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What are the 5 Heads of Income?

by | May 8, 2024 | Income Tax, Income Tax filing | 0 comments

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Important Keyword: Capital Gains, Income from Business & Profession, Income from House Property, Income from Other Sources, Salary Income.

What are the 5 Heads of Income?

In the quest to enhance earnings and foster financial growth, individuals and businesses explore various avenues such as employment income, interest from savings or investments, profits from sales, and revenue from diverse sources like equity trading, cryptocurrency, and more. However, the complexity of managing multiple income streams often poses challenges during tax filing. To simplify this process, the income tax department has devised five primary categories, or heads, under which all types of income can be classified.

Heads of Income

To ensure seamless tax filing and compliance with regulatory requirements, the income tax department has delineated five distinct heads under which taxpayers must categorize their earnings accurately. This meticulous allocation helps prevent potential issues and ensures smooth ITR filing.

Here are the five heads of income:

  • Income from Salary
  • Income from House Property
  • Income from Capital Gains
  • Income from Business and Profession
  • Income from Other Sources
Income from Salary:

This head encompasses various forms of remuneration received by an individual as part of their employment, including salaries, wages, allowances, bonuses, commissions, and pensions. It also covers advance salary, gratuity, and arrears received post-employment. It’s crucial for these earnings to arise from an employer-employee relationship to be classified under this head. Additionally, certain exemptions like standard deduction, house rent allowance (HRA), and conveyance allowance are available under this category.

Income from House Property:

Under this head, individuals must declare rental income earned from properties they’ve leased out, such as rental income from land or property. Taxpayers can claim deductions for interest paid on home loans for both self-occupied and rented properties. However, if an individual owns multiple properties, only one can be considered self-occupied, while the others are deemed let out.

Income from Capital Gains:

This category encompasses profits or losses incurred from the sale of capital assets, including investments like land, buildings, shares, jewelry, bonds, and mutual funds. It’s divided into short-term and long-term capital gains based on the duration of asset ownership. Short-term gains arise from assets held for a short period, typically up to 12 months, while long-term gains stem from assets held for longer durations.

Income from Business and Profession

This category encapsulates the profits or losses derived from engaging in any business or profession. Business activities encompass various endeavors such as trade, commerce, manufacturing, and similar ventures. On the other hand, a profession refers to a specialized field where individuals have acquired expertise through formal education and examination.

Within this head, there are three distinct sub-categories for business income:

  1. Speculative Business Income: This pertains to income generated from speculative transactions where there’s no actual delivery of assets involved.
  2. Non-Speculative Business Income: This category covers income earned from regular business activities, including trade, manufacturing, or any professional services rendered.
  3. Specified Business Income: Certain specific types of business income fall under this category, often subject to specialized regulations or provisions.

Moreover, taxpayers have the option to opt for the presumptive taxation scheme, allowing them to declare profits at reduced rates and pay taxes accordingly based on this declaration.

Income from Other Sources:

Any income not categorized under the above heads is reported under income from other sources. This includes earnings like interest from savings accounts or deposits, dividends from shares or mutual funds, proceeds from lotteries or games, and gifts received, among others.

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Official Income Tax Return filing website: https://incometaxindia.gov.in/

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