Taxable income

12. Describe the taxable income under business and profession.

Taxable income from a business or profession is the net profit earned after deducting allowable business expenses from total gross receipts. It includes revenue from trading, services, non-compete fees, and export incentives. Personal expenses and income tax are not deductible. [1, 2, 3, 4, 5]

Here is how to calculate and understand this taxable income:

1. What counts as Business and Profession income?

Business: Any trade, commerce, or manufacturing activity.
Profession: Occupations needing special skills or learning, like doctors, lawyers, or architects.
Included Income: Money from selling goods, professional fees, cash assistance for exports, and non-compete fees.
Excluded Income: Income from house property or dividends are taxed under separate heads. [1, 2, 6]

2. How to calculate Taxable Income

The formula is:Taxable Income = Total Gross Receipts - Allowable Expenses

Gross Receipts: All the money you earn from your business or professional clients.
Allowable Expenses: Costs you must spend to run the business. Think of buying raw materials, paying staff, or renting an office. You can also deduct depreciation (the drop in value) on assets like computers and machinery. [3, 5, 7, 8]

3. Expenses you CANNOT deduct

Personal Expenses: Family trips or household groceries are personal, not business.
Income Tax: You cannot deduct the income tax you pay to the government from your business income.
Large Cash Payments: Business expenses over a certain daily limit (such as ₹10,000) usually must be paid via bank transfers to be allowed as a deduction. [2, 4, 9, 10, 11]