Profits and Gains of Business or Profession
Introduction
Income-tax Act contains provisions for computation of income from five different sources and income from business and profession is one of them. Part D of Chapter IV of Income-tax Act, 2025 contains provisions for computation of profits and gains of business or profession. It is also popularly called as PGBP.
1. Computation of income from business or profession
1.1. About
When an assessee carries on any business or profession, the income arising from such business or profession shall be calculated and taxed under the head ‘Profit and gains from Business or Profession’. The business income shall be computed in accordance with the method of accounting regularly followed by the assessee. For the purpose of computation of business income, a taxpayer can follow either mercantile system of accounting or cash basis of accounting.
Income-tax Act allows small and medium enterprises to compute income from business or profession on presumptive basis. The computation of income under normal provisions of the Income-tax Act and on presumptive basis have been explained below.
1.2. Computation as per normal provisions
The business income under the normal provision shall be computed in the following manner:
| Particulars | Amount |
Aggregate of: 1. Revenue receipts 2. Capital receipts which are specifically covered Less: 1. Revenue Expenditures 2. Capital Expenditures which are specifically allowed as deduction 3. Depreciation 4. Expenditures allowed on payment basis 5. Expenditures allowed on fulfilment of certain conditions Add: 1. Capital Expenditures 2. Expenditures not allowable on due basis 3. Expenditures not allowable due to non-fulfilment of certain conditions |
xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx |
| Taxable Income from business or profession | xxx |
1.3. Computation under presumptive scheme
The business income under presumptive scheme shall be computed in the following manner:
| Particulars | Amount |
|
Total turnover or gross receipts of business or profession Presumptive income as percentage of turnover or receipts or otherwise Less: Expenditures which are specifically allowed as deduction |
xxx xxx xxx |
| Presumptive Income from business or profession | xxx |
This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.