Section 26 of the Income-tax Act, 2025 — Profits and Gains of Business or Profession (The Charging Section)

In plain language

What Section 26 actually does

Section 26 is the "charging section" for the head "Profits and gains of business or profession" (PGBP) under the Income-tax Act, 2025. In plain words, it is the provision that tells you which receipts are taxable as business or professional income in the first place. It is the direct replacement of the well-known Section 28 of the Income-tax Act, 1961, and it carries forward almost the same list of items with cleaner, table-style drafting. The Act applies from 1 April 2026 (Tax Year 2026-27).

Section 26 does not tell you how to compute the taxable figure — deductions, depreciation, disallowances and presumptive schemes live in the sections that follow (roughly Sections 27 to 66). Section 26 only defines the scope of what falls into the PGBP net.

Who it applies to

• Every person carrying on a business or profession — sole proprietors, freelancers, consultants, doctors, lawyers, CAs, partnership firms, LLPs, companies, HUFs and traders.
• Income is taxable even if the business was carried on for only part of the tax year — you do not need to run it for the full 12 months.
• It captures both "business" (trade, commerce, manufacture) and "profession" (skill-based vocation), including a "profession" that also covers a vocation.

What income Section 26 charges (the inclusive list)

The section uses an inclusive definition — the listed items are examples, not an exhaustive boundary. Broadly, PGBP includes:

• Profits of any business or profession carried on at any time during the tax year.
• Compensation for termination or modification of management of an Indian/foreign company, an agency in India, or business contracts; and compensation for vesting management of property/business in the Government.
• Income of trade, professional or similar associations from specific services rendered to their members.
• Export incentives — profit on sale of an import licence, cash assistance against exports, duty drawback, and duty remission.
• Value of any benefit or perquisite (in cash or kind) arising from the business or profession — for example free goods, sponsored trips or waived liabilities.
• Partner's remuneration — interest, salary, bonus and commission received by a partner from a firm, but only to the extent it was allowed as a deduction to the firm.
• Non-compete / non-disclosure fees — sums received for not carrying on a business or for not sharing know-how, patents, trademarks or similar rights.
• Keyman insurance policy proceeds, including any bonus on such a policy.
• Fair market value of inventory (stock-in-trade) converted into a capital asset.
• Recapture / balancing receipts — sums received in respect of a capital asset whose whole cost was earlier allowed as a deduction (e.g. scientific research assets).

Two important boundary rules

• Speculative business is treated separately. A speculative business (e.g. certain non-delivery share/commodity trades) is deemed a distinct and separate business. Its losses can only be set off against speculative profits — this ring-fencing protects the rest of your income.
• Residential property rent is excluded. Rent from letting out a residential house is charged under "Income from House Property", not under PGBP — even for someone in the property business.

How it interacts with other sections

Once Section 26 pulls a receipt into the PGBP head, the computation and deduction sections take over — admissible expenses, depreciation, disallowance of unpaid statutory dues, and the consolidated presumptive scheme in Section 58 (which merges the old 44AD/44ADA/44AE into one table). Business losses are governed by the set-off and carry-forward provisions.

Practical implications

• If you are a freelancer or professional, your fees are PGBP — declare them here and claim genuine expenses, or opt for presumptive taxation under Section 58 if eligible.
• Watch for "deemed" receipts — non-compete fees, Keyman insurance and export incentives are taxable even though they don't feel like ordinary "sales".
• Keep partner remuneration aligned with the firm's allowed deduction, or a mismatch can create a tax leakage.