This is possible.
So what did the government say in this case?
The government said that there are two conditions for this.
If you fulfill these two conditions, then you will get a
complete deduction for bad debts.
Condition number one is that this debt of 1 lakh rupees,
you have shown it in your books, you have shown it in the
computation of income.
You have considered this thing. You have considered this
thing as your sales.
First you showed your sales of 1 lakh rupees, created a
debtor and now you are claiming bad debts.
And these bad debts, you have actually written it off in
your books.
If you fulfill these two conditions, then you will get a
deduction for bad debts.
These bad debts, you have actually written it off in your
books.
And second, you have included this debt in your computation
of income.
First you have shown it as your sales, from there it has
become your debtor.
After that, now you are taking a deduction for bad debts.
In this case, Mr. Mithun will get a deduction.
Sir, will I get a deduction of 1 lakh rupees?
It depends on the mood of the income tax officer.
If he feels that everything is fine, then Mr. Mithun can
get a deduction of 1 lakh rupees.
There will be no problem.
But sometimes it may happen that the income tax officer
feels that this is not a genuine case.
In this case, some entries have been caught which prove
that not 1 lakh rupees, but 40,000 rupees were recovered
and 60,000 rupees were bad debts.
What am I saying?
I am saying that the bad debt of 1 lakh rupees, which Mr.
Mithun was saying,
I lost 1 lakh rupees.
The income tax officer did a little investigation.
He said that this is not 1 lakh rupees.
They were decent people.
They had given you 40,000 rupees.
They had paid.
And they had not paid the 60,000 rupees.
They had not paid this.
So, how much deduction should Mr.
Mithun get from the law? 60,000 rupees.
Is the point clear?
He has already received 40,000 rupees.
He will get a deduction of 60,000 rupees.
Now see, what difference will it make?
This is my P&L.
Suppose I have shown my gross profit of 5 lakh rupees.
Earlier, I used to claim bad debts of 1 lakh rupees.
So, the figure would be 4 lakh rupees.
The net profit would be 4 lakh rupees.
The tax would also be 4 lakh rupees.
Now, it is not 1 lakh rupees, but I will be able to claim
60,000 rupees.
So, my net profit will increase a little.
4,40,000 rupees.
My net profit will increase by 40,000 rupees.
Which 40,000 rupees?
I have already assumed that you have already received it.
See, I will move away from here.
Is the point clear?
Try to understand it.
Now, let us make this case a little more interesting.
Munna and Circuit had gone to jail.
After going to jail, they opened their eyes.
They saw Bapu.
And Bapu said,
Munna, don't do this.
Return the money to this good man.
Return the money to him.
Okay.
In this case, he had already paid 40,000 rupees.
He had 60,000 rupees left.
So, Munna said,
I will give you all the money I have.
I have to give him 60,000 rupees.
I don't have 60,000 rupees.
But I do have 50,000 rupees.
Which I have asked from Circuit.
Circuit gave me 50,000 rupees.
I asked for 50,000 rupees from Circuit.
And on Bapu's request, he made a payment of 50,000 rupees
to Mithun.
How much did he have to pay? 60,000 rupees.
How much did he have to pay? 50,000 rupees.
Now, whom are we talking about?
About Mithun's P&L account.
How much did Mithun receive?
He received 50,000 rupees.
Now, in this, tell me one thing.
At that time, did Income Tax give Mithun 60,000 rupees
deduction?
Or not?
They did.
Why did they give?
Because you could not recover the money.
That is why they gave.
You have recovered the money.
Maybe you did it that year.
Maybe you did it next year.
You recovered the money.
When that year,
I showed your expenses and reduced your profit.
So, the year you recovered the money, should your profit
increase that year?
The answer is yes.
Your profit will increase that year.
How much will it increase?
Simple answer.
You received 50,000 rupees.
But you also disallowed some money.
By disallowing, I mean the 40,000 rupees that you assumed
to have been received.
You did not give the deduction.
The effect was that 60,000 rupees were deducted.
It should have been 1 lakh.
You only assumed that 40,000 rupees were received.
They were not actually received.
Your profit had increased by 40,000 rupees.
You had already increased the profit by 40,000 rupees.
So, deduct that from here.
And the taxable amount in Mr.
Mithun's hands will become taxable by 10,000 rupees.
If you recover in subsequent years, then what will you
deduct from the amount of recovery that you were disallowed
last year?
The bad debts that you were disallowed, the balance figure
that will remain will become taxable in Mr.
Mithun's hands.
The point is clear.
If you want to see it, then see it.
You should have shown 1 lakh rupees.
But what did the income tax officer say?
We are assuming that you have received 40,000 rupees.
That is why we are deducting 60,000 rupees.
Come to the next topic.
Are you enjoying, friends?
Keep enjoying.
In this chapter, we are talking about the expenses that we
will get and the expenses that we will not get.
Why are we talking about expenses?
The more expenses I show, the less profit I will get.
And when my profit will be less, then the income tax on
that profit will also be less.
In this chapter, we are going to discuss the expenses.
From the beginning, we are talking about the expenses.
In the future also, we will talk about the expenses.
What will the income tax officer want?
The person should be allowed to spend as less as possible
so that his profit increases.
And the businessman will want to show as much as possible.
So that the profit increases.
This section ends here.
One more thing, the bad debts should be in your business.
They should be actual.
Sometimes, we put a provision.
Remember, in the 11th class, we used to put a provision for
bad debts.
This provision does not work here.
Otherwise, what is the meaning of provision?
You think that bad debt is going to happen.
But it has not happened in actual.
You think that you have sold the Munnayan circuit.
And my goods may not come back.
So, you made the first provision of Rs. 1 lakh.
You made a provision and put your expenses.
In P&L.
The income tax officer will say that this can be a
provision for everything.
The profit you show, you will make it a provision to make
it zero.
If the profit is Rs.
10 lakh, you will make 10 customers and make a provision of
Rs.
10 lakh.
Your profit will be zero.
In that case, the government said that this does not work.
We do not work on provisions.
Bad debt should be actual.
In actual, the Munnayan circuit should have taken your
money.
Only then you will get its deduction.
For example, Mithun gave money to someone on interest.
And that person ran away with the money.
Will that be considered as bad debts?
Should that be considered as bad debts?
No, sir.
What was Mithun's main business?
To sell crackers.
In the sense of selling crackers, if he gave loan to
someone and the loan did not come back, the loan did not
come back, then I will consider it as bad debts.
But my main job is not this.
My main job is to sell crackers.
And I am giving advance money to someone or giving a loan
to someone.
The money does not come from there. I don't believe in bad
debts. What is the main business? You have to think what is
the main business? Is there a loan going on in the main
business or is it going on as it is? Sir, but is there a
bank or is there a money lender? The son of the village
keeps his mother's jewellery and mortgages and takes money
from us.
It happens in the movies of the old Govinda.
He lives in the village, for his education, the mother
keeps her jewellery and mortgages with some Lala and he
comes back from the city after completing his education.
The ambassador comes in a dusty car.
Govinda is often seen in such movies.
He gives his money and gets his mother's jewellery from
that Lala.
In that case, the mother of Govinda keeps her jewellery and
mortgages and takes money from Lala and sends it to Govinda.
Govinda never comes back.
He marries Raveena Tandon and settles down in the city.
In that case, Govinda marries Raveena Tandon and lives in
the city.
He asks Govinda to go to a disco and dance.
In that case, who will face bad debts? Lala will face bad
debts.
Lala gave the money and Govinda did not return the money.
Lala will get the deduction because
Govinda did not return the money.
Lala will get the deduction because Govinda did not return
the money.
Lala will get the deduction because Govinda did not return
the money.
This is the main business.
Expenses on family planning by the company.
In this case, if you spend on family planning
then you will get a 100% deduction.
But if it is a capital expense, then in 5 installments the
company will get the deduction.
For example, if the company does a capital expense of 10
lakhs, then divide it by 5.
Every year, the company will get a deduction of 2-2 lakhs
for 5 years.
The company will put 2-2 lakhs in its profit and loss
account as expenses.
Is this point clear?
Let's move on to the next point.
It is a matter of expenses.
Who can put in which expenses?
And after putting in the expenses, the income tax people
will not stop me.
They will say, yes, you have put in the expenses. We allow
this. We understand this.
We are not fools. We understand this.
To run a business, someone has to spend. You need a
deduction for that expense.
We will give it to you.
Later, I will tell you which expenses are disallowed.
First, we are studying what is allowed.
Let's move on to the next important topic.
It is a very interesting topic.
Securities on transaction tax.
What is it?
First, let's try to understand this.
Have you ever heard of the share market in your life?
You must have heard of it.
So, what happens in the share market?
One person buys a share.
What does the other person do?
He sells it. Ultimately, this is what happens.
One person buys a share.
And the other person sells that share.
Now, this buying and selling that is happening, it happens
through a broker.
The broker takes the brokerage from you.
And there are so many transactions happening.
There were before also.
But now, because of computers and technology, there are so
many transactions happening.
Heavy volume transactions.
Lakhs, crores, billions of rupees transactions are
happening daily.
To buy and sell.
So, the government said that our country's tax collection
is low.
And our country's expenses are very high.
Expenses are high and the income from tax collection is low.
So, what should be done?
Let's increase the income a little.
How can we increase it?
We cannot change the rate of income tax.
There will be a ruckus in the country.
When the budget comes, there will be a ruckus at that time.
So, let's do one thing.
I have heard that the share market people beat up a lot of
money.
I have heard that they beat up a lot of money.
They don't earn, they beat up.
So, if some money is taken from them, they won't even mind.
The person who is earning 100 crores, if you take 10 lakhs
from him, he will give you a smile.
So, keeping this in mind, the government of our country, a
few years ago, brought a securities transaction tax.
Securities are the shares.
If you do a transaction on these, you will have to pay a
tax of a very small percentage.
You will have to pay a tax of a very small percentage.
So, from your profit, you will reduce your brokerage.
You will reduce your securities transaction tax.
So, you will get to know the actual profit.
You can see it anytime.
Whenever you buy or sell something, you will have to pay a
securities transaction tax.
Now, the problem is, why are we discussing this?
Securities transaction tax, by the way, we have a tax class
going on.
I have not taken a share market class.
Why are we discussing this?
Sir, we are discussing this to know that, in a way,
for example, my export of clothes, as I have told you,
our garments are exported.
But, sometimes, I am free.
At that time,
I bought a share for a month at the rate of Rs.
After a month, the rate was Rs. 2100.
So, I sold that share and left.
My profit was Rs. 100.
And in Rs.
I had to pay that STT as well.
So, the profit I got was Rs. 99.
Now, I am telling the government that,
my profit,
was Rs. 100.
And after deducting it, it is Rs.
I am telling the government that, this Rs.
allow me to deduct it.
If you don't, then the problem will be that,
I have just told you about Rs. 100.
Suppose, if I had deducted it in crores, then, I would have
got a profit of Rs.
100 crores.
Now, I have not deducted the STT.
I have not deducted the transaction tax yet.
So, it is Rs. 100 crores.
I will deduct it.
So, I will get a profit of Rs. 99 crores.
Rs. 100 crores and Rs. 99 crores.
The difference will be in the amount of tax on both.
The difference of Rs. 1 crore is the same.
Even if you add 30% of Rs.
1 crore, the difference of Rs.
30 lakhs, is the same in the amount of tax.
So, what will be my effort?
I will tell the government that, government, government,
government, government,
you do one thing,
government, I am very worried and,
I have given a security transaction tax of Rs. 1 crore.
You kindly, madam, Nirmala madam,
Nirmala madam, you kindly, give me the permission of Rs.
1 crore, so that I can deduct this Rs.
1 crore from my profit.
So that I can show it as an expense.
My objective is to show it as an expense.
So that my profit reduces.
So, madam, very cleverly, said one thing, she asked, look,
it is like this,
Mr. Gupta, you are a smart, handsome, charming, and
educated chartered accountant.
We are also in front of you.
We are in front of you.
I said, madam, what are you saying?
She said, no, you listen to us.
We want to say that,
in your lectures, you say that, is it related to your
business?
Is it related to your business?
If it is related to business, then you will get the
deduction.
If it is not related to business, then you do not get the
deduction.
I said, yes, I say this.
Madam said,
we also keep an eye on you.
We have also subscribed to your classes.
We also keep an eye on you, that what you say in your
lectures, and what you do not say.
We caught your words.
I said, okay, what should we do about this?
So, the same madam, again slapped me.
She said, what is your main business?
I said, garments.
What is your main business?
Garments.
Taking time out of garments business, you are doing the
work of the share market.
You are giving securities, transaction tax and all.
It is not your main business, right? I said, no.
You are doing it the same way, but your main business is
garments.
She said, yes.
So, when your main business is something else, then if you
spend on other businesses,
then how will you get the deduction for that?
I said, it is right.
My main business is garments.
If I spend on garments business, then I will get the
deduction as an expense.
But,
suppose my main business is something else,
it is not the share market,
but if I pay an STT in the share market,
I will not get the deduction for that.
Why? Because my main business was something else.
If my main business was something else, then I will not get
the deduction for the STT, if my main business is something
else.
Sir, tell me one thing, suppose my main business is the
share market,
my main job is that
I come in the morning, buy a share, hold the share for 3-4
days, and then sell it for a profit.
This is my main business.
I do this job for 365 days.
Now, tell me,
Sir, what did I say?
If your main business is something else, then you will get
the deduction for the expenses related to the main business.
Yes or no?
Now, in this case, your main business is the share market.
So, will you get the deduction for that business?
The expenses that you are incurring, should they be paid in
installments?
The main business is the share market.
Where are you making a profit from? From the share market.
When you make a profit and loss account, a balance sheet,
in that which profit will you show?
Which business profit would you like to show?
From the share market.
Expenses? What is happening?
Securities transaction tax.
Should it be paid in installments?
If I hadn't paid that tax, would I have been able to make a
profit?
I should be able to get that expense.
Who will get it?
What will be the main business?
It will be the share market.
If the main business is the share market, then you will pay
the STD.
You will get the deduction for that expense.
But if your main business is something else, and you are
already doing the share market for time pass, you will not
get the deduction for the STD.
This is a simple sub-point, my dear.
Come, let's read this.
First look at their image.
Do you know who he is?
Do you know him?
If I enlarge his photo, he has been a very famous person of
his time.
He has been a very famous investor, by the way.
Trader and Investor.
His name is Rakesh Dhunjanwala, if you have heard of him.
He had a wealth of around 40,000 crores.
He was a chartered accountant like me.
His main business was the share market.
Look at the terminals behind him.
He used to buy and sell shares.
If he pays the STD, then he will get the deduction for that
expense.
But if I pay, it is my government's business, then I will
not get the deduction.
My dear, this was the point.
The same point applies to commodities transaction tax.
If you do the same in the commodities market, then the
person whose main business is commodities, will get the
deduction for the commodity transaction tax.
But the rest will not get the deduction.
With this, our section 36 ends here.
What did we learn in this section, friends?
We talked about securities transaction tax.
We talked about bad debts.
I took the example of Arshad Warsi and Sanjay Dutt.
I also talked about the employer's contribution.
In PF or ESI.
But those who are recognized, they will get the deduction.
Taking a contribution from an employee and not paying the
due date in his fund, will be considered as his income in
the hands of the employer.
If you pay interest in your business, you will get the
deduction.
By the way, which business are you running?
A shop, a company or anything else?
Do you make anything?
Do you make any paper?
Profit and loss account?
Do you make it?
In that case, you have to go home and check that in your
profit and loss account, are you taking the deductions of
the interest?
Interest, bad debts, are you taking all these things there?
Interest, bad debts, if the employer's contribution is
applicable to you in PF or ESI, are you taking the expenses
of all these things there?
If you are not taking, then you are making a big mistake.
Your profit is coming more.
You are reducing all these expenses, showing less profit,
and earning less income tax.
We will end this lecture here.
We will meet in the next lecture with a very good section.
I cannot even imagine where I will take this chapter.
Bye.