Key Highlights
- PGBP provisions under Sections 26–66, Chapter IV-C, ITA 2025
- Any income from carrying on a business or profession is taxable under this head
- Deductions allowed for all expenses incurred wholly and exclusively for business
- Depreciation on assets is allowed under Schedule XIII of ITA 2025 (previously Appendix I of IT Rules)
- Presumptive taxation available — Section 44AD (business), 44ADA (professionals), 44AE (transport)
- Tax audit mandatory if turnover exceeds ₹1 crore (₹10 crore if cash transactions < 5%)
- Speculative business (intraday trading) is a separate category — losses cannot be set off against non-speculative income
1. Overview
If you run any business — from a kirana shop to a software company — or practise any profession — from medicine to chartered accountancy — your income is taxed under the PGBP head. Unlike salary (which is computed on a gross basis), business income is computed on a net basis: you start with total receipts and deduct all legitimate business expenses, arriving at net profit which is taxable.
Under the Income Tax Act, 2025, PGBP provisions are extensively organised under Sections 26 to 66 of Chapter IV-C. The principle of "wholly and exclusively for business" governs what can be deducted — personal expenses, capital expenditure (other than as depreciation), and illegal payments are specifically disallowed.
2. What Income Falls Under PGBP?
- Profits from any trade, commerce, or manufacturing business
- Income from any profession (doctor, lawyer, CA, architect, engineer, interior designer, film artist)
- Income from any vocation
- Profit on sale of goods imported using CENVAT/MODVAT credits
- Export incentives (MEIS, SEIS, duty drawback) to the extent not exempt
- Keyman insurance policy proceeds received by business
- Any benefit received in the course of business (e.g., refund of TDS, waiver of loan)
- Speculative business income (intraday equity trading, commodity trading)
3. Key Deductions Allowed Under PGBP
| Deduction | ITA 2025 Section | Conditions |
|---|---|---|
| Rent, rates, taxes, repairs on business property | Section 30 | Actual expense; property used for business |
| Repairs and insurance on plant/machinery/furniture | Section 31 | Business assets only |
| Depreciation on business assets | Section 32 + Schedule XIII | Asset owned and used for business; WDV method |
| Employees' salaries, wages, bonus | Section 36 | Actual payment; no cash above ₹10,000 per transaction |
| Employer's contribution to PF/superannuation | Section 36 | Paid before ITR due date |
| Bad debts written off | Section 36(1)(vii) | Must have been included in income; actually written off |
| Interest on business loans | Section 36(1)(iii) | Capital borrowed for business; interest actually paid |
| Preliminary expenses (amortised) | Section 35D | 20% per year over 5 years |
| Scientific research expenditure | Section 35 | 100% deduction; 150% for approved research associations |
| Advertisement expenses | General deduction (Section 37) | Wholly for business; not on banned items |
| Travelling expenses (business) | General deduction (Section 37) | Business travel only; not personal travel |
| Professional fees (legal, CA, consultant) | General deduction (Section 37) | For business purposes |
4. General Deduction: Section 37
Section 37 of ITA 2025 is the "catch-all" deduction provision — it allows deduction of any expenditure not specifically provided for, if it is:
- Not of a capital nature
- Not a personal expenditure
- Laid out or expended wholly and exclusively for business or profession
- Not for any purpose that is an offence or prohibited by law
5. Depreciation Under Schedule XIII
One of the most significant structural changes under ITA 2025 is that depreciation rates are now in Schedule XIII of the Act itself — previously they were in Appendix I of the Income Tax Rules, 1962.
Key depreciation rates under Schedule XIII:
| Asset Category | Depreciation Rate |
|---|---|
| Buildings (general) | 10% |
| Buildings (residential) | 5% |
| Furniture & Fittings | 10% |
| Plant & Machinery (general) | 15% |
| Computers & Software | 40% |
| Motor Cars (not used for hire) | 15% |
| Motor Buses/Lorries/Taxis (hire) | 30% |
| Intangible assets (know-how, patents, copyrights) | 25% |
Depreciation is calculated on the Written Down Value (WDV) of assets. New assets added during the second half of the year (after 3 October) get 50% of normal depreciation in the year of addition. Full depreciation applies when asset is used for 180 days or more in the Tax Year.
6. Disallowed Expenditures (Section 40/40A)
- Income tax, wealth tax, or any tax on profits — not deductible
- Cash payments exceeding ₹10,000 to a single person in a day — disallowed
- Salary paid to a partner above prescribed limits (Section 40b)
- Payments to related parties above market value
- Interest on borrowings not used for business
- Personal expenses mixed in business accounts
- Payments attracting TDS — if TDS not deducted, 30% of payment is disallowed
7. Tax Audit Under Section 63 of ITA 2025
A tax audit is mandatory for:
- Business with total sales/turnover exceeding ₹1 crore in a Tax Year
- Professionals with gross receipts exceeding ₹50 lakh in a Tax Year
- Exception: If total cash receipts and payments are each less than 5% of total receipts/payments, the threshold is raised to ₹10 crore
- Tax audit report in Form 3CA/3CB/3CD must be filed by 31st October
8. Presumptive Taxation
Small businesses and professionals can opt for presumptive taxation to avoid maintaining detailed accounts:
- Section 44AD (business): Declare 8% of turnover as income (6% for digital receipts); for businesses with turnover up to ₹3 crore (₹2 crore for opting out of presumptive)
- Section 44ADA (professionals): Declare 50% of gross receipts as income; for professionals with receipts up to ₹75 lakh
- Section 44AE (transport): Declare ₹1,000 per tonne per month (goods carriage) as income
- Cannot claim any other deduction (depreciation, interest, rent) if under presumptive scheme
9. Speculative Business
Intraday equity trading (buying and selling shares on the same day without actual delivery) is classified as a speculative business under Section 43(5) of ITA 2025. Key rules:
- Income is taxed at normal slab rates
- Speculative loss can only be set off against speculative income
- Speculative loss can be carried forward for 4 years only (vs 8 years for non-speculative business loss)
- F&O (Futures & Options) trading is NOT speculative — it is regular business income
10. Latest Updates Under ITA 2025
- PGBP now under Sections 26–66 (reorganised from Sections 28–44D of ITA 1961)
- Depreciation rates moved from Appendix I of IT Rules to Schedule XIII of ITA 2025 — statutory backing
- Cash payment disallowance continues at ₹10,000 per person per day
- Tax audit threshold: ₹1 crore (₹10 crore if <5% cash transactions) — unchanged
11. Why TaxClue
PGBP income computation involves dozens of deductions, depreciation schedules, TDS compliance, and tax audit requirements. TaxClue provides end-to-end business tax compliance — bookkeeping support, depreciation computation, tax audit, ITR-3/ITR-4 filing, and advance tax management for Tax Year 2026-27. Contact us for complete business tax services.
12. Resources & Checklist
- ☐ Maintain proper books of accounts (mandatory if turnover >₹25 lakh or income >₹2.5 lakh)
- ☐ Track all business expenses with bills/vouchers
- ☐ Compute depreciation on all assets as per Schedule XIII
- ☐ Check if tax audit threshold is crossed
- ☐ TDS compliance — deduct and deposit on all applicable payments
- ☐ File ITR-3 or ITR-4 by 31 October (audit) or 31 July (no audit)
13. Contact Us
Business tax compliance under the Income Tax Act, 2025 requires year-round attention. TaxClue's business tax team ensures you are compliant, your deductions are maximised, and your audit is handled professionally. Contact us for complete PGBP tax compliance.