Who is Covered under Profits and Gains of Business or Profession (PGBP)?

So, you’ve probably come across the term “Profitsand Gains of Business or Profession (PGBP)” when reading about income tax, right? Sounds fancy, but honestly—it’s just the Income Tax Department’s way of saying: “If you earn money from running a business or profession, we want our share.” Simple enough? Well... not always. Let’s break it down together in plain English, with some fun examples and real insights.

 

The Basics: What is PGBP?

The Income Tax Act divides all income into five heads:

• Income from Salary
• Income from House Property
• Profits and Gains of Business or Profession (PGBP)
• Capital Gains
• Income from Other Sources

If you’re running a shop, freelancing, consulting, or practicing as a CA, doctor, or lawyer—boom, your income falls under PGBP.

In short: PGBP = Income from any trade, business, or professional service.

 

Who Comes Under PGBP?

Here’s a quick list of the usual suspects:

• Business owners (shops, startups, wholesalers, traders, manufacturers, retailers—you name it).
• Professionals like doctors, lawyers, CAs, engineers, designers, architects, and consultants.
• Freelancers & Gig workers (yep, if you’re earning through Upwork, Fiverr, YouTube, or Instagram collabs, welcome to the PGBP club!).
• Speculative businesses like intraday stock trading.
• Any other activity that involves systematic commercial transactions.

So if you earn through skill, effort, or enterprise—chances are, your income lands in this basket.

 

Case Study 1: Ravi’s Kirana Shop

Ravi owns a kirana shop in Bangalore. His annual turnover is ₹1.8 crore.

👉 His income clearly falls under PGBP (business income).

Now here’s the twist—Ravi doesn’t want to maintain tons of books and accounts. Fair enough, who does? That’s where Presumptive Taxation (Section 44AD) saves him.

Section 44AD – The Game Changer for Small Businesses

Section 44AD basically says: “If you’re a small business, don’t bother with big accounts. Just declare a percentage of your turnover as profit, pay tax, and relax.”

Here’s how it works:

• Turnover Limit:
  Up to ₹2 crore – eligible for presumptive scheme.
  (From AY 2024-25 onwards, the limit increased to ₹3 crore IF cash receipts are ≤ 5% of total turnover. Basically, if almost all payments are digital, you get more room.)
• Profit to be Declared:
  8% of turnover (if payments are in cash).
  6% of turnover (if payments are digital).

So in Ravi’s case (turnover ₹1.8 crore, mostly digital), he can declare just 6% of ₹1.8 crore = ₹10.8 lakh as profit and pay tax on that. No headache of maintaining ledgers, GST reconciliations, etc. 🎉

Key Learning: Section 44AD reduces compliance for small businesses.

 

Case Study 2: Priya the Freelance Graphic Designer

Priya earns around ₹40 lakhs a year designing logos and marketing creatives for clients.

👉 Her income falls under PGBP (professional income).

But here’s the catch—Section 44AD does not apply to professionals. For her, the correct scheme is Section 44ADA, which allows presumptive taxation for professionals with gross receipts up to ₹75 lakh.

She needs to declare 50% of her gross receipts as profit under the presumptive scheme.

So, ₹20 lakhs is taxed as income.

Key Learning: Professionals (like doctors, designers, consultants) get a different presumptive option under Section 44ADA, not 44AD.

 

Why PGBP Matters

So, why should you even care about all this PGBP talk? Because:

• Deductions are allowed: You can claim expenses like rent, salaries, internet bills, depreciation, etc.
• Special schemes like 44AD & 44ADA can save you from endless bookkeeping.
• Tax planning: Knowing whether your income is business or professional decides how much you pay and how you file returns.

Quick FAQs People Always Ask

Q1: What are the 5 heads of income under the Income Tax Act?
Salary, House Property, Business/Profession (PGBP), Capital Gains, Other Sources

Q2: What is the limit of Section 44AD?
₹2 crore (normal limit).
₹3 crore if cash receipts ≤ 5% of turnover.

Q3: Can professionals like doctors and lawyers use Section 44AD?
Nope. They must use Section 44ADA.

Q4: Do I need to maintain books if I use 44AD or 44ADA?
No, that’s the whole point—you can avoid detailed bookkeeping.

 

Wrapping It Up

PGBP is simply the bucket where business and professional incomes go for tax purposes. Whether you’re a shopkeeper, a freelancer, or a consultant—your income most likely fits here.

• Small businesses can use Section 44AD (limit: ₹2 crore / ₹3 crore if mostly digital).
• Professionals can use Section 44ADA (limit: ₹75 lakh).
• Both schemes reduce compliance and save time.

👉 Pro tip: Always check whether you’re eligible for presumptive schemes before slogging with detailed accounts. It can literally save you hours of paperwork.