Exploring The Different Heads Of Income Under Tax Laws

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The heads of income are essential for the bifurcation of income, facilitating the smooth calculation of taxes. Taxpayers must classify their income under these heads at the end of each financial year.

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What are the Heads of Income?
The Income Tax Act recognises five categories of income:

Income from Salary & Pension
House Property Income
Income from Profits & Gains from Business & Profession
Capital Gains Income
Income from Other Sources
Income from Salary
This head includes all employee income during their employment with a company in a given financial year. It covers income from salary, advance salary, perquisites, commission, gratuity, bonus, and pension.

Further, it also includes:

Taxability of income from salary
Deductions available under salary
Other components like monetary perquisites
Additionally, this head covers exemptions such as House Rent Allowance, Leave Travel Allowance, Entertainment Allowance, etc.

House Property Income
This head includes income from renting out ...
... property, whether residential or commercial. The individual, not the business must own the property.

Classifications:

Self-occupied property
Let-out property
Deemed let-out property
Note: If you own more than one self-occupied property, only one can be considered as such; the other(s) will be deemed let-out property.

Income from Profits & Gains from Business & Profession
This head encompasses income from any business or profession, including:

Profits from the sale of licenses
Gains from speculative transactions
Amounts under Keyman Insurance Policy
Business profits
Cash from government export schemes
Business benefits
Gains, bonuses, or salary from partnerships
Capital Gains Income
This head includes gains from the sale or transfer of capital assets like shares, mutual funds, cryptocurrency, property, bonds, etc. Taxability depends on the type and duration of holding the assets.

Income from Other Sources
Any income not falling under the above four heads is categorized as interest income from savings accounts, fixed deposits, gifts, royalties, dividends, lottery winnings, and gambling.

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