What is income: Income means any earning or receipt which is received or accrued from the following sources:-

  • If the money is invested in any assets and out of that any earning is made. For example: rental income from house property, machines, transport vehicles and furniture etc.
  • Any earning from investments made in mutual funds and shares etc.
  • Any earning from interest on deposits with various institutions.
  • Any earnings from rendering the services.
  • Earnings from business or profession.

What is meaning of earning? Earning never means the receipts but it is a surplus over and above the investment made. It means there should be no loss of principal amount. For Example: Mr. X invested Rs.10 lacs in shares and if he sells these shares for Rs.11 lacs then Rs.1 lac will be treated as earning or profit or income not the complete receipt i.e. Rs.11 lacs.

Head of Income: From the point of Indian Income Tax Act, the income is divided in following heads:-

  1. Income from salary:- Salary includes basic salary, all allowances, commission in lieu of salary, value of perquisites, profit in lieu of salary and pension etc.
  2. Income from house property:- Any income from house property whether it is residential or commercial or let out or self occupied.
  3. Profit and gains from business and profession:- Any profit earned from business activities or from rendering of  professional services.
  4. Capital Gain:- Any income from selling any capital goods will be treated as capital gain. For example sale of properties, sale of machines, sale of mutual funds and sale of shares etc.
  5. Income from other sources:- Any income which is not covered under above heads for tax purpose, is treated as income from other sources. For example:-
  • Income from interest on fix deposits with bank.
  • Income from interest on fix deposits with other institutions.
  • Interest on taxable bonds.
  • Interest on taxable securities.
  • Income from lotteries.
  • Income from crossword puzzles.
  • Income from horse races or other races.
  • Income from games.
  • Gift received in cash or either way, from unrelated persons exceeding a specified limit etc. For financial year, the gift amount must not exceed Rs.50000/= in aggregate during financial year.
  • Any sum including bonus, received under the Keyman Insurance Policy, which is not taxable under the head ‘salaries’ or ‘profit and gains of business or profession’.
  • Interest received on compensation/enhanced compensation.
  • Interest on and premium on redemption of debentures.
  • Fees from tutions and examinations etc. received by an individual who is not engaged in such type of profession.
  • Income of beneficiary  of a trust.
  • Income from agricultural land out side of India.
  • Family pension which is paid to a family member of the deceased employee by the employer.
  • Rent of plot of land/ground rent.
  • Insurance commission.
  • Casual income.
  • Income from undisclosed sources.
  • Salary received by members of Parliament.
  • Interest on all types of tax refunds.
  • Income from letting out of space for display of hoardings.
  • Interest on application money on shares, debentures, bonds etc.
  • Accrued interest from National Saving Certificates, National Saving Scheme, Kisan Vikas Patras.
  • Any amount withdrawn from  or closure of National Saving Scheme along with accrued interest is included income from other sources.
  • Amount of annuity or bonus received under annuity plans Jeevan Dhara or Jeevan Akshy or the amount received on surrender of these annuity plans, shall be deemed as income from other sources.

Note: In case of death of account holder, any amount received by the nominee in respect of Gross Insurance Value Element or National Saving Scheme including interest, shall not be taxable in hands of the nominee.

Illustration: Mr. X had the following earnings during financial year 2016-17 :-

  1. Salary received by him Rs.480000/=
  2. Rental Income from house property Rs.120000/=
  3. Interest received from Saving bank account Rs.15000/=
  4. Commission received from the employer Rs.8000/=
  5. Interest received from fix deposits Rs.60000/=
  6. Income from a proprietorship business Rs.126000/=
  7. Interest from taxable bonds Rs.80000/=
  8. A cheque for Rs.60000/= received from Mr. Y as gift. Mr. Y is not related to Mr.X.

Arrange his income in suitable heads according to Indian Income Tax Act.:-

Solution:-

INCOME FROM BUSINESS AND PROFESSION
PROFIT FROM PROPRIETORSHIP FIRM 126000
INCOME FROM SALARY
SALARY 480000
COMMISSION 8000
TOTAL SALARY INCOME 488000
INCOME FROM HOUSE PROPERTY
RENTAL INCOME 120000
CAPITAL GAINS 0
INCOME FROM OTHER SOURCES
INTEREST FROM SAVING BANK ACCOUNT  15000
INTEREST FROM FIX DEPOSITS  60000
INTEREST FROM TAXABLE BONDS  80000
GIFT FROM MR.Y 60000
TOTAL INCOME FROM OTHER SOURCES 215000

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