CATEGORIZATION OF BUSINESS & PROFESSION AS PER INCOME TAX ACT

CATEGORIZATION OF BUSINESS & PROFESSION AS PER INCOME TAX ACT

DEFINITION OF BUSINESS

According to section 2(13) of the Income Tax Act, the term “business” is defined as any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.”

The term `Business’ means an activity being carried on continuously and systematically by a person with the application of his labor or skill with a view to earn income. The expression “business” does not necessarily mean trade or manufacture only, it has a much wider meaning. Business simply means any economic activity being carried on for earning profits. In any business, repetition of transactions or continuity of similar transactions is not a necessary element. Transactions may not be regular in nature.

The following activities have been considered as ‘Business’:

  • Advertising agent
  • Clearing, forwarding and shipping agents
  • Couriers
  • Insurance agent
  • Nursing home
  • Stock and share broking and dealing in shares and securities
  • Travel agent

DEFINITION OF PROFESSION 

The term ‘Profession’ is defined under Section 2(36) of the Act Profession also includes vocation which is only a way of living. “Profession” involves the idea of an occupation requiring purely intellectual skill or manual skill controlled by the skill of the operator, as distinguished from an operation which is substantially the production or sale or arrangement for the production or sale of commodities.

 Classification of any activity as ‘business’ or ‘profession’ will depend on the facts and circumstances of each case.

As per Section 44AA of the IT Act, the following have been considered as ‘Profession‘:

  • legal,
  • medical,
  • engineering,
  • architectural profession,
  • the profession of accountancy,
  • technical consultancy or
  • interior decoration.

Further under Rule 6F and other professions notified thereunder, the following activities can also be considered as a ‘Profession‘:

(i) Authorized Representative,

(ii) Company Secretary,

(iii) Film Artists/Actors, Cameraman, Director including an assistant director; a music director, including an assistant music director, an art director, including an assistant art director; a dance director, including an assistant dance director; Singer, Story-writer, a screen-play writer, a dialogue writer; editor, lyricist and dress designer,

(iv) Information Technology.

DIFFERENCE BETWEEN BUSINESS AND PROFESSION

PARTICULARSBUSINESSPROFESSION
MEANINGAn economic activity where people sell goods or services.An economic activity where people work with their knowledge and skills.
QUALIFICATIONNo minimum qualification is required.Educational or professional degree or specified knowledge is required.
TRANSFER OF INTERESTTransfer of interest is possible.Generally, transfer of interest is not possible.
ACCOUNTING TYPEGenerally, Manufacturing / Trading / Profit & Loss a/c is maintained.Generally, Income & Expenditure a/c is maintained.
REWARDReward for business is known as ‘profit’.Reward for profession is known as ‘professional fee’.
TAX AUDIT U/S 44ABApplicable if annual turnover or gross receipt exceeds Rs. 1crore (Rs.2 crore for presumptive income scheme u/s 44AD).Applicable if gross receipt exceeds Rs. 50 lakhs.

FAQs

1. Are Nursing Homes and Hospitals a Business or a Profession?

  • If Nursing Home or Hospital is owned by an Individual then it will be treated as ‘Profession’. But if it is owned by a Company or a firm then it will be treated as ‘Business’ because an artificial body like a company or a firm cannot possess any personal skills required to practice in a profession.

2. Teaching institutes are Business or Profession?

  • Same logic will be applicable in case of teaching institutes. Teaching is a profession as specified skills are required to teach any student/class. But in case of a teaching institution, it is an artificial body, and hence, it will be considered as a business. But a teaching institution can be considered as a Profession if it is owned by an individual.

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