Sources of Income: Source for People to Earn, Source for Government to Tax

Income from Salary

If the employer-employee relationship exists between payer and payee, then the amount received from payer to payee is charged under the head salary. Salary includes basic salary or wages, any annuity or pension, gratuity, advance salary, leave encashment, allowances and perquisites.

While salary along with commissions and bonus is fully taxable, certain provisions related to partial exemptions and fully exemptions of income tax have been provided in respect of allowances and perquisites.

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Income from House property

Tax shall be charged on basis of property's annual value which shall be higher of fair rental value, rent received or municipal rent. Interest paid on home loan taken for construction or purchase of house property shall be deducted from such income along with 30% standard deduction and then income from house property shall be calculated. For more information on provisions related to payment of interest on home loan, click here.

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Profits and gains from Buisness/ Profession

Income earned through business or profession is charged under this head. Such income is derived by calculating gross income earned, then deduct expenses incurred to earn such income from gross income and finally net income arrived is taxed. Losses incurred under the head shall be eligible to be set off or carried forward to next A.Y.

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Capital Gains

You might be having some capital asset during the year held as investments which you have transferred to another person. Profit or gains arising on such transfer shall be taxed under this head. Profits or gains can be of two types Short term capital gains (STCG) or Long term capital gains (LTCG). If you have held a capital asset for not more than 12 months in case of shares or not more than 36 months in case of any other asset; then the gain arising on transfer of such asset shall be short term otherwise it will be long term capital gain.

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Income From Other Source

It is the residual head of income. So if your income doesn't fall in any of the above category, then it shall be taxed under this head. Some of the earnings that can be taxed under this head are:

• Dividends;
• Interest earned from saving bank account;
• Interest earned on Fixed Deposits;
• Gifts etc

So your final computation is ready :

Don't worry; you concentrate on earning income; we shall take care of sources under which your income falls and will file your return of income.

For more knowledge on issues related to sources of income and other tax related issues, check out our other blogs.

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