As per Section 14 of the Income Tax Act of 1961, there are five heads of income for the computation of income tax. The government has defined such five heads for the assessee, who can easily divide his income under five heads.

The Five Major Heads for Computation of the Income Tax under the Income Tax Act, 1961

1. Income under the head Salary
2. Income under the head House property
3. Profits and Gains from Business and Profession
4. Income under the head from Capital Gains
5. Income under the head from Other Sources

Income Under the Head Salary

The first head of income is Salary. The question arises when Income is taxable under the head Salary. Income is taxable under the head Salary only if the employer-employee relationship between the payer (who pay) and payee (who receives) exists. Employer and Employee relationship exists only when there is a Contract of Service. Salary Income covers all types of pay or remuneration the employer gives to the employee. Basic salary, allowances, leaves encashment, rent allowances, provident fund, gratuity, etc.

Income Under the Head House Property

The second head of income is House Property. Any assesses or taxable person who earns income by renting a property and such activity is not his actual business will be taxable under the head house property. In this head of income assesses who have borrowed loan for the house property and have a burden of interest payment on such loan then assesses can avail deduction for the interest on borrowed capital.

Note:

• The income earned by an assessee engaged in the business of letting out of properties on rent would be taxable as Business Income.
• The maximum deduction is available in case of self occupied property is Rs. 2,00,000.
• In case of let-out property there is no limit of deduction of such interest.

Profit and Gain From Business and Profession

The third head of income tax is profits and gains of any business and profession carried on by the assessee at any time during the previous year shall be chargeable under the head PGBP. Such income will be computed from the difference between expenses and revenue of the business and profession.

The income which is chargeable under the head PGBP are:-

1. Profits earned on sale of goods and services during the previous year.
2. Any income which is earned by daily routine activities.
3. Income earned through services of consultancy.
4. Profit, salary and bonus received in the partnership firm.

Income Under the Head Capital Gains

Any Profits or Gains arising from the selling or transfer of capital assets (i.e. movable or immovable) in the previous year, shall be taxable under head Capital Gains or shall be deemed to be the income of the previous year in which the transfer took place.

Conditions for taxability are:

1. There must be a capital assets;
2. The capital assets must have been transferred;
3. There must be profits or gains on such transfer which will be known as capital gain.

Income Under the Head Other Sources

Any income which is not covered above four heads and which is not exempt shall be taxable under section 56 of the Income Tax Act.

For Example:-

• Interest earned from savings and deposits;
• Income earned from winnings lotteries and gambling;
• Gifts received by the individual from person other than the relatives which is more than 50,000 shall be taxable under the head other sources.

For any help on ITR Filing feel free to consult the tax experts at Singla Pawan Associates. You can file ITR yourself or get CA’s help on filing income tax return.