Incomes Chargeable Under “Profits and Gains of Business or Profession” (PGBP) [Section 28]

Section 28 of the Income Tax Act, 1961, is a key provision that defines the types of income chargeable under the head “Profits and Gains of Business or Profession” (PGBP). This section is crucial for both individuals and entities engaged in business or profession, as it outlines what constitutes taxable business or professional income and ensures clarity for tax computation and compliance.

Key Incomes Chargeable Under PGBP (Section 28)

1. Profits and Gains from Business or Profession

• • Business Profits: Income earned from the sale of goods or services, manufacturing, trading, or any other business activity.
  • Professional Fees: Earnings from practicing a profession, such as legal, medical, engineering, architectural, or consultancy services.
  • Freelance Income: Revenue generated from freelance or self-employed work.

2. Salary, Commission, Bonus, etc., Received by Partners

• • Partnership Firms: Any salary, commission, bonus, or remuneration received by a partner from the firm in which they are a partner, including interest on capital invested by partners.
  • Note: If any such amount is disallowed under section 40(b), it is not taxable in the hands of the partner.

3. Compensation Payments

• • Termination or Modification of Contracts: Compensation received for termination of employment, management, or agency contracts, or changes in terms and conditions of such contracts.
  • Government Takeover: Compensation received when a property or business is taken over by the government or a government-controlled corporation.

4. Income from Specific Activities

• • Export Incentives: Profits on the sale of import/export licenses, Duty Entitlement Pass Book (DEPB), Duty-Free Replenishment Certificate (DFRC), cash assistance received or receivable under any government scheme, and duty drawbacks.
  • Trade or Professional Associations: Income received by trade, professional, or similar associations from specific services performed for their members.

5. Non-Compete Fees

• • Restraint of Trade: Amounts received for not carrying out a competing business or profession, or for not sharing intellectual property rights (such as know-how, patents, copyrights, trademarks, licenses, or franchises).
  • Exception: If such amounts are chargeable under the head “Capital Gains,” they are not taxed under PGBP.

6. Keyman Insurance Policy

• • Keyman Insurance: Any sum received under a keyman insurance policy, including bonus, is taxable under PGBP.

7. Conversion of Inventory to Capital Asset

• • Inventory Conversion: The fair market value of inventory as on the date of conversion to a capital asset is taxable under business income.

8. Income from Capital Assets Deducted Under Section 35AD

• • Capital Asset Transfer: If any capital asset (the cost of which has been allowed as a deduction under section 35AD) is transferred, the amount received is taxed under PGBP.

9. Value of Benefits and Perquisites

• • Perquisites: The value of any benefit or perquisite, whether convertible into money or not, arising from business or profession.

Summary Table