When you are doing your taxes, be it on an individual level or for your company, it is always good to be well-versed in the different sections that apply to you. Section 28 is one such part of the Income Tax Act that applies to all individuals. It covers the nature of income depending on your business or profession. Whether you are an individual who works 9-5, freelancer, tutor, lawyer, doctor, chartered accountant, or engaged in any other type of employment, section 28 applies to you. While employed individuals have earnings, businesses have profits or losses. A business does not have a fixed income, and it fluctuates every year based on several factors. There are different types of ITRs (Income Tax Returns) that an individual can file. Also, the tax implication of any business depends upon what type of business it is.
Section 28 of the Income Tax Act
Section 28 of the Income Tax Act is basically a section where you put your earnings of any kind, whetherthe include profits from your business or annual compensation from your employment. It covers any gains or profits an individual makes. It covers whatever money you pay by working. You can also opt for the advance tax to avoid any last-minute hassles.
Categories of income tax as per Section 28 of the Income Tax Act
There are certain types of income that are a part of this section and taxable under the same. If you are confused about whether your earnings belong to section 28, here is a checklist of the incomes covered which you can refer to:
Income/salary
Income of the business that is practised by the taxpayer or the salary of a working individual who is a taxpayer is primarily included
Compensation
Compensation that is received by an individual under the situations mentioned below is included:
- When they are managing the whole or substantially whole affairs of an Indian company, including the connection with the termination of the management or any modifications made in the terms and conditions of that company,
- When they are managing the whole or substantially whole affairs of an Indian company, including the connection with the termination of the office or any modifications made in the terms and conditions of that company,
- When they have the holding of an agency in India where activities related to the business are being conducted, including the connection with the termination of the agency or any modifications made in the terms and conditions of that company,
- When the person is in connection with the Government, or any corporation that is owned or controlled by the Government, under any law being forced during that time, is in management of any business or property
Income from specific services
Income that you receive via professional, trade, or a similar association from certain services being performed by its members is included here
Related to import/export
Incomes under section 28 that are taken into consideration related to import/export are the profits on the sales that operate as per the import/export licence
Duty drawback
This category includes the following:
Any profits made on transferring the Duty-Free Replenishment Certificate (DFRC)
Any profits made on transferring the Duty Entitlement Pass Book (DEPB)
The assistance in cash against export received under any government scheme
Monetary benefits
The value of any benefit or perquisite that can be converted into money or not, which is received while practising any business or profession is also taken into consideration
Partners
Any amounts received by the partner of the firm are under this section, too. Incomes received by individuals (usually as salaries, bonuses, interests, remunerations, or commissions) are covered in this section as well.
Non-compete fee
There is also the inclusion of any amount that is received from-
- Not carrying out any business or profession, or
- Not having shared any Intellectual Property Rights that are involved in the processing and manufacturing of any goods or services.
Keyman insurance policy
Any amount that an individual receives under the Keyman Insurance Policy is included This sum also includes any bonuses.
Conversion of the inventory to capital asset
The fair market value of an inventory, as per the conversion date, is taxable under the business income bracket. You can use an income tax calculator to calculate your estimated tax payable.
Others
When any capital asset is being transferred, any sum that is received or receivable is taxable under the same head Profit or Gain from that business or profession is included
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