Table of contents
- What is Income from Business and Profession?
- What is Section 28 of the Income Tax Act?
- Types of Income Covered Under Section 28
- Examples of Taxable Business and Professional Income
- Deductions Allowed from Business & Professional Income
- How to Calculate Taxable Business/Professional Income
- Books of Accounts & Audit Requirements
- Presumptive Taxation Scheme (PTS)
- Penalties for Non-Compliance
- Conclusion
- Frequently Asked Questions (FAQs)
When it comes to taxation in India, understanding income from business and profession under Section 28 of the Income Tax Act is essential, whether you’re a freelancer, doctor, shop owner, consultant, or startup founder. This guide breaks it down in easy terms, so even a 15-year-old can grasp it.
What is Income from Business and Profession?
In simple words, this is the income earned by individuals or entities through commercial, trading, or professional activities. It includes profits from running a shop, company, consultancy, or freelancing work.
Examples:
- A tailor earning from stitching clothes (Business)
- A chartered accountant earning from advisory services (Profession)
- A YouTuber earning through sponsorships (Profession)
What is Section 28 of the Income Tax Act?
Section 28 defines the types of income that are chargeable to tax under the head “Profits and Gains from Business or Profession.”
It includes:
- Income from business/trade/commerce
- Compensation received due to the termination of business agreements
- Profits on the sale of licenses
- Benefits or perquisites from business/profession
Note: Section 28 is the core of business/professional income taxation in India.
Types of Income Covered Under Section 28
| Type of Income | Examples |
|---|---|
| Profits from business | Shop owner, manufacturing unit, e-commerce seller |
| Professional income | Doctor, lawyer, CA, designer, engineer |
| Benefits or perquisites | Free car, laptop received from business |
| Compensation received | Damages for breach of contract |
| Selling the license/quotas allotted | Selling license/quotas allotted |
| Income from speculative transactions | Stock trading profits (under specific conditions) |
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Examples of Taxable Business and Professional Income
- ₹10 lakh earned by a doctor from private practice
- ₹5 lakh profit from selling goods in a grocery store
- ₹2 lakh received for breaking a contract
- ₹50,000 as a performance bonus in a consulting assignment
Deductions Allowed from Business & Professional Income
Under Sections 30 to 37, several expenses are allowed to be deducted from gross receipts:
Common Deductible Expenses:
- Rent, electricity & repairs of business premises
- Salaries and wages to employees
- Depreciation on assets
- Telephone, internet, advertising, and travel costs
- Interest on business loans
- Professional/legal fees
- Insurance and machinery maintenance
How to Calculate Taxable Business/Professional Income
Step-by-Step Calculation:
- Start with Gross Receipts / Turnover
- Subtract Allowable Business Expenses
- Result = Net Profit
- Apply any Chapter VI-A deductions (80C to 80U)
- Final Result = Taxable Income
Books of Accounts & Audit Requirements
Who must maintain the books?
- Professionals: if gross receipts > ₹2.5 lakh
- Businesses: if turnover > ₹10 lakh
When is a tax audit required?
- Business: turnover > ₹1 crore
- Profession: gross receipts > ₹50 lakh
Tip: Maintaining proper books can help in availing accurate deductions.
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Presumptive Taxation Scheme (PTS)
To ease compliance, small taxpayers can opt for presumptive taxation under Sections 44AD, 44ADA, and 44AE.
| Section | Applicable To | Turnover Limit | Presumed Income |
|---|---|---|---|
| 44AD | Small Businesses | Up to ₹2 Cr | 8% of turnover (6% if digital) |
| 44ADA | Professionals | Up to ₹50 Lakh | 50% of gross receipts |
| 44AE | Goods Transporters | Up to 10 vehicles | ₹1,000–₹7,500 per vehicle/month |
Highlight: No need to maintain books or get accounts audited under PTS.
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Penalties for Non-Compliance
| Offence | Penalty |
|---|---|
| Not maintaining books | ₹25,000 (Sec 271A) |
| Failure to audit accounts | ₹1.5 lakh or 0.5% of turnover (Sec 271B) |
| Late ITR filing | ₹1,000–₹5,000 (Sec 234F) |
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Conclusion
Understanding income from business and profession and how it’s taxed under Section 28 is essential for anyone earning through self-employment, freelancing, or business activities. Keep accurate records, claim all valid deductions, and explore schemes like presumptive taxation to reduce your compliance burden and maximise tax savings.
Frequently Asked Questions (FAQs)
1. What is income from business and profession?
Income earned from trade, commerce, or professional services.
2. What is Section 28 of the Income Tax Act?
It lists taxable income sources under business/profession.
3. Are YouTubers or influencers taxed under this section?
Yes, they are treated as professionals.
4. Do I need to maintain books if I earn under ₹2.5 lakhs?
No, it’s not mandatory under that limit.
5. What are allowable deductions for professionals?
Office rent, equipment, staff salaries, internet, etc.
6. When is a tax audit needed?
For businesses > ₹1 crore, professionals > ₹50 lakh receipts.
7. What is the presumptive taxation scheme?
It allows fixed percentage income to be taxed, reducing paperwork.
8. Is GST mandatory for business income?
Yes, if turnover exceeds ₹20 lakh (₹10 lakh in special states).
9. What’s the penalty for not filing tax on business income?
Up to ₹5,000 under Section 234F, plus interest and legal action.
10. Can I deduct expenses like mobile and travel for tax?
Yes, if used for business or professional work
