 Income from Salaries

 Income from House Property

 Profit and Gains of business or profession
 Income from Capital gains
 Income from other sources
A Person receives income from different sources.
sources For the purpose of income
tax all the incomes are classified and assessed under certain groups or heads.
These are known as “ Heads of Income”. There are Five heads of income as
under:-
Heads of Income:-
• Income from Salary
• Income from House Property
• Profit or Gains from Business or Profession
• Income from Capital Gains
• Income from Other Sources
 Salary means any payment made by the employer to the employee at regular intervals for manual or
non-manual services rendered as per the written or oral contract of employment.
 Thus, a remuneration paid to a managing director of a company as well as wages paid to a helper in a
factory are taxable under the head salaries.

Condition:-
The only condition to be observed for charging an income under the head salaries is that the relation
between payer and payee of such payment should be of an employer and employee.
 According to section 15, following incomes shall be chargeable to income tax under the
head salaries:-

 Any salary due from an employer or a former employer to an assessee

 Any salary paid or allowed to him in previous year by or on behalf of an employer or a
former employer
 Any arrears of a salary
 Advance salary
As per section 17, salary includes the following factors

Monitory Benefits
Basic salary
Bonus
Commission
Incentives
“These are Fully Taxable”
There are basically two types of allowances
1) Duty Based Allowances
2) Personal Allowances

1)Duty Based Allowances

Transport Allowance
Helper Allowance
Uniform Allowance
Tiffin Allowance
“These are partly taxable”
2) Personal Allowances
Medical Allowances
Dearness Allowance
City Compensatory Allowance
“These are fully taxable”

3) Personal Allowances
House Rent Allowance
Children Education Allowance
Hostel Expenditure Allowance
“These are partly taxable”
 Rent Free Accommodation (R.F.A.)
 Motor Car Facility
 Meal Facility
These are taxable perquisites

 Laptop
 Mobile
 Telephone facility
These are Tax free perquisites
The Provident Fund are basically of three types-
types
 Statutory Provident Fund (SPF):
◦ SPF is a provident fund scheme maintained by certain government or semi-
semi
government organizations in India.
◦ It is governed by specific statutory regulations outlined by the government.
◦ Contributions to the SPF are made by both the employee and the employer.
◦ The contributions, along with accumulated interest, form the retirement corpus
for the employee.
 Recognized Provident Fund (RPF):
◦ RPF is a provident fund scheme recognized by the Income Tax Act, 1961, in India.
◦ It can be established by both private and public sector organizations.
◦ Contributions made to the RPF enjoy certain tax benefits under the Income Tax
Act.
◦ Both employee and employer contributions are typically made to the RPF
account.
 Unrecognized Provident Fund:
◦ An Unrecognized Provident Fund is a provident fund scheme that does not meet
the requirements set forth by the Income Tax Act for recognition.
◦ Contributions to this fund do not qualify for tax benefits under the Income Tax
Act.
◦ Such funds are often set up by employers who choose not to comply with the
regulatory requirements for recognition.
Pension
 A pension is a regular payment made to a person, usually after retirement, to
provide them with a source of income.
 Pensions are often provided by employers as part of their employee benefits
package, particularly in government or large private sector organizations.
 The amount of pension received is typically based on factors such as the
employee's salary, years of service, and any specific pension scheme rules.
Leave Encashment
◦ Leave encashment refers to the practice of allowing employees to convert
their accrued but unused leave days into cash.
◦ Many companies have policies that allow employees to encash a certain
portion of their accrued leave days annually or upon resignation/retirement.
◦ The amount paid for leave encashment is typically based on the employee's
salary and the number of leave days being encashed.
Gratuity
◦ Gratuity is a lump sum payment made by an employer to an employee as a token of
appreciation for the employee's services upon retirement, resignation, or
termination, subject to certain conditions.
◦ The Payment of Gratuity Act, 1972 in India, mandates employers to pay gratuity to
employees who have completed five or more years of continuous service.
◦ The amount of gratuity is usually calculated based on the employee's last drawn
salary and the number of years of service completed.
1) Standard Deduction- 16 (i)
Rs. 50,000 Standard Deduction available to all employees.
employees

2) Entertainment Allowance- 16 (ii)

This deduction is abolished from F.Y. 2018-19. Earlier it was available only to
government employees.

3) Professional tax- 16 (iii)

Maximum limit of deduction is of Rs. 2,500
Income from House Property is ascertained on the basis of “Annual
Value” of the House Property.

According to section 22, income from house property means the

annual value of property consisting of any building or land connected
thereto of which the assessee is the owner.. However the properties or
portions of such properties which are occupied by him for the business
or profession carried on by him are not covered under this head.
Conditions that needs to be fulfilled:-
1) Assessee should be the owner of the property
2) Such property must consist of building or land appurtenant thereto
3) Such property must not be used by Assessee for carrying out his own Business
or Profession.
 Annual Value (Notional Value) is considered while computing
income from House property. It is calculated on the basis of
following factors.
 Fair Rent:- The rent which a similar property will fetch at the same
or nearby similar locality
 Municipal rent:- The value fixed by Municipal or Local authority
 Standard rent:- Rent that is fixed by Rent Control act and which a
owner can claim maximum from his tenant
 Actual Rent:- Rent received from the Property which is let out.

 Fair rent or Municipal rent whichever is higher is considered and compared with the
Actual Rent. After comparing, whichever is higher is consider as Annual Value of the
property.
1) Standard Deduction- Sec. 24 (a)
Standard Deduction is available @ 30% of Net Annual Value (NAV)

2) Interest on Borrowed Capital- Sec. 24 (b)

The Interest on Loan taken for Construction/ Purchase of House property or
Renovation can be claimed as Deduction from House Property Income.
This is an important head of income which covers the profit and gains of business,
profession and vocation.
 Business:- It is defined as Any trade, commerce or manufacture carried on mainly
with profit motive.

 Profession:- Profession means an occupation requiring to use Intellectual Skill or

manual skill or both.

 Vocation:- Vacation is an activity or only a way of living for which one has
special fitness. The examples are musicians, dancers, painters etc.
 Profits and gains from Business or Profession
 Compensation received for loss of agency, modification of terms and
conditions relating thereto
 Profit on sale of licence
 Cash assistance against exports
 Duty of customs or Excise
 Interest, Bonus, Commission etc, received by a partner
 Speculative Income
 Rent, Rates, Taxes, Insurance of Building- Sec. 30
 Repairs and Insurance of machinery, plant and furniture- Sec. 31
 Depreciation- Sec. 32
 Expenditure on Scientific Research- Sec. 35
 Expenditure on Social or Economic welfare of public- 35 AC
 Capital Expenditure for specified business us 35 AD
 Amortisation of certain preliminary expenses – Sec. 35 D
 Amortisation of expenditure on amalgamation or demerger – Sec. 35 DD
 Insurance – Sec. 36
 Any profit or gains arising from a transfer of the Capital Asset is chargeable to
tax under the head “ Capital Gains” in the previous year in which such
transfer took place provided that it is not exempt under Section 54 to 54H.

Conditions:-
1) There should be a capital asset of an assessee.
assessee
2) It should be transferred by him during the previous year.

3) The profit must result from such transfer.

transfer
4) Such profit should not be exempt from act under section 54 to 54H
 Section 54 - Exemption on Sale of Residential Property:
Property
◦ Section 54 provides an exemption on long-term
term capital gains arising from the sale of a
residential property (house or land appurtenant thereto).
◦ To claim this exemption, the taxpayer must purchase or construct another residential
property within the specified time frames:
 Purchase: Within one year before or two years after the date of sale.
 Construction: Within three years after the date of sale.
◦ The exemption amount is the lower of the capital gains arising from the sale of the property
or the cost of the new residential property.
 Section 54B - Exemption on Sale of Agricultural Land:
Land
◦ Section 54B provides an exemption on capital gains arising from the sale of agricultural land,
provided the taxpayer purchases other agricultural land.
◦ The conditions and provisions are similar to Section 54, but they apply specifically to
agricultural land.
Short-Term Capital Asset:
 A capital asset held for a short duration is classified as a short-term
short
capital asset.
 For most assets, including securities like stocks and bonds,
immovable property, jewellery,, and certain other assets, if they are
held for a period of up to 36 months (previously 24 months till
Financial Year 2016-17),
17), they are considered short-term
short capital
assets.
 For certain assets like shares, mutual fund units, and listed
securities, the holding period to be considered as short-term
short is 12
months.
Long-Term Capital Asset:
◦ A capital asset held for a longer duration is classified as a long-term
long capital
asset.
◦ For most assets, including securities like stocks and bonds, immovable
property, jewellery,, and certain other assets, if they are held for more than 36
months (previously 24 months till Financial Year 2016-17),
2016 they are considered
long-term capital assets.
◦ For certain assets like shares, mutual fund units, and listed securities, the
holding period to be considered as long-term
long is 12 months.
◦ Gains arising from the sale of long-term
term capital assets are termed as long-term
long
capital gains (LTCG).
Taxation of Capital Gains:
 Short-term
term capital gains are taxed at the applicable slab rates of the
taxpayer, i.e., as per their income tax bracket.
 Long-term
term capital gains are taxed at special rates, depending on the type of
asset. For example, long-term
term capital gains from equity shares and equity-
equity
oriented mutual funds are subject to a special tax rate of 10% (plus
applicable surcharge and cess)) if the gains exceed Rs. 1 lakh in a financial
year. For other assets, long-term
term capital gains are taxed at 20% with
indexation benefit, which adjusts the purchase price of the asset for
inflation.
1) Cost of Acquisition- For short term Capital Gain
Indexed Cost of Acquisition – For long term Capital Gain

1) Cost of Improvement- For short term Capital Gain

Indexed Cost of Improvement – For long term Capital Gain
The head Income from Other Sources as the very name suggests
is a residuary head. Any income that does not fall under the four
heads is taxed under income from other sources.

Conditions:-
1) It must be an Income
2) It must not be an Exempt Income
3) It must not fall under any of the other four heads of Income
 Interest on bank deposits, deposits with the companies, National savings certificates,
Personal loans.
 Directors Fees
 Dividend received from Company and Co.Op Socities
 Income from Royalty
 Family Pension
 Rent of subletting of house property
 Dividends
 Winning from lotteries, Crossword puzzles, horse races, gambling and betting
1) Reasonable collection charges- Sec. 57 (i)
(
Any reasonable amount paid by way of commission or remuneration to a banker
for the purpose of realising such dividends or interest.

1) Interest on borrowings- Sec. 57 (ii)

Any Interest on loan taken for the purpose of purchasing shares or securities.
Broad Question
1) Write down in detail the provisions relating to Income From Salary.
Synopsis:-
1) Introduction
2) Meaning of Salary
3) Basis of Charge Sec. 15
4) Definition of Salary/ Factors considered as Salary Sec. 17
5) Retirement Benefits
6) Deductions u/s 16
7) Conclusion
2) What is a basis of Charge and scope of total income under Income Tax Act, 1961?
Synopsis:-
1) Introduction
2) Meaning of Total Income
3) Concept of Heads of Income
4) Computation Income under various heads
 Income from Salary
 Income from House Property
 Profit and Gains from Business or Profession
 Income from Capital Gains
 Income from Other Sources
Conclusion