60 interview questions with answers on Income from Profits and Gains of Business or Profession (PGBP)

 Here are 60 interview questions with answers on Income from Profits and Gains of Business or Profession (PGBP) as per the Indian Income-tax Act, 1961

🔹 Section 1: Basic Concepts (Q1–Q10)

1.      Q: What is Income from PGBP?
A: It includes income earned by carrying on any business or profession during the previous year.

2.      Q: Which section covers PGBP?
A: Sections 28 to 44DB of the Income-tax Act, 1961.

3.      Q: What is 'Business' under the Income-tax Act?
A: Any trade, commerce, manufacture, or adventure in the nature of trade.

4.      Q: What is 'Profession'?
A: Vocation involving intellectual or manual skill, like doctors, lawyers, CAs.

5.      Q: What is the method of accounting under PGBP?
A: Mercantile or cash system, regularly followed by the assessee.

6.      Q: Is speculative business income taxable under PGBP?
A: Yes, but subject to special provisions under Section 73.

7.      Q: Is income from illegal business taxable?
A: Yes, even illegal business income is taxable under PGBP.

8.      Q: What if multiple businesses are carried on?
A: Income/loss from all businesses is aggregated under PGBP.

9.      Q: Is rental income from business assets taxable under PGBP?
A: Yes, if letting is incidental to business activity.

10.  Q: Can agricultural income be taxed under PGBP?
A: No, agricultural income is exempt, but mixed activity may be partially taxable.

🔹 Section 2: Computation (Q11–Q20)

11.  Q: What is the starting point of PGBP computation?
A: Net profit as per P&L account.

12.  Q: What adjustments are made to net profit?
A: Add inadmissible expenses and deduct allowable expenses/incomes not credited.

13.  Q: What is depreciation under PGBP?
A: Allowed under Section 32 on tangible/intangible assets used for business.

14.  Q: Are preliminary expenses allowable?
A: Yes, under Section 35D, spread over 5 years.

15.  Q: Is interest on capital paid to partners allowed?
A: Yes, up to 12% p.a. under Section 40(b).

16.  Q: Is salary to partners allowed?
A: Yes, subject to limits specified under Section 40(b).

17.  Q: Are donations deductible under PGBP?
A: No, but deduction may be available under Section 80G.

18.  Q: Can capital expenditure be claimed as deduction?
A: No, only revenue expenditure is deductible.

19.  Q: What about personal expenses?
A: Disallowed under Section 37(1).

20.  Q: Is provision for bad debts allowable?
A: No, only actual bad debts or write-off is allowed u/s 36(1)(vii).

 Section 3: Allowable & Disallowable Expenses (Q21–Q35)

21.  Q: Are fines and penalties allowable?
A: No, if paid for breach of law.

22.  Q: What is Section 43B?
A: Certain expenses like tax, interest, bonus allowed only on actual payment.

23.  Q: Is GST paid allowable?
A: Yes, if actually paid.

24.  Q: Are advertisement expenses allowed?
A: Yes, if incurred wholly for business.

25.  Q: Are entertainment expenses allowed?
A: Yes for companies; not allowed for non-corporates.

26.  Q: Can cash expenses > ₹10,000 be claimed?
A: No, disallowed under Section 40A(3) if paid in cash, subject to exceptions.

27.  Q: Are payments to relatives fully allowed?
A: Allowed only to the extent reasonable (Sec 40A(2)).

28.  Q: What is Section 37(1)?
A: General deduction for business expenditure not covered elsewhere.

29.  Q: Are losses due to theft allowable?
A: Yes, if incidental to business.

30.  Q: What about interest on borrowed capital?
A: Allowed if borrowed for business purposes.

31.  Q: Is bonus to employees allowed?
A: Yes, if paid before due date of return filing.

32.  Q: Are taxes paid allowed as deduction?
A: Yes, business-related taxes like sales tax, professional tax.

33.  Q: Is TDS default expense allowed?
A: No, if TDS not deducted/deposited, expense is disallowed u/s 40(a)(ia).

34.  Q: Are foreign exchange losses allowed?
A: Yes, if related to business.

35.  Q: Is amortization of goodwill allowed?
A: Yes, following Supreme Court ruling (post-AY 2013–14).

 Section 4: Deemed Incomes (Q36–Q40)

36.  Q: Is recovery of earlier bad debt taxable?
A: Yes, under Section 41(4).

37.  Q: What is deemed income u/s 41(1)?
A: Remission or cessation of business liability is taxable.

38.  Q: Is sale of depreciated asset fully taxable?
A: Yes, up to WDV is business income; excess is capital gain.

39.  Q: What is balancing charge?
A: It arises in case of sale of asset where sale value > WDV.

40.  Q: Are subsidies taxable?
A: Yes, if related to revenue expenses, taxable under PGBP.

 Section 5: Presumptive Taxation (Q41–Q50)

41.  Q: What is presumptive taxation?
A: Taxation on presumptive income instead of maintaining books.

42.  Q: What is Section 44AD?
A: Presumptive taxation for businesses up to ₹3 crores turnover (6%/8%).

43.  Q: What is Section 44ADA?
A: Presumptive income scheme for professionals up to ₹75 lakhs turnover (50%).

44.  Q: Who is eligible for 44AD?
A: Resident individuals, HUF, partnership firms (non-LLP).

45.  Q: Is audit compulsory under presumptive scheme?
A: No, unless income declared is less than deemed and total income > basic exemption.

46.  Q: What is Section 44AE?
A: For transporters owning ≤10 goods carriages, fixed income per vehicle per month.

47.  Q: Are deductions allowed under presumptive schemes?
A: No, all expenses are deemed to be allowed.

48.  Q: Is depreciation allowed under 44AD?
A: Not separately; WDV of assets is reduced.

49.  Q: What if assessee opts out of 44AD?
A: He cannot re-enter for 5 assessment years.

50.  Q: Can professionals opt for 44AD?
A: No, only 44ADA applies to specified professionals.

 Section 6: Tax Audit, Accounting, Misc. (Q51–Q60)

51.  Q: When is tax audit applicable under PGBP?
A: If turnover exceeds ₹1 crore (or ₹10 crores for cashless transactions) u/s 44AB.

52.  Q: Is tax audit required under 44ADA?
A: No, unless professional income is <50% and exceeds exemption limit.

53.  Q: Are books of accounts mandatory?
A: Yes, if turnover exceeds prescribed limits under Section 44AA.

54.  Q: What are intangible assets for depreciation?
A: Know-how, patents, copyrights, trademarks, licenses, goodwill.

55.  Q: What is block of assets?
A: Group of assets with same depreciation rate.

56.  Q: What is WDV method?
A: Written Down Value method used for depreciation under Income-tax Act.

57.  Q: Is speculative business loss allowed to be set off?
A: Only against speculative business income; carried forward for 4 years.

58.  Q: Can PGBP loss be carried forward?
A: Yes, for 8 years and can be set off only against PGBP income.

59.  Q: Can profession income be clubbed with spouse's income?
A: Only if covered under clubbing provisions (e.g., spouse employed in concern of individual).

60.  Q: What is the due date for filing ITR under PGBP with audit?
A: 31st October of the assessment year.