Lecture 6 heads of income

1. Heads of Income ( Sec 14, 14 A )
Lecture 6

2. Introduction
A person receives income i.e. taxable income
from different sources. All these different
sources of income are classified & Assessed
under certain group or heads. These are know
as “ Heads of Income”.

3. Heads of Income
•Income From Salary
•Income From House Property
•Income From Profit or Gain from Business or
Profession
•Income From Capital Gain
•Income From Other Sources

4. What is Salary
•Remuneration which is received by an
individual for services rendered by him to
undertake a contract whether it is expressed
or implied
•There has to be “employer – employee”
relationship.

5. Income From Salary
Salaries U/ S 17 ( 1 ) include the following
1.Wages
2.Pension
3.Gratuity
4.Any Fees, Commission, Perquisite, Profit in Lieu of Salary
5.Any Advance Salary
6.Bonus
7.Annuity
8.Income From Provident Fund
9.Leave Encashment
10.Allowances

6. List of Allowances Exempted From Tax
•Conveyance Allowance
•House Rent Allowances
•Entertainment Allowance
•Any Allowance granted to an employee to
meet the hostel expenditure of his child
•Children Education Allowance
•Overtime Allowance

7. Income From House Property
It is defined as income which is earned by a
person through his house or land
The building can be house, office building, go
downs etc.
Points to be remembered
1.Assessee should be Owner of the Property
2.Should be not be used for Business or Profession
3.In case of dispute regarding title
Tax is based on Annual Value

8. Annual Value
Fair Rent – The rent which a similar property will fetch at the same or
nearby similar locality
Municipal Rent – The value fixed by municipal or local authority
Fair Rent or Municipal Rent whichever is higher taken into consideration
Standard Rent – Rent which a owner can claim maximum from his tenant
Actual Rent – Rent for which property has been let out.
Standard Rent or Actual Rent whichever is lesser is taken into
Consideration

9. Income From Profit/ Gain From
Business/Profession
Conditions
1.There must be a business/profession
2.Business/profession is being carried by
assessee
3.Business/ profession have been carried out by
assessee in assessment year for which income
tax is filling.

10. Income From Profit/ Gain From
Business/Profession
•Profit/Gain from any businesses/profession
•Profit on sale of import entitlement License
•Income derived by trade/profession
•Any interest, salary, bonus, commission or
remuneration received by partner of firm

11. •The deductions allowed are depreciation of
assets used for
•Business;
•Rent for premises;
•Insurance and repairs for machinery and
furniture; advertisements;
• Travelling and many more.

12. Income From Capital Gain
What is Capital Gain
-Income which is derived from the transfer of
capital asset held as investments are
chargeable to tax under the head “ Capital
Gains”
-Two Type of Capital Asset
1.Short Term Capital Asset
2.Long Term Capital Asset

13. Capital Gain tax liability when following
conditions gets satisfied
1.There should be a capital asset
2.There should be transfer
3.Transfer should be of previous year
4.Result of Transfer should be profit or gain
E.g. Goodwill of business

14. Exceptions
1.Stock of goods and raw materials used by
assessee for his business or profession
2.Movable Property ( wearing apparel,
furniture, automobile, phone etc.) held by the
assessee. Jewellery which is a movable asset
comes under the head of Capital Asset

15. Income From Other Sources
•Any income that does not fall under the four
heads above is taxed under the head “ Income
From Other Sources”.
•E.g. – Dividend, Winning of Lottery, Income
from Royalty, Income by way of interest on
Securities, Income From Letting out
machinery, plant or Furniture on Hire basis.

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