# PGBP — Meaning of Business/Profession & Method of Accounting

## Meaning of Terms

Term	Definition
Business [Sec 2(13)]	Any trade, commerce, manufacture or related activity carried on with a profit motive.
Profession [Sec 2(36)]	Not specifically defined; generally an occupation requiring specialized learning or skill. Includes vocation.

## Method of Accounting [Section 145]

Sec 145(1): Income under PGBP or Income from Other Sources must be computed using either the cash or mercantile system regularly employed by the assessee.

> Golden rule for PGBP: "Paid" includes "payable" and vice versa — EXCEPT under Section 43B (where actual payment matters).

Sec 145B — Special timing rules (taxed on receipt):

Interest on compensation / enhanced compensation → taxable in the year of receipt, under the head Income from Other Sources.
Government assistance (subsidies, grants, similar assistance from Central/State Govt) → taxable in the year of receipt.

Other points:

Profits of each business are computed separately but taxed together under one PGBP head.

## ICDS [Section 145(2)]

10 ICDS notified (detailed at CA Final level).
All assessees using the mercantile basis must follow ICDS.
Exception: Individuals/HUFs not liable to audit under Section 44AB are exempt from ICDS.
Income under Sec 28 (PGBP) and Sec 56 (IFOS) is computed applying ICDS.

Worked example

### Example 1

Example (145B — interest on compensation): Mr. R receives ₹50,000 interest on enhanced land-acquisition compensation in PY 2025-26, relating to several earlier years.

Entire ₹50,000 is taxable in PY 2025-26 (year of receipt) under Income from Other Sources — not spread over the earlier years.

### Example 2

Example (ICDS applicability): An individual on the mercantile basis with turnover below the Sec 44AB audit threshold is not required to follow ICDS, whereas a company on mercantile basis must apply all applicable ICDS.

⚠️ Common exam mistakes

Spreading interest on compensation over the years it relates to — Sec 145B taxes it entirely in the year of receipt.
Applying the 'paid includes payable' rule to Section 43B items — 43B requires actual payment.
Assuming every mercantile-basis assessee must follow ICDS — individuals/HUFs not liable to 44AB audit are exempt.
Computing total income by netting all businesses first — each business is computed separately, then aggregated under PGBP.

Reference: Sections 2(13), 2(36), 145, 145B — Income-tax Act, 1961

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Meaning of 'Business' and 'Profession' & Method of Accounting [Sec 2(13), 2(36), 145, 145B]

Worked example

⚠️ Common exam mistakes