Legal Reference
Sections 28-44 (PGBP), Section 29 (computation), Section 37 (general deduction), Section 40 (amounts not deductible), Section 40A (further disallowances), Section 43B, ITA 2025
1. What Falls Under Business/Profession?
Income from Business or Profession (PGBP) is the most comprehensive income head — covering all trade, commerce, manufacturing, and professional activities. It includes: profits from running a business; professional fees (CA, doctor, lawyer, architect); agency income; speculative business (intraday trading); F&O trading; rental income from business assets; and compensation for termination or modification of business contracts.
2. Computation of Business Income
Net profit/income = Gross receipts / revenue MINUS allowable business expenses. The computation starts with accounting profit (P&L) and makes tax adjustments:
- Add back: disallowed expenses (Section 40, 40A, 43B items paid after cut-off)
- Add back: capital expenditure incorrectly debited to P&L
- Deduct: income not chargeable as business income (capital gains, interest income if investment)
- Deduct: any income already included in another head
3. Section 37: General Deduction Rule
Any expenditure (not capital, not personal) incurred wholly and exclusively for business is deductible under Section 37. This broad provision covers: rent, utilities, salaries, raw materials, repairs and maintenance, advertising, professional fees, travel for business, software subscriptions, and interest on business loans.
4. Major Disallowances
| Section | Disallowance |
|---|
| Section 40(a)(ia) | 30% of expense disallowed if TDS not deducted (full disallowance if TDS not deposited) |
| Section 40A(3) | Full disallowance if cash payment to single person exceeds Rs 10,000/day |
| Section 40A(2) | Excess payment to related party over fair market value disallowed |
| Section 43B | PF, gratuity, TDS deductible only when actually paid; MSME dues within 45/15 days |
| Section 37(1) proviso | Expenditure for any purpose in violation of law — disallowed |
5. Business Loss: Allowed Carry Forward
Non-speculative business losses can be set off against any income (except salary) in the current year and carried forward for 8 years against business income. The ITR must be filed on time (31 July) to carry forward the loss. Unabsorbed depreciation is carried forward indefinitely.
6. Depreciation: Block Method
Depreciation is computed on the Written Down Value (WDV) of "blocks" of assets — not individual assets. Each block groups all assets at the same depreciation rate. Opening WDV + additions minus deletions × applicable rate = depreciation for the year. Rates: buildings 10%, plant and machinery 15%, computers 40%, intangibles 25%.
7. Why TaxClue
Business income computation — disallowances, depreciation, loss planning — requires accounting and tax expertise together. TaxClue prepares business income ITR-3, handles tax audit, and maximises deductions. Contact us under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What is included in business income?
Business income (PGBP) under ITA 2025 includes: profits from any trade, commerce, or manufacture; professional fees from independent practice; agency commissions; income from speculative transactions (intraday); F&O trading income; compensation for business termination; and any activity carried out with profit motive. The key test is a profit motive and business relationship — one-time transactions without business continuity may be taxed as other sources.
What expenses are deductible under Section 37?
Section 37 allows deduction of any expenditure incurred wholly and exclusively for business purposes — that is revenue (not capital) and not personal. Deductible: rent, utilities, salaries, raw materials, repairs, advertising, professional fees, bank charges, business travel, software subscriptions, interest on business loans. Not deductible under Section 37: capital expenditure (goes to depreciation), personal expenses, illegal purpose expenses, and expenses specifically disallowed by other sections.
What is the TDS disallowance under Section 40(a)(ia)?
Under Section 40(a)(ia), if TDS was not deducted on a payment that required TDS, 30% of that payment is disallowed as a business expense. If TDS was deducted but not deposited to the government within the prescribed time, the full amount is disallowed. The disallowance is reversed in the year when TDS is actually deposited. This provision makes TDS compliance a direct financial issue — non-compliance increases taxable income.
How is depreciation computed for business?
Depreciation under Section 35 of ITA 2025 is on the Written Down Value (WDV) of blocks of assets. All assets of the same type and same rate are grouped in one block. WDV = Opening balance + additions during year minus sale proceeds (if assets sold). Depreciation = WDV × applicable rate. Key rates: buildings 10%, plant and machinery 15%, computers and software 40%, intangible assets 25%. If new asset used less than 180 days in the year, only 50% of the normal rate applies.
Can a business loss be carried forward?
Non-speculative business losses can be set off against any income except salary in the current year. Unabsorbed loss is carried forward for 8 years and set off against business profit only. The ITR must be filed by the original due date (31 July for non-audit) to carry forward the loss — belated return forfeits carry-forward rights for business loss. Unabsorbed depreciation (separately) carries forward indefinitely against any non-salary income.
