Section 29: How Profits and Gains of Business or Profession Are Computed

Section 29 of the Income-tax Act, 1961 provides the computation rule for income chargeable under Section 28. It directs that business and professional income must be calculated in accordance with Sections 30 to 43D, including applicable deductions, valuation rules, restrictions and disallowances.

What does Section 29 say?

In substance, Section 29 states that income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43D. Section 28 identifies categories of income taxable as profits and gains of business or profession; Section 29 determines the statutory computation framework. It is a connecting provision, not a standalone exemption or deduction.

Business income broadly refers to taxable profits from commercial activities; professional income refers to earnings from a profession. The precise tax treatment depends on the character of the receipt, accounting method and relevant provisions. A deduction is allowed only when the relevant statutory conditions are satisfied.

How to compute business or professional income

1. Identify chargeable receipts: Determine the receipts and gains falling within Section 28 and related provisions.
2. Apply the correct accounting method: Consider Section 145, subject to special provisions, notified standards and applicable accounting requirements.
3. Allow qualifying expenses: Examine Sections 30 to 37 and other applicable provisions, including depreciation under Section 32.
4. Apply restrictions and disallowances: Review Sections 40, 40A and 43B, among others, before finalising the taxable amount.
5. Apply special computation rules: Consider applicable valuation, deemed-income and industry-specific provisions within the statutory framework.

Important deductions and computation provisions

These provisions must be read with the amendments and exceptions applicable to the particular assessment year. For example, Section 43B includes rules for specified payments and certain amounts payable to micro or small enterprises; the exact conditions, dates and definitions matter.

Expenses that may not be fully deductible

Not every expense recorded in a profit-and-loss account is deductible for income-tax purposes. Personal expenses, capital expenditure claimed as routine revenue expenditure, prohibited payments, specified payments without required tax deduction, and expenditure restricted by payment or other statutory conditions may require adjustments. Section 37 does not override specific restrictions elsewhere in the Act.

Where presumptive taxation under provisions such as Sections 44AD, 44ADA or 44AE is applicable and validly adopted, the computation method differs from a conventional item-by-item expense calculation. Eligibility and consequences must be checked separately.

Illustrative computation

Suppose a business has revenue of Rs. 20,00,000, allowable operating expenses of Rs. 11,00,000 and eligible tax depreciation of Rs. 1,50,000. Before other statutory adjustments, the illustrative business profit is Rs. 7,50,000. Any disallowed expenditure, deemed income, special adjustment or applicable loss rule must then be considered. This illustration assumes ordinary computation and does not establish eligibility for any deduction.

Relationship between Sections 28 and 29

Section 28 identifies the receipts and profits chargeable under the head "Profits and gains of business or profession." Section 29 tells the taxpayer how to compute that income by applying Sections 30 to 43D. Thus, Section 28 is principally a charging provision for this head, while Section 29 is a computation gateway.

Documentation and compliance

• Maintain books of account, invoices and supporting documents as applicable.
• Reconcile business receipts with banking records and tax reporting.
• Keep depreciation schedules and evidence of asset acquisition and use.
• Review TDS obligations, payment-based deduction rules and related-party expenditure.
• Check audit, return-filing and presumptive-tax provisions applicable to the relevant year.

Original Section 29 statutory extract

The uploaded page's statutory wording and amendment note are retained below for reference. Check the consolidated law for the relevant assessment year.

Official legal resources

• Income Tax Department: Income-tax Act, 1961
• Income Tax Department: e-Filing portal
• India Code: Central legislation
• Income Tax Department: Income-tax Rules, 1962

Updated 24 October 2026. General information only; the applicable statutory text, rules and judicial interpretation control.