Profits and Gains of Business or Profession for CMA Inter

What this chapter covers

Profits and Gains of Business or Profession: topics in the order to study them

1. 1Chargeability and Basis of Business IncomeStart here to learn what counts as business income and the basis of taxing it, because every later topic builds on this.
2. 2Deductions Expressly Allowed in Business IncomeLearn what is allowed first, so the disallowance rules read as exceptions to a known list.
3. 3Expenses Not Deductible and DisallowancesThis is the most tested adjustment area, so study it right after the allowed deductions to see both sides together.
4. 4Site Restoration Fund Deduction (Schedule X)It is a self-contained deduction with exact conditions, a limit and a withdrawal charge, so it is best learned once the general deduction rules are clear.
5. 5Special Business Provisions and Presumptive TaxationThese rules replace or modify the normal computation, so learn them after you know the normal method.
6. 6Deemed Profits, Speculation and Business LossesDeemed income and loss treatment affect the final figure, so they come after the main adjustments.
7. 7Computation of Income from Business or ProfessionFinish with the full computation, which brings every earlier topic into one format and is the best practice for the exam.

How to prepare Profits and Gains of Business or Profession

1. Read the chargeability and basis rules first and write one line on what counts as business income and how it is taxed.
2. Make a two-column list of allowed deductions and disallowed items. Add the condition for each item next to it, such as a payment test or a limit.
3. Learn Schedule X with its exact points: who qualifies, the deposit and the 20% of profits limit (whichever is less), the audit requirement, and when a withdrawal becomes taxable.
4. Use a fixed computation format: net profit as per books, add inadmissible items, deduct allowed items not yet in the books, then adjust for special provisions and losses.
5. Solve a numerical in full each study session, with one line of working per adjustment, so you earn step marks.
6. Practise MCQs on limits, conditions and exceptions, then revisit every question you got wrong after a few days.

Common mistakes in Profits and Gains of Business or Profession

• Starting the computation from the wrong figure or skipping the book profit

  Fix: Always begin with net profit as per the books, then list additions and deductions in a set order.

• Treating an expense as deductible without checking its condition

  Fix: Note the condition beside every item in your notes and test it before allowing the expense.

• Calculating the Schedule X deduction on profit after the deduction

  Fix: Take 20% of business profit computed before any deduction under this paragraph, then pick the lower of that and the amount deposited.

• Applying brought-forward loss before the Schedule X deduction

  Fix: Remember that the Schedule X deduction is allowed before the set-off of brought-forward losses.

• Forgetting the tax consequence of withdrawal or asset sale under Schedule X

  Fix: Learn the three triggers: closure withdrawal, unused withdrawal, and sale of the asset within eight years from the end of the tax year of acquisition.

• Using old Income-tax Act, 1961 terms and section numbers

  Fix: Use tax year and the Income-tax Act, 2025 references only, and check your notes against the current Act.

Last-day revision: Profits and Gains of Business or Profession

• ✓Business income is computed by starting from book profit and adjusting it for allowed and disallowed items.
• ✓Learn each deduction together with its condition. A missing condition is the usual reason an item is disallowed.
• ✓Schedule X applies to an assessee carrying on prospecting for, or extraction or production of, petroleum or natural gas in India under an agreement with the Central Government.
• ✓Site Restoration Fund deduction is the lower of the amount deposited or 20% of business profits before this deduction.
• ✓The Schedule X deduction is allowed before set-off of brought-forward losses under section 112.
• ✓Interest credited to the specified account is deemed to be a deposit.
• ✓The accounts must be audited by an accountant before the specified date in section 63, and the audit report must be furnished by that date.
• ✓An amount withdrawn on closure is taxed as business profits, after reducing any profit or production share payable to the Central Government.
• ✓An amount withdrawn for business use but not used in that tax year is deemed business profits of that year.
• ✓If an asset acquired under the scheme is sold within eight years from the end of the tax year of acquisition, the part of its cost relatable to the deduction is taxed. The sale to the Government, a local authority, a statutory corporation or a Government company is excluded.
• ✓A partner or member cannot claim the Schedule X deduction a second time when the firm, AOP or BOI has already claimed it.
• ✓Use the Income-tax Act, 2025 terms: tax year, not assessment year.

Profits and Gains of Business or Profession practice questions

• Meena, a resident individual trader, has a turnover of Rs 2,80,00,000 in the tax year, of which cash receipts are Rs 20,00,000. She is an el…
• Which of the following is a condition for claiming the site restoration fund deduction under Schedule X?
• Dhruv Oil Partners, a firm, carries on petroleum production in India under a Central Government agreement and claims a deduction under Sched…
• Under section 26 of the Income-tax Act, 2025, where speculative transactions carried on by an assessee are of such nature as to constitute a…
• Ramesh, a resident individual, runs a retail trading business (not a specified profession, no commission or agency income). His total turnov…
• Meera, a resident individual, is an eligible assessee with business turnover of Rs. 2,80,00,000 in the tax year. Cash receipts were Rs. 12,0…
• Under the Income-tax Act, 2025, a loss computed in respect of a speculation business carried on by an assessee can be set off only against:
• Under section 58 of the Income-tax Act, 2025, an eligible assessee opting for presumptive computation under Sl. No. 1 claims depreciation of…

Profits and Gains of Business or Profession in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

• CS ExecutiveProfits and Gains from Business and Profession
• CA IntermediateProfits and Gains of Business or Profession
• CA FinalProfits and Gains of Business or Profession