Section 28 of Income Tax Act: Profits and Gains of Business or Profession

Section 28 of the Income Tax Act deals with the profits and gains of any business or profession. It governs the taxation of income derived from carrying on any business or profession in India. This section highlights what types of incomes are taxable and how they should be treated for income tax purposes.

What is Section 28 of the Income Tax Act?

Section 28 specifies the types of incomes that are considered profits and gains arising from business or profession. It includes:

• The gross receipts or turnover from the business or profession.
• Gains from the sale or disposal of assets used in the business.
• Income from any transaction connected to the business.
• Taxable income includes any recovery of bad debts previously written off.
• Income from services like commission or brokerage related to the business.

This section forms the foundation for determining business income under Indian tax law.

Who Does Section 28 Protect?

Section 28 protects the revenue interests of the government by ensuring all income from business or profession is accounted for and taxed appropriately. At the same time, it protects taxpayers by clearly defining what income streams count as business profits. It applies to:

• Individuals operating businesses or professions.
• Firms, companies, and other entities engaged in business activities.
• Professionals earning income from services such as doctors, lawyers, consultants, etc.

Thus, it covers a wide range of taxpayers involved in commercial or professional activities.

Why Was Section 28 Introduced?

Section 28 was introduced to create uniformity and clarity in taxation of business and professional income. Prior to this, there were ambiguities on what incomes should be taxed. The key objectives are:

• To tax all income arising from business/profession in a comprehensive manner.
• To prevent tax evasion by including all receipts and gains connected to the business.
• To define the scope of business income for fair and transparent tax compliance.

Important Amendments to Section 28

Over the years, Section 28 has undergone various amendments to keep pace with changing business practices and economic conditions. Some notable changes include:

• Inclusion of income from services (like commission, brokerage) explicitly.
• Recognition of income from recovery of bad debts previously written off.
• Clarifying treatment of gains or profits from sale of business assets.
• Enhancing the scope to cover new forms of business transactions.

These amendments ensure the provision remains relevant and comprehensive.

How is Section 28 Applied?

The application of Section 28 involves:

1. Determining gross receipts from business or profession.
2. Accounting all profits and gains including sales of assets, service income, and recoveries.
3. Excluding incomes that fall under specific exemptions or other sections.
4. Filing income tax returns declaring profits as per Section 28.
5. The income is then taxed according to prevailing tax rates applicable to the taxpayer. Proper bookkeeping and accounting are essential to comply with Section 28.