Profits and Gains of Business or Profession; Capital Gains; Other Sources
What the exam tests
This domain covers the residual charging heads: business profits, capital gains and other sources. The exam tests whether a receipt is business income or capital gain, how depreciation and disallowances work, holding periods, and the tax treatment of interest, dividends and winnings.
Core rules
- PGBP: Taxable profits are computed under Sections 28 to 44. Deductions are allowed for business expenditure under Sections 30 to 37. Depreciation is allowed on block of assets. Sections 40, 40A and 43B disallow specified payments, excessive cash payments and unpaid statutory dues.
- Presumptive schemes: Section 44AD deems 8% of turnover as profit, or 6% for digital receipts, subject to turnover limits. Section 44ADA deems 50% of gross receipts for specified professions. Section 44AE applies to goods carriage operators.
- Capital gains: A capital asset is property held by an assessee, excluding specified items. Transfer includes sale, exchange, relinquishment and compulsory acquisition. Holding periods determine short-term or long-term treatment. Exemptions include Sections 54, 54F and 54EC.
- Other sources: Interest, dividend, winnings from lotteries and crossword puzzles, gifts and family pension. Casual income is taxed at 30% without basic exemption.
Worked example
Mr P sells listed equity shares held for 18 months for ₹3,50,000; cost is ₹2,00,000. The gain is ₹1,50,000 and is long-term. Under Section 112A, the first ₹1,25,000 is exempt and ₹25,000 is taxable at the prescribed special rate for transfers on or after 23 July 2024, before cess.
Traps
A capital receipt is not always exempt. Depreciation is mandatory where claimed. Cash payments above the prescribed limit are disallowed. Winnings are not reduced by the basic exemption. Presumptive income can be lower than the deemed rate only with proper accounts and audit conditions.