Section 28: Profits and Gains of Business or Profession
Section 28 identifies receipts taxable under the head Profits and gains of business or profession (PGBP). It covers ordinary business earnings and specific items such as business-termination compensation, export incentives, business benefits, partner remuneration and certain insurance receipts.
What does Section 28 cover?
Business generally includes trade, commerce, manufacture and an adventure or concern in the nature of trade; profession includes vocation (see Section 2 definitions). Section 28 determines whether specified income belongs to the PGBP head. Section 29 then directs that such income be computed under the relevant provisions of Sections 30 to 43D, subject to other applicable rules.
The classification depends on the real nature of the activity and receipt. For example, a capital receipt is not automatically business income merely because a business receives it; however, specific clauses of Section 28 expressly tax particular compensation or benefits.
Taxable income listed in Section 28
Clause (i): Ordinary business or professional profits
Profits and gains from a business or profession carried on by the assessee at any time during the previous year are taxable. The business need not operate for every day of the year.
Clause (ii): Compensation for termination or modification
Specified compensation or other payments connected with termination or changes to company management, agency arrangements, government takeover of management, or a contract relating to business can be taxable. Clause (ii)(e), inserted with effect from assessment year 2019-20, expressly addresses termination or modification of a business contract. The exact agreement and nature of the receipt matter.
Clause (iii): Trade or professional associations
Income earned by a trade, professional or similar association for specific services rendered to members is included. Other receipts of associations require separate examination under the applicable rules.
Clauses (iiia) to (iiie): Export-related receipts
Specified profits from import licences, cash assistance against exports, customs or excise duty drawback, transfer of Duty Entitlement Pass Book (DEPB) benefits, and Duty Free Replenishment Certificates (DFRC) fall within Section 28. Some schemes are historical, but the clauses may remain relevant to earlier assessment years, disputes or outstanding receipts.
Clause (iv): Benefits or perquisites from business or profession
The value of a benefit or perquisite arising from business or professional activity is chargeable, whether convertible into money or not. The Finance Act, 2023 clarified that the clause applies where a benefit is in cash, in kind, or partly in both. Tax deduction under Section 194R may also require examination where applicable; withholding and substantive taxability are distinct questions.
Clause (v): Payments to partners
Interest, salary, bonus, commission or remuneration due to or received by a partner from the firm may be taxed under PGBP. The clause requires adjustment to the extent that the corresponding amount is disallowed to the firm under Section 40(b). Ordinary profit share from a firm has separate treatment under Section 10(2A).
Clause (va): Non-compete and restrictive covenant receipts
Specified consideration for not carrying on a business or profession, or for not sharing know-how, patents, trademarks, licences, franchises and similar rights or information, is taxable. Exceptions include certain transfers taxed under the capital-gains head and qualifying Montreal Protocol compensation. An agreement includes informal or unwritten arrangements meeting the statutory definition.
Clause (vi): Keyman insurance proceeds
Amounts received under a Keyman insurance policy, including bonus allocations, may be taxable under this clause. The policy definition is linked to Section 10(10D); identify the recipient and the character of the receipt before computing tax.
Clause (via): Conversion of inventory into capital asset
Where inventory is converted into, or treated as, a capital asset, its fair market value on the conversion date, determined in the prescribed manner, is included under this clause. The corresponding capital-gains rules, including Section 49(9), may become relevant upon later transfer.
Clause (vii): Certain assets with Section 35AD deduction
Specified sums received or receivable on demolition, destruction, discarding or transfer of a capital asset (other than land, goodwill or a financial instrument) can be taxable where the entire expenditure on that asset was allowed under Section 35AD.
Special provisions and interpretation
Speculation business
Explanation 2 treats a speculation business as separate and distinct from another business where the assessee's speculative transactions amount to a business. The meaning of speculative transaction and restrictions on setting off speculation losses must be considered under Sections 43(5) and 73, as applicable.
Business benefits and TDS
Section 194R may impose withholding obligations for qualifying benefits or perquisites provided to residents, subject to thresholds, exceptions and guidance. A deduction at source does not, by itself, conclusively decide the recipient's final taxable amount.
Business income versus capital gains
Classification depends on facts, specific deeming provisions, and relevant case law. For example, consideration for transferring a capital asset may be taxed under capital gains even if the transferor operates a business; certain restrictive covenant receipts are expressly covered by Section 28(va).
Illustrative examples
| Receipt | Potential Section 28 treatment |
|---|---|
| Consultancy fees from a professional practice | Clause (i): professional profits, net of allowable deductions |
| Payment for early termination of a business contract | Clause (ii)(e): examine contract-related compensation |
| Product or cash incentive from a supplier arising from business | Clause (iv): assess taxable benefit or perquisite |
| Partner's eligible remuneration from a firm | Clause (v), with Section 40(b) adjustment where required |
| Consideration for agreeing not to compete | Clause (va), subject to statutory exceptions |
These examples are simplified and do not determine the tax outcome without examining agreements, accounting method, deductions, exemptions and the applicable year.
How taxable business income is calculated
Section 28 identifies chargeable receipts; it is not a complete computation formula. Broadly, start with business or professional receipts, account for inventory and accrual principles where relevant, and apply permissible expenses, depreciation, disallowances and other adjustments under Sections 29 to 43D and related provisions. Presumptive taxation under Sections 44AD, 44ADA or 44AE may apply to eligible taxpayers subject to their conditions.
Frequently asked questions
Are all business receipts taxable under Section 28?
No. The character of each receipt, any specific inclusion, exemption or separate charging provision, and the correct assessment year must be considered.
Is a partner's share of firm profit the same as remuneration?
No. A partner's qualifying share of profit has different treatment under Section 10(2A); remuneration and interest may be covered by Section 28(v).
Are non-cash gifts from business contacts taxable?
They can be, where the benefit or perquisite arises from business or profession and the statutory conditions apply. Valuation and any Section 194R obligation require separate review.
Original Section 28 extract and amendment notes
The statutory text and legislative footnotes from the uploaded page are preserved below for reference. This historical extract is not a substitute for the official consolidated legislation, including amendments made after its publication.
Read the original statutory extract and amendment notes
The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",-
(i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year;
(ii) any compensation or other payment due to or received by,-
(a) any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto;
(b) any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto;
(c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto ;
1 (d) any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business;
2 (e) any person, by whatever name called, at or in connection with the
termination or the modification of the terms and conditions, of any contract
relating to his business;
(iii) income derived by a trade, professional or similar association from
specific services performed for its members ;
3 (iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947);
4 (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India;
5 (iiic) any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971;
6 (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);
7 (iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);
8 (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;
9 (v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm:
Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted;
10(va) any sum, whether received or receivable, in cash or kind, under an agreement for-
(a) not carrying out any activity in relation to any business 11or profession; or
(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services:
Provided that sub-clause (a) shall not apply to-
(i) any sum, whether received or receivable, in cash or kind, on account of
transfer of the right to manufacture, produce or process any article or thing or
right to carry on any business 12 or profession, which is chargeable under the
head "Capital gains";
(ii) any sum received as compensation, from the multi-lateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India.
Explanation.-For the purposes of this clause,-
(i) "agreement" includes any arrangement or understanding or action in concert,-
(A) whether or not such arrangement, understanding or action is formal or in writing; or
(B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings;
(ii) "service" means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging;
13 (vi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
14 (via) the fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset determined in the prescribed manner;
Explanation.-For the purposes of this clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section 10;
15 (vii) any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD.
16 * * * * *
Explanation 2.-Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business.
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1. Ins. by Act 21 of 1973, s. 4 (w.e.f. 1-4-1972).
2. Ins. by Act 13 of 2018, s. 9 (w.e.f. 1-4-2019).
3. Ins. by Act 12 of 1990, s. 6 (w.e.f. 1-4-1962).
4. Ins. by s. 6, ibid. (w.e.f. 1-4-1967).
5. Ins. by s. 6, ibid.(w.e.f. 1-4-1972).
6. Ins. by Act 55 of 2005, s. 3 (w.e.f. 1-4-1998).
7. Ins. by s. 3, ibid. (w.e.f. 1-4-2001).
8. Ins. by Act 5 of 1964, s. 7 (w.e.f. 1-4-1964).
9. Ins. by Act 18 of 1992, s. 11 (w.e.f. 1-4-1993). Earlier clause (v) was inserted by Act 4 of 1988, s. 9 (w.e.f. 1-4-1989) and later omitted by Act 3 of 1989, s. 95 (w.e.f. 1-4-1989).
10. Ins. by Act 20 of 2002, s. 13 (w.e.f. 1-4-2003).
11. Ins. by Act 28 of 2016, s. 12 (w.e.f. 1-4-2017).
12. Ins. by Act 28 of 2016, s. 12 (w.e.f. 1-4-2017).
13. Ins. by Act 33 of 1996, s. 10 (w.e.f. 1-10-1996).
14. Ins. by Act 13 of 2018, s. 9 (w.e.f. 1-4-2019).
15. Ins. by Act 33 of 2009, s. 10 (w.e.f. 1-4-2010).
16. Explanation 1 omitted by 4 of 1988, s. 9 (w.e.f. 1-4-1989).
Official legal resources
- Income Tax Department: Income-tax Act, 1961
- Income Tax Department: e-Filing portal
- India Code: Central Acts and amendments
- Income Tax Department: official tax information
Last reviewed: 24 October 2026. General educational information; verify current legislation, notifications and judicial interpretation for the tax year concerned.