These three heads capture commercial gains, investment returns, and all miscellaneous revenues.
1. Profits and Gains of Business or Profession (PGBP)
Under Section 28, tax is levied on profits of any business or profession carried on by the assessee during the previous year.
- Admissible Deductions (Sections 30-37): Rent, rates, taxes, repairs of buildings, depreciation (Section 32), and general business expenses incurred wholly and exclusively for business purposes (Section 37).
- Disallowed Expenses (Section 40/40A): Personal expenses, income tax, or cash payments exceeding Rs. 10,000 per day.
2. Capital Gains (Sections 45-55)
Any profits arising from the transfer of a capital asset effected in the previous year are taxable under Section 45.
- Short-Term vs. Long-Term Capital Assets:
- Short-Term: Assets held for 36 months or less (12 months for listed shares; 24 months for unlisted shares/immovable property) prior to transfer.
- Long-Term: Assets held longer than the short-term periods, entitled to indexation benefits (adjusting acquisition cost for inflation).
- Key Exemptions: Section 54 (reinvestment of capital gains from residential house into another residential house) and Section 54F (reinvestment of net consideration of long-term asset into residential house).
3. Income from Other Sources (Residual Head - Sections 56-59)
Any income that is not taxable under the other four heads is taxed here. Includes: Dividends, interest on bank deposits, family pension, lottery/betting winnings, and gifts of money/property exceeding Rs. 50,000 without consideration.