Introduction
The sum of money which a business or an individual receives in exchange of sale of goods or services, or through capital investment is known as income. The definition of income is different for different individuals. Pocket money is the only source of income for a 5-year-old kid. Similarly, pension income might be a primary source of income for retired individuals.
What is Income?
In case of individuals employed, salary or wages earned is considered to be the primary source of income. In businesses, the revenue received from the core business functions after paying all expenses or applicable taxes is the business income. To sum up, income is nothing but ones earning received during a period. Generally, all incomes are subjected to taxes in India.
According to income tax, there are two types of income:
Taxable income
Income earned during a year by an individual or a business is categorised into five heads of income and taxed accordingly. Five heads of income are as follows: - Income from salary/pension: This includes basic salary, allowances, perquisites and profits in lieu of salary earned by an individual. Pension income received by a retired individual is also included here. - Income from business/profession: Any income earned or received by a business from the sale of goods or services is called business or professional income. This income is subject to tax after adjusting the expenses and allowable deductions. - Income from house property: Any income received from renting a house is included under house property income. - Income from capital gains: Profit or gains from the sale of any capital asset such as land or building is included here. - Income from other sources: All those income not covered under the aforementioned heads of income will be included here.
Exempt or non-taxable income:
There are certain income that are exempt from being taxed. For instance, agricultural income is exempt from taxes under Section 10 of the Income Tax Act."
