As per the Section 14 of the Income Tax Act of 1961, there can be several modes of income for an individual. The income tax computation is an important part and has to be calculated according to the income of a person. For a hassle-free computation, the income has to be classified properly so that there is zero confusion regarding the same. The government has classified the sources of income under separate heads and then the income tax is computed accordingly. The provisions and rules are according to the details mentioned in the Income Tax Act.
The five main heads of income according to the above-mentioned Section 14 for the computation of the Income Tax in India:
- Income from Salary
- Income from House Property
- Income from Profits and Gains of Business or Profession
- Income from Capital Gains
- Income from Other Sources
This clause essentially assimilates any remuneration, which is received by an individual on terms of services provided by him based on a contract of employment. This amount qualifies to be considered for income tax only if there is an employer-employee relationship between the payer and the payee respectively. Salary also should include the basic wages or salary, advance salary, pension, commission, gratuity, perquisites as well as annual bonus.
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According to the Income Tax Act 1961, Sections 22 to 27 is dedicated to the provisions for the income tax computation of the total standard income of a person from the house property or land that he or she owns. An interesting aspect is that the charge is derived out of the property or land and not on the amount of rent received. However, if the property is utilized for letting out the normal course of business, then the income from the rent will be considered.
Income from Profits of Business
The income tax computation of the total income will be attributed from the income earned from the profits of business or profession. The difference between the expenses and revenue earned will be chargeable. Here is a list of the income chargeable under the head:
- Profits earned by the assessee during the assessment year
- Profits on income by an organisation
- Profits on sale of a certain license
- Cash received by an individual on export under a government scheme
- Profit, salary or bonus received as a result of a partnership in a firm
- Benefits received in a business
Income from Capital Gains
Capital Gains are the profits or gains earned by an assessee by selling or transferring a capital asset, which was held as an investment. Start investing in mutual funds via Fintoo.
Any property, which is held by an assessee for business or profession, is termed as capital gains.
Any other form of income, which is not categorized in the above mentioned clauses, can be sorted in this category. Interest income from bank deposits, lottery awards, card games, gambling or other sports awards are included in this category. These incomes are attributed in the Section 56(2) of the Income Tax Act and are chargeable for income tax.