Section 66 of the Income-tax Act, 2025 — Interpretation (Definitions for Business & Profession Income)

In plain language

What Section 66 actually is

Section 66 of the Income-tax Act, 2025 is the "Interpretation" section for the entire block of provisions dealing with Profits and Gains of Business or Profession (PGBP). That block runs from Section 26 to Section 66 (Part D of Chapter IV). Section 66 sits at the very end and acts as the dictionary for all the earlier PGBP sections — it does not by itself charge any tax or allow any deduction. Instead, it tells you the exact legal meaning of roughly 40+ terms used when you compute business or professional income.

In plain words: whenever a PGBP section uses a word like "paid", "plant", "speculative transaction" or "actual cost", you look to Section 66 to know precisely what that word covers. Section 66 is the modern replacement for Section 43 of the old Income-tax Act, 1961 (with a few definitions drawn from Section 43A and other definitional provisions folded in).

Who it applies to

• Every business and every professional computing income under the PGBP head — traders, manufacturers, doctors, lawyers, chartered accountants, freelancers, consultants, LLPs, firms and companies.
• Share and commodity traders — because the definitions of "speculative transaction", "specified derivative transaction" and "recognised commodity exchange" decide whether your trading gains are speculative or non-speculative.
• Banks, NBFCs, housing finance companies and co-operative societies — many special deductions in the PGBP block use terms defined only here (e.g. "rural branch", "long-term finance", "primary agricultural credit society").

The most important defined terms

• "Paid" — means actually paid or incurred according to your method of accounting. So if you follow the mercantile (accrual) system, an expense is treated as "paid" once the liability is incurred, even if cash hasn't left your account (subject to Section 37-type disallowances).
• "Plant" — includes ships, vehicles, books, scientific apparatus and surgical equipment used for the business or profession, but excludes tea bushes, livestock, buildings and furniture & fittings. This directly affects what qualifies for depreciation at plant rates.
• "Speculative transaction" — a contract for purchase or sale of any commodity, stocks or shares that is settled otherwise than by actual delivery. Crucial exceptions (which are NOT speculative): genuine hedging contracts, jobbing/arbitrage by dealers, and eligible exchange-traded derivatives.
• "Actual cost" — the cost of the asset to you, reduced by any portion met directly or indirectly by another person or authority (e.g. a subsidy). This is the starting figure for depreciation.
• "Scientific research" — activities extending knowledge in natural or applied science, including agriculture, animal husbandry and fisheries; relevant to research-linked deductions.

How it interacts with other sections

Section 66 is a supporting provision — it powers the operative PGBP sections rather than standing alone:

• The "paid" definition supports the deduction and disallowance sections (accrued vs. cash expenses).
• The "plant" and "actual cost" definitions feed directly into the depreciation provisions.
• The "speculative transaction" definition connects to how speculative business losses are computed and set off (they can only be set off against speculative profits).
• Terms like "permanent establishment", "royalty" and "fees for technical services" are cross-referenced to other sections (e.g. Section 173, Section 9), keeping the Act internally consistent.

Practical implications for taxpayers

• Traders must classify correctly. If your intraday equity trades are settled without delivery, they are speculative — losses cannot be adjusted against salary, rent or normal business profit, only against speculative gains.
• Delivery-based and eligible F&O trades escape the speculative tag because of the derivative and hedging carve-outs — a big relief for genuine investors and hedgers.
• Depreciation planning depends on whether an asset is "plant". Books, surgical instruments and vehicles qualify; a building or furniture does not get plant treatment.
• Because Section 66 is largely a re-codification of the old Section 43, most established judicial interpretations continue to hold, with modernised wording covering commodity derivatives and informal "agreements".