Chapter 3: Profits and Gains of Business or Profession (PGBP)
1. Depreciation Framework (Section 32 & Rules)
| Asset Category | Standard Rate | Put to Use < 180 Days Rule | Additional Depreciation |
|---|---|---|---|
| Plant & Machinery (General) | 15% | 50% of rate (7.5%) in Year 1 | 20% (balance 10% in Year 2 if put to use < 180 days). |
| Computers, Laptops, Software | 40% | 20% in Year 1 | Eligible if used in manufacturing/power generation. |
| Commercial Buildings | 10% | 5% in Year 1 | Not eligible. |
| Residential Buildings (except hotels) | 5% | 2.5% in Year 1 | Not eligible. |
| Intangible Assets (Patents, Copyrights) | 25% | 12.5% in Year 1 | Not eligible. |
Closing WDV Algorithm:
$ ext{Opening WDV} + ext{Actual Additions during year} - ext{Moneys Payable (Sales/Insurance)} = ext{WDV for Depreciation}$.
• If Moneys Payable $>$ (Opening WDV + Additions), WDV becomes NIL and excess is Short Term Capital Gain u/s 50.
• If all assets in block are sold but balance remains in block, WDV becomes NIL and balance is Short Term Capital Loss u/s 50.
$ ext{Opening WDV} + ext{Actual Additions during year} - ext{Moneys Payable (Sales/Insurance)} = ext{WDV for Depreciation}$.
• If Moneys Payable $>$ (Opening WDV + Additions), WDV becomes NIL and excess is Short Term Capital Gain u/s 50.
• If all assets in block are sold but balance remains in block, WDV becomes NIL and balance is Short Term Capital Loss u/s 50.
2. Statutory Disallowance Matrix (Sec 40 & 40A)
| Section | Trigger Event | Disallowance Quantum | Cure / Subsequent Allowance |
|---|---|---|---|
| Sec 40(a)(i) | Payment to Non-Resident without TDS or non-remittance by due date | 100% disallowance | Allowed in year in which TDS is deposited. |
| Sec 40(a)(ia) | Payment to Resident without TDS or non-remittance by 139(1) due date | 30% disallowance | Allowed in year in which TDS is deposited. |
| Sec 40(a)(ii) | Income-tax, Surcharge, Health & Education Cess paid | 100% disallowance | Never allowed. |
| Sec 40A(2) | Excessive/unreasonable payment to Relative / Associated Entity | Disallowance of excess over FMV | Assessing Officer's objective determination. |
| Sec 40A(3) | Payment exceeding ₹ 10,000 per person per day in cash (₹ 35,000 for transport operators) | 100% disallowance | Excepted under Rule 6DD (bank holiday, agricultural produce, NEFT/RTGS). |
3. Section 43B & Clause (h) MSME Mandate
Deduction allowable only on actual payment on or before the due date of filing return u/s 139(1), EXCEPT for clause (h):
- Statutory liabilities: Taxes, duties, cesses, cess, GST, employee PF/ESI contributions.
- Financing costs: Interest to Scheduled Banks, Co-operative Banks, Financial Institutions, NBFCs.
- Bonus & Commission: Payable to employees.
- Leave Encashment: Payable to employees.
CRITICAL EXAM ALERT — Section 43B(h) for MSMEs:
Any sum payable to a Micro or Small enterprise beyond the time limit specified in Section 15 of MSMED Act (15 days if no agreement; max 45 days if written agreement) is allowed ONLY in the year of actual payment! The benefit of payment up to return filing due date u/s 139(1) is NOT AVAILABLE for clause (h)!
Any sum payable to a Micro or Small enterprise beyond the time limit specified in Section 15 of MSMED Act (15 days if no agreement; max 45 days if written agreement) is allowed ONLY in the year of actual payment! The benefit of payment up to return filing due date u/s 139(1) is NOT AVAILABLE for clause (h)!
4. Presumptive Taxation Summary (44AD, 44ADA, 44AE)
| Parameter | Section 44AD (Business) | Section 44ADA (Profession) | Section 44AE (Goods Carriages) |
|---|---|---|---|
| Eligible Assessee | Resident Individual, HUF, Firm (excl. LLP) | Resident Individual, Firm (excl. LLP) | Any assessee owning $\le 10$ goods carriages |
| Turnover Ceiling | ₹ 2 Crores (₹ 3 Cr if cash receipts $\le$ 5%) | ₹ 50 Lakhs (₹ 75 L if cash receipts $\le$ 5%) | No turnover limit (max 10 vehicles) |
| Deemed Profit | 8% of turnover (6% for digital receipts) | 50% of gross receipts | Heavy vehicle: ₹ 1,000/ton/month; Other: ₹ 7,500/vehicle/month. |
| Advance Tax | 100% in single instalment by 15th March | 100% in single instalment by 15th March | 100% in single instalment by 15th March |
5. High-Frequency Exam Traps
Trap 1: Cash payment split into invoices!
Sec 40A(3) applies to aggregate payments made to a person in a single day. If two bills of ₹ 6,000 each are paid in cash to the same person on the same day (total ₹ 12,000), 100% is disallowed!
Sec 40A(3) applies to aggregate payments made to a person in a single day. If two bills of ₹ 6,000 each are paid in cash to the same person on the same day (total ₹ 12,000), 100% is disallowed!
Trap 2: Additional Depreciation under Sec 115BAC!
Assessees opting for the Default Tax Regime u/s 115BAC / Sec 202 CANNOT CLAIM additional depreciation u/s 32(1)(iia) or deductions u/s 35AD / 33AB.
Assessees opting for the Default Tax Regime u/s 115BAC / Sec 202 CANNOT CLAIM additional depreciation u/s 32(1)(iia) or deductions u/s 35AD / 33AB.