Tax Ready Reckoner

1. Key Provision Section 37(2B)of the Income Tax Act, 1961, disallows any deduction for expenses incurred on advertisements in political party publications (e.g., souvenirs, brochures, or event sponsorships). This applies to businesses and professionals claiming expenses under “Profits and Gains of Business or Profession” (PGBP). 2. Conditions for Disallowance Nature of Expense: Payments made to political parties or their affiliatesfor advertisements. […]

Section 38 of the Income Tax Act, 1961 governs deductions for depreciation and other expenses related to assets (buildings, plant & machinery, furniture) that are partly used for business and partly for non-business purposes. 1. Key Provisions A.  Partial Business Use (Section 38(1)) If an asset is not exclusively used for business, deductions are proportionately disallowed. Formula: Allowable Expense = Total Expense

Under the Income Tax Act, 1961, certain expenses are expressly disallowed while computing taxable income under the head “Profits and Gains of Business or Profession” (PGBP). These restrictions are outlined in Sections 40(a), 40(b), and 40(ba) to prevent tax evasion and ensure compliance. Below is a detailed breakdown of these provisions: 1. Section 40(a): Disallowance Due to Non-Compliance with

Section 40A of the Income Tax Act, 1961 specifies certain expenses or payments that cannot be deducted while computing taxable income under the head “Profits and Gains of Business or Profession” (PGBP). These provisions aim to prevent tax evasion, ensure compliance, and promote transparency in business transactions. Below is a detailed breakdown of the key disallowances under Section 40A, along with conditions, exceptions,

Section 43B of the Income Tax Act, 1961 is a crucial provision that disallows certain expenses unless they are actually paid by the assessee during the previous year. This section overrides the accrual system of accounting and ensures that deductions are claimed only when payments are made. Key Features of Section 43B Cash Basis Over Accrual Basis: Even if an expense is recorded

Section 43CA of the Income Tax Act, 1961 addresses the taxation of undervalued transactions involving business assets (non-capital assets) such as inventory, land, or building held as stock-in-trade. 1. Key Features of Section 43CA Objective: Prevents underreporting of sale consideration for non-capital assets(e.g., real estate held as stock-in-trade). Applicability: Sellersengaged in real estate business (buildings/land held as inventory). Buyersmay also face implications under Section 56(2)(x) if undervaluation

Section 43CB of the Income Tax Act, 1961 standardizes the computation of income from construction contracts and service contracts by mandating specific revenue recognition methods. Below is a detailed breakdown of its provisions, applicability, and implications. 1. Key Features of Section 43CB Objective: Ensures uniform tax treatment for long-term contracts by aligning with Income Computation and Disclosure Standards (ICDS). Methods Prescribed: Percentage

“Deemed profits” are amounts that aren’t traditional business income, but are still taxed as business profits under the Income Tax Act—primarily to prevent tax avoidance. These are covered under Sections 41 and 59, and a few other provisions. (A) Recovery of Allowances/Deductions Previously Claimed [Section 41(1)] Section 41(1) of the Income Tax Act, 1961 empowers tax authorities

Section 44AA of the Income Tax Act, 1961, mandates certain taxpayers to maintain books of accounts, while Rule 6F specifies the record-keeping requirements for professionals. 1. Who Must Maintain Books of Accounts? A.  Businesses Mandatory if: Annual turnover/gross receipts exceed ₹10 lakh(for businesses) or ₹2.5 lakh (for professions) in any of the last 3 years. New businesses: If expected turnover exceeds ₹10 lakh

Section 44AB of the Income Tax Act, 1961 mandates a compulsory tax audit for businesses and professionals exceeding specified turnover/gross receipt thresholds. The audit ensures compliance with tax laws and accurate reporting of income, deductions, and taxes. 1. Applicability of Tax Audit A.  For Businesses SCENARIO THRESHOLD EXCEPTIONS General Rule Turnover > ₹1 crore – Reduced Cash Transactions (≤5%) Turnover