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Business Income not Taxable under head 'Business or Profession'

In the following cases, income from trading or business is not taxable under section 28, under the head “Profits and gains of business or profession”:

Rental income in the case of Dealer in Property  :

Rent of house property is taxable under section 22 under the head “Income from house property”, even if property constitutes stock-in-trade of recipient of rent or the recipient of rent is engaged in the business of letting properties on rent.

Dividend on Shares in the case of a Dealer-in-Shares  :

Dividends on shares are taxable under section 56(2)(i), under the head “Income from case of a dealer-in-shares other sources”, even if they are derived from shares held as stock-in-trade or the recipient of dividends is a dealer-in-shares. Dividend received from an Indian company is not chargeable to tax in the hands of shareholders (this rule is subject to a few exceptions‡).

Winnings from Lotteries, etc.

Winnings from lotteries, races, etc., are taxable under the head “Income from other sources” etc. (even if derived as a regular business activity).

Interest received on Compensation or Enhanced Compensation :

Such interest is always taxable in the year of receipt under the head “Income from other sources” (even if it pertains to a regular business activity). A deduction of 50 % is allowed and effectively only 50 % of such interest is taxable under the head “Income from other sources”.

Profits derived from the aforesaid business activities are not taxable under section 28, under the head “Profits and gains of business or profession”. Profits and gains of any other business are taxable under section 28, unless such profits are exempt under sections 10 to 13A.

 

Topics...on ‘Profits and Gains of Business or Profession’

Define … ‘Profits and Gains of Business or Profession’ and its Computation (Section 28)
Method of Accounting for Computing Business Income (Section 145)
Principles for Allowing Business Deductions / Allowances from Profits and Gains of Business or Profession.
Expenses Allowed as Deductions against Profits and Gains of Business or Profession [Section-30-37]
[Section 37(1)] : General Or Allowable Deductions under Business or Professions
Business Losses Deductible under the head  'Profits and Gains of Business or Profession'.
Expenses Not Deductible under the head 'Profits and Gains of Business or Profession (Section 40, 40A, 43B)
DEEMED PROFITS Chargeable to Tax as Business Income Under Profits and Gains of Business or Professions [Section 41]
Taxation of Undisclosed Business Income/Investments from Undisclosed Sources
Deduction in respect of Expenditure incurred on setting up of a Specified Business [Section-35AD] :
When Maintenance of Books of Accounts becomes Compulsory (Section 44AA)
Compulsory Audit of Books of Accounts by Chartered Accountant (Section 44AB)
Computation of Income On Estimated Basis Under Sections 44AD, 44ADA and 44AE

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