250 question and answers on PGBP

  Here are 50 interview questions with answers based on the topic “Profits and Gains of Business or Profession (PGBP)” from the shared ICAI PDF:

PGBP Interview Questions with Answers (Q1–Q50)

Q.No	Question	Answer
1	What is “business” as per Section 2(13)?	Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.
2	How is “profession” defined under Income Tax Act?	Profession is not defined, but includes vocation and means an occupation requiring intellectual skill or manual skill.
3	Is profit from illegal business taxable?	Yes, profits from illegal businesses are taxable. Income tax is not concerned with the legality of the source.
4	What is the chargeability section for PGBP?	Section 28.
5	Under which section is the method of accounting specified?	Section 145(1) for mercantile or cash basis; Section 145(2) for ICDS.
6	What are ICDS?	Income Computation and Disclosure Standards notified by CBDT for mercantile system assessees.
7	What is speculative business?	A business involving speculative transactions as per Explanation 2 to Section 28.
8	What is a speculative transaction?	A transaction settled otherwise than by actual delivery of commodity or scrips. (Section 43(5))
9	Can speculative loss be set off against normal business profit?	No, it can only be set off against speculative profits.
10	Is remuneration received by a partner taxable under PGBP?	Yes, under Section 28(v), subject to limits under Section 40(b).
11	Is share of profit from firm taxable in partner’s hands?	No, exempt under Section 10(2A).
12	What is Section 43B?	It allows deductions on actual payment basis for certain expenses like taxes, interest, etc.
13	What is disallowed under Section 40(a)(ia)?	30% of expenses on which TDS is not deducted or paid within due date.
14	What is the treatment of disallowed expenses under Section 40(a)(ia) in later years?	Allowed in the year of actual TDS deduction and payment.
15	What is Section 40A(3)?	Disallows expenses over ₹10,000 paid in cash in a day.
16	What is Section 37(1)?	Residual section allowing business expenditure not covered under Sections 30-36.
17	What is not allowed under Section 37?	Any expense for offence or prohibited by law.
18	Is depreciation compulsory?	Yes, Explanation 5 to Section 32 makes it mandatory.
19	What is the block of assets concept?	Group of assets with same rate of depreciation.
20	What is additional depreciation?	Allowed @20% for new plant/machinery by manufacturing concerns (Section 32(1)(iia)).
21	When is only 50% of depreciation allowed?	When asset is put to use for less than 180 days in the previous year.
22	Is notional rent allowed for self-owned premises?	No, only actual expenses are allowed.
23	Can personal expenses be claimed under PGBP?	No, disallowed under Section 37.
24	Is voluntary payment taxable as PGBP?	Yes, if received in course of business or profession.
25	What is Section 35AD?	Allows 100% deduction of capital expenditure on specified businesses.
26	What is Section 35(1)(ii)?	Allows deduction for donation to approved scientific research institution (under normal regime).
27	Is contribution to research institute allowed under default regime (115BAC)?	No, it must be added back.
28	What is Section 43(1)?	Defines “actual cost” of an asset.
29	Is payment for asset above ₹10,000 in cash included in actual cost?	No, it is excluded from actual cost.
30	What is terminal depreciation?	Allowed for power companies under Section 32(1)(iii) if asset is sold/discarded at value lower than WDV.
31	What are capital expenditures not allowed under Section 30/31?	Cost of new buildings or machinery. Only current repairs are allowed.
32	What is FMV taxation in case of inventory conversion to capital asset?	FMV is treated as business income on conversion.
33	What is Section 41(1)?	Remission or cessation of trading liability is treated as business income.
34	What is Section 41(4)?	Recovery of bad debts previously allowed is deemed income.
35	How is income computed under presumptive taxation for business (Section 44AD)?	8% (or 6% for digital) of turnover is deemed as income.
36	Is audit mandatory for all businesses?	No, only if turnover exceeds ₹1 crore (or ₹10 crore under certain conditions).
37	What is not a speculative transaction?	Hedging contracts, trading in derivatives and eligible commodity transactions through recognized exchanges.
38	Can donations to NGOs be claimed under PGBP?	No, allowed under Chapter VIA (Section 80G).
39	What is the treatment of Keyman Insurance Policy maturity amount?	Taxable as PGBP.
40	What is the treatment of benefit/perquisite under Section 28(iv)?	Taxable as PGBP if arising from business/profession.
41	Is subsidy part of income under PGBP?	Yes, if received in the course of business and not capital in nature.
42	Can losses in PGBP be carried forward?	Yes, for 8 assessment years and set off against PGBP income only.
43	What is taxability of duty drawback?	Taxable under PGBP.
44	What is disallowed under Section 40A(2)?	Excessive/unreasonable payments to related parties.
45	Can rent paid to partner for using premises be allowed?	Yes, if reasonable and not excessive.
46	What is the depreciation rate for computers?	40% under Rule 5.
47	What is “actual cost” in case of inherited asset?	Cost to previous owner less depreciation deemed to be allowed.
48	Can loss from profession be set off against business income?	Yes, both fall under PGBP.
49	What is the impact of ICDS on computation?	ICDS override accounting standards for income computation purposes under PGBP.
50	Is interest on loan for business deductible?	Yes, allowed under Section 36(1)(iii) if loan is for business purposes.

PGBP Interview Questions with Answers (Q51–Q100)

Q.No	Question	Answer
51	Is compensation received on termination of agency taxable?	Yes, taxable under Section 28(ii).
52	What is Section 145B(1)?	Interest on compensation is taxable in the year of receipt under “Other Sources”.
53	What is Section 145B(2)?	Subsidy/grant etc. from government is taxable in the year of receipt if not taxed earlier.
54	Are ICDS applicable to all assessees?	No, not applicable to individuals/HUFs not liable for audit.
55	Is PGBP income chargeable on accrual or receipt basis?	Depends on method of accounting followed (cash or mercantile).
56	What is meant by "deemed income"?	Income deemed to arise under law, e.g., Section 41(1) or 41(4).
57	Is income from profession exempt from GST?	No, services by professionals like CA, doctors are liable for GST if threshold is crossed.
58	Is writing off bad debts a deduction?	Yes, if previously included in income and written off in books (Section 36(1)(vii)).
59	Can partner claim deduction for interest not allowed to firm?	No, only allowable portion taxable in hands of partner.
60	What is the consequence of not maintaining books of accounts?	Penalty u/s 271A; also difficulty in determining income.
61	Is maintenance of books mandatory for all businesses?	No, only if turnover/professional receipts exceed limits (Section 44AA).
62	What is the rate of depreciation for intangible assets?	25% under Part B of Rule 5 Appendix I.
63	Is depreciation allowed on goodwill?	No, as per amendment in Finance Act, 2021.
64	Can interest on borrowed capital be capitalized?	Yes, if incurred before asset is put to use.
65	What if interest is paid after asset is put to use?	Not to be capitalized; allowable as revenue expense if used for business.
66	What is cost of asset if acquired by inheritance?	Cost to previous owner, less depreciation deemed to be allowed.
67	Can leasehold improvements be depreciated?	Yes, as per Explanation 1 to Section 32.
68	Is conversion of inventory into capital asset taxable?	Yes, FMV on date of conversion is treated as business income.
69	Can partner claim expenses for earning remuneration?	Yes, under PGBP if incurred wholly and exclusively.
70	Can penalty for breach of law be claimed as expense?	No, disallowed under Section 37(1).
71	What is tax audit threshold for professionals?	₹50 lakhs.
72	What is the presumptive taxation rate under Section 44ADA?	50% of gross receipts for eligible professionals.
73	Is additional depreciation allowed under Section 115BAC?	No, only under normal regime.
74	What is “moneys payable” under terminal depreciation?	Includes insurance, salvage, compensation, sale value.
75	What is the treatment of excise duty credit in actual cost?	Reduced from cost if CENVAT credit is claimed.
76	What is Explanation 8 to Section 43(1)?	Post-use interest is not part of actual cost of asset.
77	Can expenses of scientific research be claimed as deduction?	Yes, u/s 35, depending on type of expenditure and regime opted.
78	What is Section 38?	Deals with proportionate deduction where asset is partly used for business.
79	Is municipal tax on house property used for business allowed?	No, not under PGBP.
80	What is the rate of depreciation for furniture?	10% as per Rule 5.
81	Is depreciation allowed on building used for residence?	Yes, if used for business and not mainly for residence.
82	What is the threshold for disallowance under Section 40A(3)?	₹10,000 paid in cash to a person in a single day.
83	Is MSME payment beyond time limit disallowed?	Yes, under Section 43B.
84	Can amount paid for voluntary retirement be amortized?	Yes, under Section 35DDA over 5 years.
85	What are capital receipts?	Receipts not arising from business operations, generally not taxable under PGBP.
86	Can salary paid to family member be disallowed?	Yes, if deemed unreasonable under Section 40A(2).
87	What is WDV method of depreciation?	Written Down Value method as per Income-tax Rules.
88	Can depreciation be claimed on assets not used during the year?	No, asset must be “used” for business.
89	Can repairs be claimed on leased property?	Yes, if cost is borne by assessee.
90	What is the depreciation rate for motor cars used for business?	15% generally; higher for certain periods and conditions.
91	Can benefit in kind be taxed under PGBP?	Yes, under Section 28(iv).
92	Is revaluation of asset considered for tax depreciation?	No, depreciation is based on actual cost, not revalued figures.
93	What is Explanation 10 to Section 43(1)?	Reduces actual cost to the extent of subsidy received for asset.
94	What is the impact of Section 43B on unpaid statutory dues?	Deduction allowed only on actual payment.
95	What is deemed income under Section 41(3)?	Balancing charge on sale of asset on which Section 35AD deduction was claimed.
96	What is Section 35D?	Amortization of preliminary expenses over 5 years.
97	Is disallowed depreciation in earlier years allowed later?	No, depreciation not claimed cannot be carried forward.
98	What are eligible businesses for Section 44AD?	Resident individuals, HUFs, firms (not LLPs) with turnover up to ₹2 crores.
99	Can bad debt recovery be claimed twice?	No, once recovered, it is taxable u/s 41(4).
100	Is income from technical services taxable under PGBP?	Yes, if provided as part of business or profession.

PGBP Interview Questions with Answers (Q101–Q150)

Q.No	Question	Answer
101	Is tax audit mandatory if presumptive scheme is not opted in 44AD and turnover < ₹2 crore?	Yes, if profits declared are lower than 8% (or 6%) and income exceeds basic exemption limit.
102	Can a salaried individual claim PGBP deductions?	Only if he has additional business or professional income.
103	Is income from letting out machinery taxable under PGBP?	Yes, if it constitutes a business activity.
104	What is the treatment of income from composite letting of building and machinery?	Taxable under PGBP if inseparable.
105	Can partner claim depreciation on firm's assets?	No, only firm can claim it.
106	What is amortization under Section 35D?	Deduction of specified preliminary expenses over 5 years.
107	Is writing off obsolete stock allowed?	Yes, if value is adjusted and shown in accounts.
108	Can PGBP income be taxed on presumptive and normal basis together?	Yes, for different businesses meeting respective conditions.
109	Is rent from sub-letting taxable under PGBP?	Yes, if sub-letting is part of business.
110	Can a business loss be set off against capital gains?	No, business loss can be set off only against business income.
111	What is depreciation rate for temporary wooden structures?	40%.
112	What is the tax treatment of reversal of liability earlier claimed?	Treated as deemed income under Section 41(1).
113	What is not deductible under Section 40(a)(ii)?	Income tax paid.
114	Are expenses on clubs and hospitality deductible?	Only if directly related to business.
115	What is Section 43(5)?	Defines speculative transaction.
116	Is loss on sale of depreciable asset deductible?	Adjusted through block of assets; not separately allowed.
117	Can assets used partially for personal use be depreciated fully?	No, only proportionate depreciation allowed (Section 38).
118	Can losses from owning and maintaining race horses be set off against PGBP?	No, treated separately.
119	Are penalties for delay in contract completion allowed?	Yes, if compensatory, not penal in nature.
120	What are capital vs revenue expenses?	Capital: asset creation; Revenue: recurring, operational.
121	Are foreign travel expenses allowed under PGBP?	Yes, if incurred wholly and exclusively for business.
122	Can cash payment over ₹10,000 be allowed in emergency?	Only if it falls under Rule 6DD exceptions.
123	What is Rule 6DD?	Provides exceptions to Section 40A(3) cash payment disallowance.
124	What is PGBP income for a freelancer?	Income from professional services provided independently.
125	Is writing off investment allowable under PGBP?	No, unless it is part of regular business.
126	What is ICDS IV?	Income Computation and Disclosure Standard on Revenue Recognition.
127	Can donation to political party be claimed under PGBP?	No, allowed as deduction u/s 80GGC.
128	What is deduction for EMI interest on business loan?	Interest portion is allowable under Section 36(1)(iii).
129	What are allowable expenses under Section 36?	Insurance premium, bonus, interest on borrowed capital, etc.
130	Can TDS default affect expense deductibility?	Yes, disallowed u/s 40(a)(ia).
131	Is inventory valuation governed by ICDS?	Yes, ICDS II.
132	What if firm pays excess remuneration to partner?	Excess is disallowed in firm’s hands and not taxed in partner’s hands.
133	What is cost inflation index’s role in PGBP?	Not applicable; used in capital gains.
134	Is professional income below ₹50 lakhs liable for audit?	No, unless profit is less than 50% and income exceeds exemption limit.
135	Can repairs on intangible assets be claimed?	No, repair expenses are only for tangible assets.
136	Is franchise fee deductible under PGBP?	Yes, if incurred for business purposes.
137	Is loss due to theft of stock deductible?	Yes, if proven and not recoverable.
138	What is depreciation rate for books in library business?	40%.
139	Is gift received during business taxable under PGBP?	Yes, if related to business transactions.
140	Is amount received for non-compete agreement taxable?	Yes, under Section 28(va).
141	What is “depreciable asset”?	Asset eligible for depreciation under Section 32.
142	Is advance forfeited from customer taxable?	Yes, taxable under PGBP.
143	What is meant by “actual cost” under Section 43(1)?	Cost to assessee minus subsidy or grant received.
144	Is ESOP expense deductible for employer?	Yes, as business expense over vesting period.
145	What is the rate of depreciation on energy saving devices?	40%.
146	Are provision for bad debts deductible?	No, only actual write-off allowed.
147	What if asset is sold within same year of use?	Short-term capital gain arises, but depreciation allowed proportionately.
148	Is interest on capital to partner taxable?	Yes, as business income u/s 28(v).
149	What is depreciation on software?	40% (considered as intangible asset).
150	Are reconstitution payments to retiring partner deductible?	No, they are capital in nature.

PGBP Interview Questions with Answers (Q151–Q200)

Q.No	Question	Answer
151	What is the treatment of compensation received from government for taking over business?	Taxable under Section 28(ii)(c).
152	Can revenue expense be capitalized?	Yes, if it relates to acquisition or installation of a capital asset.
153	Is loss due to fire of uninsured stock deductible?	Yes, if incurred in course of business.
154	What is treatment of duty drawback under income tax?	Taxable under Section 28(iiic).
155	What is Section 28(iiia)?	Profit on sale of import entitlements is taxable under PGBP.
156	What is the taxability of incentive received under government schemes?	Taxable under Section 28, if revenue in nature.
157	Can insurance premium for key employee be claimed as expense?	Yes, under Keyman Insurance Policy.
158	Is premium received under Keyman Insurance Policy taxable?	Yes, taxable under PGBP.
159	Can commission paid without TDS be claimed?	No, disallowed u/s 40(a)(ia) unless TDS deducted and paid.
160	Can business losses be carried forward if return is not filed on time?	No, carry forward not allowed if return not filed within due date.
161	What are block of assets?	Group of assets with same depreciation rate.
162	Are goodwill and trademarks depreciable?	Trademarks: Yes; Goodwill: No (as per Finance Act 2021).
163	What is Section 35DDA?	Allows amortization of VRS (Voluntary Retirement Scheme) expenses over 5 years.
164	What is the treatment of unabsorbed depreciation?	Carried forward indefinitely and set off against any income (except salary).
165	Can cash donations be claimed under PGBP?	No, not deductible under PGBP.
166	Are gratuity payments deductible?	Yes, if paid as per Gratuity Act and within limits.
167	Is compensation to employees on retrenchment allowed?	Yes, if incurred wholly for business.
168	What is “actual cost” in case of re-acquired asset?	Lesser of original cost minus depreciation or re-purchase price.
169	Can litigation expenses be claimed as business expense?	Yes, if incurred for protecting business interests.
170	Is fine paid to SEBI allowable?	No, penalty for violation of law is disallowed.
171	Is advance tax payment allowed as deduction?	No, income tax is disallowed under Section 40(a)(ii).
172	Is loss on account of embezzlement by employee allowed?	Yes, if connected to business activity.
173	Is staff welfare expense allowable?	Yes, if incurred wholly for business.
174	What is the treatment of technical know-how fees?	Capital or revenue depends on nature; usually capital if it gives enduring benefit.
175	Can interest on loan for acquiring fixed asset be deducted?	Yes, interest till asset is put to use is capitalized; thereafter, revenue expense.
176	What is ICDS V?	Relates to Tangible Fixed Assets.
177	Can penalties paid under foreign laws be claimed?	No, disallowed under Section 37.
178	What if business is closed during the year?	Income till date of closure is taxed under PGBP.
179	Can loss from discontinued business be carried forward?	Yes, as business loss, if return is filed on time.
180	Can rent received from letting plant & machinery be taxed under PGBP?	Yes, if letting is business activity.
181	What is the treatment of repair cost of building not owned by assessee?	Allowed if used for business and repair obligation is on assessee.
182	What is difference between Section 32 and 35AD?	Section 32 allows depreciation; Section 35AD allows 100% capital expenditure deduction for specified businesses.
183	Is ESIC payment allowed as business expense?	Yes, if deposited before due date.
184	What is Section 28(va)?	Taxability of non-compete fees or similar payments.
185	Can software be considered plant?	No, software is treated as intangible asset.
186	What is “passive use” in depreciation context?	Asset kept ready for use qualifies as used for business.
187	What is ICDS I?	Deals with Accounting Policies.
188	Can training expenses of staff be claimed?	Yes, if related to business activities.
189	What is Section 44AE?	Presumptive taxation for assessees owning goods carriage vehicles.
190	What is ICDS VII?	Pertains to Government Grants.
191	Is loss due to foreign exchange fluctuation deductible?	Yes, if connected to revenue item.
192	Are gifts given to clients deductible?	Yes, if reasonable and related to business promotion.
193	Can medical insurance premium for employees be claimed?	Yes, under Section 36(1)(ib).
194	What is ICDS VI?	Deals with effect of foreign exchange rate changes.
195	What is ICDS VIII?	Pertains to Securities.
196	Is provision for warranty deductible?	Yes, if based on reasonable estimate and accounting standard.
197	Can depreciation be claimed on R&D assets?	Yes, if used for business and not fully allowed u/s 35.
198	What is the treatment of reimbursement of expenses?	Not income if incurred on behalf of client and bills raised.
199	Is internal transfer of asset taxable?	No, unless inventory converted to capital asset (FMV treated as business income).
200	What is ICDS IX?	Pertains to Borrowing Costs.

PGBP Interview Questions with Answers (Q201–Q250)

Q.No	Question	Answer
201	Is provision for gratuity deductible?	Only if it is an approved gratuity fund or actual payment is made.
202	Can interest on delayed payment to MSME be claimed?	No, disallowed under Section 43B if not paid within time limit under MSMED Act.
203	What is the tax treatment of profit from sale of depreciable asset?	Treated as short-term capital gain, adjusted through block of assets.
204	Can provisional liability be claimed as deduction?	No, unless it is a known liability with reasonable estimation.
205	What is the tax implication of waiver of loan taken for revenue purpose?	Taxable under Section 41(1).
206	Is advance received for service taxable under PGBP?	Yes, if service rendered or if income is recognized on accrual basis.
207	What is the treatment of subsidy for setting up a plant?	Capital receipt – not taxable, not reduced from actual cost unless specified.
208	Can interest on late payment of GST be claimed?	Yes, as business expenditure if related to business activity.
209	What is the consequence of misreporting in ICDS disclosures?	Attracts penalties and additions to income.
210	What is ICDS X?	Deals with provisions, contingent liabilities, and contingent assets.
211	What are “specific services” by a trade association taxable under PGBP?	Any service rendered to members for a fee is taxable under Section 28(iii).
212	What is composite income under PGBP?	Income partly from business and partly from other head (e.g., agri + business).
213	Is loss due to natural calamity deductible?	Yes, if stock/assets lost were used for business.
214	What is the treatment of gain on transfer of asset on which deduction u/s 35AD was claimed?	Entire amount is taxable under Section 28(vii).
215	What is the audit limit under presumptive scheme of Section 44AD?	₹2 crore; audit if lower income declared and income exceeds basic exemption.
216	Can income be taxed under PGBP if no books maintained?	Yes, but AO may apply best judgment assessment.
217	Is depreciation mandatory even in case of loss?	Yes, Explanation 5 to Section 32 mandates it.
218	What are scientific research capital expenses u/s 35?	100% deduction allowed for approved in-house or outside research.
219	Can company claim depreciation on assets acquired through gift?	No, unless actual cost can be determined and asset used in business.
220	What is the implication of stock valuation method change?	Requires disclosure and effect on profit must be quantified.
221	Is bonus paid to employee deductible?	Yes, if paid within the due date of return filing.
222	Can advertisement expenses be disallowed?	Yes, if they are excessive, unrelated to business, or in violation of law.
223	What is ICDS III?	Relates to construction contracts.
224	What is the treatment of money received for cancellation of contract?	Taxable under PGBP (Section 28(ii)(d)).
225	What is the tax treatment of transfer of tenancy rights?	Taxable as capital gains, not PGBP.
226	Is reimbursement to director for official expenses allowed?	Yes, if incurred wholly and exclusively for business.
227	Can foreign travel for business development be allowed?	Yes, if substantiated with evidence.
228	Is interest paid on capital introduced by partner allowable to firm?	Yes, up to 12% per annum, subject to partnership deed and limits of Section 40(b).
229	Can preliminary expenses be claimed in lump sum?	No, amortized over 5 years u/s 35D.
230	What is Section 44BBB?	Special provision for foreign companies engaged in turnkey power projects.
231	Can a cash gift received in profession be taxed under PGBP?	Yes, if received in course of professional activity.
232	Is income from horse training a business income?	Yes, taxable under PGBP if carried as business.
233	Are recruitment expenses allowable?	Yes, if incurred for hiring staff for business.
234	What is the effect of ICDS on MAT computation?	ICDS not applicable for MAT purposes.
235	Can litigation expense for capital asset acquisition be claimed under PGBP?	No, it is capitalized to cost of asset.
236	Is remuneration to relative disallowed?	Disallowed to the extent it is excessive (Section 40A(2)).
237	Are personal drawings adjusted under PGBP?	No, drawings are personal and not deductible.
238	Can donation to temple be claimed under PGBP?	No, not a business expense; may be eligible u/s 80G if conditions met.
239	Is salary to employee working abroad deductible?	Yes, if employee is on business assignment and salary is business-related.
240	Can damages received from customer for breach of contract be taxed under PGBP?	Yes, as it compensates for business loss.
241	What is Section 44DA?	Relates to taxation of royalties or fees for technical services by non-residents.
242	Can provision for leave encashment be claimed?	No, only actual payment is allowed under Section 43B(f).
243	What if depreciation is claimed in books but not in return?	Still deemed claimed; Explanation 5 to Section 32 applies.
244	What is the treatment of prior period expenses?	Allowed only if liability crystallized during current year.
245	Can refund of business expense be taxed under PGBP?	Yes, if earlier claimed as deduction and now reversed.
246	What is ICDS II?	Relates to valuation of inventories.
247	Are awards received for excellence in business taxable?	Yes, as income under PGBP.
248	What is “profession” under Section 44AA?	Includes legal, medical, engineering, accountancy, architectural, etc.
249	What is Section 44BB?	Special provision for computing profits for non-residents in oil exploration.
250	Can fees received in advance for professional work be taxed?	Yes, if due to be rendered, taxed on accrual basis as per method of accounting.