Understanding what is income as per income tax law is important for anyone navigating the tax system in India. The Income Tax Act, 1961, serves as the primary legislation governing how income is taxed in the country. Enacted on April 1, 1962 this Act contains 298 sections and 23 chapters that outline rules for levying, administering, collecting and recovering taxes. For the general public, knowing what is income as per income tax law helps ensure compliance with tax obligations and avoids penalties for underreporting income.
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Definition of Income under Section 2(24) of Income Tax Act, 1961
To answer what is income as per income tax law, we look to Section 2(24) of the Income Tax Act, 1961. This section offers an inclusive definition of income which means that it lists specific items considered as income but does not limit the definition to those items alone. Courts and tax authorities may interpret additional receipts as income based on context. The inclusive nature of this definition ensures that a wide range of earnings is captured for taxation.
The following table summarizes the key components included in the definition of income under Section 2(24)
Income | Description |
Profits and Gains | Earnings from any business or professional activities. |
Dividends | Payments received from shares or investments in companies. |
Voluntary Contributions | Donations to trusts or charitable institutions, whether for religious or charitable purposes. |
Perquisites or Profits in Lieu of Salary | Non-monetary benefits or payments received instead of salary, taxable under Section 17. |
Special Allowances | Benefits granted to meet job-related expenses or personal expenses, such as allowances for increased living costs. |
Benefits from a Company | Perquisites received by a director or person with substantial interest in a company. |
Capital Gains | Profits from the sale of capital assets like property or shares, taxable under Section 45. |
Income from Other Sources | Residual income not covered under other heads such as interest or lottery winnings. |
Additionally, when exploring what is income as per income tax law, it’s important to note that the definition extends to
Illegal Income: Earnings from unlawful activities are taxable.
Foreign Income: Income earned abroad by Indian residents is taxable, subject to conditions like Double Taxation Avoidance Agreements (DTAAs).
Casual Income: Winnings from lotteries, gambling, or betting are included.
Gifts: For individuals and Hindu Undivided Families (HUFs), gifts exceeding ₹50,000 in a financial year are taxable.
Subsidies and Reimbursements: Any financial relief or subsidies received are considered income.
To fully grasp what is income as per income tax law, one must consider both the statutory definition and interpretations by tax authorities and courts, as these can expand the scope of taxable income.
Key Characteristics of Income
When exploring what is income as per income tax law, various characteristics stand out and these characteristics highlight the flexibility and breadth of what is income as per income tax law
Periodicity: Income can be received daily, weekly, monthly or yearly.
Basis of Taxation: It can be taxed on a receipt basis (when received) or accrual basis (when earned).
Payment Method: Tax liability applies whether income is received as a lump sum or in installments.
Scope: The Act includes revenue, capital gains and even losses in some cases.
Also, Learn about Deductions under Section 80C of Income Tax Act, 1961.
Heads of Income as per Income Tax Act, 1961
To further clarify what is income as per income tax law, the Income Tax Act classifies all income into five heads under Section 14. This categorization helps the taxpayers and authorities compute and tax income systematically. Each head has specific rules for calculation, deductions and exemptions.
1. Income from Salary
When considering what is income as per income tax law, salary is often the first thing that comes to mind for most individuals. This head includes all remuneration received by an employee from an employer, such as
Basic salary
Allowances (e.g., house rent allowance, travel allowance)
Bonuses and commissions
Perquisites (e.g., company-provided housing or cars)
Profits in lieu of salary (e.g., payments received upon termination)
Sections 15 to 17 of the Act detail how salary income is computed, including deductions like professional tax or contributions to provident funds. For example, if an employee receives a company car for personal use, its value is a taxable perquisite under Income Tax Act.
2. Income from House Property
Another key aspect of what is income as per income tax law is income from house property. This includes
Rental income from leased properties
Deemed income from self-occupied properties (in some cases)
Income from commercial properties
For instance, if you own a house and rent it out, the rent received is taxable after deductions like municipal taxes and a standard deduction of 30% of the net annual value. Understanding this head is crucial when answering what is income as per income tax law for property owners.
3. Profits and Gains from Business or Profession
For business owners and professionals, what is income as per income tax law includes profits and gains from business or professional activities. This covers
Income from trading, manufacturing or service-based businesses
Earnings from professions like law, medicine or consultancy
Expenses incurred in running the business, such as rent, salaries to employees or depreciation, can be deducted to arrive at taxable income. This head is vital for entrepreneurs seeking to understand what is income as per income tax law.
4. Capital Gains
When we sell a capital asset like land, buildings, shares, or jewelry and make a profit, that profit is a capital gain, which is part of "what is income as per income tax law." Capital gains are classified as
Short-term: Assets held for a short period (e.g., shares held for less than 12 months).
Long-term: Assets held for a longer period, often with concessional tax rates.
The tax rate depends on the type of asset and period of holding with exemptions available under sections like 54 for reinvestment in residential property.
5. Income from Other Sources
This is a residual category for what is income as per income tax law that captures income not covered by the other heads. Examples include
Interest from savings accounts or fixed deposits
Dividends from investments
Winnings from lotteries, crossword puzzles or gambling
Royalties
Each of these heads plays a crucial role in understanding what is income as per income tax law for different taxpayers, ensuring all income sources are accounted for.
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Additional Inclusions in Income
Delving deeper into what is income as per income tax law, the definition is notably broad, covering all possible sources of earnings
Illegal Income: Income from illegal activities, such as smuggling, is taxable, as the law does not distinguish between legal and illegal sources.
Foreign Income: For residents, global income is taxable, though DTAAs may provide relief to avoid double taxation.
Perquisites: Non-monetary benefits, like a company-provided car or club membership, are taxable.
Gifts: Gifts exceeding ₹50,000 in a financial year are taxable for individuals and HUFs, except those from specified relatives or on specific occasions like marriage.
Casual Income: Winnings from lotteries, races or betting are taxable, often at a flat rate of 30% plus cess.
Summary
When we ask what is income as per income tax law, we refer to the comprehensive definition provided by the Income Tax Act, 1961, under Section 2(24). This definition encompasses a wide array of earnings and benefits, classified under five heads: Salary, House Property, Business or Profession, Capital Gains and Other Sources. By including diverse income sources like illegal earnings, foreign income and casual income, the Act ensures a robust tax system. Understanding what is income as per income tax law is key to complying with tax obligations, optimizing deductions and avoiding penalties.
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What is Income as per Income Tax Law: FAQs
Q1. What is income in income tax law?
Income in income tax law refers to any money or value received by a person that is taxable under the law, including salaries, profits, rents, interest and other gains.
Q2. What is the definition of income?
Income is money or benefits earned or received from various sources like work, business, investments or property.
Q3. What is the correct definition of income?
The correct definition of income, as per income tax law, is any earnings or gains (in cash or kind) from sources like salary, business, property, capital gains or other sources, as specified under the law.
Q4. What is the definition of total income as per income tax?
Total income is the aggregate of all taxable income from different sources (like salary, business, property, etc.) after allowing deductions and exemptions as per income tax rules.
