The heads of the income help in bifurcation of income and thereby, enable the smooth calculation of taxes. That said, the taxpayer must classify his income under these heads at the end of each financial year.
What are the Heads of Income?
As per the Income Tax, there are 5 heads of income, which are as follows:
– Income from Salary & Pension
– House Property Income
– Income from Profits & Gains from Business & Profession
– Capital Gains Income
– Income from Other Sources
Income from Salary
The head income from salary includes all income an employee receives during his employment with the relevant company during the relevant financial year. That said, the income from salary comprises of income from salary, advance salary, perquisites, commission, gratuity, bonus as well as pension.
Further, this head also includes the following:
– Taxability of income from salary
– Deductions available under salary
– Other components of salary like monetary perquisites, etc
In addition to this, income from salary head also includes the exemptions like House Rent Allowance, Leave Travel Allowance, Entertainment Allowance, etc
The full list of Exemptions and Allowances with limits are as follows:
| Particulars | Exemptions Limit |
|---|---|
| House Rent Allowance Exemption | No limit |
| Leave Travel Allowance Exemption | No limit |
| Children Education Allowance | ₹100/month or 1200/year |
| Entertainment Allowance | ₹5000 (available only to government employees) |
| Voluntary Retirement Exemption | ₹5 lacs |
| Gratuity exemption | ₹10 lacs |
| Leave Encashment Exemption | ₹25 lacs |
| Transport allowance for commuting from place of residence to place of duty | Rs 1,600 per month or Rs 19,200 per annum |
| Transport allowance for commuting from place of residence to place of duty for an employee who is physically challenged such as blind/deaf/dumb or orthopaedically handicapped with disability of lower extremities | Rs 3,200 per month or Rs 38,400 per annum |
| Transport allowance for employee of transport business for meeting personal expenditure during running of such transport from one place to another. (This exemption would be applicable if he is not receiving any daily allowance) | Exemption amount shall be lower of following: a) 70% of such allowance; or b) Rs. 10,000 per month |
| Gifts received from employers | ₹5000 |
| food allowance of Rs. 50/meal subject to 2 meals a day | ₹50/meal subject to 2 meals a day |
Also Read: Exemptions, Allowances, and Deductions under the Old & New Tax Regime
House Property Income
The head Income from House Property includes income from renting out of property. Having said this, the renting out of property can be residential or commercial. However, to calculate income under this head, the individual must own the property. That is, the business must not own this property.
Further, income from house property has following three classifications:
– Firstly, self-occupied property
– Secondly, let-out property
– Lastly, deemed let-out property
Note:
In case you own more than one self-occupied property, then only one property will be considered as self-occupied property. And, the other property will be let-out property.
Also Read: Do I need to File ITR? Comprehensive Guide Easily Explained
Income from Profits & Gains from Business & Profession
Under the head, Income from Profits & Gains from Business & Profession – the income from any business & profession are taxable.
This includes the income from following sources:
– Profits by way of sale of a certain license.
– Gains from speculative business activities or transactions during an assessment year.
– Amount under the Keyman Insurance Policy.
– The profits that an organisation makes on its income.
– Cash on the export of a government scheme.
– The benefits that a business receives
– .Gains, bonuses or salary that an individual receives due to a partnership with a firm.
Also Read: Know all About Presumptive Taxation Scheme
Capital Gains Income
The head Income from Capital Gains includes gains from sale or transfer of capital assets like shares, mutual funds, cryptocurrency, house property, bonds and many more. Further, the taxability of the capital assets depends upon the type and duration of holding the capital assets. The same is as follows:
Capital Asset
Long Term Duration
Long Term Taxability
Short Term Duration
Short Term Taxability
Immovable property (eg: Land)
More than 24 months
20% with Indexation
Less than 24 months
As per the Income Tax Slab
Movable property (eg: Jewellery)
More than 36 months
20% with indexation
Less than 36 months
As per the Income Tax Slab
Shares recognised by SEBI
More than 12 months
10% in excess of Rs. 1 lac
Less than 12 months
15%, irrespective of the amount
Unlisted Shares
More than 24 months
20% with indexation
Less than 24 months
As per the Income Tax Slab
Equity Oriented Mutual Funds
More than 12 months
10% in excess of Rs. 1 lac
Less than 12 months
15%, irrespective of the amount
Debt Oriented Mutual Funds
More than 36 months
20% with indexation
Less than 36 months
As per the Income Tax Slab
Cryptocurrency
More than 36 months
30%
Less than 36 months
30%
Therefore, the taxability of capital gains is different for short term and long-term capital gains as well as the type of the assets.
Also Read: How to Treat Capital Gains from Sale of Shares?
Income from Other Sources
If there is any income that does not fall in any of the above 4 heads, then it will fall under the head “Income from Other Sources”. The income from other sources can be interest income from savings banks account, fixed deposits, gifts, royalty, dividend, winnings from lotteries and gambling and many more.
FAQs
Yes, you must pay income tax even if the source of income is unlawful. The Income Tax is levied and collected by the Income Tax Department on all sources be it lawful or unlawful.
You can check your Income Tax liability by using TaxHelpdesk’s Free Income Tax Calculator.