Computation of Income from Business or Profession

Introduction

Section 27 of the Income-tax Act, 2025 provides that income from business or profession shall be computed in accordance with the provisions contained in Sections 28 to 60, except Section 58.

The provisions contained in Sections 28 to 60, except Section 58, are related to expenditures allowable or disallowable while computing the business or professional income.

1. About

1.1. General

The list of allowances enumerated in Sections 28 to 60 is not exhaustive. If an item of expenditure or loss is incidental to business or profession, it may be allowed under these sections based on ordinary commercial principles even if there is no express provision under these sections.

To determine whether a particular item, not covered under Sections 28 to 60, may or may not be deducted from profits under any of these sections, one should first ascertain whether its deduction is expressly prohibited under any of the sections, and if not, whether it is of such nature that its deduction may be allowed on ordinary commercial principle in computing taxable profits. If the answer is in the affirmative, the deduction may be allowed.

Further, Section 58 is excluded as it provides a special presumptive taxation framework for specified businesses or professions.

1.2. Business Losses

Business losses, though fall outside the purview of Sections 30 to 43D, may be allowed under this section on the basis of ordinary commercial principles. The trading loss of a business is deductible for computing the profit earned by the business. But every loss is not so deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation.

A business loss shall be allowed provided following conditions are satisfied:

(a) Losses are revenue in nature. Losses of capital nature are not allowed as deduction, i.e., loss from sale of fixed assets or investments shall not be deemed as business loss. However, losses incurred in respect of the depreciable fixed assets shall be allowable in accordance with section 33.

(b) Losses are incurred in the relevant previous year

(c) Losses are incidental to the business or profession carried on by the assessee

(d) Losses are real and not fictional or expected in future

(e) There is no provision, direct or indirect, in the Income-tax Act restricting such deduction.

1.3. Computation of business income

Income from business or profession can be computed as per normal provisions of the Act or as per presumptive taxation scheme. If taxable income has to be computed as per normal provision of Act, it shall be computed in following manner:

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.