Profits and Gains of Business or Profession and Capital Gains
PGBP essentials
- Sections 30 to 37 allow expenses wholly and exclusively for business; Section 40 disallows income tax and payments to non-residents without TDS.
- 40A(3): a cash payment above Rs.10,000 (Rs.35,000 for transporters) is fully disallowed.
- 43B: statutory dues are allowed only on actual payment.
- Depreciation u/s 32 is on the block of assets: 15% plant, 10% building, 40% computers.
- 44AD: 8% of turnover, 6% for digital receipts, turnover up to Rs.2 crore, extended to Rs.3 crore where cash receipts are 5% or less.
Capital gains: period and rates
- Listed securities become long term after 12 months; other assets after 24 months.
- For transfers on or after 23 July 2024, STCG on STT-paid listed equity u/s 111A is 20%, and LTCG u/s 112A is 12.5% on the amount above Rs.1,25,000. Indexation on land and building was withdrawn, with an option for resident individuals and HUFs for assets acquired earlier.
- Exemptions: 54 for a residential house, 54F for other assets, 54EC for bonds up to Rs.50 lakh.
Worked example
Listed shares held for 18 months are sold for Rs.5,00,000; cost was Rs.2,00,000; STT paid. The gain of Rs.3,00,000 is long term. Taxable under 112A is Rs.3,00,000 less Rs.1,25,000, that is Rs.1,75,000 at 12.5%, which is Rs.21,875; with 4% cess the tax is Rs.22,750.
Traps
- Using 8% under 44AD when receipts are digital, where 6% applies.
- Treating unlisted shares as long term at 12 months instead of 24.
- Claiming indexation on 112A gains, which is never allowed.
- Forgetting that depreciation is mandatory even if not claimed.