Guide : Income from Business and Profession

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Hiral Vakil

Income from Business & Profession
Income Source
Speculative Income
Last updated on February 6th, 2023

What is Business and Profession?

Income from business or profession is chargeable to tax only if the business or profession is carried on by a taxpayer at any time during the previous year. Let us first understand what is Business:

Business, in simple words, means an occupation carried on by a person with a view to earn a profit. Business does not include income from the Profession or partnership firm. The business includes any –

For example: Owning a shop, running a hotel, transportation, travel agency, share broking, etc.

Profession may be defined as a vocation, or a job requiring some thought, skill, and special knowledge. So profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill like:

Any income generated from the above-mentioned activities will be taxed under the head “Income from Business and Profession”.

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Maintaining Books of Accounts

In case of Business

A business meeting any of the following criteria needs to maintain the books of accounts as per the income tax act:

Moreover, this condition has been relaxed for individuals and HUF where they will be bound by the mandate of maintaining books of accounts if:

In case of Profession

The taxpayers carrying out any of the above-mentioned professions are required to maintain the books of accounts in accordance with rule 6F of the Income Tax Rules. These professionals have to maintain the books of accounts if the gross receipts exceed INR 1.5 Lakhs in any of the 3 immediately preceding years.

Incomes chargeable under Business and Profession

Any income earned by a taxpayer with an intention to earn a profit is covered under the head business and profession. There are 3 types defined for Businesses/profession under the income tax act:

However, following are the incomes which are not chargeable as income from business and profession:

Expenses allowable from Business and Profession Income

All the expenses incurred wholly and exclusively in relation to the business and profession shall be allowed against the income from such business and profession. Here are some of the expenditures:

All these expenses are allowed on the basis of actual payments as well as on the accrual basis on the date of the finalization of the accounts. For eg: An employee receives an income for the month of March 2020 in the month of April 2020. However, since the income is related to the Financial Year 2019-20 (which ends on 31st March 2020), it can be claimed against the income from the business/professional income of the Financial Year 2019-20.

Expenses allowed only on a payment basis

Here are some of the examples of such expenses:

Computation of Taxable Income from Business and Profession

Taxable income from business and profession is profits after deducting expenses related to business activities. Taxpayer can find profits from books of accounts maintained during the year. Income earned from Business and Profession is taxable at a Slab Rate applicable to taxpayer. Following are the slab rates applicable for FY 2019-20/AY 2020-21:

Total Income Tax Rate
Up to INR 2,50,000 NIL
INR 2,50,000 to 5,00,000 5%
INR 5,00,000 to INR 10,00,000 20%
Above INR 10,00,000 30%

An additional 4% Health and Educational Cess will be applicable to the tax amount calculated 

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Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
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Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.

Set off and Carry Forward of losses from Business and Profession

TDS/Advance Tax on Income from Business and Profession

Taxpayer needs to pay tax on income earned from business and professional activity. Direct taxes on income can be paid in following 2 ways:

Due date of installment Advance Tax payable by Individual and Corporate Taxpayers
On or before 15th June 15% of the tax liability
On or before 15th September 45% of the tax liability
On or before 15th December 75% of the tax liability
On or before 15th March 100% of the tax liability

Tax for Freelancers

A freelancer is a person who is self-employed. They have the freedom to select their own projects and assignments. They do not earn a steady income. The nature of their income is more of a professional income. Hence it is covered under the head “Income from Business and Profession” under the Income Tax Act.

The sum of all the receipts received from different projects becomes their income. And all the expenses related to freelancers are allowed to be deducted. Following is the taxable income of a freelancer:

Net Taxable Income = Total Receipts – Freelancing Expenses

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What is Speculative Business Income?

First of all, we have to understand what is a speculative transaction in order to understand the Speculative Business income.

When a contract for purchase or sale of any commodities (including stocks and shares) is periodically or ultimately settled without the actual delivery or transfer of the commodities, it is called a speculative transaction and if your business is to earn income out of such transaction, then that will be your income from Speculative Business.

One of the examples of Speculative Business is stockbroking, where the broker earns money by way of buying and selling the commodities without taking delivery of the same. Incomes from normal business and speculative business calculated and maintained separately.

Presumptive Taxation Scheme

The presumptive taxation scheme is introduced to give relief to small taxpayers from the tedious job of maintaining books of account and from getting the accounts audited. The presumptive taxation scheme can be opted by individuals, HUFs, and Partnership Firms in India.

Professionals having gross revenue up to INR 50 Lakhs can opt for the presumptive taxation scheme wherein they can offer 50% of the gross revenue as the taxable income and pay taxes as per the applicable slab rates on such income. Once the taxpayers opt for this scheme, they cannot claim any of the profession related expenses as a deduction.

Tax Audit Applicability

Businesses having a gross turnover of more than INR 1 Cr. in a financial year are liable to a tax audit. The taxpayer needs to file Form 3CD for the tax audit report electronically. Furthermore, the Finance Minister Nirmala Sitharaman has announced that the tax audit due date of current Financial Year has been extended to October 31, 2020, from September 30, 2020

In the case of a profession, taxpayers will liable to carry out a tax audit if the gross receipt under this income head exceeds INR 50 Lakhs during any given financial year. If the taxpayers fail to have their books of account audited, then they’ll be liable to pay a fine of up to 0.5% of the gross revenue of 1.5 Lakhs or whichever is lower.

ITR Form and Document Checklist

ITR 3 form is meant for individual or HUF having income from business or Profession and from partnership firm/LLP. In simple words, ITR 3 needs to be filed when income is earned under the head “Profit or gain of business or profession”. It is also filed when Tax Audit is applicable. However, professionals can opt for the presumptive taxations scheme and declare 50% of their gross receipts as their income by filing ITR 4 from the AY 2017-18.

GST Applicability and Return Filing

GST (Goods and Service Tax) is also applicable if your turnover from business exceeds Rs. 40 lakhs in a particular financial year. In the case of the profession, GST is applicable if your receipts exceed Rs. 20 lakhs. One needs to take the GST Registration and file the GST Returns as well. Following are the different types of GST Registrations:

  1. Compulsory Registration,
  2. Voluntary Registration,
  3. Composite Scheme Registration.
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Can a company carry on a profession?

A company being an artificial person does not have a mind or a body and, therefore, cannot be engaged in any profession.  The skill involved in carrying out professional activity is predominantly mental or intellectual rather than physical or manual.

What is presumptive income from Profession?

A professional having a gross revenue upto Rs 50 lakhs can opt for the presumptive scheme of tax wherein he can straightaway offer 50% of the gross revenue as his taxable income and pay taxes as per his slab rates on suchincome.

Can a salaried person have business income?

Yes, a salaried individual can have business income. And if you have made any sort of business income, then you should file ITR-3. 

Got Questions? Ask Away!

  1. Hi @Priyankur_Ghosh,

    As per the Income Tax Act, intraday trading is treated as Speculative Business Income, hence it is reported under the head ‘Income from Business and Profession’. If there are losses, the income would be negative and carry forward to 4 years.

    In case, you want to report your intraday trades under the head capital gains, you can do so by deleting them from the head - ‘Income from Business and Profession’ and manually adding them under ‘Income from Capital Gains’.

    Hope this helps :slight_smile:

  2. Hi @Priyankur_Ghosh,

    We are seeing some Reversal trades in your trading activity, to help you better understand can you please share your TaxP&L report downloaded from Zerodha Console on

    Also, we’d recommend you to mask / remove the data shared, since TaxQ&A is a public forum and it is not advisable to share your personal data.

  3. it assessee professional income above rs:50 lacs tax audit it returns filer gst exempted person 44 clause applicable or not applicable.
    expenses: telephone, salaries, electricity charges,pf,esi, rents,purchases of medicines, surgicial samans,depreciation,
    how the fill procedure above expenses.

  4. Hi @Sundaraiah_Kollipara

    For professionals having gross revenue exceeding Rs. 50 Lakhs

    Add Regular Profession Income on Quicko

    • In the Filing tab, navigate to INCOMES > BUSINESS & PROFESSION from the side nav
    • Click on Regular Profession Income
    • Enter the Profession Details and save

    To further add expenses, you may refer to this article Add Business & Profession Expenses.

    Hope this helps.