Heads of Income

Understanding Heads of Income

The India, the income earned by individuals is categorised under the five main heads of income. The taxpayer should know about which part of his income is coming from which head of income. It is important to know this categorization because it helps in calculating the total amount of tax on income, correctly filling the ITR, and avoiding mistakes in tax payment and reporting.

The five heads of income are Salary, House property, Capital gain, Business/Profession, and Income from other sources. Each head has its own set of rules for exemption and deduction of income & expenses.

Five Heads of Income Tax

The five heads of income under income tax are explained below:

1. Income from Salary

It includes the income that you get in exchange for the service you provide. It includes salary, gratuity, perquisites, advance salary, commission, annual bonus, and pension.

2. Income from House Property

It includes the income you earn from your house or property, and it is taxable under the head of income from house property. This category has three further broad classifications: self-occupied property, let-out property, and deemed let-out property.

3. Income from Profits and Gains from Business or Profession

It includes the income or profit you make from any type of business or profession. To find out the taxable tax, you can subtract your expenses from your total income. It also includes all the benefits that a business receives.

4. Income from Capital Gains

It includes the profit that you get by selling your assets like bonds, shares, gold, mutual funds, real estate, etc. Whether it is short-term capital gains or long-term capital gains, they are all taxable under this category.

5. Income from Other Sources

It covers all the income that is not included in the above-mentioned fru categories. It includes dividends from interest, rent on machinery and plant, bank deposits, gambling money, lottery, sports rewards, card games, and many more.