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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Nature of Business

A company is deciding whether to give a one-time payment to a retired managing director. Under section 26 of the Income-tax Act, 2025, a compensation received by a person wholly or substantially managing the affairs of an Indian company in connection with termination of management is chargeable under which head?

It is chargeable under the head Profits and gains of business or profession. Section 26 expressly includes compensation received by a person managing an Indian company's affairs on termination of management or modification of its terms, so it is not treated as capital gains or other sources.

  1. ACapital gains
  2. BIncome from other sources
  3. CProfits and gains of business or professionCorrect
  4. DIncome from house property

Explanation

Section 26(2)(b)(i)(A) includes in business income any compensation received by a person wholly or substantially managing the affairs of an Indian company in connection with termination of management or modification of its terms. So it is not capital gains or other sources.

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