Assessable profit and taxable profit are two terms that are used in the financial sector.
Assessable profit is a calculation to find an individual’s taxable income from the person’s gains and losses record. Taxable profit is the amount paid to the government by an individual or an institution for the profit they earn.
Key Takeaways
- Assessable profit is a business’s gross income, subject to tax assessment; taxable profit is the net income after allowable deductions and exemptions are applied.
- Assessable profit is calculated before considering tax deductions, while taxable profit is determined after accounting for deductions and exemptions.
- Taxable profit is the final amount tax liability is calculated, ensuring businesses pay taxes only on income after allowable deductions.
Assessable Profit vs Taxable Profit
Assessable profit refers to the amount of profit earned by a business or individual that is subject to taxation by the relevant tax authority. Taxable profit refers to the profit earned by a business that is subject to tax after taking into account any allowable deductions or exemptions.
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Assessable profits, as the name suggests, are the profits for which taxes have to be paid as per law or the profits that, when obtained by an individual, have to pay taxes to the government.
The government decides the stakes of paying tax for assessable profits, and it varies in different fields.
Taxable profit is the amount an individual or an institution must pay the government when a certain amount of income is obtained. A part of the income has to be paid as tax to the government for the smooth running of the government and the country.
Comparison Table
| Parameter of Comparison | Assessable Profit | Taxable Profit |
|---|---|---|
| Definition | Assessable profit is the profit amount for which tax is to be paid if earned by an individual. | Taxable profit is the amount you must pay the government as tax. |
| Deductions | If you get tax credits from any source, it may help you to reduce the amount of tax that has to be paid by reducing the assessable profit. | The deductions and credits are reduced from the assessable income. This makes your taxable profit amount lower. |
| Calculation | Assessable profit is the profit reported by the individual or an organization by explaining their source of income. | Taxable profit is the assessable income minus allowable deductions. |
| Payment | Assessable profit is calculated by the details given by the taxpayers and determined according to the information they provide. | Taxable profit is similar for individuals and corporations below a cut-off and increases above it for corporations. |
| Example | In India, the assessable profit is the amount of profit earned from all the sources reported by the taxpayer, including salary, investment gains, and income from any other source. | In India, the taxable profit is the difference between the assessable profit and the investment put on by the individual to earn this profit. |
What is Assessable Profit?
Assessable profit is the amount of profit for which tax has to be paid. The government decides the tax amount. It can be calculated from the income that the individual reports.
When the government goes through the origin of income, some deductions are made if applicable. The applicability of tax deductions is also pre-determined by the government.
Assessable profit works differently for different taxpayers. Only certain parts of the gain can be assessable if the taxpayer is a corporation, and the rest is taken as profits.
If the profit is calculated for individuals, passive incomes are the ones that are reasonable for assessable profits. Assessable profits can be reduced by the type of income reported.
If any income is reported from government-related plans, this part of the total income will not be added as assessable profit. These are also different for corporations when compared with individual taxpayers. Corporations may have more profits that are assessable when compared with individuals.
What is Taxable Profit?
Taxable profit is the amount the government claims from the taxpayer for their income. This amount is identified from the payment the individual or corporation reports to the government.
Some profits may not be included as taxable when the origin of profit is examined. The government also maintains these stakes.
At lower income levels, the taxable profit of individuals and corporations is similar. But when the income rate increases, the amount to be paid by the corporations as the tax will increase.
This can even be twice what is paid by individual taxpayers. All these rates are pre-determined by the government.
The Internal Revenue Service (IRS) is the bureau that files the tax system for a country. There is also a profit that is termed as non-taxable. Many clarifications have to be cleared to term a profit as non-taxable.
If the income is from an NGO or if the payment is from the pensions that the government allows, the profit cannot be taxable, and hence a tax cannot be implemented for that income.
Main Differences Between Assessable Profit and Taxable Profit
- Assessable profits are those that can pay taxes claimed by the government. Taxable profits are those to be paid to the government as tax.
- There can be profit reductions and tax credits, which can give drops to the assessable profit. Taxable profit can get reduced by the tax credits, and hence the amount of tax to be paid can be reduced.
- Some factors can be pre-determined by the government that can reduce the amount of profit that becomes assessable. These factors can change taxable profits to non-taxable profits.
- The amount of assessable profit is calculated from the assessable income. Taxable profit is the difference between assessable income and the deductions supported by the government.
- Assessable profit is determined from the information given by the taxpayers, whereas taxable profits of individuals may differ from that of corporations.
- https://icidr.org/ijalsg_vol4no2_august2013/Taxation%20of%20Petroleum%20Profit%20under%20the%20Nigerias%20Petroleum%20Profit%20Tax%20Act.pdf
- https://doc1.bibliothek.li/acb/FLMF040940.pdf
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
