Free Invoice Generator – Luzenta

Income under the head Profits and Gains of Business or Profession refers to the earnings derived from any trade, commerce, manufacturing activity, or profession carried out by an individual, firm, company, or any other taxpayer. The income from these activities is taxable under the Income Tax Act, provided it meets the conditions laid down in the respective provisions.

Section-Wise Summary of PGBP

Several sections govern the taxation of business and professional income. Section 28 is the core section that defines what incomes fall under this head. Additional relevant sections elaborate on the deductions, disallowances, and special provisions for specific cases.

Section 28 lists incomes chargeable under the head PGBP, including general business income, export incentives, partner’s remuneration, and other compensation-related receipts. Other sections, such as Section 32 and Section 35, deal with depreciation and deductions for scientific research. Sections 40 and 40A describe disallowed expenses in specific cases, like payments made in cash or without TDS compliance.

Meaning of Business

As per section 2(13), business includes any trade, commerce, manufacture, or any adventure or concern like trade, commerce, or manufacture. This definition is inclusive and not exhaustive, which means any activity that carries a profit motive and involves continuous effort qualifies as business. It does not necessarily require large-scale operations or significant capital investment.

Meaning of Profession

Section 2(36) defines profession to include vocation. It implies an occupation requiring intellectual or manual skill based on specialized knowledge acquired through study or experience. Common examples include doctors, lawyers, architects, chartered accountants, and other technical experts. Unlike business, a profession is based more on individual skill and personal performance rather than organized capital or labor.

Income Chargeable under PGBP

Section 28 outlines the incomes chargeable under the head Profits and Gains from Business or Profession. This includes not only routine business income but also several specific receipts related to business activity or association with it.

Income from any business or profession is taxable under this head, including speculative business transactions. This may include both direct operations like manufacturing or trading, as well as services rendered under professional expertise.

Management compensation received by any individual managing the affairs of an Indian company or its branches in India is included under business income, especially when the payment is made due to termination or modification of service terms.

Export incentives such as profit on sale of import licenses, duty entitlement pass book credits, cash assistance under government schemes, and duty drawback are taxable under this head. These benefits, being directly linked to the business’s export operations, are considered a part of business profits.

Benefits or perquisites arising from business or profession, whether convertible into money or not, are chargeable as income. This may include the use of a business asset for personal purposes, receiving gifts from suppliers, or receiving discounted services as part of business relations.

Any interest, salary, bonus, or commission received by a partner from the firm or LLP is treated as business income in the partner’s hands, provided it is allowed as a deduction in the hands of the firm under section 40(b).

Payments received for not carrying out business or professional activities or for sharing trade secrets, know-how, or similar intellectual property are chargeable under section 28(va). This includes non-compete fees and fees for not disclosing or using business rights.

Receipts under Keyman Insurance Policies are also considered business income. A Keyman policy is one taken by a business on the life of a person who is important to the business. It includes employees or persons associated in any capacity whose loss could significantly affect the business operations.

The fair market value of inventory that is converted into or treated as a capital asset is taxable as business income. This is relevant when a business decides to close down or restructure operations and moves certain assets into a different investment class.

Where a capital asset used for business is destroyed or demolished, and compensation is received for it, the amount is taxable if a deduction was previously claimed on the asset under section 35AD. These receipts are considered a recovery of earlier claimed expenses.

Exceptions to PGBP Classification

Some types of income may arise from business or profession but are not taxable under this head due to specific legal treatment under the Income Tax Act.

Rental income from house property, even when the assessee is in the business of renting properties or holding them as stock-in-trade, is taxable under the head Income from House Property and not as business income.

Dividend income is taxable under the head Income from Other Sources, even if the shares are held as stock-in-trade by a trader. This applies unless the shares are treated as business assets and the income qualifies as business profit under special circumstances.

Winnings from lotteries, horse races, or gambling are taxable under the head Income from Other Sources, even if the person regularly deals in such items. However, income from selling lottery tickets and incidental gains on unsold winning tickets may be treated as business income.

Any income specifically exempted under sections 10, 11, or 13A of the Income Tax Act is not taxed under PGBP even if it is generated in the course of business. This includes agricultural income or income of charitable trusts.

Incomes chargeable under the head Capital Gains are not taxed under business income. For example, the sale of a route permit, even if it was an integral part of a transport business, is taxed as capital gains and not under PGBP.

Conditions for Allowing Business Expenses

In computing taxable business or professional income, various expenditures are allowed as deductions. However, only revenue expenditures that are not expressly disallowed are eligible.

Capital expenditures are generally not deductible unless specifically allowed. For example, preliminary expenses or expenses on scientific research under section 35 are capital in nature but are permitted as deductions due to express legal provisions.

Expenses must relate to the assessee’s own business. Payments made for non-taxable business, like agriculture, are not deductible from PGBP income.

The expense must be incurred and not merely estimated or anticipated. Provisions for future losses or doubtful debts are not allowed unless expressly provided under law.

An individual cannot earn income from themselves. For example, a sole proprietor cannot claim rent or salary paid to themselves as business expenditure.

Concept of Specific Deductions

Section 29 provides that income under this head is computed by sections 30 to 43D. These sections cover a wide range of permissible deductions based on the nature of expense, asset, and business activity.

Section 30 allows deduction for rent, repairs, rates, taxes, and insurance of buildings used for business or professional purposes. The key condition is that the premises must be used in connection with business. Rent paid to partners for use of their property by the firm is deductible. However, only current repairs are allowed, and capital repairs are disallowed unless specifically permitted. Municipal taxes and similar levies are allowed on a cash basis.

Section 31 allows deductions for repairs and insurance of plant, machinery, and furniture. Again, the asset must be used in the business, and only current repairs are allowed. Rent paid for use of such assets is allowed under section 37(1).

Section 32 deals with depreciation on tangible and intangible assets. The assets must be owned and used by the assessee in business. Even assets under hire purchase or lease qualify if the assessee has possession and bears the cost. Depreciation is proportionately allowed when assets are partly used for personal purposes.

Section 32(1)(iia) provides for additional depreciation to manufacturers or those engaged in power generation or distribution. It is applicable on new plant and machinery and not on second-hand or previously used assets. Additional depreciation is claimed in addition to regular depreciation under section 32.

Scientific Research Expenses

Section 35 allows deductions for expenditure on scientific research related to business. Research may be conducted in-house or through approved external institutions. In-house research includes all expenses incurred directly by the assessee. Payments made to associations, institutions, universities, or companies engaged in approved research are also deductible.

Donations for rural development programs, national funds, or poverty eradication schemes are allowed under sections 35CCA and 35CCC. These deductions are available if the payment is made to an approved institution and the taxpayer furnishes the necessary certificate.

Section 35D allows preliminary expenses incurred before commencing business or during expansion to be amortized over five years. These include expenses for project reports, feasibility studies, legal charges, and company formation costs.

Section 35DD provides deduction for expenses on amalgamation or demerger, equally over five years. This is available only to Indian companies.

Section 35DDA allows employers to amortize compensation paid to employees under voluntary retirement schemes over five years.

Section 32AD provides for an additional investment allowance to manufacturers who set up new factories in notified backward areas of Andhra Pradesh, Bihar, West Bengal, and Telangana between 2015 and 2020. The deduction is 15 percent of the cost of new assets. However, these assets must be retained for a minimum of five years.

General Deductions – Section 37

Section 37(1) is a residuary provision allowing deductions for expenses not covered under Sections 30 to 36. To qualify for deduction under this section, the expenditure must:

• Be incurred wholly and exclusively for business or profession.

• Not be capital or personal.

• Not be incurred for an offence or any purpose prohibited by law.
  

Examples include advertising, sales promotion, travel expenses, audit fees, and legal charges related to business activities.

Expenses incurred about corporate social responsibility (CSR) are not allowed under Section 37(1) since they are considered not incurred wholly for business. These may be deductible only under specific provisions like Section 80G or Section 35.

Penalties and fines imposed for violating any law are not allowed. However, compensatory damages paid to customers or clients for breach of contract may be allowed if incurred in the ordinary course of business.

Expenses related to illegal business are generally not allowed if they involve unlawful activities. For example, bribes and kickbacks are not deductible. However, general business expenses of illegal businesses (like rent or wages) may be allowed if they do not directly violate any law.

Specific Disallowed Expenses – Section 40

Section 40 disallows certain expenses expressly, even if they are otherwise incurred for business purposes:

• Salary, bonus, commission, or remuneration paid to a partner of a firm is not allowed unless it meets the conditions laid down in Section 40(b).

• Payments made to non-residents or residents without deducting tax at source (TDS) are disallowed under Section 40(a)(i) and 40(a)(iii), respectively.

• Any interest, royalty, fees for technical services, or other similar payments to non-residents without TDS are fully disallowed unless tax is deducted and paid.

• If tax is deducted but not deposited before the due date of return filing under Section 139(1), the expense is disallowed in that year and allowed in the year of actual payment.

• Amounts paid more than the permissible limit under Section 40A(2)(b) to related parties may be disallowed if the Assessing Officer finds them unreasonable.

• Any tax levied on profits, such as income tax or wealth t,ax is disallowed. However, GST, sales tax, and other business-related taxes are allowed.

• Any contribution made by the employer to any unapproved or non-recognized fund is disallowed.
  

Expenses Disallowed Due to Mode of Payment – Section 40A(3)

Section 40A(3) disallows cash payments exceeding ₹10,000 in a single day to a single person. The limit is ₹35,000 in the case of transporters.

If any expenditure is incurred and the payment is made in cash beyond the permissible limit, the entire amount is disallowed. The restriction applies to revenue expenditure, not capital expenditure. Exceptions are available under Rule 6DD in cases like payments in remote areas, payments to government agencies, and emergencies where banking facilities are not available.

Expenses to Relatives or Specified Persons – Section 40A(2)

Section 40A(2) applies where a taxpayer makes payments to specified persons like relatives, directors, or partners. If such payments are excessive or unreasonable compared to fair market value, the excess amount is disallowed.

Specified persons include individuals related to the assessee, directors, partners, members of HUFs, or persons with substantial interest in the business (i.e., owning at least 20% of equity or voting rights).

The Assessing Officer must record reasons in writing to determine and disallow unreasonable or excessive expenditure.

Provision for Gratuity – Section 40A(7)

Section 40A(7) provides that only actual payment of gratuity is allowed as a deduction, except when it is contributed to an approved gratuity fund. Provisions made for future gratuity liabilities are not allowed unless the fund is recognized under the Income Tax Rules.

Provision for Unascertained Liabilities – Section 36(1)(iii) and Others

Provisions made for liabilities that are not ascertained or are contingent are not allowed as a deduction. These include:

• Provisions for bad debts (allowed only to the extent of actual bad debts written off).

• Provision Warrantyis  provided based on reliable estimation and past performance.

• Provision for taxation (not allowed since tax itself is not deductible).

• Provision for diminution in value of assets (not allowed; treated as capital adjustment).
  

Deduction for Bad Debts – Section 36(1)(vii)

A bad debt is allowed as a deduction only when:

• It was previously included in income.

• It is written off in the books during the year.
  

Provision for bad debts is not allowed unless it pertains to banks or financial institutions under Section 36(1)(viia). Write-off must be actual and not merely a provision.

Deduction for Interest on Borrowed Capital – Section 36(1)(iii)

Interest paid on borrowed capital used for business is allowed as a deduction. If the capital is used for acquiring a capital asset, interest paid before the asset is first put to use is not allowed as revenue expenditure but may be capitalized.

For borrowed funds used partly for business and partly for personal purposes, only proportionate interest is allowed. Interest paid on loans taken to repay earlier business loans is also allowed.

Employee Welfare Expenses

Expenses on employee welfare are allowed if incurred wholly and exclusively for business. This includes:

• Salaries, wages, and bonuses

• Employer’s contribution to provident fund or ESI

• Canteen expenses

• Staff training and development
  

However, payment must be made before the due date of the return filing. Delays can result in disallowance under Section 43B.

Repairs and Maintenance Expenses

Expenditure on repairs and maintenance of business assets is allowed under Section 30 (for buildings) and Section 31 (for machinery and furniture). However, capital repairs that increase the life or efficiency of the asset are not allowed as revenue expenses.

Only current repairs are allowed as a deduction. If substantial changes are made to the asset (e.g., changing a petrol engine to a diesel engine), the expense is treated as capital in nature.

Expenses on Borrowed Capital for Acquisition of Assets – Section 36(1)(iii) and 43B

Interest paid on borrowed funds is treated differently based on its purpose:

• For working capital: Fully allowed as deduction under Section 36(1)(iii).

• For acquiring a capital asset, Pre-commissioning interest must be capitalized with the asset.

• Post-commissioning interest: Allowed as revenue expenditure.
  

Section 43B allows deduction of certain expenses only on an actual payment basis, including:

• Interest on loans from banks and financial institutions

• Employer’s contribution to providentthe  fund or superannuation

• Tax, duty, cess, or fee payable under law

• Bonus or commission to employees
  

If such payments are not made before the due date of filing the return under Section 139(1), they are disallowed and allowed in the year of actual payment.

Accounting Methods – Section 145

Business income must be computed based on the method of accounting regularly followed by the assessee. Section 145 allows two methods:

• Mercantile system (accrual basis)

• Cash system (actual receipts and payments)
  

Most businesses follow the mercantile system unless they opt for presumptive taxation or have approval for a cash basis. Under the mercantile system, income and expenditure are recorded when accrued, not when paid or received.

Changes in accounting method mumethodssbona fide and disclosed in the return. Arbitrary or irregular changes are not permitted.

Tax Audit – Section 44AB

If total sales, turnover, or gross receipts of a business exceed ₹1 crore in a financial year (₹10 crore if cash receipts and payments do not exceed 5%), the assessee must get their accounts audited by a Chartered Accountant and furnish a tax audit report.

In the case of professionals, the threshold is ₹50 lakh.

Failure to comply with tax audit provisions attracts a penalty under Section 271B, which may be 0.5% of turnover or ₹1,50,000, whichever is lower.

Presumptive Taxation Scheme – Sections 44AD, 44ADA, and 44AE

The Income Tax Act provides simplified taxation schemes for small businesses and professionals to ease compliance and reduce the burden of maintaining books of accounts.

Section 44AD – Presumptive Taxation for Small Businesses

This section applies to resident individuals, HUFs, and partnership firms (excluding LLPs) engaged in eligible businesses with turnover or gross receipts up to ₹2 crore.

• Income is presumed to be 8% of the total turnover or gross receipts.

• If receipts are through digital means, the presumptive rate is 6%.

• No requirement to maintain detailed books of accounts under Section 44AA.

• No requirement for tax audit under Section 44AB.

• Deductions under Sections 30 to 38 are deemed to be allowed. No further expenses can be claimed.
  

However, if the taxpayer claims a lower income than the presumptive rate income exceeds the basic exemption limit, they must maintain books of account and get them audited.

Section 44ADA – Presumptive Scheme for Professionals

Applicable to resident individuals engaged in specified professions (legal, medical, engineering, architecture, accountancy, etc.) with gross receipts not exceeding ₹50 lakh.

• Income is presumed to be 50% of the gross receipts.

• No separate deduction is allowed for expenses.

• Professionals claiming lower income and having income above the exemption limit must maintain books and get their accounts audited.
  

Section 44AE – Presumptive Income for Transporters

Applicable to taxpayers owning up to 10 goods carriages at any time during the year.

• Income is presumed at ₹1,000 per ton per month for heavy goods vehicles and ₹7,500 per month per vehicle for other vehicles.

• No separate deductions for expenses allowed.
  are 
• Taxpayers cannot cla a aim lower income under this section.
  

Maintenance of Books of Account – Section 44AA

Certain professionals and businesses are required to maintain books of account and other documents as per the guidelines issued by the CBDT. These include:

• Professionals with gross receipts exceeding ₹2.5 lakh in any of the 3 preceding years.

• Businesses not opting for presumptive taxation and having turnover a exceeding ₹10 lakh.

• Businesses or professions whose income exceeds ₹1.2 lakh in any of the 3 preceding years.
  

Books required include cash books, ledgers, journals, bills, receipts, and records of assets and liabilities.

Audit of Accounts – Section 44AB

Audit is compulsory for:

• Businesses with turnover exceeding ₹1 crore (₹10 crore if cash transactions do not exceed 5% of total transactions).

• Professionals with gross receipts exceeding ₹50 lakh.

• Taxpayers claiming lower inca a ome than prescribed under presumptive schemes and having income above the exemption limit.
  

Audit report must be submitted in Form 3CA/3CB along with Form 3CD before the specified due date.

Change in Method of Accounting – Section 145

Assessees must follow a consistent method of accounting. If there’s a change, it must be disclosed clearly, and its effect on income must be quantified. Arbitrary or frequent changes are not allowed.

ICDS (Income Computation and Disclosure Standards)

ICDS are accounting standards notified under Section 145(2) for computatithe on of taxable income under PGBP and other heads (except salary). They override the normal accounting standards used for financial reporting.

There are 10 notified ICDS covering:

• Accounting policies

• Valuation of inventories

• Construction contracts

• Revenue recognition

• Tangible fixed assets

• Effects of changes in foreign exchange rates

• Government grants

• Securities

• Borrowing costs

• Provisions, contingent liabilities and assets
  

These standards are mandatory for all taxpayers (other than individuals and HUFs not subject to audit under Section 44AB).

Taxability of Speculative Business

A speculative business involves contracts for purchase the and sale of goods or services settled otherwise than by actual delivery. Common examples include day trading in shares and commodity futures.

• Losses from speculative business can only be set off against gains from speculative business.

• Speculative losses can be carried forward for 4 years and set off only against speculative profits.
  

Taxability of Non-Speculative Business

Regular trading activities involving actual delivery of goods and services are considered non-speculative. Losses from such businesses can be set off against any other income (except salary) and carried forward for 8 years.

Set Off and Carry Forward of Losses – Sections 70 to 80

Losses from business can be adjusted as follows:

Intra-head Set Off – Section 70

Loss from one business can be set off against profit from another business under the same head (excluding speculative losses).

Inter-head Set Off – Section 71

If there is a loss under PGBP and no profit under the same head, it can be adjusted against other heads like income from house property or capital gains (except salary). Speculative losses, however, cannot be set off against other heads.

Carry Forward of Business Loss – Section 72

Unabsorbed business loss can be carried forward for 8 assessment years and set off only against business income.

Conditions:

• The loss must be declared in the return filed within the due date.

• Business need not be continued in future years to carry forward loss.
  

Cathe the rry Forward and Set Off of Speculative Loss – Section 73

Speculative losses can be carried forward for 4 years and set off only against speculative profits.

Unabsorbed Depreciation – Section 32(2)

Unlike business loss, unabsorbed depreciation can be carried forward indefinitely and set off against any income (except salary).

Deductions under Chapter VI-A from PGBP Income

Certain deductions under Chapter VI-A are available even from business income, provided the conditions of the section are met. Examples:

• Section 80C – For investment in LIC, PPF, etc. (for individuals only)

• Section 80G – Donations to charitable institutions

• Section 80-IA to 80-IE – For profits from infrastructure undertakings, industrial parks, SEZs, etc.

• Section 80JJAA – Deduction for employment of new workmen

• Section 80P – Deduction for cooperative societies
  

Deemed Incomes under Section 41

Certain recovered or realized items that were earlier allowed as deductions are deemed to be business income in the year of receipt. Examples:

• Recovery of bad debts previously written off

• Sale of assets used in scientific research (if deduction claimed earlier)

• Withdrawal from reserves or provisions previously allowed

• Remission or cessation of trading liability
  

Section 41(1) to 41(5) deals with these cases of deemed income.

Computation of Business Income

The computation of business or professional income follows this format:

• Net profit as per profit and loss account

• Add inadmissible expenses (e.g., disallowed payments, capital expenses, personal expenses)

• Deduct admissible expenses not debited in P&L (e.g., depreciation, scientific research, etc.)

• Add income not credited to P&L but taxable under PGBP (e.g., export incentives, deemed incomes)

• Arrive at taxable income under the head PGBP

Taxation of Professional Income

Professional income is taxed under the same head as business inco,me but has ,,  some distinctive features. Professionals include doctors, lawyers, engineers, architects, chartered accountants, interior decorators, technical consultants, and other individuals engaged in skill-based services.

• Professionals are generally required to maintain books of accounts under Section 44AA if their gross receipts exceed ₹2.5 lakh.

• They can opt for presumptive taxation under Section 44ADA if their gross receipts are ₹50 lakh or less.

• Professional income is subject to the same deductions under Sections 30 to 37, provided the expenses are incurred wholly and exclusively for professional activities.
  

Common deductions for professionals include:

• Rent or lease payments for office premises

• Staff salaries and consultancy charges

• Office supplies and administrative expenses

• Depreciation on computers, furniture, and other equipment

• Professional indemnity insurance

• Membership and subscription to professional bodies
  

Taxation of Freelancers and Independent Consultants

Freelancers and independent consultants earning through online platforms or direct client engagements are taxed under PGBP. They are treated similarly to self-employed professionals and may be eligible for presumptive taxation under Section 44ADA.

Key points for freelancers:

• Maintain detailed records of income from clients, foreign remittances, and platform payouts.

• Maintain receipts, invoices, and contracts.

• Deduct expenses like laptop costs, internet bills, co-working space charges, software tools, and subscriptions.

• GST registration may be required if turnover exceeds the prescribed limits.
  

Foreign income received by freelancers for services rendered in India is taxable in India, even if payment is received in foreign currency.

Capital vs Revenue Expenditure in Business Context

Accurate distinction between capital and revenue expenses is essential for correct tax computation:

Capital Expenditure

• Brings into existence an asset or advantage of enduring benefit

• Includes purchase of land, machinery, buildings, patents, etc.

• Not deductible under regular business income computation

• Depreciation allowed under Section 32
  

Revenue Expenditure

• Day-to-day operational expenses like rent, salaries, electricity, repairs

• Incurred wholly and exclusively for business

• Deductible in full during the year incurred
  

Ambiguities arise in certain cases, such as:

• Substantial repairs – if they increase efficiency or life, may be capital

• Advertising on a grand scale – if it establishes brand identity, it could be capital

• Legal e.. expenses – if incurred for defending or creating a capital asset, it’s capital; if for routine business matters, it’s revenue
  

Tax Imp.. Implications of Business Reorganizations

Amalgamation or Demerger

• Expenses incurred on amalgamation/demerger are deductible under Section 35DD over five years (only for Indian companies).

• Capital gains arising from asset transfers in schemes of merger/demerger are exempt under certain conditions.
  

Conversion of Firm to Company

• Transfer of assets on conversion is not considered a transfer under Section 47(xiii) if conditions are met (e.g., same partners/shareholders, no consideration, all assets/liabilities transferred).
  

Slump Sale

• Transfer of a business unit as a going concern for a lump sum is called a slump sale.

• Taxable as capital gains under Section 50B.

• No separate valuation for individual assets required.
  

Important Judicial Pronouncements on PGBP

CIT vs. Badridas Daga (1958)

Loss from embezzlement by an employee was held to be deductible since it was incidental to carrying on the business.

CIT vs. Indian Molasses Co. (1970)

Provision for future liability is not deductible unless the liability is certain and accrued.

Madras Industrial Investment Corp. Ltd. vs. CIT (1997)

Discount on debentures was held to be revenue expenditure, deductible over the life of the debentures.

CIT vs. T. Veerabhadra Rao (1985)

Bad debts recovered, though written off by the predecessor, are taxable as deemed income in the hands of the successor.

Audit Report and Disclosure Requirements

Taxpayers required to get audited under Section 44AB must submit:

• Form 3CD: Detailed statement of particulars including nature of business, depreciation, payments to related persons, TDS defaults, disallowed expenses, etc.

• Form 3CA/3CB: Audit report by a Chartered Accountant
  

Non-compliance attracts penalty penalty penalty ua a under Section 271B, and income computation may be affected.

Relevance of GST and Other Indirect Taxes

GST compliance is essential for businesses and professionals with a turnover exceeding ₹20 lakh (₹10 lakh in special category states).

• GST collected is not part of business income.

• GST paid on inputs/services used for business is allowed as input tax credit and not part of the expense if claimed.

• GST liability unpaid within the due date may be disallowed under Section 43B.
  

Other taxes like professional tax, customs duty, and excise duty are deductible when paid.

Advance Tax and TDS for Business Income

Businesses and professionals with taxable income above ₹10,000 must pay advance tax in installments during the year.

Failure to pay or short payment attracts interest under Sections 234B and 234C.

TDS must be deducted on:

• Salaries

• Contractor payments

• Rent (exceeding ₹2.4 lakh p.a.)

• Professional fees (exceeding ₹30,000 p.a.)

• Commission and brokerage
  

Non-deduction or late deposit of TDS results in disallowance of the expense and penal interest.

Applicability of AMT (Alternate Minimum Tax)

Non-corporate assessees (individuals, firms, etc.) claiming deductions under Sections 80H to 80RRB or Section 10AA may be subject to AMT under Section 115JC if their adjusted total income exceeds ₹20 lakh.

AMT is calculated at 18.5% (plus surcharge and cess) on adjusted total income. Credit of AMT paid is allowed for 15 subsequent years.

Impact of COVID-19 on PGBP

Several relaxations and benefits were introduced:

• Extension of deadlines for audit, return filing, and TDS compliance

• Additional deductions for COVID-related medical expenses

• Relief for interest on deferred tax paymentsA.n extended or investing capital gains for tax exemption

Conclusion

The taxation of income under the head “Profits and Gains of Business or Profession” (PGBP) forms a critical component of the Indian Income Tax Act. This category encompasses a wide range of earnings derived from both business activities and professional services. Accurate reporting of such income, understanding what constitutes business or professional profits, and being aware of allowable deductions and disallowed expenses are essential for tax compliance and effective tax planning.

A taxpayer engaged in business or profession must maintain proper books of account, adhere to tax audit requirements if applicable, and comply with presumptive taxation rules where chosen. The intricacies of deductions whether for general business expenditure, depreciation, interest payments, or employee benefits must be evaluated in light of their eligibility and legal provisions. At the same time, knowledge of disallowed expenses, such as personal expenses, cash payments exceeding permissible limits, or payments without TDS, helps avoid penalties and adjustments during assessment.