ection 28 of the Income Tax Act governs the taxation of profits and gains derived from business or professional activities. It includes income from regular business operations, compensation for contract termination, non-compete fees, export incentives, duty drawbacks, and benefits or perquisites received in kind or cash. It also covers income from converting inventory into capital assets, Keyman insurance proceeds, and speculative transactions. From FY 2025-26, rental income from residential properties is excluded from this section and taxed under "Income from House Property." Understanding Section 28 is crucial for accurate tax compliance and efficient financial planning. The article will explain the deep drive of "Section 28 of income Tax Act with example."
Section 28: Profits and Gains of Business or Profession
The following incomes are chargeable to income tax under the head "Profits and Gains of Business or Profession". Each section includes detailed provisions, subsections, and practical illustrations to make the concepts easier to understand.
Section 28(i): Profits from Business or Profession
The profits and gains from any business or profession carried out by the taxpayer at any time during the previous year are taxable.
Illustration:
Mr. A operates a retail store and earns a profit of ₹2,00,000 during the financial year. This profit is taxable under this section.
Section 28(ii): Compensation or Other Payments
Income includes any compensation or payment due to or received by:
Subsection (a): A person managing the whole or substantial part of the affairs of an Indian company, related to:
Termination of their management role.
Modification of the terms and conditions of their management.
Illustration:
A managing director receives ₹50 lakh as compensation for terminating his role. This amount is taxable under this section.
Subsection (b): A person managing the whole or substantial part of the affairs in India of any other company, related to:
Termination of their office.
Modification of the terms and conditions of their office.
Illustration:
An employee managing a foreign company's Indian operations receives ₹30 lakh as compensation for office termination. This amount is taxable.
Subsection (c): A person holding an agency in India for a part of the business of another, related to:
Termination of the agency.
Modification of the terms and conditions of the agency.
Illustration:
An agent receives ₹10 lakh for termination of their contract with a company. This compensation is taxable.
Subsection (d): A person in connection with the vesting of property or business management in the Government or a government-controlled corporation under the law.
