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CS Executive · Tax Laws and Practice · Profits and Gains from Business and Profession

An assessee has business profits of ₹8,00,000 computed before the site restoration deduction and before set off of brought forward business loss of ₹5,00,000. It deposited ₹4,00,000 in the specified account. How is the deduction computed under Schedule X of the Income-tax Act, 2025?

The deduction is ₹1,60,000. The 20% cap is applied to profits of ₹8,00,000 before the deduction, and the deduction is allowed before set off of brought forward losses. Since ₹1,60,000 is less than the ₹4,00,000 deposited, it is the allowable amount.

  1. A₹1,60,000, because 20% is applied to profits before the deduction and before set off of brought forward lossCorrect
  2. B₹4,00,000, because the deposit is below the profits
  3. C₹60,000, because 20% is applied to profits after set off of the brought forward loss
  4. DNil, because brought forward loss exceeds the deduction

Explanation

Paragraph 1(2) requires the deduction to be allowed before set off of brought forward loss. So the 20% limit applies to ₹8,00,000, giving ₹1,60,000, which is less than the deposit of ₹4,00,000. The ₹60,000 figure wrongly applies the cap after the loss set off.

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