by Although a receipt may arise in the course of carrying on a business or profession, certain incomes are specifically excluded from this head and taxed elsewhere, or are altogether exempt. Under the Income-tax Act, 2025, this principle is embedded within Section 26 itself rather than a standalone provision notably Section 26(4), which directs that income from letting out a residential house by its owner is chargeable only under “Income from House Property”, not PGBP. Similarly, capital gains, agricultural income, and receipts covered under other specific heads remain outside this head, preventing overlapping taxation across heads of income.
Incomes not Taxable under the Head Profits and Gains of Business or Profession [Sec. 27]:
1. Income from House Property [Sec. 26(4)]
Where an assessee owns a residential house and lets it out, the rental income is not taxable under PGBP even if the person is otherwise engaged in a property business. Section 26(4) of the Income-tax Act, 2025 specifically excludes such income and directs that it be charged only under “Income from House Property”. This holds true regardless of whether letting out is incidental to the assessee’s trade for instance, a builder or dealer in real estate who also rents out a completed residential unit must still offer that rental income under the house property head, not as business profit, maintaining head-wise segregation under the Act.
2. Dividend Income
Dividend received on shares is chargeable under the head “Income from Other Sources”, even where the shares are held as stock-in-trade by a dealer or trader in securities. Although such shares form part of the assessee’s business assets and any profit on their sale is taxable as PGBP, the dividend component itself is statutorily carved out and assessed separately. This distinction is important for computation, since dividend income cannot be clubbed with trading profits, and specific deductions applicable to “Other Sources” (such as interest on borrowed funds for investment) apply instead of PGBP-related deductions.
3. Winnings from Lotteries, Races, and Card Games
Winnings from lotteries, crossword puzzles, horse races, card games, or other games of any sort, and gambling or betting of any form, are chargeable exclusively under “Income from Other Sources”, taxed at a special flat rate. This holds even where an assessee’s regular occupation involves organising or participating in such activities, since the law treats these receipts as inherently falling outside the ambit of ordinary business profits. No business-related deductions or expenses can be claimed against such winnings, unlike normal PGBP computation, reflecting their distinct tax treatment.
4. Partner’s Remuneration Beyond the Allowed Limit [Sec. 26(2)(g) r/w Sec. 35(e)]
Under Section 26(2)(g), any interest, salary, bonus, or commission received by a partner from the firm is taxable as PGBP only to the extent allowed as a deduction to the firm under Section 35(e). Any portion disallowed in the firm’s hands because it exceeds prescribed limits is correspondingly not taxable in the partner’s individual assessment. This matching principle prevents double taxation of the same amount and ensures symmetry between the firm’s disallowed expense and the partner’s non-taxable receipt for that excess sum.
5. Income Assessable under Other Specific Heads
Certain receipts connected with business assets are expressly assessed under other heads rather than PGBP. Capital gains arising from the transfer of business capital assets (such as land, building, or goodwill) fall under “Capital Gains”, not PGBP, despite originating from business operations. Similarly, if a professional also draws a fixed salary as an employee elsewhere, that receipt is taxable under “Salaries”. This ensures that income is consistently classified according to its true legal nature and source, rather than the assessee’s overall business context.
