Income Tax Act says that you should calculate your income based on your profit and loss. This means you need to keep track of all the money you earn and all the expenses you have for running your business or profession. The profit you make, which is your income after deducting your expenses, is what you need to pay tax on.
Deductions you can claim:
You can reduce your taxable income by claiming deductions. For businesses, this includes costs like raw materials, salaries, rent, and utility bills. For professionals, this might include office rent, equipment, and other costs related to your work. Keeping track of these expenses helps you pay tax only on your actual profit.
Example:
Let’s say A runs a boutique. In the financial year, the total sales amount to ₹10,00,000. Expenses, including materials, rent, and salaries, total ₹6,00,000. To calculate the taxable income, we need to subtract the expenses from sales:
Taxable Income = Sales – Expenses
= ₹10,00,000 – ₹6,00,000
Taxable Income = ₹4,00,000
Thus, A will pay the tax based on this ₹4,00,000 profit. Then, He/she must file the income tax return, declaring this income, and paying any taxes due according to the applicable tax slabs.
Conclusion:
In summary, Income from Business and Profession covers a broad range of earnings and allows for different methods of calculation. Understanding and managing this income is crucial for compliance with tax regulations. Keeping accurate records and staying informed about applicable deductions can also help you manage your tax liabilities effectively. Also make sure to file your tax return before the deadline to avoid any penalties.
– Ketaki Dandekar (Team Arthology)
Read more about Income from Business & Profession here – https://learn.quicko.com/income-from-business