Generally, economic activities are divided into three major categories:
But sometimes people get confused when categorizing economic activity as either business or profession. So, let’s get some clarity regarding the terms – business and profession.
According to sec. 2(13) of Income Tax Act, “business” includes
any trade, commerce or manufacture or any adventure or concern on the nature of
trade, commerce or manufacture.
What is a Profession?
no proper definition of Profession is given under Income Tax Act.
to sec. 2(36) of Income Tax Act, “profession” includes vocation.
Sec. 44AA deals with the professions that required to maintain books of accounts are,
- Technical consultancy
- Interior decoration
- Any other profession notified by CBDT
between Business and Profession
is an economic activity where people sell goods or services.
is an economic activity where people work with their knowledge and skill.
qualification is required in case of business.
or professional degree or specified knowledge is required in case of
3. Transfer of interest
of interest is possible in case of business.
transfer of interest is not possible in case of profession.
4. Accounting Type
Manufacturing / Trading / Profit & Loss a/c is maintained in case of
Income & Expenditure a/c is maintained in case of Profession.
for business is known as ‘profit’
for profession is known as ‘professional fee’
u/s. 44AB is
required if annual turnover or gross receipt exceeds Rs. 1cr. (2 cr. for
presumptive income scheme u/s 44AD) in case of business.
Tax audit u/s 44AB is required if gross receipt exceeds Rs. 50 lakh in case of a profession.
Are Nursing Homes and Hospitals a Business or a Profession?
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 it is a Partnership firm then
it will be treated as ‘Business’ because –
- Company or Partnership firm is not an individual and it has a separate PAN along with their director, member or partners PAN.
- An artificial body like a company or partnership firm cannot possess any personal skills required to practice in a profession.
- There is no legal bar to run a hospital or nursing home by non-doctors by engaging the services of doctors.
Case reference: Income Tax Officer V. Ashalok Nursing Home (P) Ltd. 2006
Shalini hospital vs. Astt. CIT, 2006
institutes are Business or Profession?
Same logic will be applicable in case of teaching institutes. We know that teaching is a profession as specified skill is required to teach a student. But if a teaching institution is an artificial body like company or partnership firm then it will be considered as a business. But if the teaching institution is owned by an individual then it will be considered as a profession.
So, finally it can be said that sometimes a profession (e.g. health care, teaching etc.) will not be considered as a profession if that professional service is given by a company or a partnership firm or any other artificial body. Because, an artificial body can not possess any personal skill required to practice a profession. In that case it is deemed to be a business.