According to the Section 14 Income Tax Act,1961, there are five major income tax heads sets out for an individual. The calculation of income tax is a necessary part that must be determined according to the income of a person. For a hassle-free computation, the income has to be characterized correctly so that there is no turbulence regarding the same. The government has characterized the sources of income under independent heads and then the income tax is computed appropriately. The arrangements and rules are as per the details quoted in the Income Tax Act
Five main Income tax heads
- Income from Salary
- Income from House Property
- Income from Benefits and Gains of Profession or Business
- Income from Capital Gains
- Income from Other Sources
Income from Salary
The principal head of Income Tax heads is income from salary which this provision acclimatizes any remuneration, which is accepted by a person in terms of services given by him dependent on a contract of employment. This amount certifies to be treated for income tax only if there is an employer-employee relationship between the payer and the payee commonly. Salary also should contain the basic wages or salary, pension, commission, advance salary, gratuity, perquisites, as well as the annual bonus.
Allowances: An allowance is a fixed fiscal sum paid by the employer to the employee for expenses identified with the office work. Allowances are commonly admitted in the salary and taxed unless there are exclusions available.
Specific tax exemptions are allowances permitted by businesses as part of the salary. Some of them are.
- Conveyance Allowance: Up to Rs 800/- a month is absolved from tax.
- House Rent Allowance (HRA): Salaried individuals can assure House Rent Allowance or HRA to lower taxes who live in a leased house. This can be somewhat or absolved from charges.
The assumption accessible is the minimal of the following amounts:
- Actual HRA received
- 50% of [Basic salary + DA] for those putting up in metro cities (40% for non-metros)
- Actual rent paid less 10% of salary
- Leave Travel Allowance (LTA): LTA represents the cost of travel when you and your family go on vacation. While this is paid to you, it is tax-free twice in a block of 4 years.
- Medical Allowance: A medical costs to the extent of Rs 15,000/– per annum are tax-free. The bills can be brought by you or your family.
- Perquisites: Section 17 of the Income Tax Act manages perquisites which are essential advantages in addition to the normal salary to which an employee has a right by way of his employment. Rent-free accommodation or car loans are examples of these. Some which are assessable when the worker has a place with a particular gathering and some that are tax-free.
Income from House Property
The second head of Income Tax heads is Income from house property, As per the Income Tax Act 1961, Sections 22 to 27 is committed to the arrangements for the calculation of the complete standard income of an individual from the house property or land that the individual in question possesses. An interesting aspect is that the charge is inferred out of the property or land and not on the measure of lease received. In any case, if the property is utilized for letting out the normal course of business, and at that point, the salary from the lease will be thought of.
Income from Profits of Business
The third head of Income Tax heads is Income from Profits of Business in which the calculation of the complete payment will be credited from the salary earned from the benefits of business or profession. The distinction between the expenses and revenue earned will be chargeable. Here is a rundown of the income chargeable under the head:
- Benefits earned by the assessee during the evaluation year
- Benefits on income by a company
- Benefits on sale of a specific license
- Money got by a person on export under a government scheme
- Profit, salary, or bonus accepted as a result of a partnership in a firm
- Benefits received in a business
Income from Capital Gains
Capital Gains are the benefits or increases earned by an assessee by selling or moving a capital asset, which was held as speculation. Any property, which is adhered to by an assessee for business or profession, is named as capital gains.
Income from other sources
Some other type of income, which is not classified in the previously mentioned provisos, can be arranged in this category. Interest income from card games, bank deposits, lottery awards, gambling, or other sports awards are admitted in this category. These incomes are credited in Section 56(2) of the Income Tax Act and are answerable for income tax.
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