Section 28 of Income Tax Act, 1961 – Profits and gains of business or profession.

The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”

1. Income of Business or Profession carried on by the assessee.

2. Compensation received by any person in following cases:

a. In case of any person managing the whole or substantially the whole of the affairs of an Indian company or any other Co in India

    Termination of his management or the changes in the terms and conditions.

b. In case of any person holding an agency in India-

   Termination of the agency or the changes in the terms and conditions.

c. Take over by the Government, or corporation owned or controlled by the Government, management of any property or business;

d. Termination or the changes in the terms and conditions, of any contract relating to business of any assessee;

3. Income received by trade, professional or similar association from specific services performed for its members;

4. Import/Export related:

  • Profits on sale of a Import/Export licenses.
  • Cash assistance against exports under any scheme of the Government.
  • Duty Drawbacks
  • Profit on the transfer of the Duty Entitlement Pass Book (DEPB) .
  • any profit on the transfer of the Duty Free Replenishment Certificate(DFRC).

5. Perquisite: The value of any benefit or perquisite received in the course of carrying any business or profession;

6. Partner: Amount received by Partner of a Firm including Interest, salary, bonus, commission or remuneration etc.

Provided that where any such amount is disallowed clause (b) of section 40, the same is not taxable in the hands of Partner

7. Non-Compete Fees: Amount received for:-

a. Not carrying out any competing business or profession; or

b. Not sharing any Intellectual Property rights which likely to assist in the manufacture or processing of goods or rendering of services:

Intellectual Property includes know-how, patent, copyright, trade-mark, license, franchise or any other business or commercial right of similar nature or information or technique.

The above clause in not applicable in the following cases:-

a) Amount chargeable under Capital Gain – for  transfer of the right to manufacture, produce or process any article or thing or right to carry on any business or profession;

b) Amount received from multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer.

8. Keyman Insurance Policy: Any sum received under a Keyman insurance policy including bonus.

9. Conversion of Inventory to Capital Asset: Fair market value of inventory as on the date of conversion will be taxable under business income.

10. 35AD: If any capital asset(cost of which has been allowed as a deduction under section 35AD) is transferred, the amount received will be taxed under the head Profit or Gain from business or Profession.

Transfer includes demolished, destroyed, discarded.

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June 2021