Income from Profession: Rules, Procedure

According to section 29, the profits and gains of a profession are to be computed in accordance with the provisions contained in sections 30 to 43 D. It must, however, be remembered that in addition to the specific allowances and deductions stated in sections 30 to 36, the Act further permits allowance of items of expenses under the residuary section 37(1), which extends the allowance to items of expenditure not covered by sections 30 to 36, where these are allowable according to accepted commercial practices.

Profession means exploitation of ones skills and knowledge independently. Profession includes vocation.

Professional Income is income from exercise of any profession or vocation which calls for an intellectual or manual skill. It covers doctor, lawyers, accountants, consulting engineers, artists, musicians, singers etc.

The expression ‘Profession’ has been defined in Section 2(36) of the Act to include any vocation. In the case of a profession, the definition given in the Act is very much inadequate since it does not clearly specify what activities constitute profession and what activities do not.

According to the generally accepted principles, the meaning of the term ‘profession’ involves the concept of an occupation requiring either intellectual skill or manual skill controlled and directed by the intellectual skill of the operator.

For instance, an auditor carrying on his practice, the lawyer or a doctor, a painter, an actor, an architect or sculptor, would be persons carrying on a profession and not a business.

The common feature in the case of both profession as well as business is that the object of carrying them out is to derive income or to make profit. The process of making the profit would be the main area of difference between the two while the ultimate object is common to both

Profession [Section 2(36)]

A profession is an occupation requiring purely intellectual skill or manual skill controlled by the intellectual skill of the operator, e.g., lawyer, accountant, engineer, surgeon, author etc. So, profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill. Under section 2(36) profession includes vocation.

Vocation simply means a way of living for which one has special fitness. A vocation does not involve any organized or systematic activity like business. So vocation simply means any type of activity in which a person is engaged and he earns his livelihood from such activity. The practice of a religion may also amount to vocation. Writing of articles in the magazines is also a vocation.

Profession involves an exercise of intellect and skill based on learning and experience. It requires purely intellectual skill or manual skill on the basis of some special learning.

Profession includes services provided by the professionally qualified or technically qualified person according to their qualification.

There are certain basic rules that apply when you are assessing your taxable income from profession, these are as follows:

(i) Continuation of Profession

The chargeability to tax under Section 28 is based primarily upon the condition that the assessee must have carried on a profession at any time during the accounting year, though not necessarily throughout the accounting year.

(ii) Existence of continuity in the business or profession is not an essential condition

The existence of continuity in the profession is not an essential condition for making the assessee liable to tax under this head. Thus, receipts arising from the exercise of a profession would still be chargeable to tax under this head although they may be both casual and non-recurring in nature.

(iii) Profession must be carried on during the previous year

Income is chargeable under the head “Profits & gains of business or profession” only if the business is carried on by the assessee during the previous year. It is not necessary that the business should continue throughout the year or till the end of previous year.

Maintenance of books of accounts

Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. [Section 44AA(1)]

Professionals carrying on the professions are required to maintain books of accounts in accordance with Rule 6F of the Income tax Rules.

Books of account [Rule 6F]

BOOKS OF ACCOUNT AND OTHER DOCUMENTS TO BE KEPT AND MAINTAINED UNDER SECTION 44AA(3) BY PERSONS CARRYING ON CERTAIN PROFESSIONS.

6F. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorised representative or film artist shall keep and maintain the books of account and other documents specified in sub-rule (2):

Provided that nothing in this sub-rule shall apply in relation to any previous year in the case of any person if his total gross receipts in the profession do not exceed one lakh fifty thousand rupees in any one of the three years immediately preceding the previous year, or, where the profession has been newly set up in the previous year, his total gross receipts in the profession for that year are not likely to exceed the said amount.]

(2) The books of account and other documents referred to in sub-rule (1) shall be the following, namely:

(i)		a cash book;
(ii)		a journal, if the accounts are maintained according to the mercantile system of accounting;
(iii)		a ledger;
[(iv)		carbon copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the person, and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by him:
		Provided that nothing in this clause shall apply in relation to sums not exceeding twenty-five rupees;]
(v)		original bills wherever issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees, payment vouchers prepared and signed by the person:
		[Provided that the requirements as to the preparation and signing of payment vouchers shall not apply in a case where the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred by him.]

Explanation : In this rule,—

(a)		“authorised representative” means a person who represents any other person, on payment of any fee or remuneration before any Tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy;
(b)		“cash book” means a record of all cash receipts and payments, kept and maintained from day-to-day and giving the cash balance in hand at the end of each day or at the end of a specified period not exceeding a [month];
(c)		“film artist” means any person engaged in his professional capacity in the production of a cinematograph film whether produced by him or by any other person, as:

(i)		an actor;
(ii)		a cameraman;
(iii)		a director, including an assistant director;
(iv)		a music director, including an assistant music director;
(v)		an art director, including an assistant art director;
(vi)		a dance director, including an assistant dance director;
(vii)		an editor;
(viii)		a singer;
(ix)		a lyricist;
(x)		a story writer;
(xi)		a screen-play writer;
(xii)		a dialogue writer; and
(xiii)		a dress designer.