Introduction 

As per the Section 14 Income Tax Act,1961, there are five main income tax heads for an individual. The computation of income tax is an important part and has to be calculated according to the income of a person. For a hassle-free calculation, the income has to be classified properly so that there is no confusion regarding the same. The government has classified the sources of income under separate heads and then the income tax is computed accordingly. The provisions and rules are according to the details mentioned in the Income Tax Act

Five main Income tax heads

  • Income from Salary
  • Income from House Property
  • Income from Profits and Gains of Profession or Business
  • Income from Capital Gains
  • Income from Other Sources

Income from Salary

 The first head of Income Tax heads is income from salary whichThis clause essentially assimilates any remuneration, which is received by an individual in terms of services provided by him based on a contract of employment. This amount qualifies to be considered for income tax only if there is an employer-employee relationship between the payer and the payee respectively. Salary also should include the basic wages or salary, advance salary, pension, commission, gratuity, perquisites as well as the annual bonus.

Allowances: An allowance is a fixed monetary amount paid by the employer to the employee for expenses related to office work. Allowances are generally included in the salary and taxed unless there are exemptions available.

Specific tax exemptions are allowances allowed by employers as part of the salary. Some of them are.

  • Conveyance Allowance: Up to Rs 800/- a month is exempt from tax.
  • 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.

The deduction available is the minimum of the following amounts:

  1. Actual HRA received
  2. 50% of [Basic salary + DA] for those living in metro cities (40% for non-metros)
  3. 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. Examples of these are rent free accommodation or car loan. There are some perquisites that are taxable in the hands of all categories of employees, some which are taxable when the employee belongs to a specific group and some that are tax-free

Income from House Property

The second head of Income Tax heads is Income from house property, According to the Income Tax Act 1961, Sections 22 to 27 is dedicated to the provisions for the computation of the total standard income of a person from the house property or land that he or she owns. An interesting aspect is that the charge is derived out of the property or land and not on the amount of rent received. However, if the property is utilized for letting out the normal course of business, then the income from the rent will be considered.

Income from Profits of Business

The third head of Income Tax heads isIncome 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

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.

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, lottery awards, card games, gambling or other sports awards are included in this category. These incomes are attributed in Section 56(2) of the Income Tax Act and are chargeable for income tax.

For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business ReturnBulk Return or Revised Return Filing.