What is Income as per Income Tax Act?

What is Income under Income Tax Act?

Income refers to the regular flow of money received by individuals or businesses, whether daily, weekly, monthly, or annually. It includes monetary payments as well as the value of non-monetary benefits such as allowances and perquisites. Unless specifically exempt, all forms of income are subject to income tax.

What Does 'Income' Include Under the Income Tax Act?

Section 2(24) of the Income Tax Act, 1961 defines income as including:

• Salary
• Profits and gains from business or profession
• Dividends
• Voluntary contributions to trusts or charitable institutions (whether wholly or partly for charitable or religious purposes)
• Perquisites
• Special or other allowances
• Interest payments from a company to an assessee
• Capital gains
• Income from other sources

What are the basic features of Income?

Characteristics of income for tax purposes:

• Periodicity: Income can be received daily, weekly, monthly, or yearly.
• Basis of Taxation: Income can be taxed on a receipt or accrual basis.
• Legality: Income tax law does not distinguish between legal and illegal income.
• Duration: Income can be received on a temporary or permanent basis.
• Payment Method: Tax liability applies whether income is received as a lump sum or in installments.
• Scope: The Income Tax Act includes revenue, capital gains, and even losses.
• Gifts: For individuals and HUFs, gifts exceeding ₹50,000 in a financial year are considered income.

Sources of Income

An individual's income can be categorized under five main heads:

• Income from Salary: Income from salary represents the compensation received by an individual for providing services under a contract of employment. This means there must be a formal agreement between the individual and an employer outlining the terms of employment, in exchange for which the individual receives payment in the form of a salary.
• Income from House Property: For income tax purposes, "house property" encompasses any structure or building attached to land, including residences, offices, shops, and other buildings. The tax code makes no distinction between commercial and residential properties; all such properties are taxed under this category. An "owner," in the context of income tax, is defined as the legal owner who possesses and exercises all ownership rights directly, not on behalf of another party.
• Income from Profits and Gains of Business and Professions: Income from profits and gains of business or profession is calculated based on the figures presented in the profit and loss account. This calculation considers both positive figures (profits) and negative figures (losses). Therefore, "profits and gains" refers to positive income, while "loss" indicates negative income. All income generated from business or profession is taxable under this head, regardless of its legality. Income earned by a businessperson in the previous year is subject to taxation. The income tax return for business and profession must be filed on or before July 31st of the assessment year.
• Income from Capital Gains: Any profit or gain realized from the transfer of capital assets held for investment is taxable under the "Income from Capital Gains" head. These gains can arise from the transfer of both short-term and long-term capital assets. Capital gains are only applicable when the transferred asset qualifies as a capital asset. Conversely, if the transferred asset is not classified as a capital asset, the resulting gain will not be treated as a capital gain. Examples of transactions that may generate capital gains include the sale of a house or flat or the sale of shares.
• Income from Other Sources: Income that does not fall under any other specific income tax category is classified under "Income from Other Sources." Examples of such income include gifts, interest earned on savings accounts or fixed deposits (FDs), and dividends.

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