Profits and Gains of Business or Profession: New Act Structure Explained (Income-tax Act, 2025)
Introduction
The head Profits and Gains of Business or Profession (PGBP) plays a critical role in the taxation of businesses, professionals, traders, and self-employed individuals. Under the Income-tax Act, 2025, this head of income has been restructured and logically reorganised to improve clarity, reduce litigation, and simplify compliance.
While the core tax principles remain unchanged, the new Act introduces a cleaner structure and section-wise flow compared to the Income-tax Act, 1961.
What is Income from Business or Profession?
Income under this head includes profits earned from:
Any trade, commerce, or manufacture
Professional services such as legal, medical, accounting, consultancy, etc.
Ancillary or incidental activities connected to business
Taxability is based on commercial profits, adjusted as per the provisions of the Act.
Structural Change under Income-tax Act, 2025
The Income-tax Act, 2025 does not radically alter business taxation rules. Instead, it focuses on:
Consolidation of scattered provisions
Logical sequencing of sections
Removal of repetitive explanations
Better alignment with accounting concepts
This makes the law easier to interpret for taxpayers and professionals.
Section-wise Overview: Old Act vs New Act
Particulars Income-tax Act, 1961 Income-tax Act, 2025
Charge of Business Income Section 28 Re-numbered structured section
Deductions & Allowances Sections 30–37 Consolidated provisions
Disallowances Sections 40, 40A Re-grouped sections
Depreciation Section 32 Streamlined provision
Speculative Business Section 43(5) Mapped section
Method of Accounting Section 145 Simplified compliance section
(Section numbers have changed, but taxation principles continue.)
Allowable Deductions under New Act
The following deductions continue under the Income-tax Act, 2025:
Rent, repairs, insurance
Employee salary and welfare expenses
Depreciation on assets
Interest on business borrowings
Administrative and operating expenses
The Act clearly distinguishes between allowable and disallowable expenses.
Disallowances and Compliance Focus
Certain expenses continue to be disallowed, such as:
Personal expenses
Capital expenditure
Cash payments beyond prescribed limits
Statutory dues not paid within time
The new Act improves clarity on timing and conditions of allowability.
Presumptive Taxation and Professionals
Presumptive schemes for small businesses and professionals continue, offering:
Reduced compliance burden
Simplified income computation
Lower audit exposure
These provisions are better organised under the new Act for easier access.
Impact on Businesses and Professionals
For taxpayers engaged in business or profession:
No major change in tax burden
Improved understanding of provisions
Easier cross-referencing during assessment
Reduced ambiguity in deductions and disallowances
Professionals will find the new structure more logical and assessment-friendly.
Conclusion
The Income-tax Act, 2025 modernises the presentation of Profits and Gains of Business or Profession without altering its fundamental tax principles. By restructuring sections and simplifying language, the Act ensures smoother compliance and better interpretation for businesses and professionals alike.
Taxpayers should familiarise themselves with the new section references to ensure accurate filings in the coming years.
Written by:
Abhishek Gupta
Chartered Accountant
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