Taxable Income in India | 5 Heads of Income in India

5 Major Heads of Taxable Income in India

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5 Major Heads of Taxable Income in India

Be an informed taxpayer; know your Income Tax in order to save better. Here are the 5 income heads, you will be get taxed on and where you are eligible to get Income Tax Refunds.

Income from Salary:

Any of the below monetary/non-monetary benefits, received by employee from his employer for the services rendered.

IncludesComment
Basic Wages and/or Salary, Dearness AllowanceEntirely Taxable
Allowances:

Exempt up to specified limits



Fully taxable:
HRA, conveyance allowance, children education & hostel expenditure allowance, leave travel concession, uniform allowance, health club allowance, etc.

Any special/other allowance
Monetary and non-monetary perquisites:

Interest free Loan
Gifts
Rent free or concessional accommodation
Reimbursement of car, petrol and maintenance expenses.
Other amenities provided free of charge or at concessional rate. etc.


Perquisite will be exempt up to certain specified limit subject to perquisite valuation rules.
Retirement benefits :

Any Gratuity, Leave Encashment, Pension
Exempt up to specified limits subject to certain conditions.
Note: Pension except commuted pension is fully taxable.
Profits in lieu of salarye.g. Payment before joining and after retirement, etc.

Income from house property:

Any income from any building or land appurtenant thereto which is owned by assesse, and it is not used for business or profession.

Situation Comment
Multiple house property
Only one property can be claimed as self-occupied, others to be compulsorily considered as let out (i.e. Deemed let out)
Deductions available from Income from house property Municipal taxes (actually paid) if borne by owner
Standard deduction @ 30% on annual value
Interest paid on the housing LoanSelf-occupied : Maximum till 150000/-
Let out: No such maximum limit.
Pre-construction Interest : Allowed in 5 equal instalments subject to fulfilment of certain conditions
Co-owned House propertyBoth income and the other deduction mentioned above will be divided in the same ratio of the ownership.
If the shares are not defined/ ascertained then it is to be considered equal.

Profits and Gains of Business and Profession:

Any income derived by any person from any activity carried on by him with the intention to earn profit therefrom will be chargeable under this head of income.

SituationComment
Business It includes trade, commerce, manufacture, any adventure or concern in the same nature.
ProfessionLawyers, Chartered Accountants, Doctors, practicing engineers, architects, any other professionals.
Tax Levy Tax is levied on the profits and not on the turnover, sales or receipts.
Any expenses incurred specifically with respect to the business and profession will be deductible from the sales /turnover, receipts to arrive at taxable profits.

Tax Audit applicability:

For the business:If the turnover exceeds Rs.1crores.

For profession: If the professional receipt exceeds Rs.25Lacs.

Presumptive taxation:

If assessee is below tax audit limit, not carrying out profession and no books of accounts are maintained then he has an option to opt for presumptive taxation. ( i.e. profit @8% of turnover under section 44AD)

Income from Capital Gain:

Any appreciation/depreciation on the capital asset (movable/immovable) transferred by assessee during the previous year, then it is chargeable to tax under this section subject to certain exemption.

Capital gain arising can be short term or long term based on the period of holding. And it is taxable in the year of sale or redemption of the capital asset.

Holding periodExamples
12 months or less than short term otherwise it will be long termEquity Shares, Preference shares, units of mutual funds, debentures (if quoted on recognized stock exchange)
36 months holding periodAny other capital asset. e.g. Land, Building, House property, jewellery, gold, paintings, vehicles etc. (However it should not be used for personal effect)

Tax implication:

Long term gain will be taxed at special rates.

Short term gain will be taxed at special rate or slab rate, subject to the type of asset.
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. For example:

Dividend from foreign company or deemed dividend, gifts, interest income on investments/securities.

Winning from lotteries/puzzles/games

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1 Comment

  1. Mora says:

    And you need to materially ( 50%+) reduce their pension accruals.

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