Jul 10 2009
Tax Queries: Taxable Income
What does the Income Tax Department consider as income?
The word Income has a very broad and inclusive meaning. In case of a salaried person, all that is received from an employer in cash, kind or as a facility is considered as income. For a businessman, his net profits will constitute income. Income may also flow from investments in the form of Interest, Dividend, and Commission etc. Infect the Income Tax Act does not differentiate between legal and illegal income for purpose of taxation. Under the Act, all incomes earned by persons are classified into 5 different heads, such as:
a. Income from Salary
b. Income from House property
c. Income from Business or Profession
d. Income from capital gains
e. Income from other sources
Are all receipts considered as income?
No.
Receipts can be classified into two kinds. A) Revenue receipt B) Capital receipt.
The general rule under the Income tax Act is that, all revenue receipt are taxable unless a receipt is specifically exempted and all capital receipts are exempt from taxation unless there is a provision to tax it. Gifts and loans etc are in the nature of capital receipts not attracting tax.
What are revenue and capital receipts?
In a simple language, all that one derives from a source is called revenue receipt. For ex. Salary from employment, Rent from property, Interest or Divided from Investments, Profits from business. When an income is earned on account of transacting the source itself, it is called Capital receipt. For ex. Sale of land and building, business, investment etc.
Is income tax levied on gifts received by a person?
Gift exceeding Rs 25,000 is taxable unless it is received from
a. any person who is a relative or
b. on occasion of marriage or
c. under will or by inheritance or in contemplation of death of the payer
