29 Dec 2021
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If you are a business person or professional trying to understand how Section 28 of Income Tax Act works, there are certain things that you need to take note of first.

The nature of income that is covered when it comes to business and profession include profits that are earned by contractors or freelancers, self employed persons, tutors, lawyers and doctors with their own practice, chartered accountants, etc. Business persons do not earn fixed salaries like other employed people do, nor do they get any kind of added benefits. The income earned in business fluctuates depending on several factors, which leads to these incomes being taxed differently. How a business is taxed would depend on whether the business is a corporation, partnership, or sole proprietorship.

What is Section 28 Of the Income Tax Act?

Section 28 of Income Tax Act is the section for incomes that fall under the category of any kind of profits and/or gains in a profession and/or business. Section 28 of the Income Tax Act is a clause as per which, you have to report incomes that usually would not be considered as business income, but are bound to be considered as business income on account of the Income Tax Act.

Profits And Gains of Business or Profession as per Section 28 of the Income Tax Act

Under Section 28 of the Income Tax Act, there are certain categories of incomes which are taxable. The same have been mentioned below:

  1. Income or salary of profession or business that is being practised by an assessee.

  2. Any compensation that is being received by an individual under the following circumstances:

  • In case of an individual handling the entire or substantially the entirety of the affairs of any Indian company - the management of the individual being terminated, or changes being made in the terms and conditions.
  • In case of an individual holding any agency in India - the agency being terminated, or changes being made in the terms and conditions.
  • A corporation controlled or owned by the government, a takeover by the government, or management of any business or property.
  • Changes made in the terms and conditions, or termination, of a contract related to the business of the assessee.

3. Income that is received through trade, professional or a similar association from a specific kind of services being performed for its members.

 

4. Import or export that is related to:

  • Profits on the sales of an import/export licence

  • Assistance of cash against export under any government scheme

  • Duty drawback

  • Profits made on the transfer of the DEPB or Duty Entitlement Pass Book

  • Any profits made on the transfer of the DFRC or Duty Free Replenishment Certificate

5. Perquisites: The worth of any perquisite or benefit that is received in the course of practising any profession or business.

 

6. Partners: Any amount of money that is being received by a partner of a firm, which includes interests, salaries, bonuses, commissions, or remunerations, etc. considering that in case of any such amount being disallowed, Section 40 clause (b), the same would not be taxable at the hands of the partner.

 

7. Non-Compete Fee: An amount of money being received for:

  • Not having carried out any competing profession or business; or

  • Not having shared any Intellectual Property Rights that are likely to assist in the processing or manufacturing of goods, or rendering of services;

Intellectual Property would include patent, know-how, copyright licence, trade-mark, franchise, or any other commercial or business rights of similar kind, or technique, or information.

However, the clause mentioned above would not be application in cases mentioned below:

  • An amount that is chargeable under Capital Gains - for the transfer of the right to produce, manufacture, or process a thing or an article, or the right to carry out any profession or business;

  • An amount that is being received from the multilateral funds of what is known as the Montreal Protocol on Substances which deplete the Ozone layer.

8. Keyman Insurance Policy: Any amount of money that is being received under the Keyman Insurance Policy, which also includes any bonuses.

 

9. Conversion of the Inventory to Capital Asset: The fair market value of an inventory, as on the conversion date is taxable under Business Income.

 

10. 35AD: In case of any capital asset being transferred, the amount that is being received is taxable under the head Profit or Gain from that Business or Profession.

FAQs

  • ✔️What is business income tax applicable to?

    Business income tax is applicable to partnerships, corporations, self employed individuals, or small businesses. 

  • ✔️What is Section 28 of the Income Tax Act?

    Sec 28 of the Income Tax Act is the section for incomes that fall under the category of any kind of profits and/or gains in profession and/or business. 

  • ✔️Does Intellectual Property include patents?

    Yes, Intellectual Property includes patents. 

  • ✔️Is rental income in case of dealers in property taxable under Section 28 of the Income Tax Act?


    No, rental income in case of dealers in property is not taxable under Section 28 of Income Tax Act.
  • ✔️Are winnings from a lottery taxable under Section 28 of Income Tax Act?

    No, winnings from a lottery are not taxable under Section 28 of Income Tax Act.