Basics of Income Tax: Income from Various Sources

Definition of Income Tax

• Explanation: Income tax is a direct tax imposed on the income or profit earned by individuals and corporations. The tax is calculated on the taxable income, which is the total income after deductions and exemptions.

Types of Income

1. Income from Salary:

   • Explanation: This includes wages, bonuses, pensions, and any other compensation received from employment.
   • Components: Basic Salary, Allowances, Perquisites, and Bonuses.
   • Deductions: Section 80C (Investments), Section 10(13A) (House Rent Allowance), and other applicable deductions.

2. Income from House Property:

   • Explanation: This refers to income earned from letting out residential or commercial property.
   • Computation:
     • Gross Annual Value (GAV): Higher of Expected Rent or Actual Rent Received.
     • Deductions: Municipal Taxes, Standard Deduction (30% of Net Annual Value).

3. Income from Business and Profession:

   • Explanation: Profits earned from business activities or professions.
   • Computation: Income is computed by deducting allowable expenses from gross receipts.
   • Deductions: Business expenses, depreciation, and specific deductions under various sections.

4. Income from Capital Gains:

   • Explanation: Profits from the sale of capital assets such as property, stocks, or bonds.
   • Types:
     • Short-term Capital Gains: Gains from assets held for less than 36 months. Taxed at applicable rates.
     • Long-term Capital Gains: Gains from assets held for more than 36 months. Taxed at 20% with indexation benefits.

5. Income from Other Sources:

   • Explanation: This category includes residual income not covered by the other heads, such as dividends, interest, and winnings from lotteries.
   • Deductions: Certain expenses related to earning this income can be deducted.