Explains head of income

1. Business Taxation
Heads of Income
Presented By:
Suvam Sahoo - 55
Swagatika Palai - 56
Tejas Badhan - 57
Utkarsh Sharma - 58
Vishakha Agrawal - 59
Vithal Gawde - 60

2. • Under the Income Tax Act, there are five heads which are
known as the heads of income. At the end of each year, it is
expected to classify yearly earnings under these heads of
income as per the Income Tax Act to calculate the amount of
tax payable as a registered citizen of a country abiding by the
laws of the prevailing Government.
• These heads of income are here to ensure the proper
maintenance of monetary power within the social and
governing system.
Heads of Income Under the Income Tax Act

3. Income from Salary
Income from House Property
Income from Profits and Gains of Business and Profession
Income from Capital Gains
Income from Other Sources
Heads of Income Tax

4. Income from Salary
• Salary qualifies to be considered for income tax only if there is an
employer-employee relationship between the payer and the payee
respectively.
• Allowances: Generally included in the salary and taxed unless
there are exemptions available.
• Employers provide allowances for specific tax exemptions as part
of the remuneration. Some of them are following
1. Conveyance Allowance: Up to Rs 800/- a month is exempt
from tax.
2. House Rent Allowance (HRA): Salaried individuals can claim
House Rent Allowance or HRA to lower taxes who live in a
rented house. This can be partially or completely exempt from
taxes.

5. Deduction Available is the Minimum of the
Following Amounts
• Actual HRA received: 50% of [Basic salary + DA] for those
living in metro cities (40% for non-metros)
• Actual rent paid less 10% of salary
• Leave Travel Allowance (LTA): LTA accounts for expenses
for travel when you and your family go on leave. While this
is paid to you, it is tax-free twice in a block of 4 years.
• Medical Allowance: Medical expenses to the extent of Rs
15,000/– per annum is tax-free. The bills can be incurred by
you or your family.
• Perquisites: Section 17 of Income Tax Act deals with
perquisites which are basically benefits in addition to normal
salary to which an employee has a right by way of his
employment.

6. Income from House Property
• Vacant house property is considered as ‘self-occupied’ in
regards to the purpose of income tax. In the situation that a
taxpayer owns more than a single self-occupied house, then
only one house is treated and considered as a single self-
occupancy house property. Rest is considered to be let out.
• The tax amount charged is not acquired from the amount of
rent that is received but rather on the property or land as a
whole. If the property is being used for a normal course of
business, then the income generated from the rent will also
be included to be charged for tax income.

7. Income from House Property
For income from house property to be
taxable, a few conditions must be satisfied
and fulfilled:
• The house property has to consist of a house, building
or any land appurtenant.
• The taxpayer should be the owner of the house
property.
• The house property must not be used for any business
or professional venture done and carried out by the
taxpayer. It can only be used for residential purposes.

8. Income from profit of Business
The third head of Income Tax heads is Income from Profits of
Business in which the computation of the total income will be
attributed from the income earned from the profits of business or
profession. The difference between the expenses and revenue earned
will be chargeable. Here is a list of the income chargeable under the
head:
•Profits earned by the assessee during the assessment year
•Profits on income by an organization
•Profits on sale of a certain license
•Cash received by an individual on export under a government
scheme
•Profit, salary or bonus received as a result of a partnership in a firm
•Benefits received in a business

9. Other Income Classified as
Profits and Gains of Business
There are certain exceptions to the above rules. The following
incomes must be classified under Profits and Gains of Business,
even if a business was not carried on by the assessee during the
previous year.
• Recovery against any loss, expenditure or trading liability
earlier allowed as a deduction.
• Balancing charge in case of electricity companies.
• Sale of a capital asset which was used for scientific research.
• Recovery against bad debts.
• Any amount which is withdrawn from a Special Reserve.
• Receipt of discontinued business in the case of assessees who
are making use of a cash system of accounting.

10. Income from Capital Gains
• Capital Gains are the profits or gains earned by an assessee
by selling or transferring a capital asset, which was held as an
investment. Any property, which is held by an assessee for
business or profession, is termed as capital gains.
• Assessee needs to pay capital gains tax in the year in which
the transfer of the capital asset takes place. Capital gains tax
can be taxed on short-term capital gain or long-term capital
gain.
• Capital gains are not applicable to an inherited property as
there is no sale, only a transfer of ownership.
• The Income Tax Act has specifically exempted assets
received as gifts by way of an inheritance or will. However, if
the person who inherited the asset decides to sell it, capital
gains tax will be applicable.

11. Types of Capital Gains Assets
1.STCG (Short-term capital asset): An asset held for a period of
36 months or less is a short-term capital asset. The criteria of 36
months have been reduced to 24 months for immovable
properties such as land, building and house property from FY
2017-18. For instance, if you sell house property after holding it
for a period of 24 months, any income arising will be treated as
long-term capital gain provided that property is sold after 31st
March 2017.
2.LTCG ( Long-term capital asset): An asset that is held for more
than 36 months is a long-term capital asset. The reduced period
of the aforementioned 24 months is not applicable to movable
property such as jewellery, debt-oriented mutual funds etc. They
will be classified as a long-term capital asset if held for more than
36 months as earlier.

12. Some assets are considered short-term capital assets when these are
held for 12 months or less. This rule is applicable if the date of
transfer is after 10th July 2014 (irrespective of what the date of
purchase is). The assets are: Equity or preference shares in a
company listed on a recognized stock exchange in India
1.Securities (like debentures, bonds, govt securities etc.) listed on a
recognized stock exchange in India
2.Units of UTI, whether quoted or not
3.Units of equity oriented mutual fund, whether quoted or not
4. Zero coupon bonds, whether quoted or not
• When the above-listed assets are held for a period of more than
12 months, they are considered as long-term capital asset. In the
case of listed equity shares and equity-oriented mutual funds, the
taxpayer should fill in details of the sale in schedule 112A of the
income tax return. In case an asset is acquired by gift, will,
succession or inheritance, the period for which the asset was held
by the previous owner is also included when determining whether
it’s a short term or a long-term capital asset. In the case of bonus
shares or rights shares, the period of holding is counted from the
date of allotment of bonus shares or rights shares respectively.

13. Income from Other Sources
Any other form of income, which is not categorized in the above-
mentioned clauses, can be sorted in this category.
• Interest income from bank deposits
• Dividend income
• Income from gambling or winning races, lotteries, card games, etc.
• Income generated as money or in the form of movable or immovable
property which was not considered or inadequate consideration was
made in the previous year
• Interest received on compensation
• Dividends received from any foreign company
• Gifts received in the form of any sum of money, movable or
immovable property, are also taxable.
These incomes are attributed in Section 56(2) of the Income Tax Act
and are chargeable for income tax.

14. Income from Other Sources
Examples of Receipts that are Chargeable Under
‘Income from Other Sources
a) Income received from subletting a house property by a tenant
b) Insurance commissions received by you (i.e., assesse)
c) Casual income
d) Family pension payments received by the lawful heirs of dead employees
e) Interest earned on deposits with companies and bank deposits
f) Interest on loans
g) Remuneration received by the Members of Parliament (MP)
h) Rental income earned from a vacant plot of land
i) Agricultural income received from an agricultural land situated outside of
India
j) Interest paid out by the Government on excess payment of advance tax.

15. Section Nature of Income Deductions allowed
57(i) Dividend or interest earned on securities Any reasonable sum paid as commission or
remuneration to a banker or any other person to
realize interest or dividend on securities
57(ii) Rental income received from letting of plant,
furniture, machinery or building
Rent, taxes, rates, repairs, depreciation and
insurance, etc
57(iia) Family Pension One-third of the family pension, subject to a
maximum of Rs. 15,000
57(iii) Any other income Any other expenditure (apart from capital
expenditure) expended exclusively and wholly
for earning such income
57 (iv) Interest on the compensation or enhanced
compensation
50% of such interest received (subject to
specific conditions)
58(4) Income from any activity of maintaining or
owning race horses
All expenditures relating to such activity
Section 57- Expenditures Allowed as Deductions
The following expenditures are subject to tax deductions under the ‘Income from Other Sources’ category:

16. Section Nature of Income
58(1)(a)(i) Personal expenses
58(1)(a)(ii) Interest subject to tax, which is payable outside India (there
has been no previous tax deduction on this interest)
58(1)(a)(iii) ‘Salary’ payable outside India on which no tax is deducted
at source or paid
58(1A) Wealth-tax
58(2) Expenditures specified in section 40A
58(4) Expenditure associated with winnings from lotteries, races,
crossword puzzles, games, gambling, or betting
Section 58- Expenses not Deductible while Calculating Income Tax

17. • These are the five heads of income under the Income Tax Act of 196. These detail
and specify the different incomes and monetary functions that are liable for taxation
by the Government. Knowing the details of these five heads of income will allow
proper management of tax.
• The taxpayer can be clear as to the nature of the tax they are paying to the
government and the collection of said tax becomes much smoother and overall
convenient. All citizens who are eligible for taxpayers must abide by these heads of
income.
• If any taxpayer is caught not abiding by the clauses mentioned in the Income Tax
Act and makes an effort to withhold from paying the due tax amounts, he or she if
punishable by the law’s full extent.

18. THANK YOU