Income from Business or Profession —
PGBP, Simplified
What income falls under PGBP, the deductions you can claim, presumptive taxation under Sections 44AD and 44ADA, and when books of accounts and a tax audit become compulsory.
Income from Business or Profession (PGBP) is the taxable profit from any trade, commerce, manufacture, freelancing or profession, computed as gross receipts minus allowable business expenses (rent, salaries, depreciation, interest, professional fees). Small taxpayers can skip books and audit using presumptive taxation: Section 44AD deems 6% (digital) / 8% (cash) of turnover for eligible businesses, and Section 44ADA deems 50% of gross receipts for eligible professionals. PGBP income is taxed at your slab rate under the old or new regime.
From AY 2026-27 the Income-tax Act, 2025 re-enacts the old PGBP provisions (Sections 28–44DA of the 1961 Act) with largely the same scope — deductions, presumptive schemes and audit rules continue. Section numbers have changed, but "44AD", "44ADA" and "44AB" remain the everyday references and are still used on ITR forms.
What Is Taxed Under PGBP
PGBP covers income you earn by carrying on a business or profession independently — not salary from an employer, which is taxed under "Salaries".
- Trade, commerce & manufacturing — shops, factories, restaurants, trading and manufacturing profit
- Profession — doctors, lawyers, chartered accountants, architects, engineers and consultants
- Freelance & gig income — writing, design, software, content and platform earnings (creditable TDS)
- Speculation business — intraday equity trading; losses set off only against speculative gains
- F&O trading — treated as non-speculative business income, taxed at slab rates
Salary, commission or bonus from an employer-employee relationship is taxed under the head "Salaries", not PGBP. Independent professional fees, freelance income and consulting are business/professional income. Capital gains on selling business assets are dealt with separately — see our Section 112A guide for listed-share gains.
Allowable & Disallowed Deductions
Expenses that are wholly and exclusively for the business or profession are deductible. Some outgoings are specifically blocked. This table applies when you compute actual profit (i.e. you are not under a presumptive scheme).
| Expense / Item | Section | Deductible? | Notes |
|---|---|---|---|
| Rent, rates, taxes, insurance of business premises | Sec 30 | Yes | Business-use property only |
| Depreciation on plant, machinery, building, vehicles | Sec 32 | Yes | Block-of-assets, WDV method; unabsorbed depreciation carries forward indefinitely |
| Salaries, wages, bonus, PF/ESI employer share | Sec 37(1) | Yes | Deduct TDS or face 30% disallowance u/s 40(a)(ia) |
| Interest on business loans | Sec 36(1)(iii) | Yes | Loan must be used for business; keep agreements |
| General business expenses (internet, marketing, travel) | Sec 37(1) | Yes | Not personal, capital or penal in nature |
| Personal / household expenses | — | No | Mixed-use items apportioned to business portion only |
| Capital expenditure (buying an asset) | — | No | Not deducted upfront — depreciated u/s 32 instead |
Section references follow the familiar Income-tax Act, 1961 numbering carried into the 2025 Act.
If you pay salary, rent, professional fees or contractor charges without deducting TDS where required, 30% of that payment is disallowed under Section 40(a)(ia). Deduct and deposit TDS before claiming the deduction. This is the single most common addition in business assessments.
Not sure which expenses your business can claim?
Talk to a Tax Expert →Presumptive Taxation — 44AD, 44ADA & 44AE
Presumptive schemes let small taxpayers declare a fixed percentage of turnover as profit, with no books of accounts and no tax audit. Declaring below the deemed rate (with total income above the exemption limit) pulls you back into regular books and audit.
| Who | Section | Deemed profit | Turnover / receipts limit | Books & audit |
|---|---|---|---|---|
| Eligible business (digital receipts) | 44AD | 6% | Up to Rs 3 crore (≤5% cash) | Not needed |
| Eligible business (cash receipts) | 44AD | 8% | Up to Rs 2 crore | Not needed |
| Eligible profession | 44ADA | 50% | Up to Rs 75 lakh (≥95% banking; else Rs 50L) | Not needed |
| Goods-transport business | 44AE | Fixed/vehicle | Up to 10 goods vehicles | Not needed |
| Declaring below deemed rate | Regular | Actual | Any | Audit u/s 44AB |
Rs 3cr 44AD cap and Rs 75L 44ADA cap apply where digital/banking receipts are 95%+ (i.e. cash is 5% or less); otherwise Rs 2cr and Rs 50L respectively.
44AD digital business — Rs 40L turnover
44ADA professional — Rs 30L receipts
Presumptive suits you if
- Turnover / receipts are within the cap
- Your real margin is at or below the deemed rate
- You want to avoid books and audit costs
- Cash flow is simple and mostly digital
Reconsider if
- Actual profit is well below the deemed rate
- You have large deductible expenses or losses
- You want to carry forward a business loss
- You must maintain books for other reasons
Compare 44AD vs 44ADA vs regular books for your case.
File with an Expert →Books of Accounts & Tax Audit
If you are outside a presumptive scheme, two thresholds decide your compliance: Section 44AA (when you must keep books) and Section 44AB (when a CA must audit them).
Tax audit u/s 44AB is generally required when business turnover exceeds Rs 1 crore (raised to Rs 10 crore where cash receipts and payments are each 5% or less), or professional gross receipts exceed Rs 50 lakh — and also when a presumptive taxpayer declares income below the deemed rate. The audit report is normally due by 30 September of the assessment year. Confirm the exact current thresholds on the portal before you file.
- PAN & Aadhaar of the proprietor
- Bank statements for all business accounts
- Sales / receipts and purchase records
- Expense bills and vouchers
- Fixed-asset register & depreciation working
- TDS deducted and challans deposited
- GST returns (if registered)
- Loan agreements & interest certificates
- Opening & closing stock valuation
- Correct ITR — ITR-3 or ITR-4
Closing stock must be valued at cost or net realisable value, whichever is lower. A change in valuation method is allowed but must be disclosed and applied consistently; an artificial reduction in profit can be questioned by the assessing officer.
Need ITR-3 / ITR-4 filing with books review?
Get Business ITR Help →Income from Business or Profession — Frequently Asked Questions
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