In the last lecture, we discussed about net profit and your
PGBP i.e.
Profit and Gain from Business and Profession Head, your
income tax is on your net profit, not on sales or gross
profit.
The calculation you have to do in the whole chapter is only
for net profit.
Now you will ask why should I calculate net profit?
For example, in whichever company I work, I will
automatically enter that net profit in the tally.
At the end of the year, my net profit will come.
Friends, this is your misunderstanding.
The reason is that you will keep entering your net profit
in the tally.
Basically, you will put your sales and expenses in the
tally.
Now, these expenses come under a major problem.
The problem is that you are an accounting person.
The accounting person puts all the expenses in the tally.
For example, if there is a party in the office, he will put
all the expenses in the tally.
If there is a personal expense of the owner, he will put
all the expenses in the tally.
So, at the end of the year, the expenses block becomes so
big that there are personal expenses as well as business
expenses.
Now, tell me what am I doing?
I am talking about profit and gain from business and
profession.
I have to take income tax from you.
Who are you? I am a businessman.
So, businessman, tell me one thing.
When I am discussing here, which expenses should I take?
Should I take only business expenses or should I take your
personal expenses as well?
Ultimately, what happens?
Try to understand the effect of this.
For example, my sales are of Rs.1000.
Purchases are of Rs.300.
This is nothing.
I have a gross profit of Rs.700.
Here also, I have a gross profit of Rs.700.
These three expenses have come together to be of Rs.200.
Now, there is this expenses block.
The business expense was of Rs.100.
And I have put the personal expense of Rs.200.
What are you doing till now?
You are an accountant.
You are doing all the entries and increasing the expenses.
You have put the personal expenses.
You have put the expenses of the owner.
There is a servant in the house of the owner.
I have put the salary of that servant here.
The owner has bought a TV for his house.
For his children.
I have put that here as well.
Usually, this happens in companies.
You have put all this.
What happened with this?
This was Rs.200.
Rs.200 and Rs.100.
Rs.300 and Rs.500.
Your total expenses have come together to be of Rs.500 and
Rs.700.
So, your net profit is of Rs.200.
Assume that you get 30% tax on Rs.200.
So, your income tax will be of Rs.60.
Now, understand this case.
What work have you done?
You have put the expenses of both personal and business.
In your books of accounts.
What happened because of this?
Your net profit has come down.
Sir, why has it come down?
Try doing it.
If I remove the expenses of Rs.200 from here, then what
will be the total expenses?
Rs.100 and Rs.200.
Rs.300.
If I subtract Rs.300 from Rs.700, then how much will it be?
Rs.400.
How much will it be?
Rs.400.
If I give 30% income tax on this, then how much?
Rs.120.
Do a comparison of Rs.120 with this.
Is there a difference of double?
Try to understand this.
You have put the expenses of both personal and business.
The effect of putting the expenses is that, your gross
profit, if I subtract the expenses from the gross profit,
I get the net profit.
So, because of putting the personal expenses, your net
profit has come down.
When your net profit will come down, then your income will
come down.
And when your income will come down, then automatically the
income tax that you will give on it, will also come down.
For businessmen like you, this is very beneficial.
What will you do?
Will you keep putting personal expenses?
Assume that you have a gross profit of Rs.1 crore.
Will you show that you have bought jewellery for your wife
for Rs.99 lakhs?
Rs.1 lakh is left.
I have given it to someone.
The profit is of Rs.0.
The income tax is of Rs.0.
You will do this.
Every person will do this.
Then who will pay the income tax?
How will the good days of our country come?
The government has said in this case, that the books of
accounting that you make, you should make them.
That is for the purpose of accounting.
But don't mix the accounting with the income tax.
The accounts that you are making, keep making them.
We are the income tax people.
We are not interfering in that.
You keep making the accounting that you are making.
We are the income tax people.
What will we do?
We will take your net profit.
No matter how many personal expenses you have put in it, we
will take your net profit once.
What will we do in this net profit now?
We will make some adjustments.
What do you mean by adjustments?
Adjustments mean, like if you have put personal expenses,
the effect of this is that your net profit has come down
because of personal expenses.
So when we are taking this net profit of yours, this one,
then we will add back the personal expenses in this.
So that this was a profit of Rs.200,
I will add back the personal expenses in this.
So how much will it come?
It should have come only Rs.400.
It will come Rs.400.
Any other expenses that are disallowed,
I will add that back in the net profit.
In a way, you have reduced the net profit by using your
brain.
I am the income tax person.
My job is to increase the net profit little by little and
make some adjustments in it.
This is what we are doing in this sector.
A person will give us his profit and loss account and I
should know that he is an accounting person.
The accounting person must have put personal expenses as
well.
He might have put the income of another head here.
Here in gross profit, he might have put the income of
capital gain, for example.
So what will I have to do with that income?
Think about it.
Instead of capital gain, there will be income here.
I have Rs.700 here and I have Rs.300 more.
So I will get Rs.1000.
Because of that, my net profit will increase.
If the income increases, the net profit also increases.
But this is the income of another head.
The taxability of this will be seen in another head of
income.
Remove it from here.
Remove it from the business head.
Remove it from the head of income of PGVP.
And when another head will come, we will discuss it there.
It is a simple thing.
I will remove it from here.
From the net profit.
Because my net profit is increasing.
Because of that.
We will do some adjustments.
We will discuss the adjustments in the entire chapter in
the future.
What adjustments can be made?
What should be plus and what should be minus?
Is it clear till here?
What did I explain till now?
I have explained to you that there is one accounting profit
and there is one income tax profit.
Is it clear?
There is one accounting profit and there is one income tax
profit.
This is accounting.
When you enter in the tally, this is accounting profit.
From this, I will make it plus or minus.
I will make it plus or minus some adjustments.
I will make some adjustments plus or minus and I will get a
profit of income tax.
From the perspective of income tax, this is my profit and
income tax is applied on it.
This is the thing.
We will discuss the adjustments in the future.
Is the point clear till here?
You give tax on net profit.
Which one is net profit?
Accounting or income tax?
Sir, we must have been given accounting.
We have to make some adjustments and we will pay income tax
on the profit.
This is it.