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Profits and Gains from Business or Profession (PGBP) — Income-tax Act 2025

Updated: 3 June 2026  |  Income-tax Act, 2025  |  Verified against CBDT notifications

Income from Business or Profession (PGBP) is the taxable profit from any trade, commerce, manufacture, or profession after deducting allowed business expenses. Under the Income-tax Act, 2025, it includes business income, professional income, speculation income, and freelance income. Net profit = Gross receipts minus allowable deductions (rent, salaries, depreciation, interest on loans, professional fees). Presumptive taxation under Section 44AD (business) and 44ADA (profession) is available for small taxpayers.
44AD
Presumptive rate: 8% (cash) / 6% (digital) of turnover — no books required
Eligible for businesses with turnover up to ₹3 crore. Professionals use 44ADA (50% of receipts, up to ₹75L).
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TDS non-compliance disallows 30% of payment. If you pay salary, rent, professional fees, or contractor charges without deducting TDS where required, 30% of that payment is disallowed as deduction under Section 40(a)(ia). Always deduct and deposit TDS before claiming business deductions.

What Is Included in Business Income

The following receipts are taxable under PGBP:

BUSINESS INCOME

Trade, Commerce & Manufacturing

Net profit from buying and selling goods, running a shop, factory, restaurant, or any commercial enterprise. This includes income from trading in securities as a business (not capital gains).

PROFESSION

Professional Income

Fees earned by doctors, lawyers, chartered accountants, architects, engineers, consultants, and other professionals. Gross receipts minus allowable professional expenses = taxable income.

SPECULATION

Speculation Business Income

Intraday equity trading (settled without delivery) is treated as speculative business income. Speculative losses can only be set off against speculative profits (not against other business income) and can be carried forward for 4 years.

FREELANCE

Freelance & Gig Income

Income from freelance writing, design, software development, YouTube monetisation, or any independent work is taxable as profession/business income. Platform TDS (e.g., TDS on AdSense) is creditable against final tax liability.

Allowed Deductions — Section 36 & 37

Deductions are allowed for expenses that are wholly and exclusively for the purpose of business or profession:

ALLOWED

Rent, Rates, Taxes, Insurance (Sec 30)

Rent paid for premises used for business, municipal taxes on business property, and insurance premiums for business assets are fully deductible.

ALLOWED

Depreciation — Section 32

Depreciation on tangible assets (building, plant, machinery, vehicles) and intangible assets (patents, trademarks) at prescribed rates. New assets get additional depreciation (20% in first year for plant & machinery). Unabsorbed depreciation can be carried forward indefinitely.

ALLOWED

Salaries to Employees

Salaries, wages, bonus, and commission paid to employees are deductible under Section 37(1). PF and ESI employer contributions are also deductible. Ensure TDS is deducted and deposited on salaries — else 30% disallowance applies.

ALLOWED

Interest on Business Loans

Interest paid on loans taken for business purposes (working capital, equipment purchase, expansion) is deductible. Keep loan agreements and bank statements as evidence of business use.

NOT ALLOWED

Personal Expenses & Capital Expenditure

Personal living expenses, household bills, and capital expenditure (purchase of assets) are NOT deductible. Capital assets are depreciated over their useful life under Section 32 — not deducted upfront. Personal portion of mixed-use expenses must be excluded.

Presumptive Taxation — Section 44AD & 44ADA

Business Type Section Presumptive Rate Turnover / Receipt Limit Books Required?
Eligible Business (cash receipts) 44AD 8% of turnover ₹3 Crore No
Eligible Business (digital receipts ≥95%) 44AD 6% of turnover ₹3 Crore No
Eligible Profession (doctor, lawyer, CA, etc.) 44ADA 50% of gross receipts ₹75 Lakh No
Transport Business 44AE ₹1,000/ton/month (goods vehicle) ≤ 10 vehicles at any time No
Business declaring below presumptive rate Regular Actual profit Any Yes (+ Tax Audit)

Books of Accounts — Section 44AA

Mandatory maintenance of books of accounts applies when:

Specified professionals (doctors, lawyers, engineers, architects, accountants, etc.) must maintain prescribed books including a cash book, journal, ledger, carbon copies of bills, and original bills for expenses above ₹50.

Tax Audit — Section 44AB

Tax audit by a Chartered Accountant (filing Form 3CA/3CB + 3CD) is mandatory when:

Due date for tax audit report: 30 September of the assessment year.

Act mapping note: PGBP provisions under the Income Tax Act, 1961 (Sections 28–44DA) are re-enacted under the Income-tax Act, 2025 with largely identical scope. Section numbers have changed but underlying rules for deductions, presumptive taxation, and audit remain consistent for Tax Year 2026-27.

Frequently Asked Questions

What income is included under "Profits and Gains from Business or Profession"?
PGBP (Profits and Gains from Business or Profession) under the Income-tax Act, 2025 includes: (1) Net profit from any trade, commerce, or manufacture, (2) Income from a profession like doctor, lawyer, CA, architect, (3) Speculation business income (e.g., intraday trading), (4) Freelance or consulting income where services are provided independently, (5) Income from letting scientific research assets. Salary, commission, or bonus from an employer-employee relationship is NOT business income — it is taxed under "Salaries."
Can I claim home office expenses as a business deduction?
Yes, if you run a business or profession from home, a proportionate part of rent, electricity, internet, and other home expenses can be claimed as business deduction under Section 37(1) (general deductions). The deduction must be proportional — for example, if you use one room out of five for business, you can deduct 20% of rent and utility bills. Keep records: lease agreement, electricity bills, and a reasoned calculation. Self-occupied property: you can claim notional rent only if the property is exclusively used for business.
Are vehicle expenses deductible for a business owner?
Yes. Vehicle expenses — fuel, servicing, insurance, tolls, parking — are deductible under Section 37(1) if the vehicle is used for business purposes. If the vehicle is used partly for business and partly for personal use, only the business-use portion is deductible. Keep a mileage log distinguishing personal vs business trips. Depreciation on the vehicle (at 15–30% depending on type) is also claimable under Section 32. For two-wheelers, a flat reasonable estimate per km is common in tax practice.
What is the difference between 44AD and 44ADA presumptive taxation?
Section 44AD applies to eligible businesses (not professions) with turnover ≤ ₹3 crore (for digital receipts; ₹3Cr limit applies when ≥95% receipts are digital/banking). Deemed profit: 8% of turnover (6% for digital receipts). Section 44ADA applies to eligible professionals (doctors, lawyers, architects, engineers, CAs, etc.) with gross receipts ≤ ₹75 lakh. Deemed profit: 50% of receipts. Under both schemes, you are not required to maintain books of accounts or get a tax audit. If you declare income below the deemed rate, normal book-keeping and audit rules apply.
What happens if stock valuation method changes in my business?
Closing stock must be valued at cost or net realisable value (NRV), whichever is lower — this is the standard method under mercantile accounting. Changing the valuation method (e.g., from FIFO to weighted average) is permitted but must be disclosed and consistently applied. A change in method that artificially reduces profits can be questioned by the assessing officer. Any increase in opening stock value (compared to last year's closing) due to method change is treated as income in the year of change. Always document the reason for change and maintain comparative data.

Related Pages

Advance Tax ITR-3 Filing ITR-4 Presumptive Tax Audit Guide GST Registration Income Tax Slabs 2026-27

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