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Meaning of.. "Business or Professions"

3.1.      WHAT IS THE MEANING OF “BUSINESS” & “PROFESSION” AS PER INCOME TAX ACT. ?

Business :
“Business” simply means any economic activity carried on for earning profits. Sec. 2(3) has defined the term as “ any trade, commerce, manufacturing activity or any adventure or concern in the nature of trade, commerce and manufacture”.

In this connection it is not necessary that there should be a series of transactions in a business and also it should be carried on permanently. Neither repetition nor continuity of similar transactions is necessary.

Profession :

“Profession” may be defined as a vacation, or a job requiring  some thought, skill and special knowledge like that of C.A., Lawyer, Doctor, Engineer, Architect etc. So profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill.

What is the Basis of Charge [ Sec. 28]


The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,—

(i)    the 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 or other payment due to or received by,—any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto;

(iii)  income derived by a trade, professional or similar association from specific services performed for its members ;

(iv)  the value of any perquisite  or benefit  arising from business or profession , whether convertible into money or not,;

(v)     any interest, commission , salary, remuneration , or bonus due to, or received by, a partner of a firm from such firm :

(vi)    any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

(vi) income from speculative transactions.

(vii) any sum, whether received or receivable, in cash or kind, under an agreement for—

(a) not carrying out any activity in relation to any business; or

(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature

(viii) any profit on the transfer of the Duty Free Replenishment Certificate

(ix)    any profit on the transfer of the Duty Entitlement Pass Book Scheme

(x) profits on sale of a license granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947)

Business Income not Taxable under the head “Profits and Gains of Business or Profession” :

In the following cases, income from trading or business is not taxable under Sec. 28, under the head “Profits and Gains of Business or Professions” :

Nature of Income

Head under which it is chargeable to Tax

Rental income in the case of dealer in property

Rent of house property is taxable under Sec. 22 under the head “ Income from House Property” even if property constitutes Stock-in-trade of recipient of rent or the recipient of rent is engaged in the business of letting  properties on rent.

Dividend on shares in the case of a dealer-in-shares.

Dividend on shares are taxable under section 56(2)(i), under the head “Income from other sources” , even if they are derived from shares  held as stock in trade or the recipient of dividends is a dealer-in-shares. However, dividend received from an Indian company is not chargeable to tax in the hands of shareholders.

Winning from Lotteries etc.

Winning form Lotteries, races, etc. are taxable under the head “Income from Other Sources” ( even if derived as a regular business activity)

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