Section 28 of the Income Act Tax, 1961

Section 28 pertains to the head ‘Profits and Gains of Business or Profession’. It outlines the sources of income earned from professional and business activities. The section also covers how these types of income sources are to be taxed.

It covers income from various sources. This includes:

• Profits from sales or services

• Salary

• Commission

• Extra funds from the brokerage

• Interest on capital

Here are some of the income categories taxable under Section 28 of the Income Tax Act:

• Profits earned from any business or professional activity in the previous year 

• Income or salary received from profession or business 

• Compensation received in the below situations :

1. If the individual is terminated or changes are made in their contract. They must be responsible for managing the company wholly. Or, manage almost all of the firm's operations in India

2. Individuals in an agency contract with a company. This could be for termination, management or agency contract modification.

3. Any person concerned with business and the contract was terminated. Or, their conditions and terms have been modified.

4. If the government takes over the controls of the corporation owned or controlled by the government 

5. If the government takes over the business or it is controlled by a corporation. Alternatively, it may be owned by the government.

• Income earned from trade, profession, or from activities performed for members 

• Income earned from the following trade activities:

  1. On the profit from sales of import or export licence

  2. On the profit from the transfer of the Duty Free Replenishment Certificate (DFRC)

  3. On the profit made from the transfer of the Duty Entitlement Pass Book (DEPB)

  4. Customs duty or excise payable or repaid as drawback. This is under the Customs and Central Excise Duties Drawback Rules, 1971

  5. On the cash assistance received by an exporter under any scheme of the Government of India 

• All the salary, interest, bonus, remuneration, commission, or other benefits received. This must be received by the partner of the firm. 

• Benefit/perquisite, monetary or otherwise, resultant of business or exercise of profession 

• Sum received or receivable for the following reasons:

  1. Not participating in competitive business/profession

  2. Not sharing the copyright, patent, trademark, franchise, or any other type of copyright. This is for assistance in the manufacturing or processing of goods and services

Navigating through tax regulations can be complex. Here is an instance to help you comprehend how to compute your total tax liability.

If we assume that you operate a company that manufactures textile products. Your primary source of income will constitute ‘Profits from business’. It is fully taxable under Section 28. When you end an agreement with the supplier, you will receive compensation. It will also be taxed under the section.