Individuals can have multiple sources of income, according to Section 14 of the Income Tax Act of 1961. The computation of income tax is an important aspect that must be done according to a person's income. For a simple calculation, the revenue must be accurately categorized so that there is no confusion. You can earn money in a variety of ways, including investment returns, rental income, capital gains, and company income. Section 14 of the Income Tax Act of 1961 stipulates five heads of income in order to ensure that these various sorts of revenues are taxed. The government categorizes different types of income under different headings and then calculates the income tax appropriately. The regulations and rules are based on the information provided in the Income Tax Act.
Income from Salary
Your salary goes under this category if you are a salaried employee. Your company will deduct TDS according to your tax bracket and pay it to the government. This simply assimilates any remuneration that an employee receives in exchange for services delivered under a contract of employment. Only if there is an employer-employee relationship between the payer and the payee does this sum qualify for income tax consideration.
The gross pay is taxed under this heading after the total amount of income is computed.
TDS will be deducted from all gratuities, pensions, annuities, commissions, fees, leave encashment, and profits you get from your employer, in addition to your base pay.
In terms of Indian income tax legislation, the term "salary" might be defined as follows:
Income from House Property
The second category of income tax is income from house property. Sections 22 to 27 of the Income Tax Act 1961 are dedicated to the procedures for calculating a person's total standard income from the house property or land that he or she possesses. The IT Act specifies the various provisions for calculating the income of someone who owns property or land, from Section 22 through Section 27.
It is critical to understand that the tax is based on the land or property, not on the amount of rent you earn from it, unless the property is rented to a business.
The rental income from the properties is included in this category. The property in which you are staying and not earning any rental income can provide you with tax benefits. This advantage comes in the form of interest deductions on house loans.
The income from the rent will be considered if the property is used for letting out in the normal course of business.
Income from Profits of Business
The income earned from the profits of a business or profession is contributed to the computation of total income under the third head of Income Tax headings, Income from Profits of Business. The difference between the revenue collected and the expenses will be charged. Any income earned from trade, manufacture, commerce, or profession is taxed under the business income category. To determine your profits, subtract your expenses from your revenues, and then apply the income tax under this heading.
The following is a list of the income that is taxed under this heading:
Profits made during the assessment year by the assessee
Profits from an organization's revenue
Profits from the selling of a specific licence
Cash received as a result of an individual's export under a government programme
Profit, income, or bonus earned as a result of a business collaboration
Benefits gained as a result of working for a company.
Profits or gains obtained by an assessee from the sale or transfer of a capital asset kept as an investment are referred to as capital gains. Capital gains are defined as any property owned by an assessee for the purpose of his or her business or profession. Capital gains are any gains or profits made by moving or selling capital assets that were previously held as investments.
This includes investments in equities, mutual funds, real estate, and a variety of other assets. The capital gains tax is calculated based on how long the capital asset has been held. Long-term capital gains (LTCG) and short-term capital gains (STCG) are the two types of capital gains (STCG).
Inome from Other source
Income from other sources is the last of the five income tax categories. This income category includes any type of income that does not fit into one of the other categories.
Winnings from horse races or the lottery, gifts received, dividend income, and interest from government bonds and stocks are all examples of this. Other forms of income sources that fall under the "other income" category include: Interest Income
Income from the Provident Fund
Income from games such as the lottery, horse races, and so forth.