Different Income Heads Taxable Under the Income Tax Act

These income heads help ensure appropriate maintenance of monetary power within the government and social system. Also, these heads allow better cash flow within the Indian economy, which in turn, helps the government to provide better living standards to its citizens. Let us take a closer look at the different income heads under the Act and their significance.

First, we have the Income from Salary head that recognises and defines the relationshipbetween a payer and payee in the form of a firm or agreement. Herein, the payer is the employer,and the payee is the employee, while the employee is being paid a particular amount of monetary remuneration for his or her services.
Subsequently, this remuneration (or salary)is taxable under this head in the Act. All sorts of monetary compensation, such as an annuity, pension, gratuity, basic and normal wage and leave encashment qualify as salary.

Being the second head under the Income Tax Act, thisclause includesdetails about the taxation policy on the house property or real estate that you are residingin. The head recognises any vacant house property as ‘self-occupied’ to calculate the income tax.

In case, you own more than one self-occupied house, only one of them will be considered as a single self-occupancy residential property, while the rest are recognised to be let out.Overall, this head describes the computation and calculation of total standards amount of income by an individual in the residential property, which he or she rightfully owns. It is; however, essential to understand that the tax amount charged is not from the rent received but insteadon the property or real estate as a whole.

This is the third head under the Act, which describes the rules and regulations taxation on income from any business or profession.While a business includes commerce manufacturing or any trade, profession implies the acquisition of specialised knowledge in a particularfield after completing education and passing a verified examination.

Herein, all profits and gains acquired during the tenure of business are subjectto complete taxation. Therefore, benefits incurred from the sale of imports, any interest or form of bonus or salary, incentives, a commission from a firm, all are taxable under this head.

Income earned from any movable or immovable capital asset is deemed taxable under this head of income. Capital gains can be separated into two categories,long-term and short-term capital gains. For short-term capital gain, if an individual sells their capital within a period of thirty-six months, the earnings from the sale are tax deductible. Similarly, the profits from selling securities within twelve months of the purchase are subject to taxation.
On the other hand, long-term capital gains are those, which are earned from assets held up for periods exceeding thirty-six months or securities and shares that were held for twelve months or more since the date of purchase.

Any income, which is derived from sources other than those mentioned under the previous four heads, is subject to taxation as described under this head. Examples of such sources of income may include winning in the lottery, interest gained from bank deposits, or any sum of money, which is more than 50,000 rupees butreceived from an individual who isn’t part of the taxpayer’s family. All these sources are taxable under Section 56(2) of the Income Tax Act.

These five income heads detail and specifiesvariousprofits and monetary functions, which are liable for taxation by the Government. Further, these heads provide information about when the Tax is to be charged and other taxation liabilities. That said, these heads also include their separate criterions that you need to fulfil, to determine how much is your tax liability.

You can also find outthe amount of tax savings in a year, after separating your income under these heads. Following this, you can invest an equal amount of your income into tax saving instruments such as a ulip insurance plan, to earn tax benefits against the investment. Major insurers in India including Future Generali offer a variety of investment options that can help you save tax along with long-term investment benefits. These investments not only can help you save tax but also maximise your savings through disciplined, regular investments.