Heads of Income ( Sec 14, 14 A )

Lecture 6

Introduction

A person receives income i.e. taxable income

from different sources. All these different

sources of income are classified & Assessed

under certain group or heads. These are know

as “ Heads of Income”.

Heads of Income

• Income From Salary• Income From House Property• Income From Profit or Gain from Business or

Profession• Income From Capital Gain• Income From Other Sources

What is Salary

• Remuneration which is received by an individual for services rendered by him to undertake a contract whether it is expressed or implied

• There has to be “employer – employee” relationship.

Income From SalarySalaries U/ S 17 ( 1 ) include the following1.Wages2.Pension3.Gratuity4.Any Fees, Commission, Perquisite, Profit in Lieu of Salary5.Any Advance Salary6.Bonus7.Annuity8. Income From Provident Fund9.Leave Encashment10.Allowances

List of Allowances Exempted From Tax

• Conveyance Allowance• House Rent Allowances• Entertainment Allowance• Any Allowance granted to an employee to

meet the hostel expenditure of his child• Children Education Allowance• Overtime Allowance

Income From House Property

It is defined as income which is earned by a person through his house or land

The building can be house, office building, go downs etc.

Points to be remembered1.Assessee should be Owner of the Property2.Should be not be used for Business or Profession3.In case of dispute regarding title

Tax is based on Annual Value

Annual ValueFair Rent – The rent which a similar property will fetch at the same or

nearby similar locality

Municipal Rent – The value fixed by municipal or local authority

Fair Rent or Municipal Rent whichever is higher taken into consideration

Standard Rent – Rent which a owner can claim maximum from his tenant

Actual Rent – Rent for which property has been let out.

Standard Rent or Actual Rent whichever is lesser is taken into Consideration

Income From Profit/ Gain From Business/ProfessionConditions

1.There must be a business/profession

2.Business/profession is being carried by assessee

3.Business/ profession have been carried out by assessee in assessment year for which income tax is filling.

Income From Profit/ Gain From Business/Profession

• Profit/Gain from any businesses/profession• Profit on sale of import entitlement License• Income derived by trade/profession• Any interest, salary, bonus, commission or

remuneration received by partner of firm

• The deductions allowed are depreciation of assets used for

• Business; • Rent for premises; • Insurance and repairs for machinery and

furniture; advertisements;• Travelling and many more.

Income From Capital Gain

What is Capital Gain- Income which is derived from the transfer of

capital asset held as investments are chargeable to tax under the head “ Capital Gains”

- Two Type of Capital Asset

1.Short Term Capital Asset

2.Long Term Capital Asset

Capital Gain tax liability when following conditions gets satisfied

1.There should be a capital asset

2.There should be transfer

3.Transfer should be of previous year

4.Result of Transfer should be profit or gain

E.g. Goodwill of business

Exceptions

1.Stock of goods and raw materials used by assessee for his business or profession

2.Movable Property ( wearing apparel, furniture, automobile, phone etc.) held by the assessee. Jewellery which is a movable asset comes under the head of Capital Asset

Income From Other Sources

• Any income that does not fall under the four heads above is taxed under the head “ Income From Other Sources”.

• E.g. – Dividend, Winning of Lottery, Income from Royalty, Income by way of interest on Securities, Income From Letting out machinery, plant or Furniture on Hire basis.

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