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The Finance Act, 2023, has made amendments in some of the provisions relating to Income from Business or Profession. These provisions will impact the computation of income from Business or Profession for the A.Y. 2024-25 (F.Y. 2023-24) and onwards. In this Article, the amendments made in the various provisions of the Income tax Act (Act) are discussed.
Section 28 of the Act gives a list of items chargeable to Income-tax under the head “Profits and Gains of Business or Profession”. Section 28(iv) provides that the value of any benefit or perquisite, whether convertible into money or not arising from business or exercise of a profession shall be chargeable to income tax. The Supreme Court, in the case of Mahindra & Mahindra Ltd V/s CIT (404 ITR-1) held that section 28(iv) does not cover benefit received in cash.
Section 28(iv) is now amended from A.Y. 2024 – 25 (F.Y. 2023-24) and it is now provided that the value of any benefit or perquisite receivable in Cash or in Kind or partly in Cash and partly in Kind from business or the exercise of the profession shall be chargeable to tax as Income from Business or Profession. Consequential amendment is made in Section 194 R which provides for deduction of tax at source (TDS) from such benefits or perquisite amount.
What is “Benefit” or “Perquisite” is not defined in the Act. However, the CBDT has issued a Circular No.12 of 2022 dated 16.06.2022 explaining the provisions of Section 194 R dealing with the provisions for TDS from such benefits or perquisites covered under Section 28(iv). This Circular Clarifies that (i) Free samples given to customer; (ii) Incentive given in the form of cash or in kind such as Car, TV., Computer, Gold Coin, Mobile Phone etc.; (iii) Free Trip to customers or agents etc., upon achieving certain targets given to the concerned person or his relatives; (iv) Free ticket given for an events; (v) Medicine Samples given free to a medical practitioner, whether he is employee of a Hospital or Practicing as a Consultant; (vi) Any benefit or perquisite in form of use of assets of the entity for personal use of owner, director, employees or their relatives will be considered as benefit or perquisite to the recipient under Section 28(iv) as well as under section 194R. It is also clarified that the above list is only an illustrative list of Benefits or Perquisites. In view of the above amendment every person engaged in business or profession will have to be careful while entering into any transaction with third party and will have to first ascertain whether the same amounts to benefit or perquisite. If the same is covered under section 28(iv) he will have to declare the same as his income. It may be noted that Section 28(iv) applies to a person during the course of carrying on a business or profession. Hence, if any benefit is received by a person while purchasing goods or availing services as an ordinary customer no tax will be payable by him.
Section 35D of the Act provides that preliminary expenses incurred in connection with various activities like preparation of feasibility report, preparation of project report, conducting market survey or any other survey or engineering services relating to the business is allowed to be amortized only if the work in connection with such activities is carried out by the assesse himself or by an approved person.
Sections 44BB and 44BBB provide for presumptive taxation for non-residents engaged in the business in connection with or supplying plant and machinery on hire or to be used in prospecting for or extraction or production of mineral oil and foreign companies engaged in business of civil construction, or erecting plant and machinery or testing or commissioning thereof, in connection of a turnkey power project approved by the Central Government. Upto now it was possible for such eligible assessees to carry forward the losses in such business and setoff the same and use the presumptive scheme which restrict to profit to 10%. Both these sections are now amended, effective from A.Y. 2024-25 (F.Y. 2023-24), to provide that unabsorbed depreciation and brought forward losses will not be allowed to be setoff where the assesse has declared the business income in accordance with the presumptive taxation scheme in earlier years but opted out of the scheme and declared income under the normal provisions of the Income tax Act.
Section 79 of the Act provides for certain restrictions for set-off and carry forward of losses. In connection with Start-Up, as referred to in Section 80IAC, it is provided that irrespective of change in shareholding of such Start-Up by more than 49%, it is entitled to carry forward and set-off of loss in the first 7 years of its incorporation. This is subject to the condition that all the shareholders of such eligible start-Up in the year in which loss was incurred continued to be shareholders in the year in which such loss is to be set-off. This section is now amended from A.Y. 2023-24 (F.Y. 2022-23) and the above period of 7 years is enhanced to 10 years.
