What is Section 28 of the Income Tax Act: Profits and Gains from Business or Profession
Section 28 of the Income Tax Act up till Section 44, all cover taxation on profits and gains of business/profession. This post takes you through Section 28 in detail – what is it and the different incomes that are considered under Section 28. Read on!
What is Section 28 of the Income Tax Act?
Section 28 of the Income Tax Act is applicable for incomes that fall under the head of profits or gains from business or profession. The provisions mentioned under this Section state that every individual has to report their income that is not usually considered a business income but holds the potential to be treated as a business income under the Income Tax Act.
Understanding what Business or Profession Means under Section 28 of the Income Tax?
The definition of ‘Business’ comes under Section 2(13). It is referred to as any activity of commerce, trade or manufacture along with a transaction (even isolated venture) that contains certain elements of commerce, trade and manufacture. Here the primary motive of an assessee should be making a profit.
Section 2(36) provides the official definition of ‘Profession.’ It includes earning income using one’s skill, talent, and knowledge. However, for earning income from a profession, one must have gathered his/her skill/knowledge from a recognized university. It also includes skills that a person acquires from birth or vocational education.
What are the Different Incomes that Section 28 Considers?
There are only some income categories that are taxable under Section 28 of the Income Tax Act. It includes:
- Income or salary received by an assessee from a profession or business
- Compensation that an assessee received under the following cases:
- An individual is managing a company either wholly or almost completely established in India- where his role in management has now been terminated or necessary changes were made in its terms and conditions.
- An individual is looking into the affairs of an agency fully or almost fully. However, the agency is now terminated and there have been various changes in terms or conditions.
- Amount received through a contract where the contract has been terminated or undergone some changes regarding its term and condition.
- A government-owned or controlled corporation or government takeover.
- Income that an assessee receives against profession, trade or similar activity. However, it must be from the specific service sector in which he/she is involved.
- Import or export relating to:
- Profit gained from the selling of import or export licences.
- Profit made on the transfer of Duty-Free Replenishment Certificate (DFRC)
- Duty drawbacks
- Profit made on the transfer of Duty Entitlement Pass Book (DEPB)
- The partner receives an amount that includes salary, interest, bonus, remuneration, commission, or others. Also, it will not be taxable in the hands of the partner if this amount is not provided.
- Any benefit that one receives in their course of carrying out a business or profession as
- Income that one receives for purposes like:
- Not participating in a competitive profession or business
- Not sharing intellectual property rights that may have helped to improve the processing and manufacturing process or rendering services.
Here intellectual property includes patent, know-how, licence, trade-mark, copyright, franchise, or business/ commercial rights of similar information, nature or technique.
The clause mentioned here will be non-applicable in the below cases:
- The amount that comes under capital gains for transferring the right to manufacture process or produce a thing.
- Assessee gets an amount from multilateral funds under Montreal Protocol on Substances that result in Ozone layer depletion.
- An inventory’s fair market value as on its conversion date is treated as business income and is taxable under the Income Tax Act.
- An amount that an assessee received under Keyman Insurance Policy. This includes bonuses as well.
- In the event of a transfer of capital asset taking place, the amount one receives will be taxable as an income the head profit or gain from business/profession.
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Final Word
This is all the information one needs to know about Section 28 of the Income Tax Act. Refer to the above points to find out what Section 28 is applicable for, the official definition of business and profession, and the income considered. If you have an income that qualifies for taxation as per Section 28, make sure to learn about all the aspects associated with it.
FAQs
Ans. Keyman insurance policy is the policy under which the employer is the premium payer and the proposer. Such policy covers the life of the employee. However, when the insurance company credits claim benefits, it goes to the employer.
Ans. Duty Entitlement Pass Book or DEPB stands for an export incentive scheme the government provides to exporters. Its objective is to compensate for the effect of custom duty charges on the imported components on the exported products.
Ans. Under Section 35 of the Income Tax Act, the government allows individual deductions for expenses incurred towards scientific research. Moreover, the deduction available for 2020-2021 was 150%. However, now the sum is 100%, i.e., for 2021-2022.
Ans. The government made crucial amendments to Section 28 of the IT Act on April 1 2019. As per this amendment, there would be alternations to Section 28 (ii) as well as some additions to Section 28 (vi).
Ans. There are several individuals and entities that are liable to pay business tax as per the IT Act. These include self-employed individuals, corporations, partnerships, small businesses, and others.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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