Section 28(iv) of Income Tax Act: Taxation of Benefits and Perquisites

When we think of income, we usually imagine cash, salary, or direct payments. But in the business and professional world, income does not always come in cash. Sometimes, businesses and professionals receive benefits or perquisites in kind—like a car, free accommodation, discounts, or even loan waivers. The question arises: should these benefits be taxed?

To address this, the Income Tax Act introduced Section 28(iv) under the head Profits & Gains of Business or Profession. This section ensures that if you receive a benefit or perquisite from your business or profession, it is treated as taxable income, even if it is not in cash.

Understanding Section 28(iv) of Income Tax Act

The law states:

• Clause (iv) of this section brings to chargeability the value of any benefit or perquisite, whether convertible into money or not, arising from the business or profession.
• It applies to both tangible & intangible benefits.

For example:

• If a company provides a car to its director for personal use without charging rent, the value of the car’s use is a taxable perquisite.
• If a supplier gives heavy discounts not normally available in the market, it may also be considered a benefit under Section 28(iv).

Key Elements of Section 28(iv)

1. Provides for taxation of value of any benefit or perquisite – If you receive something valuable through your business or profession, it is taxable.
2. Must not only be referable to a benefit or perquisite – It covers all forms of benefits, direct or indirect.
3. Outlines taxation rules regarding income generated from professional activities or business operations – Meaning, even if not cash, the benefit is counted as part of your income.
4. Falls under Profits & Gains of Business or Profession – This ensures fair taxation for all types of business-related income.

Also Read: Understanding Business Income Taxation

Practical Examples of Section 28(iv)

• A businessman gets a free overseas trip from a supplier for achieving a sales target. The value of this trip will be taxed.
• A doctor receives expensive medical equipment free of cost from a pharmaceutical company. It will be taxable under this section."
• A professional gets office rent waived by a landlord for services rendered. This is a taxable benefit.

Whether Waiver of Loan Can Be Taxed Under Section 28(iv)?

One of the most debated issues under this section is the waiver of loans.

• If a loan taken for trading purposes (like working capital) is waived, courts have ruled it can be treated as a taxable benefit under Section 28(iv).
• However, if the loan was taken for capital purposes (like buying machinery or fixed assets), waiver may not be taxed under this section but could be considered under Section 41(1).

Thus, whether waiver of loan can be taxed under Section 28(iv) depends on the purpose of the loan.

Judicial Precedents on Section 28(iv)

• In several cases, courts have emphasized that only non-monetary benefits are taxable under Section 28(iv). If the benefit is received in money form, it may not fall under this section.
• However, interpretation varies, and disputes are common.

Importance for Businesses and Professionals

1. Ensures fair taxation – No escaping tax just because income is in kind.
2. Prevents misuse – Businesses might otherwise avoid cash benefits & distribute perks instead.
3. Broad coverage – Covers not just cash but also hidden gains from professional or business dealings.

Also Read: The Definition of ‘Principal Officer’ That Holds the Key to Compliance

Section 28(iv) vs Other Tax Provisions

• Section 28(iv) deals with benefits & perquisites.
• Section 41(1) deals with remission or cessation of trading liability.
• Section 56(2) deals with income from other sources.

Thus, Section 28(iv) works as a safeguard, ensuring that benefits linked to business operations are taxed under the profits and gains of business or profession."

Common Misconceptions

• Many believe only cash benefits are taxed – but non-cash benefits are also covered.
• Some assume personal gifts are included – however, only business/professional related benefits are taxed.
• There is confusion over loan waivers – clarity depends on the purpose of the loan.

Real-Life Illustration

Let’s say Mr. A, a businessman, gets a luxury phone worth ₹1 lakh free from a vendor. Even though Mr. A did not receive money, the value of the phone will be added to his business income under Section 28(iv).

Key Takeaways

• Section 28(iv) of Income Tax Act provides for taxation of value of any benefit or perquisite.
• It outlines taxation rules regarding income generated from professional activities or business operations.
• Clause (iv) brings to chargeability the value of any benefit or perquisite, whether convertible into money or not.
• The big debate is on whether waiver of loan can be taxed under Section 28(iv) – trading loans yes, capital loans maybe not.
• It falls under Profits and Gains of Business or Profession, ensuring fairness in tax treatment.

Also Read: The Definition of ‘Principal Officer’ That Holds the Key to Compliance

Conclusion

The scope of income under the Income Tax Act is vast, and Section 28(iv) ensures that businesses & professionals don’t escape taxation just because they receive benefits in kind. Whether it’s free trips, loan waivers, or luxury gifts, this section makes sure they are taxed as part of profits and gains of business or profession.

👉 If you’re confused about how Section 28(iv) applies to your business, especially in complex cases like loan waivers or corporate perquisites, our experts at Callmyca.com can guide you. Book a consultation today and avoid unexpected tax shocks!