Every Law is complex because of its provisions, case laws and mainly its legal language. When it comes to income tax everyone is keen to know about what kind of incomes are taxable as per Income Tax Act. In the following article we try to explain the same question for all our users.
The Constitution of India gives power to Parliament to levy taxes on incomes other than agricultural income. As per Income tax Act, there are five heads of income under which an income is taxable. We shall have a brief overlook on these five heads of income.
1. Income from salary:
Any monetary/non monetary benefit received by an employee from his employer for the services given by employee is taxable as salary income. Salary also includes pension, retirement benefits, any non cash benefits and any concessions e.g. interest free loan, gifts from employer, rent free accommodation provided by employer. Salary is taxable when it is due or received whichever is earlier, which means, March 2014 salary received in April 2014 is taxable in the financial year 2013-14.If an employee receives April 2014's salary in advance in March 2014, it will be taxable in the year of receipt (ie financial year 2013-14) and not in the subsequent financial year even though that salary is of next financial year.
2. Income From House Property:
Rental income of house property is taxable as house property income. If a person owns more than one house property; then only one house property will be considered as self occupied and other as rented property even though that house property is not rented throughout the year there by taxing such income on notional basis. Interest paid on housing loan is deductible from the rental income of the house property.
3.Income from Business and profession:
Any activity, which is carried out with the intention to earn profit, is known as business and it will be taxable as business income of a person. income derived by professionals like doctor, lawyer, CA and other professionals for their expertise services is also taxable in the head of Income from business and profession. Tax is levied on the amount of profit earned by person through business and profession and not on turnover/sale/receipts of a business or profession. If a person is a salaried employee and is also working in his professional capacity then this income is taxable as income from business and profession and his salary income will be taxed under income from salary.
4. Capital Gain:
As the name suggests,capital gain is income derived from appreciation or rise in the sale value of the asset at the time of sale. Capital gain is the difference between sale price of asset and its purchase cost arrived after applying normal inflation rate over the period of time. In some cases the option of an indexed purchase cost is not available. Asset might be movable or immovable eg. Shares, debentures, bonds, gold, paintings, vehicles, machinery, house property, land etc. Gain at the time of sale of these assets is taxable as capital gain.
5. Income from Other Sources:
Income which is not covered in any of the income heads as discussed above is taxable under this head of income. Incomes such as dividend, interest on investments, gift, winning from lotteries/puzzles/games are taxable under this head.
Every person must calculate his income according to charge ability of income in five heads referred above. Total income is reduced by deductions to arrive at taxable income. On such taxable income, taxes are determined and paid.
When it's about your hard-earned money, it pays to be an informed taxpayer.
The Constitution of India gives power to Parliament to levy taxes on incomes other than agricultural income. As per Income tax Act, there are five heads of income under which an income is taxable. We shall have a brief overlook on these five heads of income.
1. Income from salary:
Any monetary/non monetary benefit received by an employee from his employer for the services given by employee is taxable as salary income. Salary also includes pension, retirement benefits, any non cash benefits and any concessions e.g. interest free loan, gifts from employer, rent free accommodation provided by employer. Salary is taxable when it is due or received whichever is earlier, which means, March 2014 salary received in April 2014 is taxable in the financial year 2013-14.If an employee receives April 2014's salary in advance in March 2014, it will be taxable in the year of receipt (ie financial year 2013-14) and not in the subsequent financial year even though that salary is of next financial year.
2. Income From House Property:
Rental income of house property is taxable as house property income. If a person owns more than one house property; then only one house property will be considered as self occupied and other as rented property even though that house property is not rented throughout the year there by taxing such income on notional basis. Interest paid on housing loan is deductible from the rental income of the house property.
3.Income from Business and profession:
Any activity, which is carried out with the intention to earn profit, is known as business and it will be taxable as business income of a person. income derived by professionals like doctor, lawyer, CA and other professionals for their expertise services is also taxable in the head of Income from business and profession. Tax is levied on the amount of profit earned by person through business and profession and not on turnover/sale/receipts of a business or profession. If a person is a salaried employee and is also working in his professional capacity then this income is taxable as income from business and profession and his salary income will be taxed under income from salary.
4. Capital Gain:
As the name suggests,capital gain is income derived from appreciation or rise in the sale value of the asset at the time of sale. Capital gain is the difference between sale price of asset and its purchase cost arrived after applying normal inflation rate over the period of time. In some cases the option of an indexed purchase cost is not available. Asset might be movable or immovable eg. Shares, debentures, bonds, gold, paintings, vehicles, machinery, house property, land etc. Gain at the time of sale of these assets is taxable as capital gain.
5. Income from Other Sources:
Income which is not covered in any of the income heads as discussed above is taxable under this head of income. Incomes such as dividend, interest on investments, gift, winning from lotteries/puzzles/games are taxable under this head.
Every person must calculate his income according to charge ability of income in five heads referred above. Total income is reduced by deductions to arrive at taxable income. On such taxable income, taxes are determined and paid.
When it's about your hard-earned money, it pays to be an informed taxpayer.