Basis of Taxation of Profits and Gains from Business or Profession (PGBP): Your No-Nonsense Guide

 

Cash, Calculators, and Confusion—Why PGBP Matters!

Ever tried to figure out why the Income Tax Department gets all excited about “profits and gains from business or profession”? If you’ve got a business, run a gig as a freelancer, or even hustle as a full-blown professional, this bit of the tax code is all about your money—and the bit the taxman wants. If you’ve ever stared at your return thinking, “How exactly do they decide what to tax?”—guess what, you’re in good company. IMO, PGBP sounds fancy, but it’s basic math plus a sprinkle of bureaucracy.

What on Earth is PGBP, Anyway?

PGBP = Profits & Gains from Business or Profession

Let’s rip off the band-aid: under the Income Tax Act of India, the government divides your income into five heads. The third head—yup, sandwiched between salaries and house property—covers everything you earn from business and professional work. FYI: If you make money by hustling in the market, selling stuff, providing services, freelancing, or running a startup, this section is all yours.

Bold truth: Every rupee you earn through business or professional activities gets “checked in” under PGBP and is up for taxation.

The Legal Mumbo-Jumbo: Section 28 is King

Section 28—The Rulebook

The real action starts at Section 28 of the Income Tax Act, 1961. This part decides:

• What income qualifies as business/professional gains.

• When and how it gets taxed.

• What types of incomes do a “sneaky ninja move” and show up as PGBP—even if you didn’t earn them directly from day-to-day business.

So if you ever get compensation because a business deal got canned or a contract ended, or snag some insurance cash for lost stock, PGBP has its eyes on you.

What All Gets Taxed Under PGBP—Let’s Get Specific!

Types of Income Under Section 28

You might want to sit down for this:

• Profits from trading, manufacturing, sales, services, freelancing, consulting

• Professional fees—doctors, lawyers, engineers, architects, (basically, the ones with stellar resumes!)

• Compensation received for contract modifications or terminations

• Interest/salary/bonus/commission from your own partnership firm—(so if you pay yourself, you're still paying taxes!)

• Insurance proceeds for lost stock or destroyed assets

• Export incentives, duty drawbacks, and all those keywords only exporters get

• Perquisites or benefits (money or kind) you snag because of business or professional work

Key takeaway: If you make it from business or professional work, and it isn’t salary from a job, you bet taxman calls it PGBP.

How Does the Taxman Calculate PGBP? (Or: Accountants’ Favorite Question)

The basis is straightforward (“straightforward” as in, there are rules, but getting through them isn’t always easy). Here’s the scoop:

1. Record all your income from business/profession—keep those receipts and invoices handy!

2. Deduct all “allowed expenses”—anything you legitimately spent for running your business OR earning your professional fees.

3. Disregard “disallowed expenses”—no, you can’t deduct your cousin’s birthday bash or those suspicious “washing powder” bills.

Allowed Deductions (The Good Stuff!)

• Rent for your office/shop/studio

• Wages, salaries, professional fees paid

• Power bills, repairs, maintenance

• Traveling and conveyance for business meetings (business lunch—yes; brunch with buddies—nope)

• Depreciation of your assets (computers, furniture, machinery…even that fancy coffee machine if you really need it!)

• Insurance premiums for business risk

• Advertisement and promotional costs

Not Allowed/Danger Zone

• Personal expenses (sorry, family trips don’t count)

• Penalties for breaking the law (beat a traffic light…pay up, but don’t try to get a deduction ;)

• Any expense not connected to your business or profession

Let’s Talk “Accounting Year”—Timing is Everything

Your profits and gains are calculated for the financial year (April 1 to March 31—like a weird school year for grownups). But tax returns go by the assessment year, which kicks off right after.

The Special Trick: Presumptive Taxation

Are you a small business owner or an independent professional with low receipts? You might get to use presumptive taxation (like Sections 44AD and 44ADA). Quick take:

• Declare a set percentage of receipts as profits—skip hardcore accounting!

• Less paperwork, more sleep at night.

But, if you opt to be “presumptive,” don’t claim extra expenses. Don’t try to have your cake and eat it too.

Compliance Rules: Records, Audits, & More

Ever heard that the tax department loves paperwork? It’s true.

• Business income > ₹1 crore or professional income > ₹50 lakh: get your accounts audited—don’t wait for a panic email from your CA.

• File returns on time.

• Maintain books of accounts as specified. (Yes, that Excel sheet is helpful—Google Sheets, maybe not so much for tax!)

Big Question—Why Does This Matter to You?

If you ignore the rules, you risk:

• Paying more tax than required

• Missing out on handy deductions

• Facing penalties or audits

Getting your PGBP right lets you:

• Optimize tax savings

• Avoid legal nightmares

• Sleep better during tax season

Trust me, no one wants a call from the tax department asking, “So... about those profits from the business last year?”

FAQs: The Stuff You Actually Want to Know

Q: Does my gig as an Instagram influencer come under PGBP?
A: If you earn money by selling stuff, promoting brands, or consulting—yep, you’re on team PGBP now.

Q: Can I deduct my home internet?
A: Only if it’s used for business/professional work. FYI, Netflix streaming isn’t deductible. :)

Q: What if I make a loss?
A: You still have to report it. Losses can sometimes offset future income, but don’t try to get creative—the taxman’s not a fan of drama.

Conclusion—Profits, Taxes, and Getting It Right!

In a nutshell, PGBP isn’t rocket science—it’s the government’s way of ensuring everyone pays their share on real business or professional earnings. If you earn, spend for business, and show your receipts, you’re golden. Get organized, claim legitimate deductions, and don’t forget to laugh at those epic tax forms—their design alone is a “gains” case for someone.