Introduction
Income from business or profession is taxable under the head "Profits and Gains of Business or Profession (PGBP)". The Income Tax Act, 2025 has largely retained the provisions of the Income Tax Act, 1961 but has simplified and renumbered the sections. The PGBP provisions are covered under Sections 26 to 66 of the Income Tax Act, 2025, corresponding mainly to Sections 28 to 44DB of the Income Tax Act, 1961.
1. Chargeability of Business Income
The charging section outlines which incomes are chargeable to tax under the head of PGBP.
| Income Tax Act, 2025 | Income Tax Act, 1961 | Provision |
|---|---|---|
| Section 26 | Section 28 | Income chargeable under PGBP |
Income taxable under this head includes:
- Business or professional profits.
- Compensation on termination/modification of agency or management contracts.
- Export incentives.
- Benefits or perquisites arising from business.
- Partner's salary, bonus, commission, interest from firm.
- Non-compete fees.
- Keyman Insurance receipts.
- Conversion of inventory into capital asset.
2. Computation of Business Income
| Income Tax Act, 2025 | Income Tax Act, 1961 |
|---|---|
| Section 27 | Section 29 |
Business income is computed in accordance with the provisions contained in Sections 28 to 54 of the 2025 Act (corresponding to Sections 30 to 43D of the 1961 Act).
Deductions Allowed
Under the new Act, various deductions are allowed while computing Profits and Gains from Business or Profession, subject to specific conditions.
3. Rent, Rates, Taxes, Repairs & Insurance
ITA 2025: Sec 28 | ITA 1961: Sec 30, 31Expenses incurred on rent, rates, taxes, repairs, and insurance for premises, plant, and machinery used for the business are fully deductible.
4. Employee Welfare Expenses
ITA 2025: Sec 29 | ITA 1961: Sec 36The following welfare expenses are allowed as deductions subject to prescribed conditions:
- Staff welfare expenses.
- Employer's contribution to Provident Fund (PF) and other funds.
- Gratuity fund contribution.
- Bonus and commission paid to employees.
5. Insurance Premium Deduction
ITA 2025: Sec 30 | ITA 1961: Sec 36Insurance premiums paid to cover the risk of damage or loss to business assets (such as stocks, stores, plant, machinery, etc.) are deductible.
6. Bad Debts
ITA 2025: Sec 31 | ITA 1961: Sec 36(1)(vii)Any bad debt or part thereof that is actually written off as irrecoverable in the books of accounts of the taxpayer for the previous year is allowed as a deduction.
7. Other Deductions
ITA 2025: Sec 32 | ITA 1961: Sec 36Includes various other specified business deductions:
- Interest on business loans/borrowed capital.
- Employer contributions to employee family pension funds.
- Various other specified business expenses.
8. Depreciation
ITA 2025: Sec 33 | ITA 1961: Sec 32Depreciation on assets used for business purposes is allowed on a Written Down Value (WDV) basis.
9. General Deduction
ITA 2025: Sec 34 | ITA 1961: Sec 37Any business expenditure is deductible under this residual section if it satisfies the following conditions:
- It is revenue in nature (not capital expenditure).
- It is incurred wholly and exclusively for the purposes of the business or profession.
- It is not of a personal nature.
- It is not incurred for any purpose which is an offence or prohibited by law.
Disallowances
Under certain circumstances, specific expenditures are disallowed (not allowed as deductions) to discourage tax avoidance or personal spending.
10. Amounts Not Deductible
ITA 2025: Sec 35 | ITA 1961: Sec 40The following items are strictly non-deductible:
- Income Tax paid.
- Wealth Tax.
- Excessive partner remuneration.
- Certain payments to related parties.
11. Expenses Not Deductible in Certain Circumstances
ITA 2025: Sec 36 | ITA 1961: Sec 40ACash Payment Restriction: No deduction is allowed for payments made in cash to a person in a single day exceeding:
- ₹10,000 per day per person in cash.
- ₹35,000 per day per person for transport operators.
Note: This restriction is applicable under both Acts.
12. Expenses Allowed on Actual Payment Basis
ITA 2025: Sec 37 | ITA 1961: Sec 43BCertain expenses are allowed as deductions only in the year they are actually paid (not on accrual/mercantile basis):
- GST.
- Provident Fund (PF) contribution.
- ESI contribution.
- Bonus to employees.
- Interest to banks.
Deduction is available in the financial year of actual payment.
Deemed Business Income
13. Certain Sums Deemed as Business Income
ITA 2025: Sec 38 | ITA 1961: Sec 41Under both Acts, certain receipts or benefits are deemed to be business profits even if the business is no longer in existence. Examples include:
- Recovery of bad debts.
- Remission of trading liability.
- Sale proceeds of assets on which deduction was claimed.
- Withdrawal from special reserve.
Scientific Research & Specified Business
14. Scientific Research
Revenue and capital expenditure on scientific research are deductible subject to prescribed conditions.
15. Specified Business
A 100% deduction is available for capital expenditure of specified businesses such as:
- Cold chain facilities.
- Warehousing.
- Hotels.
- Hospitals.
Subject to prescribed conditions under the Act.
Presumptive Taxation Scheme
The presumptive taxation scheme allows small taxpayers to declare income at a prescribed rate and frees them from the tedious compliance of maintaining regular books of accounts.
16. Section 58 (Old Section 44AD)
Presumptive Business- 8% of turnover.
- 6% of digital receipts.
17. Section 59 (Old Section 44ADA)
Presumptive Profession18. Section 60 (Old Section 44AE)
Transport BusinessBooks of Accounts & Audit
19. Maintenance of Books
ITA 1961: Sec 44AAProfessionals and specified businesses must maintain prescribed books of accounts as per the rules.
20. Tax Audit
ITA 1961: Sec 44ABTax audit limits are defined as follows:
- Turnover exceeding ₹1 Crore generally.
- Up to ₹10 Crore where cash receipts and payments do not exceed 5%.
- Professional receipts exceeding ₹50 Lakhs require a tax audit (unless covered under the presumptive scheme).
Quick Comparison
Compare section renumbering and structural modifications for Profits and Gains of Business or Profession (PGBP):
Comparison Table
| Particulars | ITA 2025 | ITA 1961 |
|---|---|---|
| Charging Section | Section 26 | Section 28 |
| Computation Section | Section 27 | Section 29 |
| Depreciation | Section 33 | Section 32 |
| General Deduction | Section 34 | Section 37 |
| Cash Payment Limit | ₹10,000 | ₹10,000 |
| Presumptive Business | Section 58 | Section 44AD |
| Presumptive Profession | Section 59 | Section 44ADA |
| Transport Scheme | Section 60 | Section 44AE |
Conclusion
The Income Tax Act, 2025 does not substantially change the taxation of business and professional income. The primary objective is simplification and renumbering of provisions. Most existing concepts such as depreciation, business deductions, disallowances, presumptive taxation, tax audit, scientific research deductions and specified business deductions continue with similar provisions under the new Act.
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Disclaimer:
The information provided in this blog is for general awareness and educational purposes only. It does not constitute professional tax or legal advice. Readers are advised to consult a qualified Chartered Accountant or tax professional for guidance specific to their individual circumstances before making any decisions based on this text. While we make every effort to verify updates, the firm accepts no liability for errors or omissions.