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Microlesson · 5-min read

Section 28 - Charging Section for PGBP

# Section 28 - Charging Section (PGBP)

Section 28 lists incomes that are chargeable to tax under the head Profits and Gains of Business or Profession (PGBP).

## Incomes Taxable Under PGBP

1. Profits or gains of any business, profession or vocation carried on by the assessee.

2. Keyman Insurance Policy - Any sum received by an employer (being the assessee) under a Keyman Insurance Policy, including the bonus on such policy.

3. Gifts/Benefits/Perquisites arising from business or profession:

  • Whether received in cash or in kind, or partly in cash/kind
  • Whether convertible into money or not

4. Import-related Incentives (all four are taxable as PGBP):

  • Profit on sale of Import Entitlement License
  • Any Cash Assistance received
  • Any Duty Drawback received
  • Profit on sale of DEPB (Duty Entitlement Passbook Scheme) and DFRC (Duty Free Replenishment Certificate)

5. Non-Compete Fees received:

  • For not carrying out any business, OR
  • For not sharing any know-how, patent, copyright, etc.

6. FMV of stock-in-trade on the date it is converted into a capital asset.

7. Compensation received/receivable for termination or modification of terms & conditions of any contract relating to business — always PGBP, irrespective of whether revenue or capital in nature.

8. Partner's remuneration - Any interest, salary, bonus or commission received by a partner from a partnership firm, to the extent allowed to the firm under Section 40(b).

9. Income from specific services rendered by a trade, professional or similar association to its members.

## Important Amendment (FA 2024)

Income from the business of renting of house property shall be taxable under "Income from House Property" and NOT under PGBP.

Worked example

### Example 1

Example: Mr. A receives ₹5 lakh as non-compete fees from his employer for agreeing not to set up a competing business for 3 years.

Treatment: Taxable under PGBP as per Section 28(va).

### Example 2

Example: ABC Ltd., engaged in the business of letting out commercial properties as its main business, earns ₹50 lakh as rent.

Treatment: Post FA 2024, even if renting is the business activity, income from renting house property is taxable under "Income from House Property", NOT PGBP.

⚠️ Common exam mistakes

  • Treating compensation for contract modification as capital receipt and excluding it from PGBP — it is ALWAYS PGBP under Section 28.
  • Forgetting that Keyman Insurance Policy receipts are PGBP income when received by the employer.
  • Classifying rental income from a renting business as PGBP — after FA 2024, it falls under House Property.
  • Missing that non-compete fees for not sharing know-how/patent (not just for not doing business) are also covered.
Bare-Act text Section 28 · Income-tax Act, 1961 · click to expand
Section 28: The following income shall be chargeable to income-tax under the head 'Profits and gains of business or profession': (i) profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; (ii) any compensation received by any person for termination/modification of contract relating to business; (iii) income from specific services performed by trade/professional associations; (iiia)-(iiie) various import incentives; (iv) value of benefit/perquisite from business; (v) partner's interest/salary/bonus from firm; (va) non-compete fees; (vi) Keyman insurance policy; (via) FMV of inventory converted to capital asset.
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